Volkswagen AC, is the fourth largest car manufacturer
 in the world and operates in just about every country. It regards telecommunications as the key element in
"building a global patchwork of individual plants and sales organizations and making these bodies
effective." Recent new pieces of the patchwork include VW's acquisitions in the Czech Republic and plants in Shanghai and Chanchung, China. It is important to VW to integrate new companies and partners quickly into the infrastructure.
"If we do not accomplish this, we will not be able to integrate the business process and then we will not reach the economies of scale, which is the primary reason we bring companies
together." (All the comments quoted here are from interviews with VW managers in December 1991.)
At the end of 1991, VW was restructuring its entire corporate backbone network, mainly to ensure better backup availability. VW planned to use 2 Mbps links across the backbone and slower backup links. Finalizing the strategy depended less on technology shall on tariffs:
"In Germany, we are charged a factor of 20 times higher for higher-speed lines-if they are available at all-than our partners in the U.S. or
Japan."
This is just one of the hurdles. Satellite connections are the only way for VW to integrate its Czech Republic plants with operations in Wolfsburg, Germany, even though the distance is only a few hundred miles; the highest speed available before 1992 was 9.6 kbps. VW is outsourcing its Chinese computers and communications:
"We would have to clear with the Chinese PTT and local authorities there. They probably only speak one Chinese dialect so this would make it very difficult to coordinate the business from here or even from our offices in Shanghai or Chanchung. Therefore, our China links will most certainly be established via a service
provider."
Across most of Europe, "it is still very much the PTTs that are setting the scene because of their traditional
monopolies." VW must fight to get cross-border services. In Spain, only 9.6-kbps links were available; VW lobbied to get 64 kbps. It needs 2 Mbps to link its different Spanish locations. The charge for a connection from Wolfsburg to Pal-is is equivalent to one from New York to Mexico. In the United States, VW has benefited from its VSAT dealer network in terms of cost and efficiency.
"However, regulatory and cost issues do not allow the use of VSAT in Europe as we do it in the
U.S."
Where it is practical to do so in terms of regulation and cost, VW exploits technology aggressively through voice/data integration. It has a 384-kbps Wolfsburg-to-U.S. link that is 70 percent voice; voice is compressed to 32 kbps. When the network is reconfigured, this will improve to 8 kbps. The extra bandwidth freed up will be used to carry data applications, such as CAD/CAM.
VW had discussed the possibility of outsourcing some network operations with a number of companies. In the United States, MCI is the service provider for its satellite link to Mexico and Canada and across the Atlantic.
"But in Europe, we are greatly restricted because of the lack of competition and the lack of responsiveness from too many of the
PTTs."
Questions for Discussion
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Explain why a company's desire and willingness to create a high-speed international network linking its many plants and divisions is not sufficient to make it happen.
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Does it make any sense to have a 2 Mbps link between several nodes in the network but only 9.6-kbps links between other nodes due to the limited availability of high-speed circuits in some countries? Isn't the capability of the network determined by its slowest, lowest-capacity link? Discuss.
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Prices for the same service in different countries can vary by a factor of 20 or more. The differences in the cost of providing the service cannot vary by that much, so what accounts for the dramatic price differences?
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