Overview of the Company
Discuss about the International Managing Across Borders.
With increasing business opportunities, companies expand their business to international markets from national boundaries, it help them in gaining higher profit, access to larger market and customer base. Internationalization aims to expand business opportunities by lending and capturing foreign market. In the past few years there had been tremendous growth in global FDI through various modes such as investment, exporting, join ventures, mergers, acquisitions that are adopted by firms for market entry. Though internationalization is a desired strategy by every organization but it has its own challenges, operating cross border include several management, strategic and human resource challenges.
This paper aims to present analysis on internationalization strategy of BMW, a globally operating automotive company. This paper deals in internationalization strategy of BMW in Singapore. It includes analysis on the company, its overview, operating scenario, competitive strategy, organizational structure, design, and control. Further, focus is on internationalization entry strategy opted by the firm, followed by other strategies used to operate successfully in international market, it include human resource, supply chain, production strategies. This paper presents overall strategic actions adopted by BMW to operate successfully in Singapore market, issues and opportunities presents; further strategic recommendation is also provided to take corrective action for future growth and development.
This paper is written in context of international business strategies of Bayerische Motoren Werke AG, commonly known as BMW. It was founded in the year 1916 by three founders, namely Franz Josef Popp, Karl Rapp, Camillo Castiglioni. It was originated in Germany as luxury vehicle, motorcycle and engine manufacturing organization. It is a globally operative automotive company that deals in luxury vehicles, sports car, motor cycles and bicycles. In terms of operations in the year 2015, total output by the company was 2,430,507 vehicles that helped in earning revenue worth €92.175 billion and profit worth €6.396 billion. It is among to ten automotive companies worldwide. Mission of this company is to generate profitable growth and above average returns.
BMW initiated its export program in the year 1995 with market entry in Australia through export of 500 BMW 3 series vehicles; followed by Taiwan and South America in 1997. Further, it started exporting to Germany, UK, South America, North America, Australia, Taiwan, Japan and other Asian region from South Africa. Within a year, its overall production increased by 220 percent; followed by a capacity enhancement and production growth. In the year 1997 total export figure by the brand were 500 units which reached to 70000 by 2012 (bmwplant.co, 2015). In terms of sales, 21 percent sales are in USA market, 24 percent in EUROPE market, 21 percent Germany, 14 percent India, 7 percent China and 11 percent in other markets (BMW group, 2016). However, in the year 2016 there is 8 percent decrease in total sales of BMW in USA, as total sales recorded was 25,531 compared to 27,755 vehicles sold in August, 2015 (www.press.bmwgroup.com, 2016). There is also 2.7 percent reduction in sales of mini brand. However, in global market, total sales is showing upward trend by 5.3 percent; total annual sales was 2,367,603 vehicles; sales of mini brand was 360,000 vehicles and 62000 electrified vehicles, majority of sales were in Europe and China (www.press.bmwgroup.com, 2017).
Current Operating Position
To beat competition organizations tries to build unique positions for themselves which is also known as competitive advantage; it is the factor that helps a company to gain edge over others in the market (Fahy, 2002). Competitive strategy involves actions implemented by organization to strengthen their market position and protect it in market of constant change (Harrison & John, 2009). On the basis of porter generic model of competitive advantage, BMW focuses on differentiation strategy, it portray itself on the basis of different quality, excellence on product design and digitalization. It has strong technological expertise; it is been able to integrate its engineering capabilities and marketing opportunities successfully. BMW portray its offering as symbol of prestige, upmarket, excellence image. In the year 2013, BMW launched its fully electronic car BMWi3 followed by plug in hybrid vehicle in 2014 named as i8. BMW faces intense competition from Japanese market, to protect its position it implements four different type of differentiation, it include customization of cars according to customer needs and demand; safety, environment, economy and comfort at ensured in every model sold; strategically located warehouse and centralized supply chain helped in gaining economies of scale; it also launched fleet of specially equipped cars to provide assistance to motorist in breakdown situations (Thompson & Martin, 2010). Analysis also highlights four strategic areas that helped BMW in gaining its competitive position include growth, shaping of future, profitability and focus on technology and customers (Kuma, 2016).
Organization structure and design help in defining overall work activities within organization, it plays significant role in manufacturing industry. It helps in understanding division of labor, pattern of coordination, flow of communication, workflow, and power distribution. Further, key elements that help in understanding impact of organizational design on its work efficiency include span of control, degree of formalization, centralization and structure. BMW operates as a boundary less organization, it enhance the interdependence on environment (Robbins, Decenzo, Bhattacharya, & Agarwal, 2009).
There is flatter organizational structure with low hierarchical and power distance relationship. In BMW there is intense use of software’s and computer aided virtual tools to coordinate work in different units. In terms of business structure, it follows network approach in which it operates as a hub organization that own and market the brand, whereas other units in different countries operates as spokes that provide production, engineering, marketing and other services through alliance with several organization to gain economies of scale. It has outsourced its facilities management function to Dalkia (ebooks.narotama.ac.id, 2015). Organization stricture and design strategy of BMW helped it in becoming globally competitive by purchasing from global market from best people, best technology at best price.
Organizational control is key element to ensure effective management and execution of operating functions; it deals with assigning and evaluating resources. There is supervisory board that manages centralized decision making with 20 members; it is divided into four committees that include personnel, audit, mediation and nomination. After this, there is board of management which is responsible for six functions that include Legal Affairs, Patents, Corporate and Governmental Affairs, Corporate Audit, Organizational Development, Group Reporting, Corporate HR, Strategy and Targets (McFarlin & Sweeney, 2014).
There are several internationalization strategies that can be adopted by organization; however choice of strategy varies on the basis of internal and external organization scenario, industry scenario, objective and set goals. BMW adopted different market entry strategies, but common adopted one is joint venture, this strategy helped in signing alliance with one or more companies to operate in the market, it helps in dividing resources, risk and profitability. Joint venture with local partner helps in pulling local resources at low investment, it also help in getting information about local market and customers, better understanding of product demand (Dutta, 2016).
BMW has adopted transnational strategy, which is merger of multi-domestic and global strategy; it is aimed towards achieving global efficiency, economies of scale but through local responsiveness. BMW implemented the concept of fashion forward during its designing of 3 Series cars for different market; similar design in the global market helped in building trust and customer loyalty. In Asian market, BMW entered through joint venture by signing deals with local partners, in Malaysia it signed joint venture with Sime darby berhad, in China also similar strategy was followed. Singapore is the Asia corporate head office; here company has a wholly owned sales subsidiary, this unit is responsible for management of importation of knockdown parts by wholly owned assembly plants. Munich Automobiles Pte Ltd is the exclusive BMW dealer in Singapore (Singapore genrman chamber of industry and commerce, 2015).
BMW global production network helps in supplying products in different markets, its production strategy helped in achieving on time and flexible production process; there are thirty manufacturing facilities in fourteen countries (bmwgroup.com, 2016). BMW has adopted completely knockdown approach of production process (Grünig & Morschett, 2011). Under this strategy, few parts of the final product are packed and exported to countries for assembly. These parts are used with parts supplied with local partners in the country where assembly will take place; however assembly take place in adherence with global quality standards set by BMW group. This strategy is being used for production in Egypt, Indonesia, Malaysia, Thailand, Russia and India. Initially company use to implement mass production but strategy shifted slowly towards lean manufacturing (Grünig & Morschett, 2011).
Organizational Design Structure and Control
Initially manual work load planning was conducted; long term strategic planning is followed in BMW, it prepares a 12 year planning process, and then includes a yearly breakdown, it forecast salesman products before starting the production process. Later since 2002, strategic changes were made and lean manufacturing was adopted. General guidelines are set by managers on flexibility reserve to ensure flexibility in production volume; it helps in dealing with long term uncertainties. It also implemented build to order strategy to provide maximum customization liberty to customer and also reduce inventory.
Supply chain management is the key element of any business success; it deals with initiation to closing of production process. BMW follows build to order strategy; products are made according to customer requirement (Blanchard, 2007). At first customer request is made and sent to central database, which include complete details on customer preference. Further information on cost and lead time is communicated on real time basis among supplier, manufacturer and distributors (Chandak, Chandak, & Sharma, 2014). Key elements of the supply chain are discussed below;
BMW has a strong global supplier network that help in creating value and efficiency in the supply chain process, it has 13000 suppliers in seventy countries. Purchasing department is responsible for selection and management of supplied goods (www.bmwgroup.com, 2015). It is managed with coordination between central purchasing headquarter in Munich and various international purchasing offices responsible for analyzing local production needs and product availability with local suppliers. Purchase department is responsible for reducing supply chain risk and utilization of opportunities.
Next step in supply chain is sourcing of materials, to overcome the problem of exchange rate fluctuation, BMW implements natural hedging strategy; it generally establishes assembly units where they sell their products. It also opts for local sourcing strategy in which components are purchased locally, it help in reducing cost of production. Local sourcing also help in reducing lead time, quick response and enhance ability to meet demand fluctuations (Coyle, Langley, Novack, & Gibson, 2012). It also implements various e-sourcing strategies such as ASTRAS, eRFX through a centralized model, known as M portal. E-sourcing help in aching four key tasks, such as request preparation, inviting bids from suppliers, rating of negotiation and finally purchasing is done.
To build strong collaborative supplier network various strategic actions were implemented by the company. It include continuous communication channel, supplier rating system. To ensure quality of components, purchasing of material are based on ISO 9000 that ensure quality standards are met. It also follows global compact practice to achieve sustainability. Key factors considered before selecting supplier include product quality, delivery capability, on time delivery, value creation. Suppliers are nominated 38 months before series production. There are three types of suppliers, concept supplier, series development supplier and market suppliers. Almost 50 percent of components are purchases in just in time process in assembly line; it aims to reduce stock, save time and finances.
Above diagram help in understanding supply chain system in BMW group plants.
Distribution strategy aims to unload consignment at places with maximum sales; it helps in reducing lead time. There is multiple distribution configuration based on location, demand and warehouse facilities. Different distribution network followed are represented in the diagram below;
Final step of supply chain is the reverse logistic, that include all operations related to reuse of finished goods. There is reverse logistic department that deals with reusable, recyclable components. Different methods such as closed loop, post industry loop are used to recycle different materials.
Human resource is the key assets of any organization; it helps in successful business operations and outcome. It aims to ensure that right people are hired at the right time and placed rightly to ensure maximum returns (Cascio & Boudreau, 2012). Human behavior is greatly influenced by national culture, analysis shows there is huge difference in national culture of Germany (origin country) and Singapore (country of expansion). According to Hofstede analysis, Germany is low on power distance, whereas Singapore is high which shows difference in organizational structure and design; similarly Germany has an individualistic culture which is driven by competition, success and score high on uncertainty avoidance. Whereas Singapore is collective society, low on masculinity and uncertainty avoidance. Such difference might impact internal operation, staff behavior, and communication strongly (Hofstede, 2003).
In BMW staff is hired from domestic market to ensure ease of management and localization of products. People are considered as most important factor in the global production network. As working globally require immense teamwork, cooperation and flexibility. Employees are hired under direct payroll of the company. Strong focus is given on employee training to enhance their work potential, tools like job rotation and employee involvement are adopted to remove monotonous work environment (Sparrow, 2009). Specific training is given on diversity management to overcome internal conflict and enhance team work. Employees are empowered to motivate, they are self-organize, allowed to make decision, take action to solve problems. There are both team based organization and individual awards given on performance, it helps in reducing team conflict and enhances coordination (Chan, Shaffer, & Snape, 2004). There is presence of self-managing teams who have power to take decision on team rotation, integrate functions of workers and managers. There is learning and sharing long term culture of “we at BMW”. Strong leadership that focuses on both individual goals and challenge management to view its action within culture; such proactive leadership helps in ensuring long term growth (Avery, 2004).
Analysis above shows internationalization strategies, tools and tactics adopted by BMW to enter and sustain in foreign market. Various issues and opportunities highlighted through analysis are discussed below;
- As BMW is the second most purchased luxury car in Singapore, there is huge market opportunity for business expansion and growth; it can also plan launching new models and green car models in this market, as it is expected to give positive business returns.
- As BMW is also planning to launch autonomous car in the market, Singapore is expected to give new business opportunity to this model also
- There is needed to keep strategic control on human resource, to ensure there is proper coordination between global and local strategies. Significant cultural difference in two markets might cause employee dissatisfaction, conflict and other productivity issues.
- BMW is slow in new product development, though it has its own advantages like incorporating breakthrough in production cycle, managing lead time. But in this competitive market, it can cause concern from competition.
- As the supply chain is dependent on its large supplier global network there is risk of disruptions sue to geopolitical issues, natural disaster etc. Such issues might impact production adversely causing high cost of production and poor supply chain.
Below is the list of strategic actions that can be implemented by BMW management to improve its international market business scope.
- On the basis of market opportunities, it is recommended to implement market and product development strategy by BMW. Product development strategy involves launching of new products. New product development like launching of automatic car and electric cars in Singapore market to increase total sales.
- It is also advised to increase company owned outlet in Singapore market to increase its market presence and total sales.
- To overcome employee management challenge, it is advised to follow local culture as Asian culture is difference from Germany culture; there is need to go local in employee management as it will foster easy communication and productivity. It is also crucial to provide training on cross culture management, diversity management and team work. Open communication also helps in quick problem solving and idea sharing.
- It is also advised to launch research and development in Singapore, it is highly developed nation, it will help in conducting better research and gaining technological advantage
- Automobile companies need to opt for think global but act local approach of strategic management. Strategies are to be taken from global market, to ensure cost effective, quality product delivery in timely manner but services such as installation, customer interaction, sales; ticket handling etc. must be rendered locally to ensure business.
BMW is high end luxury car manufacturing company that is performing well in national and international markets. However, automobile industry face challenges due to ever changing market conditions and price fluctuations. Companies need to integrate strong balance between changing demand, market fluctuations, environment, informed customer etc. BMW has well managed these challenges through its effective human rescue policy, leadership and management system. It has strong supply chain network that makes production to delivery system smooth and error free. BMW has huge scope of further development in Singapore market; therefore it is advice to expand its business through new product development, research and development. Its strategic actions helped BMW in becoming a competitive firm and long term successful player in the market.
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