Porter's Five Forces Analysis of Volkswagen
Volkswagen is among the largest automobile manufacturers in the world. The Volkswagen Group is headquartered in Wolfsburg, Germany. It is made up of ten brands including Volkswagen, Volkswagen Commercial Vehicles, ŠKODA, SEAT, CUPRA, Audi, Lamborghini, Bentley, Porsche and Ducati. In 2023, the company delivered 9.2 million vehicles worldwide. It has established 114 production facilities including in 19 European countries and 10 countries in the Americas, Asia and Africa. Its largest rival is the Toyota group which is the first largest car manufacturer based on annual unit sales.
Volkswagen Group is the second largest vehicle brand in the world based on net sales. The company employs around 684,000 people worldwide and generated 322.3 billion Euros in net revenue in 2023. The group has formed ambitious plans with regards to electrification of its product lineup and plans to significantly grow the number of its EV models by 2030.
In this Porter’s five forces analysis of Volkswagen Group, we will take a look at how the five critical forces affect the competitive position of the company.
Bargaining power of suppliers: Low
The bargaining power of suppliers in the automobile industry depends on several factors including the size and financial strength of the supplier firm, concentration of suppliers, etc. Volkswagen suppliers are mostly smaller firms that are geographically dispersed and lack the ability of forward integration. These firms generally depend on Volkswagen for business and therefore do not hold any significant bargaining power.
On the other hand, Volkswagen is among the largest players in the automobile sector and financially a very strong brand. It also maintains strong relationships with its suppliers and has an excellent supply chain management strategy in place. Its suppliers, while much smaller in size, do not pose any competitive threat. Overall, the bargaining power of Volkswagen suppliers is low.
Bargaining Power of Buyers: Moderate
The bargaining power of buyers in the case of Volkswagen is moderate. There are both types of factors at play including those that enable the customers to have more bargaining power and those that limit the bargaining power of customers. For example, factors like competition and the intense battle for market share among automobile manufacturers as well as the availability of substitutes drive the bargaining power of customers higher. Customers are well informed and make decisions after carefully considering and comparing several models.
However, the factors that limit the bargaining power of customers include the strong brand image of the company, its large product lineup, focus on innovation, marketing and customer experience. As a leading automobile manufacturer, Volkswagen has one of the largest product portfolios in the automobile sector. It offers the customers more options and caters to different needs and preferences of various customer segments. Apart from the affordably priced Volkswagen cars, the company also has several premium and luxury brands in its product portfolio. Moreover, its focus on innovation and customer experience also moderate the bargaining power of buyers. Overall, the bargaining power of Volkswagen buyers is moderate.
Threat of Substitutes: Moderate
The threat of substitute products for Volkswagen arises from the other automobile manufacturers making and selling similar products. There are a large number of players in the automobile sector including Toyota, Nissan, Honda, Hyundai, BMW and so on that offer similar products. Apart from these, the public transportation modes also act as substitutes for products made by Volkswagen. The high availability of substitutes in the market is a threat to Volkswagen’s market share.
However, there are also several factors that have moderated the threat from substitute products for Volkswagen. For example, the company has a very large product portfolio spanning ten brands and including premium and luxury car brands. It reduces the threat from substitute products to some extent since the company can serve a vast customer base and cater to the needs and preferences of different customer segments. Volkswagen is the second largest player in the automobile sector based on annual unit sales. It has a strong competitive advantage and has maintained an excellent brand image. Due to these factors, the company enjoys strong demand and popularity as well as customer loyalty. Overall, these factors moderate the threat from substitute products.
Threat of New Entrants: Low
The barriers to entry in the automobile industry are very high and entry has been made complex primarily due to the very high level of competition in this sector. Capital, skilled labor, technical knowhow and several more factors including regulatory barriers prevent the entry of new players into this sector. Companies aspiring to grow into significant players in the automobile sector will need to spend a lot on creating the manufacturing and supply chain infrastructure. They will also need to hire a highly skilled workforce which represents another complex and costly area.
Some other factors that prevent new players from entering the market include the need for strong brand recognition, lack of competitive advantage and innovation. Companies need to build a strong and sustainable competitive advantage before they can grow into large and significant players in the global automobile sector. While some companies may become successful at the local level, growing into a global or major international brand takes both time and investment as well as a strong focus on innovation.
Volkswagen is among the largest players in the automobile sector and has maintained a strong brand image which drives higher demand and popularity. New players cannot easily match its resources and capabilities and therefore there is negligible threat arising from new players entering the industry sector and snatching market share from Volkswagen.
Intensity of Competitive Rivalry: Low
The battle for market share and the intensity of competitive rivalry in the automobile sector is very high. It is one of the most competitive industry sectors where there are several players battling for market share and to expand their customer base. Some of the leading competitors of Volkswagen include Ford, Toyota, General Motors, Honda, Nissan, Hyundai, Mercedes Benz and BMW. There are more players in the market like Tesla and BYD in the EV sector that pose a competitive threat.
Volkswagen is now strongly focusing on electric vehicles due to their growing demand and to beat the competitive pressure from the EV makers like Tesla or BYD. The overall competitive pressure on Volkswagen is very high since its rivals are aggressive about protecting their market share and invest heavily in innovation as well as marketing.
The main factors that have helped the company overcome the competitive pressure and maintain a leadership position in this sector include innovation, marketing, supply chain management, and strong brand recognition. Volkswagen is investing heavily in innovation. Its highly diverse product portfolio is also a key source of competitive advantage and helps reduce the competitive pressure. Despite all these factors, due to the large number of players in the global automobile market, the level of competitive threat before Volkswagen remains always high.
Conclusion
The automobile sector is full of opportunities and challenges. Volkswagen is among the leading players in this sector with a strong global presence. Apart from a strong manufacturing network, its supply chain management and focus on innovation have helped it perform well. The company has maintained a strong competitive edge which is essential to maintain its market leadership. Volkswagen’s strong focus on supply chain management has helped it moderate the bargaining power of suppliers. Its strong brand recognition and diverse product lineup enable it to moderate the bargaining power of customers. The real threat comes mainly from rivals and substitute products. However, Volkswagen is committed to quality, safety and innovation. Its sheer size and financial strength help it manage the threat from new entrants easily. Overall, Volkswagen’s strong position in the automobile sector is based on its strong competitive edge. The group is enjoying strong demand in several leading automobile markets globally.