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Case Paper- Porsche Read Porsche case carefully and write a strategic analysis of the company.  Describe each of these elements: Porsche’s competitive posi

Case Paper- Porsche Read Porsche case carefully and write a strategic analysis of the company.  Describe each of these elements: Porsche’s competitive posi

Click here to Order a Custom answer to this Question from our writers. It’s fast and plagiarism-free.

Case Paper- Porsche Read Porsche case carefully and write a strategic analysis of the company.  Describe each of these elements: Porsche’s competitive positioning, industry and external environment, and resources and capabilities.  (750 to 1,500 words). 

Next, I’d like you to give me a 1 page debate, where you argue BOTH sides of this statement: “Porsche has made a critical error in expanding into the SUV and sedan segments, and this will damage their prestige and standing with customers in the long-term.”  

Lastly, make 1-3 strategic recommendations for Porsche (450 to 750 words ). 

IMPORTANT NOTE: The case talks a lot about the location for manufacturing cars.  That is NOT what I’m interested in.  Ignore that aspect of the case and focus instead on the competitive environment, the industry, and Porsche’s core competencies.  Do not write about the decision regarding the location of manufacturing. 

PLEASE ONLY USE MATERIAL FROM THE ATTACHED FILES ! Please be sure to use the Porsche case

Another article to use 

https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2 9 – 7 0 6 – 0 1 8
R E V : M A R C H 1 4 , 2 0 0 7

________________________________________________________________________________________________________________

Professor Jeffrey Fear and Carin-Isabel Knoop, Executive Director, Global Research Group, prepared this case from published sources with the
assistance of Research Associate Claudia Linsenmeier. HBS cases are developed solely as the basis for class discussion. Cases are not intended to
serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2006 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.

J E F F R E Y F E A R

C A R I N – I S A B E L K N O O P

Dr. Ing. h.c. F. Porsche AG (A): True to Brand?

I do not copy any Harvard blueprint; instead I try every day to lead my team through fact-based
discussions. In this process it helps that people feel how enthusiastic I am. I stand behind every decision. My
colleagues learn that immediately.

— Wendelin Wiedeking1

Porsche . . . there is no substitute.
—Porsche advertising slogan2

[Location] is not an uncritical issue. People think that as a car comes off the line at Zuffenhausen,
[company founder] Ferdinand Porsche comes by and caresses the car with his hand, and that makes it an official
Porsche. Of course, Ferdinand Porsche hasn’t been doing that for some time.

—Porsche spokesman3

In August 1996, legendary sports car maker Dr. Ing. h.c. F. Porsche A.G. (Porsche)4 launched the
Boxster, a zippy new two-seater with an “entry-level” price of $40,000. At the same time, Porsche
chairman and CEO Wendelin Wiedeking stunned the automotive world by announcing that as of
September 1997 the Boxster would be assembled in Finland, rather than at Porsche’s main
Zuffenhausen plant, which was already operating beyond capacity. In spring of 1998, just months
after the controversial move to Finland, Wiedeking shocked observers yet again by confirming
rumors that Porsche would enter the fast growing sport-utility vehicle (SUV) market by 2002. The
company would also be looking for a production site for this new model.

This one-two punch immediately sparked a debate about whether Porsche would or could remain
true to its brand and its “made in Germany” imprimatur. Could the Porsche brand ever align with an
SUV concept? Could the small German company become a major player in the already very
competitive—and chiefly U.S.-oriented—SUV market? Would luxury SUV sales expand beyond
North America to markets that had neither the roads and parking nor the cheap energy for oversized
vehicles? And would SUV production be located in Germany or elsewhere? Launching a new model
series was risky for any manufacturer, but especially risky for a small player such as Porsche.

If Porsche went ahead with an SUV, there were several options for development and production.
It could partner with a major manufacturer to gain development and manufacturing efficiencies as
well as production slots. Porsche could also follow the course of its German compatriots BMW and
Mercedes-Benz, who had established manufacturing bases in the United States, the largest SUV

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706-018 Dr. Ing. h.c. F. Porsche AG (A): True to Brand?

2

market in the world. But Porsche would need to decide if “made in Germany” was integral to its
global appeal. However, making SUVs in Germany—with its strong unions, high and rising labor
costs, and appreciating currency—could push the luxury product prices even higher, and posed other
challenges as well. But how important was it for the new model to actually be “made in Germany?”

The responsibility for these decisions lay with Wiedeking, a relentless efficiency expert who, in the
mid-1990s, had steered Porsche through one of the most noteworthy turnarounds in industry history.
He staved off bankruptcy by cutting costs, paring the product line to two models, and expanding into
70 global markets—30 more than in 1993.5 By the time of the 1998 SUV announcement, the 50-year
old firm was back on solid financial footing and its stock price beat the national DAX index by 180%
in the previous two years (see Exhibits 1 and 2 for stock and financial information).

But the company still needed to manage risk sensibly. Analysts fretted about the dilutive impact
an SUV might have on the Porsche name, and worried that the DM 1 billion investment (ca. $550
million in 1998) was a huge bet for a small player like Porsche. Meanwhile, competition within
Porsche’s core business was expected to increase with the coming launch of a sporty two-seater from
Audi, positioned at an equal performance level but priced 15% below the Boxster.6

The Legacy

Ferdinand Porsche was born on September 3, 1875, in Maffersdorf, Bohemia, in the former Austro-
Hungarian Empire (now Vratislavice in the Czech Republic). After a brief stint as Daimler-Benz’s
technical director, he left the company, which did not want to build small, fast cars for the public.
Unemployed at 55, Porsche started his own design firm for all sorts of vehicles. His son, Ferdinand
Anton Ernst “Ferry” Porsche, and his son-in-law, Anton Piëch,7 joined him, along with key engineers.
Ferry became head of R&D. The senior Porsche, renowned for his temper and single-mindedness,
imbued the firm with a spirit of fierce independence.

In 1934, Adolf Hitler tasked Porsche to develop a family car that was both cheap and reliable—
yielding the “people’s car” or Volkswagen, whose design was intended to evoke the German infantry
helmet and honor National Socialist ideals. During wartime, the company focused on tank design,
including the formidable “Tiger.” In June 1948, Porsche launched the 356, the first automobile to
carry the Porsche name. Volkswagen manufactured the 356, with its tubular space-frame chassis,
aluminum body, and rear-mounted four-cylinder engine, until Porsche opened its own production
facility in Stuttgart-Zuffenhausen in 1950.8 See Exhibit 3 for company milestones.

In 1953, Porsche produced its first car specifically for racing, the 550. In 1964 came the 911, also a
racing car. Designed by Ferry’s eldest son, Ferdinand Alexander “Butzi” Porsche, the vehicle became
a twentieth-century design milestone. In the 1970s Porsche and Volkswagen collaborated on
launching the 914. In 1972, Porsche became a joint stock company (Porsche AG) with the Porsche and
Piëch families on the supervisory board. Butzi left the company at the same time to found his own
design studio for other products, called “Porsche Design.”

Porsche AG was nearly derailed by the U.S. economy’s tailspin and stock market crash in 1987.
Sales volume collapsed from a peak of 50,000 cars in 1986 to 14,000 in 1993.9 The culprits were global
recession—particularly in the United States, Porsche’s most important market—and a stagnant
product line. Leadership problems also affected company performance during this period. In 1990
Butzi succeeded Ferry as chairman of the supervisory board, but lasted only until early 1993. He was
replaced by Helmut Sihler, one of the most respected men in German business. Moreover, between
1987 and 1992, four chairmen of the managing board left in disputes with the controlling Porsche and D

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Dr. Ing. h.c. F. Porsche AG (A): True to Brand? 706-018

3

Piëch families about how to run the company.10 Sihler named Wendelin Wiedeking, a 38-year-old
engineer from central-western Germany, executive director (CEO) of the group in 1993.

New Leadership

An avid car enthusiast since childhood, Wiedeking first drove at age 11, and built over 1,500
model cars as a boy. After completing his doctorate in engineering, he joined Porsche in 1983 as an
assistant to the production director. He left in 1988 to head a maker of automotive ball bearings,
where he was exposed to Japanese and American production methods and management strategies. In
1991 he returned to Porsche as production and materials management director, and was soon
promoted to spokesman of the executive board, and then President and CEO.

Wiedeking claimed that the most important quality in leading a manufacturing operation was
“clear direction.” Since the age of 15, after his father’s death, his goals had been clear: “I have always
known what I wanted and have also realized it—without regard for the hesitant and the doubtful.”11
He believed that an effective manager had to “make everybody know about the strategy. In bad
times, you must talk very openly about the problems you’re facing. Say what you really mean. Put
everything on the table. Good things as well as bad things. And then do it. Just do it.” He was also
said to like and live by two German proverbs: “You sweep the steps from the top down” and “He
who barks must also bite.” Finally, while rival brands such as Jaguar, Ferrari, Lamborghini, Lotus,
Alfa Romeo and Aston Martin had allowed themselves to be sold to mass marketers such as Ford,
Fiat, Chrysler and General Motors, Wiedeking remained as independent as the company he led,
explaining “Size alone is not a prerequisite for survival.”

Wiedeking quickly made his mark inside and outside the company. He emerged as one of the
most admired, but outspoken and unconventional CEOs in Germany, challenging the very tenets of
shareholder value, and questioning the necessity of issuing quarterly reports and forecasts. “Yes
certainly, we [Porsche] too have already heard about shareholder value,” he explained. “That
changes nothing for us because our customer comes first, then our employees, then our business
partners, suppliers, dealers and afterward our shareholders. It is completely inappropriate to place
the shareholder first. It will limit the strength of the enterprise. You will achieve the opposite goal
and spiral downwards.”12 Such tough talk and bold decision making was quickly turning Wiedeking
into a “brand”13 himself, like Chrysler’s Lee Iacocca in the 1980s.

Lean Production

Together with a global brand name and a highly skilled workforce, Wiedeking inherited a bloated
management roster, an inefficient production process, and a record $150 million loss widely blamed
on management complacency.14 Early into his tenure as CEO he promised to cut production costs by
30%. Porsche’s chairman at the time (Butzi Porsche) declared such a feat impossible. “But I said, ‘No,
I offered it, I’ll bring it,’” Wiedeking reminisced, “and I brought it.”15

Wiedeking benchmarked every aspect of production to find out how much time, effort, and
money went into making every Porsche. His goal was to emulate modern “lean production” or “just
in time”16 manufacturing methods to cut costs and increase productivity. Lean production moved
away from the principles of specialization, where individual production line workers had a deep
knowledge of one specific task. Instead, lean production environments called for highly skilled and
flexible workers who could operate multi-purpose machinery with minimal supervision.17 Workers’
ability to be productive in a team environment became imperative, along with a focus on continuous
improvement throughout the entire operation. D
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706-018 Dr. Ing. h.c. F. Porsche AG (A): True to Brand?

4

In 1992 Wiedeking took key managers on a tour of Toyota, Honda, and Nissan production
facilities to show how fat and wasteful Porsche’s production process was in comparison. He hired a
leading Japanese automotive consultant who, during a plant visit, described the Zuffenhausen plant
as more of a warehouse than a factory. He then handed Wiedeking a circular saw and told him to cut
the storage shelves in half.18

Once trained in the principles of lean production, Porsche employees passed them on to major
suppliers to help them lower waste and production cycle time, thus reducing component prices for
Porsche.19 The new strategy reduced manufacturing defects and inventory (from 7 days’ worth to 1
day). Revenue per employee rose 53% from FY92 to FY97. The number of cars per production
employee per year almost doubled over the same period from 4.9 to 9.1 cars. In FY92 the old 911
(then type 993) took 128 hours to produce; five years later, only 70 hours. The new 911 took 56 to 58
hours to produce.20

Wiedeking dismissed a third of the company’s middle managers and established the Porsche
Improvement Program, designed to measure quality and efficiency and eliminate waste: “I had to cut
2,000 jobs to save 6,000,” he explained.21 Employee participation picked up and improvement
suggestions increased from 0.09 to 4 per person. Wiedeking rewarded employee suggestions with
cash (DM 100 for a good idea that was implemented) or with gifts, like trips or motorcycles.22

New Models

In 1991, a year before Wiedeking became CEO, Porsche launched the first of several cars at lower
price points than traditionally associated with the Porsche brand. The 911 RS America was a no-frills
version of the long-running rear-engine 911 model; priced at $54,000, it ran about $10,000 under
traditional Porsche prices. This was followed by the entry-level 968 at about $40,000, close to the
$37,000 Nissan 300ZX Turbo or the $33,000 Mazda RX-7.23

By early 1992, Porsche postponed the launch of a larger, luxury Porsche 989 for aging baby
boomers when it became clear that its total cost would be 30% higher than the price it could
command in the market.24 The company wrote off significant development costs for the 989 and
geared up for its $40,000 two-seat Boxster, to launch by 1996. In an important departure from Porsche
practice, the Boxster would share 40% of its parts with the 996.25 Changes continued in 1992 with a
revamped, water-cooled 911. Moving away from the traditional air-cooled engine was another break
with the past—and sacrilege to many Porsche purists.

The redesigned 911 and the Boxster were developed simultaneously in a record 37 months, and at
a greatly reduced cost. Design engineers made extensive use of computer simulation, which cut the
prototype development time and kept costs down. The new 911 used components developed for the
986, reducing costs by 15%.26 In addition, the Boxster and the new 911 shared the same basic engine,
the same basic body structure, and a similar design for chassis and suspension. The result was a
higher production volume for individual parts, and an assembly line common to both cars.

The SUV Bet

The Porsche SUV would be the company’s third series, and the first developed and launched
entirely under Wiedeking’s watch. He wanted the vehicle to combine traditional Porsche styling and
performance with off-road driving capability and a spacious interior, placing more emphasis on
“sports” than “utility.” The new car had to retain the brand’s style and panache while
accommodating family, outdoor, and transport activities. Wiedeking felt that SUVs were “nearer to D

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Dr. Ing. h.c. F. Porsche AG (A): True to Brand? 706-018

5

the sports car business than sedans. We also looked at minivans, but we do not want an eighth ‘me-
too’ product. It has to be a real Porsche in terms of chassis, performance, and design”—Porsche’s key
strengths.27 Wiedeking continued: “We know from our surveys that a lot of our customers are
waiting for a Porsche SUV. Then there will be no doubt that customers can proudly park their SUV
next to a Mercedes S-Class and other cars like that.”28 The average Porsche customer already owned
three cars: an SUV, a limousine or sedan, and a sports car.29

Much of the SUV sales boom after 1996 occurred in the so-called Premium SUV market. For
example, the immediate success of the 1996 Mercedes off-roader M-Class demonstrated a demand for
luxury SUVs (see Exhibit 4 for SUV market information). Porsche wanted to leverage its “premium”
brand to enter that market, emulating Ford Motor Company’s achievement with its GT sports car and
BMW with its 7- and 5-series luxury vehicles. SUV optimists argued that Porsche had found a
solution to diversify its “aging model range” in an oversaturated market. They estimated a
breakeven number of 10,000 units priced between DM 100,000 and DM 120,000. By building 20,000
SUVs a year, Porsche could boost its total sales by 50%.30

But many Porsche enthusiasts feared that instead of rejuvenating the company, the SUV would
cheapen the Porsche image. Some saw the move as near sacrilege.31 Porsche family shareholders
cringed, fearing the company’s pure breed sports car tradition and exclusivity were not befitting bulky
off-roaders. Wiedeking countered: “Our new sport utility vehicle will not only correspond in full with
Porsche’s high technical and visual standards, but will also pave the way for future growth potential in
the sales, turnover and earnings areas” he promised.32 An SUV would give Porsche “a new dimension
in both profit and revenues.”33

The automotive press reported that Porsche saw the SUV as its chance to balance the risks of its
exchange rate position. Porsche was particularly sensitive to the value of the dollar because 44% of its
cars in 1997 were sold in the United States (see Exhibit 5).34 While Porsche had improved its hedging
operations since its liquidity crisis of the late 1990s, the company remained highly exposed to the U.S.
market and dollar fluctuations. In 1998, 23% of its sales came from the United States (and 37% from
Germany).35 About 80% of its sales came from its vehicles and 9% from spare parts.36

The SUVs’ popularity with U.S. drivers was attributed to the nation’s historic affinity for larger
cars and trucks that could serve for both work and personal use. This new breed of vehicle was
viewed as innately “American”: the rugged and powerful appearance, and the promise to combine
the carrying capacity of station wagons with the off-road capability of pick-ups, offered an alternative
to old fashioned family suburban and rural utility vehicles. The sporty and aggressive design
appealed even to those who would never dream of taking a car into rough terrain, namely preppy,
youthful professionals, including working women who preferred not to be associated with station-
wagon moms. Luxury/crossover SUVs targeted the high-end market with top quality interior
amenities such as navigation systems and DVD players, stylish materials (wood and leather), and
lowered suspensions. After Ford’s successful launch of the Explorer, other leading manufacturers
both in the United States and abroad (Japan, Germany) followed with their own models.

To cut down development and manufacturing costs, SUV bodies tended to be less sophisticated
than the newer smaller cars. Most cars employed unibody construction, with a steel body shell
designed to absorb the impact of collisions and crumple without injuring the passengers. Many (not
all) SUVs were built in the tradition of light trucks, using a “body-on-frame” method which provided
a lower level of safety but better maneuverability.

Porsche’s SUV would join an already crowded market, estimated at about two million units in
early 1998. Still, the category ranged from pick-ups, light trucks, and small jeeps to high-end entries
such as the Suzuki LJ. Range Rover—the only SUV with a base price over DM 100,000.37 A successful D
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706-018 Dr. Ing. h.c. F. Porsche AG (A): True to Brand?

6

high-end, high-performance Porsche SUV could trigger me-too follow-ons within two to three years,
thanks to the compression of development intervals within the automobile industry. Already,
Mercedes Benz was rumored to be considering an M-Class vehicle with a 300-plus horsepower
engine. BMW was also rumored to be interested in developing what would later become the X5. The
potential for such new entrants threatened the sustainability of Porsche’s sales forecasts of 20,000
SUVs each year.38 Finally, some observers questioned the long-term attractiveness of the SUV
segment, predicting a move towards smaller, more fuel-efficient cars.39

In the context of the broad demographic that could afford only lower priced vehicles, Porsche’s
decision to go forward with a luxury SUV seemed particularly puzzling. And though SUVs had
emerged as the most profitable segment of the industry in the 1990s, they lacked the agility and
performance synonymous with Porsche. The challenge was now to close the perceptual gap between
Porsche attributes and those associated with SUVs.

Location Decisions

One thing was certain—Porsche lacked production capacity for a new SUV. In 1998, the
Zuffenhausen factory, originally designed to produce 20,000 cars annually, worked three shifts six
days a week and had reached a capacity of about 40,000 cars per year.40 The location of a new factory
had to satisfy multiple criteria and posed a serious challenge to Wiedeking. Since outsourced parts
would make up approximately 80% of the finished product, easy access to suppliers was
imperative;41 other factors included labor costs (hourly wages as well as additional expenses such as
healthcare, retirement benefits, etc.); the quality, skills, and flexibility of the local labor pool;
proximity to major or high quality ports and airports; favorable tariff structures for imported
components and exports of finished product; and access to a large local market.42 The site decision
would also consider nonfinancial support of local authorities, the location’s fertility as a learning
ground, and its potential impact on the Porsche brand.

Until the 1990s, the labor-intensive automobile industry had been largely a national affair
regarding technology, parts supply, and skill base. Several factors propelled automotive
manufacturers beyond their borders, including the expansion of the Central and Eastern European
markets after the end of the Cold War, and the emergence of potentially large new markets such as
China, India, and other countries in Asia, Central and South America.43

Manufacturers adopted one of four strategies for internationalization, encompassing various
levels of local content. The first option was to export complete cars. The second was to export slightly
disassembled cars, known in the sector as semi-knocked-down or SKD kits. The third option was
substantial local assembly of cars (or completely-knocked-down kits or CKD) and fourth, the use of
integrated local manufacturing.44

Typically, manufacturers chose one of three approaches to locate facilities abroad. First they could
choose to locate in emerging large market areas (e.g., China, Russia and India) or established ones
(e.g., the United States, northern Europe and Japan). They could also locate close to such large
markets, exporting to them from peripheral countries such as Mexico, Spain, Portugal, Canada and
Central and Eastern Europe. Finally, domestic facilities could also be expanded to serve the global
markets from the home base.45 According to a study, emerging larger markets or peripheral markets
accounted for 51% of the world’s plants, but only 23% of its capacity. Players aimed to either
maximize economies of scale or adopt a more flexible production system when defining their
international strategy. The latter had been Porsche’s approach. D

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Dr. Ing. h.c. F. Porsche AG (A): True to Brand? 706-018

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In 1992 and 1993 BMW and Mercedes Benz moved about 10% of their production to the United
States.46 In turn, they pressured suppliers to locate component factories closer to U.S. plants, much as
Toyota and Nissan had before them. Thus, the 1990s marked the rise of the global supplier, created
through an intense wave of M&A and joint venture activities and international expansion. European
automobile manufacturers developed an ever-increasing length and globalization of supply
networks, especially into Central and Eastern Europe.47 Several major mergers and alliances, such as
Daimler-Chrysler and Nissan-Renault, reinforced the prevailing argument that any manufacturer
unable to produce four million cars a year could not survive on its own.48

Porsche’s options spanned the compass: SUV production could follow the Boxster’s path to Finland
or go across the southeastern border to the emerging Czech and Slovak automotive markets; or it could
follow competitors to North America. “There is plenty of spare capacity around the world,” Wiedeking
said in May 1997. “The main investment [for the Porsche SUV] is in the design and manufacturing
equipment.”49 Porsche was expected to spend about $830 million in design and development of the new
model.50 Exhibit 6 provides more information on labor costs, additional labor expenses, and working
hours in the manufacturing sector in selected countries.

Replicate the Boxster Solution?

One option for assembling the new SUV was to outsource it to a third party, as Porsche had done
in 1997 for its Boxster model. At the time of the SUV decision, it was not widely known that Porsche
already produced only about 70% of its cars in German factories; the Finnish company, Valmet
Automotive, manufactured the rest.51 The controversial decision arose when Boxster sales forecasts
reached 20,000 for 1998, following actual sales of nearly 16,000 in 1996/97 (about 6,450 in the United
States).52 Porsche’s Zuffenhausen plant was running at full capacity to meet the surging demand for
the revamped 911 Turbo.53 In a surprising move, Porsche outsourced some of the production to
Valmet, an independent European contract manufacturer of premium specialty cars. “We had no
choice,” said Wiedeking, stressing that on-site German assemblers and engineers ensured that the
Boxsters assembled in Finland were “100% Porsche” and just as good as those made in Germany.
Porsche leaders also cited high German labor costs to justify the move,54 along with fixed costs, which
Wiedeking professed to abhor.55

With that stroke, Porsche joined automakers such as Chrysler, Fiat, Peugeot Citroen, and Saab,
which had outsourced the entire assembly of models either too specialized or time-consuming to be
produced in their own plants. For Saab, it was cheaper to ship body panels and engines for its
convertibles to Valmet than to disrupt its own production lines with the tooling and engineering
required for soft-top models.56 Although the Finland decision was widely reported as Porsche’s first
overseas production move, between 60 and 80 individual 911s had already been assembled annually
in Mexico since 1995, with still others manufactured in Indonesia.57

Despite living in the shadow of the Soviet Union for decades, Finland had become the world’s
15th-largest economy, growing at a robust 5% per year in the 1990s. Home to five million inhabitants
and a number of international companies such as telecom giant Nokia, Finland was the last country
to join the EU in 1995 but one of the first to qualify for the common currency scheduled to take effect
in 1999. In July 1997 the European Commission approved a regional aid package to Valmet (Finland’s
only car assembly …

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