Setting Up of BMW Car Manufacturing Unit in Iceland - Case Study Example

SETTING UP OF BMW CAR MANUFACTURING UNIT IN ICELAND Bevarian Motor work (B.M.W) as the abbreviation stands which is German company based in Munich. Bevarian motor works is an English translation from German language. It is Ayerische motoren werke which we now call as B.M.W. B.M.W. is the leading auto exporter of automobiles. The company Standard in 1913 by a Beverian Karl Rapp started an air craft engine shop is Munich. After four years Rapp designed the company led by Franz-josef popp changed its name to Buyerische motoren works. The company has to take a major set back when the 1919 treaty of Versailles took a decision prohibiting German companies producing aircraft engines and aircraft. Due to the company started manufacturing motorcycles. One of its models R32 is also known for its speed during 1930's. Though not allowed to produce aircraft the BMW company entered automobile business by taking over Eisenach vehicle factory. Later it went on developing large touring cars and sports cars one of the model 328 sports car which was highly successful. The ending of World War II also witnessed the dismantling the company by the Allied forces. Though the company was dismantled it recouped and started making automobiles, and again came to the marked in 1950's it rose to success after it begun manufacturing sports seadens and turning cars. It was giving a tough competition to mercedez benz in luxury segment. The other two competitors like Toyota and Nissan gave tough competition and sales started steeply falling. Collapse of Berlin wall led B.M.W to outsold Mercedez Benz in Europe for the first time. An establishment in any country whether an industry or a Car manufacturing unit or for that matter any other plant shall give innumerable benefits that may be enjoyed by the countrymen as well as by the Government. There may be employment potentiality for the skilled and unskilled people which being the direct employment. People's standard of living and the lifestyle would grow above for the pleasant environment and the economical growth. The government would also derive financial and economical benefits out of the revenue they get by the way of taxes. Indirectly as a result the subsidiary industries will boom and the production units also would start producing more number of product items. There are still some bottlenecks, which may hamper the very growth as the Iceland country is having less population and because of the prevailing weather climate dipping to Sub 0 level it is just about difficult to live a normal life. So the citizens may prefer to shift to other places with the effect. Hence it may give adverse effects related to absence of the manpower and the productivity may hinder. A company or a manufacturing unit intending to set up its own plant in any country has to look up, analyze and study the respective location then plan to take up the initiative. It has to take into consideration - all the aspects related to starting a unit, develop it and to see it turn into a successful, lucrative unit, in its own terms. When the matter concerns to a car-manufacturing unit there arise two kinds of firms vying for the plant to set up. 1. Domestic Firms 2. Foreign firms. 1. Domestic Firms: Domestic firms have good foothold on the area, climatic conditions, contact ability, without any language barriers, they have access at a much more faster rate than expected. Even then domestic firms also have a sort of impulsive effect on a few problems with regards to setting up of the unit as well as benefits. The firm has to incur a heavy capital at the initial stages like acquisition of land or lease /purchase of land. It has to take steps to tie up with the countries, government and its states. Capital is the most important factor and is to be kept aside apart from other things more than what is actually expected. Man Power, recruitment, talents and skills is where the ultimate spice of the life lies. As the perfect personnel managing all the departments with utmost dedication and perseverance would be a guide to the firms success story. The firm can make or break it with the excellence of skilled craftsmen, in a country with minimal population. Weather Conditions: Conditions of climate also pose to increase the list of problems as here the climate is either minus or a bit above it. So it's the major issue to cope up with and becomes all the more difficult to go against the race and have the guts to win the race. Iceland being a cluster of cold countries, the acute weather conditions makes employees working all the more difficult. Since Ice land has many volcanoes it has acute geothermal changes which is prime reason for any firm to set up a plant. Opportunities for Domestic firms:- Domestic firms take all the marks when related to opportunities and advantages. These firms have the privilege of not giving any grants or taking permission from the government except for a license and a few taxes which are mandatory to be levied on the products. The corporation office will get more benefits by giving sanctions to the various industries and so also ancillary industries. They have the perfect knowledge of the area, location, climate, feasibility for transportation and most especially the marketing point of view, which enables them to pave the way for a successful growth, oriented unit to come up with. The local people's contact ability is more and helps in turn in the process of recruitment of exceptional personnel to who would stand tall for the firm to take it to the greater heights. The influential status, contacts in higher levels, speedy movement in case of transaction easier to begin within the departments. Risk is the major term irrespective of the bigger or smaller firms. For domestic firms the people can take pain to stop or try to escape the risk factor. If it wouldn't be possible then will work incessantly to avoid or manage to cover up the risk factor. They have easy access to clear up the issues related to minute ones whether, electricity, land acquisition or any other issue. Due to the knowledge of the native country and its conditions the domestic firms can exclude all minor issues as soon as possible and can resolve to work. 2. Foreign Firms: Foreign company to invest in any other country and set up a plant would land with dreams to establish a kingdom of their own. At times they are successful, at times they are partly successful, and at times they fizzle out. But more often then not they make their dreams true to the expectations. Their product will be precision based and also quality based. Within a short period even though they get hurdles and hardships at the beginning they overcome all the difficult toothaches and launch the product successfully. They gradually establish a viable market and a sustainable consumer base. This also provides a great business opportunity to the natives and also to the government. Any foreign company to setup a plant had to face many problems and difficult circumstances. The main problem would be to decide as how much share or stake that should be left to the country (i.e) Iceland. Native Country would first take the percentage stake in terms of shares or in terms of the native citizens betterment and include to give percentage stake in the employment structure. It has to adhere to the foreign policy of that country. It's own shares should not be liquidated from the organization. It should be bound to the rules and regulations of that country with regards to trade and commerce and exports or imports and the firm should abide by all of them imposed. These firms do not have any special benefits towards the government and there will not be any tax exemption and they need to pay all the taxes without any redemption from the taxes. The foreign firms need to pay for the foreign exchange. If any conflict arises the firms have to obey to the laws of the Forum which Are fully inclined towards the customers. Foreign Firms: Foreign firms have to take permission first from the government to enable them to open their channel of trade and commerce. Before the opportunities knock the doors the firm has to overcome many problems to set themselves in a place where they have to overcome problems like communication through a language which is new, climatic conditions to which they are not accustomed, and impress the people with their service and quality products which is not a small thing. They should safe guard their capital money form burglars and invest it in right place and right time taking all the necessary care and precautions thus not allowing anyone to cheat them. Ice land being an island, any country to set up their plant faces any difficulties due to adverse climatic conditions. The company has to build the plant that can withstand volcanic eruptions as the Iceland has volcano mountains. The population is concentrated at the Southeast costal regions. Tie - Up - with the Government: An agreement has to be signed by the firm and the government which specifies all the rules and regulations regarding the Investment, Acquisition of property, Taxes pertaining to Sales and manufacturing, Marketing and Advertising, alliance or non-alliance clearly. The rules when violated the property and goods could be ceased by the government. Obeying all the norms it has to build its reputation and goodwill, which is a very difficult task to handle. Land Acquisition: Acquiring land permanently from the native people or obtaining for lease in a demanding area needs lot of knowledge and needs huge amounts to hold the name and fame of the firm. If the land is not available with the local residents as per the requirements of the company then it has to approach the government for a Vacant land and complete the transactions and dealings to start up with. Capital Investment: The capital investment is involved with a lot of risk factors as of to how to invest and where to invest. As setting up of a car manufacturing and sales unit holds large amount of money, considering rate of interest, mode of payment, forms of receipt, and confirmation reports satisfying the Audit bureau of the existing country is great challenge if one could accept. Also the company has to pay a certain percentage of amounts as stake over the profit, which is only applicable to multi-national firms. Power: Obtaining the grant from the government as the industry needs high voltage power supply through out the year and it needs a lot of cooperation from the government. Not only the government the local residents should also cooperate with the new venture. Human Resources and Development: The company's name and fame all depends on the work performance of the staff, how skilled the staff is all the grade of the company. Recruiting the technically skilled staff and supervising the staff, and providing a good and competitive work environment is all what human resources development deals with. Climatic and Weather conditions: climate and weather conditions may become unavoiding obstacle to carry on the activities needed to improvement and development of the company. The company may not make a good progress if bad weather persists. Also the goods or products manufactured must be usable in the required weather conditions. Apart from the climate though minor the issue of food prevails for quite sometime in the initial stages as there would be people who come from the different part of the world and may not able to get adjusted with the food available in that country. The key ingredients of the Theory of Constraints might be taken as the concept for Innovative manufacturing units. Research shows that the successful implementation of these world class manufacturing concepts in an environment of employee empowerment and employee satisfaction especially form the monetary end will improve the job satisfaction and reduce non-value-added operations, increase attendance and increase productivity level and reduce turnover. The CAR even helps apparel companies to appraise technology and in turn give more employment to the youth. Benefits for the foreign firms: For a foreign firm the local government will assist, help and encourage to acquire a suitable piece of land to establish their factory at a nominal price. If the same piece of land a local firm has to acquire it may be manifold. There by they get huge benefits while acquiring the land which is a very important factor. There will be a remission by the municipal taxes and other professional Taxes. The government also extends their cooperation and will have remission in the sales tax, central excise and custom duties. They will just have nominal fees for all these charges. The local government also takes initiative in providing regular electricity with Proper transformers and wiring and laying out the electrical lines and at the Same time there will be exemption in the consumer electrical charges. The Government will see to it that they get uninterrupted power supply throughout Without causing any inconvenience to the firm. The government also provides abundant water supply to these firms at just nominal charges. They do provide better accessible roads too when required. Generally such product houses or manufacturing units depend upon ancillary Industries and also auxiliary industries. So when these firms come up the local residents would always be enthusiastic and they extend their helping hand in support of them. Raw material, which is to be used for manufacturing a product, must be easily accessible from the local areas. Whereas a country like Iceland with such a less temperature conditions acquiring raw material would be a mountainous task and hence the firm has depend upon the import, which would enhance the productivity cost. So the raw material must be available at affordable prices and nearby areas. Here the government would help the firm in importing the required parts from other places at a nominal custom duty. For every local purchasing of the company, the foreign firm need to exchange their Euros or Dollars into Krone which is the currency of the Ice land and which might not be so feasible in every possible for the local purchasing. More over exchange rate as compared with dollar is higher in krones. Hence concluding the report, establishing BMW either by a domestic or by the any foreign firm is equally difficult and equally advantageous provided the existing government and the industrial laws must fully support such foreign investments and domestic company developments. References wikipedia. (2005). Krona. Retrieved 13 may 2006 http://en.wikipedia.org/wiki/Krona_%28disambiguation%29 wikipedia. (2005). Geography of Iceland. Retrieved 13 may 2006 < http://en.wikipedia.org/wiki/Category:Geography_of_Iceland> Conceptcarz.com. (2006). History. Retrieved 12 may 2006 < http://www.conceptcarz.com/view/makeHistory/3,11527/makeHistory.aspx> Lexico Publishing Group, LLC. (2006). Geography of Iceland. Retrieved 13 may 2006 < http://www.reference.com/browse/wiki/Geography_of_Iceland> Hyundai motor India. (2003). Alliances. Retrieved may 13 2006 < http://www.hyundai.co.in/alliances.asppageName=comp> Toyota motor sales. (2006). Environment. 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