Volkswagen's Acquisition of Skoda Auto: A Central European Success Story

            
 
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Case Details:

Case Code : BSTR262
Case Length : 24 Pages
Period : 1991-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : Volkswagen AG, Skoda Auto Industry : Automobile
Countries : Czech Republic

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Background - Skoda

Skoda was set up in 1895, at a place called Mlada Boleslav in what was then a part of the Austro-Hungarian Empire7. It was originally called Laurin and Klement Co. (L&K), after the two founders Vaclav Laurin, a mechanic, and Vaclav Klement, a bookkeeper. L&K's main business was manufacturing and selling bicycles. The firm's bicycles proved popular, and L&K ventured into making motorcycles in 1899. L&K's motorcycles participated in several racing events, and won some of them, enhancing the company's reputation. L&K started manufacturing cars in 1905. When its first model, the Voiturette A, became a commercial success, L&K started expanding, and in 1907, the firm was incorporated as a joint stock company. During the First World War (1914-1919), L&K was involved in arms production.

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After the War ended, L&K diversified into making trucks, buses, aviation engines and agricultural machinery, in addition to cars. This required additional investments, for which it started looking for a partner. In the early 1920s, after a fire at the L&K factory, the need to find a partner became critical. In 1925, L&K was acquired by Skoda Plzen, the largest industrial enterprise in what was then Czechoslovakia. After the merger, L&K's vehicles began to be sold under the Skoda name8.

In the period between the two World Wars, Skoda's cars were exported across Europe. During that time, the company's cars were known for their elegant looks and technical superiority. Although sales were affected to some extent by the Great Depression9, Skoda's popularity did not diminish significantly. During the Second World War (1939-1945), Skoda came under the control of Nazi Germany, and the company's production facilities were used to support Germany's war efforts. After the War, Czechoslovakia came under the influence of Soviet Communism, and all the companies in the country were nationalized. Skoda Plzen's different business units, including the auto manufacturing unit, were split into seven independent entities10...

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7]  Czechoslovakia declared its independence from the Habsburg Empire of Austria-Hungary in 1918. It was further split into the countries of Czech Republic and Slovakia in 1993.

8]  Skoda was a Czech surname, which became the name of the company. Ironically, it also means 'pity', 'shame' or 'damage' in Czech.

9]  The Great Depression was a time of economic downturn, which started after the stock market crash in the US on October 29, 1929, known as Black Tuesday. It began in the United States and quickly spread to Europe and every part of the world, with devastating effects in both the industrialized countries and those which exported raw materials. (www.wikipedia.com).

10]  http://www.skoda-steel.net

 

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