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 Germanys 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 Germanys largest and most successful companies. But BMWs
road to sustained success was a troubled one and in 2000 the horizon was not all rosy.
The groups activities were concentrated almost exclusively on two product ranges:
high performance saloon automobiles and motorcycles. The focus of this case is on
automobiles.
Porters five forces framework analysis for BMW: The Porters 5 forces analysis
helps to provide an analysis of the micro environment in which BMW operates.
Industry 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 21st 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.
Positioning 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 Analysis of BMW: A SWOT analysis summaries the key issues from the
business environment and the strategic capability of an organization that are most
likely to impact on strategy development. The aim is to identify the extent to which
the current strengths and weakness are relevant to, and capable of, dealing with the
threats or capitalizing on the opportunities in the business environment. This
information would provide us how the company is good and where they need to focus
in the near future.
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.

Product development on the core platforms, keeps its various brands distinct.

Extensive and tight control over distribution channels.

BMW implemented a strategy which encompassed supportive marketing

programs.

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 workers 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.

Its 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
companys 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. MercedesBenz would then become number two producer of premium cars, and BMWs 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 Strategies: 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 its 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 BMWs reputation worldwide.
Recommendation Strategies: 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.

To avoid cannibalization they can promote every new model 1-series, 3-series,
5-series or 7-series separately and continue mass customization.

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.