Business Strategy BMW
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The automotive industry is one of the most competitive industries in the market. Companies that get into the automotive industry are faced with high cost prices in production and highly competitive firms. Bayerische Motoren Werke AG (English: Bavarian Motor Works) with headquarter in Munich is one of them. Founded 1916 as a producer of aircraft engines BMW is one of the ten largest car manufacturers in the world today. The company operates in three business segments: automobiles, motorcycles and financial services. However the core business is still the production of cars. In that segment BMW is focused at the premium and luxury sector where it is is one of the leading car manufacturers with the aim to achieve profitable growth and become the number one in next few years.
The global acting company had a business volume of 53,7 billion Euro in the year 2009. Currently 96.000 employers work at 17 different production places all over the world for BMW. In last year the BMW Group sold 1.3 million cars of its three non-overlapping premium car brands Mini, Rolls-Royce and BMW. The brand recognition and high investments in research and development seems to be the trumps of BMW (BMW, n.d.: BMW Education Programme n.d.). This report will give a more detailed view at the current situation of the BMW Group with an analysis of the company’s strategies but also with a look at the issues and a final evaluation of the authors of this report.
Integral to the understanding of the organisation BMW Group is a detailed strategic analysis of the company. Appendixes 1 and 2 both contain various tools for analysis, namely a SWOT and a PESTEL analysis. One can draw upon these when analysing all the forces and factors affecting a company as an aggregate. It is also important to place the findings of these analyses in a context. In this case, a strategic analysis of BMW Group should not only consider the information contained in both these analyses, but also the context in which the firm operates.
As mentioned, in Appendix 1, a SWOT analysis considers the current position of a company. In the case of BMW Group, the position is currently enjoys is a very strong one. When critically analysis the mentioned weaknesses and threats it becomes apparent that each of these are common to most companies and car manufacturers in the market segments chosen by BMW Group and its subsidiaries. In a sense this leads to a cancelling out effect, which will be discusses below.
For example, in terms of threats to automotive manufacturers, existing and fierce competition applies to the vast majority, as does being affected by the volatility of fuel prices. To a large extent the price of raw materials also poses a threat to all manufacturers, however this varies by small degrees when one considers that in a contemporary environment many cars do not share similar materials. This is due to manufacturers seeking competitive advantage through vehicle parts and structures being made of differing alloys, in attempts for qualities such as greater strength and lighter weight. In spite of this, steel remains a predominant material in the automobiles of BMW Group.
Having similar “threats” appropriate to most manufacturers means they are all competing amidst similar circumstances, so no firm is solely disadvantaged as a result. It is a similar case when one considers the weaknesses of BMW Group. Despite minor differences, most manufacturers in the market segments operated in by BMW Group share most weaknesses. All premium carmakers are faced with stiff competition, as it is the nature of the industry. All suffer from a perception of high prices. Again, there may be slight variations within this surmise such as slight variations in perceived value but as an aggregate, the premium car sector is partly characterised by high prices.
The one weakness that is true for only a few competitors of BMW Group is the costs associated with keeping design and construction of the automobiles of BMW Group within Germany, and various other Western countries. This is due to higher labour costs, and greater levels of taxation. Keeping the majority of production and all of the design and engineering in Germany has both advantages and disadvantages. It has been listed in the SWOT analysis as a weakness, purely due to the impact on the bottom line of the firm. It is a similar story for the other major German competitors of BMW Group. Certain American (Lexus) or Swedish (Volvo) rivals face a similar problem in terms of higher cost. -Chinese competitors do not.
Being engineered and assembled in Germany has to also be mentioned as a strength. This is as a result of German engineering having an international reputation for being of some of the highest quality engineering in the world. This creates a perception of quality, which is common to most manufacturers in the premium car segment, but more so to the vehicles created by BMW Group. There is a perception that BMW, along with Mercedes Benz are of a higher standard of quality than their third major German rival, Audi.
As well as a SWOT analysis, a PESTEL analysis is important for furthering knowledge of the environment in which BMW Group operates. As Appendix 2 outlines, a PESTEL considers the external forces which impact upon the strategic implementation and running of a firm.
Political forces are present, however they have an effect on the industry as an aggregate. Within Germany, the country in which a lot of the cars of BMW Group are manufactured, laws dictate maximum emissions vehicles are allowed to produce. They also affect BMW Group in that they dictate minimum wages and minimum levels of corporate responsibility.
For most other countries, taxation laws and customs laws determine prices at which BMW Group products are sold at. Different countries have different levels of tax and import duties, however generally most countries will charge some form of import duty on valuable goods, which in turn increases the price at which local retailers sell the vehicles. In some cases there are certain charges on top of this – for example in Australia there is a Luxury Car Tax imposed on vehicles worth more than ****. But as aforementioned, this type of political influence affects all manufacturers in the premium car market segment.
Ecologically there are a lot of influences shaping the direction of BMW Group automobiles. The main one being the increased societal awareness of the popular concept that is Global Warming. As a result of this many nations and manufacturers are imposing, whether voluntarily or as a legal requirement, goals of reducing emissions. This is done through setting targets and can be quite costly – in most cases being where the majority of research and development funds are spent. In the case of BMW Group, this is certainly so. The quest for more efficient engines is ongoing, and can also be attributed to the other major ecological factor – the growing scarcity of natural resources. The natural resource whose scarcity affects motorists globally is crude oil.
There are socio-cultural factors at work, also. BMW uses positioning to reach certain target markets. As such, a lot of their vehicles are financially out of reach for a lot of people, and because of this the locations at which they are sold are affected by demographics. Due to this, things such as median incomes and average property prices dictate where BMW outlets will be placed geographically.
Also in the case of BMW Group, an image of exclusivity primarily exists, though more recently there has been an effort to make their products within reach of more people. This is being conducted by making smaller, more
affordable cars whilst retaining an image of prestige.
In an industry such as the car industry, technology is the most influential force toward a company such as BMW Group. Technology is where a lot of manufacturers obtain their competitive advantage, and for BMW Group this is certainly the case. They invest vast sums of money into research and development in a bid to create more efficient engines with which they can compete with other manufacturers and obtain a competitive advantage. This also applies on fronts such as safety of cars, durability of cars, and power of cars. With current market trends drifting towards efficiency being a high priority for most customers, this is something that plays an integral role in the strategic goals, plans, and implementation of plans of BMW Group.
Economically, there are many forces that exert influence over BMW Group. Varying exchange rates are a primary factor, and have a direct impact upon sales within a given country, as they play a large role in determining whether or not a customer will buy a substitute good. BMW Group have a strategy in place to manage this known as “hedging”. High prices for raw materials such as steel and various alloy metals also play a part in determining corporate strategies, as does the volatility in the price of petrol in various countries in which BMW Group sells their goods.
The legal factors are very similar to the aforementioned political factors, as they mostly include legislations to do with emissions and safety. There are other laws which vary by degrees between countries in which BMW Group goods are produced. This mainly involves certain labour laws, such as minimum wage laws and occupational health and safety laws.
BMW Group consider these forces and the elements of a SWOT when developing corporate strategies and implementing them. The firm devises ways in which they can manage this uncertainty, and minimize the amount of turbulence they encounter despite being part of such a competitive and volatile industry. These will be covered in a later section of this report.
Especially in the high competitive market of the automobile industry a clear vision and mission statement is important to hold the internal and external stakeholder support on a high level (Hill, Jones, Galvin & Haidar 2007). As one of the worlds leading car manufacturer BMW’S vision statement is nothing less than “To be the leading supplier of premium products and premium services for individual mobility.“ (BMW 2008a, p.180) To do that BMW sets its main focus traditionally on highest quality standards and best possible service for its customers. BMW mission statement is embossed by sustainability and responsibility. In the centre stand the three “R’s”: resources efficiency, risk minimisation and reputation. With resource efficiency BMW means things like recycling optimisation and economical acting.
In addition the company tries to save energy by optimising their current engines and providing new drive systems like hydrogen engines. The aim of the company is “to use resources sparingly and efficiently“ (BMW 2005, p.1). To lead the company in successful future for BMW it is important to recognise risk in an early stadium and try to avoid them (BMW 2005). Reputation is especially for BMW as a company with a very high brand value important. So BMW wants to “enhance the Company’s reputation by acting responsibly towards employees and society“(BMW 2005, p.1).
Every individual of the BMW group is supposed to maintain the sustainability of that three parts and everyone in the company should implement these objectives in the every days work life. Simultaneous BMW sees its staff as an important part on the way to reach its mission and provide its employees with best conditions and supports the professional and personal development (BMW 2005).
BMW has several strategies to survive in the strong competitive automobile market. One is the strategy of differentiation (Hill, Jones, Galvin & Haidar 2007). Cars of BMW stand for quality and exclusivity. Customers are willing to pay more money for a BMW than for an equal car of another brand. BMW is able to create the awareness of differences in its consumers mind and satisfies its customers wants and needs at a very high level. The cars of BMW have an attractive and sportive design. In connection with the high price BMW underlines its status as a premium brand. Furthermore BMW attracts through its sportive aspect and focus on innovation especially younger people. Expensive marketing campaigns force that in an impressive way.
The result is an extremely high brand recognition and binding of a large number of loyal customers all over the world. That unique position of BMW makes it difficult for competitors to take advantage of the market in the short and medium term. BMW follows a diversification strategy, too. It has three non-overlapping car brands and a motorcycle brand. They are able to use their high knowledge and engineering experiences for all three different car brands and moreover there are several synergies between the car and the motorcycle production.
Especially in the expensive development of engines both segments profit similarly and the total risk for the company is lowered down because the company is less vulnerable for unexpected economic or competitive changes (Hill, Jones, Galvin & Haidar 2007). As a third the maximisation of profit is one of the major strategies of the company for the next years. BMW has to fight against decreasing sale numbers caused by the economic crisis. Therefore the firm has to find new ways to generate more earning to satisfy its shareholders. A logical consequence is to reduce costs and increase efficiency. BMW tries to do that by different methods and techniques (Hill, Jones, Galvin & Haidar 2007).
In the centre of BMW’s strategic implementation stand the realisation of strategic plan called “Number ONE”. BMW propose two sets of goals and strategies – one to lead BMW into 2012, one to lead BMW into 2020 (BMW 2007). At present, for the short term (to take them into 2012), BMW have sales targets of 1.8 million automobiles worldwide. This is inclusive of all of their car brands, Mini and Rolls Royce. To do this they are increasing the variety in their model line-up. Also, for this short term, they are among the industry-leaders in adapting to new and different target markets, by producing cheaper, better quality cars which are accessible to a greater array of potential buyers. The other major short-term strategy to achieve this is to greater “recession-proof” their interests by engaging in hedging in the $US (BMW 2007: Horatiu 2009).
The goals and strategies which BMW hopes to achieve by 2020 are much more ambitious, but no less achievable. They have adopted a “less input, more output” ethos, and as such are aiming to cut cost-centres and save the targeted figure of 6 billion Euros. As part of this plan, that 6 billion Euros is earmarked to then be invested into research and development in order to gain a competitive advantage through greater efficiency of their products. Instruments like flexible work and shifts models make it possible to adjust the product capacity of each plant contemporary. The number of employees will be reduced naturally – without dismissals (BMW 2007: Horatiu 2009: Hill, Jones, Galvin & Haidar 2007, p.102). Because of the strong position of the Euro against the US Dollar in the last years BMW will increase the utilisation of the placement in United States.
Also the company want to profit of the well qualified but cheaper labour of China through extensions of productions placements in China. The movement to China means also shorter ways to the new growing market and using of cheaper local suppliers, which moreover reduces the costs further (BMW 2009). High investments in marketing are an important element in the strategic implementation of the BMW Group as well (BMW 2009). The high marketing budget attends to save its main competitive advantage: the high brand recognition. The concept of the “ultimate driving machine” creates an emotional connection to customers world wide. Thereby BMW goes within its marketing strategy not the easiest way and make the same advertisements and marketing campaigns all over the world.
The BMW Group analyses the specific customer groups of each region and try to listen and respond to the customers. Whereas people in America still want big engines in their cars, the environmental aspects in Europe getting more important. So BMW not only offers the same cars with different engines, also its marketing strategies for America, Europe and Asia are different. BMW controlled its distribution network more than most of its competitors. The results are again benefits for brand management.
The company has the reputation to be near its customers. The brand BMW stand not only for quality, also service is linked with BMW. So the after sales service is another important part of the strategic implementation. The people should see that the company cares about them also after the buying which is in important fact in binding the customers as well (BMW 2009). Finally BMW will fulfill the new carbon dioxide regularities of the different governments. That means also a reaction of a changing of the customer wishes and a conformance to the companies mission (BMW2009).
6.Key strategic implementation issues
Changes in demand
The external environment is a major contributor to this in the form of cut-throat competition, which is rife throughout the automotive industry. BMW don’t have brand cannibalism to worry about, but the existence of suitable alternative goods which may also appeal to potential buyers’ (Hill, Jones, Galvin & Haidar 2007).
Another key issue is those faced by the research and development department. Competitors wish to achieve the same outcome, for the same reasons, therefore BMW have to remain competitive on a number of fronts (Hill, Jones, Galvin & Haidar 2007).
This is also in keeping with having to work within the confines of various regulations. As they are the manufacturer of automobiles they must adhere to environmental and safety regulations in all the countries in which their goods are sold, and, due to globalisation, this counts for the vast majority of nation states (Hill, Jones, Galvin & Haidar 2007).
7. Evaluation of strategy
The strategy of differentiation is important for a brand like BMW which do not serve the whole market. There are a few competitors in the premium segment of the automobile market and BMW has to do a high effort to keep its position and reputation in the long run. But BMW has to be careful. The company invests a lot of money in research and development. That could keep the danger that competitors imitate BMW’s new products and inventions faster than the company can take real advantages of its investments.
The high brand recognition is surely safe for the short and middle distance but in the long run BMW has to maintain its competitive advantage. Because of its relative small size in comparison with its main competitors strategic alliances will probably become a key position in BMW future strategic direction to achieve economies of scale and finally high profit margins. This is also a good possibility to reduce the costs of research and development and to realize especially cost intensive big innovations like the development of new engines for example the electric or hydrogen technologies.
BMW seems to be good prepared for the future. The strong brand image gives the company a unique position in the marketplace, which is quite essential in such a high competitive business environment like the automobile industry. The key strategy “Differentiation” works and the strategy plan for the next years “Number ONE” shows a sustainable and moreover feasible concept which should be successful. Nevertheless the automobile market is a high competitive market. Therefore it is important to develop new growth areas, obtain new customers, secure the access to innovative Technologies and finally increase the profitability of the company to make a contribution to the long-term security of the company’s competitiveness.
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BMW Education Programme n.d., The Company, viewed 1 November 2010, Hill, C, Jones, G, Galvin, P, Haidar, A 2007, Strategic Management: An Integrated Approach, 2nd , John Wiley & Sons Australia Ltd, Australia. Horatiu, B 2009, Statement by Dr. Norbert Reithofer at the Annual General Meeting of BMW AG, viewed 31 August 2010,