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SP tomorrow 2

By Rachel Rivera,2014-12-06 02:30
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SP tomorrow 2

    TABLE OF CONTENTS

    1 INTRODUCTION ........................................................................................................ 2 2.0 SITUATIONAL ANALYSIS.................................................................................... 3

    2.1 PESTEL Analysis ....................................................................................................... 3 2.1.1 Political/Legal ......................................................................................................... 3

    2.1.2 Economical ............................................................................................................. 3

    2.1.3 Technology ............................................................................................................. 4

    2.1.4 Socio-cultural factors .............................................................................................. 4 2.1.5 Ecological ............................................................................................................... 4

    2.2 Industry analysis using Porter’s Five Forces of Competition Model ............................ 5

    2.2.1 Threat of New Entrants ........................................................................................... 5 2.2.2 Bargaining Power of Suppliers ................................................................................ 5 2.2.3 Bargaining Power of the Buyers. ............................................................................. 6 2.2.4 The Threat of Substitute Products............................................................................ 6 2.2.5 Intensity of Rivalry among Competitors .................................................................. 6 3.0 Market Segmentation .................................................................................................. 7 4.0 RESOURCES AND CAPABILITIES...................................................................... 8 4.1 Internal resources and capabilities .............................................................................. 8 4.2 Externally Resources and Capabilities ........................................................................ 9 4.3 SWOT Analysis........................................................................................................ 11 4.3.1 Strengths ............................................................................................................... 11

    4.3.2 Weakness .............................................................................................................. 11

    4.3.3 Opportunities ........................................................................................................ 12

    4.3.4 Threats .................................................................................................................. 12

    5.0 STRATEGIC SYNOPSIS ...................................................................................... 13 6.0 STRATEGIC CHOICES ....................................................................................... 14 6.1 The basis of the strategy ........................................................................................... 15 6.2 Direction of the strategy ........................................................................................... 16 6.3 Evaluation Criteria ................................................................................................... 18 6.4 Consolidation ........................................................................................................... 19

    6.5 Market development............................................................................................... 19 7.0 RECOMMENDATION ............................................................................................ 21 REFERENCES ................................................................................................................... 23

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1 INTRODUCTION

    BMW is a German-based company with its headquarters in Munich. The company was founded in 1916 and came into being in 1917.

    The activities of the BMW Group comprise three main segments namely; Automobiles, Motorcycles and Financial Services. It is one of the most successful multi-brand premium automobile manufacturers in the world. It also commands a strong market position in the motorcycle sector and operates successfully in the field of financial services The Automobiles segment develops, manufactures, assembles and sells cars and off-road vehicles, under the brands BMW, MINI and Rolls-Royce.

    The BMW Motorcycles segment develops, manufactures, assembles and sells BMW brand motorcycles.

    The Financial Services segment focuses primarily on leasing automobiles, providing loan finance for retail customers and dealers, accepting customer deposits and insurance activities. BMW Group is a global player with 24 production and assembly plants, 43 sales subsidiaries and a research and development network worldwide. (Annual Report 2009)

    The focus of this report is to first identify the key environmental influences, competitive forces and internal factors affecting the current situation of BMW automobile segment. It will also unearth its resources and capabilities to assess its competitiveness and develop

    appropriate strategies to recommend the way forward.

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2.0 SITUATIONAL ANALYSIS

    2.1 PESTEL Analysis

    To analyze the external business environment, PESTEL analysis is carried out to identify and explain the key external factors that are likely to affect the performance of BMW. These are considered under the following headings:

    2.1.1 Political/Legal

    Laws and government regulations have affected this industry since the 1960's. For instance the first safety act passed by US Congress was in 1966 which forced manufacturers to improve the safety for the passengers, the driver visibility, and the braking of the car. Then in the 1970's, Congress passed the Clean Air Act that demanded a 90% decrease in automobile emission within the next six years (Gale, 2004).Also in 2007 the European Commission proposed binding rules to cut CO2 emissions on new cars to130 gms/km.

2.1.2 Economical

     Companies generally perform better if there is a stable economic environment over the medium to long term. This means a steady rate of economic growth which is consistent with low inflation, low interest rate, relatively full employment and balance of payments equilibrium .The University of Michigan and the Centre for Automotive Research stated that the automobile industry is the major user of computer chips, textiles, aluminium, copper, steel, iron, lead, plastics, vinyl, and rubber (Gale, 2004). Oil prices continue to go up with no sense of predictability which could affect consumer buying. These indications shows that the future of BMW very much depends on stable economic environment rather than dramatic changes as an economy moves from boom to recession

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2.1.3 Technology

    Constant changes in the environment have propelled automobile manufacturers to develop alternate fuel vehicles. Increasingly technological change has seen most products having their life cycle shortened. BMW needs efficient and dynamic technology to remain in this environment. BMW has a strong Research and Development culture with high expenditure per car higher than its competitors.

    The internet has affected just about every industry in the world and has also had a huge impact on the automobile industry. Nowadays, more buyers referred to the internet before making their purchases.

2.1.4 Socio-cultural factors

    Factors such as population demographics, income distribution, social mobility, lifestyle changes, shifts in preferences, levels of education and concerns about the environment invariably determine the kind of cars people will drive. People have more active lifestyle, related to improved life expectancy. Anyone who drives a nice vehicle is thought to be wealthy. Consumers also just feel better when they are driving a nice or new car; it makes them feel better about themselves.

2.1.5 Ecological

    People are now calling for fuel-efficient vehicles. Many environmentalists are worried about

     the impact that the fuel cars have on the environment. The statutory regulations for CO2

    emissions targeted by the European Commission could have a materially adverse effect on

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    the business development of the automobiles industry. There is a global concern to cut carbon emission as evidence by the Kyoto protocol.

2.2 Industry analysis using Porter’s Five Forces of Competition Model

    2.2.1 Threat of New Entrants

    The threat of new entrants is very low in the automobile industry. The industry is very mature and it has successfully reached economies of scale. Because premium cars are often sold on

    their brand name as much as their features, the brand name of an existing luxury car company is extremely valuable. It is, therefore, unimaginable for a cost-conscious brand, such as Kia, entering the luxury car market.

     It also takes an extreme amount of capital not only to be able to manufacture the products but also to keep up with the research and development that is necessary for the innovation requirements. Access to distribution channels is another high barrier to entry. Space in the dealerships lots is very limited making it difficult to have a wider variety of inventory.

2.2.2 Bargaining Power of Suppliers

    The bargaining power of suppliers is very low in the automobile industry. There are so many parts that are used to produce an automobile, that it takes many suppliers to accomplish this. When there are many suppliers in an industry, they do not have much power. There are so many suppliers to the auto industry that BMW can easily switch to another supplier if need be.

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2.2.3 Bargaining Power of the Buyers.

    Bargaining power of the buyers is fairly high. The individual buyers forms a significant portion of the industries revenue however, buyers are not large and few in number. The buyers have low switching cost as a de-satisfied BMW customer will simply dispose of his car and perhaps buy a Lexus. However, the buyers do not have the ability to integrate backwards into the industry.

    2.2.4 The Threat of Substitute Products.

     In some cities such as London or New York, a car may not be the best .In cities like mentioned; subway is the most effective means of transportation. However, within the industry many substitutes exist. Near substitutes for BMW cars are higher end cars like Audi, Mercedes and Lexus. Substitutes may even be found in the market for economy models. Other substitutes considered remote are walking, riding bike, taking a train and a yacht.

     2.2.5 Intensity of Rivalry among Competitors

    BMW and its main competitors are so closely balanced that it increases the rivalry. In order to gain market share in the automobile they must do so by taking it from their competitors. One of the other reasons there is such high rivalry is that there is a lack of differentiation opportunities. Customers take into account the price, quality, and durability among others of different manufacturers when deciding what type of vehicle to purchase. When BMW advertises it even compare its products to its rivals. For example, the commercials will focus on areas where the company outperforms its competitors.

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     3.0 Market Segmentation

     The basic choices faced by companies are essentially the scope of markets that companies would serve and compete in selected markets Michael Porter (1980, 1985).

    BMW operates as a differentiator due to the uniqueness of its products and is positioned in the upper-end (premium segment) of the automobile industry as shown in figure 1. It ompetes with Lexus, Audi and Mercedes Benz, and currently it is the market leader in that c

    segment. Its target markets are young professional and businessmen and people who require a car to have discernible style and individuality.

    Figure 1: Market Segment

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4.0 RESOURCES AND CAPABILITIES

    There are internal and external resources and capabilities that allow BMW to effectively compete internationally.

4.1 Internal resources and capabilities

    BMW's strategy is self-financing, that is, it obtains operating investments mainly from cash flow. Therefore, its yearly cash flow determines its yearly investment budget, which is the upper limit for investment expenditures. (Annual financial report 2009).

    An organization's culture can be the most prized asset when it exhibits the right characteristics. BMW has a formidable seven-person management team and identified those traits as desirable. The management realises that the more people are encouraged to draw on their individual competencies, ideas and capabilities, the better the company performs as a whole. The company adopt the principle, the right people at the right place. It manages its human resources assiduously to bring the best to its customers. BMW builds on expert knowledge by leveraging the expertise of their committed workforce to add value to their products.

    Advance technology. BMW has not spared its competitors by investing heavily in modern technology. It employs innovative technologies to constantly attract new markets and sustain the interest of the existing ones.

    Group directives are in place requiring employees to handle information appropriately and ensure that information systems are properly used. In addition, staff members working in IT

    functions are increasingly receiving specific training in the area of data protection. (Sustainable Values Report 2008)

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Strong Brands.

    Currently, the BMW Group has three of the strongest premium brands in the automotive industry including BMW, MINI and Rolls-Royce. Vehicles built by the BMW Group offer superb product substance in terms of aesthetic appeal, dynamic performance, technology and quality, and underline the company’s leading position in innovation and technology.

    Production and Assembly Locations

    The BMW Group is a global player with 24 production and assembly plants in 13 countries. Those strategic locations has enabled the company to move closer to its customer and reduced the cost of moving product to the target markets.

    BMW is renowned for its reputation, unique style and refinement, and it is generally seen as a brand with great quality and reliability. It is reputed for engineering excellence and that has helped to sustain its brand identity. The number of vehicles sales even in this recession period is an indication of its strong brand identity.

4.2 Externally Resources and Capabilities

    Research and development network

    The BMW Group operates an international research and development network with sites in Germany, Austria, the US, Japan and China. This helps the company identify trends early and offer appropriate solutions. In the last few years various new models have been launched,

    among them are the 6 series with a coupe and a convertible, the X3, a sports activity vehicle, the Mini convertible and, most recently, the new 5 Series model. This dynamic development will certainly continue in the future. The company's high reputation for advanced engineering is maintained by a clear focus on total quality management and the constant development of new technologies.

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Efficient Sales and distribution network

    Since the 1970s, the BMW Group has consistently pursued its objective of operating its own sales subsidiaries in almost every corner of the world’s major markets as part of its sales strategy. By the close of 2008 financial year its sales network consists of 41 company-owned sales subsidiaries and more than 3,000 dealerships. Around 100 further countries are served by local importers. The company is active in more than 140 countries on all five continents (Annual Report 2009)

    BMW has an efficient supply network that allows it to create value for its customer. The company ensures that the companies in the value chain adhere to the same ambitious sustainability standards all around the world and at all stages of value creation. To reinforce this, apart from central purchasing in Munich, the company operates an international network of so-called International Purchasing Offices whose task is to identify and validate local suppliers for both local production facilities and the BMW Group’s international production

    network. An overview of how value is created in the company is shown in figure 2.

     Customer Strategic

    Technology Qualitative Competitive Importance Value

    SVClockspeed Supplier Model Position Added ArchitectA Capability (Strategic) ure

    Recommendations:

    Synthesis Sourcing

     Investment

     Architecture Cost

    AssetQuantitative Alliance Insights sRevenu EV s Model Competitive es A Economic (Economic) Cost

    Value Added Structure 10 Fig 2: Combining Strategic & Economic Assessments

     Source: Charles H. Fine (Professor of Management)

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