International Business Bmw Credit Crunch Issues Marketing Essay

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Using one specific multinational enterprise with which you are familiar, examine the
ways in which the 'credit crunch' has impacted its operations. Evaluate the strategic
responses it has made, and might make going forward, to respond to the impacts of
the credit crunch on its operations.
Multinational company (MNC) can be defined as a business that operating in more
than one country with increased foreign trade in one country as well as other nation.
But normally are managed by the home country mean's that it is function with one
headquarters based in one country. In generally any business or group that derives a
quarters of it revenue from operating outside of its home country it is called
multinational company (MNC), while others facilities are based in locations in other
countries. Multinational company always allows their corporation to take the
advantages of incorporating in a given locality while they enable to yield the
products, goods and services in the area which they can have a lower production
price. But some of the world peoples will have a feeling like the multinational
company (MNC) loss their original sense of loyalty to their own country and national
identity when the multinational companies growth bigger and starting to enlarge
their business to the world-wide level. (WebFinance, 2010)(Economy Glossary,
2007, 08) (WISE GEEK, 2003-10).

2.0 JUSTIFICATION THAT BMW COMPANY IS

A (MNC)
BMW is the multinational company that I choose for the assignment. BMW is a
company that operating in more than 1 country. They are not only operating in their
home country (Germany) but they also operate in many countries like: Malaysia,
Singapore, Thailand and etc. Beside that BMW also have manufacture in country like
UK, USA, Mexico, South Africa and etc. So BMW is proving as a multinational
company. BMW Group is one of the world's largest premium carmakers and BMW is
also the parent of the company of BMW MINI and Rolls-Royce car brands, and,
formerly, Rover. BMW headquarters in Munich, Germany. The company slogans in
English are "The Ultimate Driving Machine" and "Sheer Driving Pleasure." BMW

was founded by Karl Friedrich Rapp in October 1913. Automobiles, motorcycles and
financial services are three segments that operate by BMW and they manufactured
the first passenger car running by hydrogen.

3.0 BMW COMPANY HISTORY AND NEW

DIVISION
BMW manufacturing is plant in Germany, Austria, UK, USA, Mexico, South Africa,
Egypt, Brazil, Malaysia, Indonesia, Philippines and also Vietnam. ( Knozolvilag, no
date) BMW's main competitors include Acura, Alfa Romeo, Audi, Cadillac, Infiniti,
Jaguar, Lexus, Mercedes-Benz and Volvo all of this are consider luxury brands of the
car products. Nowadays, BMW is support by 11different types of series which is:
BMW C1, BMW 1, 3, 5, 6, 7 series, BMW X3, 5, 6, BMW Z4, BMW M5, BMW M6, and
BMW Z4 M. According to the research, shown that there are 2 new divisions for
BMW been introduce in October 1, 2007. Which are corporate and brand
development will be lead by the director of corporate planning this is focus on the
vital for brand management, corporate planning, and strategic implementation
BMW. Second, purchasing and supplier network that headed by Dr.Herbert.Diess.
The purpose is to reduce the material cost and expenses factor. These are few of the
new management strategy that BMW Company is using to operate the company.
(Nina Mendioli, no date).

4.0 DEFINITION OF CREDIT CRUNCH

Sentence of credit crunch in general are stand for credit crunch make it almost
impossible to the lender like bank and investor to borrow the money because they
become very chary of lending the money to the corporation. They scared of
bankruptcies and defaults, which they drive up the price of debt products for
borrowers which result in higher rates. The consequence is drag on of recession,
which the shrinking of the credit supply wills happens as a result. (Investopedia,
2010)

5.0 WHY CREDIT CRUNCH HAPPEN

Credit crunch overall background is starting with the lender like bank are suffering
loss because of their previous lending loans, and this make them normally unable
and averse to lend the money again to the borrowers. This happen when the
borrower in arrears and the properties underlying a defaulted loan and drop in the
value. As in this case the borrowers default, the bank can only foreclose on

hypothecate and trying to sell this property to compensate the funds they loaned out.
Thereby, if the pricing of the house is decreasing, the bank is considered left selling at
the cost. The banker capital position is reducing; when they suffer losses which are
reduce the amount that they are able to lend out. The lending institutions are
requiring keeping down the minimum levels of capital. (Investopedia, 2010)
The reasons that cause to the credit crunch are first: speculation. Many people go to
obtain additional loans with very easy terms for instance no initial down payment
because it is too easy to gain the credit from the banks so that all of the peoples and
investors think that the price will going to increase also. The rapidity increase in
property value make investors to jump into the investment with low and no
fundamentals. This situation will make the investors to feel that they are missing out
and left behind, in case as many investors going to heap up it will cause increasingly
unsustainable to the price of property. Next is lack of the regulatory oversight, the
distrustful of loans are make by mortgage brokers and bankers, the underwriters who
working in the bank are determine whether the ability of the borrowers is there for
them to repay the loans and turn a blind eye to what is going on so that the
increasing of the profit can see by the loans that they have written. In additional,
there are others reasons like Adjustable-rate mortgages (ARMs) and subprime loans,
the repeal of the Glass-Steagall Act, Historically low interest rates, and as well as
politics which happen because many of the politicians going to say that the higher of
the rate of the home ownership for Americans is better, but what would happen to
the economy from the perspective of those that can't afford their homes when an
inevitable slowdown occurred. (Chris Seabury, 2010)

6.0 IMPACTS OF CREDIT CRUNCH BRING TO

BMW COMPANY
The occurring of the credit crunch will actually affect the economy of a country and
company in few ways. First, the banker will actually tighten up the credit for all types
of loans and become more caution to lending the loans. So that this directly affects
the small businesses peoples that who are depend on the loans and the credit to fund
their day to day operation and become illiquid. Next, unemployment rises is one of
the ways that will affect a company and country where the businesses are unable to
pay for all the immediate bills and so that they also facing the problem that they
cannot pay for the employee's salary and so that caused the situation like
unemployment increasing in nationwide. The bankers and the brokerage firms are

hit by this credit crunch. Apart of that a spiraling domino effect occurs, above these
two economies effects of the economies crisis can make the economy of a country
going down and than affect the whole country economy and if the economy of a
country continues to going downward, it will lead to the difficult to stop the cycle.
(Chris Reiter, 2010)
On year 2008, America was affected by the serious economy crisis, and their
economy is actually hit really hard by this economy crisis. We can see through the
secondary data that done by research show that BMW also hit by 2008 economy
crisis. According to (Chris Reiter 2010) BMW and Mercedes this two world largest
luxury car makers was only sold a combine 31,000 fewer vehicles last month because
of the occurring of economy crisis and cause credit crunch that discourage the power
purchasing of consumers. The percentage of sales are also falling down 8.3% to
113.005 cars and sport- utility vehicles from 123,300 vehicles a year earlier by BMW
Company whose are also owns the Mini and Rolls-Royce auto brands. Next, Auto
sales in US BMW as a biggest market also decrease 32 percent in October of 2008 to
the lowest monthly total since January 1991. They look back to their 2008 profile
target on November BMW plans to cut production by 65,000 cars and SUVs
according to (Chris Reiter 2010).
Chris Reiter (2010) states that BMW is involved in the extremely changeling market
and the vehicles sales are decreasing for the whole year because of this. As what Ian
Robertson who are the Munich-based carmaker's sales chief said: in a statement
today, reiterating a forecast released Nov. 4. ``The retail gains made in our growth
markets were unable to fully offset'' declines in Western Europe, Japan and the U.S.
Chris Reiter (2010) also states that BMW posted 12% drop in Western Europe, 5%
drop in US and the worst is Japan drop 34%. Furthermore, David Gow (2010) states
that credit crunch put brakes on BMW 2008 also when US economy goes down turn
and BMW reported that a step fall down in first quarter earnings. The son company
of BMW Mini and Rolls Royce said that the pre-tax profits spilled 25% to (505m),
dragged down by increased risk provisions, tighter credit and the strong euro.
According to (S. wall, S. Minocha, B. Rees, 2010)[case study 4.2 BMW after Rover],
show Rover in Britain worsened and hopeless in early of March 2010 due to the
strong pound damaging the exports of Rover. Finally Rover sells to Alchemy. This
happened and uproar Britain press and politicians because scaring big number of
unemployment in Rover and few supplier are located around the region. Alchemy
withdrew from bidding process and sell to Phoenix consortium for 10. Previous 6
years BMW spent total 34billion to save Rover but posted big losses. The disposal

provoked a political storm in Britain, and BMW bosses were someone parliamentary
before this. Britain government furious, Milberg (who took over CEO of BMW in
1999) retorted government slow to get the signals he sent in a phone call before the
situation worsened. This criticism infuriated the government again. This shows that
government and political mess will also cause a problem to a company. Apart from
that, the case study also stated that the decreasing and increasing of a currency will
also give a huge impact to a company. The pounds became stronger and then give a
direct effect to the company and destroy their exports businesses are one of the
problem that we can see from the case and this may indirectly lead to the occur of
credit crunch as well. (S. wall, S. Minocha, B. Rees, 2010)

David Gow (2010) states BMW a 5.6% rise across its three brands to a record 351,787
despite a 9.1% drop in their biggest market, US. "The international financial crisis
deteriorates the climate for consumer spending became gloomier," it said, pointing to
March 2008 as the peak of the crisis. Before this BMW still expect to beat the last
year sales record to 1.5m but the US's economy getting worst and lead to the
dropping of the profits.
The world largest luxury carmaker BMW have became the victims of the credit
crunch on 2008. It took a 236 million euro (S$500 million) charge because of falling
prices and rising bad debt in the United States. The move is the provision made of
the divinable losses in business area. This move could cause to increased
nervousness about the impact of the financial crisis on the economy in Europe, even
as most companies report robust first-quarter results. This is what reported by The
Financial Times. The Click here to find out more!Daimler chief executive Dieter
Zetsche say's that in 2008 may that month the general car sales of US is fall down
this year but the growth in emerging in market can expiation it. (Christopher Tan,
2010)
In addition, research shows that 2008 BMW son's company MINI has declared that
axes 800 redundancies in Cowley, Oxford hire prompting protests from unions over
a perceived lack of sensitivity towards the rights of agency workers. The redundancy
pay will not received by many of the staffs that who have been made the contract
through the agency Manpower. At the same time the sales of the luxury cars are drop
very ruggedness, so because of that supermini segment has experienced a less severe
downturn driven by a consumer shift to smaller and more economical vehicles. Seen
from secondary data, clearly we can see the Society of Motor Manufacturers and

Traders (SMMT) January figure, the trend towards the smallest segment the mini or
city car segment is growing stronger as the recession deepens, with new car
registrations up 40.8% on 2008 figures. At British, Mini was one of the last of the car
manufacturers that are continue working through these suffering times, but they are
not produce any cars on that relevant week because of to the significant fall in global
demand. Around 20% of these 800 axes redundancies are going to the manufacture
like: Jaguar, Nissan and etc. (Next green car, 2008-2010)
BMW became the first victim of the credit crunch on 24 of April, that who are the
world largest luxury carmaker. BMW took a 236m ($369m) charge because of
falling prices and rising bad debt in the US are showing through the research. But
however the pre-tax level is slightly increased compare with last year. (Richard Milne
and John Reed, 2006-2010)

7.0 STRATEGIES BMW COMPANY USE TO

OVERCOME CREDIT CRUNCH
The strategy that BMW use to overcome credit crunch are first: that are one of the
reason why BMW and Mercedes are teaming up. There are fewer options for OEM
(original equipment makers), consolidations of period have gone through by
automobile suppliers and this trend is expected to speedup for the next few years. It
becomes difficult for the investment capital because credit crunch makes suppliers
harder to fund their business. (Ken Cottrill, 2010)
Many organizations are affected by the credit crunch in UK industry and so BMW.
But BMW consider one of the successful from them and six awards are goes to BMW
and German manufacturer sales rise and new models bring in new customers.
Although BMW also affected but they get the award for best small car with the MINI,
best small premium car for the 1 Series and best large premium car for the 3 Series.
In addition, The 5 Series took the gong for best executive car and the X5 won best
SUV and BMW was presented with the Fleet News environmental award for the
EfficientDynamics package. (Bauer Automitive, 2010)
Next, BMW also trying to protect himself from credit crunch by helping some of the
suppliers. The stronger suppliers are encouraging by BMW to take over weaker
supplier in this case and BMW will pay more for the parts, speedup the payment and
as well as they will temporary pay higher price for the parts. 11 Apart from that, in
UK, during credit crunch the governments are actually asking to help the car
manufacture and government helping a litter bit where we just seem it banking

sector. According to the research, on that time if the government is still not aware of
this problem and the unemployment will become worst and the number of import
export within UK and other country will be reduce and shown that UK government
will loss 110 billion revenue and UK 146.2 billion tax next couple of year if the
government despise this case. (Scribd, London school of commerce, no date).
However, in Malaysia it will still have at least a litter bit effects because of credit
crunch but the god strategy need to be prepared to face the credit crunch. According
to Briscoe, he believes that the luxury car like BMW needs to have a better positioned
for it to growth in the industry when facing difficulty at the economic side. He also
said that: "There would be an impact but we feel that the volume-based car segment
would be more affected than the premium segment." According to him as well in
Malaysia market in 2009, was to provide the right car at the right market at the right
time. Extra key are they are now focusing on their credit crunch strategy are
introduce more diesel powered cars. (UGENE MAHALINGAM, 2005-2010).

8.0 PRO AND CON OF THE STRATEGIES

This are few strategy that BMW done or the place government done to solve the
various problem during credit crunch. But actually they are pro and con for every
strategy they used and pro and con as well for the helping from the government, it is
just depend on each of us to criticize either each of this strategy are falls into pro or
con. In my opinion, as the first point I listed above BMW are teaming up with
Mercedes, to invest in the suppliers and the next point that BMW are encourage
strong supplier to take over weaker suppliers. It is just a good decision I think
because it is not a good decision if we just leave our car's part supplier to facing and
suffering alone with the credit crunch without any assisting. In the tough time during
credit crunch, if we are not helping each other among supplier even competitor we
might just die together because of the wrong decision. We can actually helping each
other according to our capability like what BMW and the rest done.

9.0 ETHICAL ISSUES

Next, the ethical issues are very vital for a company. According to (S. wall, S.
Minocha, B. Rees, 2010), an organization must make sure that every decision they
make, have a conscious ethical content. If it is an internal problem, it maybe about
the labour working hours, or their wages problem. When come to the BMW do
international business with other country, company must ensure they does not
apply their own ethical norms to the foreign country but is conforms to the local

customs, and ethical as well as morality enough when making any of the business
decision and also during economy crisis. Although the company situation is worse
and worried but any decision making by BMW will be ethical enough; example
during credit crunch any methods using to solve the credit crunch problem, it must
be with ethical.

10.0 CONCLUSION
In short, effects of credit crunch bring a lot of impacts to the company. BMW
Companies no matter in home country or host country are hit by credit crunch
around year 2007 to 2009 during the critical economic crisis. BMW Company are
now overcome the credit crunch situation by using different strategy. Each of the
strategy that the company use to solve the credit crunch problem in each of their host
country must be ethical and morally enough. Although every strategy can help BMW
Company to overcome the situation, but there are pro and con for each strategy. So
company must try to ensure the strategy that they use and bringing benefit to
company and at the same time won't bring any negative impacts to others.