Audi China Audi and Operations in China

Company Overview

Audi has a long and rich heritage as being a manufacture of luxury automobiles. The business has been in existence for more than a century when August Horch invented his first car in 1901 with the help of his workers (Audi Quattro, N.d.). Horch was later forced out of his own company in 1909 due to trademark infringements, 8 years after the company's first car completed finished production in the plant in Zwickau, Germany. Sometime later four companies merged to form a new company referred to Audi and used four interlocking rings as a company logo that is still being used today. Audi's current vision for the company is (Audi, 2015):

Vision: "Audi -- the premium brand"

"The Audi brand has focused on the challenges of the future in adopting its Strategy 2020. The strategy took on firmer contours during 2011 as the full potential of the mission "We delight customers worldwide" was explored in greater depth. It now gives more weight to new issues that have emerged as a result of heightened environmental awareness, growing uncertainty about the future availability of fossil fuels and increasing urbanization."

Audi today is owned by the Volkswagen Group which overall sells nearly three million cars a year in China. Under the Volkswagen umbrella, the company manufactures entire automobiles in China, sells and services them, and has some factories that produce parts and components. The Volkswagen group is the largest international company operating in the Chinese market largely because it was one of the first multinational companies (MNC) to enter the market in 1978 and was also the first international brand to establish manufacturing capabilities in the country. The company now has sixteen subsidiaries in China with its headquarters in Shanghai. This analysis will look at Audi's current financial position related to its Chinese operations as well as a discussion of its future opportunities.

Figure 1 - Audi's Worldwide Production Totals (Audi, 2015)

Audi in China

Audi is currently China's number one luxury auto brand by market share and it is projected that Audi will sell one hundred-forty thousand more cars in this market than its closest competitor BMW (Murphy, 2014). The Audi...

The following illustration shows the top three automobile manufactures projections for the Chinese market until 2020. The first place position in the luxury niche in China was BMW until recently.
Figure 2 - China Luxury Auto Market (Genius, 2009)

Volkswagen's financial performance worldwide has been successful. The company's operating margin is nearly four and a half percent of revenue and a net profit margin that is slightly more than five percent. Audi has been financially successful although the revenues have fallen compared to the five-year average. The organization also boasts over a twelve percent return on equity which is a high indicator and represents the fact that the company makes good use of the assets that it employs.

Figure 3 - Profitability Indicators (Market Watch, 2015)

However the total revenue of Audi fell between 2013 and 2014 from 6140 million EUR to 5,849 million EUR in 2014. Audi also had some profitability slip during this period but some of this can be explained as spending on plants and models of over one billion in Mexico and Brazil during the 3rd quarter (Cremer, 2014). Sales rose 10% to 47,145 in China in the last quarter of 2014 which helped to offset a 7% decline to 42,850 in Europe.

Chinese Business Environment

China is the fastest growing market in the world for many luxury goods and services. However, this market demands that luxury products be customized to fit the Chinese local preferences. For example, a sixty-three percent majority of international companies operating in China acknowledged that they needed to alter their product and marketing messages specifically for the Chinese market; however, in most cases, the alteration does not require a completely new product or service, but making small adjustments to existing products so that they better suit Chinese culture and preferences (Forbes, 2011).

The Chinese middle class is growing faster than in any other place on the globe. There is a high level of inequality in China and the middle class earns significantly more than other demographic segments in China as well as different from other middle class populations in…