Products And Services, Key Competitors Essay Sample
Analysis of Porsche
Porsche is the dominant worldwide player in the sports car market. Products of the company include traditional two-door sports cars, Cayenne SUVs, and the luxury sedan Panamera (Henderson, & Reavis, 2009). Additionally, Porsche specializes in providing top-quality engineering and design services to car manufacturers all around the world through a wholly-owned subsidiary of Porsche AG, Porsche Engineering Group (PEG). The incredible quality of cars produced by Porsche, and the company’s key competitive advantages largely derive from an outstanding expertise and extensive experience gained through provision of engineering services. PEG provided services for virtually every major car producer in the world, except for key rivals that made luxury sports cars. Principal competitors of Porsche in the sports cars market include Bayerische, Daimler-Chrysler, Fiat, Ford, GM, Honda, Mazda, Mitsubishi, Nissan, Peugeot, Renault, and others (Fundinguniverse.com, Grant, 2000). In the engineering and design market, key rivals are Stola, Hawtal Whiting, MSX International, and Modern Engineering. The only car producer competing for outsourced engineering services is Lotus Engineering.
The history of Porsche began in 1931, when Ferdinand Porsche and Anton Piëch, his son-in-law, founded the company in Stuttgart, Germany. Porsche was not a car maker initially, focusing on selling design and engineering services to other producers of cars. In the mid-1930s, VW Type 60, the forerunner to VW Beetle, was released, made by Porsche on the commission of Adolf Hitler. The first sports car produced by Porsche hit the roads in 1948. During the dawn of 1950, the company released the first car of Porsche 356 series, and by March 1951 the 500th car rolled of Porsche’s production lines, doubling this number in only a six months’ time. The company started developing, prospering quickly, celebrities and the world’s richest people were the primary clients of the company, and its skills in design and engineering became so renowned that numerous reputable vehicle producers began collaborating with Porsche. In 1990s, Porsche faced its first major financial downturn primarily due to the weakening of the US economy, which was the company’s key market at that time. The new CEO Wendelin Wiedeking implemented a set of important actions including lean manufacturing principles and synchronized engineering, which were the major factors that enabled Porsche to make a turnaround. Additional aspect that contributed to Porsche’s recovery was moving beyond its principal sports car market through production of Cayenne, an SUV designed and manufactured in collaboration with VW, and introduced in 2003. Extension of Porsche’s product line continued in 2005 with Panamera, a luxury sedan produced jointly with VW. In early spring of 2008, the company gained a majority stake in VW, upping its holding from 31% to 50%.
Financial performance and condition
Since 1999, when Porsche began its impressive financial recovery, the company has been demonstrating outstanding financial performance. Its production upped from a little over 40,000 units in 1999 to over 100,000 units in 2008. Sales for the respective years jumped from about 3.5 billion euros (about $5 billion) to over 6.5 billion euros (about $9.7 billion). In terms of profit margins, Porsche vastly outperforms its main competitors. Porsche’s average sales per car constitute a stunning $91,974 while those of Mercedes, BMW, and Audi, for instance, total $59,454, $51,106, and $40,425 respectively. By 2007, the company was the most profitable carmaker in the world on a per unit basis. In 2007, revenue of Porsche totaled almost $10.1 billion, with net income equaling $9.4 billion, resulting in an astonishing profit margin of 93.44%.
Such impressive financial performance is possible due to incredible manufacturing efficiency. For instance, Toyota, one of the world’s most efficient car producers, loses majorly to Porsche in terms of operating margins. In 2006-2007, operating margins of Porsche constituted almost 20%, doubling those of Toyota. This indicator is especially impressive considering the general rule of the car production industry, which states that effective reduction of manufacturing costs is possible only though massive scale. To demonstrate that this is not always the case, it is enough to provide unit sales of Porsche and Toyota: in 2007, Porsche sold a little over 98.5 thousand cars, while Toyota sold 8.9 million cars.
Primary strengths of Porsche are associated with its solid financial performance, healthy profit and operational margins, and continued stable growth over the past decade. Another major point of the company’s strength lies within its competitive advantage, tightly connected to expertise and effectiveness of Porsche in its engineering and design services. Additionally, after the VW takeover, Porsche is able to make its production even more efficient, and enjoy benefits of VW’s scale. Based on these strength, Porsche is able to use the opportunities available for the company with maximum effectiveness.
The opportunities majorly revolve around the latest development on the automobile market. People are recognizing the need to switch to more environment-friendly and fuel-efficient vehicles, such as electric cars or hybrid cars that consume less fuel and cause much less pollution. The VW takeover presents Porsche with an opportunity to further diversify its product portfolio, if such a need arises. Finally, with the rapid growth of developing countries, these markets become highly attractive to car manufacturers of all segments, and Porsche has to seize this opportunity and occupy a strong competitive position to find a new major source of revenue growth.
Since Porsche has demonstrated an outstanding performance in all functional aspects, it is rather difficult to find any serious weaknesses of the company. The one thing that comes to mind is relatively small levels of revenue compared to major car producers like Toyota, GM, Ford, and Honda. For instance, in 2007, revenue of Porsche totaled $10.06 billion, while Toyota’s sales constituted a massive $262.39 billion. This weakness, however, can be countered with the scale of VW.
Threats mainly include the unstable global economic situation, primarily in the Western markets, which are considered principal for Porsche. In 1990s, the decline of the US economy led the company to the verge of bankruptcy, and nowadays the economy is considerably unstable, both in the American and European markets. Despite the takeover of VW leads to numerous opportunities and benefits for Porsche, it also poses some threats. For instance, carmakers that readily cooperated with PEG knowing that Porsche’s car-making business competed in a different segment, may now reconsider their position, since VW is their direct competitor. Finally, people all around the world, especially in the West, are becoming increasingly aware of environmental problems, and actively switch to compact, fuel-efficient cars that occupy little space and cause almost no pollution. Sports cars generally consume lots of fuel, so this tendency is undoubtedly a threat for Porsche.
Quality of managerial decisions and suggestions for improvement
Managerial decisions executed by Porsche during the last decade have been extremely successful. Implementation of lean manufacturing principles and synchronized engineering, combined with the diversification of the company’s product portfolio spearheaded by Wiedeking was already mentioned in the paper. Porsche’s management also makes great investment decisions, allocating a large part of the company’s earning to the primary source of Porsche’s competitive advantage – Research and Development. In 2007, 12% of the company’s revenue was invested in R&D, while the industry’s average R&D expenditure was around 5% (Henderson, & Reavis, 2009). Approach to human resources management at Porsche is impressive as well. The company generally employs several hundreds of graduate student interns, who provide significant help to the company’s staff engineers, while receiving invaluable on-field work experience. It is a win-win situation, since labor of interns is much cheaper than that of a seasoned professional, and working on actual projects at Porsche becomes a major part of their resumes.
One of the most debatable decisions made by Porsche’s senior management over the course of its history is the VW takeover. Therefore, my suggestion for improvement of Porsche’s performance in the future is sending a clear message to all the clients of both Porsche the car maker and PEG regarding the specific plans associated with the takeover. If the company’s position on that matter becomes known and understandable, PEG might avoid losing a great deal of clients. My other suggestions revolve around making the best use of opportunities presented before Porsche, and anticipating and timely reacting to threats that may arise. Details regarding opportunities and threats have been described in the SWOT section.
Funding Universe (n.d.). Porsche AG History. Retrieved from http://www.fundinguniverse.com/company-histories/porsche-ag-history/
Geromel, R. (2012). Can We Use Corporate Social Responsibility to Evaluate Companies? Retrieved from http://www.forbes.com/sites/ricardogeromel/2012/05/21/csr-corporate-social-responsibility/
Grant, T. (2000). International Directory of Company Histories, Volume 31. Farmington Hills, MI: St. James Press
Henderson, R., & Reavis, C. (2009). What’s Driving Porsche? MIT Sloan Management, 09(075), 1-11