Icfai University, Dehra Dun

Student Name Bhaskar Pratim Sarma

IUD No 0901200547
IBS No 09BS0000547

Course Code: SL GM 611

Course Name: Business Strategy-1
Faculty Name: Jacob Chandy

Date: 15-July-2010

Topic of the Assignment

Case Analyses

Student Signature Faculty Signature

 BMW AUTOMOBILES

Introduction: The Bayerische Motoren Werke (BMW) Group is a prominent

European maker of prestige automobiles headquartered in Munich, Germany. It was
established during the First World War to manufacture engines; in 1945, the company
was still Germany’s leading manufacturer of aero-engines. Subsequently it diversified
into what in 2000 were its main products, automobiles and motorcycles. By then
BMW was one of Germany’s largest and most successful companies. But BMW’s
road to sustained success was a troubled one and in 2000 the horizon was not all rosy.
The group’s activities were concentrated almost exclusively on two product ranges:
high performance saloon automobiles and motorcycles. The focus of this case is on
automobiles.

Porter’s five forces framework analysis for BMW: The Porters 5 forces analysis
helps to provide an analysis of the micro environment in which BMW operates.

COMPETITION
As per the case provided by Lencioni, the industry was faced with a 30 per cent
excess capacity and too many companies were chasing fewer customers. A number of
environmental circumstances affected the industry in the first few years of the 21 st
century. The global economy experienced a sharp downturn in 2001 and this lasted
well into 2003. Equity prices had fallen and this combined with concerns of oil
supplies had created an atmosphere of uncertainty. Sales of automobiles had declined
in almost all the markets. BMW was listed 6th in the largest manufactures list and had
sold 1.12 million vehicles in 2003 with sales of 41.52 billion Euros, while General
Motors which stood first had sold 8.5 million vehicles and had sales of 157.19 billion
Euros. The other competitors which were above BMW were Ford, Daimler Chrysler,
Toyota and Volkswagen.

Competitive Rivalry: There was bitter rivalry among the manufactures and they
indulged in price wars and the bid to lower the price, while costs were rising and
hurting the finances. All the manufacturers made good quality cars that had less than
53 defects per 100 vehicles and clearly the cars lacked unique differentiators and
customers had little way of knowing which was what. Clearly, only cars that had very
good designs and looks were favored. All the companies wanted to reduce costs and a
few companies had shifted the base to China and India. BMW with its reputation for
excellent German engineering and good designs had a slight edge.

Threat of New Entrants: The threat of potential entrants was not very strong as new
manufacturers could not scale to the global level quickly .Establishing a
manufacturing company for automobiles quite needed big amount of capital.
Emergence of competitors requires the capital, required technologies, and
management skills. However, there are still possibilities of new entrants in the
industry. But companies such as Toyota had created strong brand awareness for
 quality, fuel economy and service. And cars made by Toyota had become increasingly
popular, at least in the mid class of cars.

POWER OF SUPPLIERS
Bargaining power of suppliers is weak since the automobile supply business is quite
fragmented and there are many competing firms. Many suppliers rely on one or two
automakers to buy a majority of their products. If an automaker decided to switch suppliers it
could be devastating to the previous supplier's business. As a result, suppliers are extremely
susceptible to the demands and requirements of the automobile manufacturer, and hold very
little power.

Power of Buyers: It was a car made by leading manufacturers and so the buyer could
demand excellent quality and best design. In addition, the buyers also demanded
discounts, free insurance, zero percent interest loans etc.

POSITION STRATEGY OF BMW

BMW automobiles have been positioned differently and priced differently in the
various national markets. Being close to the buyers had allowed them to segment the
market effectively. The BMW brand acquired a distinctive identity as a symbol for
young, affluent European professionals. Most drivers perceived high performance
saloon automobiles as synonymous with BMW. They had been able to structure their
production around an easy to summarise theme “The ultimate driving machine”.
BMW conveyed the image of the “ultimate driving machine”, even to those
customers who bought models with small engines and automatic transmission, say a
3-series. The reason for this was that every model raised a set of general perceptions
and emotional connections generated by the mother brand, as well as some
specifically related to the model in question. The common theme of the brand
conferred even to the least representative model a certain aura.
The main markets for BMW automobiles have been Western Europe, the
USA, Japan and the Pacific region, with the markets of Germany and the US
accounting for almost half the total car sales. Important markets have also been the
fast-growing UK, and the Italian, French and Japanese markets.

SWOT.
 Strengths: The strengths of BMW are as follows:
BMW is independently owned.
Brand identity conveyed through ‘Ultimate Driving Machine’.
Highly qualified labor force as source of competitive advantage.
· BMW is independently owned.
· Brand identity conveyed through ‘Ultimate Driving Machine’.
· Highly qualified labor force as source of competitive advantage.
 · Effective market segmentation.

· Focus on ‘Being the Best’ and has high reputation regarding product quality.

· Firm control on supply chain and relation with suppliers.

· BMW achieved progressive agreements with the worker’s unions to operate

most flexible and productive plants in the automotive industry.

Weakness: The weaknesses of BMW are as follows:

Fails to appeal wider range due to affordability of car.

It’s associated with highly expensive products and is perceived to be affordable only by those in the upper level
of the society.

In the early 2000s the range of the models continued to be the concern.

Acquisition with Rover was not properly planned and the venture did not work and came to a sorry end.

Labor cost was comparatively expensive in European countries compared to China.

Opportunities: The opportunities for BMW are as follows:

Global expansion, entering into new markets.

Huge demand for smaller cars in the market.

Asia is the key market for BMW.

There is a market for luxury/performance cars.

Leverage brand image.

Entry into Sports car segment.

Dealer expansion.

Joint ventures with other automobile companies to increase market share.

· Moving production into growth markets.

· Entry of BMW into Chinese car market for luxury cars.

· Growing market segments can be exploited with sub-branded models.

 Threats: The threats for BMW are as follows:

Brand dilution.

Cannibalization- Any model positioned in the proximity of a more expensive model could cannibalise it.

Reduction of profit margins.

Saturated markets.
 · Oil prices going higher and higher.

· Governmental policies changing in different countries.

· Environmental/Social issues.

· The rising price of raw materials such as steel threatens to offset the
company’s earnings.

STRATEGIC PLANNING OF BMW

In 2003, BMW was planning to launch a new model every three months through to 2005, providing a range of
premium automobiles that ranged from the Mini to the Rolls Royce. The aim was to raise sales by 40 per cent a
year for the next five years, and to achieve sales of 1.4 million vehicles. Mercedes-Benz would then become
number two producer of premium cars, and BMW’s long term ambition of being number one would be
realized. To achieve the targets it had set itself, the company was pushing hard in the US and Asian markets to
find buyers for the high-end models. It also planned to expand its production facilities to China where a well
qualified labor force cost much less than in the West. It was an ambitious plan that, if successful, as well as
giving the group greater prominence and profitability would also effectively cure the problem of vulnerability of
acquisitions.

PROBLEMS IN IMPLEMENTING THE STRATEGY

The implementation of strategy could hamper the “ultimate driving machine” image of BMW. They had been
able to exploit this brand identity very profitably and globally, wherever their niche could be found. But it’s not
sure how far they can extend their product line. And there was also the risk that any model positioned in the
proximity of a more expensive model could cannibalise it. Secondly, increasing the production of smaller cars
could have the effect of reducing the historically high margins enjoyed by BMW. The third concern was that of
quality. With pressure on costs, the risk of quality lapses was bound to increase. The consequences of quality
defects in the premium segments can be very heavy. Expanding production with increasing contracting out of
manufacturing process could make quality control more difficult than it had been when a handful of models
made BMW’s reputation worldwide.

RECOMMENDATION
The recommendation strategies for BMW to become one of the most profitable manufacturers in the world are
as follows:

To increase automobile market share by tapping new markets in developing countries like Brazil, Russia, India
etc.

As there is a huge demand for smaller cars in the market, they can make a new, different brand to manufacture
small or mid segment cars which will not dilute the mother BMW premium brand.

For premium and luxurious car segment they can go for acquisition or joint ventures with premium car making
company and optimize line extension of Rolls Royce and Mini.
They should concentrate on core competency i.e. delivering quality, luxury and performance. And also try to
manufacture innovative cars with high technology features, powerful engines and modern design.

Reference: Exploring Corporate Strategy (7th Edition) - Garry Johnson, Kevan Scholes and Richard Whittington.