The global car market started decline in 2003, led by market falls in North America and Western Europe. Other regions of the world led by East Asia are seeing further car market expansion in 2003. In 2004, projections for livelier economic growth underpin the resumption of car market growth in Western Europe and North America. (Langley 2004, p691-711) Although the more stringent laws can eat away at companies' earnings, they also provide the stimulus to develop new technologies and markets.
Another major external factor affecting the current situation of BMW is that industry structure is becoming more and more concentrated. In this era of auto-industry consolidation, BMW is seen as a medium-sized business which could face problems in the future if it doesn't take into consideration strategic alliances. One of the external economic factors is that in the last years a large degree of overcapacity has been experienced in the car industry running at 20% to 30% in Europe.
This overcapacity has been caused by a drop in demand and sales, probably because of a global economic instability which has led consumers to reduce spending on non essential goods. (Johnson 2008) The decline is brought about by lower car demand in North America and Western Europe, both relatively mature car markets that have been adversely impacted this year by high energy prices and fragile consumer sentiment. (Lynch 2005) The automobile industry is becoming more and more competitive, with 6 major groups which have been formed in the last 3 years.
Strategy is a perceived pattern in actions past or yet to come. It is a label applied to patterns in action; strategy evaluation requires a consideration of both current and likely future results against the resources committed to the strategy. This is only an overview of the major concerns and findings from Johnson G. Scholes K. and Whittington R. (2005). Key environmental influences like any modern industry, car manufacturing today is strongly affected by external social and environmental pressures, which influence both current production practices and the development of future products and technologies.
Environmental standards are mostly set by government regulation and even associations within the automobile industry. These acts aim to as anti-emission laws get stricter every year, and companies look to double or triple their fuel efficiency, alternative technologies are being developed to replace the traditional gasoline engines, and have started to hit the market. Increased fuel-economy and decreasing vehicle weight are gradual changes that slowly improve automobile performance; disruptive technologies include new fuel sources such as electricity, solar energy, and fuel cells.
(Jarzabkowski 2004, p539-60) Below is the graph showing the production of car's in UK 2003-04. Global production per car manufacture Source: International Organisation of Motor Vehicle Manufacturers A stage has been reached in which a change in thinking is required. In addition, global economic activity has been influenced by falls in equity prices and geopolitical tensions, including the related threat to oil prices, all having a negative impact on the economy. These factors have also influenced development in the majority of the world automobile markets.
Increases in safety standards for automobiles, also mean that nowadays cars take longer time to be developed and manufacturers should now focus on pre-marketing activities, making cars look more desirable to consumers due to their safety. (Stacey 2007) Competitive Forces Competitive forces determine the relative market power of competitors, the kind of competition they engage in, the factors that give some of them a competitive advantage, and the relative attractiveness of that market compared to others.
BMW's rival Daimler-Chrysler continued competing in the traditional executive and luxury segments of the automobile market, particularly with Mercedes cars that are known worldwide for engineering excellence. Whilst in the past, BMW's strength was in smaller cars, the current product portfolio competes directly with Mercedes's middle- and upper-class luxury cars. (Vaara 2004, p1-36) Q: 2 Competitiveness in the automobile industry with perspective to BMW using Porter 5 forces The structure of an industry and ability of firms to act
strategically depend on strength of five forces, their analysis allow develop the competitive advantage of the organisation. Year on year incumbents in the car industry grow in size as well as their scale of production which reduce costs of production and final price of output. In order to survive in the market firms have developed strong customer knowledge, branding, special levels of service and access to distribution channels which create high barriers. (McLaren 2004 p191-201) Threat of new entrants Analyse shows that threat for new entrants is low mainly due to huge capital and cutting-edge technology.
Car industry is highly depended on their suppliers, because of advancement of technology and materials needed to build car. Even though all firms produce cars, no two firms are totally different and no two firms are exactly the same. Strategic group maps display different competitive positions that rival firms occupy. Based on Information contained in perceptual map it is easy to notice that more and more firms are going into all sort of alliances which help to offer more and more cheap cars. Additionally, there are many substitutes, but these decrease if the special features of material increase.
(Hambrick 2004, p91-98) Bargaining power of suppliers and buyers Overall suppliers are weak because they are spread all over the world and can not easily integrate forward, however more and more companies move into close partnerships with suppliers, even by acquiring them in order to reduce costs and exclusivity. The buyer concentration ratio and information availability is high as well as ratio of firms producing cars, on the other hand the power of buyers is weak due to low demand for non-consumer goods- automobile, high switching costs and low ability to backward integrate.
The threats of substitutes are moderately strong because there are many different and less expensive transportation facilities. (Ahlstrom and Sjostrom 2005, p230-40) On the other hand, intense rivalry is strong because the major players are dominant in the market by nearly same technology and manufacturing processes, supplier's relationship and distribution systems. The ease of differentiating cars and price based competition. BMW is looking at entering into alliances, joint ventures, partnerships as it is the safest way of securing a market share, product attractiveness and competitive prices.
In a decision to purchase a BMW product or that of the competitor, an individual will be influenced by a group of people that he or she wants to join. People in a certain social class or in a certain income level, and they are referred to as inspirational group for that individual. (Gereffi 2004, p78-104) Owning a BMW 3 series indicates that a person has entered a certain exclusive club of BMW drivers. In recent times BMW has enhanced this concept by promoting special clubs for BMW drivers. There are also three factors that affect the buyer behaviour that a marketer must take cognisance of; they are social, personal and psychological.
It will therefore be highlighted how these factors affect the consumer behaviour and in turn how the consumer behaviour affects the buying decisions. (Coe et al 2004, p468-84) Competitive rivalry within industry BMW attractive product variations were a very good source of strength , for example the MINI car released with navigation systems and sunroofs along with BMW brand quality leading to unexpected increase in the MINI sales , also BMW is Enhancing the Value Chain Activities (Specially The Supply Chain) using the shared components.
BMW is capable to maintain overall costs along by using collective components across its same-sized cars. (Gertler 2004) BMW is having a repetition of building a driving machine that respond faithfully and enjoyably to their driver's commands whilst also providing the safety, style, quality, reliability, and durability that help make long term ownership. On the other hand BMW's factories are measured very supple and most dynamic in Germany utilizing the latest technology in each phase of its value chain.
(Czarniawska and Hernes 2005, p7-13) All the above strengths and many others has places BMW in a good position with respect to the main strong competitors in terms of performance, features, dealer networks , foreign markets, for example Lexus, Mercedes-Benz, Audi, and even Cadillac . Where rivalry among these competitors increases when they competes globally in US car market, Europe and ,Eastern Europe and South-east Asia, but BMW strong brand is more costly to be switched specially for quality conscious customers which makes strong competitors . For demonstrating a
competition in the market the following figure shows global vehicle production and financial performance. (Kumon 2004) Threat of substitute products The global marketplace is in jeopardy by lower car demand in North America and Western Europe, both comparatively established car markets that have been badly impacted by high-energy prices and brittle consumer response. The use by some manufacturers of considerable customer incentives most particularly contemptible finance in North America continues to draw hullabaloo in the industry and is possible to make gaining marketplace share harder within a flat market.
(Suddaby 2006, p133-42) The global automotive market is extremely competitive. Many large businesses operate on a worldwide scale. Competitors are constantly trying to find new technologies and markets to increase global market share. Recent years have seen globalisation and consolidation strategies increase by competitors resulting in competition intensifying. BMW faces strong competition worldwide in the luxury saloon market. Traditional competition, which has always been strong from Mercedes and Audi, has intensified with the emergence of Lexus as a major player, along with Ford's Lincoln range in America.
(Balogun and Johnson 2005, p1573-1601) Future challenges and competitors Looking too far ahead too fast undulating out a new or modernized model almost after every few months, might shift 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. Reflecting this possibility, BMW stock shares have dropped 41% to $32 from a year ago (2002) BMW is relying too heavily on one model, the 1 Series to uphold its high edge.
(Hambrick 2004, p91-98) BMW also earning profits due to the strong sales of the loaded models of the Mini but need to diversify, or in other words not keep all their eggs in one basket. Although this can also be identified as strength it can also be a true weakness. Strong competition with the major players that BMW needs to look out for, Lexus, Mercedes-Benz, Audi, and even Cadillac. As an example, the Lexus RX300 SUV rivals the BMW X5; the Mercedes E-Class still outsells the BMW 5 Series worldwide; Audi 3, 6 and 8 Series compete directly with BMW's 3, 5 and 7 Series; Cadillac which
has a whole new generation of models on the horizon, leaving buyers with strong power in building preferences and getting more information from different and in general reduces the cost of switching so finally create a major 'Driving force' for competition. (Hart and Sharma 2004 p7) Receptiveness of '1' series may weaken the BMW trademark with comparison to '7' Series buyers, the '1' Series models may be viewed as cheaper cars with less quality. It could also be viewed as a tactic for BMW to obtain higher sales volumes. (Balogun, and Johnson, 2005, p1573-1601)
External analysis A combination of strategic models and frameworks will be used to critically evaluate the competitive landscape of the car industry in order to identify the prevailing conditions in the wider environment and the dynamics of the industry that can ultimately impact and influence HONDA and BMW car manufacturers. Car industry represents oligopolistic type of market with differentiated product features, unrestricted but hard to force entry barriers, strong competition and few dominant firms that hold most of market share.
Governments rely on the car sector as well as related suppliers and services in terms of employment, taxation, GDP and balance of payments. (Dejean et al, 2004, p741-64) Demand fluctuations are appearing between country markets. Increase in taxations of production which represents significant government revenue. In 1980 there were thirty car manufactures, by 2000 this had fallen to thirteen where smaller manufactures (Saab, Rolls Royce, Jaguar, and Volvo) were bought by larger companies (General Motors, BMW, Ford) Changing the upstream supply chain as component suppliers split into layers and become total solution providers.
Full cell technology will replace safety as the number one technology issue. (Letza 2004 p242-62) The volume of traffic in many cities around the world is forcing governments to consider a range of road pricing, congestion charging, and car and petrol taxation measures to encourage more use of public transport, potentially reducing demand for cars.
High competition encourages manufacturers to locate plants in low-wage countries (Hungary, Brazil, Romania) generating job loss and resentment in traditional car manufacturing countries (Britain, America) Global demand has also emerged extensively, the following graph shows development in global demand in from the year 2004 to 2012. (O'Brien 2006, p20) Q3: Critical Success Factors, market segments and BMW strategic capability The automotive industry is always seeing new legislation appearing on matters such as safety and the environment.
For example legislation on 'end of life' of vehicles changed practices of many car manufacturers in 2002 and 2003 regarding materials used in car manufacture and other factors. (McDonald and Chrisp 2005 p307-17) BMW successful competitive strategies are grounded on the brand representation of BMW as a constructive and powerful; BMW reflects typically style, high value, up-to-date manufacturing and good performance to an object audience. Customer Feelings BMW is perceived as Quality Company and therefore seen as producing quality products.
As a result, it is accepted among customers that BMW might charge higher prices. With a market capitalisation of almost euro 25 billion, the BMW Group stays in fifth place amongst the world's car manufacturers. (Tegarden 2003 p133-53) Based on the external challenges, opportunities and potential future trends in the industry BMW should consider technological innovations (R&D) looking at government policies concerning environmental issues. BMW should consider product innovation to reduce toxic emissions and to develop more efficient engines such as full cell technology which will replace standard car engines.
BMW should consider all opportunities outlined under the telescopic observations framework and take advantage of its strengths. Looking at the macro environment BMW should carefully examine world sales of cars, customer's behaviour and shift in economy such as interest rates. For BMW to stay ahead in terms of competition and remain gaining market share, the company should understand the increasing weight in the global automotive market in developing countries and emerging markets.
Collaboration between companies should be maximised in order for BMW to remain competitive and create strong links with suppliers due to soaring prices for steel, aluminium, precious metals and plastic. Cross boarder alliances and mergers should be considered by BMW in order to draw near to the Asian car manufacturers. (Potts and Matuszewski 2004, p177-79) BMW has noted that sales of its 7-Series model are up in the US, the product has been met with less enthusiasm in Europe. As Germany remains the company's most important market, this may be classed as a risk.
A commonly held view is the radical restyling of the 7-Series has failed to excite the traditional BMW driver. This may be especially worrying given the releases of the new 5- and 6-Series models, as they are believed to have undergone restyling as well. If the designs prove to be too innovative or radical, the company's short-term growth could be seriously impacted. The risks associated with the introduction of a number of new models into an under performing segment are only likely to increase the threat of failure within the segment.
(Jones 2005, p91-97) Competitive Strategy fitting with the Maturing Automotive industry Looking on the Automotive Industry in general we can see that it is in a maturing life cycle, where nearly all potential buyers are already users of the industry products, demand consists mainly of replacement, with growth totally depends on the competing firms abilities to attract new buyers and convince existing buyers to upgrade their usage, also the critical success factor (CSF) is mainly the cost efficiency.
Throughout the firms Industry Life Cycles (ILC) many challenges faces the BMW corporate managers that needs to tailor BMW strategy , these changes on the strategy called the "Strategy Fit" , essentially managers will depend on certain input factors ( The Current ILC Challenges ) which are weighted when choosing the best strategy to fit the current ILC (The Strategy for Success ), these factors that affects managers decisions in choosing the company strategy depends on the industry life cycle phase introduction, growth, mature , decline, focusing on maturing and growth ILC phases as they are related to the selected companies.
As defined by Johnson et al in a case study (2005), maturing industries challenges are mainly the slow growth in demand which generates more head to head competition, buyer become more sophisticated more familiar with competing brands with hard bargaining due to repeated purchases, for BMW more focus is on service and price combination competition, challenge of innovating new product feature of find further use of the product current features to keep attracting buyers attention. (Johnson et al 2005) Q4: Bases of BMW strategy and route on strategy clock
BMW has been successful with the release of the Mini throughout Europe and the US. To continue with this success, they are also offering a diesel version released in the spring of 2003. The diesel engine is particularly popular in Western Europe, where more than half of all new BMW cars sold are diesels. (Balogun and Johnson 2005, p1537) The reduced price of diesel when compared to petrol is clearly a significant factor in this change and is likely to continue, therefore the continued development of cleaner and more efficient diesel engines for the Group's cars would be likely to be rewarded in the future.
The global market for passenger cars was forecast to decline by some 1. 1% in 2003 to 46. 9 million units. This said the worldwide demand for cars of all manufacturers rose slightly in 2003 and was 2 % above the level for the previous year individual markets. Changing social concerns , life style , strong prospective in targeting consumer groups that are not or not mainly embattled by BMW up till now, but are involved in the product and have high purchasing intentions in BMW's products at present or in the near prospect due to modification in life approach .
(Holmstrom and Robey 2005, 165-87) BMW is constantly focusing on economies of scale to reduce the cost of their products. A company uses marketing techniques- joining their multiple car-dealership channels into a single BMW sales channel to identify and satisfy customer needs. A strong investment in research and development resulted in highly innovated products and a good reputation, as well as use of comparative and constant advertisement which strengthens their competitive position. As for weaknesses, BMW markets its products throughout the world and is exposed on economic fluctuation and political conditions in those markets.
(Dawson 2004 p130-33) Movement in exchange rates could cause already narrow margins in the car market being reduced. In order to retain firm's operational efficiency BMW needs to keep producing cars regardless to economic down or up turn which may lead to either overcapacity or under capacity. Emerging and outsourcing into developing countries like Poland, Slovakia or Hungary will rise profits and benefit from cheap factors of production costs improvements in car technology – their efficiency, safeness and design increases their reputation and capacity for market growth.
(Dentchev and Heene 2004 p65-72) Manufacturing environmentally friendly fuel vehicles also raise profits as oil prices are on the up. Any cooperation or merger with suppliers and other car manufacturers can strengthens their market share, economies of scale and assure exclusivity. In case of threats, economic slow downs may experience in over capacity. New entrants coming in from China, South Korea and Easter Europe increase competition. (Chow et al 2004) BMW did not yet take the Clean Fuel Move, whilst hydrocarbon-based fuels formulate cars go, the automotive engineering moves onward on a very dissimilar fuel silicon chips.
Growth in chip technology is extensively recognized as a main driving strength in the communication, computer, and consumer-appliance market segments. These advancements, with clean energy trends can be substitution threat for many automotive manufacturers, although there are no notices sales and brands for such clean fuel cars it can be a real threat in the future. (Gharib and Wahlqvist 2004) Differentiation and increase in technology will tie customers with authorised service dealers throughout the life of the vehicle.
A strong competition in the car industry exits, with emphasis on products attributes, linked to a total financing and ownership package which is closely matched to buyer's needs. Collaboration between Eastern and Western European companies is increasing based on the mutual benefits of technology/skills transfer and market entry. Diversification is still common within the car industry where firms are growing by acquisition. Added value represents finance, servicing and sales of spare parts where companies buy components from each other or share development costs.
This mutual collaboration can be used to spread costs or as a market entry strategy. (Dawson 2004 p130-33) With a Brand like BMW, and a strong potential and position the suppliers bargaining power become very week, although some of the BMW critical technology components still provided by limited dominant suppliers, but in general BMW has a power over it's suppliers, suppliers factories are always near BMW main factories to provide the Just – In – Time production components, also the Quality control is a major process takes place before producing the final product.
(Gunasekaran and Kobu 2007, p2521-46) Q:5 BMW strategic effectiveness in the market BMW is Tailoring it's Strategy to fit with it's current maturing Phase of the Automotive ILC, By focusing on the supply chain activates enhancement, the outsourcing of the 'Magna Steyr' is a good example for a fast low cost product production.
(Meyr 2005, p341-53) BMW took good steps in driving the high cost down with again focusing on the design and production activates 'Operation activity in the value chain', although the shared component is a good idea for cost reduction , but also BMW high different in the prices of it's product series could be an important factor in customer perception to the concept of the product features and design, perhaps focusing more on other cost reduction areas and avoid disturbance to customer perception can be a recommended option .
Based on the research it is possible to distinguish customers who follow standard patterns; buying affordable but comfortable medium size cars, are those aged between 20 and 40 years old, regardless of the sex but dependant on income and household status. These clients tend to have more urbanised and settled lifestyle. (Floricel and Langley 2004) On the other hand those at middle age, male with high income and preferences tend to pay fortunes regardless comfort, fuel usage or environment issues.
There are three targeting options which firms can adapt. With regards to a variety of car models it is impossible to aim at mass market just with standard type of car. More applicable is a differentiated marketing strategy like those developed by GM, Ford and Daimler Chrysler which target clients at high and low income and offers cars with separate marketing and mixed variables. (Goetschalckx 2005, p117-37) This strategy favours merger and acquisitions to overcome mobility barriers and gain presence also in luxury car segment.
Strategic success for BMW in maturing industries by introducing a wide selection of features in the products, enhancing the industry value chain for example increase use of advanced technology , integrate the suppliers by internet to streamline various value chain activities , drive down unit cost, developing more economical product design , increasing sales to present customers using promotions or more services, acquiring rival firms at bargain price , expanding internationally , adapting core competency according to customer requirements and expectations and pushing it towards distinctive competency where the firm better then rivals .
(Blank and Carty 2005) As part of BMW strategy tailoring by developing more economical product design, and focusing more on the technology innovation that reduces the cost in the over all value chain, for example BMW has achieved a big mile stone in automotive finishing by using the RoDip-3 technology, a new method for pretreatment of the electro coating vehicle bodies that provides many enhancements and reduce cost to this process as explained by Christoph Klocke from BMW group. The First of these new pretreatment and electro coating plants to be installed any where in the world is now operating in BMW group.
Being one of the Market Leaders, BMW was very successful in adapting its Sales strategy with customer new needs and new preferences, BMW offered the 'BMW financial service to facilitate the customer financial payments utilizing the Internet technology and many payments facilities. (Clark 2004, p607-27)
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