International Business Strategy

Bavarian Motor Works

PROJECT
Group No. 3 Amish Agarwal (063005) Deepak Bhatt (063015) Naman Gupta (063027) Pushkal Arora (063038) Shikha Mittal (063048) Tarunjeet Singh (063058)

Table of Contents
Mission Statement ...................................................................................... 2 Vision Statement ......................................................................................... 2 Reason for Existence .................................................................................. 2 Goals .......................................................................................................... 3 Remote Environment .................................................................................. 3 Industrial Environment ................................................................................ 6 Operating Environment ............................................................................... 9 References .................................................. Error! Bookmark not defined.

Mission Statement
BMW Group is the world's leading provider of premium products and premium services for individual
(BMW Annual Report, 2011)

Complying with the mission statement, BMW only strives to sell premium priced cars and does not strive to compete in every segment of the auto industry. It avoids the high volume market of the middle of the road vehicles and focuses strictly on the luxury sector. This strategy has made BMW, despite its relatively small size, one of the worlds most profitable car makers.

Vision Statement
The vision statement of the BMW Group is to ensure that it is The leading provider of premium products and services relating to individual mobility
(BMW Annual Report, 2011)

The statement is not too ambitious as BMW has all the necessary resources to meet its vision. It is driven by the vision to offer the best premium products in the world. Apart from this, many things drive the vision for the future. This includes finding answers to the questions of tomorrow and acting with a foresight so as to shape the future right now. Also the responsibility of BMW towards its customers through pioneering products and services, towards the society and environment through the development of sustainable forms of mobility and towards its associates by offering them a safe and rewarding job sustains, moves and drives the BMW Group towards an exciting future.

Reason for Existence

Raison d'etre means the purpose that justifies a things existence. Before explaining the purpose of existence it is necessary to understand the target consumers. BMW vehicles sell well to consumers who have high standards for quality, luxury and performance because BMW builds those attributes into its automobiles. That is a broad classification which can be subdivided as: 1. a) Upper liberals- includes socially conscious, open-minded professionals often with families who were successful in the 90s. They were predominantly SUVs drivers. BMW added the X5 to appeal to this groups active lifestyle. 2. Post-moderns- are high-earning innovators like architects, entrepreneurs and artists. They are highly individualistic and gravitate toward head-turners like convertibles and roadsters.

3. Upper conservative- are wealthy, traditional thinkers. Theyve never been that interested in driving sporty cars like BMWs, and consider luxury and comfort over driving performance. They would normally purchase the Mercedes S-class and Jaguars as they strive for elegance and sophistication. To target this segment BMW -developed the Rolls Royce, Phantom, that is intended for the very wealthiest upper conservatives. 4. Modern mainstream-These are family-oriented and active and normally purchase the near premium brands like Honda or Volkswagen: BMWs were considered too expensive for them. But increasing numbers of them are looking to move up above the middle class and are open to luxury-brand cars. In 2001, BMW launched the new Mini, aimed at upper-middle-class buyers who were not quite affluent enough to buy a real BMW. Now to maintain its premium brand reputation among consumers it has never compromised on its quality and keep coming with innovation to woo customers loyalty. Also the level of comfort is quite unique and efficiency in performance level proves its worth. It has maintained its leadership brand positioning for many years. Its success is the result of a consistent strategy and is oriented towards meeting the needs of customer.

Goals
The set objectives for BMW are as follows: 1. Growth: This is achieved through acquisitions and mergers when the right opportunity presents itself. 2. Shaping the future: This is to be achieved through innovative product line and by focussing on quality. 3. Profitability: This is to be maintained through high sales volume and high pre-tax earnings for the group. 4. Access to technology and customers: Continuous investment in research and development and strengthening its dealership and retail network in order to meet customers demands. These goals have helped BMW to stay focussed on its long term goals charted till 2020. These are in synchronisation with the vision to provide premium quality to customers.

Remote Environment
The Remote Environment will consist of the PESTLE Analysis, which is as follows:

Political Germany has a robust democratic setup Elections are considered to be fair and transparent

 It benefits from being member of the EU ( major political and economic power) There is a political will to minimize ecological footprint Increasing international role within the EU and with US is to the advantage of Germany (major contributor to EU and UN) Tax regulations and rates viewed as one of the problematic factors for doing business in Germany (GCR, 2012) Rigid labor market laws leads to a lower efficiency in the German market Germany has not ratified the UN Convention against Corruption and has not implemented all of the recommendations of GRECO (Group of States against corruption) which gives a perception of corrupt political system in the country Increasing right-wing extremism in the country threatens the stable political system

Economic German Economy is 6th largest economy in the world in PPP terms and Europe's largest economy (CIA Factbook, 2011) There is a reduction in the fiscal deficit in line with the Euro convergence criteria Its economy remains stable despite the continued economic difficulties of Euro Zone The depreciation of Euro due to Euro Zone crisis against major currencies facilitates the German Exports Financing for companies is very cheap in Germany due to low interest rates during sovereign debt crisis It has a decreasing inflation rate to currently 2.1% It is an innovation driven economy (GCR, 2012) The country boasts of excellent infrastructure and facilities across all modes of transport Germany is the leading exporter of machinery, vehicles, chemicals, and household equipment making it a highly competitive country (CIA Factbook, 2011) There are prudent economic policies especially regarding lowering of corporate tax rates Euro Zone crisis threatens the stability of Germanys economy Rating agencies threaten to downgrade Germany due to the Euro Zone crisis Social Germany boasts of a high Human Development Index It has a high healthcare and education expenditure as a percentage of GDP Increasing labor productivity in the country augurs well for the economy The country lags in higher education and training compared to other developed economies Inadequately educated workforce is one of the problematic factors for doing business in the country Growing social divide between the rich and poor hampers social harmony Aging and decreasing population puts pressure on the resources of the country Problems related to ethnic discrimination also threats to disturb the social harmony

Technological German companies are among the most innovative in the world due to high spend on Research and Development (GCR, 2012) Very High competition in the domestic market and low market dominance by large companies Well-developed ability to absorb the latest technologies at the firm level (GCR, 2012) Government has introduced policies to improve Research and Development in high-tech industries Germany has a sophisticated technological infrastructure in production process and distributed channels to facilitate better utilization of resources Growing ICT(Information and Communications Technology) sector in Germany The country faces a shortage of skilled engineers and a decline in its technical workforce only adds to the existing problem of paucity of skilled labor Legal Germany boasts of an independent judicial system It has a comprehensive legal structure Germany is also known for strong business, investment and trade freedom The law in the country does not differentiate between foreigners and Germans with areas pertaining to investments or establishing companies The loopholes in the taxation system has led to a huge revenue loss for government Treaties with other tax havens (e.g. Cayman Islands) needed to overcome loopholes In addition to that there are cases of tax evasion by hiding money in Switzerland or Liechtenstein The tax evasion treaty with Switzerland is still pending Cuts in government subsidy in the renewable energy sector will affect the industry Environmental The country has a strong environmental record as compared to other developed countries There has been a fall in greenhouse gas emissions since 2008 In addition to that,CO2 emissions have been declining since 2006 There is an increased focus on renewable energy in the country The efforts to follow EU regulations has been reflected in emissions trading, sustainable transport policy etc. High level of air pollution in different cities is hampering the wellbeing of Germans The government has established green zones in urban areas to reduce air pollution in cities There is a likely increase in emission levels as Germany is phasing out the nuclear power plants

Industrial Environment
Industrial Environment will involve using Porters 5 Forces Model for assessing the attractiveness of the industry Industry: Luxury Cars

Threat of new entrants: [Very Low]

Bargaining power of Suppliers: [Moderate]

Rivalry Among Existing Players : [Very High]

Bargaining Power of Buyers: [Low]

Threat of substitutes and Prroducts or services : [ Moderate]

Threat of new Entrant: Barriers to Entry: (i) Supply side economies of scale: BMW started its mass production of luxury cars, and at the same time provides quality and customization. However as compared to other manufacturers of luxury cars, its supply side economies of scale are low. However it can pass higher cost to the customers (in form of premiums charged from them for customization). Demand Side Benefits of scale: BMW enjoys network effects. Buyers (or customers) value being in a network of people owning BMW, largely due its quality and brand image. This limits their willingness to buy from new entrants. Customer Switching Cost: Switching cost is medium for buyers in monetary terms. This is because luxury automobiles require special parts of the company (the automobile belongs to) and proper maintenance. The new entrant may not be able to provide the required post service standards.

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

Capital Requirements: The amount of capital (recoverable as these can be sold) required is large in terms of investments in machines and manufacturing processes. However the large non recoverable capital in terms of R&D for new innovations and developing new technologies, raise the entry barriers further. Incumbency advantage independent of size: BMW has number of advantages not available to entrants like, established brand identity, preferential access to best raw material sources (long term contract with best manufacturers, SCHULER for customized machines and other requirements etc) and cumulative experience which allows it to produce cars efficiently. Unequal Access to distribute channels: Distribution channels though being capital intensive (new entrants might have to set their own stores etc.) possess low entry barriers to the new entrants. Restrictive Government policies: There are no such government policies that restrict or encourage automobile sector as such. However certain countries like China (new potential market for BMW, with BMW earning second highest revenue from country) may favor the local companies.

Expected Retaliation: The luxury automobile segment is poised to grow in emerging markets like India and China. However the market has declined in many developing countries like Germany and USA in past years. However, BMW has in past used its innovation and technological advantage to dissuade new luxury car models in the market. Hence it can be said that industry growth is not slow, hence incumbents like BMW etc. are not expected to retaliate fiercely. Hence with above analysis, the barriers to entry for luxury car automobile sector are concluded to be very low. The power of suppliers: (i) (ii) Suppliers cannot creditably threaten to integrate forward into the industry, as each supplier specializes in its own respective equipment like gear box, LED headlights etc. Certain suppliers serve many industries. E.g. Novelis AG supplies aluminum sandwich alloy to automobile, architecture and industrial app lications industries. Its a major supplier for BMW. However most of its suppliers depend heavily on the automobile industry for its revenue. E.g. Autoliv B.V. & Co. KG supplies seat belts, radar systems, night vision systems etc. to automobile industry. As a consequence suppliers charge reasonable prices and assist the industry through innovations. As recognition of these innovations, BMW recognizes its suppliers through BMW supplier Innovation Award. Automobile companies work closely with its suppliers to maintain its quality of parts used in its cars. These parts are also customized by the suppliers as per the company needs. Hence high switching cost is involved for BMW to switch suppliers.

(iii)

As a result of the above analysis we can see that bargaining power of supplier is moderate. (Higher importance is given to switching cost as compared to other two factors).

The power of buyers: (i) (ii) The luxury car segment of automobile caters to rich people, where the car is used as status symbol. These are not price sensitive buyers. The quality of products is very much affected by the industry. The rapidly changing technology and customer needs impact the quality of product. Buyers usually value high reliability and good quality with innovative functionalities in luxury cars This limits the buyers attention to price. The industry offers differentiated products, with variations in functionalities and quality.

(iii)

The above analysis shows that bargaining power of buyers is low. The threat of substitutes: The substitutes can be (i) (ii) Bikes, Super Cars etc. Second hand car market

These can also be used as status symbols and offer better price -performance trade off to the industry product. Indeed BMW, for which China is a potential market, is already devising a strategy to stay ahead of competition offered by second hand car market in China. At the same time the switching cost to these substitutes is also low. However, technological advances and new innovations would not be imbibed in these substitutes to be used as status symbols. The above analysis shows that threat of substitutes is moderate (more importance is given to second hand car market for the analysis). Rivalry among existing competitors:

(i) (ii) (iii) (iv) (v)

The competitors are roughly same in size and power. Exit barriers are high due to specialized assets and high capital involved in manufacturing. As a result companies in luxury automobile market want to use their developed capacities at the cost of profitability of the industry. Rivals (E.g. BMW and Audi) are highly committed to their business of luxury cars and aspire to be market leaders. The switching cost among rival companies is low. The rivalry among the players is being fought intensely on price. With BMW and Audi cutting its prices to sell more, the overall profitability of the company decreases. Further intense rivalry can also be seen in the advertising fight being played by the rival companies (engaging in hoarding wars and ambush marketing).

The above analysis shows that rivalry among existing players is very high reducing profitability of the industry.

Operating Environment
1) Mercedes Benz Mercedes Benz sold a record number of vehicles and had record revenue/EBIT in 2011 (Daimler Annual Report , 2011). This is what the company promised to achieve a year before. Mercedes Benz attributed this to the strength of the brand and innovation products. In the same year, the company also redefined its long term strategy. It aims to become number one in premium-segment unit sales by the end of this decade. To achieve this objective, it strives to achieve a sustainable, profitable growth and expand its activities to the growing customer base. The company in addition to this has also identified 4 strategic growth areas: Strengthening the core business in traditional markets Conquering new markets Extending leadership in environmentally friendly technologies Developing and implementing new mobility concepts
(Daimler Annual Report , 2011)

Mercedes Benz Group strives to achieve higher sales in the following years. It strives to achieve above average growth as compared to the global automobile demand.

2) Audi Vision Audi the premium brand (Audi, 2013) In adopting their strategy 2020, the Audi group has focused its core brand Audi on the challenges of future. It now gives more weight to new issues that have emerged as a result of heightened environmental awareness, growing uncertainty about the future unavailability of fossil fuels.

Mission - We delight customers worldwide (Audi, 2013) The Audi brands products are compelling examples of the brand values sportiness, progressiveness and sophistication. In addition to building technologically advanced vehicles, the brand with the four rings aims to evoke customer delight in many other ways.

Objectives 1. We define innovation The declared ambition of the Audi brand to offer its customers high-quality, innovative vehicles is expressed in the brand essence Vorsprung durch Technik. The Company has defined various key technologies that will occupy a special role in the development of new vehicles. (Audi, 2013) 2. We create experiences To delight its customers time and time again, the Company aims to create special, positive experiences that customers will associate with the Audi brand. These include modern sales concepts such as the showroom configurator, which makes it quick and easy for visitors to an

Audi dealership to create the Audi vehicle of their choice on large screens, with life-like, threedimensional images. (Audi, 2013) 3. We live responsibility The Audi brand also expresses customer delight through a form of corporate responsibility that seeks to strike an appropriate balance between social or ecological requirements and economic success. (Audi, 2013) 4. We shape Audi The Audi brand continues steadily with its model initiative and expand its development, manufacturing and corporate structures accordingly. (Audi, 2013)

Firm Name BMW

Strategy Highlights Performance Vehicles that are efficient and sustainable. Emphasis on Joy of driving. Only Luxury car maker which targets widest age group

Rationale for strategy Historically successful as the premier sports sedan manufacturer. Have a wide variety of cars for different segments. Strives to be market leader by looking forward to alternate fuels.

Pros and Cons Pros Steady hold on performance sedan market, customers appreciate efficient dynamics initiative Cons Reliability good on chassis and suspension, because BMW uses lot gizmo and gadgets which sometimes get difficult to repair. Pros Always been a most recognizable name in the luxury auto market. Always first to embrace new technology. Cons Dont have most efficient vehicles. Pros Able to grab some of BMWs market share while retaining their own identity. Cons- Not able to address unreliability of some of their components.

Mercedes Benz

Audi

Relying heavily on history and prestige. Mainly a Chauffer driven Car. The highest quality, long lasting , most forward looking vehicles on the market Luxurious interiors with high quality materials and beautiful design. Emphasis on performance with the safety and prowess of four wheel drive.

History of high quality, reliable vehicles. Strives to market leader in terms of technology, equipment (such as night vision, auto parking etc.) Interested in BMWs performance car market, with their own four wheel drive and turbocharged performance engines

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References
Audi. (2013). www.audi.com. Retrieved from Audi: http://www.audi.com/com/brand/en/company/investor_relations/audi_at_a_glance/corporate_strat egy.html BMW Annual Report. (2011). BMW Annual Report . BMW. CIA Factbook. (2011). The World Factbook. CIA. Daimler Annual Report . (2011). Daimler Annual Report. Daimler. GCR. (2012). Global Competitiveness Report 2012. WEF. OECD (http://www.oecd.org/germany/) WSJs 2012 Index for Economic Freedom (http://www.heritage.org/index/) http://www.techweekeurope.co.uk/news/ http://www.indexmundi.com/germany/ http://www.photius.com/rankings/ http://wiki.portalgameover.com/index.php?title=Why_People_Buy_BMW_Cars http://ezinearticles.com/?Why-People-Buy-BMW-Cars&id=5808369 http://www.businessweek.com/stories/2006-05-04/bmw-targets-new-drivers http://www.koreatimes.co.kr/www/news/biz/2013/01/342_96718.html

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