BMW Automotive Industry - Case Study Example

Report About BMW The Automotive Industry Name Course Name Instructor Date Executive Summary Mobility is a very crucial aspect in the world today. There are thousands of companies that make up the automotive industry, producing for various market segments. The industry is dynamic and even volatile at times making it necessary for players to evaluate continually their positions and adjust accordingly. BMW is a leading global car maker, specializing in the premium and luxury sections of the market. The German auto has over the years been continuously associated with a knack for quality and producing innovative products that capture the aspirations of customers. This report explores the company in detail, evaluating some of the factors that have made it so successful over the years. The first part of the report is a brief overview of BMW and what the company is all about. Immediately after that is the company’s external analysis, explained in principle through a PESTEL analysis of factors that comprise BMW’s external environment. After the external analysis is the internal report in which a SWOT analysis looks at the company’s core strengths, weaknesses, opportunities, and threats. The subsequent section analyzes the company’s strategy and its relevance in today’s operating environment. The final part of the report is a brief summary that gives a short description of the findings in earlier sections of the report. BMW AG is a leading global premium and luxury car manufacturer and one of the largest automakers in the world. Founded in 1916, the company whose initials stand for Bayerische Motoren Werke AG has its headquarters in Munich, Germany (Heneric, pg 4 2005. It had a primary listing on the Frankfurt Stock Exchange and is worth about USD 197 billion as of the year 2015. The company mainly competes in the premium brands segment of the market where it has strategized its self to focus on the higher end market. Key performance indicators for the group show that it recorded 80.4 billion Euros in revenue and 8.707 billion Euros in operating income on the back of 2.118 million automobiles sold in the year 2014. Vision, Mission, Values BMW’s vision statement is “uniqueness through taking the risk, leadership, and diversity.” This vision statement indicates the company’s attitude as well as its strength. The company has over the years made itself a leader in the premium category and by took on significant risk in the process, but all the indicators point to the fact that the company is now living to see its vision (Jurevicius, pg 3 2015). The auto has also managed to apply diversity to its operations even with the focus on premium and luxury brands as reflected by its brand portfolio that essentially allows the firm to cater to different needs. The mission statement of BMW closely ties itself to the company main areas of operations. The company’s strategy lists two targets to drive the company as being profitable and maintiang its value (BMW,p 24 2015). To this end, the company on its website defines its mission as the best provider of mobility services and products (BMW, p 242015). BMW simply wants to be the best in the business and has continuously managed to deliver on that through innovation and quality products. For a company to achieve the amount of success and consistency as that of BMW, it is important that the company crafts some objectives and values that will drive it to its goals. BMW had the goal of becoming the premier brand in the premium vehicle in the market, and concrete targets and values have guided this journey through the years. The first goal for the company has been gaining a strong position both internally and in the market and prudently managing risk to stay as vibrant as ever at all times. This very central objective gives the company much-needed stability and enables it to remain resilient in times of uncertainty and turbulence. The need to manufacture environmentally friendly cars has been a growing theme over the years, and BMW, not left behind in this push is increasingly looking to offer a flagship line of cars that have minimal emissions and that are environmentally conscious. Staying ahead of the competition remains another crucial objective for the company, and this is only possible through continued innovation and provision of high-quality products as well as responding to the ever-changing market needs. Just like any other business, sustainability, and sensitivity to the needs of the communities in which companies operate rank highly for BMW and is part of the firm’s long-term strategy (Davidson, pg 13 2004). Growing sales and market position in the world is the last objective and is perhaps the most important for the company as it underlies what BMW has and continues to strive for over the years. External Analysis Businesses and firms do not exist in a vacuum but rather operate in a system that is interlinked, and various factors in the firm’s surrounding are critical to its success. BMW is no different as the company finds itself operating in diverse markets with differing market conditions and realities. Politically, several emerging issues will be of importance to the operations of BMW, as with any other automaker (Frick, pg 10 2012). There is a growing trend of governments enacting laws aimed at reducing countries’ carbon footprint and requiring the sale of environmentally friendly automobiles. Also, recent happenings such Volkswagen Group’s recent cheating about the emission levels of some of its cars is only bound to attract more scrutiny in the way of car manufacturers, and this is something that BMW will have to contend with going forward (Ketschau, pg 6 2013). Another important factor in the political scene is the constantly shifting geopolitical positions especially about China, which has proven to be a growth market for BMW in recent years and has propped the company as well as dozen others in the period of financial crisis (Forbes.com, pg 1 2015). Economically, the continued growth of the middle class presents an enormous opportunity for premium brands such as BMW. As well as what is as the BRICS (Brazil, Russia, India, China, and South Africa), it would not be wise for any organization to ignore the potential of previously marginalized economies that are showing signs of growth in Africa, Latin America and parts of Asia. Other economic factors of importance include macro issues such as currency exchange rates and oil prices that could have an impact on BMW’s ability to sell at any given moment. The company must, therefore, remain vigilant at all times and more importantly focus to adjust to the changing market and economic realities so as to thrive. Social aspects also affect a company’s operations and its ability to run successfully. Shifts in the demographic composition such as increasingly aging populations in Europe and young and vibrant middle class in emergent markets represent significant shifts in the market for BMW. The company also finds itself having to contend with different legal systems and requirements and has to find ways of reducing the compliance costs involved. The company also has to remain alert to changes in requirements on such issues such as health and safety requirements, intellectual property rights concerning the automobile industry as well as any other law that touch on the car manufacturing industry. Technology is an ever-dynamic phenomenon that evolves evey other time. There have been various technical and technological changes in the auto industry that mainly aim at enhancing the functionality as well the experience of driving. It is imperative that BMW keeps itself abreast with all the changes happening in the automobile industry and this give it an upper hand to compete in the automobile industry. Examples of technological trends that BMW may consider to pay attention to include features that enhance safety and green technologies that continue to excite the motor world (Iguchi, 2015). Ecological factors include such aspects as the competitive environment and consumer behavior that generally are beyond any company’s control. As far as BMW is concerned, competition is one area the company has got to navigate for it to thrive. The company simply has to be a step ahead of the competition at all times. Also, BMW has to be very responsive to other environmental factors such as changes in consumer tastes and preferences so as to remain sustainable into the future. Internal Analysis After analyzing the company’s external environment, it is only logical to look at the firms internal environmental and how it can affect its success. A SWOT analysis is a tool that enables one to perform a 360 degrees evaluation of a company, looking at its various internal aspects and how they interact to position the company for success. There are several crucial details about BMW’s internal workings that are worth mentioning as they contribute a great deal to what the company is today (Meier, pg 4 2006). BMW has over the years built an enviable brand that is easily recognizable all across the globe and known for quality, performance, and reliability. The BMW brand is worth an estimated USD 27.5 billion as per Forbes Magazine’s 2015 figures, placing the company in 16th position among the top 100 most valuable brands. Quality and sophistication have always been at the heart of BMW’s push to global markets and the company in pure German engineering continues to manufacture vehicles that excite and capture the imagination of many. Further, the company is continually innovating and conducting various R&D activities that place it in an excellent position for years to come. While its barnd is categorized to be among the best in the industry, it has an expansive product range that caters to diverse needs and takes care of the different consumer needs in its market. Other notable strengths of the company include an exceptionally skilled workforce and a significant presence in Asian markets. BMW has more than 80,000 direct workers spread across its operations globally who are the true engines that keep the company going. They possess qualifications in varied fields, and this human capital ranks highly among the enterprise’s resources. Over the years, the company has made inroads into Asian markets, principally India and Chia and has reaped the benefits of making such ventures. These markets have grown impressively and this coupled with the fact that the more mature markets have not been growing or even declining, makes the emerging markets all the more necessary. While BMW has managed to carve out an image of a premium brand, the downside to that is that many perceive it as an elitist brand that is simply not meant for them. It is especially the case for younger generations who place functionality above brand and will go for something that meets their needs without necessarily looking at the name. BMW cars, while not being the most expensive do not come cheap, and this locks the company out of a potentially large low-end market. The premium market is more vulnerable to shocks such as the financial crisis of 2008 and is not as resilient as the low-end market. Also, worth noting is that even the carmakers who traditionally targeted the lowest sections of the market are increasingly looking to target higher income classes of the market by making own luxury brands which means they are now competing in the market segment previously a preserve of companies such as BMW. A good example of this is Toyota with its Lexus brand and other Asian autos such as KIA and Hyundai, who continue to venture into the premium category of the market. BMW strives for quality and perfection. The obsession with being different subsequently translates to a higher cost structure as compared with the competition, especially with Japanese and other Asian autos. The need to cut costs is an ever growing theme across the globe given that it is not always possible to achieve top-line growth every time. Another weakness associated with BMW is its apparent lack of strategic partnerships and alliances. The consequence of this is BMW misses out on R&D, and market collaborations and competition thus has an edge over the German auto. Today’s consumer markets are dynamic and are constantly evolving. According to Hirsh, Kakkar, and Wilk (2015), car sales in the US are expected to peak to 16 million units up from 13 million in the year 2008 which is an enormous opportunity for BMW. Also, recent growth markets of India and China continue to exceed expectations and show no signs of slacking off, and the company can continue taking advantage of the opportunities presented in the near term. The rapidly emerging economies of Latin America, Africa, and the Middle East, previously ignored from global affairs, have over the years shown tremendous growth and are now ready to stake their claim in world affairs. According to the Organization for Economic Co-operation and Development, over two-thirds of the top twenty fastest growing economies in the world in 2013 are located in Africa, the Caribbean, and Latin American. The middle class in these nations is growing astronomically, and they are demanding more sophisticated and luxurious products such as cars. Car makers such as BMW are virtually sitting on a goldmine and how well they exploit this opportunity could lead to a tilt in the dynamics of the industry (Yip, pg 8 2012). Green is the new buzzword in town. BMW is part of the bandwagon, with brands such as the i7, being lauded by industry watchers for being environmentally conscious. Consumers are growing increasingly concerned about the environment and a company seen as green brand gains in brand equity. BMW is a solid brand with high growth prospects for years to come. Just like any other business, however, the company faces some threats that could derail the achievement of its goals. The most prominent threat is intense competition in the industry of operation. More and more brands are looking to venture in the higher ends of the market, traditionally the forte of companies such as BMW, directly adding to the current competition for the business. Other concerns that the enterprise may want to address stem from changes in the regulatory regimes across some markets and their possible adverse effects. According to Hirsh et al. (2015), stricter corporate average fuel economy (CAFE) regulations implemented in the US from 2016 onwards may add to the cost of manufacturing cars by as much as USD 1000 for every unit produced. The competition in the car markets sees manufacturers going out of their way to impress the consumer especially with infotainment and electronic systems. The report by Hirsh et al. (2015) notes that the cost of software and electronics content in autos today is about 35 percent of total expenses, up from the 20 percent it was about a decade ago. How vehicle manufacturers, especially those operating in the premium categories, handle the increasing costs of making cars may determine their survival and subsequently their future in the years to come. Strategy Formulation and Evaluation BMW is a premium car maker that targets the middle and upper classes of society. According to documents on its company website, the auto has come up with a strategy dubbed ‘Number One.' There is four pillars to this strategy namely growth, shaping the future, profitability, and access to new technology and customers. For the company to keep growing it has to get into new target groups and also provide new products and services to complement its existing product portfolio. BMW has an objective providing new mobility solution to meet the shifts in the mobility needs of society. According to company information, BMW is striving to create a sustainable product portfolio that will respond to societal needs and enhance urban mobility. Under the strategy of acquiring new technologies and customers, BMW lists the pioneering of technologies and design, provision of visionary services, and pioneering of new sales concepts as the key focus areas. Technology and customers comprise the armor that any player in the auto industry will need to compete and thrive in the competition. When it comes to shaping the future, BMW has a vision under which it aims to sharpen its image and perception as an innovative and sustainable brand, different from the competition, and a company with a product portfolio that is future proofed. Continued investment in the BMW brand and R&D are the key enablers that will guarantee the success or otherwise of this bold move and position the company as a brand different from the rest. The company needs to evolve with technology and gain a deep understanding of the market as well as strive to provide products that meet the ever-changing market dynamics. Conclusion BMW has established a market-leading position and carved out a niche for itself in the premium car category. The firm is experiencing robust growth, and its strategy of sustainability and innovation puts it in an excellent position going into the future. However, BMW has got to remain vigilant and responsive to shifts in the market and continuously address changes in its environment for it to achieve its strategy and stated objectives References AG, B. 2015. BMW automobiles: BMW AG website. [online] Bmw.com. Available at: http://www.bmw.com/com/en/ [Accessed 17 Nov. 2015]. Davidson, J., Keegan, W. and Brill, E. 2004. Offensive marketing. Amsterdam: Elsevier Butterworth-Heinemann. Forbes.com, 2015. Forbes Most Valuable List 2014. [online] Available at: http://www.forbes.com/powerful-brands/list/ [Accessed 17 Nov. 2015]. Frick, J. & Laugen, B. 2012. Advances in production management systems. Berlin: Springer. Heneric, O., Licht, G. and Sofka, W. 2005. Europe's automotive industry on the move. Heidelberg: Physica-Verlag. Iguchi, M. 2015. Divergence and convergence of automobile fuel economy regulations. Jurevicius, O. 2015. BMW mission statement 2013 | Strategic Management Insight. [online] Strategicmanagementinsight.com. 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