BMW case analysis
The automotive industry is distinguished by a highly competitive market. Thus, the actors on the market struggle with increasing cost of production, development and mature markets. The mature markets are constituted by the Western countries such as the North American and European markets. Hence, the producers face challenges in decision-making to manage continuous business operation and profitability.
Among the market leading companies one can recognize different strategies to maintain competitive positions; Toyota has concentrated on comparatively low-price cars, high quality and efficient production also known as Kaizen: continuous improvement of production. Toyota has in many ways been pointed out as a bench marker in the automotive industry and there are many other companies who try to imitate Toyota’s way of working. With the aim to increase profit margins and reduce costs, Volkswagen, GM and Ford are some companies, which use the same components in different car models and car brands.
These companies have in other words succeeded in synergising research and development effects within the company despite car model and business area. A development that also can be seen is investments in the Asian markets as well as the East European markets. These markets are not considered as mature and many analysts predict that these markets will be in highly expansive states and significantly grand new segments are to be conquered. The development in these markets is also signified by new production allocation of the market leading companies in try to find low-price labour and manufacture costs1.
BMW, Bayerische Motoren Werke AG, is one of the leading manufacturers of premium cars in the automotive industry. The company is well known for its distinctive design, high quality and luxurious approach. Despite threats of low-price substitutes and other threats from competitors, BMW has yearly shown strong financial results and has retained its market shares. This becomes of interest to study more profoundly, in order to find the factors behind a successful company and a strong brand. Further, we will also study the future potentials and consistency. 2 1 2
World Automotive outlook: Pressures Remain, 2005, Economist Intelligence Unit, www. eiu. com Driven: Inside BMW, the Most Admired Car Company in the World, 2004, David Kiley 5 1. 2 Purpose The purpose of this thesis is to analyse the development of BMW during the past five years. We aim to make a broader analysis of the company and hold an external point of view. The intention is to find the factors adding value to the company, in terms of products and business advantages. This thesis is to sort out the key factors behind a successful company and a highly valued brand in the automotive industry.
What comes to be stressed are mainly two topics also defined as the problems to be solved in this thesis: • How has BMW during the five past years enabled to defend a competitive position within the automotive industry? • Will the success continue in the foreseeable future? 1. 3 Delimitation and Assumptions Our purpose is confined to an analysis of BMW between the years 2001-2005. Thus, the information used in this thesis is mainly the financial statements, the annual reports of BMW from the years 2001-2005. In the competitors’ analysis, the competitors’ annual reports for the same period of time are used.
Moreover no adjustments have been made of the figures stated in the annual reports. A delimitation of the competitors analysed is made after sorting out the competitors by premium manufacturing brands. Also delimitation is made to the automotive manufacturing in the competitor analysis. No consideration has been taken to the financial services or other business areas that might occur within the companies. The authors are fully aware of the lack of objectivity since the competitors used are selected based on subjective judgements. Thus, it is not the intention of this thesis to hold the position of an expert.
The thesis is based on the assumption that BMW is the most successful automotive manufacturer in the premium segment. 6 1. 5 Hypotheses • BMW is a successful company that has kept its market shares due to high quality, distinctive design and a luxurious approach. • BMW has not adjusted their car models after different markets and has therefore obtained a legitimate and solid brand well recognised by the customers irrespective of nationality. • BMW will continue its success due to unremitting innovation and segment differentiation concentrating on customers with a higher purchasing power.
• BMW will at intervals face difficulties due to a highly volatile raw material market contributing to high costs of production. • BMW will face a higher competition in the automotive industry due to increased environment awareness among the customers requiring cars with low emissions. 1. 6 The General Outline of the Thesis 1. Introduction 2. Methodology 3. Theory 4. Company Description 5. Objects 6. Subjects 7. Branch and competitive Analysis 8. Accounting Analysis 9. SWOT-analysis of BMW 10. Results and Comments 11. Areas For Future Research Figure 1 The General Outline of the Thesis
Methodology This chapter will outline the most important choices of methods for this study. This choice is often a critical factor in the case of writing a thesis. The approach of solving the problems of the thesis is of equal importance as the selection of the material used in aim to achieve a good result. 3 When the authors initially wrote this thesis, the intension was not to take the position of an expert in company valuation. Instead their aim was to investigate the development of a company based upon information and knowledge obtained from previous education and studies.
Moreover the underlying company for this valuation is BMW, since the authors aim to analyse a well reputable company with a strong market brand in a highly competitive market. 4 2. 1. Choice of Study A company analysis could be formed as a case study which implies that the investigation is carried out for instance on a smaller group, on an individual or on a company. In a case study one examines a phenomenon in its real environment or in its context where the boundaries between phenomenon and context are not given.
Because of this, case studies are often considered especially applicable in evaluations where the objectives often are very complex. In that way one tries to explain, understand or describe large phenomenon, organisations or systems that could not be investigated with another methodology. 5 It is especially appropriate to use case studies when one has the intention to study a process or a change. The purpose is to get a comprehensive picture of what one are studying, aiming at obtaining full information. 6 2. 2. Data Collection
An investigation could be based on two types of data, primary and secondary data. The primary data is information that has to be collected. Secondary data is data that is already accessible. In the study of BMW both primary and secondary data are used. 7 3 Holme, Solvang (1991) Own reflections 5 Backman, J. (1998) 6 Holm, Jonsson, (2006), TOTAL – fran olja till energi 7 Wiedersheim-Paul & Eriksson (1991) 4 8 2. 2. 1. Primary Data Primary data could be collected in three different ways, which is interviews by visit, interviews by phone or by questionnaires.
Every method has its advantages and disadvantages. In this thesis, focus has been on telephone interviews. The telephone interviews have the advantages of that they are immediate, the percentage of answers is high and the necessary complementary questions are easy to ask. The disadvantages with telephone interviews are that the questions have to be rather easy to ask, that the affects by the interviewers could influence the respondent and that sensitive questions are not that suitable in this kind of interview situation. 8