PESTEL-Analysis of BMW E-Book

• Herausgeber: GRIN Verlag
• Sprache: Englisch

Veröffentlichungsjahr: 2015

Beschreibung

Seminar paper from the year 2015 in the subject Business economics - Business Management, Corporate Governance, grade: 70 %, Prifysgol Cymru University of Wales, language: English, abstract: Germany is one of the leading car manufacturer industries in the world. The German automotive market convinces customer preferences around the world with companies like Volkswagen, BMW or Daimler, as confirmed by export rates of 190 billion euro through vehicles and components in 2012 (Frankfurter Allgemeine Zeitung, 2013). The Bavarian automobile manufacturer BMW is one of these highly regarded and ven-erated automobile brands. The enterprise BMW Group assert their top position in the premium segment with a new record in global sales of about 2.1 million automobiles in 2014. The additional brand MINI could hold the level of its sales from the previous year and, for the first time, Rolls Royce Motor Cars was able to increase the sales over 4.000 units in 2014, and thus assert the position as the market leader in the absolute luxury segment. Hawranek (2008) and Reithofer, chief executive of BMW, (BMW Group, 2015) emphasise that the company remain faithful to its strategy to continuously hold the position as the world’s top seller in the premium class. The elaboration will present an environmental analysis of the BMW Group in the automotive industry with help of the principles of a PESTEL-Analysis. After a general over-view of the automotive industry in the 21st century in chapter 2, each point of the PESTEL-analysis will be processed separately in chapter 3. The conclusion in chapter 4 in-cludes the results, an overall assessment of the BMW Group and recommendations considering the focus of the business strategy.

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Table of Content

Table of Content

Table of Figures

1. Introduction

2. Automotive industry in the 21st century

3. PESTEL Analysis for BMW

3.1 Political

3.2 Economical

3.3 Social

3.4 Technological

3.5 Environmental

3.6 Legal

4. Conclusion

4.1 Critical discussion and overview of results

4.2 Overall assessment of the BMW Group

4.3 Recommendations for business strategy

Bibliography

Table of Figures

Figure 1: GDP Growth Rate Euro Area 2005-2015

Figure 2: CO2 per g/km for registration of new vehicles

Figure 3: BMW - Region of Applications for Patents

1. Introduction

Germany is one of the leading car manufacturer industries in the world. The German automotive market convinces customer preferences around the world with companies like Volkswagen, BMW or Daimler, as confirmed by export rates of 190 billion euro through vehicles and components in 2012 (Frankfurter Allgemeine Zeitung, 2013).

The Bavarian automobile manufacturer BMW is one of these highly regarded and venerated automobile brands. The enterprise BMW Group assert their top position in the premium segment with a new record in global sales of about 2.1 million automobiles in 2014. The additional brand MINI could hold the level of its sales from the previous year and, for the first time, Rolls Royce Motor Cars was able to increase the sales over 4.000 units in 2014, and thus assert the position as the market leader in the absolute luxury segment. Hawranek (2008) and Reithofer, chief executive of BMW, (BMW Group, 2015) emphasise that the company remain faithful to its strategy to continuously hold the position as the world’s top seller in the premium class.

The elaboration will present an environmental analysis of the BMW Group in the automotive industry with help of the principles of a PESTEL-Analysis. After a general overview of the automotive industry in the 21st century in chapter 2, each point of the PESTEL-analysis will be processed separately in chapter 3. The conclusion in chapter 4 includes the results, an overall assessment of the BMW Group and recommendations considering the focus of the business strategy.

2. Automotive industry in the 21st century

The car industry can be described as well-engineered, highly competitive and vibrant. An increase in product variety and customer services as well as a similarity of the existing models of different manufacturer leads to an elevated pricing competition (Guerzoni, 2013).

The automotive industry is constituted of three major sectors - USA, Northeast Asia and Western Europe. They achieve 80 % of total sales and nearly 90 % of total output (Lynch, 2006, p. 698; Donnelly, et al., 2002, p. 31).

Global sales of passenger cars hit over 74 million vehicles in 2015 and global production of passenger cars amounted over 67 million vehicles in 2014. Volkswagen is leading manufacturer in production with about 9.3 produced vehicles in 2013, followed by Toyota with 8.5 million vehicles. The leading manufacturers in sales are Toyota ex. Hino and General Motors with 10.2 million vehicles sold in 2014 (statista.com, 2015).

The annual turnover of the German automotive industry amounted to 360 billion Euro in 2013 (almost 1 % more than in 2012). With 14 million produced passenger cars, Germany still represents the fourth largest car manufacturer after China, USA and Japan (Bundesministerium für Wirtschaft und Energie, 2015).

Townsend & Calantone (2014) points out that the “car industry is an integral component of the global economy and is unique in that it encompasses every aspect of the value chain – from raw materials to design and development, manufacturing, sales and services, and even disposal. All of these value-creating areas are undergoing significant innovative change as a result of environmental and competitive forces.”

New trends constrain manufacturers to develop new business models and to cooperate with more partners like energy suppliers, telecommunications providers and other high-tech companies. Therefore, automotive organisations constantly need to optimise their global value chains.

3. PESTEL Analysis for BMW

“Companies are managing the new product development and innovation processes in an environment of increasing government oversight of energy policy and consumption, increased influences on ownership structures, and increased safety regulations.” (Townsend & Calantone, 2014, p. 4). Therefore, automotive manufacturer has to transform to global orientated enterprises.

Business analysts of organisations desire to understand the factors that can affect the environment in which the business operates. One framework for doing this is known as a PESTEL analysis. PESTEL illustrates an acronym that stands for Political, Economical, Social, Technological, Environmental and Legal (Yeates & Wakefield, 2004, p. 265).

The PESTEL Analysis provides an extensive list of influencing factors on the potential success or failure of certain strategies (Johnson, et al., 2011, pp. 80-83). The PESTEL concept will be employed to assay the different points in each area considering only those who are important for the automotive industry.

3.1 Political

Government regulations restrict most manufacturers as well as BMW in points of, for instance, political stability, missing trade agreements and congestion charges on vehicles. These aspects are affiliated to legal factors (cf. 3.6) whereby the decisions are set up by political authorities.

Regarding to the political stability, if BMW focuses on the headquarter location Germany, it is obvious that since Germany is politically highly stable, there is no reason to fear political conflicts or riots, however, it possesses a high tax burden which could be a clear competitive disadvantage. The political instability respectively risk of conflicts in emerging markets such as China, Brazil and Russia can not only have negative influence on local customer spending patterns, but also investments in these regions may be afflicted with risks. Also, assembly plant locations like Egypt need to be taken more seriously (Lagi, et al., 2014).

Another point illustrates the use of free trade zones. Chief executive Reithofer insists on a free-zone area between USA and Germany, since all SUVs are manufactured in the US plant Spartanburg. The export of these vehicles to Europe costs 10 per cent duty which is due to an increasing popularity of SUVs in Europe a distinct disadvantage (BMW Group, 2015; DIE WELT, 2014).

Furthermore, governments of several countries want to or already launched congestion charge zones such as the UK did in London which is also a distribution area of the BMW Group. This is a result of the enforcement of new laws related to CO2 emission which is picked up once more in part 3.5 and 3.6. However, when governments decide to distribute scrapping bonuses, it stimulates the buying of automobiles in the short term (Hansen, 2010).

3.2 Economical

The economical factor refers to macroeconimic aspects like changing customer demands and exchange rates which influence home and international markets. Furthermore, the factor relates to business cycles, different economic growth and inflation rates as well as consumer expenditures along with their disposable income.

Automotive manufacturer like BMW need to launch more vehicle models considering local available income and preferences of customers to satisfy customer expectations around the world, however its lifecycles abbreviate continuously. It is not possible to meet the demands of international markets through standard products anymore. Saturated markets urge to innovations such as more fuel-efficient cars (Rasch, 2013). Furthermore, the demand for smaller cars and SUVs increased in the last view years. Therefore, BMW developed, on the one hand, the series 1 models meeting customer expectations for smaller premium cars and, on the other hand, the series X models representing premium SUVs. In addition, BMW plans to launch a Mini-SUV called BMW Urban Cross to gain larger market share in the booming sector of smaller SUVs. Excess capital and high purchase power in emerging markets such as India or China benefit the company in these points (Euler Hermes Studie, 2014; Boeriu, 2015).

Next to strong distinctions in global inflation rates, it is obvious in the following figure that a volatility in the euro area GDP growth rate shows that especially financial crisis affect consumer purchase behaviours and credit facilities for potential car buyers like the economic recession did it in 2009.

source: (Trading Economics, 2015)

Figure 1: GDP Growth Rate Euro Area 2005-2015

This includes the need of sensitivity of carmakers on price fluctuations. The clearest example can be seen in crude oil prices where one barrel cost averagely over 100 USD between 2011 and 2014 and less than 60 USD at the current time (InvestmentMine, 2015). Furthermore, DAX companies and their profit including BMW had to record heavy currency losses through the strong euro because of weak currencies in emerging markets. But, the constantly increasing value of Renminbi meets BMW (Knop, 2014; Kaya, 2014).

3.3 Social

A society with high needs for mobility and flexible vehicle concepts as well as changing customer attitudes towards savings and expenditures and family patterns confronts automotive manufacturer at the present time.

The constantly aging population especially in Europe, Northeast Asia and to a lesser degree in North America has serious impacts on social security systems and thus on the global labour market. BMW employed of its 116.000 employees worldwide a large number in Germany where not only the number of elderly people increases, but also the number of the entire population decreases (Brosius-Gersdorf, 2011, p. 48; BMW Group, 2015). BMW will experience difficulties to find enough qualified labour and to adapt working conditions to every employee. However, BMW already started several initiatives to strengthen performance and use the experience of elder employees with projects like “Today for tomorrow” (BMW Group, 2015).

Moreover, the society with high requirements for mobility and flexible vehicle concepts comprises to some extent more and more seniors with specific needs in a constantly aging population such as in developed countries. For example, boarding, hearing, handling and seeing (e. g. night vision) has to take in consideration. Unfortunately, BMW produces models according to usage profiles and not to age groups (Kolwitz, 2014).

Changing family patterns lead to innovations like the 2er Active Tourer of BMW illustrating a new product on the market with only one competitor, the B-class of Mercedes-Benz. A compact van for customers with family or otherwise space requirements without renounce the typical sportiness and agility of the brand (BMW Group, 2015; Autohaus, 2014). Moreover, a growing interest in more fuel-efficient cars is among other things a result of deeper thoughts about savings whereby other purchasers will not be willing to pay more money for a cleaner car (Rasch, 2013).

3.4 Technological

Technological factors are related to branch-specific innovations and discoveries such as “green” technologies, internet-enabled technologies, alternitive driving forces and driverless cars.

An unprecedented diversification of driving forces may be the result of a rising popularity of green technologies and breakthroughs such as alternative fuels and connected driving in the automotive industry. Petrol and diesel motors, electric drive, several hybrid drives and the hydrogen drive are in close competition. It is certain that cars will become to a communication central linking a car with assistance systems such as the internet, computers or central traffic control systems (Rasch, 2013; Maxwill, 2012). The realization of driverless cars or without help of a driver moving vehicles is probably the greatest aspiration in the near future (Rasch, 2013; McFarland, 2015).

BMW convinces next to improvements in aerodynamic and lightweight constructions as well as sophisticated intelligent energy management with electric and plug-in hybrid cars such as BMW i3 with a pure electrical drive and BMW i8 with a plug-in hybrid motor possessing a combination of an electric motor in the front and a combustion engine at the back. Additional similar models are BMW X5 eDrive and BMW ActiveE. BMW developed the models ActiveHybrid 3, 5 and 7 combining an electric motor, a combustion engine and a lithium-ion-battery and thus present world’s first manufacturer of a wholesome hybrid vehicle in the premium class of sports sedan. Furthermore, BMW introduced the first – produced in small series – hydrogen vehicle of the world in 2006. The BMW Hydrogen 7 proves confidently its road capability. Moreover, the Bavarian manufacturer offers “ConnectedDrive” providing services and apps like driver assistance, internet, navigation, entertainment, real time traffic information or intelligent emergency calls (BMW, 2015).

3.5 Environmental

Environmental influences exclusively deal with issues like climate change and the impact of pollution. Moreover, sustainability of raw materials, energy consumption and the impact of the environment on the individual’s lifestyle affect the behaviour of an organisation.

A significant impact on the climate change has the automotive industry. The transport in Europe contributes significantly with a percentage of 26 % to CO2 total emissions. The passenger car traffic takes responsibility for approximately 12 %. However, China produces more CO2 than the United States and Europe together. Furthermore, the influence of fine dust resulting in air pollution through cars leads to legal regulations especially in Germany (Umweltbundesamt, 2015).

But, the pressure to a more environment-friendly driving does not only come from politics. It also comes from the customer whose interests drift increasingly to “green” and more fuel-efficient products. BMW is on the right track to convince their customer and the EU emission targets by sustainability through their project “EfficientDynamics” including a significant reduction of consumption and emissions with simultaneous increased performance and driving pleasure in each produced vehicle. Intelligent energy management and engine efficiency measures are only a part of their input for sustainable mobility. The developed electric cars BMW i3 and ActiveE drive emission-free and the BMW i8 with plug-in hybrid technology has only 49 g/km CO2 emission (BMW, 2015).

Moreover, there is an obvious change in waste management practices. The Munich carmaker minimizes the impacts of the environment not only in production and utilisation, but also in recycling. The recycling of end-of-life vehicles at recognized disassembly operations includes the removal of valuable raw materials which are subsequently implemented in the production cycle (BMW, 2015).

3.6 Legal

The legal factor is strongly related to political factors and addresses primarily limitations and changes which are required by law.

The BMW Group has production facilities in 14 different countries. Besides international trade regulations from the World Trade Organization (WTO) with 160 member states, each country has their own trade regulations including individual payment formalities and standards. Depending on plant locations, it is useful to take industry specific legislations in consideration. Taxes vary in economic sectors and products which is important when vehicles or components are imported (Lee, 2012). There are, for example, different regulations like a subvention for electric cars which are exclusively produced in China. The subvention implies the cancellation of a 10 per cent sales tax, but the model BMW i3 which is also produced in China did not received this tax advantage because of absent comprehensive technical requirements and tests (manager magazin, 2014).

Moreover, there are laws belonging not only to health and safety for employees, but also for customers in form of product responsibility which for BMW means first of all maximizing the safety of its vehicles for customers and all other road traffic participants and their employees considering e. g. human rights and workplaces free of any danger (BMW Group, 2015). Thereby, it is necessary to comply the same standards in manufacturing locations in emerging markets which has been under discussion (Horwitz & Budhwar, 2015).

Like mentioned before, EU Directives like long-term emission targets imposed to limit the climate change. The European Union reaches an agreement to reduce its greenhouse gas emissions by 20 % by 2020 in relation to the level of 1990. New vehicles shall no longer emit more than 95 gram CO2 per kilometer as of 2020. Until 2015, a limit value of 130 g/km has to be achieved (EU law and publications, 2015).

The following figure will visualize the development of CO2 in g/km per new applications concerning several car manufacturer.

source: (Karius, 2014)

Figure 2: CO2 per g/km for registration of new vehicles

The CO2 emissions per registration of new vehicles from BMW reduced by 18.3 per cent in the course of the years of 2010 to 2014 and reached under 137 g/km. It is uncertain wether the large automotive manufacturers like BMW can adhere the EU guidelines (Eckl-Dorna, 2014).

Significant other regulations come about patents and copyrights in terms of innovations for car devices and functionalities. The automotive industry is a driver of increasing new registrations of patents. In 2013 alone, there were over 53.000 applications of patents especially in the sector of new driving forces. The significant frontrunner is Toyota with 14.000 patents which are more new registered patents than twice as much as VW, BMW and Daimler together (Stroh, 2014).

source: (Munich Innovation Group, 2012)

Figure 3: BMW - Region of Applications for Patents

As the previous figure shows, 60 % of BMWs’ registrations are effected in Germany, 14 % in Europe, 13 % in the USA and 2 % in China. The acquisition of Roles-Royce Motor car was also related to use the patents and construction patterns in the future (Munich Innovation Group, 2012).

The Competitive Automotive Regulatory Framework for the 21st century (CARS 21) examining “the major policy areas which impact the competitiveness of the European automotive industry” (Automotive Industry Committees and Working Groups , 2013). It involves, for example, aspects like environment, road safety, trade or taxation and fiscal incentives as well as technical regulations (European Communities, 2006). There are certainly various other regulations coming from single countries or the WTO concerning mentioned subject areas.

4. Conclusion

In conclusion, it can be noted that the consisting highly-competitive automotive industry is shaped by innovation pressure trough a huge number of competitors with increasing product ranges, constantly changing purchase patterns, social demographical changes, stricter guidelines concerning the environment and other sophisticated laws.

4.1 Critical discussion and overview of results

Basically, BMW has not only well political preconditions in the domestic market Germany, but also in emerging markets in the world, although, there are several conflict regions. New free trade agreements between Germany, the United States and China would decrease BMWs’ trading costs and boost the economy (DIE WELT, 2014). Moreover, additional costs such as congestion charges or emission sticker impact negatively and subsidies like scrapping premiums impact positively on BMW through a potential change in consumer’s purchase decision.

The economic factors resulted that BMW constantly need to develop new innovative products to meet international demands. The car fleet variety of BMW has increased competitively in the last decades (Zhu, et al., 2008). BMW’s sales and profit could be strongly influenced by economic recessions and price fluctuations because of changes in purchase behaviours as well as by currency losses (Kaya, 2014; InvestmentMine, 2015).

Regarding to social aspects, the aging population in industrial countries, on the one hand, complicates BMW’s search for new qualified employees and changing requirements and attitudes of seniors or families, on the other hand, poses a challenge to create new innovations for BMW (Rasch, 2013; Kolwitz, 2014).

BMW’s pressure on new technological innovations in form of new driving forces because of lower consumptions and lesser emissions as well as cross-linked communications increases constantly (Rasch, 2013; BMW, 2015). Although, the company provides a broad range of electric and hybrid cars in contrast to its competitors, there is so far no development towards a driverless car such as the Mercedes-Benz F 015 (BMW, 2015; Mercedes-Benz, 2015).

Furthermore, their responsibility towards the environment rises due to the climate change (Euronews, 2014), but the Munich car manufacturer complies with strategies like “EfficientDynamics” (BMW, 2015).

Despite WTO trade regulations, there are a lot of different tax and payment regulations around the world (Lee, 2012). Moreover, the European Union put BMW with very tight emission regulations under pressure and, likewise a “patent war” influence the automotive industry competition (Stroh, 2014).

4.2 Overall assessment of the BMW Group

The BMW Group is one of the most successful automotive manufacturer in the world. In 2014, BMW achieved a personal record in global sales of 2.1 million vehicles in the premium class, however, direct competitors like Toyota, Volkswagen or General Motors reached a sale of approximately 10 million vehicles. Accordingly, the profit of Toyota was nearly 17 billion Euro, followed by Volkswagen with 11.5 billion Euro in 2013. Despite comparatively small sales, BMW came up to the third place with almost 8 billion Euro profit (Statista, 2015) which emphasizes a strong established brand and business strategy. Furthermore, BMW illustrates a pioneer in innovations concerning electric, hybrid and hydrogen cars (BMW, 2015) which thereby constitutes BMW’s awareness of sustainability.

4.3 Recommendations for business strategy

The business strategy of BMW should increase its focus on risk management which should analyse environmental, social, economic and governance risk potentials. It should prevent the management for investing in regions with hidden disadvantages and unattainable sustainability standards. For instance, large losses through currency fluctuations could be recognized earlier or prevent through hedging transactions, even if these involve additional costs (Knop, 2014). Furthermore, an assessment of environmental risks should include emission rates or dangerous to health materials, child or forced labour should be mentioned by social risks and, in addition, political instability regions like in the Ukraine and Russia should be recognized early.

Moreover, it is necessary that BMW keeps innovation rates on a high level with regard to customer requirements since the similarity of products on the market increases and thus reinventions might be constitute a considerable strategic advantage. It is reasonable to develop a driverless car like the direct competitor Mercedes-Benz which is suitable for everyday life and cars which are produced due to a better handling for seniors without neglecting the recognition features of the brand. Additionally, it is recommended that BMW increases patent applications like Toyota did it in the last decade (Stroh, 2014).

Finally, it is advisable to concentrate foreign trade and marketing on large emerging markets (BRIC-states) such as China due to enormous predicted surplus capital and purchasing power and, associated therewith, 1.3 billion inhabitants whereof only 3 % have so far an automobile. Analysts saw additional potentials in regions like Korea, Turkey, Mexico, South Africa or Thailand (Doll, 2012).

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