BMW in the Age of Globalization
BMW, Germany’s flagship automotive manufacturing company, has gone a long way. About 60 years ago, its primary market (aeroengines) and capital equipment were both in ruins. Even during the German recovery period in the 50s, BMW did not prosper despite economic improvements everywhere. By 1959, BMW was so bankrupt, that a rescue by Mercedes served as its only way of staying afloat (Kay 1993).
Today, BMW is one of the most respected companies and recognizable brands in the world. The BMW Group, according to its latest financial report, continues its leading position in premium segments of the international automobile markets. Despite persistently difficult conditions, a total of 341,932 BMW, MINI and Rolls-Royce brand cars were delivered to customers in the period from July to September 2005, 15.4% more than in the third quarter 2004, according to BMW.com.
In the age of globalization, when distinctions between national markets are fading, this is no mean feat. BMW joins other major automotive manufacturers such as General Motors, Ford, Toyota, Honda, Volkswagen, and Daimler Chrysler in operating in a global competitive marketplace.
How was BMW able to successfully respond to the challenges of globalization? What are the critical success factors required by BMW to compete successfully in their chosen segments? What are the competitive advantages that set BMW apart from its competitors? These and more are some of the issues that this paper will tackle.
Key macro environmental impacting the automotive market
Increasing global trade has enabled the growth in world commercial distribution systems, which has also expanded global competition amongst the automobile manufacturers, according to the Business Economics Research Advisor (2004). A phenomenon that mostly accelerated in the later half of 1990s, globalization of the automotive industry mostly transpired due to the construction of important overseas facilities and establishment of mergers between giant multinational automakers (Business Economics Research Advisor 2004). Industry specialists agree that the expansion in foreign commerce in the automobile industry mostly profited the German and Japanese markets and led to increased growth and production.
In the automotive industry, globalization can have tremendous cost benefits. Automotive manufacturers have traditionally taken a multinational strategy in forming a global strategy, wherein they have traditionally operated separate organizations in North America, Europe, Asia, and South America that for the most part have acted independently with little if any synergies across organizations (Chandler n.d.). This strategy has resulted in substantial inefficiencies in product development costs and to a lesser extent production costs. Traditionally, the separate geographic organizations within each auto manufacturer has developed and launched overlapping models. This overlapping represents substantial cost savings as these companies spend several years and billions of dollars designing and engineering a new car model (Chandler n.d.).
To cope with globalization, automobile companies were forced to develop the following framework and integrate them in the global management strategy: product development; supply systems including factory locations; systems to purchase from the suppliers of parts, components, intermediary material and raw material; production systems at factories, and automobile sales and distribution systems although they may be different region by region (Shimogawa n.d.).
EU’s role in fostering European automobile exports
The European Union (EU) has taken an active stance in fostering European automobile exports and investment through improved market access and a rules-based investment environment (European Union 2005). EU makes this a priority by engaging in World Trade Organization negotiations and the negotiation of the Free Trade Agreements in China and South East Asia to improve opportunities for export and investment for the European automobile industry (European Union 2005).
Principal drivers of globalization in the automotive market
The world’s largest automobile manufacturers continue to invest into production facilities in emerging markets in order to reduce production costs. These emerging markets include Latin America, China, Malaysia and other markets in Southeast Asia (Business Economics Research Advisor 2004). Moreover, increasing global competition amongst the global manufacturers and positioning within foreign markets has divided the world’s automakers into three tiers (please see below), with the two remaining tier manufacturers attempting to consolidate or merge with other lower tier automakers to compete with the first tier companies.
1st Tier Company Mergers – Volkswagen-Lamborgini; BMW-Rolls Royce
2nd Tier Company Mergers – Chrysler-Mercedes Benz; Renault-Nissan-Fiat
3rd Tier Company Mergers – Mazda-Mitsubishi; Kia-Volvo
(Business Economics Research Advisor, 2004)
A leader in innovation
Innovation management seems to be the key to BMW’s continuous leadership and sustainable growth. In 2002, the BMW Group received the Outstanding Corporate Innovator (OCI) Award 2002 – the first European enterprise to ever win – by the Product Development & Management Association, PDMA. This prestigious award is regarded as an “Oscar” of innovation management. In presenting the award, PDMA praised BMW Group’s innovation management as well as its unique worldwide research and network (Intel 2003).
BMW is also an example of the intersection of commerce and art writ large (Bangle 2001). Plenty of companies face the challenge of balancing art with commerce: movie studios, fashion design firms, and luxury goods manufacturers struggle with the same thing. . BMW’s fanaticism about design excellence is matched only by the company’s driving desire to remain profitable. And those objectives have required them to develop a unique set of operating principles (Bangle 2001). Until today, BMW stands by three solid principles to maintain the quality of its products: protecting the creative team, safeguarding the artistic process, and becoming an inventive communicator to manage the intersection of art and commerce (Bangle 2001).
The measure of success
There exists a large disagreement about which companies are successful. Yet, whatever the criteria of success are, everyone seemed to be referring to the same companies over and over again: Hewlett-Packard, Microsoft, Marks and Spencer, BMW. These different opinions on how success should be measured were partly the result of disagreement about how added value was created, but rather more the product of different views as to how, once created, added value should be used (Kay 1993). Successful companies, and successful economies, vary in the relative emphasis to be given to returns to shareholders, the maximisation of profits, and the development of the business. Different firms, and different business cultures gave different weights to these purposes. But the underlying objective of adding value was common to all. (Kay 1993).
For its part, critical success factors that enabled BMW to compete in the global market seemed to lie in extensive, carefully planned, and targeted marketing campaigns. Below are some of their successful campaigns, most of which garnered recognition from prestigious bodies.
Agency: Fallon Minneapolis
Budget Range: $5-10 MM
Percentage of Print in the Media Mix: 50-74%
Objective: Further establish the BMW brand as “The Ultimate Driving Machine” by featuring the latest, highest-performing models and targeting specific audiences. Ã?· Increase sales
Target Audience: Primarily men 35 to 54 who take great joy in driving and are looking for a pure performance experience behind the wheel. They are both young and young at heart and have an energetic approach to life. They actively seek out new experiences and information.
How Magazines Were Used: All BMWs are built to be the “Ultimate Driving Machine,” but each Series has its own unique audience. Magazines allowed BMW to deliver an umbrella brand message while narrowly targeting the consumer segments that best aligned with each Series.
Results: The BMW 6 Series exceeded its 2004 sales goal by 17% through December (goal: 7,000 units; number sold: 8,198) �· Through June 2004, after 88% of the print media had run, BMW 7 Series were up 3 % versus yearly average
Industry Awards: 2005 Kelly Awards finalist
Source: http://www.magazine.org/Advertising_and_PIB/case_studies/index.cfm?CaseStudyID=8
Agency: Merkley Newman Harty Partners
Budget Range: Under $10 MM
Percentage of Print in the Media Mix: 75%
Unit Size: Spreads and Pages
Media Mix: Case studies that are magazine dominant, 75%+ of total budget
Objective: �· Build sales with BMW loyalists and prospective competitive riders by promoting the brand as a legitimate alternative to key, already established, competitors
Target Audience: Ã?· Riding zealots of all dimensions and experience – BMW loyalists and prospective competitive riders
How Magazines Were Used: Ã?· Leverage the entire magazine spread to powerfully zero in on the most profound truths about motorcycles and the people who love them – both visually and verbally
Results: Ã?· 2002 Tracking Study reports: Ã?· 50% increase among those “extremely likely to purchase a BMW Motorcycle” Ã?· 125% jump for BMW motorcycles on the rating “the brand for motorcycle enthusiasts” Ã?· Among BMW’s current customer base, loyalty has risen 53
Industry Awards: Ã?· 2002 MPA Kelly FinalistÃ?· CLIO Awards – Merit AwardÃ?· IAAA (Auto Awards) Bronze AwardÃ?· One Show, Print FinalistÃ?· One Show/Integrated Branding Campaign Final
Source: http://www.magazine.org/Advertising_and_PIB/case_studies/index.cfm?CaseStudyID=8
Agency: Crispin Porter & Bogusky
Budget Range: $10MM – $20MM
Percentage of Print in the Media Mix: 25+%
Unit Size: Pages
Objective: Ã?· Launch MINI and establish it as an Icon in the U.S. by promoting it as an alternative culture of driving called “motoring”
Target Audience: Ã?· All athletesÃ?· Excuse-prone athletes 18 – 24
How Magazines Were Used: �· Print innovations including branding tie-ins and content inserts leveraging the magazine environment.
Results: �· A huge demand has been generated for the car, with demand exceeding supply and waiting lists at dealers throughout the U.S.
Industry Awards: �· ADWEEK Media Plan of the Year Finalist�· MPA Kelly Award Grand Prize Winner
Source: http://www.magazine.org/Advertising_and_PIB/case_studies/index.cfm?CaseStudyID=9
BMW’s chosen strategy
Few who drive a BMW car know what the initials stand for, or realise that the distinctive blue and white propeller badge reproduces the colours of the state flag of the State of Bavaria. The company subsequently diversified into what are now its two principal product ranges: automobiles and motor cycles. Today BMW is one of Germany’s largest and most successful companies (Kay 1993). The key to BMW’s success is focused differentiation – putting perceived added value to a “particular segment’ warranting a premium price.
According to Kay, the achievements of BMW are built on two closely associated factors. The company achieves a higher quality of engineering than is usual in production cars. While most car assembly has now been taken over by robots or workers from low wage economies, BMW maintains a skilled German labor force. The company benefits, as many German firms do, from an educational system which gives basic technical skills to an unusually high proportion of the population. Its reputation has followed from these substantial achievements. In this, BMW is representative of much of German manufacturing industry.
Today, the BMW business is structured to maximize these advantages, Kay said. Retail margins on BMW cars are relatively high. The company maintains tight control over its distribution network. This control supports the brand image and also aids market segmentation. BMW cars are positioned differently and priced very differently in the various national markets. The same tight control is reflected in BMW’s relationships with suppliers, who mostly have continuing long associations with the company. BMW’s activities are focused almost exclusively on two product ranges – high performance saloon cars and motor bikes which reflect its competitive strengths. The company also uses the brand to support a range of motoring accessories.
BMW is a company with a well-executed strategy. It is a company which came – after several false starts – to recognize its distinctive capabilities and chose the market, and subsequent markets, which realized its full potential. Its dealings with its suppliers and distributors, its pricing approach, its branding and advertising strategies, are all built around that recognition and these choices (Kay 1993).
References
Bangle, C. 2001, “The Ultimate Creativity Machine: How BMW Turns Art into Profit, ” Harvard Business Review, January 2001, Vol 79, No 1.
BMW 2005, Interim Report. Available at: www.bmw.com
Bowman’s strategy clock, available at: http://www.marketingteacher.com/Lessons/lesson_bowman.htm
Business and Economics Research Advisor 2004, The Automotive Industry. Available at: http://www.loc.gov/rr/business/BERA/issue2/industry.html
Chandler, C. n.d. Globalization: The Automotive Industry’s Quest for a “World Car” Strategy.
Europa Trade Issues 2005, Automotive Sector, Sectoral Issues. Available at: http://europa.eu.int/comm/trade/issues/sectoral/industry/auto/index_en.htm
Intel 2003, Driving Down Support Costs, Supporting Mobility: BMW Practices Proactive PC Replacement, Deploys Intel�® Mobile Technology. Available at: www.intel.com/go/intelsolutionservices/
Kay, J. 1993, The Structure of Strategy, in Business Strategy Review. Available at: http://www.johnkay.com/strategy/124
Magazine Publishers of America 2005, BMW Brand Print Campaign. Available at:
http://www.magazine.org/Advertising_and_PIB/case_studies/index.cfm?CaseStudyID=96
Magazine Publishers of America 2005, Mini Cooper – Let’s Motor. Available at: http://www.magazine.org/Advertising_and_PIB/case_studies/index.cfm?CaseStudyID=9
Shimokawa, K. n.d., Reorganization of the Global Automobile Industry and Structural Change of the Automobile Component Industry.
