Address | Contact: Bertelsmann Stiftung Carl-Bertelsmann-Straße 256 33311 Gütersloh Germany Phone +49 5241 81-0 Fax +49 5241 81-81999 www.bertelsmann-stiftung.de Stefanie Sohm Phone +49 5241 81-81295 Managing the International Value Chain [email protected] in the Automotive Industry www.bertelsmann-stiftung.de Strategy, Structure, and Culture Stefan Schmid, Philipp Grosche Managing the International Value Chain Managing Automotive Value in the Industry the International Table of contents Foreword 6 Authors 8 Acknowledgments 9 International value chains: Current trends and future needs, as exemplified 10 by the automotive industry 1. Internationalizationofthevaluechainintheautomotiveindustry 11 2. Configurationandcoordinationascrucialdimensionsinshapinginternational 17 valuechains 3. Bestpracticesandoptionsformanagingtheinternationalvaluechain 24 Glocal value creation in the Volkswagen Group: Moving toward greater 30 decentralization of production and development 1. TheVolkswagenGroup’snewglobalstrategy 31 2. TheconfigurationofproductionactivitieswithintheVolkswagenGroup 35 3. TheconfigurationofR&DactivitieswithintheVolkswagenGroup 40 4. Theconsequencesofdecentralizingvalueactivities 51 Speaking with Ralf Kalmbach, Roland Berger 60 “Thecoordinationofinternationalvalueactivitiesisacrucialfactorinachievingsuccess.” Decentralized centralization: Romania as a focus of value creation 66 for Renault’s Logan 1. TheRenaultGroupasaleaderinthelow-costcarsector 67 2. TheconfigurationofvalueactivitiesfortheLogan 77 3. Thecompetitiveadvantagesofferedbyemergingmarkets 90 4 Speaking with Coimbatore K. Prahalad, Ross School of Business, 98 University of Michigan “Wearemovingawayfromafirm-andproduct-centricviewofvaluetoanetwork- centricandco-createdviewofvalue.” From assembly plant to center of excellence: The rise of Audi’s 104 subsidiary in Györ, Hungary 1. EstablishingAudiHungariaasasubsidiaryofAudiAG 105 2. DevelopingAudiHungariaasacenterofexcellencewithintheVolkswagenGroup 110 3. Challengesinmanagingcentersofexcellence 120 Speaking with Matthias Wissmann, President of the VDA 128 “Productionsitesinforeigncountriesandgrowthathome,withstableorevenhigher employment,arenotmutuallyexclusive.Indeed,theyarebothessentialforsuccessful growth.” Global networks and decentralized configuration strategies: Strategic, 134 structural, and cultural implications 1. Restructuringinternationalvaluecreation 135 2. Necessarychangesinthemanagementofinternationalcompanies 141 Glossary 148 Projectpublications 157 Publishinginformation 158 5 Foreword The need for leadership in international value creation Theever-changingglobalnetworkofeconomic Thechangesthathavetakenplaceinoperations, tiescallsforanewapproachtoleadership– one production,communicationsanddecisionmak- thatrequiresbothmanagementandpersonnel ingareparticularlyevidentintheautomotive toshowgreaterabilitytocooperate.Ifcompa- industry.Thereisnosuchthingasa“worldcar”; nieshopetomeetthechallengesofinternational particularlyinthemassmarket,manufacturers competition,theyneedtorecognizeandseize needtoadapttheirproductstosuiteachindi- theopportunitiesofferedbytheglobaleconomic vidualcountry.Thisisnotanewinsight.Butso system.However,thecompetitivepositionofan farcompanieshavehadlittlesuccessinfinding internationallyactivecompanyisnotdetermined therightbalancebetweencentralizationand solelybysuchfactorsascost-savingproduc- decentralization,betweencuttingcoststhrough MartinSpilker tion,leanprocessdesignorinnovativecapac- standardizationandtakingadvantageofgreater Program director ity.Inordertoprofitfromtheglobalmarket,a marketpotentialbyadaptingtheirproductsto companymustbeabletocreateandmanagean localneeds. internationalvaluenetworkanddelegatevalue functionstothepropersites.Thisappliesto Thecompetitivepositionofautomobilemanu- salesandprocurementaswellastolaborand facturersisofenormousconsequenceforthe capitalmarkets. economy.InGermany,onejobinsevenis dependentontheautomotiveindustry;inthe Despitepredictionsthatglobalizationwouldlead UnitedStatesitisoneinten,andthisindustry toahomogeneousworldmarketwithbarelydif- isbecomingincreasinglycrucialintheemerg- ferentiatedproducts,ithasbecomeclearthat ingeconomiesaswell.IndiaandChinaarewell culturaldifferencesstillplayamajorrolein ontheirwaytobecomingleadingcentersof customers’purchasingdecisionsandinthecom- productionandtechnology.Theircompaniesare StefanieSohm mitmentofacompany’semployees.Moreover, enteringtheglobalarenaasseriouscompetitors Project manager therearesubstantialdifferencesintheproduc- justasAmericanmanufacturersareshowing tionandquality-relatedprocessesneededinthe alarmingweakness,havingrestedfortoolong emergingmarketsrelativetotheindustrialized onthelaurelsoftheirearliersuccessesandfail- countries,andthisaffectseverythingfromprod- ingtorecognizechangesthatweretakingplace uctuse,pricinganddevelopmentpotentialto inthemarket. distributionandcommunicationschannels. 6 Today,thechallengeforacompanycompeting Thestudy“ManagingtheInternationalValue ontheinternationalstageistoadjustquicklyto ChainintheAutomotiveIndustry”looksat localcircumstanceswhilesimultaneouslyinte- selectedautomobilemanufacturerstodemon- gratingitsdivisionsandsitesworldwide,based stratehowcompaniescancompeteinterna- onidenticalprinciplesandasharedunderstand- tionallythroughtheproperorganizationand ingofthecompany’spurposeandobjectives. managementoftheirvaluestructures.Itshows Integratingthevarioussitesintocorporate howthesecompaniescandevelopthespecial strategy,acrossnationalanddivisionalbound- strengthsofindividualsitesforthebenefitof aries,requiresallowingandempoweringeach theentirecompany,andhowtheycanintegrate sitetoplayanimportantroleintheorganization. emergingeconomiesintotheiractivitiesinorder Acompanythatviewsitselfasavaluenetwork toaccommodatelocalneedsanddevelopnew isbetterabletoachievethisgoalthanonethat marketopportunities.Itlooksfromanewper- maintainsthepyramidstructureofatraditional spectiveatthequestionofhowbesttoachievea hierarchy. balancebetweencentralizationanddecentraliza- tion,focusingondeterminingwhichvaluefunc- Thestrengthofacompanyliesinitsnetwork tionsrequireadifferentiatedapproachintheir ofinternalandexternalcooperation,andthus organizationandmanagement. alsoinmutualtrust.Onlywhenmanagement respectsitsemployeesandallowsthemthe Everycompany’smanagementcantakeadvan- leewaytoactandgrowwillitbeabletoplace tageofsuchopportunities.Thegroundworkis itsconfidenceinthem,aswellasinitsvari- laidbyestablishingacorporateculturebased ousdivisionsandsites.Inmanycases,afearof onsharedvaluesandconvictionsateverylevel losingpowerandcontrolleadsmanagementto oftheorganization,showingconfidenceinthe chooseastronglyhierarchicalstructureanda company’semployeesandofferingthemthenec- centralizedorganization,andthisinitselfcre- essaryroomtomaneuver. atesobstaclestointernationalsuccess. This study originated as part of the project “Corporate Cultures in Global Interaction – People, Strategies, and Success,” which seeks to promote international and intercultural cooperation within and among companies. In addition to international value creation, its focus areas include cooperation competence, cultural diversity within companies, German- Chinese cooperation, mergers and acquisi- tions and corporate culture, as well as virtual cooperation. An overview of the project’s publications can be found at the end of this brochure. 7 Authors Stefan Schmid Philipp Grosche Prof.StefanSchmidholdstheChairof PhilippGroscheholdsagraduatedegreeinbusi- InternationalManagementandStrategicMan- nessadministrationandiscurrentlyaresearch agementatESCP-EAPEuropeanSchoolof assistantanddoctoralcandidateattheChairof ManagementBerlin.Hisresearchfocuseson InternationalManagementandStrategicMan- internationalizationstrategies,themanagement agementatESCP-EAPEuropeanSchoolofMan- offoreignsubsidiaries,andinternational agementBerlin.Hisresearchfocusesonthe corporategovernance.Heteachescoursesin managementofinternationalvaluechainsand master’s,MBA,executiveeducationanddoctoral theinternationalizationstrategiesofcompanies programs.ProfessorSchmidistheAcademic fromemergingmarkets. DeanoftheMaster’sinEuropeanBusiness (MEB)programatESCP-EAPandChairmanof theInternationalManagementDivisionwithin theGermanAcademicAssociationforBusiness Research(VHB). 8 Acknowledgments TheauthorswouldliketothankBertelsmann atESCP-EAPEuropeanSchoolofManagement Stiftungforitsinitiativeandcooperationincar- BerlinandparticularlytoThomasKotullaand ryingoutthisproject,especiallyStefanieSohm RenateRamlaufortheirvaluablecommentson andMartinSpilkerfortheirexcellentcollabo- earlierversionsofthispublication. Theoriginal ration.ThanksgoalsotoManuelaGeipeland textwaswritteninGerman.Itwastranslatedby CorneliaGraf-Chmielfortheiractivesupport ZVMediengestaltung&Sprachdienstleistungen, withrespecttodatacollectionanddataanalysis, towhomtheauthorswouldliketoexpresstheir aswellastothestaffoftheChairofInterna- sincereappreciation. tionalManagementandStrategicManagement 9 International value chains Current trends and future needs, as exemplified by the automotive industry 1. Internationalization of the value chain in the automotive industry 11 2. Configuration and coordination as crucial dimensions in shaping international 17 value chains 3. Best practices and options for managing the international value chain 25 References 28 10 1. Internationalization of the value chain in the automotive industry The expansion of companies into foreign mar- What factors contribute to the international- kets continues, and this is particularly true in ization of value creation?