Question

wk 5 E FAP

What are your thoughts or opinion on the question below, I need a 600 word summary with an introduction, body, conclusion and 2-3 references please, thank you?

Environmental & Financial Analysis

Answer 1

In this report, PESTE, Porter's Five Forces framework will be used to do an external appraisal of BMW GROUP (an automobile company). We will discuss the main strategic issues facing by the company along with the key success factors. Also, we will conduct a financial analysis of the company in terms of efficiency, profitability and returns to investors.

BMW Group

BMW (Bavarian Motor Works) Group is a world leading manufacturer of quality luxury cars and motorcycles. BMW Group was established in Germany in 1916. With its three premium brands: BMW, Rolls-Royce and MINI, BMW Group holds significant market share in automobile industry. BMW often considered as one of the best in the automotive sector. It has a presence in over 160 countries, with 21 manufacturing plants on four continents. BMW Group employs over 100,000 people worldwide with a working force of 8000 employess in UK. Following Germany and America, UK is BMW's third-largest market in the world.

Why BMW Group?

With an interest in automobile sector, particularly in luxury car segment influence me to choose BMW group for this formative assignment. Also, it would give me an opportunity to study relevant business environment of BMW Group as i see BMW Group my future employer.

Strategic Issues with BMW:

Major strategic issue BMW group currently facing is dealing with its funding of operations. Therefore, Fluctuation of company stocks is therefore an issue as unpredictability makes it difficult for investors to judge whether the stock is at a turning point or has reached stable level.

Business Environment Appraisal:

PESTE: A PESTE analysis is a tool used to detect changes in the external environment that may affect business in future (Henry, 2008).

Political:

Political factors affect automobile sector are enforcement of new laws on emission standards (e.g., Euro 5 standards), political instability in emerging markets. Similarly, directives such as E.L.V (end-of- life vehicles), which dictate how the end-of-life vehicles (ELV) should be recycled poses additional costs on automakers.

Economical:

Economic factors include economic growth, interest rate risk, currency risk exposure, etc. Also price of crude oil and fluctuation in price of raw materials are other major economic factors.

Social:

Social factors include the changes in cultures and demographics globally apart from change in the buying pattern and capacity of the consumer. Growth in the numbers of middle-class in countries like India and China is an opportunity for BMW. Also change in customers preferences from luxury cars to environment friendly hybrid cars affect automotive sector. BMW's reaction to their customers' change in preferences, BMW's increased focus on hybrid cars, dual fuel engines and in general more fuel efficient cars. In the long run BMW is expected to remain at the forefront of sustainability by providing innovative solutions to environmental issues.

Technological:

In automobile sector technology is considered at top priority to gain competitive advantage over rivals. Technology enables environmental friendly solutions like dual fuel engines, hybrid electric cars and hydrogen driven cars. BMW has a good position, because BMW has researched in this area for years, by researching dual fuel engines, hybrid electric cars and hydrogen driven cars

Environmental or Ecological:

Factors that affect automobile industry are global warming awareness, greenhouse effect, C02 emissions norms. For BMW Group complying with new environment standards, closing emission and pollution standard gap is critical. BMW Group is working on Efficient Dynamics programme to achieve environmental efficiencies.

Key drivers of change:

Consumer preferences for green product

Fluctuation in price of raw materials

Emerging new markets in India and China

Porter's five forces: Michael porter five forces is an industry analysis that enable mangers to evaluate industry competition (Enz,2009)

Porter five forces:

Potential entrants

Low

LOW

- High capital investment,

- Wide distribution channel,

- Brand recognition.

High

Competitive rivalry

Buyers

Suppliers

C

Low Low

-Suppliers in large number - Customer loyalty,

- High marketing cost - Distinctive brand

- High branding cost

Substitutes

-Toyota, Honda premium cars

Medium

Porter's five forces model for BMW

Fig 1.1

Potential Entrants - Low

Threat for new entrants seems to be low since establishing an automobile industry requires huge capital investment. Also, Brand recognition, wide distribution channels, advance use of technology and highly skilled management are barriers to entry for new entrants.

Substitute - Medium

Transportation alternatives such as trains, busses, bicycles or even walking cannot be considered as substitute for BMW. However, well-established manufacturer such as Suzuki, Honda, and Toyota entering into premium car segments can be a considered as substitute of BMW.

Power of Suppliers - Low

Bargaining power of suppliers is low since suppliers are large in numbers and competition is high. Mostly suppliers rely on one or two car manufacturer with strong brand image to buy majority of their products. If car manufacturer decides to switch from one supplier to another then it can affect the business of previous supplier. As a result, suppliers are extremely sensitive to the demands and requirements of manufacturer, and hold very little power.

Power of Buyers - low

The Switching costs of the general car industry are very low. Customers can switch to another car brand if they are not happy with their current one. This gives customers bargaining power over the car manufacturers. But in case premium car market the bargaining power of buyer is low as buyers have a reason for spending more than necessary for a car. Customer does not often have high expectations when they buy premium cars. BMW distinctive brand contributes to customers being more loyal and it therefore decreases the bargaining power of the buyer.

Competitive Rivalry - High

In luxury car segment, competitive rivalry is considered very high because of high competition cost involved on marketing and branding. The industry rivalry is considered to be very fierce in the premium automobile segment. Possibility of new entrants in future will raise the level of competition.

FIVE-FORCES MODEL

FORCE

THREAT TO PROFIT

POTENTIAL ENTRANTS

LOW

SUBSTITUTE

MEDIUM

SUPPLIERS

LOW

BUYERS

LOW

COMPETITORS RIVALRY

HIGH

Key Success Factors:

Key success factors thereby are Branding, innovations and technological capabilities and sustainability.

BMW Financial Performance:

BMW Group (Worldwide)

Conclusion on the Financial Analysis:

Worldwide economic and financial crisis had a major impact on BMW business in the year 2009.Significant fall in Gross profit, EBIT margin and ROCE ratios implies reduction in BMW Group's earnings and increase in direct cost and debts. However, BMW made it through crisis without severe trouble with the support its liquidity and efficiency.