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o STRATEGIC
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BASED ON THE AUTOMOBILE
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BMW (GERMAN COMPANY)
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BMW Automobiles
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MODULE
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DECEMBER 2010
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hjklzxporter’s five forces analysis of
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 2

TABLE OF CONTENTS

S.No. Title Page No.

1. Executive Summary
Automobile Industry Structure 3
2. BMW- About the Company 3
3. Introduction
Purpose of a strategic plan 5
4. SWOT Analysis for BMW 6
5. Porter’s Five Force Analysis – BMW 8
6. PEST Analysis – BMW 10
7. Environmental Report
Graph 11
8. Recommendations & Suggestions 12
9. Conclusions & Reviews 13
Excerpts about the best sustainability
Of BMW 13-14
10. Bibliography 15

EXECUTIVE SUMMARY
 3

AUTOMOBILE INDUSTRY STRUCTURE-:

Automobile industry has undergone major changes during the last four
decades especially in the period extending from 1990 to 2001. Consolidation was
moving forward very rapidly and almost 69% of the automobile market was
owned by six international giant companies. European market specifically faced a
furious competition, the high technological advancement and the level of quality
achieved by most manufacturers radically decreased the opportunity for product
differentiation. In addition, consolidation led to a huge increase in productivity.
These factors made price competition the prime strategy for manufacturers even
if this will mean a loss to the company for example Ford Europe losses reached
117 $ m in 1999. Customers, environmental constraints and petrol prices also
helped in creating this insensitive environment and obliged many companies,
mainly midsized players like BMW, to rethink their business strategy in order to
survive.

The automobile company chosen for this project assignment is the world’s
most luxury automobile manufacturer BMW. The following lines would throw
light on the company and its steps in Strategic planning.

BMW – The unbeatable and most SUSTAINABLE

Luxury automobile company

About the company:

Bayerische Motoren Werke Group (BMW) is one of the world’s leading

luxury carmakers. Founded and based in the Germany, BMW employs 820,000
workers in plants in Germany, U.S.A and South Africa. In 1959 Herbert Quandt
bought BMW, when the company was in financial difficulties, now they own 46%
of the BMW shares. BMW turnover was around £15.5bn; its productivity reached
820,000 vehicles in 2000. The powerful reliable performance and their luxurious
design made BMW the ultimate driving machine. Until 1990 BMW strategy was to
 4

focus on the high performance of its products however the high competition and
the rapid development of its competitors forced BMW to think of expanding its
range of products to join the ranks of the auto industry super power. In 1994, the
German carmaker BMW bought Rover from British Aerospace. The strategic
thinking was that the acquisition would allow obtaining significant economies of
scale however things did not go according to plans after and BMW sold Rover in
2000. Internal and External Environment, BMW perspective Long term survival is
the result of an organization ability to adapt to the forces and influences exerted
on it by the external environment, in responding to these forces companies
formulate strategies to cope with competition, maintain or increase its market
share and retain their profitability. Understanding the strategic decisions made by
BMW will provide us with means to analyze the external environment from BMW
perspective. Two major strategic decisions were undertaken by BMW to deal with
the external environment, the first is the acquisition of Rover, the second came
out after the failure of the Rover venture and was stated by the company’s CEO
that BMW will continue to grow under its own power. BMW has a reputation for
luxury and refined quality. BMW have developed a spectator area prized highly by
many company executives. The BMW brand also relates well to the domestic
owner reinforced by BMW's reputation for quality, reliability and their dealers’
attention to service. Respected as the ultimate driving machine and leading the
field in a whole host of classes, BMW are constantly innovating in their quest to
stay ahead of their competitors. It has great engineering history and is not only a
carmaker but also one of the world leaders in motorcycle production, aircraft
engines, in addition to marine engines.

INTRODUCTION
 5

Purpose of a Strategic Plan?

Entrepreneurs and business managers are often so preoccupied with immediate

issues that they lose sight of their ultimate objectives. That's why a business
review or preparation of a strategic plan is a virtual necessity. This may not be a
recipe for success, but without it a business is much more likely to fail. A sound
plan should:

 Serve as a framework for decisions or for securing support/approval.

 Provide a basis for more detailed planning.
 Explain the business to others in order to inform, motivate & involve.
 Assist benchmarking & performance monitoring.
 Stimulate change and become building block for next plan.

A strategic plan should not be confused with a business plan. The former is likely
to be a short document whereas a business plan is usually a much more
substantial and detailed document. A strategic plan can provide the foundation
and frame work for a business plan.

In reference to this particular automobile company BMW, the company’s

success consistency depends on its strategic planning and analysis of the
environmental structure in today’s global scenario. In this context I would brief
down a few lines on the different aspects of the strategic plans taken by the BMW
automobile company and how these steps would prove effective for the
automobile industry in its area of strategic development. Business primarily must
have a plan to enforce the strategies laid down and implementation of the
objectives is essential for its development in the competitive markets along with
the day-to-day changes.

The key steps followed by the management of BMW automobiles in formulation

of its strategic plan for the implementation of effective business objectives can be
put down as follows:

 Firstly it had an approach with a strong and realistic vision in

consideration of several factors depicting a sensible picture of the
business. The vision in a strategy necessarily needs an unambiguous style
of presentation for anyone looking into the strategy plan should get the
essence from the vision of the company. It should include essentially the
 6

core matters regarding its customer base, competitors, global markets

and the environmental position. In this regard BMW has always followed
the best possible methods in defining its vision as a tool for the
company’s mission, programs and objectives.
 Secondly, BMW has followed the essential analysis methods in preparing
the company’s strategic report as this would form the base of its growing
business in the global competitive markets. The several methods to be
adopted for this purpose can be looked upon from the plan of strategy of
this leading automobile company. The various methods utilized in this
context may be as below:

a. SWOT ANALYSIS – This analyzes the key issues of the business

environment. These factors may be internal and external to the
firm’s environment. The internal factors summarize – Strengths and
Weaknesses, while the external factors analyze the issues in relation
to the Opportunities and Threats.

Strengths for BMW can be summed up as its high end reputation of

the brand, luxury class of mechanisms and rich quality of its
products. The brand is known for its ultimate driving machines and
its innovative methodology of launching a host of class products,
reliability and the use of world class engineering techniques. BMW’s
factories are considered the most flexible and most productive in
Germany have the best suppliers and the workforce in the industry
with utmost talent. Strong Financial Position of its automobile base
despite a 53 percent increase in research and development and a 75
percent increase in capital expenditures over the past two years. Its
net profit for 2003 rose 8.3 percent to £1.26 billion, while revenues
increased by 9.9 percent, to £26.4 billion. Operating margins, at 8
percent in 2002 and 8.7 percent in 2001 were among the highest in
the industry.

Weaknesses for BMW roll out a new or updated model nearly every
three months through 2005, shifting its emphasis on getting a new
model to market rather than focusing on issues that may develop
with existing models. Issues such as software, and mechanical
problems, high manufacturing costs compared with other volume
 7

producers, costly product development process and high purchasing

costs. This is because its employs the best and talented suppliers
and workforce in the industry. Although this can be its strength, it is
a huge weakness as having the best and most talented does not
come cheap.

Opportunity shows a favourable situation for the company. Through

analysis of the external environment several opportunities were
detected by BMW that led to their decision of acquisition of Rover
and also shaped the strategy they decided to follow after that
acquisition. In terms of economy of scale, Rover is a midsized
company almost similar to BMW in terms of unit volume, so through
the acquisition of Rover BMW will be able to increase its economy of
scale and protect its independence. Through the acquisition of Rove,
BMW will be able to increase its market share and cover wider
market segments. Rover was competing with BMW in its segments
plus it produces cars in segments that BMW was planning to enter.
Thus the opportunity in acquiring Rover from BMW perspective was
quite beneficial.

Threats realized in the BMW Automobile case are the Merger threat
activities that generated a £138.7bn in 857 deals between 1998 &
2000. Ex. the GM acquisition of 20% of Fiat automobile division,
Daimler Chrysler acquired Mitsubishi of Japan. These actions set
examples of how major manufacturers are trying to survive in the
mass market through mergers and acquisitions. Larger automobile
companies can survive the long term because they are able to
produce the industry threshold of 2 million units a year. Smaller
automakers like BMW may not be able to last through the long haul
turning them into a takeover target. One of the biggest threats that
BMW realized was the increasing number of competitors that are
now directly competing with it in its market segments namely
“executive” and “luxury”. Volkswagen produced models which
competed, with BMW in the executive saloon segment. At the
luxury end, Daimler-Chrysler’s Mercedes brand competed with
BMW 7-series. Toyota directly targeted BMW through introducing
their luxurious Lexus model. With its low cost, high performance and
 8

optimum quality, Toyota was able to compete with BMW at most of

its market segments.

b. PORTER’s FIVE FORCES ANALYSIS - Porter proposed a five-force

approach as a means of examining the competitive environment of a
company. The five forces are threat of new entry, power of buyers
and suppliers, threat of substitutes and Competitive rivalry. These
five forces help to understand competition in an industry. When
considering the automobile industry it proves a useful tool to assess
the competitive forces to manufacturers and identifying the element
of threats. The five force analysis in the context for BMW can be put
forth in the following lines:

i. Potential Entrants – The Company has been around for a long time
and it is not greatly affected by the new entrants. The
influence of potential entrants to the company is weak. But to ensure that
no other problem arises, the company maintains low cost of unit
production which helps in making sure that the new entrant will not have
advantage over them. Another technique followed by BMW is that the
company embarks on innovative new techniques and procedures in serving
the clients so that there can be product differentiation and this would
provide a unique product apart from the product of its rivals. Although
BMW operates at less than the threshold production value, it is able to
make up to the mark with its high product differentiation and premium
selling prices.
 
ii. Competitive rivalry - Competition is one of the forums where the company
tends to focus its attention. Competitive rivalry highly influences the
company. Different measures are taken by the company to ensure that
they have an added advantage over their competitors. BMW follows one
strategy wherein the company gives service straight from the heart. This
kind of strategy gives the company a better relationship with the clients.
Having a good relationship with clients gives them advantage over rivals.
Another measure taken by the company is to offer quality prices. By doing
so the company lures clients away from competition. Moreover the
company uses different promotional materials so that clients get to know
 9

them and this would increase the clientele base and ensure them to
transact more with the company.

iii. Substitutes - substitutes give high influence to the company since these
can make a company lose the clients it has. The company makes sure that
the substitutes do not create problems. They do this by proving that the
service and products they offer are of the best quality and are better than
substitutes in the neighbour markets by comparing and contrasting it with
the substitutes so that clients can recognize the difference. The company
also tries to offer products and services superior than substitutes so that
they can attract more clients by offering superior products.

iv. Bargaining power of buyers - The bargaining power of buyers highly

influences the company’s scenario in its external environmental factors.
This helps in determining the good will and reputation of the company. In
this reference we can put forward the techniques used by BMW ensuring
that the bargaining power of buyers is high by making sure that buyers are
concentrated and there are few buyers in a significant market share.
However, BMW is very important to buyers where quality matters. The
greatest majority of BMW Customers seek product differentiation rather
than low prices. Although buyer power is critical in the automobile industry
it does not constitutes a big threat to BMW.

v. Bargaining power of sellers - The Company makes sure that their suppliers
have high bargaining power through helping them show their importance
in the industry.  By demonstrating the value of their suppliers, the
company can attract other companies to purchase the suppliers products
thus their bargaining power increases. Power of suppliers is an important
framework considered as suppliers are a key competitive force as they can
determine the price and quality of parts or raw materials. When powerful
suppliers control a large share of the market, they can squeeze the
industry’s profitability and buyers may have to accept a price increase or a
lower level of quality. However, BMW strategy in sustaining a firm control
on the supply chain and in maintaining a long, strong and close relationship
with the suppliers renders it safe against supplier control.
 10

All the above factors were strongly present in the automobile

industry and have largely affected the strategy of BMW. The Rover venture: The
analysis of the external environment from BMW perspective could be best
illustrated through the strategic decision of BMW to acquire Rover. In a rapidly
changing business environment and a high-neck competing industry, a company
may choose to develop its resources and competences by taking over another
company. Acquisition gives the company the opportunity to develop fast rather
than the slow internal development process. The main reason behind the
acquisition is to add new resources and skills to the company and enter a new
geographical area.
c. PEST ANALYSIS – This is another method of analysis applied to
depict the position of the business environment in reflection to its
external factors. The following can be studied as the tools of this
analysis used in this pretext with BMW:

I. Political sector - BMW makes sure they comply with what the law
states in the country and ensure that they comply with the
regulated standards of the country. The company makes sure they
are aware of the political situation of the country and the
company has its position with regards to political issues.
II. Economic Sector - BMW Company can be said to be economically
stable in the recent past and ensures the same in the near
future. Its economic stature is sound and thus they are trying to
improve their products to give the best to their clients. It is not
only the internal economic situation of the company that should
be taken note of but also the economy of the country.
III. Social sector - BMW emphasizes safety among the production of
their goods. They make sure that the proper safety standards are
followed and there are no hazardous chemicals in the production.
BMW has always played a key role in adhering to the
environmental and climatic changes in regard to the pollution
issues and emulsions of today’s automobile sector.
IV. Technological Sector - The Company set the standards for car
engine makers both current and new companies. Since
technology rapidly changes BMW has always played a pivotal role
 11

in ensuring high standards of technology and updated with the

present technological scenarios. The company makes sure that
the products they have, are updated with regards to technology
and if new technologies emerge they can compete with these
products.
 Environmental Report
Measures taken by BMW for the climatic change

The automobile industry will be one of the industries most impacted by climate
change by regulations limiting carbon-dioxide emissions. A current example is the
recent legislation in California requiring significant reductions in greenhouse gas
emissions from cars and trucks, including sport utility vehicles, by 2009 . Only five
companies actually mentioned climate change in their most annual filings. These
five reporting companies, BMW, Daimler Chrysler, Scania, Aktiebo (Volvo), and
Toyota, were based outside of the United States. Scania, Toyota and Volvo and
BMW have provided explicitly referenced climate change. The below diagram
helps in a better analysis in this regard:

Climate change report of automobile companies

5
Reporting companies

23 Non Reporting
companies

RECOMMENDATIONS AND SUGGESTIONS

 12

Strategists can challenge conventional wisdom and better prepare for uncertainty
by analyzing the complex and not-so-obvious ways global trends interact in their
industries. BMW has made significant developments in the automobile industry
and has gone to become the best sustainable luxury sedan ever in the world class
markets. On a thorough study of various strategic reports and analysis techniques
I would strongly recommend the Company make new approaches in an innovative
sector with lesser cost of production that would be reachable to the general
public at large and thus increase its market position in comparison with the
present global economic position. I would suggest the company to make the
following entries in the automobile sector and build a larger clientele. This report
analyzes the worldwide markets and the report profiles 57 companies
including many key and niche players worldwide such as AB Volvo,
Alternative Fuel Systems, Inc., Bayerische Motoren Werke, Chrysler, Daimler
AG, and Volkswagen AG. This would ensure the automobile sector reduce the
risk towards the environment. I would rather provide the following approaches
for a better environment without pollution and emulsions:

Natural Gas Vehicles - Global Strategic Business Improvements

Passenger Cars - Global Strategic Business Developments
Electric Vehicles - International Market Trends 

Global vehicle population has undergone profound growth over the past
few decades. This upsurge in vehicle population has paved the foundation for
several economical and environmental concerns. These predicaments have in
turn compelled governments to impose regulations on emission levels and seek
alternative fuel options. This led to the efforts to commercialize electric vehicles
on a mass scale, though they have been in use since long. Today, charging up the
demand for electric vehicles is the increasing concern for the environment, public
health, national self-dependence for energy needs, and the non-sustainability of
fossil fuels.

CONCLUSIONS AND REVIEWS  

 13

Excerpts of how the strategic plans of BMW

Have always made the company successful and sustainable.
BMW is renowned for its best sustainability in the world markets. BMW has
earned a reputation for high quality engineering and product development. This
reputation combined with innovative and well-targeted marketing has been
leveraged to great effect in its major European and North American markets.
BMW has become the envy of most of the auto making industry with impressive
sales and earnings improvements in the face of generally tough world car industry
conditions. The reason behind its success is, the company is equipped with a well
planned and well-executed strategy. BMW is constantly improving its product line
and finding new ways to give their product a more unique identity and provide to
clients products that gives them satisfaction. Some quoted public accredit ions to
the Company.

On the Winning Edge:

The truth is that innovation is a key element for BMW's success in the premium
market and one of the key motivations to buy a BMW.

- BMW Group, at the OCI Award Presentation, in October 2002.

BMW's Innovation Management Model

Industry observers have noted that the key to BMW's success was in its ability to
nurture new ideas, short list the potential ones and process them till the end
stage through an integrated innovation process.
 14

BMW won the U.S. market advertising strategy

In today’s world luxury car market, BMW; the brand enjoys a high priority.
This automobile from the German made high-end luxury sedan is the world’s
most technologically advanced and most elegant style, performance and one of
the most outstanding cars.

BMW Named Most Sustainable Automobile Company for 5th Year Straight

For the fifth consecutive year, it rated the BMW Group as the leader in its
industry, making it the world’s most sustainable automobile manufacturer. The
BMW Group is the only company in the automobile industry to have been listed in
this important sustainability index family every year since it was established in
1999.
In recent months the BMW Group has taken further important steps
towards further improving sustainability. Each and every proposal today is
measured against the corporate goal of sustainability. At the highest management
level a Sustainability Board was established in summer 2009. This board, which
comprises the entire Board of Management, determines the strategic alignment
for sustainability issues. Twice a year it meets to discuss and adopt the strategies
and activities proposed at operational level.
I thus conclude that Strategic planning has become more important to business
managers because technology and competition have made the business
environment less stable and less predictable. If you are to survive and prosper,
you should take the time to identify the niches in which you are most likely to
succeed and to identify the resource demands that must be met. In larger
businesses the steps outlined in this guide may be carried out by teams of experts
or may involve the interplay of ideas among hundreds, even thousands, of
managers. These guidelines are equally applicable to the entrepreneur sitting
down with several key employees to discuss what can be achieved in the next two
to three years, and what it will cost. The amount of time spent on each step and
the resources devoted to this process will vary greatly from business to business,
but it is vital to understand and employ these steps.
 15

BIBLIOGRAPHY
1. Magazines on the automobile sector

2. BMW SWOT Reports

3. Ford strategic reports

4. Tata Motors – Business guide

5. http://www.researchandmarkets.com/reportinfo.asp?
report_id=1238984&tracker=related

6. http://www.mckinseyquarterly.com/Automotive/Strat
egy_Analysis/Applying_global_trends_A_look_at_C
hinas_auto_industry_2643

7. A look at China’s Auto industry

8. Articles on strategic reports of automobile sector

9. Natural Gas Vehicles- A global strategic business

report
 16