My recent blog about manufacturing trends in Central and Eastern Europe sparked a couple of comments about Škoda Auto, a Czech Republic-based carmaker and wholly-owned subsidiary of the Volkswagen Group. I thought it deserved some follow-up attention.
Škoda, with about 110 years of history under its hood, has essentially recreated itself this past decade. It has shed its image as a lower-quality regional player with cheap driving alternatives and become a well-touted brand earning worldwide “car of the year” accolades for its design and safety standards.
Škoda's success isn't only conceptual. A quick look at recent sales and profits may cause other automakers to drool as they try to revamp strategic operations and recover from the recession. So far this year, Škoda has delivered 373,400 vehicles worldwide from January to May, a 21.5 percent increase from the comparable 2010 period, when the company shipped 307,400 cars, according to a Volkswagen press release.
The month of May, in particular, was noted as the company's best month ever and marked the third successive monthly record. Year-over-year numbers are equally impressive. Sales for Škoda Auto Group in 2010 jumped to about 8.7 billion euros ($12.4 billion), up from 7.1 billion euros in 2009 (about $10.2 billion). Gross profit rose to 1.2 billion euros ($1.7 billion) last year from the 816 million euros (about $1.2 billion) recorded in 2009, according to company documents.
Geographically, too, Škoda has extended its footprint far beyond its home base. Eastern Europe represented only 9.7 percent of 2010 sales, and Central Europe garnered 15.8 percent, according to its 2010 annual report. While Western Europe accounted for a lion's share of 2010 sales (43.7 percent), Škoda's presence in Asia (30.8 percent of sales) is worth watching. China and India are targeted sweet spots for the carmaker's near-term growth strategy, with places like Russia and Turkey also quickly accelerating (pun intended).
While its affiliation with Volkswagen, a well-respected innovator with a focus on high-quality brands, may have had obvious influence on Škoda's recent momentum, it goes to show what's at stake for other manufacturers. Those that can successfully transition from low-cost, volume assembly to efficient, quality-oriented production could gain significant global traction. As I wrote last week, IDC is seeing Central and Eastern Europe manufacturers mature in this direction, and there could be implications for many electronics OEMs and suppliers. (See: Manufacturing Matures in Central, Eastern Europe.)
So how did Škoda make this leap? I have a couple of ideas.
Clearly, partnering with Volkswagen has delivered benefits that are difficult to list in just one blog post. Venturing a guess, I would say Volkswagen's R&D, engineering, and design activities have given Škoda a considerable boost. And rebranding itself as “Simply Clever” may have aligned corporate core principles with desired customer appreciation.
But Škoda has also emphasized its quality, technology innovation, and skilled labor force development in other ways. First, it has actually committed to meeting its strategic growth goals via the “transformation of the current business model toward a clear price/value focus of the Škoda-brand products,” as stated in its annual report. It plans to achieve this by:
- improving efficiency
- reducing complexity
- optimizing investment
- forming a global team of top talents
- mobilizing employees.
That may sound like lip service to make shareholders happy, but the company has already taken a number of steps in fulfilling this objective. For instance, in 2000, the vocational technical college in Mladá Boleslav was joined to the company’s own college, where Bachelor's and Master's degrees are both respected and state-approved. Similarly, plans are in the works to introduce doctorate and foreign language courses, with a focus on business administration, marketing, sales, finance, and environmental management, according to Volkswagen. Škoda has invested more than 15 million euros ($21.5 million) in its Na Karmeli skills training facility, making it the largest corporate training center in the Czech Republic.
Theoretically, if Škoda is willing to make this kind of investment in its people, other projects will be prioritized along similar lines. The payback, too, will be evident in its design centers, supply chain management capabilities, and manufacturing shop-floor operations. It's anyone guess as to whether Škoda will be as successful as it hopes. But it does appear that reaching a certain stage of maturity is making the company a timeless example for others.