Dieselgate: a strategy perspective on the Volkswagen scandal

by René Bohnsack

It has almost been 6 months since Volkswagen has admitted using so-called cheat devices in a majority of their cars in order to fulfil increasingly stricter emission regulations. Volkswagen, in striving to become nothing less than the largest car manufacturer in the world, has thereby jeopardised its existence, damaged the German reputation and deceived millions of now distrustful customers.

One of our recently published studies allows a look behind the strategic scene of the scandal. Basically, the car industry is one of the, if not the most complex global industry. The international activities of car manufacturers are part of that. All of these different international markets have their own government policies with diverse agendas, often favouring local players. We found that globally there is an intricate interplay between local, national and international government policies and car manufacturers’ strategies (see the figure).

Analysing the case of Volkswagen with our “International Multi-Level Framework” (see figure) we find that VW got hammered on diesel engines in the US, a place where the government does not favour this technology. In fact there is a good chance that the scandal would never have developed the same way in Europe, as there is more political backing for diesel in Germany and France, for example.

In other words, VW’s presence in the US has made it vulnerable to the different attitude towards diesel, which now spreads across the globe. It also spreads to the home market where it was protected so far by more lenient policy of being able to do the testing in self-defined conditions.

From a strategic perspective, VW’s objective to become the No.1 car manufacturer requires operations in the U.S. as a major market. Toyota, its closest competitor for the first rank, had a strong position for years in the U.S., partially based on a competitive advantage they have gained due to strict emission regulation in their home market Japan. VW in the US on the other hand was then exposed to fulfil technological requirements that did not fit their capabilities and decided to engage in illegal actions. What we now see is that the U.S. reaction (e.g. more rigorous testing) has been spreading and haunting VW in other markets including their home market ever since.

Companies can learn from this. In a world in which many companies create large shares of their revenues in foreign markets and in which government regulation is increasing, companies are well advised to screen their international environment. Particularly they should test their strategy for fit with foreign policies before entering a market – because not every attractive market is a suitable market – and companies should follow the activities of competitors abroad closely since they might be subject to more demanding policies which could give them later on a competitive advantage in international markets. Not doing that, could lead to costly implications. In the case of VW – which at the moment seems to be pushed by the U.S. Environmental Protection Agency to make up for their mistake by producing electric cars in the U.S. — the coming month will be interesting to witness and see how the overall effect of their negligence will unfold.


Figure: The International Multi-Level Framework

For further reading see: Bohnsack, R., Kolk, A., & Pinkse, J. (2015). Catching recurring waves: low-emission vehicles, international policy developments and firm innovation strategies. Technological Forecasting and Social Change, 98, 71-87. ResearchGate.

Published in Portuguese: https://www.dinheirovivo.pt/opiniao/510679/



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