Evaluation of External Environment and Diversification Strategies of BMW
BMW is one of the largest car and motorcycle producing company based in Germany and exporting to markets all over the world. To maintain high productivity and a large market share, the department concerned with business at BMW must create strategies, whose objective is to maintain good and profitable business (Mortimer 2005, p. 312).
BMW Business Environment
Business environment are the surrounding factors that affects an organisation way of doing business. These factors can either be internal, within the organisation, or external (Kunt 2006, p. 1). Like any other company in the production industry, BMW is faced by challenges and opportunities, which have to be dealt with daily to ensure survival of the business in the currently very competitive world. To face the challenges of doing business and competition, innovation and anticipation for growth are key elements to sustaining the company’s business.
As a result, the management of BMW group anticipated a strong corporate expansion of the group. This led to the initiation of the program named ‘PROCEED’ meaning process centred division whose aim was to keep up with the business expansion pace by optimization and standardization of the processes across the countries (Scheer et al 2006, p. 10). The approach had its basis on making use of large standardized process while respecting the country-specific requirements. This led to an increase in the number of cars delivered to customers and an increase in the contracts in the financial services division.
A car is very sensitive to changes in prices and the income of the consumer. This makes it highly vulnerable to economic changes. In recent times, BMW saw a decline of 18% in their ales due to hard economic times. Fuel prices have also seen to the decline of sales for cars that consume high quantities of fuel. The argument that luxury cars are not affected by economic changes is not true.
The Emerging market
There have been different manufacturers of motor vehicles, joining the market in competition with BMW for the market and customers. As a result, the company has to be attentive on venturing into new markets, to maintain business and company profitability. The company has also to devise ways of protecting itself from the impacts of the changing competition trends as a result of new entrants in the motor vehicle industry (Scheer et al 2006, p. 15).
The BMW protects itself from the threat of new entrants into the market by its dynamism in the market, large base of knowledge and experience and economies of scale due to it’s a large investment. Its brand BMW protects it from copy and is associated with the knowledge and quality of the products. This brings them huge benefits because of the large extents of their loyal customers. For a car to qualify as a substitute for BMW, it has to fulfil the quality status set by the BMW. They are not easily substituted by low cost cars because the low cost cars do not meet the emotional need for prestige and identification. Ecological aspects do not bother BMW group because given a choice between comforts and going green, most of its clientele would opt for comfort and luxury. BMW has derived favourable merits on its products because it produces most of its cars in German. This is because German was named the best automobile producing country all over the world. BMW has executed strategies to enhance profitability and expansion of the business to other nations.
BMW Diversification to Brazil
In an aim of expanding to new markets and growing of the company sales, BMW has ventured in to different countries, among them being Brazil. The company finds Brazil an appropriate country to venture in due to a number of factors that are considered by businesses, when venturing in foreign countries.
Factors to Consider
- Government stability and openness in welcoming FDI in this country – In any form of investment to a foreign nation, the company must consider the political situation of the land and whether the government is encouraging foreign direct investment. There has been high improvement of political rights and the increase in the openness of Brazil to accept foreign direct investments, which is a main factor to consider for BMW as the company would not be restricted, when entering the market.
- Government’s willingness to invest in infra structure- power, water and roadways- Brazil being a strong economy – the strongest economy in Latin America- the government has made substantial investment in the transportation networks, therefore making it possible for companies that need to invest to transport materials for products assembly.
- Levels of disposable income and spending capacities of population of Brazil. Brazil is a highly growing economy and is a member of the BRICS community (World Socialist Website, 1998). This means that the GDP is high, therefore, creating a high number of people with disposable income that can be used in purchase of BMW cars. It is important that the company considers this factor as BMW cars are not cheap and hence, not everyone can afford to purchase.
- Demographic issues and population trends that would affect BMW’s business in Brazil. It is important for the company to consider the demographic factor as different products are associated with different age groups or social class. Brazil has a large population made up of wealthy people, therefore making it possible to sell cars and to increase the company profits.
- Geographical location and proximity and connectivity to other global destinations. Brazil is strategically positioned as the strongest economy in Latin America, providing connections to the USA and other countries like Mexico. This makes is a preferred destination to companies that are seeking to expand to other nations. As a member of the BRICS community, which include China, India, Russia, Brazil and South Africa, companies venturing in Brazil stand more opportunities of international trade.
- Bureaucracy and corruption in the Brazilian state department. Due to a stable political climate, high rate of Brazil’s economic growth and the country’s openness to foreign investors, there has been high rate of FDI to the country among emerging markets.
PEST Analysis of Brazil Market
Political – Politics are essential as the political situation in a nation determines, whether doing business is possible in the particular country. Brazil is a politically stable nation, with positive leadership and government structures. The country has also implemented openness to foreign direct investments, therefore making it possible for BMW to do business in the country.
Economic – Brazil is a rapidly growing strong economy – the strongest economy in Latin America – which gives the company and advantage. Brazil is among the fastest-growing world major economies, with an average annual GDP growth proportion of over 5 percent (Baer 2001, p. 176). The GDP of Brazil was estimated to be at R$ 3.143 trillion by the year 2009. This means that people will have high rate of disposable income and therefore increasing the number of people, who can afford BMW luxurious cars. The growth of the economy ensures more jobs to people and an increase in import export ratio, which is necessary for BMW business.
Social: – This deals with demographics, which are classification of people based of factors such as age, race, gender or status in the society. Brazil has a large population made up of wealthy people, therefore making it possible to sell cars and to increase the company profits.
Technological: – Technology is very important as is assist in the business process simplification. Brazil is a highly technologically advanced nation and this makes it possible for different companies to set up their business in the country as the technology is beneficial in their production process (Miller 2010, p. 3).
Other strategies that BMW uses are;
One of the business policies of BMW is customization of all parts of the cars. This has seen to the development of efficient processes and technology to allow manufacture of cars to the ordered requirements and on time. BMW group knows that it can take quite a while for business management to prove its success. They also know that it requires a lot of effort, energy and resources to support the operations departments in optimization of the production and marketing processes (Scheer et al 2006, p. 7). These issues must be taken into account by the business experts in the company when formulating policies. This paper focuses on the business policies and strategies employed by the BMW Company in making sure that they retain their hold on the market through production of quality goods.
Mass customization is one of the business strategies employed by BMW in pursuit of profitability. This has allowed the company to develop high technology and efficiency in car production. The company has mastered logistic planning and management from production of cars in a flexible process. The planning process is overseen by a central planning authority to manage a clear separation o standardized cars and individual manufacturing steps. This helps in utilization of economies of scale, thus a higher level of operational effectiveness. The authority incorporates suppliers in the value based chain of production (Moser 2007, p. 26).
The group’s clear and consistent strategies have seen to its success. The strategy it has used for a long time is development of highly luxurious cars with a high cost of production but affordable to its target group. Even though the target group of BMW has been the prestigious in society and the corporate world, it still has to make sure that the clientele is getting value for money yet affordably (Hvam et al 2007, p. 1396). The marketing strategy of BMW is sporty and performance oriented cars. The strategy is based upon their high level of craftsmanship and ingenuity. It has come up with slogans such as the ultimate driving machine which has been consistent in the delivering message as well as keeping its promise for the last 40yrs. The company has been stable especially since the ownership has not changed in a long time. The group also uses motor sports and films as stands for advertisement which has seen to the consistency in their market hold over time (Vuskane 2010, p. 13).
Design and quality control
Another of their strategies in business is its distinctive capability, which encompasses design and quality control is used as a selling point to its prestigious upmarket clients. Due to its vast ability in engineering, the group has considered outsourcing its knowledge and skills to other automobile companies in the industry. It is also considering collaboration with other car makers due to its expansion (Reading 2002, p. 16). The risk management associated with outsourcing is minimal as long as the quality associated with BMW is maintained. This mostly features in the kind of contract drawn between BMW and the company it is outsourcing to.
The company has also implemented the distribution strategy in that it has maintained a tight control over its distribution network. This helps in support of the brand image and market segmentation. This strategy combines well with its pricing strategy which is different in different parts of the world. The price of a BMW ca depends on the market where it bought. This has been set after careful market studies and study of its market target. It has consistent cost margins which are very high compared to car brands that do not target prestigious market because of their quality.
The BMW has continued to use the product strategy in that it does not compromise on the equality and luxury of its products. Its huge base of resources makes certain that it is able to invest in quality and gain huge return margins after sales are made. It maintains a good name for its brand thus creating a consistent market that does not succumb to socio-cultural changes (Kay 1993, p. 24). Its ability to design, produce and deliver custom made cars makes it dynamic in dealing with the customers. This makes it attractive to customers because they have a choice not only of the product, but also of its design and quality.
The BMW group has implemented diversification strategy. This is achieved through production of motor cycles. BMW started as an aviation production company. Due to the tough regulations on aircraft manufacture at the time, the group experienced a collapse in its ability to sustain production in that line. It decided to continue production but in the motor vehicle industry. After some time, the company started production of motor cycles targeting the same market group as for the motor vehicles (Amit and Livnat 1988, p. 99). This increased their productivity and profit margins. The firm is looking forward to manufacture of vans and buses therefore diversifying from its consistent trend of producing small cars.
The group has not exploited the potential of mergers with other companies. This has been mostly to protect its brand and engineering ideas. It has however, contemplated outsourcing its experience to other companies in the industry as is discussed earlier. Another potential not fully exploited is the diversification strategy. The company can produce sporting gear and machines without compromising the quality of their products. This is because, a BMW car is highly sportive and sporting gear would be a complementary product as opposed to being substitutes. The company has however done well in diversification of its market by establishing selling outlets and distribution arms of the company in many countries globally. The company has achieved global status in production of motor vehicles.
The firm has consistently produced high class vehicle with their focus being on the quality. Cost leadership has no place in the strategic formulation of the company because it is overthrown by the focus strategy. The company is not worried about the cost of its product in the market because through maintaining a focused strategy, it has created loyal customers who seek quality over the price. They have studied their market and have come to know it well. By focusing on the quality, the company has been able to deal with the risks associated with the industry of motor vehicle production. In particular, they have been able to eliminate the risk of close substitutes because of their highly innovative engineering designs and dynamism of a product.
In conclusion, BMW has managed to climb to the top of car manufacturers list due to its uncompromising policies on quality and diversification strategies. They have achieved a client base that is not mostly affected by minor economic recessions or political changes. This is because they have studied their client base and established what they want. Through dynamism, BMW has offered their clients a chance to drive a car that does not look like any other despite being of the same model.
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