1. Do you think Porsche had to go through the product market of cars and SUV? Did she have other options at the time described in the Case? Based on an analysis of advantages and disadvantages What would you recommend the same point in time? We will use Porter’s forces model to consider the attractiveness of the product market entry of vehicles – Luxury SUVs. Existing competitors – most of the market share the SUV, the Porsche is in particular the United States. In 1998, there is fierce competition in the SUV in the U. S..
Beyond that, the more delicate segmentation of the product to market SUV Luxury cars, there is competition between the density of competitors. Total power of existing competitors is very high. Suppliers – suppliers can be divided into two types of Porsche. The first type that supplies workers (Labor) and the other is external and parts manufacturing companies. The first type of power supplies working up to the geographic location of the factory workers’ organizations that exist there. The second type of supplier power is weak enough that you can switch between suppliers easily.
Vision to take the case where vendors positioned themselves near the vehicle companies factories (p. 7 paragraph 1). Total staff strength – depending on space, and comes as part of the consideration in choosing a plant. Total external production companies and power – low power – medium. Customers – customers love the brand Porsche identify it with quality and prestige. Also known from surveys that customers expect of a Porsche SUV car. Target customers are willing to pay in advance to get a brand identified with quality and prestige, while Porsche will provide a quality car, not much bargaining power customers.
Total power of customers – low. Substitute products – product substitution is a threat to SUV, is an increase trend of cost-effective small car consumes less fuel. It comes in a green trend, coupled with expectations of a rise in fuel prices could be a consideration to move from car-efficient SUV. However, we do not believe that the clientele of the Luxury SUV affected by intentional, that he had no financial problems, and aim luxury car is a statement. Total power of substitute products – low.
Potential competitors – the entry barriers to product market luxury SUV vehicles very difficult. First need to know, instrumentation engineering, experience, a high equity to a new company enter the field. Secondly, it is hard to believe that customers will buy luxury cars from a company with no experience and reputation, so the chances of a new company to enter the luxury car market is very low. So the main risk is the potential competitors are companies from later visits to that product market.
Likely that companies that are market vehicles, but not the luxury cars market, is likely to rally, but the transition from a mass production company branded luxury brand, is not trivial. However, even here we must have a reputation for quality and prestige, build brand and therefore not suitable for large company for mass production of cars can enter the field. The companies are a threat because we’ve listed competitors already exist. Total power of potential competitors – is estimated very low.
After examining the Porter by market forces, more than can be wisely decide on the attractiveness of the product market is cars Luxury SUVs. Weighting the forces, we can see that there is such a risk at the entrance to the market, but entering the market the SUV, which is considered the most attractive industry, can lead to tremendous growth in profits and the ability to Porsche. The company can use this market as leverage business growth, which could also contribute to establishing its position also on Porsche’s core business – luxury sports cars.
In our opinion, as long as the Porsche will provide a luxurious SUV with car performance without compromising quality, product market is attractive. Other alternatives that were to Porsche that point in time were available to the market the Sedans, the market entry – Minivans or remain in the current situation. The first two alternatives are denied pretty quickly at the same time, the reasons that SUV (Sport Utility Vehicle) is more appropriate product to Porsche than a luxurious family car or small truck of the type with the height and dimensions not sports. These cars less fit your company’s image, so the better option faces the SUV.
The third option of staying in the current situation constitutes a threat to herself, aiming to grow where there is no company, and a growing competitive market and not really backed away. Moreover, the product market – Luxury SUVs, is pretty attractive based on analysis of Porter’s forces. In light of the above states that the most attractive alternatives in our opinion are the product market – Luxury SUVs, or focus on core business of Porsche, which is expected to rise in the competition (another reference to the section on threats – SWOT). SWOT analysis will make a recommendation to give a couple of alternatives to choose. Opportunities:
* Segment the SUV most profitable industry on the 1990s. * Demand for SUVs, especially the U. S. , increasing with the years. In particular, is known to Porsche from surveys that customers are waiting for the company’s SUV model. * Porsche segment sees the SUV as an opportunity to balance the risks of exchange rate of the deutsche mark (and future rate), relative to the U. S. dollar. Threats: * Damage to reputation and image of the Porsche, as a manufacturer of luxury sports cars and high-quality. * Some officials question the attractiveness of the segment the SUV, when there are forecasts for the small cars more economical fuel.
* Sensitive to currency changes in the American market. * Product market in the crowded SUV. Estimated product market – 2 million units. When in the category of the SUV has only one SUV estimated over 100,000 DM. * There are at increased assessments on Porsche’s core business. Audi intends to produce a car with similar qualities to Boxster, but the lower price (about 15%). * The competition in the market – Luxury SUVs, which is controlled by the dominant Asian players – Toyota, Honda, Nissan Omitesobishi Luxury SUVs models have provided the United States, Cadillac plans to spend its own model in 1999.
* SUV performance and agility are not linked, that characterize the Porsche. * U. S. high tax – forcing companies to buy more U. S. products (primarily related to production). Strengths: * To Porsche has a number of key strengths in manufacturing cars: Chassis, Performance, Design. * Wendelin Wieddking – Director of estimated industry in Germany. Made a revolution at Porsche, and led her declining success. (See Appendices, making New Leadership). * Following transformation Porsche’s financial situation stable in 1998. * Porsche brand is very strong and linked prestige. Weaknesses:
* Porsche is a small company in the industry, and investment for the entry segment – high SUV (a sum of about $ 550 million). The failure model the SUV can lead to the collapse of the Porsche. * If and Porsche enter segment the SUV, then a Luxury segment, a product that targets a very limited market. After making SWOT analysis, our recommendation is to enter the market product of Luxury SUVs, aiming to market demand and have product in question. The Porsche is a strong and reputable company that can succeed in our opinion, also new, and think Porsche SUV can make a car luxurious quality you can get to market.
In such a situation is a high profit potential, opportunity and growth strengthening the company. 2. Because of the success of the Boxster, the main production plant of Porsche at Stuttgart-Zuffenhausen headquarters located near the administration was working close to exceeding its capacity. Where do you think has put a new factory to build a model the SUV? How important is production workers in Germany (Made in Germany) for the new model? First we’ll talk about the pros and cons of new model production in Germany than any other country’s production.
Then talk about the advantages and disadvantages of each state, and finally be the best bet where to place the new plant. If so, the benefits of the production model – SUV in Germany are: * Maintaining the reputation of the Porsche, and a product Made in Germany. * Supervision of the finished product. Disadvantages of manufacturing in Germany: * Uncertainty regarding how the dollar rate moves – probably expected a weak euro. * Higher costs in Germany. * Restrictions stemming from the model in Germany “social market economy” that encourages social unity, but increases production costs.
* Higher minimum wage. * Unions are strong. * Number of hours per year in Germany and lower than any other developed country. Foreign manufacturing advantages: * Can be said generally that the lower labor cost than the other possible states (we shall refer more in detail below). * Some countries are located geographically or by the market with high demand (eg production in the U. S. or Mexico) or from a central location in the area easily can be exported (eg Czech Republic). * Foreign production was not hit so far in society – between 60 to 80 cars a year produced 911 model 1995 in Mexico.
In addition to the Boxster in Finland also successfully produced. Disadvantages of foreign production; * Limited control over the finished product – the company is more difficult to control the finished product is also sending engineers and production of foreign plants. * The product is Made in Germany – it is mainly branding. To many people the fact that production is carried out in Germany attests to the quality and standards (listed next most prominent). Branding of the Made in Germany, giving the client a statement, and reduces the risk for unsuccessful product selection.
* Culture and mental work – in different countries around the world there are cultural differences, mentality about work. Several countries in the world is hard to meticulous standards of the German culture is known worldwide. In our opinion, when considering the advantages and disadvantages of outsourcing model of the SUV, especially in light of the work that is known that only 70% of Porsche cars produced in Germany today, it seems that the lucrative outsourcing company. However, the need to examine in depth each country, to an unequivocal decision where to place the plant.
Model production alternatives the SUV in other regions are: Finland, East Germany, South East Europe and North America. We will examine the advantages and disadvantages of each of the alternatives. Finnish company Valmet Benefits (p. 8 paragraph 3); * Rapid manufacturing (Fastest ramp-up) – this is due to two main reasons. The first is the Finnish plant among the best on the market failed to meet the fast rhythms on the production and issue of production systems. The second reason is the introduction of the company Porsche factory, good infrastructure based in part on the production model of the Boxster.
* Risk of new model production plant Finland is the lowest among all available options to produce other model plants. * Proven production capability good reputation in the market. Weaknesses: * The Finnish company Valmet dependency – it is not just a single provider who can do muscle with Porsche, but also that the company’s image and success depend on performance of Valmet, which outside the control of the company. East Germany Strengths: * Stamp of Made in Germany remains. * Cheaper labor force west of Germany – in 1991 average wages in East Germany was 46. 7% of average wage in West Germany (p. 9 paragraph 4).
* City of Leipzig – access to two large ants, a new international airport, a long history of industrial production and institutions of higher education. Weaknesses: * Wages are still relatively high compared to other countries. * An experienced workforce is trained in export-oriented market. With respect to West Germany, East workforce is less skilled. In 1991, average productivity in East Germany is 31% of output in the West (p. 9 paragraph 4). * East Germany’s infrastructure in poor condition. * The economic situation of East Germany was difficult, and to cope with inflation and the bank had set a high interest rate.
All these difficulties had led to Germany to compete in export products. Slovakia: Strengths: * Cheap labor. * Cooperation with Volkswagen – VW company will invest about 657 million cooperation. * One of the leading countries in the production of cars in Central and Eastern Europe. * Good location – just an hour from Vienna. * Transport in the car industry. Weaknesses: * Identification of the company Porsche with Volkswagen Company, which is a form of mass production of cars and SUV vehicles selling at lower prices than the Porsche. Czech Republic: Strengths: * Relatively speaking labor cheap, trained and educated.
Labor costs on average they are roughly about 10% of costs in western Germany. In 1998 the automobile industry in the Czech Republic there are approximately – 4 dollars an hour (page 11 paragraph 2). * Tradition of manufacturing in the country. * Investment from foreign countries. * Bridgehead markets in East – Central Europe. * A good basis for export – the location of the Czech Republic allows export to European countries including Russia. * Relative to neighboring countries has a developed infrastructure, and density of cars and vendors. * Long hours – 40 hour work week. Weaknesses:
* Low product quality – damage the reputation of Porsche excellence, and on behalf of the company created the best in its field. * In 1997, undermined political and economic situation; * GDP fell to 1. 2%. * Corona Czech has lost 21% of its value against the U. S. dollar. * Apart from investments (FDI) declined from $ 2. 5 million by 1995 to 1. 3 billion by 1997. * British rating company lowered the credit rating of the Czech Republic. * Many international companies had transferred their investments from the Czech Republic to other countries – a trend that could itself cause a crisis or worse. North America – USA.
Strengths: * Location United States – the main market segment of the car the SUV is the United States. U. S. factory location eliminates the U. S. export costs (taxes, etc. ), and lower transport costs meanings. In addition, the U. S. is a superpower economically and existing transportation routes to export from the United States to other countries. * U. S. demand for parts made German cars – the vehicles most of the market the SUV is the U. S.. Demand for U. S. made parts creates restrictions on the company Porsche, which can be avoided if the company will open its U. S. manufacturing plant (p. 12 paragraph 1).
* German companies are strong working relationships in the U. S. market – April 1998, more Americans were working under the German companies or companies with partial ownership of German companies than any other country in the world. * Trend of other companies to open factories in the U. S. – Monitoring the general trend of other companies in the industry can be profitable to keep up. Power production of many U. S. companies can create a density of carriers in the region, which can lower costs. Weaknesses:
* American consumers prefer European cars (page 11 paragraph 6). * Previous German attempts to create a U. S.cars are inconclusive – although there were several cases of success such as the BMW in the U. S. , but the relatively high number of failures. This fact testifies to the difficulties in establishing a factory in the U. S. and that the plant may flop in the U. S.. Relative to other countries where higher chance of success This is a significant disadvantage. What is the importance of production workers in Germany? In our opinion, the primary importance of production workers in Germany is the quality. People are willing to buy the Porsche brand, though more expensive priced brand aimed at competing with the quality and performance linked.
If product quality is not reduced due to over production in another country, so we think there will be no harm for the new model. In addition, the new model is a segment of the SUVs, which advance the industry in another category, that is not in the same segment of sports cars. Sports cars are more expensive quality category – What SUV, which is another factor that lowers the importance of production of the SUV in Germany. All of these factors we recommend Finland as new destination for the establishment of the Porsche factory. Finland guaranteed quality and quick production of a European country vehicles.
In addition to existing working relationships between the Porsche to Valmet, easy decision making. We believe the final product quality level as good finish production in West Germany, but European stamp will remain on the product, and that no unnecessary risks that could affect the company reputation model make it difficult for manufacturing production workers initially controversial. Summarize the history of a director Porsche planning to increase production; “This increase [could] only come in Finland. ” 3. Is the product of the transition to market cars the Porsche SUV stays true to the brand that built?
What does the Porsche brand loyalty in 1998? First of all we describe the Porsche brand and its customers. Brand Porsche as we have noted previously identified with quality, prestige, performance and design. These characteristics allow the product despite its high production costs take a high premium and still make a profit. This fact is that customers who buy Porsche does not see the car just a mobile transport them from point to point. A customer buys a Porsche statement on the actual operation Lifestyle and money. Porsche cars for 1998 are to sports cars, which combine the rich client’s garage along with other cars.
Terrible entrance to the market the SUV, he’s turning its customers high-middle class (as opposed to high), can create damage to the company’s image. Customers who bought a Porsche sports cars so far, may fear that they will be identified now with a lower-class population, since part of buying Porsche is a statement you are a high economic status. In this situation, the company can go bald on both sides aiming high class customers will be another competitor to the company not be identified with a lower class, upper middle class customers will move to competitors, aiming they offer a similar product prices and lower prices.
However, we think that customers are aware of the separation between the two. After all, this is the end all cars are different categories automotive industry. We think Porsche can stay true to the brand sports cars built for the market without the SUV hit it. To do this, it must continue the production of sports cars in those factories so far. In addition to press them to state and / or a strong point of sale market sports cars that make them unique techniques in those factories as it was before, and these actions should prevent the passage of the high economic status it was aimed at competing product as before.
Implementation of the above will make differentiation between the sports cars to SUVs, so stay brand loyalty Porsche sports car market. Market – the Porsche SUVs for the middle class to prove that although it was higher was last inferior category of Porsche sports cars, luxury vehicles are still a non-unique design and performance models of the world competing companies. Creating differentiation is consistent with creating a model the non-SUV factories in Germany.
In our opinion, as long as good product quality will be maintained and a unique design characterized to develop loyalty to the Porsche model the SUV. It directed that a different customer segment than the segment’s customers of Porsche sports cars, and directs that the other vehicle category. So we believe that Porsche has remained loyal to the brand built, and that means brand loyalty Porsche in 1998, entering the market before the SUVs, primarily evident in the strength of the brand associated with luxury, quality, design, performance and lifestyle.