Here’s How Volkswagen Plans To Grow In Emerging Markets

by Trefis Team
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As it looks to capture a greater market share in the fast expanding emerging markets, Volkswagen AG (OTCMKTS:VLKAY) is looking to manufacture economical vehicles in India, using the expertise of its Skoda brand. Reports suggest that the company is planning to design, develop, and engineer a low cost version of its modular platform MQB and this model would be ready for a 2020 launch.  Earlier this year, Volkswagen was looking to enter into an “emerging markets” partnership with Tata Motors as the company looked to expand its base in India. However, these talks did not materialize as Volkswagen could not identify any cost savings from the tie-up.  The company is now looking to go solo in its quest to build a volume oriented business for India and other emerging markets. A recent PWC report suggests that China and India, along with South East Asia and North Africa, would be the key regions driving growth in the light vehicle market in the coming years. Emerging markets are likely to contribute nearly 93% to the growth of this segment and Volkswagen is looking at making India its production hub to serve these emerging economies.

 Strategy To Build Cheaper Cars, Focus On Volume Based Business

With economic development, demand for automobiles in countries such as India is likely to increase rapidly. However several “new” consumers looking to buy their first vehicle would be entering the market, leading to a higher demand for cheaper vehicles. Volkswagen is working on a strategy to capture this trend by building budget cars in India, which could also be used to service regions such as Brazil and Iran. The company is likely to introduce its MQB (Modular Querbaukasten) platform in India to achieve economies of scale. The MQB kit consists of 15 individual modules that can be used for products across multiple platforms, thus offering greater economy of scale. A modified version of this platform designed to suit Indian requirements is likely to be used.

Volkswagen was looking to expand in India and other emerging markets, through partnership with a local player, which could have fast-tracked launch of new “budget” models in the region, allowing the company to take advantage of the growing demand as the economy grows. However, its strategy to leverage the expertise of Skoda and its own MQB platform should work well in the region.  A new line up of budget cars developed in India should help Volkswagen capture the growth in emerging markets.

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