This project is based on the BMW Company and will take the reader through the basic business concepts and strategies that the company takes to be in the existing market and compete with the other renowned brand. The report will also gives the reader a chance to know the strategies of an automobile industry and will take the reader through the internal and external environment of the automobile sector. This report had been broken down into several different categories to make it easy for the reader to understand. In the modern day scenario automobiles play an important role in shaping people’s life through the status that is associated wit it. This case study is about BMW group, which a renowned European carmaker is aiming to maintain excellent quality, increasing output and manufacturing smaller cars. The report covers the firm’s internal and external environmental challenges; analysis of its ability to succeed and the likely reasons that will challenge the firm in future.
The classic and contemporary models, concept and tools used in business strategy and panning include PESTEL analysis, Value chain analysis, SWOT analysis, Porter’s Five Forces, industry life cycle and Cycle of competition.
BMW a German company which started in the year 1910 in the city of Munich which then manufactures the air engines, which after the world war 1 was forced to stop the manufacture of aircraft engines then moved into motorbikes and slowly grown into the automobile sector and had become one of the world renowned brands. BMW is an acronym for Bayerische Motoren Werke AG — or, in English, Bavarian Motor Works
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According to Thomas (2007), when organizations experience numerous changes and complexity thereof, it is difficult to monitor the external environment and its unpredictable effect on the firm’s strategies. Such a situation would call for scenario analysis to be conducted in order to enable prediction of the organization’s future business environment. PESTEL (Political, economical, social, Technological, Environmental and Legal) analysis therefore points out the key drivers of change that can successfully predict the business’s future environment. PESTEL provided for the analysis of an organization’s macro-environment (Hejiden, 2006).
Political factors involve the likely government regulatory measures, laws and restrictions that affect the industry in general. In the automobile industry, the likely factors include
The laws and regulations that had affected the automobile industry touched on the environmental practices that were expected of any car industry. Therefore, all car manufacturers were required to be considerate of the environment during their manufacturing processes.
Foreign government policies and tax laws also affect the automobile industry. Success of a business in the global market is determined by the probable foreign policies (Hill, 2008).
Economic factors entail global economic growth, international exchange rates and business status in a given industry. Economic factors for the automobile industry are
An increase in amount of revenue in marketing and new product design that was due to surplus production of cars prompted withholding of revenue although supply was higher than demand. In UK for instance, an 80% excess capacity in 2003 froze 1.3 billion euro in the automobile industry.
Poor performance of the Euro decreasing exchange rate has greatly affected car makers in Europe
Global increase in GDP from 2.0% to 3.1% in 2008 and consequential economic downturn in the US market in 2008
Emergence of developing economic states like China and India’s excess capital and buying power regionally and globally (Autofacts, 2004).)
Social factors include cultural and demographic changes in the global market especially on the effect on consumer’s buying behavior and capacity. In the auto industry the factors are
Changes in the consumers’ buying behavior as a result of recession in the mature markets
Changes in consumers priorities for instance viewing a car in terms of fuel consumption and low emission rather than a symbol of status
Automobile harmful emissions and hazardous environmental issues (Johnson, 2005)
Technological factors are often positively associated with developments in the auto industry. Examples include
Benefiting from competitive advantage due to increase in the use of technology
Technological factor plays very important role in organization because it helps various fields like controlling cost, manufacturing speed of cars. BMW has shown high quality of their product because of their Technological use.
By the help of Technological it helps company (BMW) in various ways like adoption of new and improved design to counter the low profits in the industry
Regulatory and restrictive measures on technology that are linked with environmental pollution (Allen, 2006)
Environmental factors within the auto industry are
Environmental factors differ on various reasons like change in consumer tastes and preferences towards eco-friendly cars, fuel cell cars and hybrid cars
Contribute to the widespread awareness of greenhouse effect, global warming and burnout among patrons
Legal factors in the auto industry include
Strict pollutions standards and restrictions applicable in the US and European markets
Stern consequences on of the EURO norms in the developing countries i.e in India (CEN, 2006)
Porter’s Five Forces
Porter’s Five Forces is a framework for the development of business strategy and industry analysis
Competitor rivalry within an industry
Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threat of product substitutes
Threat of new entrants
Threat of new entrants reflects the inhibiting forces faced while entering into the industry. In the automobile industry, there is minimal threat of new entrants because huge capital cost goes into the setup of manufacturing plants and assembly liners. When in the industry, new entrants require more time to be recognized and reputation in the minds of consumers.
Threat of substitutes
In the mind of the consumers, BMW is considered a powerful and luxurious brand. In the exclusive car range, the substitutes available for BMW include GM, Mercedes and Toyota. Therefore, BMW has a high threat of substitutes.
Bargaining power of suppliers
With its sophisticated supply chain management system, BMW has a long relationship with suppliers. In this industry, high bargaining power of suppliers is due to the fact that suppliers can dictate the cost of raw materials.
Bargaining power of buyers
Because BMW and its competitors fall into the exclusive car range, high bargaining power of buyers results from the fact that consumers can choose a product on the basis of price and therefore make the purchase thereof (Copper, 2008).
In the industry, there is cut throat competition, as most of the products positioned in a similar way target same market. Stiff competition from Asian market on the US and European markets has heightened the competitive rivalry.
The key drivers of change
A macro-environmental overview of factors that impact the organization is derived from the PESTEL analysis. In combination with Porter’s Five Forces, drivers of change, which are likely to have a high impact on strategy, are identified. The drivers of change are very instrumental in aiding managers make effective decisions. The drivers of change thereof are:
After the end of World War II there was increased installation of infrastructure and human labor towards the automobile industry
Change of consumer p reference for product excellence cost of ownership
Improvement in the use of technology and preference of design as a fundamental asset.
Consideration on the environmental issues
The industry life cycle
Unlike the implications of the five forces, industry life cycle is composed of the development stage, growth stage, shake-out stage, maturity stage and the decline stage. Primarily, the development stage which is the start up of the company is graced with high differentiation and innovation of its assets. Secondly, there is high growth with low bargaining power of buyers and minimal threat of new entrants during the growth stage. Thirdly, the shake-out stage bears slow growth and the firm’s key assets are primarily its managerial and financial activities. Fourthly, stagnating growth with high barriers to entry, increased competition with less unit costs and higher market share are the features of the maturity stage. Finally, extreme rivalry towards the firm with the key assets being rational and emotional approach comprises the decline stage (Darwin, 2002).
In this case study, BMW is seen in the maturity stage of the industry life cycle. Although BMW’s growth was stagnant, its huge market share and brand identity allowed for standardization of products like the 1,3,5,7 series in mature and developing markets. Despite high barriers to entry in the maturity stage, BMW asset was a relatively high market share and reputation as an engineering excellence.
Cycle of competition
Cycle of competition refers to the various drifts among competitors over time. In order to counter its competitors in the market, BMW had a progressive rise in its turnover and possessed the adequate technological knowhow.
BMW had its competitive advantage engraved in its processes and designs. To gain higher economies of scale can be achieved by implementing the use of scientific technology that BMW restores to. BMW’s major rivals in the automobile industry include Volvo group, GM, Lexus, Toyota, Mercedes but its product ranges from a MINI to a Rolls Royce. Therefore, the product range serves the luxury segment to the premium segment in the industry.
According to the cycle of competition concept, competitive advantages or core competencies are temporary in nature; such as BMWs closest competitor Toyota Group. Toyota’s valuable assets including technology, product range, profit margins and production capacity pose a threat for BMW as Toyota has become proved product in the immature market territory (Kiley, 2004). Therefore, the available option for BMW is to compete through its competitive advantages and core competencies.
Drift refers to the change toward a direction irrespective of whether it’s a good or a bad to the company. This drift occurs when a company’s challenge from environmental changes negatively affect its operations, despite the occasional incremental development from cultural and historical factors.
When it outcompeted its rivals BMW emphasized on brand development that had resulted from changes in the market. The acquisition of the English brand Rover was due to the adoption of the path way and the company’s need for increased production and the consequential consolidation thereof; a necessary strategic drift.
In order for every organization or firm to thrive and survive globally, it requires and must possess certain resources and competencies. According to Gerry, Scholes & Whittington, (2008), every firm has its own strategic capability to endure against all odds. The most common resources include
Tangible resources which include the physical chattel such as the plant, finance and human labor within the organizations
Intangible resources includes the non-physical chattel such as information, knowledge and status
BMW’s resources are categorized into
Physical resources which are universally designed and styled technology; supply chain and dealership management; effective market segmentation
Financial resources which in 2003 financial year were, turnover of 41.53 billion euro, gross margins of 3.2 billion, 7.4% profit margins and annual surplus of 3.2 billion euro.
Intellectual capital represented by the excellent reputation in engineering, powerful brand identity known for its reliability and luxury.
Human resources composing of young and wealthy professionals supported by a highly qualified labor force
Threshold competencies represented by good relationships with the suppliers, inevitable quality, reliability and dealings
Core competencies known for its speedy production and technology that are the ultimate driving machines for BMW
Threshold resources of integrated supply chain, worldwide production and assembly units supported by young and astute employees
Unique resources of high quality labor force and excellence in engineering
Cost efficiency at BMW is possible by the contributions of economies of scale, supply chain, experience and product/process design (Gerry, Scholes & Whittington, 2008).
Supply costs in an organization play a vital role especially in the production and purchase of raw materials. When input cost determine the success of the company, supply costs become very important asset. In order to manage its supply costs, BMW set up different locations in the global market such as China, Germany, UK, USA and South Africa with a human workforce of 104000. With the distribution of the assembly units that were flexible and lowering the transportation costs of raw materials guaranteed that the supply costs were reduced.
Control of costs and eventual attainment of cost efficiency are primary when considering experience in an organization. Competitive advantage should also be generated through experience with the holistic understanding by the firm and its unit costs.
However for BMW, the acquisition of cumulative experience is expected to lower its unit costs. Unlike most other players in the automobile industry, BMW has been in this sector since the dusk of Second World War. Therefore, there needs to be a reduction of costs with the annual increase in units produced from the newly established assembly units in the competitive market. Although the necessary competitive advantage may not be achieved, the reduction in unit costs guarantees capability of survival.
As one of the cost drivers, product design can be directed to ensure maximization of working capital, labor productivity and better yield. Additionally, it can be adopted to gain competitive advantage coupled with marketing intelligence to outcompete its rival.
Due to its excellence in product/process design, BMW earned the reputation as an engineering excellence. In order to maximize the use of available working capital, BMW embarked on new and modern technology for its production (Pavelec, 2007).
SWOT analysis combines the strengths and weaknesses internally, i.e. from own product or market audit; and opportunities and threats externally, i.e. environmental analysis. SWOT analysis is a statement of how the relevant current strategy and strengths and weaknesses are capable of dealing with changes in the environment.
As a renowned company, BMW has a high position as far as its brand and gratitude factor are concerned.
With its exceedingly qualified labor force, BMW can depend on this strength as in gaining its competitive advantage
The use of advanced technology by BMW in products enabled design, quality and price to the prospective consumers.
In order to maintain a brawny supply chain management, BMWs strong relationship with suppliers was strengthened
In comparison with other competitors, BMW had a serious and conventional overall image
Competitors low cost products
The overreliance on the European and US market
In spite of the economic downturn, there was an increase in the number of products sold
Increase in popularity of upcoming developing countries such as India and China
Adoption of advanced technology for products and flexibility in development and manufacturing
Affordability due to decrease in interest rates
Cut throat competition especially in the luxury niche of automobiles
Repercussions from the economic down turn and consequential increase in fuel costs
Increase in the number of entrants into the automobile industry
Increasing supply costs such as for the steel
Value Network for BMW
Location 1 (Assembler)
Range of products and services
Core location (Assembler)
Organizations value chain
Price variation depending on the product quality
Location 2 (Assembler)
Product design and price according to product quality
Channel value chain
Customer value chain
The management of all value-based activities has proved a difficult task for a single organization especially if the activities cover the design of the product right its final delivery to the consumer. Efficiency in the process can only be achieved using the help of a value network; which is usually a combination of inter-organizational process that are vital in the manufacturer of a product or a service (Timmers, 2008).
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According to the value network of shown, it is Evident that each of BMWs assembly locations and manufacturing unit is independent of the other. Fundamentally, the various assembly units has each a separate supplier of raw materials necessary for the manufacture of the product. Similarly, there exists an internal value chain of the assembly liners amidst themselves. The firm’s own value chain results from the reciprocation of the finished product back to the suppliers. Apart from the internal value chain, the organization also possesses a channel value chain. This channel value chain is structured on the basis of design, location and price; such the products available for its customers vary from a “Mini” to a “Rolls Royce”. According to the value chain criteria, the product ranges are priced differently and differently designed to serve the needs of a specific segment according to the target market. The price variations in the products also depend on the locations that BMW is focusing at. For instance, in the UK or US market, pricing of BMW is relatively higher compared to the prices offered in Indian or Asian market.
BMWs critical success factors
CRITICAL SUCCESS FACTOR
Cost of product
Prevention of price
From the above diagram, BMW’s critical success factors (y-axis) are:
Product cost that determines the quality of the product
Firstly, product quality is an unavoidable and a unique factor that is vital as far as consumer satisfaction is concerned. Primarily, the cost ownership and product excellence together identify the brand of a product. With a status as the number one brand, BMW’s quality is therefore the most critical success factors. Secondly, the cost of the product is comparably high with reference to other brands, but BMW’s exceptional quality justifies the variation n the prices. The third critical success factor is experience for BMW in the automobile industry. The many years it has been in the industry has enabled it to establish a brand identity for its products in addition to the integrated and advanced supply chain that ensures delivery of the products at the right time in the right place.
Therefore, BMWs channel value chain of price, location and design is the backbone of the consumer value chain (Radinger, &Schick, 1996).
In summary, BMW’s key success factors are BMW’s business model, Sustainability, technology, brand image, and CEO of BMW, Helmut Panke.
Future challenges are that may have an impact on BMW
Rising costs of raw materials and high fuel prices
Unexpected change in customer tastes and preferences
Price wars and increase in extreme rivalry during the firms’ maturity stage
Technological stagnation and decrease in economies of scale
International variation in the unfavorable currency effects
Highly restrictive standards paving way for available options like hybrid cars, electric cars and fuel-cell cars precincts
Changes in precincts in emergent urban areas
However, BMW possesses the strategies that will likely aid it readdress profits, eventually retaining endurance for the organization’s future. The strategies include Market penetration, Product development, Market development, Vertical integration, Retrenchment, Restructuring, and Liquation
At last we came to the conclusion of this report, after going through the report you must have came to know all the barriers and challenges of the BMW Company and how it faces all those challenges to be in the competition and made its place as one of the luxurious brand in the global market.
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