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International Strategic Management: BMW

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Question:

Describe about the International Strategic Management of  BMW?
 
 

Answer:

Introduction

The strategic management is considered as the process of planning in order to develop strategy either in the context of domestic circle or international circle. Therefore, strategic management is helpful for the industries all around the globe to gain higher benefit from the international as well as from domestic market. The current study will be focusing on the key dilemma that has been faced by the company. The company has been focused on BMW. Therefore, the issues will be explained considering internal analysis of BMW and different strategy will be mentioned to have a deep understanding.

Key Dilemma Faced by BMW

High Cost Structure: It is evident that cost structure of BMW is relatively higher in comparison to other bigger car manufacturing company. The company is involved in producing quality and costly cars which is impossible for the middle income group people to buy the cars. Apart from that, company involve high cost in recruiting high skilled workforce (Avery and Bergsteiner, 2011). Therefore, it is one of the weakness of the company control their cost.

Differentiation: According to Bailey and Ruyter (2012), differentiation signifies that the marketing mix is extensively different from and effective than what is accessible from the rivals. On the other hand, the product differentiation is treated as the core element of the company to gain healthy and higher market share and remain ahead of the major competitors. It is known that there are large numbers of options for the buyers of vehicle to buy from all over the globe that has the same functional characteristics which is involved in the costly cars. Therefore, BMW is forced due to such issue to manufacture and develop unique products so that they can cope up with the preference, taste and fickle requirements of the car lovers (Chen, 2013). Thus, the differentiation increases the budget of the company so that they do not lose their market share to other competitors available in the car industry.

Innovation: The commitment towards the variety of product and innovation has lead to bigger challenges in the organisations. Therefore, the complexity of functions that are provided in the premium luxurious cars of BMW has multiplied the manufacturing cost of the company. On the other hand, Fang (n.d.) mentioned that product development is treated as the highly financially taxing in relation to BMW. The cost of developing or manufacturing a fresh model or port is relatively high, time overwhelming and holds key risks. Therefore, the company is facing with steep procedure of innovating prototypes and also receiving high risk level testing phase. Thus, the innovating the product is a serious issue which is faced by the company in order to maintain their market cap.

Competition: The high level of competition from the competitors can make strategic planning of the company not to provide full support. As per Harbour (2012), the automobile industry is growing slowly which increase the intense competition among the big car manufacturing company. Therefore, it has affected the strategy of the BMW. The major competition that is faced by BMW is Toyota, Volkswagen and General Motors. Thus, in order to lead the market, BMW is forced to have merger and partners. BMW acquired Rover and further the company merged with Rolls Royce to become leader of the market in relation to luxury cars.

Substitute Products: Jung et al. (2012) discussed that the threat of substitute product on the automobile market is related with the products, resources or materials that may have severe affect on the demand of the product both nationally and internationally. Apart from that, Kim (2014) mentioned that substitute product can take away the sales percent of the company and market share. Therefore, BMW is targeting premium consumers and not on the average customers. The premium buyers are targeted as for them quality matters that provide high comfort. On the other hand, Kügler and Kragl (2012) pointed that there are other car manufacturers that targets premium customers such as Mercedes, Porsche and Audi. Therefore, these are the possible substitute for the cars offered by BMW.

Global Warming: Loch et al. (2001) proposed that global warming has become great concern all over the world. Therefore, the governments, non government enterprises and activists of environment are forcing the major manufacturing industries to go green and sustainable. Therefore, it has impacted the BMW to develop the car in expected way. The stable of BMW comprises BMW brand along with super luxury Rolls Royce and compact Mini. As per the sources, BMW has expected to sale over 2.1 billion vehicles a year by 2015 has faced with stern regulation to follow (Madhani, 2012). Therefore, it made the company to include extra costs in innovation for environmentally friend fuels or engines and also making investment into the alternative energy sources to run the cars.

 

Internal Analysis: Resource Based View

BMW functions in thirteen different nations with 24 manufacturing facilities. It is also known that most manufacturing site is possessed by BMW. However, Madhani (2012) mentioned that BMW group is not able to gain the similar economies of scale of the rivals due to holding three various premium brands. Moreover, it was mentioned that momentous investment in research and development is tough for the company to recover. Apart from that, Andersén (2010) pointed that research and development helps the company in gaining competitive advantage. Due to that, BMW is able to foresee and react quickly to the changes occur in the market. The strategic alliances with Alfa Romeo and Fiat were effective for the company to generate advantage from the cost savings and gain economies of scale.

On the other hand, Colbert (2004) pointed that Resource based View can be effective in understanding and analysing the internal situation of the company. Therefore, the model will help in knowing the competitive advantage of BMW. Hasnelly and Sari (2012), explained that RBV consider resources as the major factors which helps in superior performance of firm. It is evident that key resource of the company that is BMW is technical design knowledge which is effectively converted into new products to meet the demand and expectation of customers. Moreover, in order to understand the competitive advantage of BMW, RBV model will be explained:

Tangible assets: These are the related with physical things such as buildings, machinery, land, capital and equipments. Therefore, till 2013, BMW holds around €9456 million of intangible assets which gradually increases every year (Bmwgroup.com, 2015). Henard and McFadyen (2012) opined that physical resources can be easily purchased in the market; therefore, they bestow minimum advantage to the firm in the long term as the competitors can be able to obtain the similar assets at some point of time. Therefore, it can be understood that acquiring high or costly physical resources may not ensure high competitive advantage to BMW.

Intangible Assets: Hunt and Davis (2012) described that these assets are whole thing except any physical presence and company still owns these assets. Some of the assets that relates to intangible are trademarks, intellectual property, brand reputation, etc. Therefore, in the case of BMW, the company has immense technical design knowledge which helps in manufacturing and developing high and superior quality luxury cars for the premium customers. The technical knowledge of the employees of BMW helps the company to gain competitive advantage and lead the market. On the other hand, the BMW possesses high brand reputation and highly branded product considered by all customers group. Therefore, the company organise all their effort to maintain their brand reputation and by providing timely service to the customers on demand (Insead.edu, 2015). Thus, it is known that intangible resources are the key source for the company to gain sustainable competitive advantage over the arch competitors.

Apart from that, (Jugdev and Mathur, 2013) mentioned that heterogeneous and immobile has to be considered too:

Heterogeneous: According to this assumption, capability, skill and other resources that company holds has to be different from the other company in order to receive competitive benefit. Jung et al. (2012) argued that if the organisations follow or possess similar amount of resources then it can be tough for them to exercise different strategies to gain advantage over each other. Therefore, BMW tries to focus on different resources and strategies that can help them to remain ahead and gain competitive edge. It is evident from the report of Automotive News; BMW brand has outcaste Mercedes and Audi globally in terms of sales. Therefore, as a result brand value of BMW rose to 6% in November 2014 to 158953 cars (Kim, 2014). Moreover, there is high demand in China and European markets for BMW cars. On the other hand, BMW has effectively focused on their electronic and communication technology to develop competitive benefits via e-marketing. Moreover, the company only manufactures car for only selected premium customers.

The competition between Audi and BMW is an effective example as both the companies operate in similar industry and bare similar external forces. However, using different resources apart them and BMW is quite successful over the Audi in terms of profits and sells. BMW has high brand reputation and due to that Audi follow different strategy.

Immobile: According to Kügler and Kragl (2012), the assumptions that RBV holds explains that resources do not shift from firm to firm and are not mobile. Therefore, such immobility does not allow company to use the resources and similar strategies followed in other company. In the case of BMW too, the company may not implement the same strategies that might be followed in Mercedes or Audi. Thus, the intangible resources of BMW such as technical design knowledge of employees cannot be copied by others.

Figure 1: RBV Model

The VRIO framework can be effective in examining the resources of the company whether it is efficient in providing competitive advantage or not.

Valuable: The resources of BMW are valuable which helps in raising the value provided to the buyers. Therefore, BMW focus on differentiation so that cost of production can be controlled and helps in gaining competitive edge. The company try to provide unique product so that high security and comfort can be given to car lovers.

Rarity: As per Yang, Ho and Chang (2010), the resources that are acquired by few industries are regarded as rare. The expert knowledge of the staff is rare which may not be easily possessed in everyone. Therefore, BMW has bunch of expert technical expert that helps the company in designing and manufacturing the cars that best suits the demand of the premium target market. Thus, it can help in receiving higher rivalry benefit.

Imitate: Masondo (2003) discussed that the resources that are costly can be expensive for the other firm to substitute or imitate for their benefit. Therefore, BMW used the technology for their benefit. Thus, in that case company has started BMW applications such as BMW Connected, BMW Magazine, BMW Mobile Configurator and The Ultimate Drive which can be costly for other car manufacturing companies such as Maruti Suzuki, TATA Motors, etc. 

Organise: The firms may not be able to receive sustain competitive gain if the resources are not aligned or organised in the company. BMW effectively try to organize their available resources and human resources to remain the leader in terms of luxury cars and attain sustained competitive benefit.

 

Market Based View of Strategy Internationality

Moreno, Pinheiro and Joia (2012) propounded that market based view of strategy is involved in structuring the policies and strategy of the company relying on the nature and trends of the firm’s environment considering both internationally and domestically. Therefore, it helps the company in choosing the market combination for their specific products in order to remain ahead in the market and attain competitive gain. Thus, in order to understand the MBV of BMW, Porter’s generic Strategy Strategies will be employed.

Cost Leadership: The cost leadership strategy focuses on the attainment of the sustainable leadership where the industry sets out to be the least cost provider of services and products in order to gain high market share. The industries apply such strategy to attract the customers and encircle large customers for long term benefit (Morrissey and Phillips, 2007). In the case of BMW, the company has never focused on cost leadership approach as they majorly target premium automobile segment and premium customers which can be known from there three brands that are Rolls Royce, Mini and BMW. On the other hand, it has been found that in 2010, the costs of research and development and labour cost touched €3 billion in US and Germany.

Differentiation: Otubanjo (n.d.) discussed that the organisations adopt differentiation strategy by focusing on the uniqueness of the product or pricing the product so that buyers can get attracted towards the product and remain loyal to company. On the other hand, in case of BMW, the company focuses on developing sustainable competitive gain by focusing on technology, customer focus, innovation and their brands by developing premium cars majorly for the luxury market around the globe.

Trapped in between:

The industries that follow differentiation, cost leadership and focus and fails to attain goal fall into middle and does not gain competitive advantage. For instance, acquisition of Rover by BMW in 1994 and they tried to apply differentiation strategy with focus strategy both in mass market and premium market and due to that leadership style and organisational culture in Germany and UK collided. Moreover, it led to loss of €3.2 billion (Ou, Varriale and Tsui, 2012). Therefore, the company decided to focus on differentiation focus strategy for their Rolls Royce, BMW and Mini brands for the future. This helped in penetrating to premium market in large, mid-size and small segments.

Focus: The focus strategy is implemented by the organisations by targeting a group in order to serve them with their product and services. Moreover, organisations target the customers only those that best suits their product and ensure effective earnings and sales. Therefore, BMW finds an option in the niche small automobile market for their Mini brand. On the other hand, as the cars of BMW are too costly, therefore the company only focus on high income group people as they can bear the cost and own a car which may be not possible for the middle income group people. Thus, target premium customers of China, India, US and other nation.

 

Globalisation and Localisation Strategy of BMW

Rui and Si (2010) opined that BMW has employed different marketing mix to increase the sale of their cars to various socioeconomic groups and aggressively emphasizes on the premium groups. On the other hand, the company has initiated the objective of segregating the premium market via optimizing fit among the buying behaviour of the customers and the marketing mix in order to increase the sale in that part. Apart from that, the company considers the customers that look for higher standard quality, performance and luxury. Therefore, BMW takes in account such requirement of customers into their automobiles so that large benefit can be received from international market and increasing market share and gaining competitive advantage. Moreover, it is know that BMW offers trendsetting and attractive products that range from 3 to 7 series which significantly focuses on the wealthy consumers. Thus, it helps BMW in making mark in global market and become leader of luxury car.

Apart from that, Zhu (2012) mentioned that global marketing strategy of BMW represents leadership via innovation. Therefore, the company has shifted their position to sheer driving delight from the eventual driving machine. It represents that company now seriously considers the emotional factors of the customers. Further, Yang, Ho and Chang (2010) pointed that BMW has adopted centralised and unified brand strategy for their Asian and American market. The company also followed mass customisation as a worldwide strategy. For instance, product diversification of product lines of BMW can be understood as:

6 series

$20000-$50000

5 series

$40000-$50000

3 series

$60000-$70000


On the other hand, BMW to incorporate their localised strategy, they engage local people to acts as distributors. They visit to different locations and demonstrate the features of BMW’s cars to the customers. Moreover, company provide training to 25,000 local employees to provide best service to the customers (Tzifakis, 2012). The company focuses on advertising to attract the local premium customers at large.

Planned and Emergent Corporate strategy

The planned strategy is considered as prior planning before completing falling into operations. Therefore, the company, BMW plan all their resource requirements, human resource requirements, strategic goals and other requirements so that set goal can be achieved within the stipulated time frame (Rui and Si, 2010). Therefore, the company broadly mention their vision, goals and intentions to be achieved. On the other hand, emergent corporate strategy arises when there are consistencies in the actions (koreatimes, 2015). Moreover, if find sudden error in the operation and action then it will be an emergency situation where the organisation will have to implement strategy otherwise it may affect the operational process. Therefore, BMW is effectively involved in studying the changes that may occur in the market so that they can be ready to accept such changes and significantly meet the demand of the customers (Ou, Varriale and Tsui, 2012).

 

Responsiveness and Synergy

Responsiveness is concerned with effectively reacting to the market, customers or to other factors. BMW is highly responsive towards their customers in providing details about the cars. On the other hand, if the company finds that spending power of the customers has increased then the company in gradually increases the price of cars (Nerys, 2009). For instance, the spending power of people of China has increased and due to that BMW has also increased their price in China by 5%. Apart from that, if changes occur in the market, then BMW make adjustments in their operation so that they do not suffer huge losses (Kügler and Kragl, 2012).

Further, in context to synergy, the cooperation between BMW and Rover to gain higher benefit and provide better luxury car to customers. On the other hand, PG&E has partnered with BMW in order to test the performance of EVs in demand response programs. Therefore, it helps both the firm to work cooperatively and serve the customers (Greentechmedia.com, 2015).

Conclusions

The strategic management is effectively involved in structuring and implementing the objectives or initiatives adopted by the top management of the company. Moreover, it is evident that strategic management supply direction to the organisation so that higher advantage can be gained from the market and operational process. The strategy is effective in expanding business in foreign soil. The current report has focused on the strategic nature in context to BMW and key dilemma that is faced by the company has been discussed.

 

References

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