Strategic Management

“Skoda Auto”

Case Study

Prepared By

Muhammad Owais Jabbar

Shoaib Mujeeb

Shabbir Ali

Mashal

Sara Abbasi

Ahsan Ayub

Sheraz Riaz

Syed Muhammad Mubasshir

Date

20/01/11

BAHRIA UNIVERSITY KARACHI

Table of Contents

PageTopics

4Vision and Mission

5Porter’s Five Forces Framework

6PESTEL Framework

7External Audit

8CPM-Competitive Profile Matrix

9External Factor Evaluation (EFE) Matrix

10Financial Ratio Analysis

10Internal Audit

11Internal Factor Evaluation (IFE) Matrix

12SWOT Matrix

14SPACE Matrix

15Grand Strategy Matrix

16The Boston Consulting Group (BCG) Matrix

16The Internal-External (IE) Matrix

17The Quantitative Strategic Planning Matrix (QSPM)

19Recommendations

2

Vision

To have the biggest market share in Europe by looking for extraordinary solutions those satisfy extraordinarily demanding customers

Mission

Is to provide quality sales, service and transportation needs for our customers.This is and will be accomplished through a dedicated team of employees whose number one goal is customer satisfaction along with a management team whose responsibility is to ensure employee satisfaction, and customer enthusiasm.

Three basic values of Skoda brand are:

Intelligence: We continuously seek innovative technical solutions and new ways in which to care for and approach the customers that are most important for us. Our conduct toward the customers is aboveboard, and we respect their desires and needs.

Attractiveness: We develop automobiles that are aesthetically and technically of high standard and always continuous an attractive offer for our customers not only in terms of design or technical parameters but also the wide range of offered services.

Dedication: We are following the steps of founders our company Messrs. Laurin and Klement. We are enthusiastically working on the further development of our vehicles; we identify ourselves with our products.

Porter’s Five Forces Framework:

The Threat of Entrants:

Eastern Europe countries that were in former Soviet Union attract many competitors who find in these countries new market, new customers, and cheap labors to reduce costs so the threat of entrants is very high.

Bargaining Power of Buyers:

The power of buyers is high because consumers – especially after globalization have many choices from which to select when they purchase a car

3

Bargaining power of suppliers:

Many automobile companies move toward Just-In-Time inventory system and that pushes many suppliers to make their plants near these automobile companies, and some of these automobile companies made their own parts, so the power of supplier is very weak.

Threat of Substitutes

The threat of substitute will be public transportation in big, crowded, and heavy populated countries, this substitute may be faster and cheaper than driving a car there, because people need to find a parking for their cars and usually it will be with fees.

Competitive Rivalry:

The automobile market is one of the most competitive markets in the world, in addition, there are many companies try to reduce their costs by moving to low cost countries such as Eastern Europe and Asia countries, and try to find new market, so the competitive rivalry is high in the long run.

4

PESTEL Framework:

Political:

- Heavy taxes and tariffs in some countries make Skoda increase its automobiles’ price.

- Political sanctions, violence and terrorism make some limitation to expand globally in Asia market.

Economic:

- Fuel Prices fluctuations affect the costs and that reflect on the price of automobiles, so that may change the customer behavior toward some features of automobiles.

- Skoda could get benefits from economic unions such as Central European Free-Trade Area (CEFTA) which includes: Poland, Hungary, Slovakia, Czech, Slovenia, Romania, and expand heavily there.

Social:

- Negative customers' perception toward Skoda brand because of bad images about automobiles industry in Eastern Europe countries.

- Increase in population in some countries make their governments to redesign their traffic and make public transportation more useful will affect automobiles sales in these countries.

Technological

- Should exploit evolution in technology to introduce new features and options to reposition Skoda brand and to get competitive advantage.

Environmental:

- Because of pollution problem and its effect on Ozone, Skoda should develop and concentrate on manufacturing green environmental cars.

Legal:

- Green marketing laws and laws on environmental issues such as industrial pollution.

- Currency exchange- Legal registration

5

External Audit

Opportunities Threats

1. Growing automobile

industry in Middle East by

9%, Southeast Asia by

14%, and Africa by 8%.

2. By 2010, electronics are

expected to account for

nearly 40 percent of an

average vehicle’s value.

3. The forecast for the market for new passenger cars in Russia is +11%.

4. U.S. small-car demand outpacing North American capacity

1. Highly crowded and

competitive environment.

2. Franchised dealerships are

free to set vehicle prices,

and they may or may not

offer customers the

discounts that automakers

provide.

3. Continuous increasing in

oil prices may affect

automobiles sales around

the world.

6

CPM-Competitive Profile Matrix

 Skoda Peugeot Renault Opel

Critical Success Factors

Weight Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

Price 0.12 4 .48 2 .24 3 .36 2 .24

Financial Position

0.15 3 .45 4 .60 3 .45 4 .60

Advertising 0.09 2 .18 3 .27 2 .18 4 .36

Innovation 0.22 2 .44 3 .66 2 .44 4 .88

Market Share 0. 22 2 .44 4 .88 2 .44 4 .88

Management 0.10 3 .30 3 .30 3 .30 3 .30

Global Expansion

0.10 3 .30 4 .40 3 .30 4 .40

Total 1.00 2.59 3.35 2.47 3.66

External Factor Evaluation (EFE) Matrix7

Key External Factors Weight Rating Weighted Score

Opportunities

1. Growing automobile industry in Middle East by 9%, Southeast Asia by 14%, and Africa by 8%.

0.15 3 0..45

2. By 2010, electronics are expected to account for nearly 40 percent of an average vehicle’s value

0.15 2 0.30

3. The forecast for the market for new passenger cars in Russia is +11%

0.20 3 0.60

4. U.S. small-car demand outpacing North American capacity

0.15 2 0.30

Threats

1. Highly crowded and competitive environment

0.15 3 0.45

2. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide.

0.10 2 0.20

3. Continuous increasing in oil prices may affect automobiles sales around the world.

0.10 2 0.20

Total 1.00 2.50

8

Financial Ratio Analysis 12/2006

Growth Rates % Skoda IndustrySales (Qtr vs year ago qtr) 1.12 9.40Net Income (YTD vs YTD) 1.48 11.80Liquidity RatiosCurrent Ratio 1.48 2.10Quick Ratio 1.13 0.90Efficiency RatioAssets to sales 0.52 11.0Profitability RatiosReturns to sales 0.055 3.2Returns to Assets 0.11 6.4Debt RatioTotal liabilities to 1.80 277.2

Internal Audit

Strength Weakness

1. Skoda won numerous awards for producing a quality automobile.

2. Skoda implements low-cost country sourcing strategy.

3. Skoda is the largest employer in the Czech Republic.

4. Total assets are gradually increasing.

5. Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1

1. Poor brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design.

2. Total Skoda market share is 1.7%.

3. Skoda has problems with their assembly plants outside of the Czech Republic.

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted Score9

Strengths1. Skoda won numerous awards for

producing a quality automobile.

0.15 3 0.45

2. Skoda implements low-cost country sourcing strategy.

0.15 3 0.45

3. Skoda is the largest employer in

the Czech Republic.

0.08 3 0.24

4. Total assets are gradually increasing.

0.10 3 0.30

5. Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1

0.18 4 0.72

Weaknesses1. Weak brand name due to Skoda

relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design.

0.18 1 0.18

2. Total Skoda market share is 1.7%.

0.08 2 0.16

3. Skoda has problems with their assembly plants outside of the Czech Republic

0.08 1 0.08

Total 1.00 2.58

SWOT Matrix10

Strengths Weaknesses

1. Skoda won numerous awards for producing a quality automobile.

2. Skoda implements low-cost country sourcing strategy.

3. Skoda is the largest employer in the Czech Republic.

4. Total assets are gradually increasing.

5. Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1.

1. Poor brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design.

2. Total Skoda market share is 1.7%.

3. Skoda has problems with their assembly plants outside of the Czech Republic.

Opportunities S-O Strategies W-O Strategies

1. Growing automobile

industry in Middle East by

9%, Southeast Asia by 14%,

and Africa by 8%.

2. By 2010, electronics are

expected to account for

nearly 40 percent of an

average vehicle’s value.

3. The forecast for the market

for new passenger cars in

Russia is +11%.

4. U.S. small-car demand

outpacing North American

capacity

1. Using price as a competitive advantage to concentrate on Russia Market (S2,O3)

2. Open assembly plant in Mexico to feeding North America market (S1,S2,S5,O1,O4)

1. Increase market share by entering new growth market in Middle east, Southeast Asia, and Africa(W2,O1)

2. Improving automobiles quality by introducing innovative, electronic features, and design (W1,O2)

Threats S-T Strategies W-T Strategies

11

1. Highly crowded and

competitive

environment.

2. Franchised dealerships

are free to set vehicle

prices, and they may or

may not offer

customers the discounts

that automakers

provide.

3. Continuous increasing

in oil prices may affect

automobiles sales

around the world.

1. Increase marketing efforts to make new repositioning(S4, S5, T1, T3)

2. Focus on producing middle and small engine cars(S1,S2,T3)

1. Offer 5 years/200000 Kilometer warranty on all vehicles (W1, T1)

SPACE Matrix

12

Financial Strength Rating Environmental Stability Rating

Return on assets 2 Rate of inflation -3

Leverage 1 Technological changes -4

Net Income 2 Price Elasticity of demand -6

ROE 2 Competitive pressure -6

Barriers to entry new markets -6

Average 1.75 Average -5

Y-axis -3.25

Competitive Advantage Rating Industry Strength Rating

Market share -1 Growth potential 2

Product Quality -2 Financial stability 2

Customer Loyalty -1 Ease of entry new markets 3

Control over other parties -1 Resources utilization 2

Technological know-how -1 Profit potential 3

Average 1.20 Average 2.40

X-axis 1.20

Directional vector point is :( 1.20, -3.25)

13

Grand Strategy Matrix

14

Conservative Aggressive

CompetitiveDefensive

FS

ISCA

ES

Quadrant II Quadrant I

Quadrant IVQuadrant III

Rapid Market Growth

Strong Competitive

Position

Weak

Competitive

Position

Slow Market Growth

The Boston Consulting Group (BCG) Matrix

The Internal-External (IE) Matrix

Strong 3.0 to 3.99 Medium 2.0 to 2.99 Low 1.0 to 1.99

High

3.0 to 3.99

Medium

2.0 to

2.99

Low

1.0 to 1.99

15

IV V VI

VII VIII IX

SkodaThe EFE

Total Weighted

Score

The IFE Total Weighted Score

I II III

Question Marks

DogsCash Caw

Skod

Industry Sales

Growth Rate

Market share position

Stars

The Quantitative Strategic Planning Matrix (QSPM)

Strategy 1

Open new assembling plant for Skoda cars in Mexico and make it as a base to enter American Market

Strategy 2

Reposition of brand name strategy by increasing marketing efforts

Key Internal Factors Weight AS TAS AS TAS

Strengths Skoda won numerous awards for producing a quality automobile

0.15 2 0.20 2 0.20

Skoda implements low-cost country sourcing strategy

0.15 - - - -

Skoda is the largest employer in the Czech Republic

0.08 - - - -

Total assets are gradually increasing 0.10 4 0.40 2 0.20

Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1

0.18 1 0.18 2 0.36

Weaknesses

Weak brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design

0.18 2 0.36 4 0.72

Total Skoda market share is 1.7% 0.08 4 0.32 2 0.16

Skoda has problems with their assembly plants outside of the Czech Republic

0.08 - - - -

SUBTOTAL 1.00 1.46 1.64

16

Strategy 1

Open new assembling plant for Skoda cars in Mexico and make it as a base to enter American Market

Strategy 2

Reposition of brand name strategy by increasing marketing efforts

Key Internal Factors Weight AS TAS AS TAS

Opportunities 

Growing automobile industry in Middle East by 9%, Southeast Asia by 14%, and Africa by 8%.

0.15 1 0.15 3 0.60

By 2010, electronics are expected to account for nearly 40 percent of an average vehicle’s value

0.15 - - - -

The forecast for the market for new passenger cars in Russia is +11%

0.20 - - - -

U.S. small-car demand outpacing North American capacity

0.15 4 0.60 2 0.30

Threats

Highly crowded and competitive environment

0.15 4 0.60 3 0.45

Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide

0.10 - - - -

Continuous increasing in oil prices may affect automobiles sales around the world

0.10 - - - -

SUBTOTAL 1.00 1.35 1.35

SUM TOTAL ATTRACTIVENESS SCORE 2.91 2.99

17

Recommendation

Open new assembling plant in Mexico and make it as a base to enter American market and reposition of brand name strategy by increasing marketing efforts

18