Simi Final Assognment 1

8/8/2019 Simi Final Assognment 1

1/29


2/29


3/29

Executive Summary:

The word "car" has its exclusive identity. Automobiles run an important role in shaping the

daily life and are regarded as a status sign even in this modern development. The

development process of automobiles is a history itself. With technological progress, cars

designs and products are specialized and have acquired a respectable place in today market.

This assignment turns round the BMW Group leading European car makers and their

three prepositions. Increase the output of production, the production of smaller cars and

maintenance of quality. BMW is famous automobile manufacturer was retained in the fully

grown phase of their life cycle. The industry required strategic implications of adjustments to

the race. The automotive industry was tired economic growth, with geopolitical problems that

impact the industry growth globally. This statement will cover:

Companies macro-and micro-external environment that profile the competitiveposition and bring the key tools of change i-e

Company organizational strengths and weaknesses, and the analysis of its

resources and capabilities that will focus on the critical factors of success.

what will be the reasons that can downfall the company shares in market?

what will efforts need to cause factors, the advice of downfall of the company

etc?


4/29

Environmental Analysis:

The PESTEL structure:

The PESTEL analysis is a tool to measure the external environment in which a company

operates. The factors stand for the political, economic, social and technological which can

influence the strategic development of a company.

Political factors:

Political factors are those government laws and regulations, security measures and

restrictions that can apply to the industry as a whole. That can be:

These laws and regulations generally fulfilled by any car industry. So the manufacturer

produces of cars will care the environmental issues.

Taxes and government foreign policies are very serious for the car organizations. The foreign

polices is a measurement for success in the global market i-e the introduction of new schemes

of cars in the US and Europe wherein regulations were they focus to produce high mileage

cars along with increase in automobile sales and production (The Washington post 2009).

Economic factors:

The exchange rates, economic growth, Monetary policy overall by industry are the economic

factors. The cars making has produced surplus capacity, which created high amount of

revenue in marketing and new product designs. The revenue has so high, but the supply was

greater than demand e.g. the British car market had 80% excess capacity in 2003, 1.3 billion

euros, the freeze of the automotive industry (Automobile Facts, 2004).

The total increase in world GDP of 2.05% to 3.14% in 2008 (Statistics, 2009), reduction of

the exchange rate of the euro has troubled the European car manufacturer in a big way (Allen,


5/29

2006)

Economic depression in the U.S. market (http://www.cen.eu, 2008)

Emerging economies of excess capital and purchasing power in like India and China where

they appeared with personal appearance in the global market.

Social factors:

The changes in demographics and cultures around the world i-e income distribution,

Demographics, Labours/ Social mobility etc.

So the changes in the purchasing power consumer, Social factors are affecting the automotive

industry are e.g. changes in customer preference from the luxury car to the low emission cars

cause by fuel efficiency. Change in consumers choices due to recession in markets.

Technological factors:

New discoveries and development, Speed of technology transfer, Rates of technological

obsolescence are the main cause of competitive advantage. The use of new and stylish design

reduced the margins in the industry. So changes in technology are the symbol of pollution.

Environmental factors:

The greenhouse effects, increasing effects of global warming are the main effects which

influence the industry.

Changes in consumers tastes, preferences towards the use of environmentally friend cars,

hybrid vehicles, fuel cell cars etc.


6/29

Legal factors:

Recently the developed countries stared stem application to reduce pollution in the

developing countries. Strict impact of the Euro standards in developing countries such as

formation of India norms on the lines of the Euro standards in India (the European

Committee of Standardization: http://www.cen.eu)

The BMW industry structure and competitive Environment

Porters Five Force

Defining an industry

An industry is a group of multiple companies, so there marketing products are close

substitute for each other (e.g. automotive industry, the travel industry, mobile industry, TV

industry etc).So there are some industries are week and some are more profitable. Thus here

the question arises that why some are more profitable? But if we will study the dynamic

structure of competition in an industry, then we will answer the above question.

The more useful most analytical model for measuring the nature of competition in an industry

is Michael Porter's Five Forces model, described in the following:

Porter explains that there are five forces that determine industry attractiveness and long term

profitability of the industry. These five "competitive forces" are


7/29

Barriers to enter or threat of new entrants:

If new organization is entering into the industry the existing industry faces the challenges of

entering the industry or entry barriers facing. The threat of new entrants in this case wants

large capital cost, to compete in the automotive industry. It will take long time to get a place

and reputation in the minds of consumers.

Threat of substitutes:

There are many substitutes for BMW such as Mercedes positioned GM and Toyota. Thus, the

threat of substitutes for BMW is high because the image of BMW is powerful and luxury. So

due to the qualities it is more expensive.

Bargaining power of buyers:

Here is the bargaining power of buyers is high because the consumers are kings and they will

concentrate over efficiency, price, quality to decide. Due to the environmental issues on the

industry, buyers have the last word with sufficient substitutes are available.

Rivalry of

competitions

Bargaining power of

supplier

Bargaining power of

buyer

Threats of entry Threats of substitute


8/29

Bargaining power of suppliers:

BMW has long relationship with suppliers. The producing industry requires raw materials -

labor, components, and other supplies. If the suppliers are powerful, then they can apply an

influence on the producing industry, such as the selling of raw materials at a high price to

gain some of the industry's profits. The given tables show some factors about supplier power.

Rivalry competition:

The BMW has direct competition for its products, so this purposes it implies market

segmentation to give more concentration to target market. Rivalry competition in the industry

Highly available in developed countries e.g. American and European markets are strongly

competing with the Asian market.

Markets and Market Segmentation:

The price segmentation BMW chooses his target market boundaries for people with higher

incomes. The segmentation requires training income individuals and professionals.

BMW targets rich men and women aged between twenty-five and forty. So the luxury

market, men's control over his cuts, the target audience for BMW to both sexes. The survey

results show that the BMW message is reaching their target audience. More than two thirds

BMW recalls as a luxury car. BMW produces models for the internal market as well as

models for families. The collection of data shows the attributes, the associations in

connection with the singles market too far weaker than the focus on the family.

Our survey yielded a value of 4.1 and 4.6 (maximum possible 5) when the participants were

asked to show an agreement with the words "Prestige Car" and "status symbol" to reach in

any case. In the BMW target market, there were some groups who have no interest to BMW,

that were the people who have completed college or move and have more responsibility.


9/29

Positioning:

The BMW brand is positioned (relative to the competition) the price. The best price and high

quality is the guarantee for the consumer in the development, the success can be displayed in

a visible way for social approval. The car looks like its ability to operate and BMW combined

advertised image differs from its competitors. It is positioned to consumers in more than an

ordinary car to raise money to promote their interests.

Key drivers of change:

From analysis and PESTEL the five force analysis and Market Segmentation are the main

drivers of change:

Huge provision of infrastructure and human resources on automotive industry after the

dawn of World War II concentrated.

Consumer preferences for outstanding product quality and cost of ownership.

Use of design as a trump card.

Technological progress.

Environment.

The implication of brand management to increase rather than exceptional product quality.

The price segmentation for BMW to chooses his target market boundaries.

Resources and Capabilities:

Resources:

Any organization or company and must have certain resources and skills to endure and thrive

worldwide. The resources consist of -


10/29

Material resources emphasize the physical body such as plants, people and funding of the

organization

Intangible resources emphasize non-physical street furniture such as information,

knowledge and reputation (Gerry Johnson, Kevan Scholes, Richard Whittington, 2008)

Resource based analysis of BMW:

RESOURCES CATEGORIES BMW RESOURCES

PHYSICAL RESOURCES BMWs technology, conventionally designed

and styled, effective segmentation according to

the market, supply chain and dealership

management

HUMAN RESOURCES Highly qualified labour force, Young and

affluent professionals

INTELLECTUAL CAPITAL Reputation for engineering excellence, brand

identity of being powerful , reliable and

luxurious, 1105.3 deliveries in 2003, sales of

277045 in 2003


11/29

Strategic capability of BMW:

CATEGORIES BMW RESOURCES

THRESHOLD COMPETENCIES Quality, reliability, dealings and relationship

with supplier

THRESHOLD RESOURCES Integrated supply chain, young and well heeled

employees, wide spread production and

assembly units

CORE COMPETENCIES Technology, speed of production, the ultimate

driving machine


12/29

Sources of cost efficiency:

Economies of scale:

Economies of scale play an important role in manufacturing facilities or businesses as they

need it to recover the high investment costs due to high production volumes.

BMW achieves economies of scale by increasing production capacity. BMW had the

capability of its operations for 60 hours per week during the swing phase slack demand and

whooping 140 hours a week, when the demand on the peak. BMW had produced an

impressive 1.1 million cars in 2003 (Gerry Johnson, Kevan Scholes, Richard Whittington,

2008), thus demonstrating to scale economies to the world with our facilities gel.

Economies of scale

Product/Process

design

Experience

Supply chain

Cost

Efficiency


13/29

Supply costs:

Supply costs play an important role and can influence the firm in the bigger way. Supply

costs revolves around the raw material supply, production units efficiency etc. BMW

manages its supply costs by setting up manufacturing units at various locations around the

globe, namely Germany, USA, South Africa, Britain and China, where it employs 104,000

workers. Supply costs can prove to be an important asset where input cost prove to be

critically important for success (G. Johnson, K. Scholes, Richard Whittington, 2007)

This ensures that the cost of supply of modules reduces operating flexibility and reducing the

transport costs of raw materials.

Experience:

Experience must demonstrate the key asset control costs and achieve cost efficiency. Through

the experience of the company should generate competitive advantage achieved through the

collective understanding of the company and its unit costs.

The unit cost of the BMW will decrease due to the accumulated profits of experience (Gerry

Johnson, Kevan Scholes, Richard Whittington, 2008). BMW has been in the automotive

industry since the dawn of the Second World War. With increase in the number of units

produced per year with the setup of the new assembly, it requires a continuous reduction of

costs happen in the competition. This may not have the necessary competitive edge, but its

proving to be a threshold ability to survive.

Product / Process Design:

Product / process design is also a major cost driver. Product design can land improvement in

labour productivity, improved yield and maximum utilization of working capital to help.

Product design can also be used to gain competitive advantages over competitors with simple

use of marketing intelligence.

BMW was to be the best when it came to product / process design and has been tipped as an


14/29

engineering excellence. It was very reliable, influential and wasteful. BMW also has new and

modern technology for their products so that maximum utilization of working capital

available.

VALUE NETWORK OF BMW:

Location 1

(Assembler)

Core location

(Assembler)

Location 2

(Assembler)

Organizations

Value Chain

Location

Price

Design

Product design

and price

according to

the location

Price variationdependent on

the product

specifications

Range ofproducts and

designs

Suppliers

Suppliers

Suppliers

Suppliers

Suppliers

Suppliers

Channel

value chain

Customer

value chain


15/29

It is difficult for an organization, to evaluate the value of all activities and the product to the

delivery of the finished product or service to the customer. But it can be possible by Value

Network Analysis. An inter-organizational process is proving to be a product or a service

(Timmers, 2008 to create.

BMW has required different mounting locations and the production of units with each unit

with its own suppliers of raw materials to create a product. Also, there is an internal value

chain of the Assembly in the liner. The finished product will reply to the suppliers and

collectively, there is reason to organizations or the firm's own value chain. The organization

has its own channel value chain. The channel value chain for BMW is divided on the basis of

design, price and location. BMW offers its potential customers products ranging from a

"Mini" on the higher end, "Rolls Royce". These products are priced differently and

segmented effectively in response to the target market. BMW seeks also price differences by

the location it is in. For example, BMW priced at a slight lower side in Asian markets, such

as comparing the British and U.S. market. The consumer value chain in the channel value

chain offered by BMW is based namely design , location and price.

Strategic Drift

Drift is trying to go one direction but not to do. In some cases it could be good but may be

bad. Strategic drift is when a company that changes in harmony with the environment,

however, incremental development has not been working, but there is a strong influence of

cultural and historical factors.


16/29


17/29

(Gerry Johnson, Kevan Scholes, Richard Whittington, 2008)

The effects of the five forces analysis varies with the industry life cycle. The elements

underline the industry life cycle development, growth, shake-out phase, and maturity and

decline stage. During the initial phase of the company, the development phase with high

differentiation and innovation as their wealth through the growth stage, where following the

company experiences high growth with low bargaining power of buyers and less threat of

new entrants. In the shake-out phase, the growth is slower and the main assets of the

company are the administrative and financial activities. In the maturity phase, the growth is

almost stagnant with high entry barriers, high competition, but less unit costs and higher

market share. Finally, in the decline stage of the company probably extreme.

Rivalry with the rational and emotional approach key to the company will face.

BMW was in the mature stage of industry life cycle. The growth of the BMW stagnated but

its standardized products such as the 1, 3, and 5, 7-series with enormous market share and

brand identity in mature and developing markets. There were high barriers to entry compared

with BMW. But BMW has had a considerable market share and a reputation as an

engineering excellence, an asset of BMW in the mature phase.

Cycle of the contest:

BMW's competitive advantage lies in the integrated processes and their designs. The use of

scientific technologies, the BMW back on in order to gain greater economies of scale are

realized. In terms of competition BMW Lexus, Mercedes, Toyota, GM, Volvo Group, etc.,

has as its competitors in the automotive industry. BMW has its range from a Mini to a Rolls

Royce. Thus, his products range from the luxury segment to a premium segment in the auto

industry.


18/29


19/29

Diversification

Diversification is the name of the growth strategy where a company markets new products in

new markets.

If BMW wants to install its industry in new country like INDIA. It will face the following

problem.

Selling the product to different people.

Entering new markets or segments with existing product.

Gaining new customers, new segments, and new markets.

Geographical problems.

Market development will require changing overall strategy of market e.g. new distribution.

Channels, different pricing policy, the promotion strategy to attract different types of

costumers.

The Indian people are nationalist and there per capita income is also low.

So here the BMW will change its mission totally i-e to remove luxury label, to produce cheap

cars, to bring technological changes, to reduce the cost of fuel.

The INDIA custom impact will be occurred in the market so the competitive of rivalry will be

very high for BMW.

If BMW wants to Target the Market Segments policy which is mentioned above.

On the base of following strategies i-e

Niche Market:

The targeting one or two segments that are specialized and can offer high levels of quality to

customers. A company may do this to differentiate themselves from other companies within a

similar industry to avoid competition.

But here the BMW will never use this formula, because this strategy can give useful result in


20/29

developed countries but not in developing countries like India .

Mass Market:

There are two ways to apply this strategy.

i. Creating one product to serve to the masses, which requires high resources.

ii. Hit all segments with differing products, which requires a different product and marketing

plan for each segment, which will take up a lot of time and other resources such as manpower

and money. I think that this is possible for BMW, because it has a lot of money for survive.

Growth Market

A segment based on high growth and nothing else. This will require a lot of research and

development and the ability to invest large sums of money into developing the product.

The BMW will therefore concentrate overmarket mix, especially at promotion.

Which is based on:

Advertising - Paid forms of communication: radio, television, print, representing an

identified company's.

Personal Selling - When a person is selling a product in person. In other words, one-on-one.

Sales Promotion - Mostly a short-term solution to sales. When there is an incentive to make

a purchase.

Public Relations - Creating a positive relationship with the public through placing the

product in a positive situation in the media.

Thus, different forms of promotional mixes were used based on business-to-business (B-2-B),

i.e. trade between commercial organizations and business-to-consumer (B-2-C) trade between


21/29

businesses and customers.

Here another problem will rise that BMW will purchases the assets and the majority

ownership of other industry, so in business terminology its called Acquisition. According to

David Harding that the acquisition is evil for the market share of an industry. So the problem

will arise for BMW.

If the primary determinant of the company's profitability is the attractiveness of the sector in

which it operates, secondary, one important determinant is its position within the industry.

Even though an industry may have below-average profitability, a firm that is optimally

positioned can generate superior returns.

A firm positions itself by leveraging its strengths.

For this purpose we will use Porters Generic Strategies.

Target Scope

Advantage

Low Cost Product Uniqueness

Broad

(Industry Wide)

Cost Leadership

StrategyDifferentiation

Strategy

Narrow(Market Segment)

FocusStrategy

(low cost)

FocusStrategy

(differentiation)


22/29

It gives three generic strategies result: (1) cost leadership, (2) differentiation and focus.

Cost Leadership Strategy

Also called the low cost producer in an industry for a certain level of quality. The company

sells its products either at average industry prices to earn a profit higher than those of their

rivals or below the average industry prices to gain market share.

Strategy of differentiation

A differentiation strategy requires the development of a product or service, the unique

properties that are valued by customers and that customers perceive to be better than others or

offering the products of the competition. The value added by the uniqueness of the product

may require the company to a higher price.

Focus Strategy

The focus strategy concentrates on a narrow segment, and attempts in this segment to reach

either a cost advantage or differentiation.

Combination of Generic Strategies

These generic strategies are not necessarily compatible. If a company tries to achieve an

advantage on all fronts, in this experiment, it has achieved no benefit at all. For example,

when BMW differentiates itself by supplying very high quality products, risks, unwilling that

the quality if it is to become a cost leader. Even if the quality would not suffer, the firm

would risk projecting a confusing image in market.


23/29

Resources

Characteristic

ofCompetencies

Cost Advantage

or

Differentiation Advantage

Value

Creation

Capabilities

The resources and Capabilities are discus in strategic position, while

The Cost advantage and differentiation Advantage is:

Competitive advantages through the use of resources and capabilities to achieve either

created a lower cost or a differentiated product. A company is positioned in the industry

through its choice of low cost or differentiation. This decision is a key part of the company's

competitive strategy.

SWOT analysis of BMW:

Strength:

BMW is a prestigious company with a high position in terms of branding and gratitude

factor.

BMW is in a position, its market position with its profitable hub of exclusive cars.

BMW was highly skilled workers (Gerry Johnson, Kevan Scholes, Richard Whittington,

2008), which could qualify as a source for obtaining competitive advantages,

BMW uses advanced technology for its products, made its products in design, quality and

price in attack


24/29

BMW had a strong relationship with its suppliers, BMW propagated to maintain a beefy

Supply Chain Management

Weakness:

BMW, the overall picture was too serious and conventional in comparison with its

competitors

Cost-effective products by competitors

Excessive dependence on U.S. and European market

Opportunities:

The increase in the number of sales despite economic downturn

use of advanced technologies for products

popularity in developing countries like India and China

flexibility in the development and production

Low interest rates

Threats:

Strong competition in the luxury segment of cars

Economic downturn

New entrants in the automotive industry

Increased fuel costs

Increasing supply costs such as steel


25/29

Critical success factor of BMW:

Cost of product prevention of price product quality experience Managerial

The above graphic is used to identify the critical success of the BMW. The y-axis represents

the value and the x-axis represents the elements of the critical success factor.

According to the graph are the critical success factors for BMW:

Product Quality.

Cost of the product, which guarantees that the product quality.

Experience.

The product quality is an inevitable and differentiator for customer satisfaction. The brand is

identified by its excellent product quality and cost of ownership. BMW has a status and it is

one of the critical success factors for BMW. Although the cost of the product, that is, BMW

automobiles high, it is obviously the reason for its product quality. The experience of BMW

in the industry is also a critical success factor for BMW. With his many years of experience

has developed a brand identity for its products and advanced integrated supply chain and that

V

A

L

U

E

CRITICAL SUCCESS


26/29

its products are safe, the right time delivered in the right place.

Key success of BMW:

The key factors for the success of BMW, which can be summarized as

Business Model by BMW

Technology

Brand Image

Sustainability

Helmut Panke, CEO of BMW

Factors lead to the ultimate demise of the company can:

Rising commodity prices and high fuel prices

Change in customer tastes and preferences

Acceptance of the scale

Extreme rivalry and price competition in the mature phase

stagnation of the art

Unfavourable foreign exchange effects

More stringent regulatory standards paves the way for alternatives such as hybrid vehicles,

fuel cell cars, electric cars etc.

Mobility emergent districts in urban areas

Probable strategies of BMW, diverting profits recover and endurance for the future will be

retained:

1st Market Development

2nd Market Penetration

3rd Product Development

4th Restructuring


27/29

5th Restriction

6th Liquidation

7th Vertical integration

This may contribute to a safer future and come to his BMW Bmw'ness years straight.

References:

Allen, T. (2006, October 17). From 7 June 2009, down from Euro-zone annual inflation up to 1.7%:

http://74.125.153.132/search?q=cache:1fhKosuEvHsJ:europa.eu/rapid/pressReleasesAction.do 3Freference


28/29

26format%%% 3DSTAT/06/137 3DPDF%%%% 3D1% 3Den% 26aged 26language 26guiLanguage 3Den% +

+ + + + average rate of inflation in the EU + + in 2006 & cd = 2 & hl = en & ct = clnk & gl =

Auto Facts. (2004). European car market.

CEN. (2006, March 2). India norms v / s Euro standards. From 18th September 2009, the European Committee

of Standardization: http://www.cen.eu

Copper, I. (2008, August 15). America in recession. From 21 September 2009, the rich daily:

http://www.wealthdaily.com

Gerry Johnson, Kevan Scholes, Richard Whittington. (2008). Exploring Corporate Strategy. Pearson Education.

Hejiden, K. (2006). Scenario: The art of strategic conversation. International studies of management and

organization.

Hill. (2008). The new changes in the automotive industry. The Wasignton post.

Organisation, W. H. (2008, July 12). Environmental pollution. From 22 September 2009, http://www.who.int by

World Health Organization:

Statistics, D. a. (2009, July 18). Data and statistics. From 20 September 2009, the World Bank:

http://web.worldbank.org

Thomas, H. (2007). An analysis of the environmental and competitive dynamics ofmanagement education.

Journal of Management Development vol. 26, 9-21.

Timmers, P. (2008). Creation of value ch

http://www.BMW.com.

http:/www.wikipedia.org


29/29

Simi Final Assognment 1

Documents

Transcript of Simi Final Assognment 1