1. Introducation
A business organization operates in order to achieve the strategic management objectives. These objectives are set on the basis of the internal and external business environment (Smith, 2016). For any business organization, domestic or international, the sociological changes, law and order, rules and regulation policies and rapid technological changes in the economy are significant as these can affect the market share, supply of resources, price, and profitability of the business. It is essential for the decision makers to have a crystal clear understanding of the competitive position of the business in the market. External environment of a business refers to those elements on which the organization has no control (Gupta, 2013). Analysis of external environment is essential as it helps the company to make decisions based on the economic, political, technological, legal and social conditions of the economies in which the company operates. In this assignment the external environment of BMW is going to be analyzed (Gupta, 2013).
The BMW Group has BMW, MINI and Rolls-Royce Motor Cars, along with motorcycles, branded as Motorrad. The company has been a forerunner in the automobile industry by incorporating strategies and adapting innovation in order to reach the desired objectives (Bmwgroup.com, 2018). Mission Statement of the company states that the BMW aspires to be the leading organisation in providing premium services for individual mobility (Bmwgroup.com, 2018). Vision of BMW is to create a personal vehicle, with a highly emotional relationship between the driver and BMW. The brand emphasizes on providing sheer driving pleasure always. It aims to deliver the best driving experience by implementing technological advancement and innovations and satisfy the driver’s range of expectations. The company operates in 14 countries and has around 30 production and assembly centers. Innovation plays an important role in the business model and is also the competitive strategy of the company (Bmwgroup.com, 2018). BMW holds the 9th position among the leading car manufacturers of the world with USD 111.23 billion revenue in the financial year 2017 (Statista.com, 2018). It has experienced a 26% growth in net profit in FY 2017 from global operations (Bmwgroup.com, 2018). However, the company experienced a marginally negative growth of 0.4% after a record of consecutive growth in the past 8 years. Denmark, turkey and Romania are fast growing markets, while Taiwan, Norway and Ireland exhibited a slower growth in 2017 (Focus2move.com, 2018).
BMW is one of the most technologically advanced automobile companies, offering luxury cars. The global automobile industry is facing challenges from technological advancements in smart technology and those that address the environmental issues, such as, reducing carbon emission and achieving fuel efficiency. Rapidly changing technology and growing demand for technologically advanced cars with fuel efficiency has been a challenge for the car company. Demand for self-driving cars and light cars are also high in the global market posing challenge for BMW (Mckinsey.com, 2018). Digital demand and integration of smart technology is a new feature demanded in the market. For example, there is demand for cars that has integrated smart technology, that is, a connection of the cars with the android and ios technology to make lives easier.
1.1 About the company
Being a multinational company, the exchange rates, business cycles, tax rules, economic conditions of the international market, the prices of crude oil and global economic growth and inflation rates are significant influencing factors of the BMW’s business (Šimorová & Repašová, 2012). For example, the GDP fluctuations in the EU would have a significant impact on the customer spending on luxury cars that is, when the GDP is higher, per capita GDP is higher too and people will spend more in purchasing luxury cars. Similarly, as the Euro has depreciated in the past few years, BMW has benefitted as it exports a big share of its production to the global market. On the other hand, rising inflation has influenced the company to raise its product prices (Healey, 2015). When the economy is going through expansion phase of the business cycle, people will have more disposable income, which would increase car sales, and the opposite happens during contraction phase. Tax rules in global market also include regulations on import tariff and quotas, which affects the BMW business by restricting its import in other countries with high import tariffs. Ups and downs in the global oil price and global economic growth affect the purchasing power of people and hence, the demand for luxury cars gets affected considerably. A lower oil price and expanding economy helps in increasing demand for luxury cars and benefits its sales.
BMW faces a tough and aggressive competition in the market for luxury cars. In this market, the competitive rivalry is considered to be very high as high cost of competition is involved. It faces challenges from domestic as well as international luxury car manufacturers, such as, Audi, Porsche, Toyota, Mercedes Benz and Honda. In the motorcycle production, the company faces rivalry from Ducati, Harley Davidson and Yamaha. New entrants in the market will also give competition to BMW. The company has gained competitive advantage in the market through innovations and product differentiations (Hwee, 2015). The competition is generated from the demand for fuel efficient and environment friendly cars at an affordable price from the niche players in the market applying traditional as well as non-traditional tactics, like non-price competition and innovations. For example, its non-traditional competitor Jaguar introduced XF that shook the sales of BMW 5 series. Mercedes beats BMW in the easy handling, performance and looks department (DeMattia, 2017).
With globalization in effect, the mobility of the skilled workers has increased rapidly and significantly. Implementation of more advanced technology and automation implies that the need for manual workers is reduced along with labor cost, however, the industry required more technologically skilled workers. With the improved level of education, number of skilled workers is increasing, but at the same time labor mobility has been increasing too (Wright, 2017). This increases the scarcity of skilled workers, even if there is increase in the number of skilled workers and also makes the employees less loyal to any company. This also results in higher cost for the skilled workers. BMW, like any other corporate giant, employ many contract labors to save the labor cost and employee benefit costs.
2. External Environment Analysis
The global automobile industry demands for highly specialized resources, especially for manufacturing luxury cars, such as, highly advanced mechanical parts of the vehicles, such as, engines, tires, and equipments that provide sustainability. However, due to sustainability issue, the important and essential resources are getting scarce along with increasing demand for specialized resources. These resources help the company to create its strategic capabilities to survive against the odds in the business. The resources are categorized into two sections, tangible and intangible. Plant, tools and equipment, people and financial capital are termed as the tangible resources and the reputation of the company and knowledge of the experienced employees are intangible resources. The threshold resources of BMW are the integrated supply chain, widely spread production and assembly units, and the young and efficient employees. Engineering excellence and highly skilled labor force are the unique resources of BMW that help it to face the challenges of procuring specialized resources (Kapferer & Bastien, 2012). However, achieving and maintaining the sustainability standards by the suppliers is often a challenge for BMW, especially when expanding its business in a new location.
BMW offers an exclusive product range, that is, luxury cars of all sizes along with the motorcycles. It caters to very niche and high demanding customers across the globe. The markets are narrowly segmented as not many people in the society can purchase a luxury car, and hence, they have a high bargaining power in every country. The global customer environment is divided into many segments, narrowly fragmented with very specific demands. The demands from these segments are very high and specific to attain life time value for money from the cars. There is also rising awareness among the customers on environment friendly cars and digitalized cars, which affects the demand and sales of the car manufacturers (Ey.com, 2016).
Since, BMW is a multinational company, it must have compliance with the legal and regulatory policies of the countries, where it operates and sells its cars. The company must follow the business norms and policies of the EU and the USA markets, set by the federal government. For example, BMW and all other car companies must follow the strict regulations and norms regarding pollution reduction in the markets of the USA and the EU (Fagnant & Kockelman, 2015). At the same time, the legal norms are quite different in the developing and less developed countries. Along with it, there are compliance cost of environmental regulations, compliances with free and fair trade and labor protection laws in every country in which BMW operates and where it wants to expand. All these regulations must be obliged by the company to operate lawfully.
As per the annual report of BMW for 2017, the production network of the BMW group exists in 31 locations in 14 countries across the world. It has global sales network in more than 140 countries. However, real time communication and decision making process regarding production, distribution and promotion across different time zones is quite a significant issue in the global operational environment, which includes supply chain management, production and global distribution, global markets, global competitors, and interntional strategic alliances in the political and economic environment. The source of supply becomes variable, leading to the risk of different quality materials in different locations. The nature of demand of the customers are also diverse in different regions. To gain competitive advantage in the global automibile market, BMW must meet the rising demand for technologically advanced fuel efficent and digitalized cars through innovations, and to introduce cars suitable for specific markets, like in the developing economies (Ey.com, 2016). Pricing policy is a challenge for the company and to gain competitive advantage, it must reduce its price and take the strategy of cost leadership. Although, BMW maintains its quality standard in every market across the world, it faces challenge in meeting the demands of the market of the less developed nations.
2.1 Technological Environment
From the above analysis of the external environment of BMW, some of the major opportunities and threats for the company can be derived. An opportunity refers to the favourable business situation for a company. Following are the opportunities for BMW for expanding their businesses.
- Rise in the number of sales despite global economic fluctuations.
- Application of advanced technology and innovations for improved fuel efficient cars
- Growing popularity in the emerging and developing markets, such as, China, India and other Asian countries
- Growing product diversification for launching in markets with different demands
Being a multinational brand, BMW has the opportunity to explore into many new markets and could introduce many new models suitable to the social and economic conditions of the specific markets. For example, depending on the economy and infrastructure, the company could launch diesel versions of some cars. This would help in increasing the sales and profit of BMW. The rising prices of crude oil in the global market open up opportunity for introducing fuel efficient and environment friendly cars. The customers’ awareness about greenhouse gases and their impact on the environment creates opportunities for innovations for BMW. In every new and existing market, BMW gets the scope for providing cars that have smart technology and this would help the company to increase its market share. At the same time, by utilizing its economy of scale, BMW could also go for acquisition in the new and expanding market, as it did with Rover and enjoy a larger market.
As there are opportunities, BMW also faces some threats while expanding and growing its business. A threat refers to the unfavorable situation for a business. Some of the major threats are as follows.
- High level of competition in the luxury car market from existing rivals
- Global economic downturn
- Increasing crude oil prices
- Increasing supply cost of raw materials, such as, steel, leading to rising cost of products
- Scarcity of resources, compliance cost to environmental policies, labor cost
- Rising global inflation
BMW faces tough competitions from its direct rivals and hence, sometimes has to compete on price rather than product differentiation or non-price competition. It is also found that in the developed economies, the luxury car market is almost saturated and hence, the competition is more intense. On the other hand, in the developing economies, there is more demand for compact and fuel efficient cars, than for the luxury cars. This creates a challenge for BMW trying to break-through the developing and emerging markets. The rising oil prices are creating a major challenge to the company, which results in an increase in the demand for diesel cars, electric cars and hybrid cars. Thus, the existing compact and economy automobile companies pose major threats to BMW. The fluctuations in the exchange rates are also a big challenge for BMW while exporting its cars in the global market.
Conclusion:
From the above analysis of the external environment of BMW and its discussion, it can be found that, BMW faces quite a few opportunities as well as threats while expanding its business. Firstly, the company should focus on applying its strength in a more detailed manner, that is, the advanced technology should be utilized in a maximum manner to bring innovations in the products. For example, integration of android or ios technology with the cars is one of the big revolutions in the car technology that BMW has introduced in BMW i Range cars. It should implement its high quality engineering in launching cars suitable for the emerging markets, like the BRIC countries, that is, Brazil, Russia, India and China, with diesel cars, and economy compact cars. To overcome the threat of economic downturn and rising oil prices, BMW should utilize its resources to develop fuel efficient hybrid and electric cars.
Since, the competition in the luxury car market is quite intense and the market in the developed countries is almost saturated, BMW should utilize its opportunities of expansion in the emerging markets and this requires innovation. The company should exploit its competitive advantages and core competencies to enter into new markets, rather than investing in the existing developed markets.
Reference:
Bmwgroup.com. (2018). Company. Retrieved from https://www.bmwgroup.com/en/company.html
DeMattia, N. (2017). Which BMW competitor is the toughest at the moment?. Retrieved from https://www.bmwblog.com/2017/07/17/bmw-competitor-toughest-moment/
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Statista.com. (2018). Revenue of the leading car manufacturers 2017 (In billion USD)| Statistic. Retrieved from https://www.statista.com/statistics/232958/revenue-of-the-leading-car-manufacturers-worldwide/
Williams, R. (2015). BMW’s in-car technology powers the ‘smart’ revolution. Retrieved from https://www.telegraph.co.uk/sponsored/technology/technology-trends/12056825/in-car-technology.html
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