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Bmw Business Strategy Essay

Table of Contents

Executive Summary

INTRODUCTION

AIM & OBJECTIVE

CORPORATE STRATEGY
Market Penetration
Market Development
Product Development
Diversification

CHOICE OF CORPORATE STRATEGY: MARKET PENETRATION

BUSINESS STRATEGY
Michael Porter’s Competitive Strategy

COST LEADERSHIP

DIFFERENTIATION
Focus or niche strategies
Cost-focus strategy
Differentiation-focus strategy

CHOICE OF BUSINESS STRATEGY: COST LEADERSHIP

EVALUATION OF THE STRATEGY AND RECOMMENDATION

SUITABILITY

ACCESSIBILITY

FEASIBILITY

RECOMMENDATIONS CRITERIA

REFERENCES

Executive Summary

This report is based on strategies which are utilized by the organization for creating long-term sustainable growth with competitive advantage. In this report, researcher has given its consideration upon UK automobile sector, especially BMW (British Motor Works) has taken into account. Moreover, it will assist to understand internal & external strategy of BMW through critical analysis based on attractiveness & distinctness in automobile industry to suggest suitable strategy for the organization. For giving a deep understanding of corporate strategy & business strategy of BMW, Ansoff’s corporate strategy & Michael Porter competitive advantage strategy has taken into the account by the researcher as these strategies are most effective strategies in the case of BMW. These strategies will assist to understand the market competencies & to measure the attractiveness of BMW which gives the company distinctive recognition in the automobile industry.

INTRODUCTION

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(Source: Drawback.com, 2011)

Organizations need to revisit their firm portfolio periodically to bring something new in the market to attract the consumers & to create distinctive recognition in the respective industry. According to Cummings & Worley (2014), corporate level strategy gives focus on scope & purpose of the organization & it gives consideration regarding how to increase the value of each unit of an organization whereas business level strategy is concerned about how to compete in a particular segment or market. Business level strategy helps to provide competitive advantage to the organization. Due to high competition in the UK automobile industries, companies need to create various corporate & business strategies for creating long term survival (David & David, 2016).

This study is about suggesting the suitable corporate as well as business strategy for BMW to gain competitive advantage in the same or diversified industry & to understand their effect on the current competitive environment.

This study will help to suggest the strategy which will help BMW to create differentiation in the automobile industry & to attract the consumers which will help to increase the market share for enhancing the profitability of the organization. These strategies help to understand the concept of sustainable growth & competitive advantage & to understand the competencies & distinctive approach to be used by BMW in automobile industry for improving the organization performance.

AIM & OBJECTIVE

This report aims to suggest suitable corporate & business strategy for BMW. At the same time its objective is to evaluate different corporate & business strategies & select appropriate strategies on the basis of strategic models & concepts regarding BMW.

CORPORATE STRATEGY

According to Foxall (2014), the overall scope or direction of a corporation in which its various business operations work together for the purpose of achieving a specific goals is corporate strategy. Berman & Korsten (2002) opined that corporate strategy deals in broader aspect & its formulation is not a generic approach so it cannot be copied or tailored to fit. UK automobile industry is affected by economic, socio-cultural and technological environment. So, for adding value through corporate strategy BMW needs to introduce latest model in the same market with same product with wide choice for the Benefit of the customers. For understanding the concept of corporate strategy of BMW, Igor Ansoff corporate growth strategy matrix has taken into consideration (Gangwal, 2014). Ansoff has given four possible product-market combinations which helps to focus on the present & potential market & products.

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Ansoff Corporate Strategy Matrix

(Source: David, & David, 2016).

Market Penetration

This strategy helps the firm to achieve growth in the existing market segment while using current product. The aim of this strategy is to increase the market share (Foxall, 2014).

Market Development

This corporate strategy assists the firm to grow in the new market segment through targeting its existing products (Grant, 2016).

Product Development

Firms utilize this strategy to develop new products in the existing market segments (Agrawal, 2016).

Diversification

In this strategy, the firm grows in the diversified market segment by developing new products for new markets (Verbeke, 2013).

CHOICE OF CORPORATE STRATEGY: MARKET PENETRATION

Johnson, et.al (2013) sited that entering in a new industry or targeting new product is more risky as compare to dealing in the same industry due to uncertainty. Ghalandari (2012) suggested that market penetration strategy is least risky for BMW as compare to other corporate strategies as it assists to affect the overall direction of the organization to establish the future in the working environment with existing product. It will assist BMW in dealing in the concept of simply maintaining market share by leveraging existing resources & the capabilities.

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BMW, Market Penetration

(Source: Gangwal, 2014)

According to Morrison (1992), through market penetration strategy BMW will be able to focus on the selling of products or services in the existing markets in a manner to gain higher market share to excel in the same industry with same product. By applying this strategy, BMW will be able to persuade the current customers to buy more and also will be able to influence the new customers to start buying its offerings (Porter & Heppelmann, 2014). Moreover, this strategy will assist BMW to convert the customers of their competitors.

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1. Introduction

BMW – the Bavarian based luxury car producer is seen as one of the most prestigious, stable and admired companies in the world. By 2008 the company sold 1.2 million automobiles under its largest brand – the BMW. In 2001 it very successfully launched the new Mini which is the only brand kept after the failed acquisition of the Rover group with sales rising to over 230 thousand in 2008. In 2003 Rolls Royce was added to BMW’s portfolio and sold 1,212 units in 2008 – an increase of 53% compared to 2004 (BMW Annual Report 2008, pp6-7). The company has not only one of the strongest brands worldwide and exclusively high profit margins of 8 – 10% but since 2007 it has been the world's top seller in the premium class (Hawranek, 2008).

2. Automobiles market in the 2000s

The next chapter will investigate the main trends within the automobile market starting with a general overview, followed by wider analyses of the environment as well as investigation of the competition in the car market.

2.1. General overview

In the 21st century the car industry can be described as mature, highly competitive and very dynamic. Despite being considered as global, automobile industry constitutes of three major areas – USA, Japan and Western Europe which together accounts for 80% of total sales (Lynch, 2006, p698) as well as almost 90% of total output (Donnelly et. al., 2002, 31). New markets, such as China, South America and Eastern Europe are emerging; however, as Lynch points out (2006, p697) the level of wealth differs among the various regions leading to highly varying customer preferences which need to be considered when entering new markets.

As a result of the fierce competition, the structure of the car industry has been changing radically. Extensive consolidation through acquisitions, joint ventures and strategic alliances has been taking place. According to Lencioni (2005), in given circumstances taking into account the BMW’s size and product range the company was at risk of being taken over, however, it successfully managed to expand their product range through internal growth as well as acquisitions.

Increased cooperation could not only be found among car manufacturers but also with their suppliers. Wide-ranging 1st tier outsourcing, including R&D, modularization, and supplier parks were being commonly used in car industry (Jung and Lee, 2006). Furthermore by the 21st century the quality and technology of the cars had risen to similar standards. In addition, companies were increasingly using the same platforms and other components in different models in order to increase profitability. The consequences were that cars produced by different companies looked very similar and the low differentiation led to increased price competition. (Lencioni, 2005). In addition to that, overcapacity had also become a concern within the industry (Oliver and Holweg, 2008). As a result companies were lowering prices as well as offering incentives which, however, had negative influence on the profitability of the whole industry. At the same time it stimulated a shift of competitive advantage to product design, marketing and brand-building (Lencioni, 2005). This was also true for the premium segment with new entrants and models coming in, particularly from the Japanese companies.

In the meantime the product variety and customer service had also increased. An investigation by ISDP identified that the sales of cars with exact specification had increased from 31% in 1992 to 78 % in 2002 while build-to-order car sales rose from 10% to 43% and the service level (in the dealer perception) increased from 80% to 95%. (Turner and Williams, 2005). A wider variety and increasingly heterogeneous market have in turn implications on car manufacturer’s organisation and technology. Assembly plants have become smaller, more flexible and new methods, like lean management, just-in-time (JIT), kanban and others have been introduced (Morris et. al., 2004).

2.2. Environmental analysis

For the company to be successful, it is crucial to analyse the wider environment carefully in order to anticipate changes and be proactive. The concept of PESTEL will be employed to analyse the different but overlapping and interrelated areas (Johnson et. al., 2008, pp54-57).

Ecological environment

The ‘green agenda’, including such issues as pollution, waste, climate change and resource deficit, has become an important topic in the 21st century. Given that the road transport contributes 20% to the EU's CO2 emissions while passenger cars account for approximately 12% (EU Press release, 2007) there is a general concern about the future of the car industry. The producers of large, premium automobiles such as BMW that very often are very fuel-consuming are seriously affected, particularly in the long-term.

Economics

With the car being highly sensitive to price and consumer income, the car industry is very vulnerable to economic changes (Akpinar, 2007, p175). The global economic downturn in the beginning of 21st century led to lowering demand for cars, however, as Hawranek (2008) argues that premium cars are usually not as much affected as mass-market. In fact, BMW’s performance was quite remarkable. (Lencioni, 2005). However, it has proven not to be the case in the most recent recession where the luxury car makers, particularly Mercedes-Benz and BMW have been hit hardest with BMW sales declining by 18% (Hawranek, 2009). Additionally increasing fuel prices have major implications on car manufacturers (Lynch, 2006, p701). Firstly the car makers, especially the luxury ones, will be pressurized to build more fuel-efficient cars. Secondly the demand is shifting towards smaller sized cars (Thanasuta et. al., 2009, p. 358), which has led BMW to introduce the Series 1 models.

Finally the car makers are influenced by the currency changes (Lencioni, 2005). The strong rise of Euro and the week Dollar have both had negative impact on many manufactures, particularly BMW as it still mostly produces its cars in Germany.

Political and legal issues

There are governmental regulations that affect most manufacturers, including car makers, such as health and safety, employment laws etc. Additionally different tax levels are imposed depending on vehicle efficiency (Thanasuta et. al., 2009, p358). Emission reduction regulations have also had major influence on manufacturers to produce environmentally-friendlier cars as well as develop new alternative technologies (Pilkington and Dyerson, 2006, pp81-87). Recent development even foresees fines for car manufacturers if their models exceed a certain level of CO2 emissions ( Curry, 2007).

Further developments, such as congestion charges on vehicles (with exception of the hybrids) in the city, for instance in London, or subsidising electric vehicles are all affecting the future strategies of the car manufacturers (Ewing, 2008).

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