Contents

Page No.

Abstract 3

Introduction 3

Steps in International Market 4

Retraining Forces 4

Main Drivers for Change in Organisation 5

Entry Strategies 6

BMW to Begin Indian Operations In 20007 6

PESTEL Analysis 7

Posters Five Forces 9

Tools 10

Raw Material Cost Bothers BMW In India 10

Conclusion 10

Recommendation 11
 Bibliography 12

Appendices 14

Abstract

The objective of this report is to give an introduction on BMW’s organization and the aim is
to highlight the various strategies, which help the organization in maximizing their profits
and increase in demand of their products.

The report indicates the different links between changing market concentration and
company strategies. The report includes various strategies adopted by BMW to compete in
the market and beat their competitors. Besides this it also indicates the various tools to
analyse the new market and entry strategies adopted by BMW to enter into international
market.

Introduction

The seemingly relentless growth in the car industry, only few companies have shown the
significant growth and BMW is one of them. BMW was founded in Munich, Germany in 1916
as the 'Bayerische Flugzeugwerke AG' (BFW). In 1917, the 'Bayerishe Motoren Werke GmbH'
was created from it, and this was finally converted into a joint stock company in 1918.

The Company concentrated initially on the development and production of aircraft engines
and, from 1923 onwards, on motorcycles. The Company's success story as an automobile
manufacturer began in 1928 with the acquisition of the Eisenach vehicle factory.

Will Rodgers, co-founder of SHR Perceptual Management says “Carmakers are running up
against a very tough choice, either they protect their market share and play not to lose, like
GM and Toyota, or they go all out, place some big bets, and play to win. BMW is playing to
win.”

The history of the Bavarian Motor Works is a history of innovation, dedication and
determination. These achievements are visible in the BMW emblem, symbolizing a rotating
airplane propeller from BMW's early years as an aircraft engine manufacturer. Today, the
emblem signifies a global company that annually produces hundreds of thousands of
engines, motorcycles, and cars.
 It was true that, BMW was falling a part, due to the post-war strike. Bankruptcy became
visible as the company was hanging itself to disintegrate into the arms of Daimler- Benz.
In 1925, BMW motorcycle sales were 15 million Reichsmarks ($3.6 million). The motorcycle
product line includes nine bikes. BMW won more than 100 motorcycle races that year and
boasted first-place finished by 1928. This is when BMW’s brand recognition for engineering
excellence took off and took hold across Europe. By 1928, BMW future looked bright, with
revenues at 27 million Reischsmarks ($6.4 million), up by 77 percent in just three years.

Steps in International Market

The main reason behind the success of BMW was their changing management strategies
from time to time. They were keen towards their management policies. Whenever they find
any changes in the economy, techniques, production etc. they also change their strategies
and base them accordingly to the new changes. Some times their strategies are based on
the future i.e. environmental impact, developing third generation technology for their
machines (hybrid technique).

The major reason for this strategy change was to avoid possible trade restrictions and
exchange rate fluctuations. With this uniqueness in there strategies they succeeded in their
trades and target the maximum sales. In early1980s at the time of global boom, BMW laid
out their policy for the production of luxury cars only. They decided to put more efforts on
the luxury and comfort, which separates them from the other competitors. They produce
five lines of cars: 1, 3, 5, 6 and 7 Series.

Avoiding heavy import duties and attracting subsidies from government lead BMW group to
assemble their very small plant at South Africa. In 1992 they set up another plant in South
California. This was all due to the foreign competition in world market, by locating their
production site in foreign markets. In addition BMW managed to overtake its rivals by
signing joint ventures with various companies.
(For more information please see appendices pp. 15-16)

Restraining Forces

In the journey of success, BMW had faced many restraining forces like competition, low
profit margins, ecological problems and financial status. Due to the globalisation the
competition between the cars manufacturers become very tough in different car segments,
because of this manufacturers have to cut down there prices in the market, resulting in low
profit margins.

Beside this, new policies on environmental were issued for the car manufactured due to the
issue of global warming and emission of carbon. This led BMW to redesign their engine
technology and make it friendlier to the environment. There fore BMW had to change their
engine specification which led them more pressure. In its early age BMW was almost
bankrupt due to the strikes in Germany because of World War II and was ready to fall in the
hands of Daimler.
Thus it results in adoption of adaptation strategy. BMW set adaptation strategy for breeding
programmes and finding recommendation for various objectives. It helps them in getting
various analytical approaches and provides different results. However, sometimes objective
was focused on the future production.

Main Drivers for Changes in Organisation

Competition:

At the time of competition, the organization requires to operate with maximum efficiency.
Main aim behind this is to reduce the fixed cost per vehicle. BMW acquire the economy by
maximizing the volume and standardizing the parts across there model ranges. This results
in high investment capacity and continuing trend towards mergers, joint ventures.

Increase demand:

BMW adopted the niche marketing strategy in global marketing because the market for
niche vehicles was growing or was more in demand. European consumers were also looking
for great fuel efficiency, by the growing popularity of diesel engines. Another trend has
outcome i.e. onboard electronics and telecommunication system. Through these attractive
specifications, BMW has gained higher margins and customers.

Legislation:

Legislation is one of the major drivers of the industry. Production and recycling legislation
have an impact both on vehicle technologies and on construction. This requires vehicles that
are more efficient and lower weights, and the development of market-oriented measures
such as improvements in the level of consumer information.

Change in Technology:

Development in modern techniques continues production of electric, hybrid and fuel cell
motors, especially for the city. People are more likely to wards the cars that harm less to the
environment and BMW is first to produce hydrogen car.

Cheap Labour:

Car manufactures always look for the cheap labour to cut down there manufacturing costs.
Thus BMW also choose the countries where they could cut down their manufacturing costs,
in addition the cost of transportation of the good is significantly reduced.

Entry Strategies

Entry strategy for international markets is a complete plan, which sets the objectives, goals,
capital, and planning that helps company in international business operations over a future
period long enough to achieve their goals in world markets.
Foreign market has always been one of the significant fields of opportunity and switching
costs. In seeking to serve and penetrate foreign market, firms may choose various entry
modes.

Some of the typical modes of foreign market entry are as following:

Exporting (direct and indirect)

Licensing

Joint Ventures

Wholly owned subsidiaries

Equity and non-equity modes

The entry strategy of companies typically follows one or two alternative patterns. Waterfall
strategy was the preferred choice made by the BMW. Under the “waterfall” scenario, the
product or services was gradually move into overseas markets, while in the sprinkler mode
product is introduce in several countries market simultaneously with in a limited period.

It goes well with the cultural distance and learning patterns. After success in the home
market, the product gradually moved out to culturally close markets. The other advantage is
that the expansion can take place in an orderly manner, and the same managers can be
used for different countries, which helps to capitalize on the skills developed and it is
relatively less demanding in terms of resource requirements.

BMW to Begin Indian Operations In 2007

BMW’s main aim is to produce high quality products, by offering different products for
different countries. Reviewing their international strategies BMW group has decided to
make an entry into India.

The Government of India's new automobile policy announced in June 1993 attracted a large
number of automobile companies there. According to the policy heavy subsidies would be
provided to the automobile manufacturers. There are three existing Indian companies,
Hindustan Motors, Premier Automobiles and Telco, and one Indo-Japanese venture, Maruti
already in the passenger car market. Maruti is by far the biggest player with about 70% of
the market share.

This is an important step for company’s expansion in Asia. With this strategy BMW group
can also hold the China’s market. BMW’s long-term goal is to make Asia its stronghold and
the entry into the Indian market with locally made models is an important step towards this
end. The luxury car market in India is estimated around 10,000 vehicles per year and it
would be expected to be double within 4-5 years.
 This favourable duty structure will put BMW at a relative advantage and the company can
expect to entice the Indian buyer who will be able to buy the premium brand car at a much
lower price. Another reason why BMW have decided to take the plunge in India rather than
China is due to its foreign investment policy. China would provide a much more hostile
environment for BMW to start a new set up. BMW group has shown GDP growth rate is
around 8 percent and that is a very good basis to start an automobile business in India.

The production and sales subsidiary will be owned 100 per cent by BMW Group. In addition
to operating the assembly plant and importing BMW cars, the tasks of the subsidiary will
also include developing the dealer organization, deciding on pricing and product strategy as
well as marketing and after sales.

PESTEL Analysis
Political Factor:

The current government of Congress Party has provided stability to the country. The
political setting in India and in other independent states is increasingly being recognized as a
critical factor in the achievement of continued economic growth.

Economical Factor:

During the last few years there has been significant growth in Indian economy. The
economy has achieved a high GDP growth of 8.5% in 2003-2005 and it is estimated to have
growth of another 7% by 2005. The growth rate of capital goods and consumer durables
had been in double digits since September 2003. The economy rate of savings and
investment has increased sharply.

Private corporate and public sector investment as % of GDP

(Source: http://www.rupe-india.org/39/boom.html)
Annual growth rate of industrial production: Mid-1990s boom and the present boom
Mining & quarrying Manufacturing Electricity Overall
1994-95 9.8 9.1 8.5 9.1
1995-96 9.7 14.1 8.1 13

2003-04 5.2 7.4 5.1 7.0

(Source: http://www.rupe-india.org/39/boom.html)

Table shows the developments done by the Indian Economy in two boom periods.
 Social Factors:

Many changes took place terms of social factors. The community in India is much aware due
to improvement in the social- culture, religious, economic and demographic factors.
Education has played an important role for uplift of social factors.

Technological Factors:

Modernization in the different sectors of Indian economy, led to an improvement in

Ecological Factors:

Environmental stress is increasing, due to both unsustainable consumption and production

Legislation Factors:

Several efforts are make by the Indian government during the progress period to ensure the
welfare of the common Indian. The Government has show the confidence that they would
be able to control the rate of inflation and have ruled out bringing legislation to provide
various opportunities in different sectors.

Porters Five Forces

Posters five forces model explain the different restraining forces to be faced by BMW in
opening their markets in India. Model indicates high competition in Indian market because
of various global competitors. The economy of country shows the high power of buyers
because of many options. BMW already had its established Brand name all over the global
market therefore it shows the high potential entrance in the economy. Beside this if we talk
about the industrial life cycle pattern, it lies in the developing industrial sale. Therefore
Indian economy has a great potential to enter. On the other hand with moderate indication,
there can be well relationship maintain with the suppliers. At last, the risk of substitute is
high due to possibility of imitation and other brands in same segments.

TOOLS

Clusters:
 BMW gives regional competitiveness by establishing a stable cluster. Clusters means stable
connection with suppliers and services. Cluster is based on the competitiveness of the
region and the competitiveness of the industry.

University-industry linkages:

The link between the university and industry has helped a lot to the German auto industry I
late 1970’s and 1980’s. The impact of university-industry linkage can be easily seen in the
form of technological innovation and regional competitiveness in economic growth.

Human capital development and mobility:

To enter in a country, it is very important to study its mobility and development and India is
one of the uplifting countries which have shown significant changes in term of human
capital development and mobility.

High raw materials cost bothers BMW India

High raw material costs remain an issue for BMW. If we see the year 2006, high raw material
prices was costing the BMW Group more than what they expected, roughly more than 150
million euros ($200 million), and it will still be an issue in my opinion for the next two to
three years. Therefore, BMW decided to standardize their products under different region,
so that they could reduce add on costs.
(For more information please see appendices pp. 18-19)

Conclusion

BMW have progressed a long way since it was on the point of bankruptcy in 1959. Sales
have grown steadily in recent years and in 1992, for the first time ever, are expected to be
greater than those of its archrival, Mercedes-Benz for 560,000 against 538,000.

A major change in strategy is the decision to establish the production facilities outside
Germany and this may have far-reaching consequences. BMW is a firm that has grasped the
opportunities made available by customer and government concern about the environment,
and is well placed to profit from anticipated legislation about the recycling of the cars.
Perhaps the major problem facing the company is large-scale Japanese competition in the
luxury car market, but the indications are that they intend to meet it head-on.

In the car industry, the move away from the highly vertically integrated operation began in
the early 1950s and BMW is one of the good examples of a modern, entirely integrated
manufacturing facility, where efficient and low-cost production has been achieved with the
appropriate international business strategies.

Recommendation
BMW have to improve their performance in investment capital for a region by developing
detectable business angles, investors, banks and venture capitals. Some special programmes
should be started to support the initial development and network operation should be
established.

There should be a proper coordination and development among the international cluster of
BMW group. The distribution network should be good and encouraging suppliers in terms of
ability and values to consumer and to make possible for home producers to export. BMW
should concentrate more on their Niche marketing strategy. The key to capitalizing on a
niche market is to find or develop a market niche that has customers who are accessible,
that is growing fast enough, and that is not owned by one established vendor already.