BMW Key Strategic Issues Analysis Essay

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Introduction

The business environment has in the recent past been experiencing tremendous growth and development. The growth in technology and globalization has significantly impacted on the business environment through increased global activity. These developments have opened up new opportunities and means of production for the business society thus leading to success.

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Nevertheless, the increased global activity as well as the technological innovations have not come singly but have rather raised new challenges for business organizations. The issues of competition, environmental management, and sustainability have emerged thus putting unprecedented pressure on the business community. With this in mind, there has been every need for business organization to identify and develop strategies so as to ensure business success and sustainability.

The automobile industry has not been exempted whereby the levels of competition have multiplied over the years. The issues of sustainability and efficiency in the use of petroleum oil as the sole source of power have also risen thus calling for adoption of new technologies. Other issues emerging in the automobile industry include the ever rising customer demands on innovative, luxuries and distinctive products.

These issues have put undue pressure on the various business organizations operating in the industry thus calling for more efficient and sustainable strategies. BMW which is a key player in the automobile industry has been demonstrating success over the last century. In this essay, key strategic issues in BMW will be reviewed and appropriate recommendations made to enhance the success and sustainability of BMW.

Background information of BMW

Bayerische Motoren Werke (BMW) is a German Automobile, engine and motorcycle manufacturing company which was founded back in 1917. The company has its headquarters in Munich, Bavaria, Germany and also owns and produces the mini marquee.

The massive production and success of the company has been acknowledged across the globe with a production record of 1,481,253 automobiles and 112,271 motorcycles in 2010. The strong brand name and capital potential of the company is the core elements of the company’s success and popularity across the globe. BMW primarily focuses on the premium segments of the global motorcycle and passage car market (Hill 2008; Martin 2010).

The business operations of BMW are diverse with key concern on automobile and motorcycles as well as the provision of information technology services. A point worth of consideration is that BMW markets its products through various channels including company-owned showrooms, subsidiaries, independent dealers and importers. T

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he production activities of BMW are undertaken across 23 production and assembly plants in 13 countries, whereby it sells its products in over 140 countries worldwide. The massive research and development operations of the company have been of great concern whereby it has been able to adopt the recent technologies in automobile production thus leading to product and service differentiation (Hitt et al. 2009).

SWOT Analysis

BMW has reported commendable performance and success in the automobile industry for a couple of decades. Being the leading luxury car manufacturer across the globe, the company has been able to position itself among the consumers. The strong luxury car brands owned by BMW, Roll-Royce and Mini have enabled the company to attract and retain a wide population of customers.

The competitiveness of the company has been felt across the automobile industry based on the strong brand names and market share commanded by the company. The company has also been under due pressure due to the ever increasing steel prices, competition and need for better technologies (Gerry et al. 2008).

Table 1. SWOT Analysis.

StrengthsWeakness
Strong brand image
Diversified operations
Strong financial performance
Efficient and extensive production and distribution network
Strong focus on R & D
Weak performance in Germany
Weak turnover ratios
Heavy Debt which limits growth prospectus
Unfunded pension obligations
OpportunitiesThreats
Emerging markets
Increasing demand for hybrid vehicles
Increasing demand for dual fuel vehicles
Growing motorcycles market
Strategic alliance with PSA Peugeot Citroen
Rising costs of raw materials
ELV directive
Stringent emission standards
Global economic slowdown and particularly in Europe and US
Foreign currency risk
Increased competition in global automotive market

Strengths

Strong brand image

The company is globally recognized due to its strong brand image. Being the leading luxury car manufacturer, BMW has been able to secure a suitable position among the 10 largest car manufacturers across the globe. The key brands of the company including BMW, Rolls-Royce and Mini have been able to adequately position the company above its competitors. These are among the three strongest premium brands in the car industry thus making the company one of the most recognized far above its competitors (Ranchhod and Gurau 2007).

Diversified operations

BMW is among the leading diversified companies in terms of geographical operations and market ends it serves. The operations of the company are currently in over 140 countries thus enhancing its global presence.

The key geographic regions of the company including, America, Asia, Africa, Oceania and Europe have been able to facilitate the success of the company. The diversified business operations in the automobiles, financial services, motorcycles and information technology services have also yielded great success for the company (RanChhod et al 2004).

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Strong financial performance

In the recent years, BMW has shown up its strong financial performance through its consistently increasing revenues. For instance, by December 2007, BMW was able to record revenues of $76,786.1 million which was an increase of 14.3% over the year 2006.

The commendable financial performance of the company can be attributed to the consistence increase in all businesses of the company. Despite the impacts of the global financial down turn of 2007/2008, the company has been able to sail through the challenges thus reinforcing investors’ confidence (Martin 2010).

Weaknesses

Weak performance in Germany

Despite that Germany is a huge market for BMW; the company has been reporting declining sales volumes since 2005 in Germany. There has been an alarming negative sales growth of motorcycles in Germany over the last couples of years. This phenomenon calls for alarm concerning the success and sustainability of the BMW’s Germany market (Martin 2010).

Weak turnover ratios

The turnover ratios of BMW are not appealing thus raising questions on its financial stability. In comparison with its competitors, BMW has weaker turnover ratios. For instance, the asset turnover ratio was at 0.7 in 2007. This is low in comparison with other companies like Honda with 1.0 and Volkswagen at 0.8. This weak turnover ratios demonstrates the inability of the company’s management to deploy assets profitability which can in this case affect the company’s top line growth (Martin 2010).

Opportunities

Emerging markets

Emerging markets across the globe are great opportunities for the success and sustainability of BMW. The massive economic growth and development in China and India is a great avenue to steer the much needed growth in BMW. India and China are potential global markets which will definitely drive global demand. The cheap production costs and high technological know how in China and India will enhance fast growth of BMW through mass production of quality and cheap vehicles (RanChhod et al. 2004).

Increasing demand for hybrid vehicles

Over the recent past, the global population has demonstrated a sharp turn into the demand for hybrid electric vehicles. Influenced by the need for environmental sustainability as well as the rising petroleum fuel costs, the world population is seeking alternative vehicles. Global estimates show that over 4.5 million units of hybrid electric vehicles will be demanded by the year 2013.

This can be attributed to the rising energy costs as well as increased emissions regulations. BMW is hereby keen to capitalize on the increased demand thus enhancing its success. The technological potential of the company as well as the active hybrid drive concept will enable the company to demonstrate leadership in the hybrid electric vehicle market (Hill 2008).

Increasing demand for dual fuel vehicles

Like the demand for hybrid electric vehicles, the demand for dual fuel vehicles is in a constant increase. BMW is well placed in capitalizing on this new market due to its technological capacity as well capital potential (Hill 2008).

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Threats

Rising raw materials prices

The success and sustainability of BMW is at jeopardy due to the numerous threats surrounding its operations. The rising prices of aluminum and steel which are the primary raw materials for vehicle production is threatening the success of the company. The ever increasing raw material prices is in turn raising the production costs which limits profit margins as well as limiting affordability of the vehicles since excessive burden is passed to the customers (Martin 2010).

Economic slowdown in Europe and US

The global economic slowdown in 2008 has adversely affected the US and European markets. The decline in the GDP of these two giants is posing a great threat not only for BMW but the entire business sector. It is worth noting that the unhealthy economic growth of Europe and US has great impacts on the performance of BMW since demand for vehicles is significantly declining (Copper 2008).

Stringent emission standards

The stringent emission standards established in the automobile industry has unprecedented repercussions on the automobile industry whereby BMW is not exempted. Based on the new directives on emission standard, BMW and other automobile manufacturers will be held responsible for emission performance of the vehicles. These restrictions will not only attract financial losses but also tarnish the reputations of the company’s thus leading to loss of business (Martin 2010).

Strategic options for BMW

In light with the discussion and analysis on the current situation of BMW, it has been evident that the company is leading success in the automobile industry. The company is well endowed with modern technology in hybrid electric vehicles and has also abundant financial resources as well as human capital. Nevertheless, the company is facing numerous weaknesses and threats which jeopardize its future prospects. In response to these weaknesses and threats, the following strategic options should be considered (Hejiden 2006).

Diversification strategy

The diversification strategy is one of the most appropriate move for BMW in attaining its growth and sustainability prospects. Market diversification is very appropriate for businesses in competitive industries in the sense that it helps in spreading risks as well as enhancing growth prospects (Kaynak 2003).

In order to gain success and sustainability in the automobile industry, BMW should continue with its diversification operations in new markets. Due to the concentration of the European and US markets, BMW should seek new markets. China and India are in this case potential and unexploited markets which BMW should adopt.

Since most markets of Europe and America are established and moving to age due to the strong brand loyalty, BMW should move to new markets. In order to ensure smooth change and transition to new markets, BMW should put the market diversification strategy into action (Paley 2006). By adopting this strategy, the company will be in a position to consolidate its customer base thus increasing sales and ultimately boosting its profitability.

Cost leadership & the pricing strategy

Despite that BMW focuses on manufacture of luxurious cars, its prices are extremely high thus making them unaffordable to many people. In order to enhance its market performance, the company should resolve to adopt the cost leadership strategy (Steinmann & Schreyogg 2005). This can be attained by streamlining all operational activities by cutting down costs.

This can be attained through outsourcing of production activities, use of latest technologies in production as well as retrenchment of excess personnel. By doing this, the company will be able to minimize the operational costs thus widening the profit margins (Bradley 2005). This will also have significant effects on pricing whereby the company will be in a position to lower prices. As a result of this approach, more customers will find the products affordable thus enhancing sales and profits.

Product differentiation

In this era of global competition in the automobile industry, BMW can attain success by adopting product differentiation strategy. Consumers across the globe are looking forward to see high tech products to satisfy their needs (Porter 1985). This scenario can not be exempted from the automobile industry whereby manufacturers can differentiate their products by incorporating latest technologies and innovations in automotive production (Pettigrew, Thomas and Whittington 2002).

Consumers each day are looking for new and more innovation and technological features to be built in their cars (Muller & Lecher 2005). This scenario puts undue pressure for BMW to come up with innovative features. This will help in differentiating its products above those of competitors thus gaining brand loyalty.

Research and development is the most appropriate strategy for BMW to attain product differentiation (Palmer and Hardy 2000). It is worth noting that by considering the product differentiation strategy, BMW will be able to establish superior and appealing products (Mintzberg et al. 2005).

Technology leadership

Being in a competitive industry, BMW has every obligation to demonstrate efficiency and sustainability in its operations. In regard to this perspective, the company can attain success by investing massively on technology and innovations. For instance, the increasing demand for hybrid electric cars puts the company pressure to embark on new technologies (Barney and Hesterly 2009).

In this case, BMW should be vigorous in research and developing new technologies to facilitate smooth transition to the new vehicle models. BMW should consider various approaches for enhancing its products by adopting the concepts of active hybrid program, intelligent energy, and innovative technologies like iDrive. By adopting these strategies, BMW will be in a position to position itself above its competitors.

On the other hand, the company should also focus on innovative features on its services (Besanko et al. 2004). For instance, driver-focus services and reinforce mobile service should be researched on and fitted in the vehicles. In regards to hybrid electric vehicles, BMW should be in the forefront in ensuring technology leadership.

For instance, the company should put into practice the hybrid dive concept together with other innovative strategies (Clegg et al. 2005). By so doing, BMW will be able to position itself above competitors hence enhancing success.

Customer relationship management

Customer relationship is an aspect of key concern in the contemporary business platform. BMW should hereby be efficient establishing effective strategies and structures for customer relationship management (Thomas 2007). One of the main approaches in customer relationship management is establishment of a customer care department.

This will facilitate communication and interaction between the company and the clients. Customer care services will help in collecting customer feedbacks which helps in ensuring customer satisfaction (Ferrell and Hartline 2010). Market research and analysis should also be considered which will in this case help in enhancing product design to match customer taste and preferences (Timmers 2008; Sadler & Craig 2003).

Conclusion and Recommendations

Based on the above discussion and analysis of the current situation of BMW it is evident that the company is potential of sustaining its success. The SWOT analysis of the company has placed BMW far above its competitors due to its strong financial, technological and human resource potential.

In order to attain continued success and sustainability in the automobile industry, BMW should adopt the above stated strategic options. The key strategies including technological leadership, cost leadership, pricing strategy, market diversification, product differentiation, and customer relationship management should be put in pace. By considering the above discussed strategic options, BMW will be able to realize its growth and profit maximization objectives.

References

Barney, J. B., and Hesterly, W S 2009, Strategic Management and Competive Advantage: Concepts and Cases, Prentice Hall, New York.

Besanko, D. et al 2004, The Economics of Strategy, John Wiley & Sons, New York.

Bradley, F. 2005, International Marketing Strategy, Pearson Education Ltd, New York.

Clegg, S. et al 2005, Managing and Organizations, Sage, London.

Copper, I. 2008, “”, Wealthy daily. Web.

Ferrell, O. and Hartline, M. 2010, Marketing Strategy, South-West College Publishers, New York.

Gerry, J. et al 2008, Exploring Corporate Strategy, Pearson Education, New York.

Hejiden, K. 2006, Scenario: The art of Strategic conversation. International studies of management and Organization, Wiley & Sons Press, New York.

Hill, T. 2008, “The new change in automobile industry,” The Washington, vol. 2 no. 3, pp. 30-35.

Hitt, M. et al 2009, Strategic Management: Competitiveness and Globalization: cases, Routledge, London.

Kaynak, E. 2003, The Global Business: Four Key Marketing Strategies, Routledge, New York.

Martin, T. 2010, Strategic Management, Prentice Hall, New York.

Mintzberg, et al 2005, Strategic Safari-A Guided Tour through the Wilds of Strategic Management, Free Press, New York.

Muller, S & Lecher, T 2005, Strategic Management, Routledge, London.

Paley, N. 2006, The Manger’s Guide to Competitive Marketing Strategies, Thorogood, London.

Palmer, I. and Hardy, C 2000, Thinking about Management, Sage, London.

Pettigrew, T. and Whittington, T. 2002, Handbook of Strategy and Management, Sage, London.

Porter, M. 1985, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York.

Ranchhod, A. and Gurau, C. 2007, Marketing Strategies: A Contemporary Approach, Prentice Hall, London.

RanChhod, A. et al 2004, Marketing Strategies: A Twenty-First Century Approach, Prentice Hall, London.

Sadler, P. & Craig, J. 2003, Strategic Management, Kogan Page, London.

Steinmann, T. & Schreyogg, T. 2005, Management, McGraw Hill, London.

Thomas, H. 2007, “An analysis of the environmental and competitive dynamics of management Education,” Journal of Management Development, Vol. 26 no. 1, pp. 9-21.

Timmers, P. 2008, “Creation of value chains,” Electronic Commerce, Vol. 1 no. 1, pp. 182-193.

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