Bus3005 Strategic Management For Domestic Assessment Answers

1. Consider the way that the organisations utilise key resources to create an advantage. Where do the key strengths lie within the selected company’s? Please do NOT use a SWOT to establish this. Consider innovation and competences.
 
2. Consider decisions made by your company that affect the products, markets and structure of the organisation. To what extent has this aided or disrupted the pursuit of competitive advantage. (Hint: New product markets/ new country markets/ alliances and acquisitions

Answers:

Introduction

Strategic management is believed to be the procedure of planning the business for developing the strategies in different contexts like international or domestic. It can be said that strategic management is useful for all the industries existing in the world for gaining higher benefit from both the domestic and international market. In terms of the automotive industry, the companies require to follow a series of strategies due to the developing competition in the global market (Kumar 2016). This study will focus on the compare and contrast of the activities of two of the major companies in the international car market, BMW and Audi. Both the brands have some specific strategies for reinforcing the meaning of the brand through their actions in the global market. As a result to that, both of the companies require to develop an innovative communication strategy that is competent enough to gain the competitive advantage in the market. This study will analyze the strategic actions taken by both the companies form this point of view.

Background of Companies

Bavarian Motor Works (BMW) was founded in the year 1917 by Franz Joseph Popp. This company was the sole producer of the aircraft engines at the time of World War I in 1918. Now, BTW is one of the largest manufactures of cars in the entire world along with Audi, Rolls-Royce, Mercedes and several others (Bmwgroup.com 2017). However, it is noticeable that BMW group is the sole manufacturer of the motorcycles and automobiles all around the globe which only concentrate on the quality and keeping the premium standard of their brand. The brand has maintained exceptional quality across all the segments.

Audi has been established in the year 1899. The company was not initially named as Audi; rather it was a joint corporation of few companies. From December 1914 it was known as the joint stock organization (Audi.com 2017). The brand has already established a series of sports achievements from the very beginning of the company. Within a few years, the company was known internationally.

Both the companies have applied several strategies to communicate with their target customers. Even though they do not belong into the category of constant competitions, there is always a war between both of them. Mostly this involves a marketing war. As both of them have already established in the global market, their major concern is to sustain and be at the first position in the market (Jun and Park 2016). In this study, we will focus on finding the major strengths of both the companies within the industry.

Porter’s five forces Model

Threat of Substitutes: Substitution of the BMW and Audi can hardly be found as it holds a strong image in the position of the market. The threat can be from the new manufacturing industries specially the sport bikes and the cars. Threats can be from the Government in case of the fuel emission issues and encourages using public transport in order to reduce the issues related to the traffic. The effect on both the Audi and the BMW is low as it follows the regulations of the strategic environment (Kauerhof 2017).

Competitors: Though the BMW and Audi are considered as leading competitors, there is intense competition in the market. There are some hybrid cars that are highly developed and the factors like fuel efficiency helps in attracting the customers to build an automotive market. Other than that, Mercedes, Rolls Royce are the leading competitors in the international market. The Toyota is slowly heading in the market that has a high market share namely the “PRIUS” (Lüttgens and Diener 2017).

Buyer’s bargaining powers: The advertising and the marketing prospects often influence the customers. The reviews that are collected from the websites and the various magazines help in influencing the behavior of the customers. Often segments of review are provided by making a wide comparison between the cars. The BMW and Audi have a specific target market audience and the designs are very attractive. The market is quite high on the buyers of the BMW but that also depends on the financial background of the customers. Therefore the bargaining powers are medium to high for both the cars.

Supplier’s bargaining powers: There is a need for the different raw materials like the services, parts and the labor services and even a slight delay of these services may affect the customer with its delivery. The profit of the BMW and the Audi Company affects the supplier cost and the distribution of these products. Not always does the supplier affect the profit structure of the Company (Gomes and Romão 2014). The BMW is very particular of the quality of the product that helps the suppliers and that affects the cost chart. The achievement of the BMW and the Audi has a complete influence on both the business and profit of the business. The bargaining power of the suppliers depends from low and to medium in case of the Audi automobile industry. The parts of the cars have a definite specification that lies on the quality of the standards.

Barriers to entry: The Audi and the BMW are considered the best in their class in the automobile industry. Often an entry into the competitive market requires a lot of funding, capital and highly skilled engineers are often required. The fact cannot be denied that the BMW is considered as having the world class designers and the engineers who help in developing different cars which includes an innovative method (Aslan 2017). 

PESTEL Analysis of BMW and Audi

Political

The political factors have been a great influence on both the organizations. The political system of Germany, their origin country, has been quite stable comparing to other countries. It has a liberal foreign policy which has helped the companies to flourish in the international market. However, in the emerging markets such as Brazil, China or Russia, the companies may face some conflicts not only in terms of investors, but the buying power of the customers can reduce as well.

Economic

The economic factors have also played a major role in the development of the business environment. There have been huge demands for light Audi cars in the international market place. In the year 2012, the demand for Audi cars have reached to 66.6 million, whereas BMW has done business for 62 million in that year (Ruff 2015). However the debt crisis in different countries has hindered the growth of the companies, however in Brazil, China and India, the market expansion is still going strong. The recent currency fluctuations and the rising price of raw materials have impacted the growth of the companies in a negative way (Lüttgens and Diener 2017). Along with that the increasing price of oil has made the prices of cars quite high in the global market.

Social

According to Meyer and Xin (2017) all the business cultures are influenced by the socio cultural features. These features constitute the attitudes, value and the belief of people which affects the organization in different ways. The demographic changes in the international scenario had caused cross-cultural challenges for BMW and Audi. The analysts have forecasted that by the year 2060, around 35% of the population of Germany would be over the age of 65 (Morden 2016). The organizations have identified that the younger generation tends to be more tech savvy and more demanding in terms of cars. Therefore they have to address these changes immediately and respond in such manner.

Technological

There are several new challenges in the global market for both the companies. BMW has adopted the energy strategy for further innovative moves in the global market. Within 2008, BMW has shown immense technological advances and they have been able to reduce the emission of CO2 from their cars to around 27% (Raisch et al. 2014). They have used their aerodynamics technology for doing that. Audi has also responded to the global pressure of the consumers and started investing in the green challenge with e-ton projects and TDI.

Environmental

Both the companies have adopted new technologies to reduce the emission of CO2. BMW has used innovative technological innovations to control the cold air intake in their cars which turned into less CO2 emission. Audi has also responded to green movement trend as this movement has already contributed to dominate the purchasing power of their vehicles (Stead and Stead 2013). The major ideas of their environmental challenges are to develop different procedures that are ecologically efficient for production. They also focus on improving the environmental capabilities of their sites and products.

Legal

As per Foss and Hallberg (2014) the legal factors play a crucial role in the business environment. The origin country of both the brands, Germany, is a social, constitutional state which supports the human rights and the individual citizen. Also, different countries have rules and regulations with the operations such as safety standard issues, gas emission laws etc. Therefore the companies have to ensure these are maintained.

Key Strength of the companies

Innovation

From the beginning of the company, innovation has contributed the most in the success of BMW group. Not only in the field of mobility and technologies, but BMW has also shown its innovative moves in the marketing field as well. In terms of technological innovations, BMW has incorporated fully automated car parking. There are four laser scanners in the car that scan the entire area for generating an actual image of the surrounding areas. There is a remote controlled parking assistant which links the digital car parking plan and it is also capable of driving the car safely for parking in an empty and safe space. In the near future, BMW brand is planning to incorporate automated driving feature (Morschett, Schramm-Klein and Zentes 2015). The organization realizes that even though the technological challenges are there, this feature will help the consumers to have a safe, comfortable and efficient driving. Also, the BMW cars have shown immense advancements in terms of connecting the cars with the traffic. The consumers are capable of using the applications to connect with drivers in the surroundings.

On the other hand, Audi also exhibits a consistent result in the automotive innovations. They have received the global award of being in the premium category of car manufacturing. The four ringed logo has demonstrated significant segments such as lightweight construction, aerodynamics, pilot driving and connectivity (Ruff 2015). Other than these segments, there are around 84 improvements and innovations in their cars in recent times. For understanding the innovations in both the brands, it is necessary to understand their target consumers as well. The following chart will exhibit the target consumers of both BMW and Audi.

As we can see most consumers are the same, the brands have faced immense competition in the market. In terms of innovation BMW has developed different technologies. Other than that, the brands have also faced marketing war in the international market. There is always a cold war between these two brands. It has also resulted into the billboard war where Audi has posted “Your Move, BMW” and in answer to that, BMW has posted, “Checkmate” (Parnell 2013). It was again taken over by Audi saying “Game Over” with their spectacular Audi R8 series. 

Competence

While analyzing the competence or the resources of BMW group, it can be seen that the group is having a tough competition in the international market because of other existing premium brands. According to Chernev (2015) the company has to spend a lot of money in the research and development section to live up to the expectations of the consumers. This sector is very much significant in gaining the competitive advantage in the market. BMW also has a strategic alliance with other car companies such as Fiat and Alfa Romeo, which has been effective for the organization in generating the advantages by saving costs and gaining the economy on scale. Wahl (2015) also pointed out that to understand and analyze the competitive advantage of the company; RBV model considers the internal resources to be the most important factors that can be helpful in exhibiting superior performance of BMW. It has been obvious that the major competence and the main resource of BMW is the technical design knowledge that can be converted into more innovative products for meeting the expectations and demand of the consumers. The tangible assets of the company involve the machinery, building, land and capital. BMW already holds approximately €9456 million of assets that shows a steady increase every year. However, Wahl (2015) have shown that the tangible assets do not ensure having a higher competitive advantage in the market. Chernev (2015) have indicated that in terms of intangible assets BMW has huge technical designs which have helped the organization to create and design the superior quality cars for their premium consumers. This technical knowledge has helped BMW to possess a great reputation of their brand as well. Therefore, it can be said that the major resources of the organization are the intangible assets which help them to develop their brands in the market.

On the other hand, Audi has established the light weight design of their cars to be their core competence. Audi has already considered their lightweight construction to be the first priority. The company has been the pioneer in the global automotive industry for exhibiting aluminum and self-supporting body. The future innovations of the brand always target ensuring that they can continue with this. In fact, the brand ensures that they will provide a more lightweight car than the previous one (Parnell 2013). The core competence of Audi has always been producing light cars and they have produced it in large volumes. While introducing their first A8 version in 1994, they have been able to develop the ASF design. It has also developed the other integrated approaches and all the stages that are required for the car production. After that, the brand has only produced cars with ASF bodies. The brand has also improved their space frames. Audi has also included the multi-material space frame which has been named to be exact approach to build the cars in higher volumes (Frynas and Mellahi 2015). It maintains the overall energy balance along with maintaining the lower costs.

Value Chain Model

BMW

Audi

Conclusion

In conclusion it can be said that the strategic management involves making the structure and implementing the initiatives and the objectives that are adopted by the company. The value chain models of the BMW and Audi have shown their expansion all around the world which require a well organized strategic management. The supply chain direction of both the companies is to maintain the high advantage in the market along with their operational process. This study has shown the external and internal analysis of both the companies in the global market to identify their strategic management. This study has also identified the major strengths of both BMW and Audi in order to identify its strategic management.

Reference List

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Audi.com. (2017). The World of Audi. [online] Available at: https://www.audi.com/en.html. Accessed 31 Jul. 2017.

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Kumar, K., 2016. Strategic Management On BMW.

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Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international management. Springer.

Parnell, J.A., 2013. Strategic management. Sage.

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