Aiming to create a brief yet detailed analysis of Bayerische Motoren Werke (BMW), this report analyzes the environment which the company operates within and also allows the understanding of the factors which plays a part in affecting the future of the business.
The history of BMW can, in fact, be traced to the founding of Rapp-Motorenwerke by Karl Rapp, in Munich (Germany) in 1913. The company started off manufacturing aircraft engines. The modern day Bayerische Motoren Werke (BMW) officially existed in 1917, when Max Friz and Franz-Josef Popp bought over Karl Rapp’s business (Just-Auto, 2005).
The pioneer factory of BMW was constructed in Neulerchenfeldstrasse, Germany. Going public in 1918, BMW became one of the world’s largest motor-car, engine and motor manufacturing organization. Besides being the parent-company to Rolls Royce, BMW also produces Mini cars. Examples of some products manufactured by BMW are automobiles, motorcycles and also plug-in electric cars under the BMW I sub-brand. The BMW name has become a symbol of standards, efficiency and engineering proficiency which has inspired a loyal customer base all throughout the world. BMW’s long-standing marketing message has been simply “the ultimate driving machine” (Strategic shake-ups for the auto industry, 2004).
PESTEL analysis of the community
The PAP has held power repeatedly through elections since independence, with Singapore’s economic success having underpinned the party’s popularity and contributed to the long period of political stability. With reference to that statement, it shows that the risks of any major political changes in Singapore are not relatively high. With that being said, I can assume that organizations based in Singapore will not have to be too wary of any significant government-related issues which they would have foreseen to bring about a negative impact on their business.
The ASEAN Vision 2020, adopted by the ASEAN Leaders on the 30th Anniversary of ASEAN, agreed on a shared vision of ASEAN as a concert of Southeast Asian nations, outward looking, living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring societies (ASEAN COMMUNITY). In addition to the previous statement, Singapore is part of international peacekeeping organizations such like the Association of Southeast Asian Nations (ASEAN) and also the United Nation (UN). By being a part of these organizations, Singapore can ensure that the chances of any regional disputes or differences can be settled in a peaceful and amiable way.
Amid a softer economy, unemployment among residents and citizens edged up in Singapore and overall employment grew by the slowest in six years, the Ministry of Manpower said on Tuesday (Dec 15) (Channel News Asia, 2015). With unemployment rates in Singapore rising, more people would have less to spend and therefore, creating a decrease in consumer demands for BMW. A decrease in consumer demands might lead to BMW having to lay off their own employees, which will contribute to the unemployment situation and thus, molding a potential cynical problem.
On top of just facing the problem of unemployment, the cost of living in Singapore is one of the highest in the world. In order to promote more frequent use of the public bus and trains, the Land Transport Authority (LTA) in Singapore implemented an increase on the pricing for Certificate of Entitlement (COE) for car owners. Car owners unexpectedly saw a hike in COE prices for cars for Categories A and B, reflecting the firm demand among car buyers and motor dealers with orders in hand, said industry players.
Due to the increased cost and insufficiency of financial ability, many in Singapore have been cutting costs and are forced to reassess their expenditures which further evolves into having a budget in making purchasing decisions whether small or large. Singapore has topped 131 cities globally to become the world’s most expensive city to live in 2014, according to the Economist Intelligence Unit (EIU) (BBC Business, 3 March 2014). When more potential buyers change their buying habits due to the restraint in excessive spending, they start reconsidering spending unnecessarily on a car which will then result in a drop in sales of BMW’s automobiles and motorcycles which means that the profit for BMW will decrease.
A recent survey conducted by Nielsen and commissioned by NTUC Income revealed that when empowered with knowledge, young adults in Singapore are motivated to start planning for their retirement. With such mindset, BMW might see a drop in the percentage of potential buyers as more people would tend to be more inclined towards securing a future with financial stability than spending their savings on luxury products like BMW cars. This will then lead to the decrease of sales and profit for the organization, thus creating more problems for the organizations in terms of promoting their products.
External environment analysis using Porter’s Five Forces (Industry)
Competitive rivalry within an industry
The automobile industry in Singapore is made up of numerous competing companies vying for potential buyers and the opportunity for sales. While BMW holds a reputation for producing automobiles of superb quality with enhanced features, many of their competitors are aiming to satisfy the basic needs that buyers are looking for in a motorcar, E.g. Honda, Toyota and Mitsubishi. Despite not having the best features that a car has, these automobile organizations aim to capture the needs of the buyers instead of capturing the wants like BMW.
With regards to the economic factors which affect the industry as a whole, potential buyers are already scarce and when there are more competitors in the field competing for the same group of customers, the chances of gaining more advantage over the other competitors would be lower.
Bargaining power of Customers
Among their numbers are the Nissan March, Kia Forte Koup and Chevrolet Aveo, which are proven stalwarts on Singapore roads. They aren’t just reliable workhorses, they’re also family-friendly economical cars which keep petrol costs low (Singapore’s 10 cheapest cars, 2013).
With the prices of COE rising, customers are inclined to get better deals on the motor vehicles itself in order to meet their budget especially when taking into consideration the expensive COE prices as well. Competitors such like Honda, Kia, Nissan and more, are producing cars of the same quality and thus, resulting in more buying options for customers. With an array of brands and sellers to choose from, BMW would have to put in more effort to keep up with the latest technology or trends in order to stand out and be different from the other brands in the automobile industry.
With more buying options, customers have a higher bargaining power and the probability of customers making BMW their ultimate choice will decrease significantly.
Bargaining power of Suppliers
BMW spends about 25% of their income into Research & Development and because they put in so much of their innovations and improvements into the automobiles that they produce, they are able to gain more public recognition and approvals, resulting in its current success (LWKH, 2006).
With more dedication and innovation, BMW strives to be the white knight in the automobile industry, thus, creating an advantage over the other suppliers in the same industry. Although there are many other suppliers providing the same services and products, BMW allows themselves to maintain an image of being the top in the business which cancels out any other suppliers who try to vie for potential buyers, making it relatively different from brands like Honda, Nissan and Kia.
Threats of new entrants
The barrier of entrance of new businesses in the automotive industry is relatively high because it not only involves high financial capital and support, but it also requires attaining a license to practice car dealership. On top of it, the government has also implemented a “Tiered Additional Registration Fee” in accordance to the “Open Market Value”.
With such high costs of opening a business which might have slight chances of thriving in Singapore where residents are cutting cost to afford the high cost of living, the threat of new entrants into the automotive industry is not worrying.
Threats of substitute products or services
The level of threats of substitute products or services is not high as BMW has already carved a reputation of being one of the most advanced and luxurious automobiles in the world with its position at 2nd highest for world’s most valuable automotive brand.
The new BMW X5 has a new inline 6-cylinder diesel engine that offers better balance between consumption of fuel and performance. This latest technology and also the new 8-speed automatic transmission bring about significant enhancements in the vehicle’s efficiency. It utilizes the most up-to-date technology in emission reduction. Besides BMW having a distinct appearance that lures buyers to its versatility and undeniable presence, it also produces more energy conserving automobiles.
Strategic ideas for BMW
Pricing of products
One of the areas in which BMW can work on is the pricing of their products and automobiles that they sell. Despite being one of the brands in the leads in the automotive industry, in order to compete with the other brands operating in Singapore, BMW should adjust their pricing to what meets the reasonable price range budget of their potential buyers in the geographical area which they are in, creating more business opportunities for themselves.
By doing so, BMW will be able to secure their placing as one of the top choices for the buyers.
Improving the efficiency of the iDrive feature
The iDrive feature in BMW automobiles are indeed hard to find in motor vehicles of other brands. However, there are some areas in which the feature is lacking in and making improvements in these areas will give BMW an edge in achieving the title of the top automotive company amongst the rest.
Areas such like the menu structure and also the methods of inputting information onto the tablet can be improved. For example, the use of voice recognition will be very useful to drivers especially during a drive. Menus which are easier to operate will also make a huge difference and simplicity allows drivers to obtain their needs through the tablet quicker.
Matching geographical needs
Despite having a reputation to uphold with regards to BMW’s high-end features and its advanced technologies, BMW should focus on the more important factors which contribute to the decision-making of the buyers. Examples of these factors are pricing, technology, speed and also space.
For example, by matching Singapore’s heavy traffic and also rush hours where there are bound to be traffic jams on the roads and also the maximum speed limits on the roads in Singapore, BMW should focus on the other factors which such as features and looks instead of increasing the speed in which the vehicle can travel at.
Advertising is one of the most important factors that affect the sales and revenue of an organization. With good advertising, comes more awareness about the existence of BMW and its stand-out features. For example, BMW can make use of the now-trending social media, television broadcasts and also radio advertisements to show consumers what BMW is promoting.
By creating more efficient advertisement which creates a more significant impact on consumers, consumers will be inclined to purchase products from that organization.
Conclusion of report
Overall, I feel that BMW has an edge over the other automotive brands in this industry when comparing the features of the cars of different as BMW has a more in depth system and also used more advanced technologies instilled in their automobiles. Being one of the top brands in the world, BMW has carved a reputation which makes it a luxurious brand of automobiles and would be more highly sought after in terms of branding and image.
The external environment in which BMW operates within is relatively a productive environment with many opportunities for their organization to grow. With such stable business environment, BMW is able to maintain their standing and can take the opportunity to improve on their business unlike businesses in countries with a hectic political or social environment.