bmw strategy (1)

Syed Jafri Dated- 26/11/07ID. No.-20257651 (IBM)

Varun Jain I.D. No.-20267351Varun Jain I.D. No.-20267351

Analytical Report On

Global Strategy

Syed Jafri Dated- 26/11/07Student ID. No.-20257651 MSc (IBM)

Contents

Page No.

Abstract 3

Introduction 3 Steps in International Market 4

Retraining Forces 4

Main Drivers for Change in Organisation 5

Entry Strategies 6

BMW to Begin Indian Operations In 20007 6

PESTEL Analysis 7

Posters Five Forces 9

Tools 10

Raw Material Cost Bothers BMW In India 10

Conclusion 10

Recommendation 11

Bibliography 12

Appendices 14

Abstract

2


The objective of this report is to give an introduction on BMW’s organization and the aim is to highlight the various strategies, which help the organization in maximizing their profits and increase in demand of their products.

The report indicates the different links between changing market concentration and company strategies. The report includes various strategies adopted by BMW to compete in the market and beat their competitors. Besides this it also indicates the various tools to analyse the new market and entry strategies adopted by BMW to enter into international market.

Introduction

The seemingly relentless growth in the car industry, only few companies have shown the significant growth and BMW is one of them. BMW was founded in Munich, Germany in 1916 as the 'Bayerische Flugzeugwerke AG' (BFW). In 1917, the 'Bayerishe Motoren Werke GmbH' was created from it, and this was finally converted into a joint stock company in 1918. The Company concentrated initially on the development and production of aircraft engines and, from 1923 onwards, on motorcycles. The Company's success story as an automobile manufacturer began in 1928 with the acquisition of the Eisenach vehicle factory.

Will Rodgers, co-founder of SHR Perceptual Management says “Carmakers are running up against a very tough choice, either they protect their market share and play not to lose, like GM and Toyota, or they go all out, place some big bets, and play to win. BMW is playing to win.” The history of the Bavarian Motor Works is a history of innovation, dedication and determination. These achievements are visible in the BMW emblem, symbolizing a rotating airplane propeller from BMW's early years as an aircraft engine manufacturer. Today, the emblem signifies a global company that annually produces hundreds of thousands of engines, motorcycles, and cars.

It was true that, BMW was falling a part, due to the post-war strike. Bankruptcy became visible as the company was hanging itself to disintegrate into the arms of Daimler- Benz. In 1925, BMW motorcycle sales were 15 million Reichsmarks ($3.6 million). The motorcycle product line includes nine bikes. BMW won more than 100 motorcycle races that year and boasted first-place finished by 1928. This is when BMW’s brand recognition for engineering excellence took off and took hold across Europe. By 1928, BMW future looked bright, with revenues at 27 million Reischsmarks ($6.4 million), up by 77 percent in just three years.

Steps in International Market

3


The main reason behind the success of BMW was their changing management strategies from time to time. They were keen towards their management policies. Whenever they find any changes in the economy, techniques, production etc. they also change their strategies and base them accordingly to the new changes. Some times their strategies are based on the future i.e. environmental impact, developing third generation technology for their machines (hybrid technique).

The major reason for this strategy change was to avoid possible trade restrictions and exchange rate fluctuations. With this uniqueness in there strategies they succeeded in their trades and target the maximum sales. In early1980s at the time of global boom, BMW laid out their policy for the production of luxury cars only. They decided to put more efforts on the luxury and comfort, which separates them from the other competitors. They produce five lines of cars: 1, 3, 5, 6 and 7 Series.

Avoiding heavy import duties and attracting subsidies from government lead BMW group to assemble their very small plant at South Africa. In 1992 they set up another plant in South California. This was all due to the foreign competition in world market, by locating their production site in foreign markets. In addition BMW managed to overtake its rivals by signing joint ventures with various companies. (For more information please see appendices pp. 15-16)

Restraining Forces

In the journey of success, BMW had faced many restraining forces like competition, low profit margins, ecological problems and financial status. Due to the globalisation the competition between the cars manufacturers become very tough in different car segments, because of this manufacturers have to cut down there prices in the market, resulting in low profit margins.

Beside this, new policies on environmental were issued for the car manufactured due to the issue of global warming and emission of carbon. This led BMW to redesign their engine technology and make it friendlier to the environment. There fore BMW had to change their engine specification which led them more pressure. In its early age BMW was almost bankrupt due to the strikes in Germany because of World War II and was ready to fall in the hands of Daimler.

4


Thus it results in adoption of adaptation strategy. BMW set adaptation strategy for breeding programmes and finding recommendation for various objectives. It helps them in getting various analytical approaches and provides different results. However, sometimes objective was focused on the future production.

Main Drivers for Changes in Organisation

Competition:

At the time of competition, the organization requires to operate with maximum efficiency. Main aim behind this is to reduce the fixed cost per vehicle. BMW acquire the economy by maximizing the volume and standardizing the parts across there model ranges. This results in high investment capacity and continuing trend towards mergers, joint ventures.

Increase demand:

BMW adopted the niche marketing strategy in global marketing because the market for niche vehicles was growing or was more in demand. European consumers were also looking for great fuel efficiency, by the growing popularity of diesel engines. Another trend has outcome i.e. onboard electronics and telecommunication system. Through these attractive specifications, BMW has gained higher margins and customers.

Legislation:

Legislation is one of the major drivers of the industry. Production and recycling legislation have an impact both on vehicle technologies and on construction. This requires vehicles that are more efficient and lower weights, and the development of market-oriented measures such as improvements in the level of consumer information.

Change in Technology:

Development in modern techniques continues production of electric, hybrid and fuel cell motors, especially for the city. People are more likely to wards the cars that harm less to the environment and BMW is first to produce hydrogen car.

Cheap Labour:

Car manufactures always look for the cheap labour to cut down there manufacturing costs. Thus BMW also choose the countries where they could cut down their

5


manufacturing costs, in addition the cost of transportation of the good is significantly reduced.

Entry Strategies

Entry strategy for international markets is a complete plan, which sets the objectives, goals, capital, and planning that helps company in international business operations over a future period long enough to achieve their goals in world markets.

Foreign market has always been one of the significant fields of opportunity and switching costs. In seeking to serve and penetrate foreign market, firms may choose various entry modes.

Some of the typical modes of foreign market entry are as following:

Exporting (direct and indirect)

Licensing

Joint Ventures

Wholly owned subsidiaries

Equity and non-equity modes

The entry strategy of companies typically follows one or two alternative patterns. Waterfall strategy was the preferred choice made by the BMW. Under the “waterfall” scenario, the product or services was gradually move into overseas markets, while in the sprinkler mode product is introduce in several countries market simultaneously with in a limited period.

It goes well with the cultural distance and learning patterns. After success in the home market, the product gradually moved out to culturally close markets. The other advantage is that the expansion can take place in an orderly manner, and the same managers can be used for different countries, which helps to capitalize on the skills developed and it is relatively less demanding in terms of resource requirements.

BMW to Begin Indian Operations In 2007

6


BMW’s main aim is to produce high quality products, by offering different products for different countries. Reviewing their international strategies BMW group has decided to make an entry into India.

The Government of India's new automobile policy announced in June 1993 attracted a large number of automobile companies there. According to the policy heavy subsidies would be provided to the automobile manufacturers. There are three existing Indian companies, Hindustan Motors, Premier Automobiles and Telco, and one Indo-Japanese venture, Maruti already in the passenger car market. Maruti is by far the biggest player with about 70% of the market share.

This is an important step for company’s expansion in Asia. With this strategy BMW group can also hold the China’s market. BMW’s long-term goal is to make Asia its stronghold and the entry into the Indian market with locally made models is an important step towards this end. The luxury car market in India is estimated around 10,000 vehicles per year and it would be expected to be double within 4-5 years.

This favourable duty structure will put BMW at a relative advantage and the company can expect to entice the Indian buyer who will be able to buy the premium brand car at a much lower price. Another reason why BMW have decided to take the plunge in India rather than China is due to its foreign investment policy. China would provide a much more hostile environment for BMW to start a new set up. BMW group has shown GDP growth rate is around 8 percent and that is a very good basis to start an automobile business in India. The production and sales subsidiary will be owned 100 per cent by BMW Group. In addition to operating the assembly plant and importing BMW cars, the tasks of the subsidiary will also include developing the dealer organization, deciding on pricing and product strategy as well as marketing and after sales.

PESTEL Analysis Political Factor:

The current government of Congress Party has provided stability to the country. The political setting in India and in other independent states is increasingly being recognized as a critical factor in the achievement of continued economic growth.

7


Economical Factor:

During the last few years there has been significant growth in Indian economy. The economy has achieved a high GDP growth of 8.5% in 2003-2005 and it is estimated to have growth of another 7% by 2005. The growth rate of capital goods and consumer durables had been in double digits since September 2003. The economy rate of savings and investment has increased sharply.

Private corporate and public sector investment as % of GDP

Private corporate

Public sector

Combined pvt corp & pub sec

1994-95 7.1 8.7 15.8

1995-96 9.9 7.6 17.5

2003-04 5.6 5.3 10.9

(Source: http://www.rupe-india.org/39/boom.html)

Annual growth rate of industrial production: Mid-1990s boom and the present boom

Mining & quarrying

Manufacturing Electricity Overall

1994-95 9.8 9.1 8.5 9.1

1995-96 9.7 14.1 8.1 13

2003-04 5.2 7.4 5.1 7.0

2004-05Apr-Dec

4.8 9.0 6.4 8.4

(Source: http://www.rupe-india.org/39/boom.html)

Table shows the developments done by the Indian Economy in two boom periods.

Social Factors:

Many changes took place terms of social factors. The community in India is much aware due to improvement in the social- culture, religious, economic and demographic factors. Education has played an important role for uplift of social factors.

Technological Factors:

8


Modernization in the different sectors of Indian economy, led to an improvement in technological terms. Today either it’s an industrial sector, agricultural sector or services sector they all are modernize with new techniques and technology.

Ecological Factors:

Environmental stress is increasing, due to both unsustainable consumption and production patterns but India has shown significant changes in pollution-reducing infrastructure and urban environmental policy and that’s the policy of BMW group.

Legislation Factors:

Several efforts are make by the Indian government during the progress period to ensure the welfare of the common Indian. The Government has show the confidence that they would be able to control the rate of inflation and have ruled out bringing legislation to provide various opportunities in different sectors.

Porters Five Forces

Posters five forces model explain the different restraining forces to be faced by BMW in opening their markets in India. Model indicates high competition in Indian market because of various global competitors. The economy of country shows the high power of buyers because of many options. BMW already had its established Brand name all over

ModerateSuppliers

HighPower of Buyers

HighPotentialEntrance

HighSubstitute

HighCompetitio

n

9


the global market therefore it shows the high potential entrance in the economy. Beside this if we talk about the industrial life cycle pattern, it lies in the developing industrial sale. Therefore Indian economy has a great potential to enter. On the other hand with moderate indication, there can be well relationship maintain with the suppliers. At last, the risk of substitute is high due to possibility of imitation and other brands in same segments.

TOOLS

Clusters:

BMW gives regional competitiveness by establishing a stable cluster. Clusters means stable connection with suppliers and services. Cluster is based on the competitiveness of the region and the competitiveness of the industry.

University-industry linkages:

The link between the university and industry has helped a lot to the German auto industry I late 1970’s and 1980’s. The impact of university-industry linkage can be easily seen in the form of technological innovation and regional competitiveness in economic growth.

Human capital development and mobility:

To enter in a country, it is very important to study its mobility and development and India is one of the uplifting countries which have shown significant changes in term of human capital development and mobility.

High raw materials cost bothers BMW India

High raw material costs remain an issue for BMW. If we see the year 2006, high raw material prices was costing the BMW Group more than what they expected, roughly more than 150 million euros ($200 million), and it will still be an issue in my opinion for the next two to three years. Therefore, BMW decided to standardize their products under different region, so that they could reduce add on costs.(For more information please see appendices pp. 18-19)

Conclusion

10


BMW have progressed a long way since it was on the point of bankruptcy in 1959. Sales have grown steadily in recent years and in 1992, for the first time ever, are expected to be greater than those of its archrival, Mercedes-Benz for 560,000 against 538,000. A major change in strategy is the decision to establish the production facilities outside Germany and this may have far-reaching consequences. BMW is a firm that has grasped the opportunities made available by customer and government concern about the environment, and is well placed to profit from anticipated legislation about the recycling of the cars. Perhaps the major problem facing the company is large-scale Japanese competition in the luxury car market, but the indications are that they intend to meet it head-on.

In the car industry, the move away from the highly vertically integrated operation began in the early 1950s and BMW is one of the good examples of a modern, entirely integrated manufacturing facility, where efficient and low-cost production has been achieved with the appropriate international business strategies.

Recommendation

BMW have to improve their performance in investment capital for a region by developing detectable business angles, investors, banks and venture capitals. Some special programmes should be started to support the initial development and network operation should be established.

There should be a proper coordination and development among the international cluster of BMW group. The distribution network should be good and encouraging suppliers in terms of ability and values to consumer and to make possible for home producers to export. BMW should concentrate more on their Niche marketing strategy. The key to capitalizing on a niche market is to find or develop a market niche that has customers who are accessible, that is growing fast enough, and that is not owned by one established vendor already.

11


Bibliography

http://www.dnaindia.com/report.asp?NewsID=1087782

http://www.autoindia.com/News/auto-news-india577.html482 automobiles in Asia.

http://economictimes.indiatimes.com/News/News_By_Industry/Auto/High_raw_materials_costs_bothers_BMW_India/articleshow/1828478.cms

http://www2.dw-world.de/southasia/germany-india/1.164393.1.html

http://www.tribuneindia.com/2004/20040905/biz.htm

http://www.reuters.com/article/tnBasicIndustries-SP/idUSBOM15560920070329

http://web.ebscohost.com/ehost/results?vid=2&hid=18&sid=fcc5faa1-3e6b-4a53-8bf9-5b3b87389ffa%40sessionmgr7

http://web.ebscohost.com/ehost/detail?vid=1&hid=105&sid=2195e9b6-e849-449a-b1e8-50bf8f70b6ca%40sessionmgr104

http://web.ebscohost.com/ehost/detail?vid=1&hid=102&sid=7937321d-598c-436a-9c5f-e96c4c88447b%40sessionmgr107

http://web.ebscohost.com/ehost/detail?vid=1&hid=102&sid=7937321d-598c-436a-9c5f-e96c4c88447b%40sessionmgr107

http://web.ebscohost.com/ehost/detail?vid=1&hid=105&sid=c6a2ee82-3bb3-4617-8e42-2a78e32972f8%40sessionmgr107

http://services.oxfordjournals.org/cgi/searchresults?fulltext=BMW

12

http://www.dnaindia.com/report.asp?NewsID=1087782

http://services.oxfordjournals.org/cgi/searchresults?fulltext=BMW

http://web.ebscohost.com/ehost/results?vid=2&hid=18&sid=fcc5faa1-3e6b-4a53-8bf9-5b3b87389ffa@sessionmgr7

http://web.ebscohost.com/ehost/results?vid=2&hid=18&sid=fcc5faa1-3e6b-4a53-8bf9-5b3b87389ffa@sessionmgr7

http://www2.dw-world.de/southasia/germany-india/1.164393.1.html

http://economictimes.indiatimes.com/News/News_By_Industry/Auto/High_raw_ma

http://economictimes.indiatimes.com/News/News_By_Industry/Auto/High_raw_ma

http://www.autoindia.com/News/auto-news-india577.html


http://www.bizjournals.com/kansascity/stories/2001/12/03/daily6.html

http://bmw-club.org.uk/~archives/

Driven, by David Kileypg

Rival Capitalists, by Jeffrey A. Hart

International Environmental Economics, by Günther G. Schulze, Heinrich W. Ursprung

Research in International Marketing, by Subhash C. Jain

Marketing, by Barton A. Weitz, Robin Wensley

Strategy and Management, by Howard Thomas

Principles of Strategy, by Emil Schalk

Global Strategy, by Edgar James

http://www.bmweducation.co.uk/

http://www.bmwworld.com/bmw/history/index.htm

http://en.wikipedia.org/wiki/Bmw

http://www.bmw.co.uk/bmwuk/owner/service_useful/recycling/0,,1312dhta HR0cDo vL3d3dy5iYXllcmlzY2hlYm13Lm5ld2RvbG4ubmV0,00.html

http://fastcompany.com/magazine/62/bmw.html

13

http://www.bmw.co.uk/bmwuk/owner/service_useful/recycling/0,,1312dhta%20HR0cDo%20vL3d3dy5iYXllcmlzY2hlYm13Lm5ld2RvbG4ubmV0,00.html

http://www.bmw.co.uk/bmwuk/owner/service_useful/recycling/0,,1312dhta%20HR0cDo%20vL3d3dy5iYXllcmlzY2hlYm13Lm5ld2RvbG4ubmV0,00.html

http://en.wikipedia.org/wiki/Bmw

http://bmw-club.org.uk/~archives/

http://www.bizjournals.com/kansascity/stories/2001/12/03/daily6.html


APPENDICES

VARIOUS OTHER FACTORS THAT INSPIRE BMW IN BECOMING INTERNATIONAL ORGANISATION

Low labour cost in other part of the world as compared to Germany.

Low cost inputs available in other part of the world.

Under capacity of BMW’s German production units.

Availability of tax benefits and subsidiaries by the government.

The need of protection of the foreign market against the appreciation of the

Deutschmark.

Production outside Germany

BMW started producing automobiles at its Spartanburg, South Carolina plant in 1994. Today, the plant manufactures the BMW X5 and BMW Z4 Roadster.

The Spartanburg plant is open six days a week, producing automobiles approximately 110 hours a week. It employs about 4,700 people and manufactures over 500 vehicles daily.

After a period of local assembly, BMW's Rosslyn, South Africa plant now manufactures cars, with over 70 percent of its output destined for export. In the mid-1990s, BMW invested R1 billion to make Rosslyn a world-class facility. The plant now exports over 50,000 3 Series cars a year, mostly to the USA, Japan, Australia, Africa and the Middle

14


East.

Starting from October 2003, BMWs are produced in Shenyang, China. BMW has established a joint venture with Chinese manufacturer Brilliance to build BMW 3 Series and 5 Series vehicles for the local market.

No other automobile company has been as consistent as BMW in delivering top-notch motoring to driving enthusiasts. The vehicle has long been the essence of luxury and sporty driving, combining thoughtful engineering, originality, craftsmanship, speed and handling. BMW vehicles are unique. BMW had already established a pattern, which its customers loved, of expanding a product series through a wide range of engine derivative.

BMW world wide locations

(Source: www.bmwgroup.com)

15


BMWs joint venture and over taking achievements

Automobilwerk Eisenach:

In November 1928 BMW acquired the Fahrzeugfabrik Eisenach A.G. (Marke "Dixi") from the Gothaer Waggonfabrik. It became the birthplace of car manufacturing by BMW. In 1933 BMW started to develop bigger cars with 6-cylinder engines. The first car of which was the BMW303. Later successors were the BMW 313, BMW 319, BMW 327 and the elegant sports coupe BMW 328, of which 62,864 were produced.

In 1942 the production was stop due to the World War II. Later on BMW factory in Eisenach started manufacturing motorcycles and aircraft engines.

Isetta:

BMW made the Isetta its own by overtaking the company. Although the major elements of the Italian design remained intact, BMW re-engineered much of the car, so much so that none of the parts between a BMW Isetta Moto Coupe and an Iso Isetta are interchangeable. The first BMW Isetta appeared in April, 1955.

Glas:

In 1962, BMW and Glas poduce one of the succesful model which was BMW 1500. A lot of customers decided to buy this car and the company could draw a lots of profit and became a very prosperous car manufacturer. Because of this success the production capacity in the plant in Munich was exhausted very soon and the management decided to buy the Glas GmbH in Dingolfing.

Rolls-Royce Motors:

In the early 1990s, BMW and Rolls-Royce Motors began a joint venture that would see the new Rolls-Royce Silver Seraph and Bentley Arnage adopt BMW engines.

In 1998 Rolls-Royce Motor Cars is a BMW subsidiary responsible for the manufacture of the Rolls-Royce Phantom. However Rolls-Royce Plc the aero-engine maker, decided it would license certain essential trademarks (the Rolls-Royce name and logo) not to VW but to BMW, with whom it had recently had joint business ventures.

Rover:

The 1994 takeover by BMW saw the development of the Rover 75, before the infamous de-merger in 2000. Ford had acquired an option of first refusal to buy the Rover brand as a result of its purchase of Land Rover from BMW in 2000.Owned by BMW:1898 Riley

16


1903 Standard as a part of Triumph Motor Company1919 Dawson the genesis brand of Triumph Motor Company1923 Triumph as a car brand- the motorcycle brand owned is by Triumph motorcycles1936 Autovia created by Riley as a luxary car brand1959 Mini originally used as a sub-brand on the Morris versions of the car

Mini:

MINI is the name of a Cowley, England-based subsidiary of BMW as well as that of a car produced by that subsidiary since April 2001. It is sometimes called 'The BMW MINI' or 'The New MINI'.

Wiesmann:

Wiesmann is an automobile manufacturer in Germany. The company was founded in 1985. All cars utilize engine and transmission components supplied by BMW.

Alpine:

A Motor Manufacturer in its own right, who creates vehicles based on BMW cars.

BMW POLICIES

Reducing Price Strategy by Recycling:

To reduce the cost and maximize there profits BMW ensures that its vehicles can be efficiently recycled. It cut down the additional prices and save costs, recycled materials can account for 15 - 20 per cent in weight of the total mass of plastic materials used. This saves resources and introduces closed-loop recycling process. Thus BMW designs there cars on recycling concepts.

Reducing Wastes and Pollution Strategy:

BMW thinks of tomorrow, today. By applying designs on recycling concept they are also trying to reduce the wastage and utilize the various parts from the shredded cars in there yards. With this step they are not only reducing their wastes but also reducing the pollution factors. The foundation for the environmental friendly recycling of vehicles is laid during the production of each vehicle.

Goal Oriented:

17


BMW had laid its goal by keeping every new challenge in mind that they can face in the coming future. This is the one of the best aspects that inspires every individual in the BMW group. These goals help and play a vital role in decision-making process.

Quality :

From research and development to sales and marketing, BMW Group is committed to the highest in quality for all its products and services. The company's extraordinary success is proof of this strategy's correctness.

Financial services:

As per the current scenario financial services are the key factor for success in today's world. BMW has established an extensive product portfolio, which supplies expert information and advice for situations and questions relating to the finance sector. They had provided the services like: financing and leasing, asset management, dealer financing and company car pools.

Customization:

In today’s world we can see fundamental trend towards customization. Therefore they also benefit in this context from the fact that market segments are permanently on the move. Their playing field is not limited, but is continuously expanding. With this BMW takes opportunity to go on expanding and grow further.

Identify the potential and encourage growth.

Recognising where our strengths lie and making the best use of every

opportunity.

Follow a clear strategy.

Elements of Entry Strategy

Product

Target market

Choice of an entry mode to go in the target country

Timing of entry

18


Size of investment

Marketing plan to penetrate the target market

Problem Faced By BMW

Some of the entry barriers faced by automobile companies in India are relatively high levels of import duties, a nascent ancillary industry, and product modifications required for relatively poor road conditions and high levels of heat and dust. On the other hand, a rapidly growing middle class, rising per capita income, and high levels of latent unsatisfied demand with customers starved of world class options promise enormous opportunities. For instance, from current sales of around 300,000 passenger cars in 1996-97, sales are expected to raise anywhere between 850,000 to 1.7 million vehicles by the year 2000.

It is not certain how exactly demand will grow and on what factors it will depend, andwhether there is room for so many players. The supplier industry also faces enormouschallenges to keep pace with rapid growth. Manufacturing practices will have to changeconsiderably to come closer to lean production. It is also possible that some companies will increasingly use India as a base for exporting vehicles to other countries. These issues will become clear as the future unfolds.

There are many other issues (competitors) in the same country, which are as follows:

Hyundai to set up R&D center by 2008 in India..

Audi investigates local assembly unit.

Suzuki and Nissan to invest US$1.5bn in India.

Naza requests more land for new plant.

DaimlerChrysler plans new plant in India.

Production of Tata's Pune plant by end of 2007.

Mahindra plans Rs10bn capital investment.

19

bmw strategy (1)

Documents