assessment of audi ag
TRANSCRIPT
Assessment of Audi in China and
Germany Global business management
Prof. Grenville Lannon
Sophia sedighi
Inderjeet Banger
Tayo Akingbolagun 1/5/2015
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Table of Contents Abstract ................................................................................................................................................. 3
Introduction ........................................................................................................................................ 3
Assessment of Audi in China and Germany ................................................................................ 3
Economy factors .................................................................................................................................... 3
China ...................................................................................................................................................... 3
Germany ................................................................................................................................................. 7
Global Strategy Development ............................................................................................................. 8
Strategy ................................................................................................................................................. 8
Vision statement of Audi cars ................................................................................................................. 9
China’s strategy ...................................................................................................................................... 9
Audi’s Porter’s five forces in China .................................................................................................. 9
Power of suppliers: between low and medium ....................................................................................... 9
Power of customers: medium-high ....................................................................................................... 10
Threat of substitutes: medium-high ...................................................................................................... 10
Threat of new entrants: between low and medium ............................................................................... 10
Competitive revalry: high ..................................................................................................................... 10
PESTLE Analysis of Audi in China .................................................................................................. 10
Boston Consulting Group(BCG) Matrix........................................................................................... 11
Stakeholders ........................................................................................................................................ 11
China’s shareholder’s situation ......................................................................................................... 14
Stock price for Audi AG .................................................................................................................... 14
Cross cultural management and leadership ..................................................................................... 15
International trade .............................................................................................................................. 18
Foreign direct investment ..................................................................................................................... 18
International marketing……………………………………………………………………………..21
Market inteligance……………………………………………………………………………………..21
Product .................................................................................................................................................. 21
Place ...................................................................................................................................................... 23
Promotion .............................................................................................................................................. 24
Price ...................................................................................................................................................... 25
Global Business Operations ............................................................................................................... 25
Value Chain .......................................................................................................................................... 25
Supply Chain ......................................................................................................................................... 27
Effect on technology ........................................................................................................................... 28
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Abstract
China has been identified as one of the most promising countries under the developing countries. It has
emerged as one that is reputable for expansion. This report discusses the home Audi in Germany and
its expansion into China. It analyses the business operations in both countries and how they differ. Eight
major topics were discussed in the context of Audi’s operation in Germany and in China. The meaning
of International business, Audi’s strategies for being successful in China, the major stakeholders of
Audi in both Germany and in China, How culture affects their operations and the leadership challenges
they may be facing and the reason for the expansion into China based on the attraction of Foreign
Direct Investment. International marketing, international operations based on supply chain and value
chain was discussed and the effect of technology on Audi’s operations both in Germany and China.
Introduction
Audi AG is a German automobile manufacturer that designs luxury cars, and its history extends back
to the 19th century. The company name is a Latin translation of the founder “August Hooch”,” Horch”
meaning listen in German and becomes “audi” in Latin. The four rings of the Audi logo each represents
one of four car companies that banded together.
All started in 1885 and Wanderer was established and later changed in to Audi AG, another company
NSU merged in to Audi, on 1899 August Horch established the company in the Ehrenfeld district of
Cologne. And in 1902 he moved the company to Reichenbach im Vogtland, and in 1904 he start a joint-
stock with State of Saxony.
The first Audi automobile, Audi Type A was produced in 1910, August Horch left the Audiwerke in
1920 to join high position the ministry of transport. In 1921 Audi became the first German car
manufacturer that presented left handed drive, Audi Type K.
Audi grew strongly over the years and in 2000 till 2008 sales increases from 653,000 to 1,003,000, and
the largest sale came from Eastern Europe, Africa and the Middle East. China becomes the key market,
and the luxury cars purchased mostly by governments. Audi Ag was laid in 1988 in China and the first
agreement of joint venture was signed with the Chinese first Automobile works (FAW).
Economy factors
China
China succeed to merge the world economy after thirty years old and convert its economy from socialist
to market-oriented. China is approaching to become a future market leader. (Fung, 2013)
China’s economic growth experienced enormous transformation. China’s macro-economy managed a
stable redemption and that caused high GDP growth rate, retrogression in the employment situation and
reduced growth rate of external demands. Labour income is increasing in China, thus these could affect
prevent enterprises of the advantage in cheap labour, and however the rise could also intensify the
purchasing power of its consumers and boost domestic demand. Employment is so important in china,
apart from its large population, output fluctuation has a direct and unique effect on employment
fluctuations. China’s foreign trade maintained a high-speed growth in general. Its export flow and
import sources were stable with its export market especially concentrated. China’s economy showed a
healthy high income growth and low inflation between 2001 and 2007, after crisis in 2008 china
promoted strong growth in domestic investment demand and avoided possible economic depression.
(China, 2011)
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China is one of the seven efficiency-driven economies. China and Malaysia are the major efficiency-
driven economies that import higher education from innovation countries. The Chinese government
encourages foreign education in order to improve its own higher education quality. (Li Zhang, 2014)
China is now at the stage called “Drive to Maturity.” The theory is belong to Walt Whitman Rostow in
1960 which called the Rostow’s stage of growth. China entered the Take-off stage in 1952, China has
experienced three peaks of investments. The Take-off stage ended in 2007, but the Drive to Maturity
stage started in 2003. (Jeremy, 2012)
Based on Audi’s website in China, the path of evolution can be found in 1986, in this year Audi AG
made an initial contact with China and through a joint venture with a Chinese company First
Automobile Works Group Corp (FAW), in 1990, installed assembly lines for Audi cars with a daily
capacity of 50 units. In 1993 Audi joined the joint venture of FAW-VW. In 1995, FAW-VW began to
prepare for the production of first mode Audi, developed only for China, Audi 200-V6. (Audi, 2014)
Germany
German is the fifth largest economy in the world in PPP terms and Europe’s leader in export of
machinery, vehicles, chemicals and household equipment and benefits from a highly skilled labour
force. (Factbook, 2014)
According to the United Nations Conference on Trade and Development [UNCTAD], Germany ranks
among the world’s leading countries for foreign direct investment. Germany is the largest market in
Europe. It constitutes 21 percent of European Union (EU) population. The German economy is both
highly industrialized and diversified; with equal focus placed on services and production. Germany
experienced major increase in productivity the past decade, at the same time the labour cost between
Germany and neighbour countries minimized through recent years. Germany benefits from highly
skilled workforce, and uses dual education system. The “Made in Germany” brand has been a seal of
quality for over a century. (Thomas Bozoyan, Dr. Hans-Peter Hussen, Marc Lehnfeld, 2014)
Audi is one of Germany’s oldest automobile manufacturers, it symbolizes the amalgamation in 1932 of
four previously independent manufacturers; Audi, DKW, Horch and Wanderer. (Audi, 2014)
Based on (Rostow, 1959) Germany’s date of technological maturity is 1910, which shows Germany is
one of the most successful countries to achieve that standard of technology when you compare to other
countries, only Great Britain reached it in 1850 and United States 1900 and France the same year as
Germany, the rest of the countries were achieved technological maturity after 1910.
Germany is one of the 4 countries that passed Drive to Maturity Stage during the end of 19th century
and the economy becomes a part of international economy. Here for the society social welfare is more
important than economic growth. (JPMorgan, 2012)
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Figure 1: GDP (current US$) of China and Germany (Group, 2014)
Figure 1 shows China’s GDP is more attractive through 2008 till 2013, and it is increasing with higher
speed, but Germany’s GDP didn’t have much development through these years, Germany is one of the
8 countries representing G8, In 2008, China with other selected countries joined the G8 and G8 replaced
with G20, and these countries represented approximately 80% of the accumulated GDP worldwide.
In 2001, China represented a bloc of countries called BRICS who could become the most dominant
global economies by 2050.
Figure 2: Population, total of China and Germany (Group, 2014)
0
1E+12
2E+12
3E+12
4E+12
5E+12
6E+12
7E+12
8E+12
9E+12
1E+13
2008 2009 2010 2011 2012 2013
GDP(current US$)
China Germany
0
200000000
400000000
600000000
800000000
1E+09
1.2E+09
1.4E+09
1.6E+09
2008 2009 2010 2011 2012 2013
Population, total
China Germany
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As it is obvious and expected the China’s population is about 6 times bigger than Germany. On figure
provided below we analysed population age between15 – 64, the age that expected to own a car and
drive.
Figure 3: Population ages 15-64 (% of total) for China and Germany
Population ages 15-64 for china is about 3 times bigger than Germany, it has been quite stable
between2008 – 2013, and this makes the prediction for market demands more realistic.
Figure 4: Unemployment, total (% of total labour force) of China and Germany
6E+09
6.2E+09
6.4E+09
6.6E+09
6.8E+09
7E+09
7.2E+09
7.4E+09
7.6E+09
2008 2009 2010 2011 2012 2013
population ages 15-64
China Germany
0
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012 2013
Unemployment
China Germany
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Interestingly unemployment in Germany is reducing and in China is rising, they are getting very close
to each other on 2013.
Based on CIA website Gini Coefficient for China in 2013 is 47.3 and in 2012 is 47.4 and the Gini
Coefficient for Germany is given for 2006, 27 and for 1994 is 30, based on The World Bank data Gini
Coefficient for China in 2010 is 42.1 and for Germany is 30.6. Based on these information it’s obvious
that China’s Gini Coefficient is higher in total than Germany, and this rise the possibility of more people
could effort to buy luxury cars in China and China is a good market for this segment. (Bank, 2014)
(CIA, 2014)
Global Strategy Development
Looking in to general economic growth, global demand for Audi cars in 2011 had a continues growth
comparing to previous year, with the exception of Western Europe, all Audi regions had a share in this
growth. This growth mostly applied by Chinese, Russian and US market.
The failure in Western Europe (excluding Germany) was due to weak first quarter in important volume
market, and most of these countries experienced dwindling consumer confidence, the tare of
unemployment was rising and access to vehicle finance was getting more difficult, all these factors
affected the market’s performance. Overall market demand in France and the UK was down and the
Italian market shrank by 11.6 percent. Sales of passenger cars in Spain dropped 17.7 percent from low
prior-year figure. (AG, 2011)
Based on Sicco Van Gelder, The European brands including Audi, are often well known for their
product design and their marketing creativity. (Gelder, 2005)
One of globalization action that Audi took was launching a strategic partnership with Global Bio-
energies, Audi will work with French bio-technology Company to develop non-fossil fuels. Audi is also
working on e-gas and e-diesel projects. Reiner Mangold the Head of Sustainable Product Development
applies “We’re taking another step closer to carbon-neutral mobility with our partners at Global Bio
energies.”
E-gasoline is part of Audi e-fuel strategy, Audi is already operating projects on e-ethanol and e-diesel
with its partner Joule in Hobbs, New Mexico. The e-gas plant project in Werlte is producing gas which
is used to store electric surplus energy.
Audi also makes low fuel consumption engines; 146 engine and transmission versions with CO2
emissions of less than 140 grams per kilometre; 62 engine and transmission versions are even under
120 grams per kilometre; and 11 engine and transmission versions emit only 100 grams per kilometre.
(Evry, 2014)
AUDI AG become a member of the United Nations Global Compact in 2012 and has signed up to its
ten principles in the areas of environmental protection, human rights, labour rights and anti-corruption.
Audi become the first premium brand to introduce the European Union’s certified environmental
management system EMAS over 15 years ago. (AG, 2012)
In 2013, Audi opens Research & Development Centre for Asia in Beijing, China and strengthens its
innovation capability and its operations with FAW-Volkswagen in China.
“The new Audi R&D Centre, Asia is an important milestone in the internationalization of our innovation
capacities,” stated Rupert Stadler, Chairman of the Board of management of Audi.
Asia, Europe and the US are the most important pillars of Audi’s global strategy, and leads the premium
segment in China including Hong Kong and set a magnificent record in 2012.
Audi engineers in Beijing developed a touchpad for the navigation system in 2008, which allows
handwritten input of Asian characters, and a special Audi call-centre for China has been created.
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Beijing is also the head quarter of Volkswagen Group China, and customers on this region have a big
influence on operations, China’s capital also benefits from great universities and talents. (Ingolstadt,
2013)
Audi vehicles deliveries by region 2013 Share in percent
Germany 250025 15.9
Europe excluding Germany 422709 26.8
China(incl. Hong Kong) 491989 31.2
USA 158061 10.0
Other 252696 16.0
Total 1,575,480 100.0
Table 1: Audi vehicle deliveires by region on 2013
In Changchun (China), the joint-venture company FAW-Volkswagen Automotive Company, Ltd.
produces long-wheelbase versions such as the A4 L and A6 L Sedan, the Q3 and the Q5 to supply the
local market. 2014 will see the opening of the new plant in the southern Chinese city of Foshan, where
the A3 Sport back and A3 Sedan will be built
The Group headquarters in Ingolstadt are home to Technical Development, Sales and Administration
as well as a large proportion of Production. The Audi A3 and A3 Sport back, the models of the A4
family, the RS 4 Avant, the Coupé and Sport back versions of the A5, the RS 5 Coupé and the Q5 are
built there. Audi also makes the bodies for the current TT car line in Ingolstadt. The Audi Group again
performed very successfully in 2013 despite only moderate global economic growth. With a total of
1,575,480 (1,455,123) Audi vehicles sold worldwide, the company thus achieved its strategic milestone
target of 1.5 million units. The substantial rise in deliveries of 8.3 percent is attributable not simply to
higher overall demand for cars, but above all to the attractive Audi model portfolio and its steady
expansion. Deliveries of motorcycles of the Ducati brand likewise increased in 2013 compared with the
period January through December 2012. Hand in hand with the positive development in deliveries,
revenue for the Audi Group increased to EUR 49,880 (48,771) million.
In view of the cost-intensive input needed for new products and technologies, the expansion of our
international production structures and the still-challenging environment in many markets, operating
profit for the Audi Group of EUR 5,030 (5,365) million did not quite match the previous year’s high
level. The operating return on sales reached 10.1 percent and was therefore slightly above our strategic
target corridor of 8 to 10 percent. Its performance in 2013 keeps the Audi Group among the most
profitable vehicle manufacturers in the world. (glance, 2014)
Strategy
Vision statement of Audi cars
Audi’s vision is to become a “premium brand”, Audi unveiled its strategy first on 2010 to be the
premium brand in 2020. Their mission is to delight customers worldwide, their mission is included:
define innovation, create experiences, live responsibility and shape Audi. Audi’s goal is to achieve
superior financial strength, continuous growth, sustainability of products and processes, top image
position and customer mix, become leaders in innovations and attract employer worldwide. (AG, 2014)
Dominique Boesch, general manager of the Audi Sales Division is confident that they will remain
leading position in China’s premium market. According to J.D. Power China Sales Satisfaction Index
Audi had the highest level of customer satisfaction. (DAILY, 2014)
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China’s strategy
Audi introduced several of its popular models in China and also made changes to its vehicles to meet
the needs of Chinese customers. By 2011, China had become Audi’s largest market.
Over the years, the use of Audi’s cars by politicians and wealthy people gave this image of a vehicle
for rich and older people, so Audi had to boost the market by changing its image by appealing to younger
demographic. Audi took several steps in this direction to continue its success in China. Audi China was
established in 2009 in Beijing, Audi functioned as a subsidiary of FAW-VW, Audi produced mix of
three models (the A4, the A6, and the Q5) and 22 imported models. According to McKinsey’s report
on China’s premium car market, China was the second largest luxury car market next to the US,
McKinsey’s survey also reported that 80% of China premium luxury car segment was dominated by
German manufactures, Audi was the top player with 29.6 percent of the market share follow by BMW
(23.6 %) and Mercedes Benz (20.6%). Audi planned to increase annual production in China to 700,000
units by 2015. (Anon., 2013)
Rupert Stadler chief executive of Audi’s strategy in Germany expresses that they decided to launch the
Q5 ahead of the Olympic Games to show a clear commitment to the Chinese market. (Gillies, 2008)
Sportiness, progressiveness, and sophistication is identified as Audi’s strong strategy, Audi was the top-
seller in 2013 in Europe and China. (Interbrand, 2014)
Audi’s Porter’s five forces in China
Power of suppliers: between low and medium
In general, considering of the suppliers are many and usually of small-medium size, though car
companies are much bigger and globalized they don’t have much power of the car companies, many
suppliers are dependent on a single car company whereas one car company has several suppliers. But
for luxury segment, car suppliers are less weak, as the car companies relying on good qualities like real
leather, real wood interiors. (Leruste, 2013)
Considering China’s anti-trust laws, automakers have a power over suppliers and enable them to control
prices. (Reuters, 2014)
Audi Chief Executive Rupert Stadler inferred Audi is going to put more pressure on the car suppliers
to reduce their prices to gain more profit, he implies ‘’ if the market gets more competitive, then the
market on the suppliers gets more competitive.” (Murphy, 2013)
Power of customers: medium-high
Customers have significant power, mostly there is a large variety of luxury cars and the presence of
substitutes. The customers can freely choose based on the equality, size, price, appearance and
performance. And internet has improved customer’s knowledge about different cars and manufactures
and provided a good source of comparison. This forces the car manufacturers to always improve the
qualities to meet customer’s needs. (Leruste, 2013)
But one favourable factor for car companies is that when a customer buys a car, an emotional
relationship creates and what’s called loyalty, the cost of exchange and selling it, is higher in the used
car market.
One research shows that Audi is essentially the default choice of Chinese upgraders, more than one-
third of foreign volume-brand owners said they want to upgrade to an Audi. Audi, BMW, and Mercedes-
Benz are the most successful Chinese upgrades. Premium brands enjoy higher customer loyalty in
China. (GROUP, 2014)
Threat of substitutes: medium-high
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Luxury cars meet two needs for customers: provides transportation and the other thing is the privilege
of its owner. There are different type of public transportation systems, such as bike, motors, train, bus
and planes. For luxury cars such as Audi the most obvious substitutes are more other luxury cars such
as Ferrari, Lamborghini, Rolls Royce and Bentley. And for less expensive cars from non-luxury brands
there are Toyota, Ford and eta. Increasing fuel prices, push car owners and customers to use public
transportation. (Leruste, 2013)
In some cities such as New York threat of substitutes are higher as the subway, bus, riding a bike or
walking is more effective, and reduces the cost of parking, fuel and dealing with traffics.
The vehicle population reached 240 million in 2012, of which 120 million were passenger cars. Beijing
had to implement vehicle emission standards as the pollution was rising and reaching the European
guidelines. (News, 2013)
Threat of new entrants: between low and medium
Luxury cars are protected by great barriers to entry, luxury brands like Audi have a long history to gloat,
their reputation is important for customers. It is difficult for new luxury car industries to compete with
the prestige that Audi made in decades. It also needs an enormous investment, that’s why the new luxury
brands are invested by already existed car factories, such as Toyota’s Lexus and Nissan’s Infiniti.
Government regulations and safety rules is the other barrier, for a new brand to meet all these
regulations they need a big capital and technology readiness. And because the car industry is already a
very competitive industry for a new brand to come in and meet customer’s needs in different way that
they desire is very less. (Leruste, 2013)
Competitive revalry: high
The competition between Audi, Mercedes Benz and BMW is very high, the three car manufacturers
claim of using the best technology in their adverts and statements, offering lower prices and better fuel
efficiency, technological innovation is one field of their copmitition, all trying to show the best
performance and new features, all try to stay on top of the market. There is less compition between
Asian companies such as Lexus, Infiniti and Acura, Hyundai, Toyota and Nissan.(Leruste,2013)
PESTLE Analysis of Audi in China
Political factors: Approved new policy, introducing foreign capital and technology, joint venture-FAW
and AUDI
Economical Factors: 2007 bad economic, huge impact in Germany, Audi had a Strategy low price
campaign
Social Factors: Top qualities, Strong Brand Image, Competitive advantage
Technology Factors: High-performance and good qualities, innovation and technology
Environmental Factors: Protect environment eg.sustainability, pollution, Audi-Modular efficient
system consider the entire Co2 Factor (Pan, 2012)
SWOT Analysis for Audi in china:
Strength
The range of the cars are availsble both in petrol and diesel with a huge product varities, wide range to
choose from, Hatchback to Luxury cars, equipped with new feature such as parking sensors, LED
illuminated interiors, Air bags, traction control and other features, elegent interiors and exteriors,
efficient engine performance and latest technology like Quattro and FSI, well established brand, has a
big range of employees in China.
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Weakness
High maintenance and handling cost, Unfunded pension obligations, regular probes might damage
market.
Opportunity
Expanding automobile market, opportunity to influence brand recall and gain new customers,
introducing new products by entering low cost car category, increasing manufaturing capacity to fullfil
the increasing demand in the future market and through advertising.
Threats
Increasing fuel costs, compition from big compititiors such as BMW, Mercedes-Benz, limitation due to
new policies by governments, foreign currency risk. (MBASKool, 2008)
Boston Consulting Group(BCG) Matrix
What innovation companies like Audi do, is to have at least one Rising Star in their products like Audi
A8, the R&D behind these products are usaully expensive, which will funded by a cash-cow, for Audi
this is TT Cope and Roadster. As with any major companies, there are products that are not as successful
and they need to be managed like the e-tron A1, an electronic hatchback car. The e-tron A1 has low
market share and may needs to use TT’s sales revenue. And atlast Audi’s clothing range is their Dead
Dog, and funny enough when was the last time you saw someone wearing an Audi-branded T-shirt.
(Josh, 2010)
Stakeholders
Audi is a subsidiary of Volkswagen Group (VW). VW controls the Audi’s shareholders with stake of
approximately 99.6%. VW group consist of 12 brand including Audi, but each brand operates
independently. (AG, 2014)
Based on annual report of VW Group profit attributes to VW AG shareholders on 2012 was 21712 and
on 2013 was 9066, so the shares value had decrease of 58.2%.
Figure 5: Audi Shareholders structure 2013
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Above is the screenshot of shareholders on 2013, for VW, as you can see the highest shares belongs to
Porsche and Foreign Investors follows after and the least shares belong to Germany investors.
The shareholders structure of Volkswagen is shown for December of 2013, in the chart Volkswagen’s
capital amounted to 119,100,925,184 Euro at the end of the reporting period, which is a magnificent
amount and shows VW is appearing very strong in the market.
Figures below shows different aspect of Audi and VW shareholders, and as it is visible from these
figures you can see the equity attribute to VW is ascending from 2009.
Figure 2 is interesting, the profit attribute to VW ascending on 2010 and 2012 and its descending on
2011 and 2013.
Figure 6: Equity attribute to VW from 2009 to 2013
0
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40
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60
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2009 2010 2011 2012 2013
Equity attributable to Volkswagen AG shareholders and hybrid capital investors at Dec.
Equity attributable to Volkswagen AG shareholders and hybrid capital investors at Dec.
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Figure 7: profit attribute to VW from 2009 to 2013
On Table 1 percent of shareholders provided on 2012 and 2013 and you can see the percentage of
shareholders on 2013 increasing.
2013 % 2012 %
to shareholders(dividend) 1871 3.9 1639 2.8
Table 2: Appropriation of fund in million
Basic earnings per share are calculated by dividing profit attributable to Volkswagen AG shareholders
by the weighted average number of ordinary and preferred shares outstanding during the reporting
period.
In term of product, Audi A3 has launched the company in the fastest market in the world. (Johannes
Winterhagen, Tina Rumpelt, 2013)
So the major shareholder of Audi is Volkswagen AG, Wolsburg and controls around 99.5 percent of
the shares. About 0.45 percent are in free float. The outside shareholders of Audi AG receive
compensatory payment on their stockholding instead of a dividend.
Each share carries one vote at the Annual General Meeting and the members of the Supervisory Board
will elected as well as the auditor.
Audi shareholders have access to an Internet-based system where they can issue or cancel power of
attorney or they can make changes to instruction of www.audi.com/annualgeneralmeeting.
0
5000
10000
15000
20000
25000
2009 2010 2011 2012 2013
profit attributable to Volkswagen AG shareholders
profit attributable to Volkswagen AG shareholders
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Profit after tax decreasing on 2013 according to Table 2 and total comprehensive income of Audi
shareholders increase small amount on 2013 based on Table 3.
Profit after tax 2013 2012
Of which profit share of Audi AG shareholders 3961 4280
Table 3: profit after tax for 2012 and 2013
Total comprehensive income 2013 2012
Of which profit share of AUDI AG shareholders 4728 4284
Table 4: Total comprehensive income for 2012 and 2013
On figure below the interest of shareholders increasing.
Figure 8: Audi AG shareholders’ interests
“Basic earnings per share are calculated by dividing the share of profit due to AUDI AG shareholders
by the weighted average number of shares in circulation during the fiscal year,” (Audi, 2013)
China’s shareholder’s situation
China FAW-VW shareholders are including; FAW 60%, VOLKSWAGEN AG 20%, AUDI AG 10%,
Volkswagen China Investment Company Ltd 10%. (Volkswagen, 2014)
Stock price for Audi AG
This is a screenshot from Morningstar website, and shows the share prices up to date.
0
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12000
14000
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20000
Jan.1, 2012 Dec.31, 2012 Dec.31, 2013
AUDI AG shareholders interests
AUDI AG shareholders interests
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This screenshot shows the share prices for Audi AG on 19th of December 2014 is 624.00 Euro and it’s
rising gradually from 2009, on 20th of November 2009 the value of one share was 460.00, quite low,
and then it starts rising, on 31 of April 2010 comes to highest rate 577.10 and then it starts going down
again on 31 of June 2010 532.90 and after this date starts going up again and on 30th of December 2010
has it’s higher value so far 641.00 and from this date the stock share sees some fluctuation till 30th of
November 2012 shrinks down to 515.00 and then on 29th of November sees its highest value 657.44.
Cross cultural management and leadership
There are many reasons why a company’s mode of operation and business dealings will differ from one
another. Culture is one of these reasons. This diversity in culture causes an international business like
Audi to change their mode of operations to tailor them differently for the different countries.
Culture may be referred to as an integrated system of learned behaviour patterns which are the
characteristics of the members of any given society. It is referred to as the way of life. That is, how a
group of people think, what they believe in, how they do the things they believe in and how they say
the things they believe in. (peters & Kabacoff, 2010, pp 3)
Culture is why Audi would have an advertisement in Germany for an R8 2013 for example and the
language of communication would be German. For the same vehicle to be advertised in China, the
Chinese language would be used to communicate the advertisement.
The home of Audi is Germany. The analysis made here is the business operation of Audi as an
international company in china based on the cultural differences of both countries.
With 95 percent of its population speaking German as their first language, German is the official
language of Germany. The other (5) five percent speak other languages which includes Sorbian in the
East of Germany, North and West Frisian in Rhine Estuary and Danish primarily spoken along the
Danish border. The religion of the Germans is predominantly Christianity with about 62 percent of them
being recognised as Christians, either Catholics or Protestants. With 5 percent of them being identified
as Muslims, Islam is the second largest religion followed by Buddhism and Judaism. (Zimmermann K.
A., 2014)
Although many Chinese are fluent in English language, the official language in China is Mandarin
Chinese also known as Putonghua. This language is based on the speech in Beijing, its capital. With 59
percent of the population not having any religion at all, it can be said that the country is officially atheist.
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Twenty percent of the population practice traditional religions i.e. Taoism and Confucianism, 12 percent
of them are atheists, 6 percent are Buddhist, and 2 percent are Muslims while 1 percent are identified
as Christians.
(http://www.everyculture.com/Bo-Co/China.html).
http://geert-hofstede.com/germany.html
According to Hofstede, the above graph compares China and Germany in terms of culture and their way
of life.
Power distance: “Power distance is defined as the extent to which the less powerful members of
institutions and organisations within a country expect and accept that power is distributed
unequally.” (Hofstede, 2010)
In Germany, inequalities are not accepted. With a low score of 35, there is a sense of decentralisation.
The meeting style is direct as well as the manner of communication. A leader maybe challenged and
only gains acceptance when a high level of expertise is proven. (Hofstede, 2010). The German business
culture has a well-defined hierarchy with clear responsibilities between roles and department (passport
to trade 2.0, 2014)
In China on the other hand, it has a high score of 80. This means that there is a high level of inequality
in the society and it is accepted as the norm. There is a “boss and subordinate” acceptable style at work.
Power abuse by superiors is accepted and there is no defence against it. It is also believed that
individuals should not aspire for ranks that are higher than them or they may be sanctioned.
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Individualism: “The fundamental issue addressed by this dimension is the degree of interdependence
a society maintains among its members. (Hofstede 2010)
Germany has a high score of 67. This means that the country is an individualistic one. Germans focus
on “I” so whatever they stand to do, they like to achieve for themselves i.e. for their own benefit. They
tend to focus on smaller groups like a close knit family of the parents and children without sharing their
focus with extended relatives or external members of the family. They are loyal people but their loyalty
is highly based on their preferences for people. Their loyalty could also be based on their responsibility
such as honouring a contract between an employer and an employee. They are direct communicators.
I.e. they speak bluntly and would rather speak the truth even if it hurts a person to hear it.
China with a low score of 20 is a collectivistic country. They do not focus on “I” but rather, “we”. The
interest of other people are protected and they do not think about themselves alone. In this country,
personal relationships are of a higher priority than the tasks and the company. The commitment of the
employee to the organisation is low. There is a close knit between the “in-groups” and they can be
hostile to the “out-group”. Members of their families get preferential treatment.
Masculinity: “The fundamental issue here is what motivates people, wanting to be the best
(masculine) or liking what you do (feminine) (Hofstede, 2010)
There is a similarity between these 2 countries in terms of masculinity. Both Germany and china have
a high score of 66. They can both be said to be masculine societies. This means that both nations are
driven by success and achievements. A high value is placed on performance. A good number of Chinese
will sacrifice their leisure to work.
An interesting thing that occurs in Germany is that male employees tend to earn higher than female
employees. Some jobs are considered as being the work of a woman which typically pays less than
those deemed as “men’s work”. (Passport to Trade, 2014).
Due to the fact that they lay emphasis on work, they also like to show status. This is shown by their
purchase for cars, watches and technical devices.
Uncertainty Avoidance: “The extent to which the members of a culture feel threatened by
ambiguous or unknown situations and have created beliefs and institutions that try to avoid
these.”
With a high score of 65, Germany is an uncertainty avoidance country. They are not ambiguous in their
thinking, presentation and planning. There is a systematic way of doing things that must be followed.
Paying attention to detail is of importance to them.
China has a score of 30. They are comfortable in ambiguity. This also reflects in the Chinese language
which has a lot of ambiguous meaning that may be difficult for the western world to follow. They are
entrepreneurs and can adapt to situations and conditions easily. (Hofstede, 2010)
Indulgence: “This dimension is defined as the extent to which people try to control their desires and
impulses, based on the way they were raised”
Both Germany and China are restrained countries. Germany has a low score of 40 while china has an
even lower score of 24. Both countries are restrictive in indulging in their desires. Even if they desire
to have material things, they believe that getting it is somewhat wrong. They do not put a lot of emphasis
into leisure as they even sacrifice their leisure time to work. And they believe that this perception of
themselves is based on the societal norm in their various countries. (Hofstede, 2010)
Some of the challenges that the expansion of business into china for Audi would be the cross cultural
challenge in leadership. In Germany, the managers are generally expected not to only be leaders but
also have technical ability in their area of specialisation in order to show strong and clear leadership.
This makes their subordinate respect the superiors and this is essential for encouraging their willingness
to listen and implement instructions given. (World Business Culture, 2013)
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Instructions are clearly given and responsibilities are listed and delegated by the manager to the
members of the team with the technical ability to carry a specific task. Usually, after instructions are
given, the superior does not interfere or supervise. They allow the subordinate to go ahead and carry
them out without supervision. (World Business Culture, 2013).
In China, there is a parallel management style. China is a collectivity country. It is usually referred to
as “two carriages”. In China, most companies do not only provide the employee with the job and salaries
but also, they offer other benefits such as medical insurance, childcare, schooling, housing and
entertainment. They believe that this plays an important role in both the professional and private life of
the employees. Audi being a company from Germany who is not used to this culture had to adjust for
them to be accepted and to be regarded as a good place to be offered employment. The organisations in
china function as a large family. Here, the function of a manager is like that of a parent. The general
manager is assumed as a parent. In an actual sense, managers are respected as the head of the family by
the employees and in return, the manager must take care of the employees. (Modern Chinese Corporate
Culture,)
Even though it seems like a parent-children relationship, just like some parents do not completely trust
their children, managers do not completely trust the employees. This makes the managers more
comfortable with the collection of information rather than having their colleagues r subordinates collect
information. (Modern Chinese Corporate Culture,)
The criterion of a good manger in china is based on whether he or she can secure the basic materials
and welfare for the employees. Otherwise, the manager is said to be a failure regardless of how
profitable the company is. (Modern Chinese Corporate Culture,)
The employees are paid monthly and the salaries are usually not just the basic. It consists of four parts.
The basic salary, the seniority salary, bonus and subsidy. The subsidy is an allowance for house rental,
medical care, non-staple foodstuff, newspaper, transportation and clothing.
The management in china is influenced greatly by Confucian values. These values are passed down
from several generations to the new generations through family socialisation. Under this Confucian
value, the Chinese managers have a collective orientation. Achievements made by individuals are
claimed by the organisation and not by the individual. This is very different from the management style
of the Germans as they are known to be individualistic. Competition is encouraged but only friendly
competition is allowed. It is advisable to work in harmony with majority and keep the competition to a
degree that is accepted by the majority. (Modern Chinese Corporate Culture,)
A high importance is placed on informal relationship within the organisation. It is believed that for a
steady working environment, the manager has to create a non-work relationship with employees. This
is called “Guanxi” (Modern Chinese Corporate Culture,)
In the Chinese organisation, the workers are permitted to participate in decisions related to working
conditions however, they are not allowed to participate in company strategic policies. (Modern Chinese
Corporate Culture,)
The Chinese people like big cars. They believe that the bigger a car, the more luxurious it is. Audi A4
L, Audi A6 L, Audi Q3 and Audi Q5 are Audi models that are being produced for the Chinese market
at their headquarters in China. The Audi A3 Sportback has also been produced in China for the chinese
market in the early 2014while the Audi A3 Saloon was began production in China in the middle of
2014. (Audi, 2014)
International trade
Foreign direct investment
According to world bank, foreign direct investment are the net inflows of investment to acquire a
lasting management interest (10 percent or more of voting stock) in an enterprise operating in a n
economy other than that of the investor. It is an addition of equity, capital, and reinvestment of
19
earnings, other long term and short term capital as shown in the balance of payments. (World Bank,
2014)
According to the United Nations Conference on Trade and Development [UNCTAD], Germany
ranks amongst the world’s leading countries for foreign direct investment. Germany is the largest
market in Europe. It constitutes 21 percent of European Union (EU) population. The German
economy is both highly industrialized and diversified; with equal focus placed on services and
production. Germany experienced major increase in productivity the past decade, at the same time the
labour cost between Germany and neighbour countries minimized through recent years. Germany
benefits from highly skilled workforce, and uses dual education system. The “Made in Germany”
brand has been a seal of quality for over a century. (Thomas Bozoyan, Dr. Hans-Peter Hussen, Marc
Lehnfeld, 2014)
According to (World Bank, 2014), the foreign direct investment in Germany as at 2013 was recorded
as 51,266,993,711 Us dollars while the foreign direct investment in China in 2013 was recorded at
347,848,740,397 US dollars. This is over six times more than in Germany.
Audi china was established in 2009 and it is located in Beijing which is the capital of Chinese. (Audi
Media services, 2014)
According to (Santander, 2014), Germany has always been an attractive country for FDI. However,
there was a decline after the recession in 2008. It can be assumed that the recession at the time caused
Audi to think of expansion. Due to the increased FDI in china, it was a great location for expansion.
Germany is a great place to invest because it is located in a strategic location which is right at the
centre of Europe. It also has the largest population at the European Union. There is advanced
technology and expertise and it has good infrastructures amongst the most developed in the European
Union. Another strong attractiveness for FDI in Germany is that the country has a highly qualified
work force and the taxation rate is competitive. (Santander, 2014)
With these attractiveness, there are some weak points that affect the FDI rate in Germany. The public
finances are in deficit. There is a high rate of unemployment and it is affecting the growth rate of the
country. There are a lot of older people in the country which also affects the rate of growth of the
country. (Santander, 2014)
China has been identified as one of the most dynamic Foreign Direct Investment (FDI) host country in
the world. China used to be an isolated state and suddenly has now become one of the most FDI-
friendly countries. Since 1993, China has become the largest FDI while the United States of America
is the second largest. Audi in China was established in 2009. In 2004, the effect on FDI in China
benefited the country a seven percent gross fixed capital formation, 21 percent of China’s tax revenue.
There was also a 28 percent increase on industrial output by foreign investment enterprises. About 57
percent of China’s exports were created by Foreign invested enterprises. (Zhang K.H., 2006)
Audi saw this as an opportunity to expand in 2009. In China. The FDI in china is attractive to
encourage the foreign investors. There is a huge market in China. It has 1.3 billion- market which is
one if the reasons that it has become an attractive location for foreign investors. There is an added
benefit with the market size which shows in how much more enhanced the country has been in the last
twenty years achieving a rapid economic growth. (Zhang K.H., 2006)
Furthermore, in China, there is cheap labour. This means that the wage rate is generally lower than
both developed and developing countries. It is gathered that even though the labour is cheap, it does
not have a down side on the level of training of the workers. They are well trained and this improves
the productivity. (Zhang K.H., 2006)
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In the same vein, China has connections in the diaspora. There is a special link of overseas China with
their homeland. This makes them devote themselves to make contributions to China such as the
modernisation of the country. The reason the Chinese have been able to make use of this connection is
that they are able to relate with the overseas Chinese based on the similarities in their culture, religion,
language and family traditions. This connection has been profitable because it makes it easier for the
overseas Chinese to negotiate and operate joint ventures in china. (Zhang K.H., 2006)
The government has also made it easy to attract foreign investors. They are more liberal with
multinationals than the way they are with companies established by their own citizens. Many sectors
were also opened and available to foreign investors. Nothing was off limits. They were encouraged in
many sectors such as power generation, port development, transportation, oil exploration and services
including property development. (Zhang K.H., 2006)
The government also introduced incentive policies. Policies such as special tax concessions and
liberalised land leasing were made available to foreign investors. (Zhang K.H., 2006)
Other attractive incentives for FDI in china also includes the constant improvement of quality of
infrastructure in the country, cheap resources like land and raw materials, and the support received by
the central and local governments. (Zhang K.H., 2006)
Although there is little legal security in China and this causes property rights not to be well defined.
There is also a high level of corruption in China. Another disadvantage of China could be the fact that
there the Chinese currency cannot be converted. This means that the foreign investors can not earn in
hard currency. (Zhang K.H., 2006)
But these negatives outweigh the attractiveness of China for foreign direct investors but the
advantages must have informed Audi’s decision to expand overseas and choosing China as both a
location to expand into and to allow production in China as well.
Audi’s investment in China has been profitable. In 2011, they sold 313,000 vehicles in China which
was up 37% from 2010. This was the first time that it sold more vehicles in China than in Germany.
According to the German Association of the automotive industry (Matthias Wissmann) the sales
volume of all the German auto manufacturers in China including Audi achieved a double-digit growth
in 2011. (Kejiang G., 2012)
He said that he believed that even though, China’s rate of growth will slow down, there would still be
a strong momentum and there would always be a great potential in the Chinese market for the
automobile industry. (Kejiang G., 2012)
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World Bank, 2014
The graph below shows the FDI of Germany and China between 2010 and 2013. It can be observed
that the FDI of China very much higher than that of Germany. It can be seen that from 2011, the FDI
of Germany began to drop and dropped even more between 2012 and 2013. Although there was a
significant decrease of FDI in China as well between 2011 and 2012, there was a rapid growth
between 2012 and 2013. China’s FDI is more than 3 times over Germany’s FDI which would make it
a good location for expansion. This is also shows a potential in a company’s success.
International Marketing
Market Intelligence
A large amount of the data collected by Audi for research and marketing purposes is primary data, the
analysis of this data is carried out both in micro and macro form, targeting individual consumers as well
as consumers on a regional level, an example of this would be the launch of the ‘Audi login’. In June
2013 Audi developed its ‘social login’ on the German version of its main site www.audi-
motorsport.com for fans to receive information and an insight into various motor sport activities Audi
are involved in. Prior to this Audi had an ‘Audi Sport’ Facebook fan page however they were unable to
generate a large depth in understanding, ‘through social login Audi is able to gain insight into the
identity of each fan and use that information to increase the level of engagement’ (Loarridge 2013). The
Audi login was used as a strategic portal to gather primary market intelligence for Audi marketing
purposes. Within Germany 89.0% of the population are internet users therefore the Audi login would
be a high effective way to target a mass audience to gather useful research and information. In addition
to this 45.8% of the Chinese’s population are also internet users, therefore as an international business
there is a large amount of consumers for Audi to target to gather intelligence, especially if the Audi
login was to be launched in China.
Product
During the early 90’s Audi had encountered problems with its microprocessors which caused electronic
failures that threatened the company’s reputation, Audi have since worked hard to solve such problems.
Audi provides a large range of automobiles which are marketed on a global scale, in total Audi produces
0
5E+10
1E+11
1.5E+11
2E+11
2.5E+11
3E+11
3.5E+11
4E+11
4.5E+11
2010 2011 2012 2013
China
Germany
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14 different car models (A1, A3, A4, A5, A6, A7, A8, Q3, Q5, Q7, TT, R8, RS, e-tron) which are
available in a number of different body configurations, with the Audi A4 remaining as one of the most
popular cars.
With Audi being part of the Volkswagen group, one of the fundamental aspects of their products they
aim to promote in brand diversity, in 2013 the Volkswagen group rebranded aspects of each of their
motor vehicle companies, aiming to reinforce ‘the distinct and individual image of each brand and
optimized their market positioning’ (Volkswagen Group, 2013). The objective was to make Audi the
leading car manufacturer within its segment, heavily relying ‘on its high-quality, sporty and progressive
image’ (Volkswagen Group, 2013).
Figure 9: Top selling cars in Germany 2014
Figure 10 – Top Selling German cars in China
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Figure 1 and 2 illustrate Audi car sales in both Germany and China. Figure 1 shows the top selling car
makes in Germany, during the first three quarters of 2014 and figure 2 shows the top selling German
car models, during the first three quarters of 2014. The Audi range comes in the top 5 for both regions,
however although Audi as a brand is extremely successful in both Germany and China, the difference
in the demand of car model differs due to the difference in consumer needs. Within Germany the Audi
A3 is the most successful model out of the Audi product line, seeing a 12.7% increase in sales of the
model in the first nine months of 2014. In comparison, in China, the locally produced Q5, launched in
2009 is currently the most popular from the production line, accounting for 42% of the market share
from January to October on 2013.
Place
At present, Audi is represented in 110 countries worldwide, with all of its global production overseen
from its headquarters in Bavaria, Germany, with an additional nine worldwide production facilities who
manufacture their vehicles making Audi ‘the biggest luxury car manufacturing company globally’
(Bhasin 2014).
Although Audi is based in Germany, it has a large worldwide presence and continues to be high-volume
seller of cars. Audi has however invested in international markets such as China, establishing it as a key
marketplace making Audi ‘the leading premium brand in China with 415,704 (+16%) cars sold during
the first nine months of 2014’ (Bekker, 2014) and continuing to grow. Since its growth in the Chinese
market Audi has also had a strong presence within the country, with production plants in Changchun
and Foshan, which opened in the end of 2013, along with a research and development centre in Beijing.
Audi’s distribution channel also mainly takes a selective approach, with the cars being placed in Audi
or Volkswagen group dealerships; however this is wholly dependent on the consumer needs. Whilst I
could not find exact data figures for the number of dealerships open in China, within India, Audi has
28 dealerships open across 11 states, therefore this could suggest as a country based on the same
continent with a similarly large population, Audi may have implemented the same structural plan into
China. In addition to this the Volkswagen Group ‘have now established 17 companies, including
component, finance and sales companies … which coordinates and manages all of the Volkswagen
Group’s activities in China’ (Volkswagen Group, 2013).The Volkswagen Group have also joint
ventures with Chinese state-owned automotive manufacturing companies FAW and SAIC, creating
FAW-Volkswagen and Shanghai-Volkswagen. The FAW Group has production bases located in 14
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provinces throughout China, with the FAW-Volkswagen group producing 5 models of the Audi car
(A3, A4, A6, Q3, and Q5).
Specifically within China the Volkswagen group devised a set of marketing strategies to promote their
product line, this approach was named ‘Go West’ and ‘Go South’. This was to increase the brand
awareness of their companies, such as Audi and continue to develop a strong presence throughout region
and ‘enhance the Volkswagen Group’s positive image in China ‘and keep up with new regional growth
trends’ (Volkswagen, 2013). The implementation of these strategies consists of the construction of new
plants in Changsha, Ningbo, Urumqi and Foshan, which are underway at present. ‘The “Go South”
strategy has already led to a considerable increase in market share in the southern regions since 2008.
The “Go West” strategy is designed to enable us to benefit from the growing importance of the inland
regions’ (Volkswagen, 2013).
Within China this particular promotional strategy was successful, the total amount of sales in China
increased from 312,683 units to 364,090 from 2013-14, compared to a 4.1% increase in Germany of
196,380 units to 176,340 during the same calendar year, making China one of the fastest growing and
most important markets for Audi to invest into. Overall the figures are impressive for Audi, with over
a million vehicles being sold in both 2013 and 2014 worldwide.
Promotion
Audi’s main channels of marketing promotions derive from their media advertisements and
sponsorships. Audi is also a strong partner of a number of sports, including skiing, golf and football.
Within Germany Audi’s longest partnership is with German footballing giants, Bayern Munich,
alongside this they also sponsor four more German football clubs, Hamburger SV, 1.FC Nuremberg,
Hertha Berlin and Borussia Monchengladbach, Audi also sponsor several football teams outside of
Germany (Chelsea FC, Real Madrid CF, FC Barcelona, AC Milan, Ajax Amsterdam, Queens Parks
Rangers FC and Perspolis FC). Additionally in Germany Audi also support the German Ski Association
(GSV) along with a number of national alpine skiing teams (Switzerland, Sweden, Finland, France,
Liechtenstein, Italy, Austria and the US).
Apart from Audis numerous sporting ventures and sponsorships, Audi also invest a large amount in
print advertisements and TV commercials, which is one of the biggest ways they promote their cars. In
2001, Audi released a TV commercial promoting their new ‘multi-tronic continuously variable
transmission’ via TV commercial throughout Europe which featured an impersonator of Elvis Presley
(https://www.youtube.com/watch?v=5ckzUCcV0q8). The aim of the commercial was to demonstrate
the smooth ride of Audi cars equipped with the multi-tronic transmissions, the dashboard Elvis figure
dubbed ‘Wobbly-Elvis’ had become popular amongst Audi fans and although it was only originally
intended for European TV commercials, a figure of the dashboard character was mass produced in
China and marketed by Audi as part of their worldwide promotional campaign.
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Audi tend to stay away from celebrity endorsements when promoting their brand, and this is a practice
heavily used within Germany and China, as audience prefer to be drawn into the engineering quality
and sports-eques styles of their cars. Therefore Audi’s famous slogan, ‘Vorsprung durch Technik’
meaning progress through technology, is one of their key promotional marketing points, which is widely
echoed through all channels of their marketing process. In addition to this Audi also release an official
car magazine which is published quarterly, available in print via subscription, online or as a download
via the Apple App Store, which is extremely successful in Europe and China.
Price
Prices for Audi cars span from €19.200 for the cheapest model, the A1, to €53,950 euro for their most
expensive model, the Q7. The same models are prices at 199,800 Yuan and 828,000 Yuan respectively
within China.
The retail price of Audis most successful car, the Audi A4, is priced at €28,450.00 in Germany and in
China is priced at 272,800 Yuan, illustrating how Audi has priced their cars at a premium rate. The
pricing is however justified when you look at the quality and brand image of the car. It is also necessary
to position the brand appropriately as a high-end manufacturer. Audi are also direct competitors of
BMW and Volkswagen, therefore the premium pricing band of Audi cars puts the brand level against
other manufacturers within its segmented marketed. Official Audi dealership also offer repayment plans
to consumers, allowing for a wide variety of individuals to access the Audi brand. Although the pricing
if Audi’s cars are high, there sales figures continue to rise, with a 10.5% increase in units sold
worldwide, from 2013 to 2014.
Global Business Operations
As Audi are a partner company of the Volkswagen Group, therefore all primary and supportive activities
of their supply and value chain are incorporated within the Volkswagen Groups business.
Value Chain
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The Volkswagen Group aim to introduce and improve as many aspects of their value chain, for all
brands operating within the VWG enterprise. The company’s headquarters in Wolfsburg provide a large
amount of ‘support for all of the Volkswagen brands’ (Schmid and Grosche, 2008/40).
With a company like Audi aspects of its value chain are highly vertically and horizontally integrated.
Audi have production plants which produce and supply its manufacturing plants with parts. Once the
manufacturing of the vehicles is complete Audi distribute theirs product out to their company garages,
which then reach the end consumers. However it the process then encounters a problem it can then be
vertically integrated back into Audis value chain. In addition to this, as Audi is part of the Volkswagen
Groups enterprise, there can also be a high level of horizontal integration when it comes to the import
of the Audi product to Volkswagen Group distribution channels.
The primary activities of Audi’s value chain are can also become clusters throughout the whole of the
value chain. This is due to the high number of international markets Audi operate within and these
components of the value chain being different from region to region due to the difference in economic
systems.
Within China the Volkswagen Group have entered into a number of cross boarder ventures since their
expansion into the Chinese market. Partnered companies such a FAW-Volkswagen and Shanghai-
Volkswagen have therefore become important syndicates when it comes to the operations and
inbound/outbound logistics of the Audi value chain within the region. To improve these primary aspects
of the Audi value chain, four new production plants were developed in Urumqi, Changsha, Ningbo and
Foshan, this was in addition to the existing five production locations in Changchun, Nanjing, Shanghai,
Chengdu and Yizheng. The development of these production plants within China was to improve the
Quality of Audi products and services in China
Control development cost and transportation cost
Fulfil orders efficiently
Improve inventory
The Audi Q5 is currently the bestselling Audi model within China, and since the primary activates of
the Audi value chain have been improved within the country the production of the car model have more
efficient with ‘more than six million vehicles rolled off the FAW-VW production line to date’
(Volkswagen, 2013). These production facilities have also allowed for vehicles to be ‘specially
modified for Chinese customers (with a long wheelbase, for example) and models developed
exclusively for the Chinese markets are cornerstones of the business’ (Volkswagen, 2013) increasing
production performs, and delivering a valued product for the Chinese market.
The supportive activities of within the value chain, directly or indirectly support the functions of the
primary activities. Within the supportive activities of the value chain the Volkswagen Group have a
rigorous research and development program. Each brand under the VWG has its own R&D department;
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Audi has two centres located in Germany, an electronics centre in Ingolstadt and a lightweight vehicle
construction centre in Neckarsulm.
This is part of
a chain of 12
R&D centres
worldwide,
integrated into the Volkswagen Group value chain. The Volkswagen Groups headquarters is based in
Wolfsburg and they provide continuous support for all Volkswagen Brands, not just with R&D but
with, firm infrastructure, HR management and quality control.
Conversely a flaw within the supportive activities of the value chain is that a large majority of activities
carried out by the value chain are too centralised, the Volkswagen Group corporate culture is still
strongly linked to its home country, ‘applying German standards when developing its vehicles’ (Schmid
and Grosche, 2008/44) on a global level, however this may not always work on a global level throughout
all of the Volkswagen Groups brands. Nevertheless to improve the supportive activates of is value
chain, the Volkswagen group have come up with ‘strategy 2018’
(http://www.volkswagenag.com/content/vwcorp/info_center/en/talks_and_presentations/2010/09/Pres
entation_Paris.bin.html/binarystorageitem/file/2010-09-28-
29+Paris+Motor+Show+Presentation_webversion.pdf )which they will implement across all aspect of
the VWG company value chains to, aiming to make the Volkswagen Group the global automotive leader
by 2018.
Supply Chain
The Audi supply chain is closely integrated within the Volkswagen Group with ‘all Group brands
relying on a shared pool of suppliers’ (Audi, 2014). Although finding the information for
Audi’s/Volkswagens Groups suppliers and how this was implemented into their supply chain was
difficult it is apparent that one of the key factors of the VWG supply chain is maintaining sustainability.
Audi defined five key themes in order to implement sustainability within the companies supply chain
Environmental protection
Product responsibility
Responsible operations
Responsibility to employers
Responsibility to society
These themes are currently being implemented into Audi’s supply chain.
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Environmental - Reducing the amount of waste for disposal at all production plants, reduce the amount
of fresh water consumed, especially within Audi production site in Ingolstadt, by recycling water
through the use of a membrane bioreactor. Reducing CO2and VOC emissions, as well as the overall
consumption of energy at productions sites by around 25%.
Product – Reducing CO2emissions within new Audi cars by 25%. Reduce fuel consumption in vehicles
by expanding the eco aspects of the Audi model range. Develop a concept whereby cars can be taken
back and recycled. Develop and produce CO2 renewable sources, to reduce greenhouse gas emissions.
Operations –Improving the training given to staff across all sectors of the company, investing in
innovation, new technologies and the expansion of production structures. Improving the depth and
amount of Audi reports as well as expanding international sites.
Employees – Internationalizing HR development, promoting qualified and trained employers, training
staff to use new technologies as well as adapting to new IT and expanding Audi’s workforce.
Society – Promote the Ingolstadt production facility as an educational site, creating links with schools
into the corporation. Expanding the volunteering program and finding volunteers for projects at
production sites.
In addition to this, as part of Audi’s sustainability strategy within its supply chain, Audi have developed
a process whereby they ‘systematically survey the opinions and recommendations of our stakeholders
in regard to all relevant topics’ (Audi, 2012). Audi identified their most relevant stakeholders (business
and corporate partners, charitable organizations, government representatives, consumers, employees
and media representatives) of which the business activity of their supply chain had a direct or indirect
impact on and incorporated their needs into the sustainability of their supply chain. ‘The results and
conclusions of the stakeholder dialogues are incorporated into our sustainability strategy and form an
important basis for future corporate decisions’ (Audi, 2012)
Effect of technlogy
There are many definitions of technology. According to (Ramey K, 2013), Technology is a body of
knowledge that is committed to creating tools, processing actions and extracting of materials.
The (Business dictionary, 2014) describes technology as the purposeful application of information in
the design, production and utilization of goods and services as well as in the organization of human
activities.
Technology can be used in different ways as there are different methods of the application of
technology. With the increasing growth and innovation of technology today, the impact on the
automobile industry has led to the invention of cars that drivers never dreamed of. There is technology
involved from auto start engines, to the installation of the latest safety devices, cameras and new devices
that have also been created that allows the car to do the driving and thinking for you. (Mcleod B, 2013)
Technology has led to the invention of materials and parts that were bulky to be reduced to lighter
weight materials. Cars are much more efficient than what was made in years back. This is why when
many drivers are searching to purchase a new car, they look out for those with the latest and newest
technologies. (Mcleod B, 2013)
Many businesses use technology to stay ahead of competition. Technology is used to create new
products and services and to deliver goods to customers. It is used for communication, transportation,
securing data, creating artifacts and manufacturing. (Ramey K, 2013)
There are different types of technology.
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Communication technology: this type of technology is the reason for the transmission of information
or data from one place to another or from one person to another technically. (Ramey K, 2013). In times
past, for communication to be made effectively, people would have needed to travel several miles to
transfer information or data but the introduction of technology has made it possible for decisions, ideas
and emotions to be transferred by through phones, fax, text message, computers and emails to
effectively share information with business associates, colleagues and serve customer needs and
requests. (Ramey K, 2013)
Advanced technology has been at the fore front of the Audi DNA. What this means is that Audi
continuously strives for better solution to the automotive challenges of an ever moving world. From
Quattro all-wheel drive to FSI direct Injection, Vorsprung dyrch Technik means safer, more efficient,
more brilliantly satisfying cars to drive. (Audi, 2014)
One of Audi’s technology in Germany is focused on practical considerations. It has a compact laser
sensor designed to fit inside the body of a car and sweep the road ahead in other to build a 3-D picture
of the surrounding of the vehicle.
The sensor is smaller and cheaper than that of one of the top Google’s cars. The google car uses a
LIDAR instrument which is made in California in a company called Velodyne. This costs about
$70,000. (Knight W, 2013)
There is a negative effect for Audi with their compact device because it offers less resolution and
accuracy. There are however other advantages that Audi can boast of such as its self-parking system in
Las Vegas by modifying the parking garage of the mandarin Oriental hotel. The system uses laser
ranging equipment to relay 3-D imaging information to the cars. This results in less heavy but expensive
components to be fitted under the hood. (Knight W, 2013)
Audi has declared that there would be an autonomous parking system that could be seen in the new cars
in the next five years. One of which allows a driver to park into a home using a smartphone or tablet.
(Knight W, 2013)
Audi has claimed a speed record for a self-driving car. The Audi RS7 topped 149mph while driving
uncrewed round the Hockenheim racing circuit. They also put a human behind the wheel of the car for
a comparison lap the human took about five seconds longer. A representative of the car company said
that the innovation could soon be used by the public. (Kelion L, 2014)
There was a question that arose. In the event that the car has an accident, who is responsible for it? Is it
the driver (who is technically not driving the car) or the manufacturer of the car? The RS7 uses a
combination of advanced technology. Technology such as laser scanners, GPS location data, cameras,
radar sensors as well as radio transmission for guidance. (Kelion L, 2014)
About 30 years ago, the idea of a car that had permanent for wheel drive was revolutionary. For Audi,
it was called Quattro Vorsprung durch Technik. The term Quattro means permanent power that is
supplied to all the four wheels. Quattro sets a new standard for performance.
When Audi introduced Quattro, it was said to defy the norm of physics as it had a starting acceleration
and remarkable traction. (Audi, 2014)
The German luxury car manufacturer with the four interlocked rings who has vowed to maintain its
two-decade-long reign will need to continue to use the slogan in other to further advance in the Chinese-
market. China can be said to be Audi’s largest single market as a quarter of its global sales comes from
China. This would cause Audi to speed up localization of its ever increasing new and modern
technologies to suit the need of its sophisticated buyers and benchmark competitors. (Zheng Zheng G.,
2012)
30
Audi is the biggest-selling luxury brand in China which sold 491,989 cars which was up by 21% in
2012. (Murphy C., 2014)
Audi’s board member for technical development Michael Dick, has said that in looking at further
implementing technology of Audi in China, an introduction of the all-new A6 plug-in hybrid long-
wheelbase sedan is being planned for 2015 in China which would make China the first of Audi’s
countries to have this model of car in the world. This means that Audi also recognizes the effect of
China on their market. (Zheng Zheng G., 2012)
China has for a long time, pushed pure electric vehicles as part of its long-term vision for its auto
industry. It is believed that it is attractive due to the fact that they can help with the domestic
environmental problems and the country does not have to depend on oil importation as much. They also
believed that this would help them push their auto mobile companies to the cutting-edge in the global
industry. (Murphy C, 2014)
Michael Dick also mentioned that the spare parts for the A6 plug-in hybrid would be manufactured in
China. He said that China would be the test market for the long-wheelbase A6 plug-in hybrid. And it is
based on the feedback that is received from the Chinese market that would determine whether the long-
wheel base would be used in the other markets or the normal wheel base version would be implemented.
(Zheng Zheng, 2012)
In an interview in global press conference in Germany, the chairman of Audi Rupert Stadler, said that
the company plans to make investments over the next five years by introducing a range of new products
into the Joint venture in China. The investment as mentioned by Rupert Stadler is around 3 billion euros
($3.9 billion) (Zheng Zheng G., 2012)
He said that for sustainability, a company needs to understand its market and must develop and produce
its products there. (Zheng Zheng G., 2012)
Another technology that Audi benefits from is the internet. For every country that Audi has operations,
there is a website for each. So in Germany, there is an Audi Germany website and in China, there is an
Audi China website. This is great because each website is tailored to suit each independent country.
The Chinese website is constructed in the Chinese language and would be more attractive in China as
they can understand better what the contents are.
The German website is also written in the German language and would make it more suitable for the
Germans. This would help interested customers to access the right website and understand the features
and availability of cars without necessary meeting dealers.
The internet has also made it easy for the different vehicles to be advertised. There would be
advertisements on social networks which aids promotion of the products and emphasizes the features
of each car. Here, the company can include pictures as well and customers can like a picture to show
their interest.
The internet also makes it possible for the customers and the company to communicate either online
through the social network or by sending and receiving emails. With the social networks, the customers
can also read reviews and ask questions to others who have previously owned the car if their interest.
Furthermore, writing a positive feedback can influence a customer’s decision to purchase a car. Equally,
a negative feedback can influence a customer’s decision not to purchase a vehicle or a particular model
by the manufacturer. And Phone calls can also be used to communicate between the customer and the
manufacturer effectively. Fax can be used as well.
Communication can also be carried out through meetings. With the aid of technology, meetings can be
held through Skype and other forms by having either two people communicating over the VOIP or
having a conference call.
31
The use of technology and the internet would also allow Audi to monitor the progress of their orders
and delivery. It would help to communicate between countries without physically having to fly from
place to place. It would help to save costs and allow effective communication.
The success of Audi in China shows that China is rapidly growing in the area of engineering technology
which has led to a great demand for engineering technologies. It would result in a win-win situation.
(Kejiang G., 2012)
The above graph shows that the number of people who use the internet in Germany is 84.0% in 2013.
32
The graph above shows that 45.8% of the population use the internet. This would mean that there would
be more internet promotions and communication in Germany than in China for Audi.
Summary
From the research carried out, it can be concluded that activities and business operations of Audi in
Germany differs from that in china. These differences arise due to the fact that countries operate in
different ways. Their mode of operation is based on different things such as culture, language,
government policies, stake holders, the people’s reaction to different marketing principles to mention
a few. For a company to be successful in one country with the intention of expansion and maintaining
their successful track record, they would need to independently examine and carry out research about
the new country. Find out what works and doesn’t, find out what the people accept and their beliefs.
Strategies are required to be put in place in other to succeed. These and more accounts for the success
of Audi in China. Observation made suggests that a lot of research had gone into the automobile
industry of the Chinese to find out their requirements. Based on the constant developments being
made and adjustments, it can be observed that products are being modified and manufactured and are
tailored to suit the different countries. This is an efficient way to pursue success when expansion is
involved. This principle is not only for the Audi or an automobile company but can be adapted by any
global business.
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