Advances in Economics, Business and Management Research, volume 166

Proceedings of the 6th International Conference on Financial Innovation and

Economic Development (ICFIED 2021)

Analysis of Overseas Management Strategy of the

Volkswagen Group
Yulin Bai
Managerial Economics Department, University of California, Davis, 95616, The United States
*Corresponding author. Email: yulbai@ucdavis.edu

ABSTRACT
The performance of multinational organizations is based on their strategic objectives. Global dynamics and trends
prompt companies to develop effective expansion approaches to other countries. The achievement of these strategies
is evaluated by several aspects, including the financial indicators. Currently, companies are severely affected by the
COVID-19 pandemic and have been prompted to respond through diversification, research, and innovation. This
research uses the case study approach, which has gained a reputation for examining real-world issues. The focus of the
case study is Volkswagen Group, a German automobile company. The case study involves qualitative and quantitative
data obtained online from its annual report and news. This case study aimed at evaluating the overseas management
strategy of Volkswagen Group, including the firm’s overall trend, performance and strategy, and financial objectives
and performance. This paper aims to understand how Volkswagen Group has maintained its competitiveness and met
its financial goals. Volkswagen Group’s competitiveness is based on its strategy, including sustainability, research,
and development. Its effectiveness is reflected in increasing revenue and market share. Although the company was
affected by the COVID-19 pandemic, it has bounced back due to the high demand for luxury vehicles. Future research
should evaluate other aspects of the firm’s competitiveness, including marketing and innovation in depth.

Keywords: Volkswagen Group, financial objectives, COVID-19 pandemic, key performance indicators
(KPIs), and competitiveness

1. INTRODUCTION This case study involves the overseas management

strategy of Volkswagen Group, which is headquartered
Multinational enterprises (MNEs) in global in Germany. The study is important in establishing how
economics are considered as the primary nodes that the company maintains its competitive advantage in
joined in the sophisticated network. According to other countries, including the United States. Three
Dumitrescu and Scalera [4], the success of the MNEs in aspects, including the overall trend, performance and
the dynamic development pattern is characterized by strategy during the pandemic, and financial objectives
various risks. Companies are experiencing these and performance, are evaluated, which are of
challenges as they establish their subsidiaries in other significance in understanding how the Volkswagen
countries. Besides, MNEs face several restrictions in Group meets its strategic goals. Notably, these aspects
their expansion strategies, including competition laws, are examined through the company’s financial data.
environmental regulations, and the region’s particular
rules. Notably, MNEs play a crucial responsibility in 2. OVERVIEW OF THE GROUP
shaping the world’s economy. In 2016, for instance, the
Volkswagen Group is a German automobile
multinational corporations (MNCs) in the US
company. Since its inception in 1937 to make civilian
constituted approximately 26% of the gross domestic
car, the company has grown to a global brand with
product in the private sector and 26% of the employee
manufacturing plants in America, Africa, and Asia
compensation. These companies’ success depends on
countries. Volkswagen AG has 12 brands, including
external environmental factors, including social,
Audi, Bentley, and Lamborghini. The firm also provides
political, and economical. For instance, several
financial services, including customer financing,
companies have been severely impacted by the COVID-
insurance, leasing, and fleet management. From the
19 pandemic, which result in losses.

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 Advances in Economics, Business and Management Research, volume 166

2019 annual report, it can be seen that the company has innovation, quality, and the relationship between labor
delivered more than 10 million vehicles to customers and management [3]. In addition, this case study further
globally, exceeding the 2018 figure by 1.3%. Another aims at evaluating the company’s performance and
increase was the number of employees in 2019 by 1.8% response to the COVID-19 pandemic, which will help
compared to 2018. Financially, the company generated determine the company’s improvement strategies to
total revenue of €252.6 billion, increasing from 2018 by promote its competitive advantages.
7.1%. The overall operating profit in 2019 was €19.3
This analysis uses the method of case study.
billion. Sustainability in the company's growth and
According to Harrison et al. [6], the methodology has
development strategy is reflected in the Together
gained a reputation for its effectiveness in evaluating
Strategy 2025, for the purpose of making the company
complex real-world issues, which is used in various
lead in sustainability mobility. Further, the firm aims to
disciplines, including health, education, law, and social
launch at least 30 fully electric vehicles and expand its
sciences. As a unit, Volkswagen AG is evaluated based
autonomous driving and battery technology.
on its overseas management strategy in the US and amid
3. OBJECTIVE AND METHODOLOGY the COVID-19 pandemic. The data for the study is
obtained from online sources and the company’s report,
This case study focuses on evaluating the overseas and both the qualitative and quantitative data are
strategy of Volkswagen AG in other countries. obtained. Qualitative data entails textual information,
Volkswagen AG has faced several scandals, such as such as the 2025 sustainability strategy; while
violating the Clean Air Act in 2015, which affected its quantitative data involve numerical data, including
growth and development. Painter and Martins described trends and statistics. The analysis will be focused on
that the organizational crisis and damaged limitations economic models and other aspects of the evaluation
resulted from the 2015, discovering about the diesel will include the organization's overall trend, discussion
emissions software's cheat technology [9], which was about whether the management economics concept is
the foundation of the company’s future strategy to aligned with the current strategic objectives, as well as
restore its image and reputation. Another key foundation the analysis of its financial report. Table 1 below
is the company’s success in other countries. Cutcher- demonstrates the key figures and differences between
Gershenfeld, Brooks, and Mulloy argue that the US 2018 and 2019.
automobile sector has been revitalized recently through
Table 1 Key Figures and Differences Between 2018 and 2019 [1]
Category 2019 2018
Vehicles sales (in thousands) 10,956 10,900
Sales revenue (€ million) 252,632 235,849
Earnings before tax 18,356 15643
Net income for fiscal year 4,958 4,620
Net cash flow 10,835 -306

4. ANALYSIS AND DISCUSSION company’s chief financial officer Frank Witter noted. In
a company statement, the 2020 full-year profit will be
The analysis is based on four core sections, much lower compared to 2019. The margin will remain
including the overall trend of the industry in relation to in positive territory. The second-quarter loss was 1.7
the COVID-19 pandemic, the annual report strategy on billion Euros. The company’s bouncing back to profit
the epidemic situation, and whether the organization's was related to the cost reduction measures launched
strategic objectives are aligned with the present business early this year, which helped the third quarter. The
goals. The financial report is also evaluated and the return to profit in the third quarter aided in addressing
analysis is based on management economic concepts. the 1.1% reduction in the total deliveries due to
COVID-19.
4.1. Overall Big Trend of the Company
The COVID-19 pandemic significantly impacted
Volkswagen AG’s trend in 2020 has been Volkswagen Group brands and businesses during the
characterized by a reduction in profit, especially in the first half of 2020. The company was then prompted to
first two quarters. In the third quarter, the company develop mitigation strategies, such as cost reduction and
reported a bounce back to profit. According to Reuters safeguarding liquidity. The company resolved to
[12], the restored profits can be attributed to increased produce vehicles according to customer demand and
demand for luxury vehicles, including Audi and Porsche preferences [14]. This promoted company inventory
in China and Western Europe. However, the COVID-19 management, which reduced the company’s capital.
pandemic remains a significant challenge, as the Frank Witter, the CFO and information technology (IT)

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head and Board of Management member, noted that their strategies will be unlikely to survive the pandemic,
COVID-19 significantly affected the firm’s performance a significant challenge that humanity has ever faced.
in its history. Apart from its reduced financial Bouncing back to profit in the third quarter echoes
performance, Volkswagen AG is concerned about its Volkswagen Group’s peers’ results, including Tesla
customers, employees, and business partners’ health. Inc., Daimler, and Ford Motor Company. Therefore, the
Therefore it developed a safe working environment. The organization’s management and leadership are tasked
impacts of the COVID-19 pandemic made the company with developing software for vehicles in the next
report a reduction in the year-on-year profit by 27.4% to generation. A key factor is that the company will not
5.4 million vehicles. compromise its roadmap amid the COVID-19 effects.
As described in the company’s news of July 2020, Volkswagen Group was not prepared for the
the group sales revenue decreased by 23.2%, implying COVID-19 pandemic, similar to other companies. As
€96.1 billion. The deliveries decreased by 27.4%, year- described in the Annual Report of 2019, the firm’s
on-year at 5.4 million vehicles. The net liquidity in the technological and social upheaval is reflected in the
automotive sector increased by €0.9 billion to €18.7 financial market as the primary indicator. Investing vast
billion. The capital base was strengthened by placing the resources in manufacturing the current and future
hybrid notes. The earnings before tax reduced by 1.4%, vehicles is Volkswagen Group’s main strategy.
approximately €9.6 billion. COVID-19 was a significant Innovation in the company is achieved by bringing
hit to most organizations as it halted the products' together more than 3,000 experts in IT, a number
production and distribution due to lockdowns. In the expected to increase to 10,000 by 2025. The company
automotive sector, the pandemic containment measures has also demonstrated its commitment to the Paris
significantly affected the profits and sales in the first Agreement and aims at reducing the carbon IV oxide
and second quarters of 2020 [13]. Unlike in 2019, where emissions by 30% [1]. Volkswagen Group is investing
the company registered an increase in the total revenue, vast resources in developing its brands, which is the
the 2020 projection and outlook cannot be achieved foundation for its growth and development. As
despite the cost reduction measures and the bouncing described in the Annual Report of 2019, the company
back to profit in the third quarter. plans to invest more than €60 billion for future relevant
topics. €33 billion is earmarked for the e-mobility, while
4.2. Strategy of the Annual Report under the digitalization has been allocated for more than €14
Epidemic Situation billion. In response to the COVID-19 pandemic, the
company has focused on reducing operating costs and
Volkswagen Group maintains its commitment to the developing products according to the customers’
2025 strategy for sustainability. The interest in the demand.
company's global expansion is marred by various issues
presently, which include the second wave of COVID-19 4.3. Evaluation of Company’s Strategic
pandemic, the US elections, and the messy Brexit. In Objectives in Line with the Current Objectives
response to the dynamics and influence of information
and communication technology (ICT) in global trends, There are four objectives for Volkswagen Group’s
Volkswagen Group has moved its operations online. business, including exited customers, environment role
Transition to digital platforms is for enabling the model, excellent employer, and competitive
customers to purchase the vehicles regardless of their profitability. These objectives can be explained from
location. Digitizing the services and sales aims to managerial economics, emphasizing the organizational
promote flexibility among the customers to buy approach to a business problem, and making informed
products and services at the individual’s convenience decisions [10]. There are five key managerial economics
and comfort [2]. The online approach of selling its areas, including forecasting and demand analysis,
products is among the response strategies besides analyzing production cost, pricing decisions, capital
reducing the costs of operations. management, and profit management. In Volkswagen
Group’s key performance indicators, one of the
In Europe, the car registrations have reduced this
dimensions is competitive profitability. As described in
year, implying a relapse in the sales after a gain in
the Annual Report 2019, the company believes that the
September [11]. The COVID-19 pandemic has
investors judge it according to the ability to meet its
adversely affected operations and demand. The recovery
obligations regardless of the debt repayments and
from the pandemic will depend on the key economies.
interest payments. In the Volkswagen Group case, its
Volkswagen Group has, therefore, pressed ahead with
competitive profitability can be explained from the
vast investment in new technologies. Herbert Diess
forecasting and demand analysis context. Table 2 below
notes that companies not developing fast or changing
shows the forecast for 2025.

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Table 2 Strategic KPIs: Competitive Profitability [1]

Category 2015 2025
Operating return on sales 6.0% 7-8 %
Research and development ratio (R&D ration) 7.4% Approximately 6%
in the Automotive Division
Capex/sales revenue in the automotive 6.9% Approximately 6%
division
Net cash flow in the automotive division €8,887 million >€10 billion
Payout ratio negative ≥30%
Net liquidity in the automotive division €24,522 million, 11.5% Approximately 10% of
consolidated sales revenue.
Return on investment (ROI) in the Automotive Approximately 0.2% >14%
Division

Volkswagen Group’s strategic objectives are aligned

with the short and long-term goals. The nine KPIs are 4.4. Analysis of the Company’s Financial
obtained from the strategic goals. They include sales Report
revenue, deliveries to the customers, operating result,
Volkswagen Group’s financial data is summarized
research and development (R&D), sales revenue, net
using 2018 and 2019 data in various dimensions,
cash flow, net liquidity, and return on investment (ROI).
including the total sales revenue and the number of
Delivery to the clients is described by handing over the
units. Notably, there has been a remarkable
vehicles to the customer, which determines the
improvement from 2018 to 2019. As of December 31,
company’s competitive position in various markets. A
2019, the company had delivered 10,975,000 units,
fundamental pre-requisite of Volkswagen Group’s long-
which was an increase of 1.3% from 2018. The total
term objective and success is the remarkable brand
sales revenue was €252,632 million, an increase of 7.1%
portfolio and quality. In the administrative decision-
from 2018. This demonstrates the effectiveness of the
making process, it is dependent on evaluating demand.
company’s strategy. The earnings before taxes were
In the Volkswagen Group case, except for the tailor-
€18,356 at the end of 2019, an increase of 17.3%. After
made mobility vehicles, the demand is also
tax, the earnings were €14,029, increasing by 15.4%
characterized by developing vehicles that meet the
from 2018 [1].
diverse customer demands. Using the theory of demand,
Volkswagen considers the individual’s wants, needs, The figures presented above are indicators of
requirements, and preferences of the consumers to Volkswagen’s strategic objectives, categorized into
promote the manufacturing process [8]. Such a demand four. Drawing from managerial economics, Volkswagen
guarantees the utilization of the employees’ jobs and Group in 2019 aimed at developing products that meet
production plants. the diverse consumer demands. This depicts the demand
analysis where the company’s decision-making process
Another core element in the managerial economics
is dependent on assessing the demand and producing
reflected in the Volkswagen Group is the pricing
quality products that suffice the market needs.
decision. According to Garg [5], costs and pricing are
According to Lavoie [7], the microeconomic theory
the foundations of the company’s income so the
explains a typical consumer’s behavior, guided by
informed decisions should be made. The prices are
income and preferences. Therefore, organizations use
made regarding the market shapes, differential
this information to develop products that match these
strategies, and forecasting the values through the pricing
needs and individual characteristics.
theory and market structure analysis. Other factors
include the cost of production and maximizing the Volkswagen Group also reports its expenditure,
volume of sales. Volkswagen Group’s pricing model revenue, and assets for accountability and to
involves several strategies to provide its services and demonstrate the allocation of resources. As presented in
products with a competitive advantage. Besides, the the Annual Report 2019, there are different financial
company also ensures that the vehicle prices are reporting for three categories. FAW-Volkswagen
affordable according to the car and target market. The Automotive Company involves the development,
company’s product bundled strategy acknowledges production, and sales of passenger cars. SAIC-
several factors, including customer satisfaction and Volkswagen Automotive Company also develops and
affordability, ensuring clients do not pay high prices. produces passenger vars. SAIC-Volkswagen Sales

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Company sells these vehicles. The financial reporting for the three ventures is shown in figure 1.

Figure 1 Summarized Financial Data on Different Ventures [1]

Two core elements in the company’s financial aspect this research are that it used secondary data and was
are pricing and profit management. Pricing describes the limited in depth of analysis. Future case studies should
value of product by considering other factors, including focus on obtaining primary information and evaluating
market, competitors, and production cost. Profit other aspects of the company’s performance, including
management involves the use of the company’s profits marketing, research, and innovation.
in activities, such as growth and development. For
Volkswagen Group, its profits are shared in several ACKNOWLEDGMENT
activities, including research and development and
expansion. I attribute the success of this work to my tutors,
classmates, and family for their support. Each of these
5. CONCLUSION members contributed to the development of the
research. My teachers guided me on conducting good
Volkswagen Group’s strategy is based on research
research. My classmates were important for engaging in
and development and sustainability. The firm’s
meaningful discussions that were important in
objectives are described in four KPIs, including
developing the report. I appreciate my family for their
ensuring excited customers, environment role models,
continuous interest in my academics, including
excellent employers, and competitive profitability. The
conducting this research and engaging in discussions on
effectiveness of this strategy is reflected in the increased
the current global pandemic and its effects.
market share and revenue, as demonstrated in the 2019
financial report. Evaluating the 2020 COVID-19,
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