Evaluation of External Environment and Diversification Strategies of BMW


Term Paper, 2011
8 Pages, Grade: B

Excerpt

Introduction

BMW is one of the largest car and motorcycle producing company based in Germany and exporting to markets all over the world. To maintain high productivity and a large market share, the department concerned with business at BMW must create strategies, whose objective is to maintain good and profitable business (Mortimer 2005, p. 312).

BMW Business Environment

Business environment are the surrounding factors that affects an organisation way of doing business. These factors can either be internal, within the organisation, or external (Kunt 2006, p. 1). Like any other company in the production industry, BMW is faced by challenges and opportunities, which have to be dealt with daily to ensure survival of the business in the currently very competitive world. To face the challenges of doing business and competition, innovation and anticipation for growth are key elements to sustaining the company’s business.

As a result, the management of BMW group anticipated a strong corporate expansion of the group. This led to the initiation of the program named ‘PROCEED’ meaning process centred division whose aim was to keep up with the business expansion pace by optimization and standardization of the processes across the countries (Scheer et al 2006, p. 10). The approach had its basis on making use of large standardized process while respecting the country-specific requirements. This led to an increase in the number of cars delivered to customers and an increase in the contracts in the financial services division.

A car is very sensitive to changes in prices and the income of the consumer. This makes it highly vulnerable to economic changes. In recent times, BMW saw a decline of 18% in their ales due to hard economic times. Fuel prices have also seen to the decline of sales for cars that consume high quantities of fuel. The argument that luxury cars are not affected by economic changes is not true.

The Emerging market

There have been different manufacturers of motor vehicles, joining the market in competition with BMW for the market and customers. As a result, the company has to be attentive on venturing into new markets, to maintain business and company profitability. The company has also to devise ways of protecting itself from the impacts of the changing competition trends as a result of new entrants in the motor vehicle industry (Scheer et al 2006, p. 15).

The BMW protects itself from the threat of new entrants into the market by its dynamism in the market, large base of knowledge and experience and economies of scale due to it’s a large investment. Its brand BMW protects it from copy and is associated with the knowledge and quality of the products. This brings them huge benefits because of the large extents of their loyal customers. For a car to qualify as a substitute for BMW, it has to fulfil the quality status set by the BMW. They are not easily substituted by low cost cars because the low cost cars do not meet the emotional need for prestige and identification. Ecological aspects do not bother BMW group because given a choice between comforts and going green, most of its clientele would opt for comfort and luxury. BMW has derived favourable merits on its products because it produces most of its cars in German. This is because German was named the best automobile producing country all over the world. BMW has executed strategies to enhance profitability and expansion of the business to other nations.

BMW Diversification to Brazil

In an aim of expanding to new markets and growing of the company sales, BMW has ventured in to different countries, among them being Brazil. The company finds Brazil an appropriate country to venture in due to a number of factors that are considered by businesses, when venturing in foreign countries.

Factors to Consider

- Government stability and openness in welcoming FDI in this country – In any form of investment to a foreign nation, the company must consider the political situation of the land and whether the government is encouraging foreign direct investment. There has been high improvement of political rights and the increase in the openness of Brazil to accept foreign direct investments, which is a main factor to consider for BMW as the company would not be restricted, when entering the market.
- Government’s willingness to invest in infra structure- power, water and roadways- Brazil being a strong economy – the strongest economy in Latin America- the government has made substantial investment in the transportation networks, therefore making it possible for companies that need to invest to transport materials for products assembly.
- Levels of disposable income and spending capacities of population of Brazil. Brazil is a highly growing economy and is a member of the BRICS community (World Socialist Website, 1998). This means that the GDP is high, therefore, creating a high number of people with disposable income that can be used in purchase of BMW cars. It is important that the company considers this factor as BMW cars are not cheap and hence, not everyone can afford to purchase.
- Demographic issues and population trends that would affect BMW’s business in Brazil. It is important for the company to consider the demographic factor as different products are associated with different age groups or social class. Brazil has a large population made up of wealthy people, therefore making it possible to sell cars and to increase the company profits.
- Geographical location and proximity and connectivity to other global destinations. Brazil is strategically positioned as the strongest economy in Latin America, providing connections to the USA and other countries like Mexico. This makes is a preferred destination to companies that are seeking to expand to other nations. As a member of the BRICS community, which include China, India, Russia, Brazil and South Africa, companies venturing in Brazil stand more opportunities of international trade.
- Bureaucracy and corruption in the Brazilian state department. Due to a stable political climate, high rate of Brazil’s economic growth and the country’s openness to foreign investors, there has been high rate of FDI to the country among emerging markets.

[...]

Excerpt out of 8 pages

Details

Title
Evaluation of External Environment and Diversification Strategies of BMW
College
University of Portsmouth
Grade
B
Author
Year
2011
Pages
8
Catalog Number
V211298
ISBN (eBook)
9783656393429
File size
465 KB
Language
English
Notes
Tags
evaluation, external, environment, diversification, strategies
Quote paper
Joseph Katie (Author), 2011, Evaluation of External Environment and Diversification Strategies of BMW, Munich, GRIN Verlag, https://www.grin.com/document/211298

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