Research Korner: BMW Case Studies

CORPORATE STRATEGY

1. Identify and briefly describe the portfolio of businesses in the organization.   Tool & Die Design & Fabrication             - Tool & Die Design & Fabrication refers to the stage wherein issues found during the prototype fabrication needs to be improved prior to any quantity production.   Prototype Fabrication             - The prototype fabrication is the attempt to determine the completeness of the detailed design and to make appropriate corrections to the design documentation as necessary. This phase is a more detailed systems integration phase then the earlier integration that was performed during preliminary design. This phase is also the first integration of all the mechanical components in the assembled unit.   Precision Metal Stamping & Assembly             - Stamping services is the process of creating three-dimensional parts, lettering, and other surface definition onto materials.  This is achieved through the use of forms and dies which are forced into the surface of the material by extreme pressure.  When removed, the patterns on the forms and dies are indelibly stamped into the material.  Many standard and exotic engineering materials can be stamped or formed with pressure, although metal stamping is the primary application.  Stamping and forming services providers are able to perform a number of different processes, which lead to different styles of finished product.  Some of these stamping techniques include fine blanking, deep drawing, wireforming, and fourslide and multislide stamping.   Electronics Manufacturing Services             - Refers to the design, assemble, produce, and test electronic components and assembles for original equipment manufacturers (OEMs). Electronics manufacturing services (EMS) has also started to provide design services used in conceptual product development advice and mechanical, electrical, and software design assistance. Testing services perform in-circuit, functional, environmental, agency compliance, and analytical laboratory testing. Electronic manufacturing services are located across the United States and throughout the word and usually vary in terms of production capabilities and comply with various quality standards and regulatory requirements.   R&D and Manufacturer of Consumer Products             - Manufacturer of consumer products refers to the transformation of raw materials into finished goods for sale, by means of tools and a processing medium, and including all intermediate processes.   2. Prepare a list of the identifiable stakeholder groups for the organisation, what they contribute to the organisation, what they expect from the organisation and what the organisation expects from them. Focus-tech Holding Pte Ltd 64,982,822 17.40 HSBC (Singapore) Nominees Pte Ltd 41,599,000 11.14 DBS Nominees 36,765,905 9.84 Raffles Nominees 19,742,200 5.28 Dr Felix Ong Kim Huat 19,412,992 5.20 Seah Cheong Beng 7,911,544 2.12 Citibank Nominees Singapore 6,397,600 1.71 UOB Kay Hian Pte Ltd 6,152,000 1.65 United Overseas Bank Nominees 5,100,000 1.36 OCBC Securities Private Ltd 4,859,400 1.30 Seah Chiong Kok 4,741,540 1.27 Citibank Consumer Nominees 4,356,200 1.17 DBS Vickers Securities(S) 3,253,012 0.87 OCBC Nominees Singapore 2,804,200 0.75 Hong Leong Finance Nominees 2,648,802 0.71 Kim Eng Securities 2,619,200 0.70 HL Bank Nominees 2,090,000 0.56 Phillip Securities 1,718,340 0.46 Soh Lay Choo 1,449,110 0.39 Chio Kian Huat 1,326,800 0.35       Total 239,930,667 64.23                       The company's strategy is developed by the executive management, although it is normally necessary for the approval of the board to be obtained for major transactions or changes in strategy, and sometimes necessary for shareholder approval to be obtained as well.  The board usually meets monthly, and performs (or is supposed to perform) the functions of reviewing strategy and monitoring the performance of the executive management. This division of functions between the shareholders, the board, and the executive management is an inevitable consequence of the large size and scale of operation as of most companies.   3. Develop a set of Balanced Scorecard type of "perspectives" which are appropriate to the selected organisation. Develop a corporate strategy map which maps out the organisation's current corporate strategies within those perspectives. Develop an appropriate set of "metric" which can be used for corporate reporting and management purposes.   Relationships with competitors focus particularly on pricing and market positioning. In some markets, competitors have reached a point, in which there are generally understood rules of the competitive game. In others, there is no sense of a repeated game, and competition may be pursued to mutually destructive lengths. Sometimes technological change, or new entry, may shift an industry from stability to instability in its competitive process. Positioning and pricing are relevant to relationships with customers as well as with competitors. Advertising and branding are mechanisms by which firms communicate with their customers, but are also strategic tools governed by competitive interactions.   The strategy of the firm is the match between its internal capabilities and its external relationships. It describes how it responds to its suppliers, its customers, its competitors, and the social and economic environment within which it operates. The analysis of strategy uses our experience of the past to develop concepts, tools, data, and models which will illuminate these decisions in future. Success in business derives from adding value of your own, not diminishing that of your competitors, and it is based on distinctive capability, not destructive capacity. Distinctive capability becomes harder, not easier, to maintain as size increases. Yet in descriptions of both business and public policy, the equation of scale, power, and effectiveness is often simply assumed.   Strategy Map:             Developing strategy map in context of the perspectives recurs attention to understanding the basic structure of strategy, learning and mastering the nature of business relationships, acknowledging Seksun distinctive capabilities offered by its Human Resource people and creating a competitive advantage from these distinctive capabilities.   Metric 1: Market Position and Product Price An effective metric to consider are the issues of market position and product price. The two key influences on market prices are the costs of firms and the value offered to consumers. The less stable the competitive environment, the greater is the degree to which prices will be determined by cost rather than value. In the worst case, prices can be driven down to marginal or incremental cost. Marginal and incremental costs are often thought to be very low, but I explain how this is often a mistaken view and describe how activity-based costing helps to bridge the gap between theoretical concepts of marginal cost and accounting systems of cost allocation.   In other market environments there is more opportunity for prices to reflect the value of products to customers. In these, market segmentation-the identification of as many distinct product and geographical markets as possible--is a principal means of securing as high a proportion as possible of the value offered to consumers as added value for the firm. There are two necessary conditions for effective market segmentation. There must be economically relevant differences between the separated markets. These may arise from differences in the incomes of customers, or in the ways they use the product, or in competitive structure.   Metric 2: Competitive Environments             Positioning decisions are partly dictated by the firm's distinctive capability. Some firms are naturally suited to up- or down-market positions. But positioning is also a matter of competitive dynamics. When there are few firms in a particular market, clustering behaviour--in which several firms jostle for the same market position--is a likely outcome. As the number of firms in the market increases, they are likely to spread themselves more evenly across the range of available positions.   Increasingly, a product can only be described by reference to a wide range of its characteristics. Many different features of a car are relevant to potential buyers, and a supermarket must decide which selection of many thousands of goods to hold in stock. For commodities like these, successful firms have to make a well-matched selection of product attributes. For these firms, focus--the consistency of attributes with each other--may be as important as position. Shifts of market position, which require changes in customer perception as well as product specification, need to anticipate competitor responses. They raise special difficulties for multiple-attribute products.   Metric 3: Advertising and Branding While advertising creates brands, there are some differences between the functions of advertising and of branding. Brands are more often discussed than defined. A brand is established when an item sells for more than a functionally equivalent product. It is that characteristic which distinguishes a brand from the name of a product. The most usual reason for a price premium--and the most profitable reason--is that the customer is uncertain about the attributes of the product and is reassured by the supplier's reputation. But brands have other purposes. Some brands are little more than labels, although labels have their uses. Brands may be used by consumers to signal information about themselves to others--these are what are usually meant by brand images. Yet other brands may be attached to distinctive recipes or incumbent positions. The greatest corporate successes built around advertising and branding are those based on brands which have established several of these characteristics.   4. Identify and critically discuss the major corporate strategies that have been employed by this organisation during the last 5 years.                         The Seksun group has been shaping itself in growing as a company upon the  guiding vision of the simple notions of (1) developing its expertise, (2) Expansion of its company (3) Their commitment and resolve for service and quality (4) and its pursuance for results in conjunction with its set objectives and goals. In a more definite and recent perspective, Seksun believes that the Hard disk drives (HDD) industry is resuming healthy growth boosted by new applications for HDDs in consumer electronics devices, such as digital music players, digital cameras, digital entertainment systems, etc. Additionally, they also believe that demand for HDD components in these new devices will significantly increase production volumes that will improve the utilization rates of their FIPG operations, allowing it to contribute positively to their net profit last 2005.   The group, however, anticipates prices of raw materials to gain further in 2005. While raw material price increases have been factored into the selling prices for new programmes, the increase in prices of raw materials for existing programmes is likely to be partially or fully absorbed by the group.   Seksun believes that its shareholders will profit from the agreement with ZF Array and the adoption of a strategy to target Seksun's contract manufacturing operations at customers seeking low-to mid-volume production capabilities. This strategy will leverage on ZF Arrays San Jose-based product development centre and Seksun’s lower-cost Asian operating environment. While there would be no material impact on Seksun’s financial performance for FY 2005, they are confident that the expansion of the contract manufacturing operations will produce longer-term benefits for the performance of the Group and better returns for their shareholders. …“The current year will also see us adopting a strategy to intensify our focus on our contract manufacturing operations for the Consumer Electronics segment…” Given the above, Seksun expects that they will remain profitable for the current financial year.   Analysis: …In 1959 BMW was on the edge of bankruptcy. The company recovered to become one of the world's most profitable automobile manufacturers. Honda became the leading supplier of motor cycles in the United States within five years of entering the market…   Success is most illuminating when contrasted with failures. Corporate success, of the kind achieved by BMW, Honda, and Glaxo, is not the realization of visions, aspirations, and missions--the product of wish-driven strategy. It is the result of a careful appreciation of the strengths of the firm and the economic environment it faces. But nor is success often the realization of a carefully orchestrated corporate plan. The strategy of successful firms is adaptive and opportunistic. Yet in the hands of a successful company an adaptive and opportunistic strategy is also rational, analytic, and calculated. The capacity to adapt does not mean waiting for something to turn up for opportunism is only productive for a firm which knows which opportunities to seize and which to reject.    5. Discuss what you perceive to be the corporate direction and governance for this organisation?   Additional directives of which Seksun wishes to achieve are as follows: (1) Proposed listing for China operations in two years. The China operations have the required three year profit track record, having been profitable since inception. According to press reports, after tax profit from Seksun's China operations in 1999, 2000 and 2001 were 10.8m RMB (S$2.4m), 16.5m RMB (S$3.6m) and 30.8m RMB (S$6.8m) respectively, or 39%, 44% and 70% of group net profit (2) Move into contract manufacturing to expand service offering. Seksun bought into a contract manufacturing business last year by paying RM1.85m for a 56% stake in a Johor plant. The motivation was to offer more services its customers to deepen the relationship. The plant is already producing game controllers for the Xbox and Digital Media Recorders (which operates in DVD, SVCD, VCD, CD-Audio, MP3 and MPEG standards) for Seagate. Digital Media Recorders use a built-in HDD. With a full year contribution in FY02, Seksun is targeting to bring the business to profitability this year. (3) Lowest valuations in the sector. Current valuations do not justify Seksun's exposure to the strongest growth trends in the HDD industry and its track record of profit growth in a volatile sector. Unlike many of its peers, Seksun has stayed profitable throughout its operating history, which is a commendable track record given the industry's boom and bust trends.   These programmes are in conjunction with the Seksun group’s mission and vision statements which specifically underscores its quality policy on total customer satisfaction. While delivering products and services which meet all relevant requirements on time and by doing right the first time. Additionally Seksun continually reviews and improves the effectiveness of their quality management system to remain current and competitive.   6. Identify and discuss any current issued of corporate direction and governance for this organisation.   …A company's social responsibility program has three major areas: complying with laws, setting -- and abiding by -- moral and ethical standards, and philanthropic giving…   Social responsibility is a major subject of concern and action for all but the smallest or least aware of companies. Today it is generally accepted that business firms have social responsibilities that extend well beyond what in the past was commonly referred to simply as the "business economic function."   Quite often the responsibility for actions in this area is vested in an individual or small staff, frequently within the human resources management area. Personnel assigned to this area, then, have responsibility for social issues in three major areas: (1) Total compliance with international, federal, state, and local legislative laws and acts (2) Moral and ethical standards and procedures under which the firm will operate (3) Philanthropic giving.   Most companies find it no simple matter to formulate and implement socially responsible actions and programs. However, all companies must become concerned and involved in this area. To operate without major disruptions, a company must at all times be in compliance with legal requirements -- international, federal, state, and local. It must develop, establish, implement, and police a code of ethical and moral conduct for all members of its organization. In the area of philanthropic activity, where there is considerably more latitude of operations in how, when, where, and even if the company or division wants to contribute money or other resources to "worthy causes," the firm must deliberate about and resolve many questions prior to establishing fair and workable guidelines.   In compliance with this business requirement, Seksun has been awarded as among top SGX's "Most Transparent Companies" last 13th September 2002. Furthermore, Seksun has been granted ISO/TS 16949: 2002 Certified IATF Cert. No.:0022032 and ISO 9001: 2000 Cert. No.: 160220

CORPORATE STRATEGY

1. Identify and briefly describe the portfolio of businesses in the organization. Tool & Die Design & Fabrication ...

The Automobile Industry

The Automobile Industry Introduction Cars have become the most important form of transport since their widespread use after the Second World War. In the last century, the were considered to be the most important invention since they have affected more lives and have changed the world in more ways than any other invention such as computers, the internet, mobile phones or any other piece of technology. They have become a part of our daily lives and help us continue our existence and provide us with the services which are required for civilisation. However, it must be noted that automobiles do not exist in a vacuum and there is an extensive and expansive global industry which supports this essential method of transport. Therefore an understanding of this industry is very important for any student of business, politics and even sociology. Along with an understanding of the relevant issues of the automobile industry, it is also important to understand what can be done and what is being done by the players in the market to overcome these issues.   Fundamentally, the automobile industry is a textbook example of an industry where economies of scale pay a very important role. While there may be dozens of players around the world who produce, support and work with the industry, there are only a few producers who can claim to have a significant share of the market. Similarly, even though cars are produced in almost every developing and developed nation, only a few countries contribute in a significant manner to the global car production and consumption statistics.   This can be attributed to the fact that the first automobiles were produced and developed soon after the industrial revolution by countries that had the required infrastructure and engineering skills. For example, the first steam powered three wheeler was built in France in 1769 and the first internal combustion engine was built in Belgium while the Germans made the predecessor of the modern car in 1885. Ford started his assembly line plans in 1896 and the mass production of motor vehicles was created as an established industry (2004). In the modern world, there are just a few companies who define the overall structure of the automobile industry. They are: GM, Ford, Daimler-Chrysler, BMW, VW, Volvo, Toyota, Mazda, Mitsubishi and Nissan. These companies also formed an industry alliance which is called the Alliance of Automobile Manufacturers. In the last two decades, the industry has seen a spike in mergers and acquisitions which has consolidated many different brands of cars under the same company (2006). Very recently, technology and innovation has come to the forefront of car manufacturing since the pervasive nature of technology has motivated car producers to accept it as a given focus. Competitive Challenges For the present companies in the automobile industry, there are several different challenges which must be addressed. The first and most important challenge is the continued profitability of the company in an environment where competition from equally advanced and competitive players is always a threat. In addition to that, smaller players from countries like China and Malaysia e.g. Proton are working hard to become big players by resisting takeovers and competing in similar segments of the market ( 2004). The sector of the auto mo Worldwide, competition has also driven consumer’s expectations about performance, styling, technological innovation, comfort levels as well as reliability upwards while the expectations of costs have been going downward. International agreements like the WTO and local trade associations mean that giant car manufacturers can produce cars in one country where labour and services are cheap and sell them in another where labour may be more expensive. In fact, the process of global sourcing and international business is directly and most visibly connected to the automobile industry (2004).   For example, BMW is a global brand and it has to position itself according to the global market requirements for high end cars. In many places, the demand for luxury cars may not be as significant as others and since BMW is primarily a manufacturer of luxury cars, it should consider making inroads into areas like China and the Asia Pacific region where market growth is expected to boom in the coming years.   Moreover, economic competition for BMW is rather difficult since it competes more on the idea of luxury and style which is often much better than the other producers in the market. However, for markets where the buyers are seeking to economise on their cars, the MINI brand can work quite well if the market segmentation is handled effectively ( 2001). Additionally, cars running on alternative fuels such as hydrogen and cars running with hybrid engines can also be created for markets where there is an adequate support network for both.   This means that current producers are continually challenged to find ways in which they can lower costs while increasing the attractiveness of their products for various market segments. Even in the current scenario, industry experts expect that there will be few car manufacturers left in the world in a few decades ( 2006). The rest will either close down, be absorbed by other companies or simply cease production due to losses. It must be noted that car manufacturing and the industry itself affects millions of people around the world therefore the closing of a production plant or even the change of the location of a production plant can have serious political and economic consequences which are also a significant public relations challenge for the current players ( 2004).   Perhaps the most structural challenge for the automobile industry and the larger players in the industry is getting to grips with new technology. The challenge does not come from automotive technology but from other areas of technology like digital communications. For example, J.D Power and Associates studied nearly 30,000 car buyers in 2002 to discover that more than half the buyers look at the internet before making a buying decision about a car. Additionally nearly 90% of car buyers visit the car manufacturer’s website to get a better idea about the look and feel of the car. Therefore, the use of technology in this area is an essential requirement for car manufactures of today (2004). The current players would do well to learn the lessons taught by retailers like Wal-Mart and other industrial giants who have learnt to optimise their supply chains with the use of technology. This use of technology is more important for car manufacturers since increased efficiency of the supply chain would mean reduced costs, increased productivity and improved cost figures. These things would in turn lead to greater profitability. Of course they might not directly connect with political or social challenges but they might help in improving the solutions which can be given.   This is because the automobile industry as a whole has come under a lot of pressure from environmentalists, governments as well as special interest groups to reduce carbon emissions and the creation of greenhouse gasses which result from the use of their product. At the same time, vehicles form the basis of our civilisations since ambulances, fire engines and even the engines for air planes would not function without the products made by car manufacturers. There is a very delicate balance between the requirements of the economy and the requirements of the environment and things like hybrid engines and alternative fuel cars can help this balance from a technological standpoint (2004).   Toyota and Honda for example, are Japanese manufacturers who have been very successful with their hybrid engines since they can work with the present fuel and supply networks around the world. A car running off hydrogen alone is difficult to sell since there are not too many operational hydrogen pumps in the country. Similarly, cars running on solar power or pure electric power come with their own technical challenges even though they may be cheaper to run than other cars.   Outsourcing It seems that the most important factor for success in the automobile industry is the profitability of a company which can be maintained by taking a manifold approach to both the production and the sales process. The first step for any company in the automobile industry would be to set their own houses in order by establishing their production facilities in low cost countries. Locations like China, India and even Pakistan can offer facilities for production where the labour costs are comparatively low and the end product quality remains high (2006).   In fact, the opportunity for obtaining the low costs comes with the threat that a company would also experience the negative effects of outsourced production. In many cases, proper training, established manufacturing procedures and company guidelines can tackle these problems but for some situations i.e. the design and evaluation of the product itself, it might be better to conduct these exercises in the home office ( 2006).   Similarly, the future successful motor company will have a global supply network for parts and other equipment to get the most benefit in terms of cost and production efficiencies. At the same time, this brings the threat of failing suppliers and individuals who may not be able to produce a quality product. In these cases, a company would do well to look into multiple suppliers with excess capacities to handle the requirements of the company ( 2006).   Successful companies would also realise that technology is a friend of the car manufacturer and not something which should be taken out of lower end cars. In fact, it is perhaps more advantageous to put some technological innovations available in high end cars in low end cars since it ads a lot of value for the person who is seeking a small car but still looking for creature comforts and amenities (2001). Additionally, by producing and sourcing more of the same technology a company would also gain economies of scale that reduce costs of the technology.   Moreover, carrying the same DNA in terms of technology would bring some form of standardisation to the entire production line-up which would be extremely beneficial to both the buyers and sellers of the car ( 2001). Not to mention, maintenance of the mechanical object would be simplified if repairpersons and service providers at all locations of the company understood that certain parts and components have been standardised across the production line ( 2006).   Any company who is currently in the automotive industry or plans to enter into the automotive industry must understand that good business practices in relation to outsourcing and continued customer support/services for all locations where the company operates are very important in ensuring that a relationship can be established with the customer base. Without having such an established, loyal and comfortable base of customers no company can hope to continue for long in this competitive business.   Outsourcing can also be done with the setup and launch of a new production facility which always requires careful planning and a complete analysis of the given situation before any move is made towards the establishment of an automobile production plant. The external environment in some cases can be slightly hostile since some localities may be opposed to the pollution levels or tax breaks given to such plants. Additionally, HR related problems may also be faced by the company due to the lack of local availability of key players or highly skilled labour which is needed for automobile production today.   Despite these problems, a company can handle all of their issues if they plan the new plant carefully and HR from other locations within the same country or from other countries as outside consultants. Similarly, local partnerships and strategic alliances can also help improve relationships with local communities which would eventually be beneficial for all parties rather than create an air of hostility. Additionally, automobile producers can also be advised to keep a continual check on the progress of the situation for their outsourcing needs at least during the early stages of the development and operations of the plant.   Since a new plant requires key decisions to be made on a daily basis, it is highly recommended that one or more of the board members with top decision making powers be delegated to work onsite until the plant is stable enough to be managed as a day to day operations by delegated individuals. This would be a temporary move and would only be necessary until the board itself decided that a delegated authority could now handle the operations of the automobile production plant.   The strongest recommendation goes for a board member who has had a certain level of experience in operations management, PR, or recruitment in relation to outsourcing since all of these departments would need a heavy presence at the new plant during the time it is being setup and while it is operating with a skeleton crew. As more members are added to the plant as layered middle managers, senior managers or higher executives, the requirement for the presence of a board member is diminished as duties can be delegated and passed on to those individuals (2005).     Outsourcing can also be a considered politically as a socio-cultural factor which can hurt or help the position of a company. However, with effective placement of their production plants a company can acquire a global image instead of being considered a German car maker, a French producer or an American car manufacturer. Effective use of outsourcing can help companies such as BMW to use the repute for German car making as a given in the car industry ( 2006). With outsourcing a company can gain the advantage of being a global brand while maintaining the image associated with the home country.   The Structure of the Industry The strategic importance of the automobile industry makes it a perfect case to examine how different factors interact to bring about broader changes in the organizational structure of the automobile industry in America. In order to survive and maximize profits, auto makers must comply with structural rules or the “who-gets-what” rules in the automobile industry. Structural rules are derived from production technologies (hard and soft technologies) that are successful in producing cars efficiently (1986). Automotive is a complex product, which consists of over 10,000 parts and requires multiple and complex processes for its manufacture. Mass production proved successful in efficiently producing automobiles, which explains that for almost seven decades, it determined the structural rules for the automobile industry. The automotive industry is not an easy one to enter. First of all, it is a prime example of how economies of scale and costs to entry act as a barrier to entry for new manufacturers and it is unlikely that too many companies in the world would have the finances to take on the giants in the industry. However, I think that entering into the market as a niche producer of super luxury, super utility or super cars for that matter might be possible. This is because establishing a niche in the market where everyone else is factory producing their cars could be one of the only ways in which brand differentiation can be established. Even then, a company would need to establish itself as a brand over time and custom produce cars until they could get to a point where mass production is possible. Companies like Porsche, Ferrari, and Lamborghini are all ancient names but they do not sell as many cars as Honda, Toyota or Ford. On the other hand, a company could position itself as a regional or local car manufacturer and limit itself to a particular country or region. In both cases, the investment would probably be a lot less than the required amount of money to compete with a global player like General Motors.   The structure of the industry can also be affected by legal implications since the laws concerning automobiles are certainly putting pressure on the industry to produce cars which run cleaner, are more fuel efficient and follow other requirements as per the laws laid down in the country. Internationally, some countries are more car manufacturer friendly than others but for the most part, in the coming future the legal environment will get tighter for the entire car industry. All manufacturers have to watch out for such laws coming into place and comply with them to the maximum extent in order to prevent fines or lawsuits from the government or civil unions.   Again, even if the company positions itself as a player in the niche market, it must stand out from amongst the crowd by giving some innovation, technological marvel or another unique selling point which makes it better than the rest. There are plenty of fast cars in the world, but manufacturers like Ferrari and Lamborghini dominate the scene for super cars. Similarly, Maybach, Rolls Royce and Bentley are names which are synonymous with luxury and opulence. Therefore, for any new entrant into the market, the situation can quickly become very bleak if they do not offer something which is tremendously better than what the established companies are already offering to the public.   It is not likely that the structure of the automobile industry will change significantly in the coming years since over the last fifty years the industry has shown a trend of mergers, acquisitions and expansion of the same players towards new markets. Smaller players will likely be taken over in time by others and as the industry develops, the automobile industry itself may move towards being transportation services providers when alternative fuels and modern technology becomes more economical than petrol or other fuels which are currently being used by the majority of cars.   Market Concentration of Automobile Industry           Industrial organization economists typically include measures of market concentration in their analysis of market performance in order to capture some of the difficulties that firms in an industry will encounter if they attempt to collude. More directly, concentration measures how large the largest firms have become relative to the whole industry. This will be, in part, a function of the stringency of antitrust enforcement policies such as merger regulation and monopolization restrictions. Since the competition in the automobile industry are too stiff, market concentration in these industries can be considered as powerful and strong. The major competitors for this kind of market include General Motors, Honda, Nissan, Toyota, DaimlerChrysler, Hyundai, Maruti Udyog, Shanghai AIC, and Volkswagen. These industries have been able to compete well in the market place all over the world.   Accordingly, it can be noted that there has been an increase in the number of industries selling cars in matured markets like Germany, Japan and United States. Figure 1 presents an analysis of passenger vehicle sales in the mentioned countries according to Hefindahl Index market of concentration.         It is said that the Herfindahl index would result to zero if the market share was evenly distributed among the manufacturers of automobiles. Moreover, the index will be equal to the number of manufacturers if a single company had been able to have a 100% national market share. Hence, the lower the index, it is considered to be in a more diverse market. In the figure below, it shows a across-the-board raise in market diversity in Japan, United States and Germany, prevailing the cause of the heightened and increasing competitive pressure that automobile industries have been facing in terms of home market. Germany has long been considered to have a diverse automobile market because of the interpenetration of European automobile markets by the European automobile industry as well as the existence of American Industries.    However, the strong sales of the Japanese automobile industry have brought the index down further since the later part of the 80s. On the contrary, the sales of Japanese automobile industries have increased the competitive pressure in the United States during the early 80s. And in Japan, the market diversity increase has been achieved from the success of smaller Japanese automobile manufacturers and the decline of the dominance of Nissan and Toyota as they hollow out local production by alternating exports with domestic production in European nations and North America.           For the automobile industry, the trend for market concentration has gone beyond every target market would imagine. In some automobile industry like those based in the United States, a few assemblers divided up the domestic market into segments. They made comfortable profits by selling a few car models in each and sitting on stable life cycles and secure price markups. From time to time, the assemblers introduced cosmetic changes in product design and styling, which they buffed up with marketing and advertising. More importantly, they got away with fat and easy profits by manipulating short-term atomistic price competition among their parts and components vendors.   The profits were so fat and easy; in fact, these auto makers did not mind imports chipping them away a bit beginning in the late 1950s. It was not until after the foreign brands had taken away more than one quarter of the American market following two oil shocks that they started to look around for ways to revitalize their past competitiveness (1990).   With its market power, however, the United States was able to bargain time for American auto builders to make improvements, With its market power, however, the United States was able to bargain time for American auto builders to make improvements, particularly by soliciting voluntary export restraints from Japanese car makers. Initially, the American assemblers sought to obtain this objective by pouring money and technology into it. But continued problems in quality and costs compelled them to look beyond procedural changes and at the critical impact of structural relations on competitiveness in products and manufacturing processes (1986). They had to move away from antagonistic and uncertain relations with their vendors and build long-term teamwork, directing the vendors to compete in product design and process superiority like the Japanese, who had now transplanted production to this country, lengthening the contract period, and adjusting the criteria of vendor selection as well as working together to improve quality and cost competitiveness (1991).   In the automobile industry, teamwork was adapted by Toyota as early as the 1930s to support its self-help approach to market entry and technological development in competition with Nissan which had followed a strategy of technology transfer (1985). Toyota enlarged its corporate identification circle by first including the parts makers in its neighborhood of Nagoya as members of the Toyota group. It offered long-term contracts to those who collaborated in quality improvement and product specialization. It also used its market power to discipline them when it saw fit. The assembler formalized supplier cooperative associations, started initially by the parts makers, as a voice mechanism to guide and support competition among the suppliers and as a forum for them to discuss problems, share information and find solutions.   These contrasted with the market competition which Nissan was pursuing, like most other Japanese manufacturing houses of the day (1991). Toyota continued with the teamwork approach to competitiveness, both in-house and with the suppliers in its group, when it shifted from truck to small car production from the early 1950s onwards. It implemented procedural improvements according to the suggestions of certain American experts (  1986) while integrating them with the fundamental changes it was introducing in the production process to develop a system capable of handling production on a smaller scale yet in greater variety than built into the imported manufacturing process, one that could genuinely meet the requirements of domestic consumer markets. Conclusion In conclusion, I feel that the automobile is quite an interesting one to watch because of the nature of the industry and the historical background associated with the rivalries between various companies. However, I believe that the future of the industry leads towards cooperation and sharing of information as more companies realise how they can benefit collectively rather than be in constant negative competition against each other. BOOKS CITED   Word Count: 4,137

The Automobile Industry

The Automobile Industry Introduction Cars have become the most important form of transport since their widespread use after the Second...

Fiat’s Intangible Specialization

Intangible Specialization   1. What do you mean by Intangible Specialization?   Maelli (2005) explained that intangible specialization, based on the evolutionary specialization tries to explain the efficiency differentials in the process of designing and manufacturing of the different products that are made by the same organization (cited in Maielli 2008, p. 286). Thus it helps to affect the probability that a given or specific differentiation strategy would success. The concept or perspective of the intangible specialization was developed by Maelli in 2005 in order to explain why the Italian carmaker Fiat features their output-mix skewed towards low cost segment units compare to the different manufacturers from Germany, France and Sweden. Thus, the intangible specialization poses its distinctive problems that are not yet fully addressed. In the same way, it also claims that the ideas that Americanization is everywhere are considered as simplistic universalisms.   On the other hand, Maelli also focuses on the detailed the specific process of accumulation of technical skills in product design as well as mass production processes. It also pertains on relationship between the routines that strengthen and support the process of selecting the mission of the organization, routines that help to support the process and product design as well as the detailed product and process requirement of each and every segment of the domestic market that had helped to shape the process of accumulating the design skills as well as the reproduction of the different technical creativity as well as business ethos that are all oriented to the reduction of complexity cost.   In general, intangible specialization can be described as the rate of the difference in the different process that is being implemented by an organization in order to perform. It is considered as an effective strategy or approach that can be used by different organizations and companies that focus on their expertise. In the case of Fiat, the techno-structure of the company was long developed; it focuses on the cost-saving rules that pertain on the process of checking the effectiveness of the design, together with the calculation of the revenues per kilo. However, it is important to consider that the intangible specialization does not pertain on the routines per se, but focuses on the pattern of skills as well as engineering culture.     2. How did intangible specialization affect Fiat’s strategy and output-mix optimization in the 1970s?               It is important to take note that the intangible capital accumulation of Fiat was driven by the historically specific events, that had affected the confirmation of set of routines that support the product design, particularly during 1970s, where in the company had its major and first as well as the best opportunity to up market. During that time, the political as well as behavioral factors, together with the distribution of power between the production engineers as well as the marketing managers, together with the condition of the market and the relationship in the industry prevented the company to acquire new skills in the process of designing as well as developing up market units.             As a result, the company lost an important share in the market due to the different reasons, and it had resulted for the company to face a verge of bankruptcy.  The process of restructuring of the company saw the production managers to regain the control of both the product renewal as well as the output-mix optimization. Aside from that in 1978, Rossignolo resigned in 1978.             In order to save the position of the company in the market, in 1979, the largest shares of the resources were all allocated to the Fiat Uno as well as to assist the small cars. The said action lead to another consequence to the company, and that is: the product renewal and the output-mix decision-making were both returned to the control and hands of the production engineers. Thus, it had turned the company to complete a process of decentralization. Consequently, the Automotive Division was transformed into the Fiat Auto SpA, it is a floated company that is controlled by the Fiat group and the largest share of resources was allocated to the designing and engineering the Panda and Uno. Aside from that the Lancia was incorporated in Fiat and share the engines, gearboxes and platforms of Fiat models. As a result, the surviving element of Lancia techno-structure were later on dismantled and case a huge dispersion of the technical expertise in the design and manufacturing quality.             However, the said concept had helped the company to deployed different robotics that can help to accomplish the minimization of the cycle time to a certain extent than the flexibility, which is considered as consistent with the output mix skewed to the mass-produced small cars. However, the said movement or strategy causes disagreement between the leaders or upper management of the company.     3. How did intangible specialization affect Fiat’s strategy and output-mix, optimization in the 1980s and 1990s?               The restructuring during the late 1970s of Fiat’s strategies supported the patterns of the intangible specialization that were all consistent with the neo-infant phase of the Italian market during the 1980s. On the other hand, during 1990s, further integration a well as maturation of the European Union market shows that once again, the output mix of the company is still considered as its weakness in terms of outlook. In addition, the reinforced patterns of the intangible specialization towards the process or strategy of manufacturing small cars had led to the failure of the second attempt in order to shift the up market during 1990s.               The result, momentously, the failure of the shift up market in the 1970s, together with the success of the 1980s had helped to strengthen the power of the production engineers in the firm as well as helped the tendency of the techno-structure in order to maximize the manufacturability of their design. Aside from that, because of the fact that for almost a decade, comparatively, few resources had been allocated and budgeted for the design and development of the different up market units, the process of developing the design skills as well as technical ethos towards the expansion of R&D, design, manufacturing as well as component cost was significantly limited. In short, the techno-structure was not yet ready to support a change in the output-mix strategy towards the upper segments of the market. Thus, during 1990s, product design had remained influenced by the same set of routines that had inspired the design of Fiat cars in the preceding years.               During the said span of time, intangible specialization had helped the company to focus on the restructuring of the entire process towards the production, as well as product renewal. This is due to the fact that during that time, the influence of other Asian manufacturers, particularly those from Japan are already entering the big picture. The said strategy was done in order to gain competitive advantage, particularly in the intermediate and upper segments of the market. However, despite of the said effort, the product renewal during 1988 to 1996 periods shows that the company had failed to match or harmonize its product renewal process with its objectives. Thus, the customer had rejected the process centered design of the Tipo, at the same time; Bravo and Brava were never able to regain its market share lost by the Tipo. 4. Should Fiat shift up market in the second decade of the 2000s? Suggest and justify possible scenarios and output-mix optimization strategies.               By analyzing the strategic choices as well as performance of Fiat from 1970s to 1990s, it can be said that the primary reason for the failure of the company focuses on the chronic overcapacity, poor product renewal strategies as well as redundancy and ineffectiveness of the managerial structure. On the other hand, it can be said that the output-mix optimization is considered as the key element or aspect in the current crisis as well as the future movement and perspective of the company.               Thus, it is important to consider that Ferrari will still remain as an independent as well as very successful company in the market for dream cars, while the Maserati and Alfa Romeo will be compete in the same segments as Mercedes and BMW. Thus, Fiat will compare in the lower and medium segments of the market, together with Lancia as a premium brand.               Focusing on the intangible specialization in Fiat, a well as Maserati and Ferrari, it shows that these companies set in the knowledge that are important for the mass-produce small cars, together with a level of quality that is applicable to the lower segments of the market; or on the different cars that were produced in limited number of the state-of-the-art units. But, Fiat would have to be able to transfer the different skills for both the mass-production as well as quality-production to Alfa Romeo in order to produce 500,000 units each year, at a level of quality as well as price that will be competitive and equal to BMW. The said scenario will be controversial because of the incentive of Fiat to strengthen and support platform as well as engine sharing between Fiat and Alfa Romeo will help to increase with the volume.   Bibliography   Maielli, G. (2005) ‘The Machine that Never Change: Intangible Specialization and Output-mix Optimization at Fiat, 1960s - 1990s Competition & Change’, vol. 9, no. 3, pp. 249 – 276   Maielli, G. (2008) ‘Counterfactuals, Superfactual and the Problematic Relationship between Business Management and the Past, Management and Organizational History’, vol. 2, no. 4, pp. 275 – 295

Fiat’s Intangible Specialization

Intangible Specialization 1. What do you mean by Intangible Specialization? Maelli (2005) explained that intangible speci...

Motor Car Industry – BMW Case Study

Motor Car Industry – BMW  Introduction This particular case study is focused on motor car industry from gathering of analysis points of BMW. Choosing of Ford business as the focus for motor car manufacturing business upon gathering of relevant knowledge that links positively to PESTLE and Porter’s five forces model allowing to integrate such detailed analysis from understanding the business environment and recognize issues into realizing awareness to BMW’s competitive environment Discussion The paper will be focusing on two business environment analysis for BMW business as one motor car manufacturer and that the analysis does pertain to PESTLE analysis and Five Forces Model Analysis as created by Michael Porter, as it is imperative tool for determining in success and failures of BMW’s business operations and management mostly when it comes to car manufacturing industry.  There has been the need to amiably evaluate the development of corporate level strategy and the corresponding business units and operational strategies from within ways of dealing with changes in the business macro as well as micro business environment and within BMW, it is useful to work with certain analytical tools. To be able to evaluate the strategic position of BMW, it is essential to analyze the relevant environment and it can start with BMW’s macro-environment which refers to the broader influential factors for other business organizations. Henceforth, PESTEL analysis will be used to examine political, economic, socio-cultural, technological, environmental and legal forces (Johnson and Scholes, 2002). The next step is to look at Ford as one example of motor  car manufacturing industry. Thus, Porter’s Five Forces (Porter, 1980) are going to be used to evaluate competitive forces within this industry as there helps to analyze and understand Ford’s business environment (Johnson and Scholes, 2002).   PESTLE Analysis There is a need to execute PESTLE analysis for BMW  in lieu to identifying the external factors in favor of their car business environment as well as business centered operations. The business environment of BMW consists of all the external influences that affect its decisions and performance, starting point is some framework for organizing information. Though systematic, continuous scanning of the whole range of external influences might seem desirable, such extensive environmental analysis is unlikely to be cost effective and creates information overload. The prerequisite for effective environmental analysis is to distinguish the vital from the merely important. For BMW to make profit it must create value for customers, BMW must understand its customers, in creating value, the BMW acquires goods and services from suppliers, how to form BMW business relationships with them. Thus, the core of BMW’s business environment is formed by its relationships with three sets of players: customers, suppliers, and competitors, the industry environment. For BMW producers, the automobile manufacturers need to trace its implications for their industry environment Political and Legal Factor There is presence of political and legal factors that has influence towards BMW car manufacturer as there entail to automobile policies from within government’s interference as important as possible. There was declaring of automotive industry as one pillar industry as BMW have adopted the big three – small three plan by concentrating the company’s efforts on motor car manufacturers that BMW is aware of. The BMW have succeeded in speeding up their research and development as well as other operations that linked them to follow car manufacturing policies (Govind, 2006). The BMW wanted to protect its car business from competition and encouraged technology transfer by changing the laws on some foreign investments and joint ventures as the situation is supported by the government where BMW is based from, required to transfer technical knowledge to other business partners and establishing of joint car centers for BMW workers (Govind, 2006). The open door policy and entrance of global competition are to force BMW out of the market, to increase in car exports within high technology motor car parts as expected to have an impact on quality made BMW cars. Considering the distribution in the automotive industry, BMW car producers do not carry out the distribution of their products by themselves but they organize it through a dense network of authorized dealers whose function is to resell the products to the final consumer. Economical The motor car manufacturing industry is rapidly growing in terms of sales as BMW sales increased by 62 percent reaching 1.23 million of manufactured cars and it can be that sales of other BMW cars increased by 22 percent in the year 2004 up to 2008 while sales of other services have maintained and German car industry can lead the car business industry in the near future as in the production of BMW hot cars, sports cars for the world market Europe leads with a share of 39 percent of BMW car production followed by some other manufacturers.      Social The German class is growing from an outracing pace, 10.5 percent is actual growth according to BMW annual report of 2005, there can be rising issue involving social awareness at BMW such as the social awareness of pollution which leads to people to cater to BMW services and supported by German government policies, as well as consumer behavior is being affected negatively by some unstable issues of motor car manufacturing industry such as placed in due to high technology demand and the presence of globalization trends that BMW customers might be looking for upon purchase or buying BMW cars. Technological There was global financial crisis, affecting mostly on the technology processes and advances which is of major function stake at BMW as well as global oil production that peak and demand outstrip BMW car production as BMW and the rest of the car makers are researching in alternative fuels and there hope for an efficient technology stability in terms of energy reserves to keep in quality products and services at all times as there can be utilization of hydro fuel cells for BMW motor cars as possible.  Environmental BMW manufacturers and management have agreed to focus on emission and pollution issues found in the car manufacturing industry and to create formal emission standards of services and car quality assurance for a green and safe environment and BMW adopted to innovative rules regarding emission and pollution control levels as passed by the German government, BMW to take new regulations into consideration when marketing models and refit for new environment standards, closing emission and pollution standard gap is critical for the BMW business that wanted to approach success towards car manufacturing market stature.   Porter’s Five Forces Analysis The competition in BMW car industry is very stiff, especially in companies known as the “BIG FIVE”. Since car manufacturing business target effective market segments, these industries must be able to be more competitive in the market place than the other through the use of an effective and efficient marketing strategy. Accordingly, the ability of the BMW business to meet the needs of their target market is an important aspect of marketing strategy and their marketing function to remain competitive in global market. Obtaining customer satisfaction encourages clients to patronize the products or services of BMW motor cars produced by BMW,  even recommend them to others. While Porter’s model is essential, BMW must be able to implement unique and distinctive marketing and business strategy to maintain competitive position in the car manufacturing market. Porter’s Five Forces model shows the relations between the potential competitors, competitors within the industry, buyers, suppliers and alternative solutions. This is actually used in order to assess the value or attractiveness of an industry or business to be able to know which marketing strategy should be implemented in BMW business.  Rivalry is considered to be the strongest and most important force in Porter’s model. It represents the presence and number of firms competing for each other’s economic profits. The level of rivalry in BMW can be described as low or high. This is mainly due to the presence of several car manufacturing competing companies. Moreover, rivalry level increases because of product and service differentiation inadequacy. For instance, the competitors of BMW can be noted as very aggressive in making fresh moves so as to increase sales and market share. Aside from this situation, BMW manufacturers are targeting similar market segments, making the level of rivalry even higher.   The threat on entrants is highly dependent on the presence of factors known as barriers of entry. Basically, barriers to entry could increase or decrease the chances of BMW business offering products that could rival those produced by some car companies. Naturally, if the barriers are high, the threat on entrants will be low due to risks of decreased market share potential. There are several examples of barriers to entry. These includes German government regulations, trade restriction and inaccessibility of major distribution channels. For BMW, the entrant factor can be considered as fair due to some reasons. One of which is the fact that BMW operations assume tough business demand in a considerable BMW car manufacturing capital. A great deal of capital will not only be necessary for putting up BMW business but also in acquiring the best professionals and technology for BMW product development as well as BMW marketing. Moreover, time is necessary for BMW to flourish in car business as various manufacturers  have spend many years of business operation before BMW became successful car manufacturer, aside from capital and time, entering the car industry and competing with existing car business can be difficult due to customer loyalty and strong BMW service factors. Another aspect of Porter’s five forces pertains to the power of the buyers over BMW car manufacturer. In the case of BMW industry, the buyer power is high. This assessment is based on the nature of buyer power sources surrounding the company. In particular, the demand for the products produced by the company is reduced due to a number of economic factors, these factors are difficult to predict, the demand can then decrease at any point. This in turn increases the level of buyer power. Aside from this, the presence of several substitutes also heightens buyer power. In addition, due to several competitors, products and services offered to consumers are undifferentiated. The power of the suppliers with BMW is fair. This is because supplier concentration for the car business industry need can be low  as the BMW industry can deal with other suppliers for its car production. Considering that BMW industry is leading car company recognized for providing quality products, other suppliers will be very willing to supply goods in other ways. However, BMW car industry should note that healthy relation with suppliers is as important as dealing to potential car buyers and customers, it is imperative for BMW to refrain from changing one supplier to the next.  The consumers then have several product options to choose from, making the level of substitutes high for other car industries (Henderson and Mihas, 2000). Using the Porter’s Five Forces Model, the competition for BMW industry will depend on the manufacturers in which the motor car industry have, the BMW competition does not only effective within car business industry but also to BMW’s rival and competitors. Moreover, the competition on BMW labeling is tight since consumers have different taste when it comes to car types and its brand names, BMW will get their supplies from those buyers who wanted to use BMW services from within promotion and ads agency. The BMW business will need to utilize the internet world in bringing in of innovative car products and services as due to technology advancement domain however, BMW’s marketing and strategies may have its own BMW service options and or substitute (Henderson and Mihas, 2000). Conclusion Therefore, Porter made valuable contributions in identifying important factors that contribute to national advantage, certain facts may not be supported by his model. For example, he suggests that the geographic concentration of industries is vitally important. Porter mentions that the automobile industry has become competitive due to the proximity of the supportive industry (Porter, 1990). While it is true that car companies such as Mercedes, BMW and Porsche are located in these areas, Porter’s model has only limited validity with respect to the importance of geographic concentration in motor car industry. Although Porter’s model provides a useful framework for analyzing the environment, especially the economic one, it does not require government policy makers to develop responsible alternative strategies that create and maintain a competitive advantage for their nations. His analysis of the competitive situation is mainly descriptive and does not necessarily result in the formulation of alternative strategies. Porter pointed out that five competitive forces determine industrial profitability: threat of new entrants; bargaining power of suppliers; bargaining power of buyers; substitutes; and rivalry among existing competitors (Porter, 1990) and makes unique BMW business. Furthermore, opportunities created through the car manufacturing industry allows free flow of capital, guided by common regulations governing financial transactions such as branch expansion revolves around the establishment of BMW branches throughout the business environment  Although the well-known management consulting company of McKinsey estimated that 40 percent of cross-border mergers of large companies result in failure, BMW successfully acquired the British Rover Group Holdings plc with the help of the strong German currency. This acquisition gave BMW head-start in producing a sports-utility vehicle, thus increasing its domestic competitiveness over its German archrival, Mercedes Benz. Michael Porter suggested that such rivalry contributes to a nation’s competitive advantage (Warner et al., 1995). Despite increased productivity, German workers are not much more productive than their Japanese counterparts to justify the world’s highest labor costs (The Economist, 1996). Such wage differentials make it very attractive for companies such as BMW to set up plants in Asia and the USA. In fact, BMW opened an assembly plant in Spartanburg, South Carolina early of the year 1997 (The Economist, 1996). Driven by BMW’s desire to be effective car manufacturer into the expanding market, there has been risks sharing its technology without sufficient protection (Templeman, 1995). Although the details of this venture are still being worked out, such projects show the dilemma and risks that companies face when entering countries like China which provide weak protection for technologies and intellectual property rights. The emergence of highly competitive industries due to the effect of information technology, particularly as presented in PESTLE as there changed the business environment in which BMW operates. Moreover, marketing strategies evolved to encourage direct interaction between producers and consumers in car  market wherein consumers have more complete information about BMW goods and services. In the Porter’s analysis it is noted that BMW environment  are challenged with high competition about the buyer and supplier powers, existence of substitute products and rival music industries and such changes in the relationships between consumers are taking place in the car industry. BMW must be able to utilize each chosen business model to generate loyalty among its customers; BMW must have the capability of prioritizing quality motor car services to offer to potential buyers or customers, the need for BMWto provide good manufactured products that would get the manufacturers be involved in business process.   References   Govind, S. (2006). A note on the Chinese Automobile Industry. The ICFAAI Center for Management Research   Henderson, T. and Mihas, E. (2000). Building Retail Brands. The McKinsey Quarterly, p. 110   Johnson, G, Scholes, K (2002). Exploring Corporate Strategy – Text and Cases, Prentice-Hall, Hemel Hempstead   Porter, M. E. (1980). Competitive Strategy. Free Pres   Porter, M.E. (1990). The Competitive Advantage of Nations, The Free Press, New York, NY   Templeman, J. (1995). A serious blow to German competitiveness, Business Week   The Economist (1996)   Warner, J., Templeman, J., Horn, R. (1995). The world is not always your oyster, Business Week

Motor Car Industry – BMW Case Study

Motor Car Industry – BMW Introduction This particular case study is focused on motor car industry from gathering of analysis points o...