Bavarian Motor Works PESTLE Analysis - Case Study Example

BMW Table of Contents Political 4 Economic 5 Social factors 6 Technological factors 6 Environmental 7 Legal factors 8 Porter’s five forces analysis 8 Threats of new entrants 8 Threats of substitutes 9 Bargaining power of buyers 9 Bargaining power of suppliers 9 Drivers to change 10 Strength 10 Weaknesses 11 Opportunity 11 Threats 11 Competition cycle 12 Strategic drift 13 Resources 14 Supply cost 14 Product design 15 Introduction BMW (Bavarian Motor Works) is an automobile manufacturing company which was first founded in 1917 where its head office is in Munich Germany. The company produces a variety of premium vehicles that is considered among the best brands in the world (Everitt 2012). It is among the Germans best three manufacturers making luxurious cars. The famous German big 3 are: BMW, Mercedes and Audi which are the best selling German cars in the world. In 2010 alone, BMW managed to sell over 1.5m automobiles (Everitt 2012) whereas Germany produces over 6 millions every year. Germany is one top four manufactures of automobile; it is ranked together with Japan, USA and China. Germany is historically considered as the birthplace of automobile industry BMW started its operations as an aircraft engine manufacturer but later dropped and joined the automobile industry (Bin 2012). In 1959 the company had a severe financial crisis and had the option of liquidating its assets but the shareholders took a bold move that saw the company survive a scary downfall. After recovering, the Company acquired small companies in a bid to gain access to already available markets (Bin 2012). The company endured mixed outcome from every decision they took, for instance acquisition of Rover became a failure after the company incurred many loses 6 years after acquisition while the acquisition of a design studio in California became a major boost to the success of the company PESTLE analysis Political By the fact that Germany is a member of the European Union the automobile regulatory framework affects the operations of BMW (Everitt 2012). Most of the regulations in the market were mainly established to reduce effects of pollution, noise and accidents caused by public and private transport in Europe. This has been done through taxation that was designed to ensure the industry raise a significant amount into the budget so as to fight the global warming. Due to the open market in the European Union, consumes from each of the country member states can buy any car model from the member country without extra taxation (Bin 2012). This regulation was put in place to control price hiking in some market where the price a single car model could vary in prices up to 40%. This has brought in a strong competition on the major players in the market. Oil consumption and prices Most European Union members depend most on imported oil (98%) for fuelling its automobile industry. The Union has agreed on increasing fuel prices so as to encourage development of alternative source of energy. This has forced BMW to invest in new technologies aimed at reducing power consumption and offering alternative source of power from fossil fuel. Economic Factors relating to the foreign exchange rates have been affecting the BMW as the company embarks on global investment: one of the major issues is excess production. In a bid to increase its capacity, the company in some instance in 2003 produced an excess of over 80% of its market capacity (Everitt 2012). The supply was higher than the demand in the market thus the company revenue worth over $1.5 billion was put on hold. The 2008 increase in Germany’s GDP from 2 percent to 3.1 percent was a major boost to the company’s revenue collection and a strategic growth in the market (Biggs 2012) BMW is affected by a fluctuation of euro which is major currency in the EU and in the global. Its relative decrease compared to the dollar affected the global prices where most countries use dollars The economic recess in the US and other major economies severely affected the demand market in luxurious vehicles such as BMW There is a rise in the new markets such as India and China where it emerges that the buying capacity has increased and have can be graded to have high purchasing power. Social factors The social factors affecting the automobile industry includes changes in the buying patterns, change in demography and cultural changes. With the increase in gasoline prices most of the consumers have opted for vehicles that are efficient in fuel consumption than the car type. After the economic recession which affected most parts of the world in 2008 consumers’ buying pattern drastically changed in order to shield their financial status Issues of environmental awareness have been majorly been in the global scene. As the consumers learn of dangerous emission from automobiles, the perception on vehicles emitting high carbon has been poor therefore causing most automobile companies to design low emission vehicles that would reduce global warming to merge the changes in the market trends (Biggs 2012). Technological factors BMW increased its technological capacity as part of its strategies to increase competitive advantage. Automobile industry is very competitive where vehicle models such as Volvo, Mercedes and Volkswagen have emerged with very competitive technologies The use of sophisticated technology is the only way to survive the ever changing market demand and the high competition With stern restriction on emission, the industry has to modify its designs so as to comply with the environmental safety rules without compromising its quality. Environmental Emissions Automobile industry is one of the industries identified as the major environmental pollutant. The objectives of Kyoto protocol aimed at reducing emission of Carbon emission was drafted and as a result, European Union encouraged a rapid result initiative aimed at reducing carbon emissions. There was a constant change of lifestyle and the manufacture of cars which are fuel economical. EU introduced standards that would control emissions of carbon to environment. The move is compulsory and ought is to be adopted by the manufactures and consumers (Thornton 2013). A common test and labeling was introduced where the consumers would get information on the models they want to buy. The move initiated have aided in restricting vehicles has produce high CO2 from entering cities. Essentially this affected the operation and designs of the automobile manufactures BMW included. Safety The EU policies have been directed towards the manufacture of safe vehicles. They have introduced incentives aimed at encouraging manufacture safer models that can reduce the accidents in the major roads (Thornton 2013). This has been enabled by the EU through provision of financial and technical support to the manufactures. Legal factors The company falls under the EU where a collective policy on automobile is applied across member states. The major issue in the automobile industry however is the pollution laws. The BMW global presence is affected by various laws in various countries. An example is the Bharat norm on emission created by the Indian government in a bid to cut out emission (Thornton 2013). The laws in line with the European Union have designed a timeline where the entire 2 stroke engine automobile would be phased out of the market. As the company tackles the EU norms, these other laws have to be catered for in its designs so as to avoid a potential loss of market due to legal issues. Porter’s five forces analysis Threats of new entrants The new entrants into automobile industry have are faced with the challenges of high initial investment such as in setting up the manufacturing plant or the automobile assembly. The industry is highly competitive where reputation in the market is the most important factor. Whereas good designs may be on offer, consumers would not want to experiment their money on the new models. Basically it will have to take a longer period before new designs are adopted in the market. Threats of substitutes BMW as a brand is regarded as a car of luxury where it is in the same class with expensive car models such as Mercedes, Volkswagen Passat , Volvo among others. These models offer a highly competitive environment within Germany and in the global arena. The threats are very high therefore BMW has to be highly competitive in order to cope with the market threats Bargaining power of buyers The market target of NMW is a wide range from a family car to transportation trucks. BMW model is highly competitive that its buyers make choices with a specific interest without bothering the price. The consumers associated with the brand makes purchases on quality and not price (Griffiths 2008). The issue of environmental significance of emission is in mind of many buyers thus the buyers have the right on every choice they make. Bargaining power of suppliers BMW has an excellent supply chain management globally with a good relationship with its suppliers. The suppliers have a high bargaining power where they are involved in pricing of raw materials used in the manufacturing process (Griffiths 2008). The relation between the company and the suppliers seems to be highly involving and that the suppliers are the key pillars towards enhancement of the company’s global presence. Competitive rivalry The company has highly competitive products targeting a market segment with a similar preference purchases, the dominant markets in the EU and US are facing a tough competition from the upcoming markets in Asia. Drivers to change From the PESTLE analysis and Porter’s five analyses, it can be noted that major development in the industry has been due to: Major investment in the industry in terms of manpower and the infrastructure set up Enhanced investment in a dynamic and market oriented designs Technological advancement in the industry Advancement in reducing carbon emission by the automobile industry Increase management of product brands rather than in enhancing excellence of the product. SWOT ANALYSIS OF BMW Strength BMW is a famous automobile brand with a strong reputation in the industry It is able to compete in the market especially with the luxurious cars meant for hub market. The company has highly skilled laborers who are able to tackle the designs according to the market demands. The company has a very strong supply chain where its supplies have a long term relationship thus strengthening its global position Weaknesses The image of the company is that its products are meant for the hub market and that some potential buyers may find its position rigid. Some of its competitors uses low cost raw materials thus having lower price final products The company has depended most in the US and Europe market. Opportunity There is a steady increase in demand of luxurious cars even in a situation of economic recess There is an opportunity for a new technology to be exploited Developing countries in Africa, Asia are offering new ready market Threats High competition in the hub market Increase in gasoline prices The increase in cost of raw materials Threats of new models entering the market PRODUCT LIFE CYCLE The industry life cycle can be analyzed ideally some various may be based on the five forces. Elements that forms the industry cycle include: the initial development where the company starts to build on its infrastructure also innovation applied. The growth stage; there is a drastic increase in the market entrance with buyers having low bargaining power and threats a few. Shake-out stage; at this stage, the company starts to experience a slow growth in its economy, the major activities at this stage are within the management and the financial sector (Griffiths 2008). Maturity stage; at this stage the company has high market share however the growth is decimally small accompanied by high competition. Decline stage; at decline stage, the company faces extreme competition from its competitors where some competitors can be emotional. BMW is basically at its maturity stage. The growth has slowed however the market share is quite extensive with a good reputation on all of its brands. There are many barriers hindering the growth of BMW however its reputation with excellent technology have ensured the company is in a perfect position to handle its issues. Competition cycle BMW has for many years attained a consistent increase in its sales with the best application of technology on its products. This has helped the company to counter its competitors to sustain the highly competitive market. Its competitive advantage has heavily relied on design and integral part. In a bid to ensure its competitors do not take over the market, BMW has designed its products from the premium offers to the most luxurious. This wide range of offers is meant to take on the products brought to the market by Mercedes, Volvo among others. In the competitive cycle, Toyota Company is offering a very tight competition because its products are quite flexible in all markets. Toyota has established itself with the upcoming markets and as well turning to the perennial markets such as the EU and US (Biggs 2012). BMW however can sustain the market through its reputation and the competitive advantage. Strategic drift This is where a mess in a company occurs and leads towards failure. It brought by external changes such as historic factors and culture. Apparently BMW has implemented its will of changing with environment and be able to outclass its competitors (Griffiths 2008). In the process Rover an English brand was bought. Its first aim was to enhance production however the status lasted just for a moment as the new Chief Executive manager of the company could not bear with the new development thus he sold Rovers to Ford. The situation was typical facing strategic drift and the turnaround of events ensured the company was in the right position to have a continuous growth. Resources Resources are quite important for every organization to thrive in every plan they conduct. It is basically a strategic capacity to overcome prevailing challenges in the market. In terms of resources, BMW has an excellent foundation. Its resources category can be classified as: threshold resources where its integrated supply chain comes in, good staffing and several units of production. There is also threshold competence where its quality, suppliers and the reliability of its products is applied. The unique resources that the company owns include excellent engineering designs and highly skilled labour (EWING 2012). It is also safeguarded by technological application, reliable production time limit and the company’s excellent products. Supply cost Supply cost being a very important factor in achieving its success. Supply cost is heavily reliant on the raw materials where the final product cost will be affected by the cost of production. BMW has managed to cut out the supply cost by having its manufacturing units around the globe. Major locations are UK, Germany, South Africa, China and US (EWING 2012). This has enabled a smooth operation and lowered the cost of transportation of raw materials. Economic scale BMW produces over 1 million cars every year and has higher capacity that can tackle high demand. Where the demand is low, the company operate at an average of 60 hours a week and changes to 140 when the demand his very high. Product design Product design is a very important part in the automobile industry as it affect yield. It is a factor that can be used to maximize working capital and the competitive advantage of the company (EWING 2012). BMW is considered as an excellent in design and application of technology thus ensuring its products are always in the forefront of the market. Experience Experience is important in the control of cost; the company can use its previous experience to increase its cost efficiency. BMW has been active in the automobile industry immediately after the Second World War. The cumulative experience has ensured a reduction in supply cost in the competitive environment Recommendation Though BMW is stable in its market at the moment, there are issues that must be considered in a bid to maintain and move towards prosperity. 1. Market development-the company has to come up with new strategies on how to ensure the existing markets are maintained and emerging market taken care of. 2. Product development –It has been BMW which leading in its product quality. As a leader, its competitors have also embraced some of its best designs therefore the company have to be dynamic so as to continue being the sole leader in its models 3. Restructuring – With the dynamic nature of the automobile industry, the company has to adopt a management structure that would ensure maximum utilization of human resources. Conclusion Automobile industry is very competitive and for a company to survive; brand, quality and good strategy has to be in place. BMW has survived decades in the dynamic industry and still boosting in the manufacture of high quality automobiles. With the recommendations provided, it can be certain that the company will grow further and establish itself as one of the most consistent premium brand in the market. References BBC. (2013, 2 19). BMW recalls 720,000 cars worldwide. Retrieved 4 1, 2013, from BBC Business : http://www.bbc.co.uk/news/business-21512413 Biggs, G., & Stangroom, A. (2012, 06 01). BMW Group UK sales outperform the market in 2011. Retrieved 4 1, 2013, from BMW GROUP PressClub UK: https://www.press.bmwgroup.com/pressclub/p/gb/pressDetail.html;jsessionid=kGNGRh8FnChMDfJQ94V2Rjy21q5Tlvgh0V9T0nxvrJy161VZ3vGm!-670475517?title=bmw-group-uk-sales-outperform-the-market-in-2011&outputChannelId=8&id=T0124198EN_GB&left_menu_item=node__2205 Bin, X., & Ying, L. (2012). The case study: How BMW dealt with exchange rate risk. Retrieved 2013, from Financial Times : http://www.ft.com/cms/s/0/f21b3a92-f907-11e1-8d92-00144feabdc0.html#axzz2PK1lGKVP Everitt, P. (2012, 6 1). 2012 Automotive Sustainability Report. Retrieved 4 1, 2013, from SMMT: http://www.smmt.co.uk/sustainability/# EWING, J. (2012). As BMW Is Put to the Test, Its Plans Are Years Ahead. Retrieved 4 1, 2013, from New York Times : http://www.nytimes.com/2012/11/23/business/global/bmw-chief-faces-big-test-of-his-strategy.html?pagewanted=all&_r=0 GOV.UK. (2012, 12 20). Reducing barriers to international free trade. 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