Current Competitive Position and Potential of BMW - Case Study Example

Introduction to Business Strategy Table of Contents Table of Contents 2 Section A: Analysis 3 SPECCTRe and the 5-Forces Frameworks of BMW 3 Main Factors Affecting the Profit Potential for BMW and its Competitors Differently 8 Using the SWOT Analysis, Summarize the Current Competitive Position and Potential of BMW 11 Section B: Strategy Formulation 14 TOWS Matrix 14 Key Objectives and Performance Measures for BMW with Rationale 16 Cohesive Strategy 17 Section C: Management of Implementations 18 2. E-Commerce 18 References 22 Section A: Analysis SPECCTRe and the 5-Forces Frameworks of BMW SPEECTRe Technique Bayerische Motoren Werke (BMW) is a leading industrial automobile company of Germany. The company specializes in the manufacturing of cars along with motorcycles. The company developed strategies of manufacturing vehicles based on certain standards that include technology, aesthetics, quality, innovation and engineering (BMW Group, 2012). A SPECCTRE technique is adopted with the aim of identifying the business environment. Social The social conditions are seemed to be positive for the company as it is concerned towards the development of eco-friendly vehicles. The people are also attracted to innovative as well as quality products and value-added products assuring a favorable social condition for the company (Ploen & Olesen, 2010). Political The political conditions for the company are observed as stable, concerning the fact that the government of different countries has implemented liberalized policies towards trade and investment securing the money flow within the demography (Ploen & Olesen, 2010). Economic Economic conditions around the world have also developed and stabilized significantly after the global financial crisis, owing to increased globalization and business opportunities trending toward a healthier distribution of wealth internationally (Ploen & Olesen, 2010). Competitors Concerning changes observable since the recent past, increased globalization and liberalized trade techniques as well as investment policies have intensified market competition promoting an augmented number of business competitors reducing gaps in differentiated products and/or services (Ploen & Olesen, 2010). However, BMW can be regarded as partially immune to such forces owing to its market share and brand positioning to reward it a competitive edge. Customers The customers are also attracted towards innovative along with value-added products. The customers are focused on consuming quality products irrespective of prices, igniting change in the organizational strategic viewpoint to deliver utmost significance on the same (Ploen & Olesen, 2010). Technologies Presently, there has been an immense development in the technological field, which has further facilitated in improving transportation, information technologies and telecommunication. Companies are also identified to adopt advanced technologies in ‘Research & Development’ (R&D) facilities with the intention of developing innovative products on a continuous basis (Ploen & Olesen, 2010). Regulators International legislation policies have apparently facilitated in enhanced movement of investments and labors in the global marketplace, eradicating risks of resource scarcity. Additionally, business organizations are availed with the opportunity of conducting cross-border business operations (Ploen & Olesen, 2010). FIVE Forces Framework Source: (Harvard Business Publishing, 2014) Threat of New Entrants BMW is a renowned automobile company operating in worldwide markets segments. The company has developed its brand value through the manufacturing of innovative as well as quality products. It is regarded as a capital-intensive company for the investments that are made concerning its intentions to enhance production facilities. The customers of BMW are also observed to be loyal enough, towards the products and/or services that are offered. Moreover, there is also a minimum threat of substitute products, as the company provides technologically advanced products to its worldwide customers, gaining a competitive edge over its rivals. The company operates in both developing as well as developed market segments. Additionally, the distribution network of the company is extensive and accordingly, assists the company in distributing its products effectively throughout the global podium. In this regard, there is a low margin of threat observed for the company from the new entrants in the global market segments (Ploen & Olesen, 2010). Bargaining Power of Suppliers BMW has developed an extensive distribution along with production network within the global context. For instance, the company has developed cars and spare-parts productions in different geographic locations to overcome challenges in terms of resource scarcity and supplier bargaining power. Moreover, the company, with its successful brand image in worldwide market segments, is facilitated with a large number of suppliers. The collaboration between the company and the suppliers is made in a cost consuming manner for enhanced production quality in its R&D development facilities. In this context, the bargaining power of suppliers is identified to be of low to medium range (Ploen & Olesen, 2010). Threat of Substitute Products or Services The brand value of the company, mainly driven by its quality along with innovative products, has improved and been recognized in worldwide market segments. In the recent scenario, where the demand for technology advancement is too high, the company has used effective production facilities ensuring that quality and reliable products are offered. In this regard, there is a minimum or low level of threat observed by BMW (Ploen & Olesen, 2010). Bargaining Power of Buyers In the automobile industry, the switching cost of customers is low, as they might opt for other innovative car products at an economically advantageous rate sacrificing a minimum opportunity cost. However, BMW is recognized for its premium class products in relation to product quality, brand image and innovation. In this regard, the company witnesses challenges in terms of the bargaining power of buyers to a minor extent (Colditz, 2012). Rivalry among Existing Competitors In the worldwide market segments, there is a fierce competition amid premium automobile companies. These players compete globally with the aim of building a better brand image. Moreover, the companies are also recognized to compete through their marketing efforts with the aim of developing better awareness about features, products and prices amid the loyal customers. Thus, it can be asserted that the competition amid automobile companies has intensified significantly in the recent days (Ploen & Olesen, 2010). It can be accordingly comprehended that the company has been performing its business operations successfully and competitively in worldwide market segments. Additionally, the company serves with products in accordance with the expectations as well as needs of customers, mitigating gaps in its strategic formation and external business environment. Main Factors Affecting the Profit Potential for BMW and its Competitors Differently BMW is a leading automobile company operating in the global context. The company has adopted effective policies along with strategies in order to retain and preserve its competitive positioning gaining an edge over its rivals. Moreover, the company has also adopted successful strategies, which commonly include corporation, customers along with competitors (BMW Group, 2012). The strategies are illustrated hereunder. Corporation BMW has adopted different corporate strategies to preserve its liquidity position both in the short-term and in the long-term. Apparently, the liquidity strategy facilitated the company in maintaining flexibility in cash reserves. In this regard, the company has divested its cash along with equivalent resources in different sectors that include marketable securities and invest fund shares. Contextually, the company investing in different financial assets is facilitated with the opportunity of maintaining liquidity (BMW Group, 2012). In this regard, competitors including Ford and Mercedes among others might face challenges to maintain liquidity in relation to cash reserves due to weak investment strategies of competitors (Ploen & Olesen, 2010). Customers BMW has been practicing the strategy of providing premium vehicles to the customers in accordance with their expectations. The company has adopted the strategy of ensuring that the products are offered based on innovative skills along with technical innovation principles. In this respect, the company ascertained that the products are provided on the basis of its brand image or branding prospects (Ploen & Olesen, 2010). On the other hand, as the competitors are focused on competitive pricing strategy and less emphasis should be provided to other strategic formulations. Contextually, the competitors might not be able to meet the expectations of the customers further rewarding an opportunity to BMW to gain competitive advantages (Ploen & Olesen, 2010). Competitors BMW has adopted differentiation strategies with the intention of overcoming competitive challenges and gaining advantages over its rivals. In this respect, the company can be observed to use extensive innovation policies in order to ascertain that it is able to retain its brand image in the luxurious as well as premium sector. The company has adopted the strategies with the aim of conducting business operations in a profitable and sustainable manner (Ploen & Olesen, 2010). In comparison, as it is observed that competitors are less focused on quality as well as innovative products, in consequence the competitors might face challenges in providing quality products to acquire better market shares than that acquired by BMW (Ploen & Olesen, 2010). However, there are certain other factors including ‘End of Life Vehicles (ELV) Directive’ and raw materials price, currency rate risk and emerging market segments that should be taken under consideration for ensuring BMW’s profit potentialities. End of Life Vehicles (ELV) Directive A noteworthy threat imposed by the ELV directives concerning environmental stability and pollution issues, imply that BMW might face challenge in relation to increased emission standards. The directive plays an important role in the automobile segment as the vehicles illegible for meeting the directive standards might be returned without cost, increasing financial risks for the company, subjected to its engineering and production efficiencies (BMW Group, 2004). The competitors adopting ELV directive effectively would also be able to perform their operations successfully (Ploen & Olesen, 2010). Price of Raw Materials BMW might have to face the issue of volatile prices in relation to raw materials, which is unpredictable. Thus, raw material prices might unfavorably affect the pricing strategy along with investment strategy of the company to a significant level. Respectively, the factor might adversely affect the profit margin of the company. The competitors possessing adequate suppliers might also be able to perform with better profitability (Ploen & Olesen, 2010). Currency Exchange Rate Risk The global financial crisis has led to the fluctuation of currency rates in various countries around the world. The fluctuation in the exchange rate is also seemed to negatively impact the stock returns of BMW based on the investments that are made in the global context (Barumwete & Rao, 2008). The competitors adopting better hedging policy with the intention of minimising the risks attached with exchange rate fluctuation to perform in a profitable manner (Ploen & Olesen, 2010). Emerging Market Segments The emerging market segments like China comprise a huge market proportion that is appropriate for branded business sectors along with the new entrants. In the emerging market segment, the company might face intense competition in relation to its high prices. In this regard, there are certain factors that might affect the profit margin of the company to a significant extent (Ploen & Olesen, 2010). Undoubtedly, the emerging market segments will be a boon for competitors to operate their business with the assistance of competitive pricing policy (Ploen & Olesen, 2010). Using the SWOT Analysis, Summarize the Current Competitive Position and Potential of BMW A SWOT analysis has been conducted hereunder, with the aim of ascertaining the competitive position of BMW. Strengths BMW is a renowned company possessing a competitive and persuasive brand image in the worldwide market segments. The key strengths of the company can be likewise identified in terms of innovation and quality products. In this respect, the company has gained superior ability to retain and control its competitive position in the worldwide market segments with the virtues of customer loyalty. The company also possesses competent employees along with technologically advanced R&D facilities. The innovative products are provided to global market segments through extensive production and distribution networks at the ease of the customers and to their convenience, which makes its value chain a customer-centric and profitable strategy approach (Larsson & Falkemark, 2006). Weaknesses The major weakness of BMW is identifiable as its product cost when compared to its closest rivals. The company faces the challenge of high product cost due to increased R&D expenditure principally. In this respect, the company has been facing challenges to compete effectively with competitively priced vehicles of its rivals (Larsson & Falkemark, 2006). Opportunities The emerging market segments will facilitate the company to conduct business operations in a profitable manner. In this regard, emerging markets, including China, shall reward immense opportunity owing to the fact that brand image along with strategic alliances will facilitate the company in performing its business operations successfully. In the present scenario, the automobile industry is concerned towards the development of ‘greener’ technology and in this context, the company has adopted effective policies towards the development of R&D and production facilities, so that the company is able to offer innovative as well as technologically advanced quality products (Larsson & Falkemark, 2006). Threats A major threat to BMW is political instability. Additionally, there are other threats that unfavorably affect its performances and operations, majorly including interest rate risks, exchange rate risk and financial crisis, mostly comprising of uncontrollable external risk factors (Madlani & Ulvestad, 2012). Thus, from the SWOT analysis results, it can be comprehended that the company possess a strong competitive positioning in the worldwide market segments based on its strengths of competitive brand value, a versatile range of premium as well as luxurious products, competent employees, widespread distribution as well as production network and technologically developed production facilities. Section B: Strategy Formulation TOWS Matrix A TOWS matrix is formulated hereunder with the aim of determining better strategic options, which will assist BMW to perform its business operations effectively, for the period 3 fiscal years, i.e. 2013 to 2016. The TOWS matrix is illustrated hereunder. Strengths and Opportunities The company possesses a renowned brand image in the worldwide market segments. This particular strength can assist the company to perform successfully and profitably in developed along with developing market segments globally. Additionally, the competent employees and the advanced technological production facilities shall further aid the company in providing better value-added products and attract a larger market share than its competitors (Gilligan & Wilson, 2012; Binkiewicz & et. al., 2008). Strengths and Threats The company has adopted effective policies along with strategies in relation to ELV directives in order to meet the emission standards. Additionally, the company, with the assistance of better financial hedging, shall gain an enhanced capability of minimizing interest rate along with exchange rate risks. Additionally, extensive distribution and supplier network of BMW will facilitate the company in conducting business operations effectively concerning the need of emerging market segments (Gilligan & Wilson, 2012; Binkiewicz & et. al., 2008). Weakness and Opportunities The brand image and value-added products will aid the company to overcome the barrier of high price in the emerging market segments. The company should also focus on economic class automobiles, which it currently lacks in, with the intention of ensuring excellence in almost every aspect globally (Gilligan & Wilson, 2012; Binkiewicz & et. al., 2008). Weakness and Threats The company should enter emerging market segments by adopting differentiation strategies with the aim of ensuring that it is able to perform competitively as compared to its business rivals worldwide. Moreover, in order to minimize the threat of political instability, the company should develop strategic alliances with local suppliers in the emerging market segments, so that business operations are conducted in a secured manner (Gilligan & Wilson, 2012; Binkiewicz & et. al., 2008). Respectively, from the TWOS matrix, it can be comprehended that the company possesses adequate innovation and brand value in the premium class vehicles worldwide. Contextually, the company should also focus on developing strategies to provide economy class products or premium class products at a competitive price in order to perform effectively in both developed as well as emerging market segments. Key Objectives and Performance Measures for BMW with Rationale During the period ranging from 2013 to 2016, BMW should develop strategies in accordance with which it will be able to expand its business operations in the emerging market segments. Subsequently, the company, in order to expand its business operations in the developed market segments, is required to adopt the strategy of product variation and strategic alliances. In this regard, the key objectives of the company will be to enhance its brand value in the segments of economic class vehicles, improve strategic alliances with local automobile companies and business expansion in the developing market segments including China among others. The company, by expanding its products segments in relation to economy class vehicles, will facilitate in performing its business operations competitively in global market segments. Strategic alliances will also assist the company in diversifying its business operations effectively, both in developed as well as developing market segments. Business expansion in developing market segments will also facilitate the company in expanding its operations in different market segments, so that business operations are conducted assuring better profitability. The performance of BMW will be measured on the basis of sales and profit margin index. The sales and profit margin index will reveal the amount of sales figure and profits generated in the annual report of the company. Additionally, company’s performance will be ascertained in accordance with its global competitive position as well as on the basis of its ability to mitigate gaps between its applied strategies and witnessed shifts in market demand and customer satisfaction drivers. In this regard, the performance measures will provide an extensive knowledge as well as understanding about the positive effects of business expansion strategy adopted by BMW to improve its profit margin and market share. Cohesive Strategy According to the external along with internal environmental analyses of BMW, it can be recognized that the company possesses a valuable asset, i.e. brand value supported extensively by its innovative as well as quality base product offerings following a customer-centric approach. The company also has a compressive supplier network globally, to aid its smooth functioning in the supply chain. The company has adopted effective environmental policies in the production facilities and developed eco-friendly vehicles in order to cope up with environmental issues. Although these factors contribute to its competitive advantages, the company been observed to be primarily concentrated on premium class vehicles wherein the prices of products are expensive, further limiting the expansion scope for BMW in a versatile arena of customer segmentation. In this regard, the cohesive strategy will be helpful for the company to adopt business expansion strategy in relation to product segments and expanding business operations through strategic alliances in emerging market segments. Subsequently, based on the analyses, it can be noted that with the assistance of business expansion strategy the company will be facilitated in attaining the opportunity of offering premium as well as economy class vehicles in accordance with the preferences of worldwide customers. Additionally, the company shall obtain success when penetrating emerging market segments principally due to product varieties and value-added product offerings (Hanson & et. al., 2001; Kumar, n.d.). Section C: Management of Implementations 2. E-Commerce In the present business scenario, business organizations are identified to diverse business operations in various market segments globally. It is in this context that e-commerce facilitates business organizations in sharing as well as managing business information and developing an effective business relationship with its supply chain partners throughout. E-commerce will facilitate BMW in maintaining various internal along with external services that include order payment, managing delivery and online trading and marketing operations. It will also assist in managing physical movement of products successfully inside and outside the company giving it the benefits of time efficiency and cost efficiency altogether. The company will also be facilitated with the opportunity of a brief understanding and records of the business transactions that are conducted on a daily basis in the worldwide market segments that will further assist it accordingly in framing appropriate decisions in relation to investment and marketing strategies (Gao, 1999). To be elaborated, BMW has an extensive network of suppliers on a global context and in this regard, e-commerce will aid the company in developing an effective relationship with suppliers and trading partners. In the present competitive business scenario, the development of e-commerce has aided business organizations in building a successful relationship with suppliers in order to mitigate the issues of complexities arising due to inappropriate management of business and product transactions. Subsequently, business organizations, lacking proper information will certainly not be able to make effective business decisions to attain profitability. In this context, the company, with the assistance of e-commerce, will have better visibility of information relating to business transactions that take place on a global context. E-commerce will improve the performance of the company globally owing to the factors, which include speed along with connectivity that might be facilitated by e-commerce. Accordingly, e-commerce will ensure business operations of the company and its supply chain with better accuracy as well as speed. E-commerce will also aid in developing effective connectivity with suppliers along customers effectively, rewarding the company with enhanced customer retention efficiency and cost efficiency throughout the supply chain (Golicic & et. al., 2002). Respectively, e-commerce will facilitate the company in developing and maintaining internal along with external relationships with its various business partners, suppliers and customers along with other stakeholders. Contextually, the company will be able to maintain as well as ensure that materials, products and other resources are collected and supplied efficiently, simultaneously ensuring distribution of the resources as per the divisional and functional needs. The company might also be able to develop better flexibility in relation to its supply chain networks through e-commerce (Golicic & et. al., 2002). In this regard, by adopting e-commerce, BMW will ensure that business operations and transactions are conducted in a flexible manner, in its short-term performance, i.e. during the year 2013 to 2016. E-commerce will facilitate the company in developing a bi-directional structure for the flow of information. Subsequently, the company shall be facilitated with the opportunity of developing a better connectivity with suppliers as well as customers. A feasible network will also be developed on the basis of which, an efficient relationship will be maintained between the company and its suppliers. Contextually, the company, by way of obtaining appropriate information in a timely manner, might be able to make effective business decisions yielding better returns and competitive advantages than its rivals. Respectively, having a developed relationship with partners in supply chain, BMW will be able to conduct its operations successfully both in developed along with developing market segments, thus sufficing its growth objectives (Warkebtin & et. al., 2000). In this regard, the key performance measures to be considered by BMW, during the year 2013 to 2016 will depict positive outcomes in relation to sales along with profit margin. Likewise, the company, with the assistance of e-commerce services will be facilitated with the opportunity of managing its wide range of products along with inventory in an efficient manner. Additionally, e-commerce will also assist the company in making effective decisions about customers’ preferences and improved relationship with suppliers to attain both cost and time efficiency in its distribution process. 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