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Transcript of Report2 (2)
8/7/2019 Report2 (2)
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During the last years there have been several changes in the automobile
industry, mainly due to the effects of the global economic crisis that started in
2008, which affected the whole industry and required companies to implementcreative marketing strategies. This crisis affected the total sales of vehicles in
2009, hiting especially hard the US automakers. On the other hand the number of
vehicles sold in China rose from 8.6 million to 12.6 million; replacing the US as the
largest market. The 2003-2008 energy crisis that has produced a substantial increase in
the prices of automotive fuels. As a result, the automobile industry needs to adapt to
more fuel efficient models that attract more customers.
The size of some Asian car manufacturers, such as Toyota, Honda and
Nissan, can be already compared to that of the Big Three (General Motors, Ford and
Chrysler) that are losing their dominant position fastly. The predominance of Japanesehybrid cars in the market, and the growth of the Chinese and the Indian markets are
changing the rules of the game. European and American automakers are paying close
attention to the developments in Asia, while at the same time Chinese and Indian
automobile manufacters are increasing their activities in their home markets as well as
in the international markets, producing low-cost cars²about 2.750 USD.
CO2 emissions (24-28 pounds per gallon consumed) are becaming of a higher
concern for a big part of the population. Therefore, governments are incresing the
environmental protections due to the so called ³Global Warming.´ This situation is
driving towards more fuel efficient cars, which are able to circulate longer distanceswith a lower consume and less CO2 emissions. Innovation towards fuel
efficient, electric and other types of ³green´ cars is becaming of a greater importance
for all automobile manufacturers.
BMW was founded in Munich, Germany in 1916. Although originally it
produced aircraft engines, right now the company focuses on the production of cars 2
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BMW should now focus on two strategies that will help them become a
stronger company in the near future. Following a strong and well developed strategy
in Asia will help the company in its internationalization. The important role of the
Asian market during the next decades might help BMW to grow. However, it is
obvious that the company will face fierce competition in this markets, which makes
some important the analysis of the opportunities and threats that surround an Asian
strategy.
On the other hand, BMW should also continue following its innovation
strategy and looking for new and strong Research & Development synergies with its
suppliers. Technological development through the already exiting Efficient Dynamics
Strategy and Connected Drive Strategy will reinforce the innovative position of
BMW. Finally, achieving a sustainable production will also help strengthening BMWs
financial position by reducing production costs.
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Currently, BMWs innovation strategy is well defined according to the
companys vision and mission. The Global Research and Innovation Network
established by BMW, with 11 centers in 5 different countries, helps the development
of new technological improvements in different fields of the automotive industry.
This network has already provided around 13.000 patents and thousands of other
designs in a single year. The achievements of this network will probably help BMW
improve the benefits in different aspects, such as customers or implementation. At
the same time this innovation network is advantageous for the Development Centers
because it enhances the communication between them and allow improvements in
one center to be applied for a different technology by a different center. BMW is also
trying to find new R&D synergies by developing projects together withsuppliers, universities and independent research institutes.
Two of the current innovation strategies adopted by BMW are producing great
results. The focus of the Connected Drive strategy is to improve the interaction
between the car, the driver and the environment. The enhancement of safety
features is a key aspect of this strategy. On the other hand, the Efficiency Dynamics
strategy focuses on the adaptation of BMW cars to the new energetic trends and
environmental policies. BMWs investment on R&D is substantial if compared with
other large German automakers.
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�Laws and regulations had affected the automobile industry since its outburst. These
laws generally revolved around the environmental norms that were to be fulfilled by
any car industry. Thus the car manufacturers had to take care of the environmentalissues during manufacturing of cars.
�Taxes and government foreign policies are critical for the automobile industry. The
foreign polices help us to decide the probability of success in the global market.
�Surplus capital and buying power in the developing economies like India and China
and their personal emergence in the Global market-place.
�Environmental issues and awareness of the harmful emissions through automobiles
�Use of new and sophisticated design to overcome the decreased margins in the
industry
�Shift in consumer¶s tastes and preferences towards use of more eco-friendly
cars, hybrid cars, fuel cell cars etc.
�In industries that are capital or research or advertising intensive, efficiency requires
large-scale operation. The problem for new entrants is that they are faced with the
choice of either entering on a small scale and accepting high unit costs, or entering on
a large scale and running the risk of underutilized capacity while they build up sales
volume.
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� The threat of entry rather than actual entry may be sufficient to ensure that
established firms constrain their prices to the competitive level.
� Barriers to entry also depend on the entrants¶ expectations as to possible retaliationby established firms. Retaliation against a new entrant may take the form of
aggressive price-cutting, increased advertising, sales promotion, or litigation.
� Seller concentration refers to the number and size distribution of firms competing
within a market. It is most commonly measured by the concentration ratio: the
combined market share of the leading producers.
� Low cost products of its competitors
� Experience must prove to the key asset of control costs and attaining cost efficiency.
Through experience the firm should generate competitive advantage through the
collective understanding attained by the firm and its unit costs.� Stern application of the EURO norms set up to curb pollution in developing
countries.
� The greater the importance of an item as a proportion of total cost, the more
sensitive buyers will be about the price they pay.
� Whereas lack of brand awareness among consumers acts as a barrier to entry to new
suppliers of consumer goods, a more immediate barrier for the new company is likely
to be gaining distribution.
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� The more similar the offerings among rival firms, the more willing customers are to
substitute and the greater the incentive for firms to cut prices to increase sales.
� In an industry where products are differentiated, established firms possess theadvantages of brand recognition and customer loyalty.
� Change in customer tastes and preferences
� 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
(Rising supply costs).
� The bargaining power of buyers is high because the consumers can decide the
product according to the price range and buy the products accordingly. Also with
environmental issues hovering over the industry the buyers have the last say with
ample substitutes available.� The bargaining power of suppliers is high in this industry as the suppliers can
dedicate the price tag for the raw materials. Though long time associations with
suppliers can prove fruitful, the final word lies more or less with the suppliers.
� The less differentiated the products of the supplying industry, the more willing the
buyer is to switch suppliers on the basis of price.
� Strict implications of the EURO norms in developing countries e.g. formation of
BHARAT norms on the lines of EURO norms in India
� The price customers are willing to pay for a product depends, in part, on the
availability of substitute products.
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Key Success Factors is the term for an element that is necessary for an organization or
project to achieve its mission. It is a critical factor or activity required for ensuring the
success of a company or an organization. In Case of BMW the above 10 are the keysuccess factors. We are comparing it with the DJSI Sector average and the Best
company on the global basis.
These Key Success Factors can be divided into 3 main groups
1. Economic Dimension
2. Environmental Dimension
3. Social Dimension
Economic Dimension : In economic dimension there are 3 key factors which have an
impact on the performance of the company which includes brand managementwhich BMW has maintained well over the years which is quiet close to the best
companies performance. BMW is the top performer and is at the same range
while comparing Corporate governance and Risk & crisis management. Which
tells us that the company is pretty good in risk management and corporate
governance which is a good indicator for and organizations sustainability. In terms
of Brand Management BMW scores 8.5 as compared to the best company value
at 10. BMW is the leading performer in corporate governance which is equal with
the Best in business at 8.9. BMW was able to survive the recession quiet well as
compared to other brands and that is why it is rated high in risk and crisis
management.
Environmental Dimension : The company has been able to surpass its peers by
exhibiting unparallel commitment to environmental issues. BMW strives to conserve
environmental resources throughout its value chain from production systems to 10
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To all the Key Success Factors discussed in the previous slide the VRIO
framework is applied. The VRIO framework is applied to define which KSFs create
competitive potential.
Value
All the Key Success Factors bring value to the company. Some of these KSFs
are valuable, but are not a rarity in the industry. Most automotive companies focus
on the climate and low carbon strategy. Think about the current trend of investing in
hybrid vehicles, fuel efficiency, Stake holder engagement is of every companys
concern as is talent attraction and retention and corporate governance, so these
valuable factors are certainly not rare.
Rarity
BMWs brand awareness is significant and rare to imitate. BMW focuses its
brand mainly on the great driving experience a BMW offers. They are very good at
passing on this message, as against to their competitors. It is very clear what BMW
stands for. Risk & Crisis management is a rare KSF, because BMW outperformed its
competitors when the world economic crisis hit. Operational efficiency in BMW is
highly influenced by the flexible production system. This system is very particular to
BMW. BMW puts a lot of effort in developing its human capital, though it is not
considered a KSF that is not imitable by other companies without some effort. BMW
invests a lot in its relations with suppliers to pave its way to innovation. This practice
is particularly important to BMW because of its huge focus on quality products.
Imitability
Building a brand like BMWs is difficult, it takes a lot of effort and time. 11
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During the next years, the automotive industry will center its R&D efforts on
developing more environmentally friendly vehicles. These companies should do this
in order to comply with new regulations and to be able to follow society trends.Furthermore, the demand that the emerging market will pose over the industry
during the next years will need to be addressed. This pressure will have its origin in
the rapid growth of the middle and upper classes in these countries. In addition, the
fast growth in number of Free Trade areas will help the industry to access different
markets in shorter period of time.
Regarding BMW, the company should try to vertically integrate its supply
chain. BMWs standards and needs will be better fulfilled if the company has a higher
control over the supply activities, reducing the power of suppliers. Moreover, BMWshould continue its innovative path and develop highly efficient electric cars that will
help the company to succeed in the competitive automotive market. There are also
several other technological improvements that can be further explored and where
BMW needs to be the leader, such as the Automated Highway System.
BMW should continue its innovation strategy in order to develop new
alternatives that will help the companys growth. On the other hand, the company
can try to develop new alliances with other automakers that can help BMW to further
develop new solutions and products.
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