Motor Car Industry – BMW
Introduction
This particular case study is focused on motor car industry from gathering of analysis points of BMW. Choosing of Ford business as the focus for motor car manufacturing business upon gathering of relevant knowledge that links positively to PESTLE and Porter’s five forces model allowing to integrate such detailed analysis from understanding the business environment and recognize issues into realizing awareness to BMW’s competitive environment
Discussion
The paper will be focusing on two business environment analysis for BMW business as one motor car manufacturer and that the analysis does pertain to PESTLE analysis and Five Forces Model Analysis as created by Michael Porter, as it is imperative tool for determining in success and failures of BMW’s business operations and management mostly when it comes to car manufacturing industry. There has been the need to amiably evaluate the development of corporate level strategy and the corresponding business units and operational strategies from within ways of dealing with changes in the business macro as well as micro business environment and within BMW, it is useful to work with certain analytical tools. To be able to evaluate the strategic position of BMW, it is essential to analyze the relevant environment and it can start with BMW’s macro-environment which refers to the broader influential factors for other business organizations. Henceforth, PESTEL analysis will be used to examine political, economic, socio-cultural, technological, environmental and legal forces (Johnson and Scholes, 2002). The next step is to look at Ford as one example of motor car manufacturing industry. Thus, Porter’s Five Forces (Porter, 1980) are going to be used to evaluate competitive forces within this industry as there helps to analyze and understand Ford’s business environment (Johnson and Scholes, 2002).
PESTLE Analysis
There is a need to execute PESTLE analysis for BMW in lieu to identifying the external factors in favor of their car business environment as well as business centered operations. The business environment of BMW consists of all the external influences that affect its decisions and performance, starting point is some framework for organizing information. Though systematic, continuous scanning of the whole range of external influences might seem desirable, such extensive environmental analysis is unlikely to be cost effective and creates information overload. The prerequisite for effective environmental analysis is to distinguish the vital from the merely important. For BMW to make profit it must create value for customers, BMW must understand its customers, in creating value, the BMW acquires goods and services from suppliers, how to form BMW business relationships with them. Thus, the core of BMW’s business environment is formed by its relationships with three sets of players: customers, suppliers, and competitors, the industry environment. For BMW producers, the automobile manufacturers need to trace its implications for their industry environment
Political and Legal Factor
There is presence of political and legal factors that has influence towards BMW car manufacturer as there entail to automobile policies from within government’s interference as important as possible. There was declaring of automotive industry as one pillar industry as BMW have adopted the big three – small three plan by concentrating the company’s efforts on motor car manufacturers that BMW is aware of. The BMW have succeeded in speeding up their research and development as well as other operations that linked them to follow car manufacturing policies (Govind, 2006). The BMW wanted to protect its car business from competition and encouraged technology transfer by changing the laws on some foreign investments and joint ventures as the situation is supported by the government where BMW is based from, required to transfer technical knowledge to other business partners and establishing of joint car centers for BMW workers (Govind, 2006). The open door policy and entrance of global competition are to force BMW out of the market, to increase in car exports within high technology motor car parts as expected to have an impact on quality made BMW cars. Considering the distribution in the automotive industry, BMW car producers do not carry out the distribution of their products by themselves but they organize it through a dense network of authorized dealers whose function is to resell the products to the final consumer.
Economical
The motor car manufacturing industry is rapidly growing in terms of sales as BMW sales increased by 62 percent reaching 1.23 million of manufactured cars and it can be that sales of other BMW cars increased by 22 percent in the year 2004 up to 2008 while sales of other services have maintained and German car industry can lead the car business industry in the near future as in the production of BMW hot cars, sports cars for the world market Europe leads with a share of 39 percent of BMW car production followed by some other manufacturers.
Social
The German class is growing from an outracing pace, 10.5 percent is actual growth according to BMW annual report of 2005, there can be rising issue involving social awareness at BMW such as the social awareness of pollution which leads to people to cater to BMW services and supported by German government policies, as well as consumer behavior is being affected negatively by some unstable issues of motor car manufacturing industry such as placed in due to high technology demand and the presence of globalization trends that BMW customers might be looking for upon purchase or buying BMW cars.
Technological
There was global financial crisis, affecting mostly on the technology processes and advances which is of major function stake at BMW as well as global oil production that peak and demand outstrip BMW car production as BMW and the rest of the car makers are researching in alternative fuels and there hope for an efficient technology stability in terms of energy reserves to keep in quality products and services at all times as there can be utilization of hydro fuel cells for BMW motor cars as possible.
Environmental
BMW manufacturers and management have agreed to focus on emission and pollution issues found in the car manufacturing industry and to create formal emission standards of services and car quality assurance for a green and safe environment and BMW adopted to innovative rules regarding emission and pollution control levels as passed by the German government, BMW to take new regulations into consideration when marketing models and refit for new environment standards, closing emission and pollution standard gap is critical for the BMW business that wanted to approach success towards car manufacturing market stature.
Porter’s Five Forces Analysis
The competition in BMW car industry is very stiff, especially in companies known as the “BIG FIVE”. Since car manufacturing business target effective market segments, these industries must be able to be more competitive in the market place than the other through the use of an effective and efficient marketing strategy. Accordingly, the ability of the BMW business to meet the needs of their target market is an important aspect of marketing strategy and their marketing function to remain competitive in global market. Obtaining customer satisfaction encourages clients to patronize the products or services of BMW motor cars produced by BMW, even recommend them to others. While Porter’s model is essential, BMW must be able to implement unique and distinctive marketing and business strategy to maintain competitive position in the car manufacturing market. Porter’s Five Forces model shows the relations between the potential competitors, competitors within the industry, buyers, suppliers and alternative solutions. This is actually used in order to assess the value or attractiveness of an industry or business to be able to know which marketing strategy should be implemented in BMW business. Rivalry is considered to be the strongest and most important force in Porter’s model. It represents the presence and number of firms competing for each other’s economic profits. The level of rivalry in BMW can be described as low or high. This is mainly due to the presence of several car manufacturing competing companies. Moreover, rivalry level increases because of product and service differentiation inadequacy. For instance, the competitors of BMW can be noted as very aggressive in making fresh moves so as to increase sales and market share. Aside from this situation, BMW manufacturers are targeting similar market segments, making the level of rivalry even higher.
The threat on entrants is highly dependent on the presence of factors known as barriers of entry. Basically, barriers to entry could increase or decrease the chances of BMW business offering products that could rival those produced by some car companies. Naturally, if the barriers are high, the threat on entrants will be low due to risks of decreased market share potential. There are several examples of barriers to entry. These includes German government regulations, trade restriction and inaccessibility of major distribution channels. For BMW, the entrant factor can be considered as fair due to some reasons. One of which is the fact that BMW operations assume tough business demand in a considerable BMW car manufacturing capital. A great deal of capital will not only be necessary for putting up BMW business but also in acquiring the best professionals and technology for BMW product development as well as BMW marketing. Moreover, time is necessary for BMW to flourish in car business as various manufacturers have spend many years of business operation before BMW became successful car manufacturer, aside from capital and time, entering the car industry and competing with existing car business can be difficult due to customer loyalty and strong BMW service factors.
Another aspect of Porter’s five forces pertains to the power of the buyers over BMW car manufacturer. In the case of BMW industry, the buyer power is high. This assessment is based on the nature of buyer power sources surrounding the company. In particular, the demand for the products produced by the company is reduced due to a number of economic factors, these factors are difficult to predict, the demand can then decrease at any point. This in turn increases the level of buyer power. Aside from this, the presence of several substitutes also heightens buyer power. In addition, due to several competitors, products and services offered to consumers are undifferentiated. The power of the suppliers with BMW is fair. This is because supplier concentration for the car business industry need can be low as the BMW industry can deal with other suppliers for its car production. Considering that BMW industry is leading car company recognized for providing quality products, other suppliers will be very willing to supply goods in other ways. However, BMW car industry should note that healthy relation with suppliers is as important as dealing to potential car buyers and customers, it is imperative for BMW to refrain from changing one supplier to the next. The consumers then have several product options to choose from, making the level of substitutes high for other car industries (Henderson and Mihas, 2000). Using the Porter’s Five Forces Model, the competition for BMW industry will depend on the manufacturers in which the motor car industry have, the BMW competition does not only effective within car business industry but also to BMW’s rival and competitors. Moreover, the competition on BMW labeling is tight since consumers have different taste when it comes to car types and its brand names, BMW will get their supplies from those buyers who wanted to use BMW services from within promotion and ads agency. The BMW business will need to utilize the internet world in bringing in of innovative car products and services as due to technology advancement domain however, BMW’s marketing and strategies may have its own BMW service options and or substitute (Henderson and Mihas, 2000).
Conclusion
Therefore, Porter made valuable contributions in identifying important factors that contribute to national advantage, certain facts may not be supported by his model. For example, he suggests that the geographic concentration of industries is vitally important. Porter mentions that the automobile industry has become competitive due to the proximity of the supportive industry (Porter, 1990). While it is true that car companies such as Mercedes, BMW and Porsche are located in these areas, Porter’s model has only limited validity with respect to the importance of geographic concentration in motor car industry. Although Porter’s model provides a useful framework for analyzing the environment, especially the economic one, it does not require government policy makers to develop responsible alternative strategies that create and maintain a competitive advantage for their nations. His analysis of the competitive situation is mainly descriptive and does not necessarily result in the formulation of alternative strategies. Porter pointed out that five competitive forces determine industrial profitability: threat of new entrants; bargaining power of suppliers; bargaining power of buyers; substitutes; and rivalry among existing competitors (Porter, 1990) and makes unique BMW business. Furthermore, opportunities created through the car manufacturing industry allows free flow of capital, guided by common regulations governing financial transactions such as branch expansion revolves around the establishment of BMW branches throughout the business environment Although the well-known management consulting company of McKinsey estimated that 40 percent of cross-border mergers of large companies result in failure, BMW successfully acquired the British Rover Group Holdings plc with the help of the strong German currency. This acquisition gave BMW head-start in producing a sports-utility vehicle, thus increasing its domestic competitiveness over its German archrival, Mercedes Benz. Michael Porter suggested that such rivalry contributes to a nation’s competitive advantage (Warner et al., 1995). Despite increased productivity, German workers are not much more productive than their Japanese counterparts to justify the world’s highest labor costs (The Economist, 1996). Such wage differentials make it very attractive for companies such as BMW to set up plants in Asia and the USA. In fact, BMW opened an assembly plant in Spartanburg, South Carolina early of the year 1997 (The Economist, 1996). Driven by BMW’s desire to be effective car manufacturer into the expanding market, there has been risks sharing its technology without sufficient protection (Templeman, 1995). Although the details of this venture are still being worked out, such projects show the dilemma and risks that companies face when entering countries like China which provide weak protection for technologies and intellectual property rights. The emergence of highly competitive industries due to the effect of information technology, particularly as presented in PESTLE as there changed the business environment in which BMW operates. Moreover, marketing strategies evolved to encourage direct interaction between producers and consumers in car market wherein consumers have more complete information about BMW goods and services. In the Porter’s analysis it is noted that BMW environment are challenged with high competition about the buyer and supplier powers, existence of substitute products and rival music industries and such changes in the relationships between consumers are taking place in the car industry. BMW must be able to utilize each chosen business model to generate loyalty among its customers; BMW must have the capability of prioritizing quality motor car services to offer to potential buyers or customers, the need for BMWto provide good manufactured products that would get the manufacturers be involved in business process.
References
Govind, S. (2006). A note on the Chinese Automobile Industry. The ICFAAI Center for Management Research
Henderson, T. and Mihas, E. (2000). Building Retail Brands. The McKinsey Quarterly, p. 110
Johnson, G, Scholes, K (2002). Exploring Corporate Strategy – Text and Cases, Prentice-Hall, Hemel Hempstead
Porter, M. E. (1980). Competitive Strategy. Free Pres
Porter, M.E. (1990). The Competitive Advantage of Nations, The Free Press, New York, NY
Templeman, J. (1995). A serious blow to German competitiveness, Business Week
The Economist (1996)
Warner, J., Templeman, J., Horn, R. (1995). The world is not always your oyster, Business Week
Credit:ivythesis.typepad.com
0 comments:
Post a Comment