BMW Mini: Big Decisions Under the Brexit Cloud

1. How is the main character? Name, title, and what he may be looking for or interested in.

Leadership team of BMW. As suggested by one of the assigned question – you can safely
assume the main character can be the Country Manager of BMW.

 Keeping the Mini at its historical home base in the UK is his/her goal
 Needing to convince HQ to allocate the production mandate to the UK.

2. What is the problem statement?

Where to locate the new production line for the Mini Electric, considering the latest
announcement of UK’s exit from the EU?

 Locating the Mini Electric at its home in Cowley, UK was an obvious choice with a sunk
investment of £500M since 2012 and this option would be true to Mini’s British heritage.
 However the uncertainty that surrounds this production in UK that serves BMW’s markets
globally can impact BMW both short and long term around costs and efficiency.

3. What analyses do you need to do? Describe the questions you need answers to. Pick tools
(from IB or other classes, or your own approach). Min. 2 tools.

External Analysis:
How does PESTLE impact the auto industry? More specifically the role of economic union in
facilitating the auto industry.

[Tool: PESTLE. Note: You can combine them because it’s repetitive and often they are related.
Your analysis using the tool should be answering the questions you need to seek answers to
you. This section leads you to answer Question 4. ]

Political Economy:
 UK decided to exit EUK on March 29, 2019 after a marginal win on a referendum voted by
the participating UK electorate to leave EU.
 The terms of Brexit was unclear including tariffs. There were different scenarios of Brexit
with the best-case scenario for the automotive industry is that UK retain full membership
with the referendum being overturned to the worst-case scenario whereby standard tariffs
were to apply just like other WTO member countries- which means there would be no free
trade.
 The car industry is highly dependent on free trade. Each car plant was an expensive
investment ($1B).

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 Disruption to the supply chain flow within the car industry could mean significant increase
in operating costs. For example needing to increase storage facilities as buffer for border
delay (15 min delay costs £580K to costs)
 Japanese manufacturers were concerned of viability if there is no viable deal between EU
and UK. Toyota was rumoured to have received certain reassurances before any
investment in a new product line.

Hence: Change in how UK is to be economically integrated with EU impacts cost especially

related to the auto industry.

4. Why exactly is the UK leaving EU of concern to the UK automotive industry?

Based on the six Brexit scenarios and dependent on which scenario is realistic and likely [you
can list them out], there will be impact on UK automotive industry. Some of the impact includes
the following:

1. [you describe the supply chain a bit]  Because of the frequencies of parts crossing the
borders, without favourable free trade agreement, costs could significantly increase.
Operating costs as a result of tariffs, border delays and need to create buffer inventory with
added storage facilities.
2. To build a new plant or expand existing capacities in other European countries can cost
upward to a $1B in investment for new.
3. From a profit perspective, it could become unattractive for investments in the UK,
decimating the auto industry.
4. Furthermore, this can seriously impact the UK economy with significant job losses causing
economic recession in major car manufacturing towns, and other related industries as a
result.
5. Other challenges of the auto industry will include losing existing operational and
technological knowhow in the UK and the need to retrain foreign workers in new locations.
6. This can impact UK’s auto industry competitiveness in the global arena.

Also: summarize key findings from the Exhibit 1 – BMW has a number of facilities across Europe
(Germany UK Austria and Netherlands). Not only could Brexit influence trade within EU, UK has
to negotiate external tariffs as well.

Hence operating costs, future investment costs, supply chain effectiveness are key decision
criteria for the automakers currently in the UK. (criteria)

Environmental Policies and Technology

 Policy makers around the world were advocating EVs as alternatives to cars.
 Electric cars were growing doubling sales in 2016 over 2015.
 In 2017 EVI was formed – with 10 member governments: Canada, China, France, Germany,
Japan, the Netherlands, Norway, Sweden, the UK and the US, a multi-government policy
forum

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 With such a strong coalition amongst major global economic powers, businesses need to
consider how they can best leverage this opportunity to build EV leadership while not
being left behind as policies begin to shift towards clean energy.

Concluding on the external analysis: the two major external environmental changes are : Brexit
and EV trend.

BMW needs to get a good understanding of the probabilities of different Brexit scenarios, work
with the UK government to ensure the auto industry’s voice was being heard. While BMW
needs to rethink its global car strategy especially relates to the Mini car brand. Its Mini car
strategy needs to consider in the context of its overall e-mobility strategy (integrated product
portfolio) and various emergent markets (China) to build global leadership. (criteria)

Internal Analysis:
What kind of a company is BMW?

 BMW is a global luxury car manufacturer HQ in Germany. It’s largest market is in China,
followed by US, Germany and then the UK.
 UK remains an important market for BMW overall.
 Mini sold 360,233 cars in 2016, about 15% of BMW’s total car sales. It remains an
important brand for BMW’s British market. Mini represents about 27% of BMW’s UK
market.

What’s Mini’s Value Proposition? [4Ps]

 Legacy as a British car under BMC (manufactured in Cowley, as well as around the world),
brought to fame with British icons.
 Positioned as an urban brand for city driving, has cult-like following
 Most important market is: UK (20% of sales). But growing in Europe, China as an emergent
new market.
 Mini has 4 main models
 Pricing is $23.1K per unit – not a premium priced product but it has a unique brand
approach, representing a quintessential British Brand with unique appeal for specific target
customers.
 Mini has a strong emotional appeal with those who want to define themselves as young
and want to be different from the crowd. Its promotional approach uses celebrities and
launched its first Super Bowl advertisement.
 Mini could be purchased around the world from 1580 dealerships.

Hence Mini maintaining its unique brand reputation – especially its British heritage and urban
image can be important to set itself apart from other global car brands. However, China is an
emergent market selling 30K units in 2017 representing just under 1/3 of volume for ROW,
signalling Mini’s brand has a strong appeal towards Chinses customers. It’s British heritage can

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be an important cultural appeal to Chinese consumers in an increasingly more globalized world.
Mini’s need to consider its future in the context of strategic Asian markets – proximity to serve
and brand preservation (criteria)

How did Mini’s supply chain create its competitive advantage?

 Main manufacturing plant is Cowley – its legacy location but also leveraged contract
manufacturers in Netherlands and 3 other Asian locations. Contract manufacturers allow
Mini to keep its costs low and capacity flexible. Majority comes from Cowley
 Supply chain is very complex – coming from 500 suppliers over 90% from CE. To keep
operation efficiency, Cowley leveraged different SC procedures – both standard and JHIS,
and HJIW, Steered network and base network. Orders were managed well in advance (12
months) with direct to assembly storage facilities that consist of buffer zones. Supply chain
complexity is designed to reduce storage costs, improve speed to market demand delivery
and overall production costs, optimized with border clearance in mind and transportation
costs.
 With its growth primarily in Europe (10%) versus the average ROW at 6% (see Exhibit 2),
Mini was positioned to capture its growth in Europe.

Hence: However with China as an emergent country, the question remains should Mini begin to
examine its supply chain outside of Europe to best serve perhaps the Chinese or / other
adjacent Asian markets?

How is BMW’s core capabilities around electric vehicle?

 BMW has been developing technology for EV since 2013. Production costs remain high as
infrastructure for charging stations is still at its infancy. Without EOS – product efficiency
cannot be achieved.
 BMW focused on its investment on operational capabilities including innovation and
manufacturing so it can scale up quickly.
 BMW’s market strategy also includes offering all models with an electric engine to expand
its electric model offering, integrating electric cars as part of all of its branded products
instead of a separate segment.
 This approach – albeit more long-term and more complex to execute, provides BMW with
an advantage to expand its market reach quickly, and it can easily capitalize on its existing
customers for conversion without losing well-established customer loyalty

Hence BMW brings: innovation and manufacturing excellence, global brand to allow for EV
conversion rapidly as the market becomes more mature.

Concluding insights: Mini’s go forward strategy should leverage BMW’s operational excellence
in manufacturing in the EV space, supports BMW’s global growth strategy outside of Europe,
while maintaining its unique VP for an increasing more globalized market.

5. What are the relevant decision criteria regarding the production line for electric mini?

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Some criteria are actually explicit discussed and are highlighted above:

Internal criteria:
1. BMW wants electric engines to be built alongside the gas/diesel engine car. It should be in
the same production facility. (Integrated production line)
2. Operating Costs and Profits. With a 10% profit margin ($835M), any border delay can
significantly impact this margin. 15 minutes delay cost $500K – 250 days of 15-minute delay
per day could cost $125M p.a.) – reducing its margin by about 15%.
3. Supply Chain Reliability (Just in Time and Just in Sequence) – with the Auto industry built
upon a JIT and JIS process, speed to market is achieved with optimized production costs. SC
reliability will be contingent upon trade agreement, distance and transportation.

External criteria
4. Future market growth – as investment in auto industry takes a long-term approach, future
investments must consider where the market is going.
5. Preserving Mini’s brand reputation and value proposition that has worked well.
6. Importance of UK as a market and a country of automotive history.

Criteria unique to the main character (country manager in Cowley, likely British):
1. Job retention in the UK
2. Pride in the Made In UK for Mini
3. Mini brand preservation as a quintessential UK brand
4. UK economic prosperity

There are other key stakeholders’ interests must be noted. If their interests are not met – Mini
and BMW’s brand and reputation as well as relationships in the UK can be severely jeopardized.

UK Government and the Labour Union:

1. They care about jobs
2. They care about economic prosperity. UK government cannot afford an exit that can mean
decimation of an important industry in the UK (livelihood, legacy, technology etc)
3. Maintain global competitiveness in key industries.

[This section is essentially a summary of your external and internal analysis. You turn this into a
grid of criteria. You can combine or shorten this list]

Criteria What it means

1. Supply Chain This can be combined with operating costs and investment costs
Reliability
2. Integrated Electric and Ideally having the 2 engines produced in the same facility for all
gasoline engine models.
3. Future Market Growth China (emergent) as well as UK / Europe (anchor countries)
4. Brand and Value British icon

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 Proposition
Preservation
5. Job Disruption Least disruption (protect UK stakeholder interests), reduce need
for learning curve, personal job protection (main character), job
pride etc…

5. What options are viable? Think methodically based on your criteria that help you ID your
options.

There are a number of options based on the criteria listed above:

1. Stay in the UK and hope for the best Brexit terms

2. Shift to its Contract Manufacturer in the Netherlands
3. Move facility to its e-mobility centre in Regensburg Germany for the electric lines
4. Move to low-cost CE countries e.g. Slovakia
5. Build a new plant in China.

You can create a grid and rate and provide rationale for each option. (you can change your
criteria or options if you find something more appropriate).

Rate it 1 - 5 5 – most favourable

1. Stay 2. Netherland 3. Germany 4. CE 5. China

Supply Chain #3. If Brexit #5. Established #5. BMW already #3. Learning curve #2. Relatively unknown
terms contract manufacturer manufactured there to start anew in at this stage. Some
Reliability favourable – Slovakia knowledge with Asian
uncertain… manufacturers
Integrated #5. Established #3. Unknown #3. According to the #2 Learning curve #2 Learning curve –
capabilities capability of case – they will only – unknown unknown capabilities
Electric and (investment contractor move the e-engine capabilities
made) there. But they can
gasoline engine move in the long-run
Mini’s gas engine
Future Market #4 UK is #3 Proximity to EU but #4 Germany is an #3 Proximity to #5. Largest global car
important to Netherlands does not important home- European markets production and potential
Growth Mini and BMW appear to be a strong based market for market
overall country BMW
Brand and #5. Made in UK #3 Still an European #3 Still an European #3 Still an #2. Unclear if this will
car car European car tarnish the British brand
Value
Proposition
Preservation
Job Disruption #5. Least #2 losing jobs #2 losing jobs #2 losing jobs #1. Possibly worse as it
loses jobs to a potential
economic power in the
future.
Scores 22 16 17 13 12

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6. What are the pros and cons of the alternative options for BMW regarding the production of
the electric mini?

[While the scores above are useful, there are other ‘hidden pros and cons’ that can influence
your final conclusion. Note, I did not weigh the criteria. You can weigh it or you can discuss it
and decide as part of this write up. I find weighing criteria a bit nebulous. It can get precisely
imprecise.

Aside from the Pros and Cons listed in the table, there are additional insights:

Option1. Stay in the UK and hope for the best Brexit terms
The most compelling reason to stay in the UK is maintaining the origin of Mini, even if it means
some productions need to be made outside of the UK. Preserving jobs and the UK national
economy will very likely be a top priority for the UK government.
This can be deployed immediately.
An abrupt exit can cause ill wills between BMW, Mini and the UK government as well as the
communities. This can have backlash for BMW – a German company, whereby UK remains an
important market for its group of products.

However a Big Con – hostile Brexit that puts Mini in a bind when there Britain and EU cannot
reach a deal.  Uncertainty.

Option 2: Netherland.
Netherland has the capability to increase capacity and has been a contract manufacturer for
Mini. This can be deployed fairly quickly, however there will be costs involved to upgrade that
facility.

Big Con: Mini should maintain production in its proprietary locations especially for its first e-line
product. Controlling the process is key especially BMW holds the core competence in e-
mobility, losing IP to a contract manufacturer at the early stage of e-mobility development of
Mini is not advised.

 This is not a permanent solution

Option 3: Germany
Proximity to its e-mobility centre is a big positive and this can help Mini accelerate its transition
to its electric version and create a unique e-Mini with state-of-the-art technology.

Big Con: it may not be able to build an integrated electric and gasoline production facility so the
product line will not be integrated. There will be set up costs if they wish to integrate the
production, though likely less than other countries considering BMW already has capabilities
there.

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Option 4: CE – Slovakia
Many other car manufacturers have facilities in Slovakia. So clearly Slovakia has country
advantage. Certainty in free trade with cheap labour can really improve Mini’s bottom line from
a 10% to something even higher. This can be deployed in the medium term – slower than
Germany and Netherlands but faster than China.

Big Con: Big investment $1B and learning curve. Improvement in bottom line may not be
realised for at least a decade. Quality control can be difficult.

Option 5: China
China will be a major car production centre and a big market. BMW’s entry to China can help it
position it’s global leadership for the future. China has the highest BEV market growth since
2015 and this can only increase exponentially. The benefits expand beyond market
opportunities, but also innovation and allow BMW to be one of the first major car
manufacturers to invest in China. This is a viable long-term solution.

Big Con: Required major investments north of $1B plus requires BMW to really learn and
understand Chinese market (operation and consumption). This is hard to be deployed in the
short-term/ mid-term. This is therefore not a viable short-term stop gap approach. Possible that
Mini’s brand be tarnished if it lost its Made in Britain claim? Migrating jobs outside of UK to Asia
could really upset UK citizens, consumers and markets, creating major backlash for Mini and
BMW global.

From the analysis there may be different viable approaches possible (hybrid solutions0. You can
conclude here…

7. As the country manager for BMW, how would you advocate for the production mandate to
go to Cowley?

The argument for this squarely rests on the arguments for under option 1 and criteria.

Cowley has already employed a highly integrated production and distribution network spanning
UK and Continental Europe. It has already invested £500M since 2012, hence can be easily
modified. Mini is a quintessential British Brand, it’s important that it retains its manufacturing
location in UK (amongst other locations) – completely exiting UK for the long-term can be an
irreparable damage to its global brand, this can adversely affect its’ global sales and hence
market position. This is a risk that BMW and Mini cannot afford to take.

Lastly, UK is the fourth most important market for BMW, exit from the UK can have a
detrimental impact on its automotive industry, and employment. This can create unnecessary

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labour market backlash. When BMW / Mini exit on its own and other auto makers do not follow
– this will reflect badly. The UK government will not let its dominant industry decline and they
will seek to ensure Brexit terms are favourable because they do not want Brexit to adversely
affect economy and more importantly affecting re-election.

If BMW work with the UK government along with other car makers such as Toyota to seek
reassurance and provide any resources and support in negotiating the trade terms, it can be a
win/win for both BMW / Mini and the UK. This puts BMW in a great relationship with the UK
government securing its’ presence in the UK market.

8. As CEO of BMW globally, how would you proceed? What may be your concerns / interests
that influence your decision criteria?

The main concern will be the long-term future of the automotive industry. China will no doubt
become a car manufacturing powerhouse. It’s important that BMW participates in this Chinese
growth – not only for market share growth but also access to resources (such as rare metal for
batteries), and innovation. With US declining its sales in the Mini and a lagging sales behind
China, outside of Europe, China is a strategic market for BMW.

For Mini brand, Chinese consumers likely buy into this brand because of its British heritage,
removing its manufacturing from UK permanently may not bode well for its brand image and
lose its appeal with Chinese consumers.

It is therefore as CEO of BMW needs to do the following:

1. Maintain UK plan as its flagship European location – maintain brand, sustaining the auto
industry and sustain its UK market presence (it’s an important market for Mini and BMW.
This will cause the least disruption in the meanwhile until 2019
2. Work with the UK government to get reassurance and support negotiation of trade terms.
(No doubt BMW has clout with Germany government – high influential in the EU).
3. Leverage its German e-mobility centre for innovation and manufacture e-parts for Mini – as
a plan B – if requires, move e-Mini to Germany and leverage capacity in the Netherlands.
4. Investigate Chinese market – location of production and focus on long-term investment in
China without exiting the UK.