Bayerische Motoren Werke AG, more commonly known as BMW or BMW AG, is a German automotive manufacturing company founded in 1916. Since the time of it’s founding, BMW has expanded into international markets, becoming the world’s largest premium automaker. The company signed a deal in 2003 for the production of sedans in order to enter into the Asian market of China. In 2013, the company released a statement dictating that China will probably surpass the U.S. as its top national market in 2013. BMW has looked for the opportunity to enter into the Asian market because of the rising demand for cars. In addition to China, South Korea has become one of the company’s fastest growing markets in the world, which makes it attractive for premium car brand to enter the market. The company is currently facing challenges while it tries to integrate their new electric cars into the Asian marketplace. It is easy to assess the success of BMW’s strategy and performance in Asia to date by analyzing the company’s reasons and perceived opportunities for entering the market, as well as the obstacles and challenges that were faced.
Karsten Engel, head of BMW's business in China, explained that the strong growth is coming from smaller cities, especially in the Western region. There are 100 cities with over a million inhabitants in China that have no premium car dealers at all. The population alone shows huge potential and provides an alluring reason for BMW to do business in China. BMW's distribution network totaled 360 outlets in China at the end of 2012, and plans focused on adding more than 60 dealerships to cover all of China's provinces (Freedman, 2013). Engel was previously the head of BMW's German sales and marketing before taking the position for China, and has also worked with the operations for South Korea. He carries his optimism with him, embracing BMW's business in other areas of Asia.
Foreign brands in South Korea's market for premium vehicles have increased from 28% to 41% from 2011 to 2013 (Kim, 2013). This shift in the South Korean automobile industry has provided a great opportunity for BMW. Current attitudes and preferences are based on the high standards of Korean customers, which are very “demanding in service requirements, luxury expectations, and consumer electronics expectations” (Choi, 2013). When compared to BMW, other luxury vehicle brands, such as Hyundai, are seen as oversized, overpriced gas guzzlers (Kim, 2013). These brands fall short, and as a result, BMW has seen sales rise by at least 25% in the first quarter of 2013 in Korea (Kim 2013). This is an even faster growth than in China, due to the particular consumer perceptions in South Korea. The preference for domestic brands has been decreasing, and it may be tied to the fact that the price for these foreign cars is decreasing as well.
The Korean car market has been one of the most closed in the world for a very long time. This closed market is intended to promote the development of domestic brands like Hyundai, Kia, SsangYong, and Daewoo. It proved to be successful as seen by the country's sales. A small minority of only 3.5% of vehicles that were sold in South Korea last year were made outside of the country (Emmanuel, 2014). Amongst a long list of barriers, there once was a 8% tariff in place in the Korean market (Emmanuel, 2014). But recently, Korea has begun opening up its car market. A free trade agreement between South Korea and the European Union came into effect in 2011, which pushed down import duties. As the Korean currency, won, became stronger, imported cars became cheaper with the newly lowered tariffs. This gave another incentive for local consumers to buy imported vehicles.
BMW is trying to capture the South Korean luxury car market, in particular, because it has such a potential for growth. Last year, BMW sold about five times more luxury sedans in South Korea than in Japan (Emmanuel, 2014). Also BMW Group is planning to release a range of new models, among these are the introduction of BMW i3, which is an electric car and BMW i8, which is a hybrid car. BMW is taking advantage of this growth opportunity by being one of the first to enter the electric car market, whereas other local car markets are taking a wait-and-see stance.
The need to reduce emissions and minimize the harmful effects of air pollution from vehicles has been growing. These environmental needs are especially prominent in crowded cities in Asia. As a component to the solution, electric and hybrid vehicles have been gaining worldwide popularity driven by these needs. The supply of cleaner, quieter vehicles will provide an alternative and therefore create value for pedestrians and motorists that are sharing the same space in densely populated areas. BMW saw this opportunity to produce electric vehicles as the key to addressing the challenges that will come with rapid urbanization and economic growth in the region. This strategy carefully took into account the different levels of infrastructure development, as well as policy incentives that support entry of electric vehicles into the market. As a result, BMW successfully launched in Japan and South Korea in 2013.
Although multiple opportunities help the Western car maker to dominate the luxury automotive industry in Asia, BMW faces challenges when entering into Asian markets. Each region of the world is broken down into hundreds of provinces, which contain their own cultures and customs, making the tastes of the people who live in these regions varied. This proposes a challenge for BMW because they must have different corporate strategies when doing business in various countries. The Asian market in particular is difficult to do business in for many reasons. Innovation is one tool BMW has committed to in order to get ahead in the market, but innovation has also been a great challenge in the company’s history. In 2011, the German car manufacturer invested 100 million euros of venture capital towards start-ups in order to help it build mobility apps and other business platforms that can be integrated into the cars themselves.The great lengths the company must go to each its premium luxurious cars, it extremely financially taxing on BMW. Putting great deals of money into innovation projects can also be very risky. Automotive industries such as Ford and General Motors experienced backlash from trying to “commonize” their strategies across different regions of the world in the 1970s. Learning from their competitor’s mistakes, BMW has realized that to do business in the Asian market, a company must market to the people of Asia. BMW is now “faced with expensive process of innovating prototypes and going through rigorous expensive and risk prone testing phases” (Hollensen). In order for BMW to have success in the Asian market, the company was forced to manufacture unique products to cope with tastes and capricious needs of consumers. This strategy causes huge budget increases and great loses if a launched product does not work out.
Not only is it a challenge for BMW to have to spend copious amounts of their budget on different innovation measures for consumers in the Asian market, many Asian governments have strict laws in place for foreign companies trying to enter into their markets. China in particular is a difficult market to enter into (Edwards). “China has a range of intellectual property laws, and landmark court cases have defined the right of foreign brands to protect their trademarks and business systems. Intellectual property laws, however, are not uniformly enforced throughout the country” (“China Market”). The country also requires foreign companies wishing to build vehicles to enter into joint ventures with local companies in order to avoid a foreign company dominating the market. In order to enter the Chinese Market, BMW was forced to enter into a joint venture with Shenyang based automotive manufacturing company, Brilliance China Automotive Holdings Ltd. China only allows BMW to own 50 percent of Brilliance shares, which the company already owns. This provides a difficult situation of BMW to be in because they are only benefitting from 50 percent of the income acquired in China. This leaves BMW with inability to expand freely. Since the country has such strict environmental laws, BMW was denied expansion plans on its factory in Shenyang. This inhibits new innovation plans the expansion would have been able to more easily foster (Edwards).
BMW Group has several strategies to expand their presence in the Asian region. They include usage of their brand image, alliance with local companies, expansion in the region, opening of the driving center, support for sustainability, and an offer of financial services.
The company is the dominant premium quality car manufacturer in the world and it is using their influential brand image, which includes BMW, Mini, and Rolls Royce, to lead in the region. Two main markets that BMW Group is targeting are China and South Korea because both had shown a significant growth and potential. In the first five months of 2014, the company sold 184,823 BMW brand and Mini cars in China, up 25 percent (Jian, 2014). As for South Korea, where tariffs were lowered significantly, sales rose accordingly. Combined with its Mini brand, whose sales increased 6.3% to 6,301 units, BMW Group's total deliveries hit 39,367, taking 25% of South Korea’s total import market (Courtenay, 2014). Kim, BMW President and CEO in South Korea, says the hot seller in the car portfolio for 2013 was the new BMW 5-Series, which saw deliveries jump 22% to a record 14,867 (Courtenay, 2014).
In South Korea, the German car manufacturer partnered with Samsung SDI in order to supply batteries for their electric and hybrid vehicles and also, the company is willing to share their technology with their competitors. The reason why they want to do so is because electric batteries represent large costs of electric vehicles, so by sharing the technology they aim to achieve economies of scale. In China the company opened a new plant in the city of Shenyang and partnered with Brilliance China Automotive Holdings Ltd, who are planning to provide 400,000 engines to the Tiexi plant in Shenyang on an annual basis. The additional capacity will help BMW lower shipping costs and avoid taxes on imports and it will also reduce exchange-rate risks for the German manufacturer (Rauwald, 2014). The production of four-cylinder gasoline engines will begin in 2016.
Additionally, BMW is planning to build an automobile theme park in the Korean city of Incheon. BMW is investing 70 billion won constructing this track and it will include six courses, where performance cars be taken for test drives at high speeds (Kim 2013). This will create interest, increase sales, and also build the loyalty of existing customers by reinforcing positive perceptions of the brand. This large project proves BMW’s confidence in the market’s potential, while developing closer and more dynamic relationships with their consumers.
To expand their footprint in China, BMW Group started to offer their financial services in late 2010. According to Uwe Stadtler, who was named CEO of BMW Automotive Finance in China, today for every three BMW cars sold in the market, one is financed by them and two are insured by them (Jian, 2014). They launched BMW Extended Warranty in China last year, and they are increasing penetration in this new business line (Jian, 2014). That helped the company to become the fastest growing BMW financial services in the world and to continue the growth and manage it, the company is investing in appealing products, services, and sales structures. Company also believes that superb service is the key to attract and retain their clients. To further maximize customer satisfaction, they are preparing to launch a credit card for their customers, and it is not only a common credit card but also a loyalty card, which will allow BMW and Mini car buyers to gain access to exclusive benefits such as golf events and special offers (Jian, 2014).
Lastly, BMW is concerned about the environment in which they operate. The company practices corporate social responsibility by investing to cultural and environmental programs. With comparison to their european competitors, who also operate in the region, BMW is the biggest donor with efforts contributing toward charity and education programs.
The expansion of BMW into international markets has historically been successful and is doing especially well in the Asian region. BMW has taken advantage of an untapped premium car market in Western Chinese cities and was the first company to introduce electric vehicles. The rapid urbanization and economic growth has created an opportunity for BMW to market its vehicles as seen by the enormous demand in Asia. As a result of the free trade agreement made with the EU, lower tariffs decreased the price of imported cars and has made them more preferable than domestic automobiles. Although investments in innovation has been pricey and the contract with Brilliance China Automotive Holdings Ltd wasn’t as profitable as they wanted to, the BMW Group is still doing great in the region and has had rising sales. They attained the largest market share and have been dominating their competitors through the partnerships with the local companies in China and South Korea.
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