A Volkswagen “Pivot” toward China?

In 2011, Volkswagen AG (VW) delivered 2.3 million cars in China, accounting for 27 percent of its total sales by volume. The importance of the Chinese market to VW, coupled with the unique difficulty of doing business in the People’s Republic’s partially state-run economy, explains VW’s creation of a new Group Board of Management functional responsibility specific to China during the company’s recent management reshuffling. Nevertheless, CEO Martin Winterkorn’s decision to create the office represents an unprecedented step; while VW’s existing functional responsibilities include a range of areas vital to the automaker’s operation as a business – Procurement, Group Commercial Vehicles, Sales and Marketing, Group Production, Human Resources and Organization, and Finance and Controlling – none focuses specifically on a single market.

Thus, the creation of the ‘China’ functional responsibility is not without importance. By creating the new office, Winterkorn has underscored China’s importance as the world’s largest automotive market and restated VW’s willingness to invest its energy in the country.

At the same time, the decision to concentrate more heavily on China does not represent a pivot away from more established markets. Winterkorn described the management reshuffle as a part of the company’s “Strategy 2018,” a plan to become the world’s leading automaker by 2018. As a part of VW’s “Strategy 2018,” the new functional responsibility for China accompanies the 2011 opening of a new production plant in Chattanooga, Tennessee. Rather than reflecting China’s priority over other markets, the creation of the new position represents an expansion into new markets alongside the retrenchment of VW’s transatlantic business.

Evidently, China plays an important role in the future of the German automaker. However, VW has shown that its attention to the emerging Chinese market will not come at the expense of the U.S. market.