When Porsche decided to enter the SUV market with its luxury Cayenne model, it surprised the auto industry by locating its new assembly plant in Leipzig in eastern Germany. Many observers believed that Porsche should have located the plant either in central or eastern Europe where labor costs were very low, or (like Mercedes and BMW) in the US where it would be close to its major market. Can you explain Porsche's decision?
Porsche took the risky step to manufacture its' Cayenne model in Leipzig for a number of reasons.
Demand Conditions: German engineering, craftsmanship, quality and design are world-renowned. Associating the assembling of a luxury SUV model in Germany (Designed and Made in Germany) with the Porsche brand name would provide these traits to the vehicle.
Strategy, Structure and Rivalry: There is German dominance in high performance, high end vehicles. By opening a plant in eastern Germany Porsche is preserving this dominance in spite of the fact that most of its' competitors have fled to cheaper labor costs in Eastern Europe.
Factor Conditions: Germany is known for producing high quality goods and brands. This acts a cloak to encase the luxurious Cayenne Porsche with allure. In addition, there is a concentration of highly skilled labor available in the area that is highly productive. The costs of assembling in Eastern Europe are lower looking solely at labor rates (according to this link ...
This detailed solution discusses Porsche's decision to locate its' SUV assembly plant in Leipzig. It gives reasons based on the criteria used in the included Figure to outline the reason for Porsche's decision, based on demand conditions, factor conditions, strategy, structure, and rivalry, related and supporting industries. It includes examples and links.