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 / Fall 2005 / Issue 40(originally published by Booz & Company)


Skoda Leaps to Market

The current scandal will also complicate labor relations — and perhaps instigate change — at both Volkswagen and Skoda. Involving allegations of bribes made by company executives to labor officials, the scandal had resulted by July in the abrupt resignations of Helmuth Schuster, Skoda’s head of human resources, and Klaus Volkert, the top labor representative at Volkswagen.

Even if Mr. Wittig gets the positioning, labor relations, and crisis management to come out right, the promise of expansion foretells an uphill struggle. Skoda’s 48 percent market share in the Czech Republic makes it vulnerable at home. “As Czech consumers become more affluent and savvy, they will look at more expensive brands,” says Mr. Leggett. More competition will soon arrive when a new $1.8 billion assembly plant east of Prague starts to churn out its annual target of 300,000 Toyota, Citroën, and Peugeot cars. A bigger problem is the way E.U. enlargement has opened up the used-car market in the Czech Republic and neighboring Poland. Czech sales plummeted 10 percent in 2004, and Polish sales 12 percent — with most of the loss attributable to used-car dealerships. “We have to pay attention,” says Mr. Wittig. “Eastern Europe mustn’t become a place for scrap from Western Europe.”

Where then to expand? The car market in Western Europe is mature. Analysts predict only small growth there in the next 10 years. Yet with just 3 percent market penetration in Germany, Mr. Wittig thinks there is plenty of room for Skoda to grow, particularly at the expense of Ford and GM. The company is also seeking to compete with Fiat in Italy and elsewhere in Europe. Skoda signed on recently as a main sponsor of the Tour de France, which is said to be the third most-watched sporting event in the world, after the Olympics and the world soccer championships. Skoda is moving aggressively into Ukraine (where a Skoda plant has been profitable and Western-leaning Ukranians are fond of the cars) and Russia (where Skoda has lost money so far). Skoda’s Ukraine strategy has already proven successful in Serbia: First, sell fleets of Skodas to police and other public institutions, then sell aggressively to the nascent middle class.

Farther afield, Mr. Wittig says he wants to expand assembly production at Skoda’s Aurangabad plant in northern India to take advantage of the company’s luxury image. Mr. Wittig rules out direct investment in China, favoring instead the idea of licensing the Octavia to a Chinese automobile company.

In short, the kind of growth to which Skoda has already committed itself is possible only through leapfrogging: breaking away from conventional industry assumptions (and their costs) in marketing as well as in operations. And Skoda is attempting a similar leap in design as well.

Emulating Ikea
“The success of Skoda came step by step,” says Mr. Wittig. “Volkswagen brought the company up to date, but it was a fully functioning carmaker long before the Communists ruined it. It made beautiful cars.”

It certainly did. Some of them are now in the company museum in Mladá Boleslav: sleek limousines and roadsters in cream, tomato, black, and cobalt, all of them with Skoda’s trademark bulging chrome grille. The man presently charged with rebuilding that design sense, while staying within a price range that emerging members of the middle class can afford, is Thomas Ingenlath, chief of design. A young design talent at Volkswagen before coming to Skoda, Mr. Ingenlath was known for the concept cars he created for Bugatti. Now he is producing designs for younger buyers, like the new Octavia introduced in 2004. Mr. Ingenlath is currently the most visible advocate within Skoda for the company’s becoming “the Ikea of carmaking.”

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  1. Alfred D. Chandler Jr. and Bruce Mazlish, Leviathans: Multinational Corporations and the New Global History (Cambridge University Press, 2005): The global rise of multinational corporations, cowritten by Harvard’s eminent historian.
  2. Graeme Maxton and John Wormald, Time for a Model Change: Re-engineering the Global Automotive Industry (Cambridge University Press, 2004): A definitive overview of the changing global context.
  3. Dennis Pamlin, editor, Sustainability at the Speed of Light (World Wildlife Fund, 2002): Online book contains a powerful chapter on leapfrogging for environmental sustainability. Click here.
  4. Dave Randle, The True Story of Skoda (Sutton, 2002): Illustrated chronicle of Skoda’s history from its 1895 origins to the Octavia.
  5. Horacio Rozanski, Allen Baum, and Bradley Wolfsen, “Brand Zealots: Realizing the Full Value of Emotional Brand Loyalty,” s+b, Fourth Quarter 1999: How Volkswagen originally “leaped to market” with its Beetle. Click here.
  6. Skoda’s Web site: Includes financials, automotive history, sports sponsorship, and current models. Click here.
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