Introduction:In this paper, I will cover a SWOT analysis for BMW, which will identify the capabilities that BMW have that will enable it to sustain a competitive advantage in the automobile industry. In order to analyze BMW itself, I had to analyze the industry and it’s complexities first. Automobile Industry Structure:
Automobile industry has changed a lot in the last four decades especially in the period extending from 1990 to 2000. Consolidation was moving forward fast and six international giant companies owned almost 69% of the automobile market. European market specifically faced a furious competition, the high technological advancement and the level of quality achieved by most manufacturers has decreased the opportunity for product differentiation. In addition, consolidation has increased the productivity.
These factors made price competition the prime strategy for manufacturers even if this will mean a loss to the company like Ford Europe losses reached 117 $ m in 1999. In today’s world customers, environmental constraints and petrol prices created an insensitive environment and obliged many midsized companies, which made BMW rethink their strategy in order to survive. What does BMW do?
Bayerische Motoren Werke Group (BMW) is one of the world’s leading luxury automobiles makers. The company was founded in Germany; it employs 820,000 workers in their plants in Germany, U.S.A and South Africa. In 1959 the Quandt family bought BMW, when the company was going to go bust, 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 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.
I. Strength:a) Reputation: BMW have a reputation for luxury and high 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 dealer’s attention to service. Respected as the ‘ultimate driving machines’ and leading the field in a whole host of classes, BMW are constantly innovating in their quest to stay ahead of their competitors. b) Engineering History:
BMW is not only a carmaker; they are one of the world leaders in motorcycle production, aircraft engines, in addition to marine engines. BMW has a long history of providing the best engineering possible in the market. c) Facilities: BMW’s factories are considered the most flexible and most productive in Germany; its suppliers are the industries best; and the workforce among the industry’s most talented.
d) Shared components: BMW is able to keep overall costs down by using shared components across its similar-sized cars. For example, the 5 Series shares components with the X5. e) Continuous Improvement: BMW identified the need for improved quality and customer care. BMW offers a four-year warranty, including maintenance and service, in the price of the car, cutting out complaints that occasional technological glitches made the brand extremely expensive to maintain. II. Weaknesses:
a) Manufacturing costs: Compared with other volume producers, BMW’s manufacturing costs are much higher, its product development process more costly, and its purchasing costs are higher because its suppliers are the industry’s best; and the workforce among the industry’s most talented which is stated as one of BMW’s strengths but can be a weakness as having the ‘best’ and ‘most talented’ does not come cheap. b) Shared components:
Although this can also be identified as strength it can also be a true weakness. If cars are using shared components or if they are too similar, it could lead to loss of sales of higher priced models, in BMW’s case the 3 Series. a) model. With its low cost, high performance and quality Toyota was able to compete with BMW at most of its market segments. III. Opportunities:
a) 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. b) Market segment: Through the acquisition of Rover BMW will be able to increase its market share and cover a 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.
c) Expansion: BMW geographical expansion and the profits it is gaining in markets other than the European market such as USA, where BMW Sales outsold that of its main competitors, will create opportunities for the company to find new ways of expanding using their own products. IV. Threats:
b) Merger threat: Merger activities have 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. d) Market share: 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.