In the world of automobiles, few abbreviations attract to mind as much impressive as BMW. Short form of Bavarian Motor Works, BMW, is one of the world’s top ten automobiles’ manufacturers. Incorporated in 1916 inGermany, the company initially focused its activities on manufacturing aircraft engines but then shifted solely towards the automobile sector. The group sells its cars and motorbikes through its strong network of 3,000 dealer showrooms worldwide. The group manufactures Sports and Luxury Cars along with Motorbike production as its one of the specialties. With its three world’s famous brands, BMW, Rolls-Royce and MINI Motor Cars, the group rules over the high class segment of the international automobile market (Lall).
History, Development and Growth of the BMW Company over Time
Impressive persistent growth in the automobile industry, only few manufacturers have shown the remarkable progress, and BMW is one of them. The incorporation of the company took place in Munich, Germany in 1916 under the heading of “Bayer Flugzeugwerke AG” (BFW). After a year, in 1917, the “Bayerishe Motoren GmbH” was formed, and finally it was transformed into a joint stock company in 1918 (Lall).
BMW started its activities in the early 1910s as an aircraft manufacturer. Its current logo represent white propeller blades with a blue sky, shows the origins; combination of blue and white colors also signifies Bavaria’s blue-and-white flag. In 1928 the company rolled out its first BMW automobile, the Dixi. The car turned out to be tremendously popular, and its success caused serious concern to other manufacturers. The most popular car manufactured by BMW before the World War II was the Type 328 roadster, a graceful two-seater that earned more than 120 victories in the motorsports between 1936 and 1940. The postwar period also saw BMW cars maintaining this tradition, winners of some racing, rallies and hill climb victories (Lall).
In the early 1950s, the company launched BMW 501, a spacious, luxurious sedan that was glorious with all of the hopes of that era. Soon BMW 502 followed, which consisted of the world’s first light-alloy V8, promising BMW’s ongoing dedication to developing new technology.
The most popular BMW of that era was the Isetta, a two-seat “micro car” powered by a twelve or thirteen horsepower engine. The mid-fifties also saw the first appearance of attractive and appealing 507 sports cars consisted of an alloy body and used for 502’s V8 for launching.
During the 1960s, BMW strengthened its sales significantly with the tremendous popularity of the 1500, a sporty family Sedan. By the 1970s, BMW, amongst other leading automobile companies, was establishing itself as a renowned car company. The continuous R&D assisted in pioneering many upcoming technologies, including advanced vehicle electronics and turbo charging. In this period, BMW of North America was incorporated, and people, who envy both luxury and sports cars, became loyal and proud owners. The 1970s also noticed the emergence of three-tier sport sedan range comprising of the 3 Series, 5 Series and 7 Series cars and the birth of its M division. The BMW group continues to expand its worldwide operations by venturing into its first USA manufacturing operations in the latter half of the 1990s, and extending its brand empire by including Mini and Rolls-Royce (Lall).
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Identification of the Company’s Internal Strengths and Weaknesses
BMW’s long term strategic planning of vehicles is its one of the internal strength. The company developed a well enhanced strategic planning process when it commenced the project in 2000. In this process, the horizon stretches to 12 years, divided into annual periods, so that it comprises the complete life cycle of the vehicles starting in the next five years. Planners unite the production to the level of derivative of the product series; for example, coupé, touring car or sedan (Barney).
BMW reviews the 12-year plan several times a year, and the company’s board of directors must approve the results. Thus, as the planning process is one of its strong internal strengths, the company plans its production and sales before formulating production capacities.
In-depth evaluation of strategic planning of new products gives valuable penetration into the internal strength of BMW. Continuous R&D and new technological innovations for new product’s developments open new horizons for BMW and attract new target audience. The company, over a time, has become more market focused than other successful companies in deciding opportunities for new product development, and in designing products to market requirements. Nevertheless, the company faces many internal weaknesses when analyzing the position of its two brands: Mini and Rolls Royce. Since BMW manufactures these brands exclusively in the UK, the company incurs high shipping cost when meeting the needs of developing economies of Asia. Since BMW produces premium segment of automobiles they are unable to secure the same economies of scale as volume manufacturers. Thus, BMW possesses the weakness of relatively higher cost of their cars. Another biggest weakness is its R&D costs, which the company incurs for technological innovations (Barney).
Nature of the External Environment Surrounding the Company
The PEST model analyzes how the external environment affects the performance of the company in the automobile industry.
One key political factor is leading to several obstacles for BMW. This is the enforcement of new laws. The areas of the hot debate are the emission of CO2 and the end-of-life vehicles regulation. Strict emission standards have come in practice all over the world, especially in the OECD countries. It is not simply a subject of national regulation; ecological awareness is also restricting CO2 emission. Europe alone accounts for 50% of the company’s total revenue and it is practicing similar standards for many years. The USA, which is the BMW’s second largest market, is enforcing tighter emission regulations throughout the country. The emission restrictions ultimately increase the costs in the areas of R&D, testing and manufacturing for BMW. Another prime issue, where the EU is the predecessor, is ELV regulations, which instruct how the end-of-life vehicles should be recycled. The regulations state that the components such as shredder residue, fluorocarbon and airbags should be taken back by the car producer. These regulations pose an additional expenditure on the company, since they will have to consider the recyclability of the components and the cost of scraping the components after the end-of-life vehicles (Thomas).
The world gross domestic product has been changing much in the recent years. In 2008 the auto market shrank with a fall in GDP of 2.6 %. In 2009, however, the world GDP increased by 1.6 %. The projections for 2011 were a growth in GDP of 2.5 %. It leads to the assumption that the world economy will recover from the financial crisis. Predications for the years from 2011-2025 are that the GDP will grow steadily by 3.5 %. For BMW’s activities it seems significant to differentiate between growth in the emerging economies like India and China and the rate of growth in Western economies like the US and Europe. The prospects for India and China are a GDP growth of 6.2 % and 4.7 %, respectively, whereas Europe and the USA grow by 1.8 % and 2.2 %, respectively (Duval 2010). As a result of financial crisis, there is a considerable awareness about credit risk connected with especially debt financing. BMW, therefore, finances its operations by matching the maturities of bonds to their operations (Lall).
The demographics of the emerging economies are exploring new opportunities to BMW. The middle class category in countries like China and India is rapidly growing and hence, a new, ambitious, target segments emerge. The environment plays a vital role in the company’s existing markets. Especially the US and European consumers demand “green” products that meet emission standards and environmental regulations. The company has also manufactured 500 hydrogen cars on a trial basis and awaits their performance results.
A recent survey of top managers of the BMW group revealed what they considered the priority issues for the future. 85% of them answered that technology was their top priority. These approaches came to the conclusion that technology is an area, where the company intends to gain a competitive advantage. Even though the competition is cutthroat, the company managed to seek an advantage in the manufacture of engines, leading them to win several “engine of the year” awards. BMW holds an advantageous position in the environmental sector because it has researched in this area for years, by researching hybrid electric cars, dual fuel engines and recently hydrogen driven cars (Lynch).
The strong market position and strong brand image over a period of the years reflect the strength of the company. Today BMW possesses a highly competitive position on the market. From the very beginning its high potential to growth and profitability strengthens the position of the company in the automobile market. Professional management team, customer loyalty and excellent service are its key strengths. BMW continues to maintain its growth through optimization of its constant technological innovation and product mix. From the date of its inception, the company is proud of the quality of its engineering, higher than in the most popular vehicles in the automobile market. Its strength lies in innovations. Another significant strength of the company is that a passion to deliver the best-of-breed customer solutions and building customer management experience BMW creates products for a target market. The product positioning relies on personalization strategy, which is again one of its big strengths (Peridy).
The prime weakness of the company is that automobile market is not particularly fragmented, and also encompasses such giants as VW, GM, Peugeot and Fiat. The majority of companies offer products to a vast geographical area. The automobile industry distinguished by high fixed costs always remain under pressure to maintain production at full swing and to cover the fixed costs and these are again one of its key weaknesses. The weakness of BMW also associates with legislation and regulations of the government. The recent years have seen a tendency towards environmentally friendly “green car” which compels the company to find alternate solutions.
BMW has a tremendous opportunity to enter the emerging economies, where growth prospects are seemingly high. Besides, the demographic changes in the emerging economies result in middle class growth, which is again a prime market segment for BMW. The company’s favorable image in the eyes of consumers, through its incomparable brands, provides an enormous opportunity for extracting premium prices and thereby earning a higher profit margin than the volume produced cars. The demand for “greener” technology stores an immense opportunity to BMW, since they are the pioneers of “green” solutions through their stewardship of the Dow Jones sustainability index (Peridy).
The threat of competitors with an equivalent product always hangs on BMW. Substitution takes place where a consumer may find an equivalent of a product performing the similar service or satisfying the same needs. The situation suggests that the increased competition with Toyota and Nissan can result in the decrease in prices. The decline of Euro against other currencies becomes a potential threat for BMW. Financial data of Rover show the profit decline.
Corporate Level Strategies
Environmental protection established in the early 1970s is a significant part of BMW’s corporate strategy. The Group complies with ten principles of the United Nations Environmental Programme. Besides, the company also follows the agreements and guidelines set by the OECD’s guidelines for multinational companies and International Labor Organization. It is the company’s vision, as a profitable and successful business, to develop its ability to delight the rising number of highly satisfied customers. The company provides the best opportunities for professional development of its employees. The corporate strategy in terms of responsible commitment plays a vital role in the company’s mission statement. Its objective is to preserve sustainability in three distinct areas: risk minimization, reputation and resource efficiency. Not only employees have to be respected, the entire society and environment has to be considered. Thus, the company ensures inclusion the values of the traditional culture in its corporate strategy. BMW focuses on the corporate profits and shareholder value and is also responsible for reasonable interaction with suppliers, associates and environment. The BMW’s massive funding of science and its open dialogue with the public sector and government extends this commitment. BMW invests highly in the advanced training of its employees. Its approach to send employees to various manufacturing sites when new plants or joint ventures come into existence is an excellent example of that. Recently BMW announced plans to invest $50 million in its Indian financial services’ business.
Business Level Strategies
BMW shows one of the excellent examples of an incomparable business strategy of the product differentiation, as far as concerning the Michael Porter’s generic strategies. The company offers differentiated automobiles and satisfies the customers’ needs and wants to stay at a high level. By desensitizing the vehicles’ prices, BMW maintains a substantial competitive advantage. They prioritize the product, service and quality. Thus, the consumer ignores higher prices of its products or they are less perceived, which creates a higher margin. The BMW group implements advanced business methods and different approaches designed for distinctive customers’ requirements in different countries by considering geographic, demographic, behavioral, socioeconomic and beneficial characters of society which helps them to plan business strategy more effectively (Meyr).
Structure and control systems
BMW’s Two Tier Corporate Governance is one of the best, efficient and effective management control systems in the corporate world. Board of Management manages the BMW group’s worldwide operations. All control lever of its international and domestic operations are in the hand of BOM for controlling activities. BOM manages the group operations, co-ordinates the group strategies for managing the enterprise. It ensures that the group follows all provisions of law, risk management, risk control and also deviations from a formulated plan and targets. The BOM’s supervisory board regularly supervises the BOM, involved in the key strategic decisions. The Supervisory Board appoints the members of BOM and facilitates long term succession planning. Supervisory Board is responsible for setting up committees for internal and external auditing, quality assurance departments, the research and development division and risk management division (Lenciani).
Since most of European and American markets are at a maturity stage, the viable option for growth is diversification to new markets. BMW should continue its operations in the emerging markets and economies and expand to new economies. The markets of America and Europe are stable and BMW has also developed a brand loyalty of customers behind them. The company’s plants in China and India are already in operation; they still require modifying them to increase production, meet the target of a growing market and also strengthening the consumer base.
BMW can adopt another effective strategy by creating its 100% subsidiaries in the emerging economies so that it translates into a strategic asset for competitive pricing. This would mean a cost effective manufacturing by producing vehicles in developing countries, and they will incur relatively fewer expenses on the labor and supply chain in comparison with developed countries and markets. The present constraints of raw materials increased prices will impact pricing and positioning of the brand. BMW should further continue its efforts of minimizing carbon footprint and concentrate on Hybrid cars. This strategic plan will enable BMW to achieve a safer journey ahead and sustain a strong foothold in the world’s automobile market.