Question

Study the case below and answer the questions given at the end:

BMW: Marketing Subsidiaries in Foreign Markets

BMW is a German manufacturer of high-quality motor cars, About half of its sales are in the German market, with the other half from exports. In reappraising Its markets and distribution strategy both in Germany and abroad, the company believed that its multiple layers of distribution were causing inefficiencies in its marketing efforts.

BMW Germany

Originally, BMW had a dual distribution system in Germany. It employed a strong wholesaler system along with direct distribution by BMW to large dealers. This system seemed to work effectively because BMW's market share in Germany doubled in 10 years. However, the company found share competitive distortions with this dual approach. For example, the wholesalers that received the same commission for wholesale transactions as for retails sales had gone into direct competition with retailers. The larger direct dealers sometimes sold more than the wholesalers but received the smaller dealer discount. The problems arising from BMW's distribution strategy caused the company to abolish its German wholesaler network. BMW expanded its direct dealer system to replace the business formerly handled by the wholesalers.

BMW Abroad

The company was planning to initiate a more direct selling method in its foreign markets as well as at home. It realized the need for care in order not to disturb existing import channels. However, the company believed that it was desirable to replace the present independent importers in foreign markets with company-owned marketing subsidiaries. The independent importers buy the cars from Germany and then resell to accredited dealers --- who sell them to the public, In moving to company-owned marketing subsidiaries, BMW was following the international marketing approach of Volkswagen and Daimler-Benz (with Mercedes). One of the major arguments presented for going direct was that BMW could save the 15 percent commission the company paid to its importer distributors in foreign markets.

France

In line with its new policy of more direct distribution in foreign markets, BMW formed its first marketing subsidiary in France. BMW Import SA replaced the former independent French importer (which had been called BMW France but now was renamed SFAM France). SFAM France continued to sell BMW cars to consumers through its retails outlets in Paris and in the provinces. Sales to dealers henceforth were made only by BMW Import SA, the company's wholly owned marketing subsidiary. This seemed to be successful in France.

United States

In implementing its new direct marketing approach in the U.S marker, BMW faced two alternatives. It could either take-over its present U.S. importer-distributor or establish a new and separate BMW marketing subsidiary as in France. The company wondered which of these alternatives would be best for the important U.S. market. BMW had about 250 dealers in the United States.

a) Do you see any disadvantage for BMW in going to direct distribution in foreign markets?

b) What advantages might the company realize by operating through its own marketing subsidiaries?

c) In marketing the decision for the U.S. market, what questions would you ask? What variables would you consider?

Answer 1

A) As 50% of sales of BMW comes from foreign markets, so foreign markets are very important for BMW to increase the sale and increase it profit also. And company is going to replicate the domestic marketing model of direct distribution in foreign markets. Some of the disadvantage BMW may face in changing its marketing models are

• Cultural differences : There might be a complete change in cultural aspects in other foreign markets as compare to Germany or Europe. To establish and control owned subsidiaries may face cultural barriers.
• Loss of Markets share : Replacing the existing local dealership with owned subsidiaries may impact the loss of markets share as local people has more faith to local dealership than outsiders.
• Additional cost ,time , rules, policies and regulation to create new network in foreign markets.

B ) Advantages of having own marketing subsidiaries as compare to foreign importer distributor :

• Saving in percent commission the company paid to its importer distributors in foreign markets.
• More control on various decision regarding marketing of BMW such as promotions, pricing , inventories , different model stock etc.
• Easy to manage the employee of these subsidiaries by creating ownership and part of organization

C) In marketing decision for U.S market to either takeover its present U.S importer-distributor or establish a totally new subsidiaries owned by BMW , few questions and variable should be consider :

• How big the distribution network is in USA.
• Performance of existing import distributor
• Advantage and disadvantage of both cases.
• Cost - Benefit analysis of both decision
• Market share of product in USA
• Government rules, regulation and Policies in establishing own subsidiaries