The impacts of COVID-19 on German, French and Russian automotive industry
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ABSTRACT 3
INTRODUCTION 6
CHAPTER I: COVID-19 IMPACTS AND CONSEQUENCES ON INTERNATIONAL BUSINESS 9
1.1 Definitions 9
1.2 COVID-19 socio-economic impacts 10
1.3 Global value chains changes 13
1.4 Policy response of Russia, Germany, & France 18
1.5 Automotive industry in Germany, France, and Russia under pandemic 22
1.6 Industry 4.0 and business models transformation in the automotive industry 30
1.7 Dynamic capabilities 32
1.8 Research gap & propositions 33
2. Plan of empirical study 35
2.1 Methodology 35
2.2 Data collection 38
CHAPTER II: CASES STUDIES OF VOLKSWAGEN, RENAULT, AND AVTOVAZ SINCE PANDEMIC 39
1. Volkswagen 39
2. Renault 45
3. Avtovaz 50
4. Discussion of the findings 54
5. Theoretical implications 58
6. Managerial implications 60
CONCLUSION 61
BIBLIOGRAPHY 64
APPENDIX 1 - INDUSTRY 4.0 74
APPENDIX 2 - FIVE DYNAMIC CAPABILITIES IN THE EUROPEAN AUTOMOTIVE INDUSTRY 75
APPENDIX 3 - INTERVIEW 76
INTRODUCTION 6
CHAPTER I: COVID-19 IMPACTS AND CONSEQUENCES ON INTERNATIONAL BUSINESS 9
1.1 Definitions 9
1.2 COVID-19 socio-economic impacts 10
1.3 Global value chains changes 13
1.4 Policy response of Russia, Germany, & France 18
1.5 Automotive industry in Germany, France, and Russia under pandemic 22
1.6 Industry 4.0 and business models transformation in the automotive industry 30
1.7 Dynamic capabilities 32
1.8 Research gap & propositions 33
2. Plan of empirical study 35
2.1 Methodology 35
2.2 Data collection 38
CHAPTER II: CASES STUDIES OF VOLKSWAGEN, RENAULT, AND AVTOVAZ SINCE PANDEMIC 39
1. Volkswagen 39
2. Renault 45
3. Avtovaz 50
4. Discussion of the findings 54
5. Theoretical implications 58
6. Managerial implications 60
CONCLUSION 61
BIBLIOGRAPHY 64
APPENDIX 1 - INDUSTRY 4.0 74
APPENDIX 2 - FIVE DYNAMIC CAPABILITIES IN THE EUROPEAN AUTOMOTIVE INDUSTRY 75
APPENDIX 3 - INTERVIEW 76
I decide to dedicate my work to the analysis of the COVID-19 impacts, effects & consequences on the European automotive industry. As such, the present paper aims to analyse the managerial impacts and consequences of COVID-19 on International Business with a focus on the German, French, and Russian automotive industry until the 24th of February of 2022, when the Russia-Ukraine military conflict started. The interpretation of the results provides both academical and managerial implications.
Relevance of the research
Although pandemic has disastrous consequences in many fields of the global economy so far, many researchers have already warned about this kind of Global Systemic Risk before it ultimately happened. In a globalized world economy, each part of the supply chain is essential to sustain the global organization. What would happen in case of break-off? COVID-19 provides substantial evidence related to this key question. In facts, many academics investigate and try to clarify the event, its impacts, and consequences across different fields such as health, business, or politics.
It is important to notice that some consequences linked to pandemic are still hidden yet. However, short-term and mid-term impacts are ready for observation and analysis. They reflect a part of the whole direct and indirect consequences of the pandemic. For instance, I consider consequences in response from governments policies to counter COVID-19. While they affect business environment reasonably, they vary a lot depending on each country. In facts, Germany, France, and Russia have adopted different strategies that differ in time to counter the spreading of the crisis. It reaffirms the huge power of States on people’s life. The understanding of national policies help business to adapt accordingly. For instance, because Russia can be considered as a State capitalism, it supervises strategic projects investments in key sectors of its economy (Panibratov, 2016). It highlights stakes in the region and strengthens key academic research theories in the area of international business under COVID-19 period.
Hence, the aim of the paper is to study the impacts of COVID-19 on German, French and Russian business environment and to study the strategy adaptations of MNEs post COVID-19 in the context of a specific industry, in our case the automotive industry. In facts, relating consequences of the pandemic to the internationalized processes helps to provide more evidence to current academical concerns regarding the end of globalization or its transformation in terms of global value chains (GVC). Also, is provides both academical and managerial implications.
Research question:
How do companies adapt their strategies since COVID-19?
To answer this question, we ask two sub-questions:
1/ How does pandemic affect the economic development of Germany, France, and Russia?
2/ How do German, French, and Russian automotive manufacturers adapt their strategy since pandemic?
The first Chapter provides main definitions, theories, and insights about COVID-19 impacts and the automotive industry. Following main definitions, I start by presenting COVID-19 economic impacts and states policies used to fight against pandemic in Germany, France, and Russia. Then I describe the dynamism of the GVC shaped by evidence of shortage, FDI movements, regionalization, and relocation of activities.
Next, I present the evolution of the automotive industry in Germany, France, and Russia based on the supply and demand since 2019. As such, the industry comparison per country at pre-crisis and post-crisis level was made possible. From this scope, it is easier to point out similarities and differences regarding the effects of the crisis among countries. I also strive to present the main reasons behind the trends at the industry level.
Subsequently, I cover current academical knowledge - such as dynamic capabilities, digitalization & Industry 4.0 - that describe the dynamic of the automotive industry, under a new pandemic context. It serves to frame the creation of the research design. For instance, the dynamic capabilities framework is the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments (Teece, Pisano, & Shuen, 1997). Based on the theoretical background and understanding of the automotive industry in Germany, France, and Russia, seven propositions have been established and guides the study. European automotive manufacturers may be understood by German, French, and Russian automotive manufacturers:
• Proposition 1: Pandemic has supported the digitalization of European automotive manufacturers
• Proposition 2: Dynamic capabilities help European automotive manufacturers to overcome pandemic
• Proposition 3: European automotive manufacturers transform their business models faster since pandemic
• Proposition 4: Innovation capability is the main capability developed by automotive manufacturers...
Relevance of the research
Although pandemic has disastrous consequences in many fields of the global economy so far, many researchers have already warned about this kind of Global Systemic Risk before it ultimately happened. In a globalized world economy, each part of the supply chain is essential to sustain the global organization. What would happen in case of break-off? COVID-19 provides substantial evidence related to this key question. In facts, many academics investigate and try to clarify the event, its impacts, and consequences across different fields such as health, business, or politics.
It is important to notice that some consequences linked to pandemic are still hidden yet. However, short-term and mid-term impacts are ready for observation and analysis. They reflect a part of the whole direct and indirect consequences of the pandemic. For instance, I consider consequences in response from governments policies to counter COVID-19. While they affect business environment reasonably, they vary a lot depending on each country. In facts, Germany, France, and Russia have adopted different strategies that differ in time to counter the spreading of the crisis. It reaffirms the huge power of States on people’s life. The understanding of national policies help business to adapt accordingly. For instance, because Russia can be considered as a State capitalism, it supervises strategic projects investments in key sectors of its economy (Panibratov, 2016). It highlights stakes in the region and strengthens key academic research theories in the area of international business under COVID-19 period.
Hence, the aim of the paper is to study the impacts of COVID-19 on German, French and Russian business environment and to study the strategy adaptations of MNEs post COVID-19 in the context of a specific industry, in our case the automotive industry. In facts, relating consequences of the pandemic to the internationalized processes helps to provide more evidence to current academical concerns regarding the end of globalization or its transformation in terms of global value chains (GVC). Also, is provides both academical and managerial implications.
Research question:
How do companies adapt their strategies since COVID-19?
To answer this question, we ask two sub-questions:
1/ How does pandemic affect the economic development of Germany, France, and Russia?
2/ How do German, French, and Russian automotive manufacturers adapt their strategy since pandemic?
The first Chapter provides main definitions, theories, and insights about COVID-19 impacts and the automotive industry. Following main definitions, I start by presenting COVID-19 economic impacts and states policies used to fight against pandemic in Germany, France, and Russia. Then I describe the dynamism of the GVC shaped by evidence of shortage, FDI movements, regionalization, and relocation of activities.
Next, I present the evolution of the automotive industry in Germany, France, and Russia based on the supply and demand since 2019. As such, the industry comparison per country at pre-crisis and post-crisis level was made possible. From this scope, it is easier to point out similarities and differences regarding the effects of the crisis among countries. I also strive to present the main reasons behind the trends at the industry level.
Subsequently, I cover current academical knowledge - such as dynamic capabilities, digitalization & Industry 4.0 - that describe the dynamic of the automotive industry, under a new pandemic context. It serves to frame the creation of the research design. For instance, the dynamic capabilities framework is the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments (Teece, Pisano, & Shuen, 1997). Based on the theoretical background and understanding of the automotive industry in Germany, France, and Russia, seven propositions have been established and guides the study. European automotive manufacturers may be understood by German, French, and Russian automotive manufacturers:
• Proposition 1: Pandemic has supported the digitalization of European automotive manufacturers
• Proposition 2: Dynamic capabilities help European automotive manufacturers to overcome pandemic
• Proposition 3: European automotive manufacturers transform their business models faster since pandemic
• Proposition 4: Innovation capability is the main capability developed by automotive manufacturers...
This paper studies COVID-19 impacts on the European automotive industry represented by Germany, France, and Russia. First chapter overviews COVID-19 impacts and policies used by the States to fight against pandemic and present main theories such as dynamic capabilities, GVC and digitalization in the European automotive industry in order to strengthen the research design. The chapter also describes the negative evolution of the automotive industry since pandemic essentially due to lockdowns policies followed by States and chips shortage. Second chapter illustrates how and what automotive companies do since pandemic context based on 7 propositions established at the end of the previous chapter. Volkswagen, Renault and Avtovaz were chosen to understand the post COVID-19 adaptation of automotive manufacturers with the help of 5 capabilities (Innovation, Networking, Adaptability, Absorptive, Policy variable) identified by Panibratov et al. (Panibratov, Rysakova, & Luo, 2021). An explanatory holistic multiple case studies approach was chosen in order to understand the real life-context of automotive manufacturers and to bring an in-depth understanding of the industry evolution since pandemic (Yin, 2009). The contextualisation of the chosen theory applied to case studies that generate causal explanations helps to extend the current academic knowledge in the international business field. Multiple case strengthens the result as it points out the similarities and differences between the case studies, while patterns identification in terms of number and nature of capabilities among the case studies pushed for internal validity of the results. The Russia-Ukraine military conflict variable was removed from the analysis as it would have biased the results.
The main contribution of the research is that it extends the 5 dynamic capabilities identified by Panibratov et al. (Panibratov, Rysakova, & Luo, 2021). First of all, I identified a total of 34 evidence of such capabilities across all companies (Volkswagen 47%; Renault 30%; Avtovaz 23%) revealing the degree of importance of each of them. The findings suggest that choices of actions, reflected in highlighted dynamic capabilities, are partly driven by the business models shift toward greater digitalization with software and services development inside the automotive industry, in accordance with previous research (Spieske & Birkel, 2021; Nevskaya 2021; Osipov 2021). Consequently, inside the European automotive industry, companies adapt by developing dynamic capabilities - top 3 capabilities are Innovation (32.5%), Networking (23.5%) and Adaptability capabilities (20.6%).
Automakers innovate to stay ahead of market and uncertainty (Nevskaya 2021; Osipov 2021; Panibratov, Rysakova, & Luo, 2021). For instance, Volkswagen IT labs in Munich works on quantum computers for commercial application areas (Proposition 1; 2; 4). Automakers ally with qualified associates to develop new knowledge (e.g. car sharing services) from external resources (Schmitt, 2013; Panibratov, Rysakova, & Luo, 2021). As an example, Renault partners with Google to develop its software services and train its employees (Proposition 3; 5). Automakers relies on their own resource and competitive advantage that characterize their adaptability capabilities. As such, Avtovaz managed to carry on the production with redirection of semiproducts inventory (Proposition 2). Automakers regionalize (Schmitt 2013; Kuznetsov & Kuznetsova) to growing Asian markets driven by China (Proposition 6). To implement them, they establish partnerships with local actors in growing markets such as China for Volkswagen and Renault, or Kazakhstan and Uzbekistan for Avtovaz.
Policy variable capability seemed not to be an important driver considered by studied automotive players, but more a conventional rule of doing business. More importantly, reshoring activities were more likely to happen to answer semiconductors shortage, but no such evidence among the case studies was found. Consequently, the proposition 7 (“European automotive manufacturers undertake reshoring activities since pandemic”) has been rejected.
Consequently, theoretical implications of the research propose a review of the 5 capabilities identified by Panibratov et al. (Panibratov, Rysakova, & Luo, 2021) by shifting the Policy variable capability with a new one: ‘regionalize’ capability. As such, it incorporates present findings of the study and relies on previous research on regionalization (Schmitt, 2013; Kuznetsov & Kuznetsova, 2020). Moreover, the creation of a new framework (Appendix 2 - FIVE DYNAMIC CAPABILITIES IN THE EUROPEAN AUTOMOTIVE INDUSTRY) adds a ranking order that now considers the degree of importance of each of the studied dynamic capabilities identified in the European automotive industry.
Business models transformation of automotive players shift toward a combination of car producers, software, and mobility shared services. The study showed that the transition accelerates since pandemic. In facts, findings refresh and strengthen previous research on digitalization (Spieske & Birkel, 2021; Nevskaya 2021; Osipov, 2021). Software services expand possibilities to differentiate, it is a new factor of growth in the industry. Previous research identified vertical integrations as potential strategies followed by automotive manufacturers (Osipov, 2021). As such, Volkswagen is a great example. The findings suggest that the company ambitions to vertically integrate a lot of its electric batteries suppliers in Europe to create massive factories (The Verge, 2022).
In terms of managerial contribution, the new proposed framework can serve managers to understand the dynamism of their industry. Thanks to the framework, they can orient the development of dynamic capabilities and prioritize them depending on goals and resources available. The differentiation offered by digitalization in software and shared mobility services brings the necessity for automotive manufacturers to control new infrastructures such as electric batteries chargers. Therefore, vertical integrations are more likely to happen in the industry. The findings showed that Volkswagen is already heading to this direction.
Business models are changing in the industry: it is now a combination of hardware (vehicles), software developments and digitalized services. Consequently, main players will continue to undertake new opportunities focused on growing market such as the Asian market, led by China. Since pandemic, many investments axed on digitalization are being processed, and the regionalization trend is suspected to reinforce. It aligns with previous research that considered the best strategy to counter COVID-19 risks would be to combine local supply sources and industry 4.0 power in the automobile industry (Nevskaya, 2021)....
The main contribution of the research is that it extends the 5 dynamic capabilities identified by Panibratov et al. (Panibratov, Rysakova, & Luo, 2021). First of all, I identified a total of 34 evidence of such capabilities across all companies (Volkswagen 47%; Renault 30%; Avtovaz 23%) revealing the degree of importance of each of them. The findings suggest that choices of actions, reflected in highlighted dynamic capabilities, are partly driven by the business models shift toward greater digitalization with software and services development inside the automotive industry, in accordance with previous research (Spieske & Birkel, 2021; Nevskaya 2021; Osipov 2021). Consequently, inside the European automotive industry, companies adapt by developing dynamic capabilities - top 3 capabilities are Innovation (32.5%), Networking (23.5%) and Adaptability capabilities (20.6%).
Automakers innovate to stay ahead of market and uncertainty (Nevskaya 2021; Osipov 2021; Panibratov, Rysakova, & Luo, 2021). For instance, Volkswagen IT labs in Munich works on quantum computers for commercial application areas (Proposition 1; 2; 4). Automakers ally with qualified associates to develop new knowledge (e.g. car sharing services) from external resources (Schmitt, 2013; Panibratov, Rysakova, & Luo, 2021). As an example, Renault partners with Google to develop its software services and train its employees (Proposition 3; 5). Automakers relies on their own resource and competitive advantage that characterize their adaptability capabilities. As such, Avtovaz managed to carry on the production with redirection of semiproducts inventory (Proposition 2). Automakers regionalize (Schmitt 2013; Kuznetsov & Kuznetsova) to growing Asian markets driven by China (Proposition 6). To implement them, they establish partnerships with local actors in growing markets such as China for Volkswagen and Renault, or Kazakhstan and Uzbekistan for Avtovaz.
Policy variable capability seemed not to be an important driver considered by studied automotive players, but more a conventional rule of doing business. More importantly, reshoring activities were more likely to happen to answer semiconductors shortage, but no such evidence among the case studies was found. Consequently, the proposition 7 (“European automotive manufacturers undertake reshoring activities since pandemic”) has been rejected.
Consequently, theoretical implications of the research propose a review of the 5 capabilities identified by Panibratov et al. (Panibratov, Rysakova, & Luo, 2021) by shifting the Policy variable capability with a new one: ‘regionalize’ capability. As such, it incorporates present findings of the study and relies on previous research on regionalization (Schmitt, 2013; Kuznetsov & Kuznetsova, 2020). Moreover, the creation of a new framework (Appendix 2 - FIVE DYNAMIC CAPABILITIES IN THE EUROPEAN AUTOMOTIVE INDUSTRY) adds a ranking order that now considers the degree of importance of each of the studied dynamic capabilities identified in the European automotive industry.
Business models transformation of automotive players shift toward a combination of car producers, software, and mobility shared services. The study showed that the transition accelerates since pandemic. In facts, findings refresh and strengthen previous research on digitalization (Spieske & Birkel, 2021; Nevskaya 2021; Osipov, 2021). Software services expand possibilities to differentiate, it is a new factor of growth in the industry. Previous research identified vertical integrations as potential strategies followed by automotive manufacturers (Osipov, 2021). As such, Volkswagen is a great example. The findings suggest that the company ambitions to vertically integrate a lot of its electric batteries suppliers in Europe to create massive factories (The Verge, 2022).
In terms of managerial contribution, the new proposed framework can serve managers to understand the dynamism of their industry. Thanks to the framework, they can orient the development of dynamic capabilities and prioritize them depending on goals and resources available. The differentiation offered by digitalization in software and shared mobility services brings the necessity for automotive manufacturers to control new infrastructures such as electric batteries chargers. Therefore, vertical integrations are more likely to happen in the industry. The findings showed that Volkswagen is already heading to this direction.
Business models are changing in the industry: it is now a combination of hardware (vehicles), software developments and digitalized services. Consequently, main players will continue to undertake new opportunities focused on growing market such as the Asian market, led by China. Since pandemic, many investments axed on digitalization are being processed, and the regionalization trend is suspected to reinforce. It aligns with previous research that considered the best strategy to counter COVID-19 risks would be to combine local supply sources and industry 4.0 power in the automobile industry (Nevskaya, 2021)....
