Sample Business Paper on Skoda Entering the Market in Thailand

With global communities laying emphasis on the need for curbing carbon footprints, companies are increasingly presented with unique challenges and opportunities. Companies especially in the automotive industry have been compelled to develop new technologies that curb carbon emissions. Such technologies come with added overheard cost which cut into companies’ profit margins. However, these industries are also presented with viable and sustainable opportunities. There is a growing demand for electric cars in global economies including Thailand. For automotive manufacturers such Skoda, this growth in demand presents a good opening to break into one of the world’s leading automotive industry.

Brief History of Skoda

Skoda Auto is one of the leading auto brands globally with operational footprint in dozens of countries spread across various continents. Headquartered in Mladá Boleslav, Czech Republic, Skoda’s rise to global markets began over 120 years ago when it was founded as a company specializing in manufacturing of arms. As one of the world’s oldest car manufacturers, Skoda have evolved over time with technological developments playing a vital role in its evolution. Through different acquisitions and takeovers including by the Czech government in the years following World War II, Skoda has revolutionized its product lines by developing new car models. One of the most revolutionizing acquisitions in the company’s checkered history was the 1990 acquisition of a controlling stake in Skoda by Volkswagen (Skoda.com, 2019). The deal transformed the company’s operations locally and internationally.

The deal marked a new chapter in Skoda’s operations including customer base and designs. As a subsidiary of Volkswagen, Skoda gained access to new technologies, vehicle designs, and financial and human resources that spurred its productivity and growth in market share globally. Skoda was able to develop more attractive and marketable car designs that soon found their way into the European, and global markets, in general. The company’s profits margins and sales volumes have increased significantly over the years (Skoda.com, 2019). These indicators point to the company’s growing popularity in the global automotive industry.

Currently, the company has embarked on a rapid growth strategy targeting different market segments through product differentiation. In particular, Skoda has developed new car models that are customized to different automotive markets including China and Europe. The company also boasts of several fully electric and plug-in hybrid cars. These new models of hybrid and electric cars are part of the company’s commitment towards carbon emission reduction (Skoda.com, 2019). The car models offer Skoda the opportunity to venture in new markets such as Thailand where the government is actively incentivizing import of electric cars.

 Opportunities and Challenges in Thailand

Currently ranked as the world’s 12th largest automotive industry, Thailand’s automotive industry is one of the fastest growing automotive industry in Southeast Asia region. Buoyed by the governments pro-business laws including favorable taxes and import tariff incentives, the industry has grown significantly with many large automotive brands establishing their operations in the country. In particular, the Thai government has put in place tariff incentives aimed at promoting the manufacture or importation of electric cars and their parts. Additionally, the industry’s growth has also been aided by the ASEAN Free Trade Area (AFTA). The free trade agreement provides a leeway for Thailand-made cars with a free and large market (Ueda, 2009). For Skoda, these regulations will provide opportunities to venture and successfully launch operations in Thailand’s automotive market with electric and petroleum cars.

Source: PAC (2019)

Skoda’s strategy of developing unique and stylish cars that appeal to customers coupled with its excellent customer relations track record increase chances of success in Thailand. The sleek and elegant designs, even for electric cars, are manifestations of the Skoda’s access to the rich vault of financial, human, and technological resources of its parent company, Volkswagen. By tapping into Volkswagen’s vast resource base, Skoda has developed a reputation of manufacturing some of the world’s leading electric and plug-in hybrid cars such as Škoda Vision iV, Škoda Superb iV, Škoda Citigo, and its latest model, Škoda Citigo e Iv (Skoda.com, 2019). These car models will offer the company a platform to venture into Thailand’s automotive market. And with the company’s focus on customer relation, Skoda is poised to challenge established brands in the market such as BMW and Mercedes.

 

Source: PAC (2019)

Even as Skoda seeks to venture in Thailand’s automotive industry, the management of the company should be alive to the potential challenges it is bound to face. There are a lot of disparities in the government’s incentives for electric car manufacturers and consumers. While the government has created an environment which conducive for electric car manufacturers and importers such Skoda through lower tariffs, the same has not been replicated for consumers. Consequently, there is significantly low uptake of electric and hybrid cars in the country (Harman, 2018). Therefore, Skoda will have to contend with a sluggish growth in its sales volumes in the initial periods following entry into the market. However, Skoda is poised to overcome such challenges due to its relatively low-cost hybrid car models. Moreover, localization of manufacturing can also help in offsetting some of the costs of production which will translate into price reduction especially for the locals.

Moreover, Skoda’s entry into Thailand’s automotive market is bound to face stiff competition from brands such as Toyota, Mercedes and BMW which have already taken a significant market share. Wrestling market from these big brands will be a daunting task. Skoda will have to tackle issues such as perception of the locals towards the brand and poor product positioning especially in key market segments. In a study conducted to assess how perception of Skoda’s brand was affected by proximity of the target to Skoda’s home, Czech Republic, researchers established that geographical affinity played a key role in defining customers’ perception of the brand (Beneke & Rozum, 2018). This is a challenge that brands which have already established operations in Thailand rarely have to contend due to longevity in the market. Therefore, Skoda should strategize on how to change such perceptions in Thailand. Additionally, taking on these brands will also require diversifying their products to other market segments Skoda has not ventured into. These segments include pickups and hatchbacks which are very popular in Thailand (Kasuga et al., 2005). Such a strategy will add to Skoda’s competitiveness in the market.

In conclusion, Skoda Auto has enjoyed financial and operational success over the past decades. The takeover of the Czech Republic based automatic firm by Germany’s Volkswagen in the 1990s set the company in a trajectory of growth and success. With improved access to technological and financial resources, Skoda has improved its car models and ventured into new product lines including hybrid and electric cars. Venturing into the lucrative Thailand’s automotive market will significantly improve Skoda’s brand image and financial standings. However, succeeding in the new market requires strategic positioning in the market to gain market share. The stakes in Thailand are upped by established brands such as Mercedes which already have operational footprint in the country’s automotive industry.

 

 

 

References

Beneke, J. & Rozum, K. (2018). Brand perception across cultures: A comparative study of Skoda’s brand characteristics in Poland and the United Kingdom. Journal of Business and Retail Management Research (JBRMR), 12(2), pp. 1 – 14.

Harman, A. (2018 Feb. 8). Thailand promoting EV purchases, charging network. Ward’s Auto. http://www.wardsauto.com/engines/thailand-promoting-ev-purchases-charging-network

Kasuga, T. et al. (2005). The Expansion of Western auto parts manufacturers into Thailand, and responses by Japanese auto parts manufacturers. JBICI Review.

PAC. (2019 Apr. 20). Thailand’s automotive industry: opportunities and incentives. Pro Automotive Corporation (PAC). https://www.proautocorp.co.th/content/5470/thailands-automotive-industry-opportunities-and-incentives

Skoda.com. (2019). ŠKODA Financial Results 2018 (Report). Mladá Boleslav, Czech Republic: Škoda Auto.

Ueda, Y. (2009). The origin and growth of local entrepreneurs in auto parts industry in Thailand. CCAS Working Paper. Tokyo: Doshisha University. 25.