SWOT analysis provides the strengths and weaknesses as an internal factor of the company and Opportunities and Threats for the external environment of the company. Any company has to change its strategic planning according to the SWOT analysis. SWOT analysis will also help the company to analyze the prospects after the acquisition of a Chinese car company.

Strengths

Volkswagen has strong position in the Chinese market as it has a long experience in this market. Volkswagen has a strong brand portfolio; a good mix of luxury models are included in its portfolio and German engineering with competitive pricing will make a big difference. Volkswagen has a strong research and development department which continuously works for the improvement in the quality, functionality and environmental compatibility. Volkswagen design team can come up with the customize design which will suit the customers of China.

Weakness

Poor performance in Africa and North America can be issue for concern for Volkswagen. Operational inefficiency and weaker productivity are other reasons for concern for Volkswagen as it has relatively low employee productivity compared to its competitors.

Opportunities

There is encouraging rate of growth in the Chinese car market. Chinese car market has reached $98 million in 2008. Market consumption has reached to 7.4 million units in 2008 which is an increase of 17.8% compared to previous year. The volume of market is expected to reach 13 million by year 2013 (Datamonitor, 2010).

Threats

Increase in the production cost due to the increase in the raw material prices. Increase in the government rules regarding the labor may also increase the prices. Increase in the competition may cause price wars due to which there will be fall in prices.

Automotive Industry in China

In recent years, passenger car sales has increased spectacularly as the demand is increased due to the increase in the income of the people and decrease in tariffs, followed by the access to the World Trade Organization (WTO) by China in 2001 (Dauterive, J. and Fok, W., 2004), and also due to the emergence of low cost manufacturers of cars. Due to this growth China has the world’s second largest automobile market after U.S. therefore China has become an attraction for the investors from all over the world.

There is enormous growth potential in the automotive industry in China and in the coming few years, various factors will derive the demand.

In 2008 only 22 people out of 1000 were car owners which are very low as compared to global average of 120 per 1000 people, and in U.S. 600 out of 1000 people are car owners in the same year. There was a very low economic growth in 2009 but still disposable income is increasing rapidly, and owning the car has become affordable for a major proportion of people. Government has also recognized automotive sector as a growing industry therefore it is decreasing the restriction on owning a car and it is investing a huge amount on rebuilding the roads. Stimulus packages were introduced by the government at the end of 2008 and incentives were given to the consumers on buying cars. Car sales in 2008 increased just only 7.3% which is the lowest growth rate in past 10 years but in May 2009 sales increased exceptionally by 42% (Automotive Industry Report, 2009).

There are enormous growth prospects in China’s car market, the rate of car ownership is low and financial industry for automobiles is immature. As China is a developing country, its economy is expected to increase rapidly, it is least expected that the car industry will grow in a steady or balanced way. The car registration rate rose in 2002 and 2003 was 63% and 70% which were not sustained and the growth rate was moderate in 2004 with 16% and further modest in 2005. This slowdown of growth coincided with the huge investment in the productive field which led to the decline in the prices. However automotive sector recovered very strongly with the growth rate of 30% in 2006 and 24% growth rate in 2007 respectively (Automotive Industry Report, 2009).

PESTLE Analysis

To get the overview of the external macro environment in China, PESTLE analysis is done. PESTLE analysis is done in order to find out the factors which will affect the operation and market of the organization.

Political:

After joining WTO, China opened its market in 2001. China is a single party and social republic state which is under the control of communist party. Import duty is 28% on cars. All legislative assembly is elected in every 5 years. Income tax rate for international firms and domestic firms is 25% since 2008.

Economic:

Per capita income of China for 2007 is US$5400 which is a 12% as compared to 2006. Consumer expenditure increased 7.8% in 2007. In China official unemployment rate in urban area is 4% and it has a total workforce of 800 million people but many of them lack skills and education. Inflation rate in October 2008 was 4% while in April 2008 it was 8.5%. There are 27.7 million cars in use and it is the second largest opportunity for Volkswagen and the growth rate was 18.3% from 2002 to 2007. Other factors for concern are increase in the prices of oil and raw materials.

Social

There is lot of potential in Volkswagen as there is a clustered area for it. In next 10 years the earning of urban household is expected to increase by 24%.Societies are increasing as the birth rate twice that of death rate but by 2015, people aged over 65 would be 146 million. In China number of inhabitants is 1330 millions.

Technology

After an effort of ten years, information network is build which connects more than 2000 cities of China and it is linked to all major international networks (Peng, G. and Nunes, M, 2007). Road network and the roads systems in the city are improving, government is focusing on improving this. There are 94% people in China who use the radio and TV, and there are 214 million people in China who make use of the internet connections.