BMW Pestel Analysis

Introduction

BMW PESTEL Analysis.
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BMW is among the best known luxury vehicle brands in the world. The parent company of BMW group, ‘Bayerische Motoren Werke Aktiengesellschaft’ (BMW AG), is based in Munich, Germany. BMW group also owns two more premium brands Mini and RollsRoyce. 2018 was a difficult year for auto businesses. BMW performed well despite these difficulties. In recent years, BMW has focused on extending its range of electric cars. The company has also increased its focus on sustainability. However, the core competence of BMW remains individual mobility. The company is investing in technological innovation with a clear goal in mind – to become the tech leader in premium mobility segment by 2025. Digitalisation continues to change lives and industries. The company is now focusing more on the changing needs and desires of its customers worldwide. 2018 was a challenging year for the automobile industry where both economic and political factors created higher uncertainty in various parts of the world. Several kinds of challenges exist in the international market.

From tough competition to volatile market situation and varying level of political control in different markets, challenges differ from market to market.

To sustain its growth rate, BMW focuses upon technological innovation and customer experience. According to its 2018 annual report, the company has a leadership position in the premium vehicle segment for the last 15 years. BMW posted record sales for an 8th consecutive year in 2018. The global automotive market is full of challenges and opportunities. It is being shaped by several forces including growing digitalisation and demand for emissions free vehicles. While political and economic factors grew the challenges before BMW, focus on technology and sustainability helped it retain market share and leading position in the premium vehicle segment. The auto industry has entered an even difficult phase in 2019. However, BMW’s performance was better than the previous year during the first half of 2019. Overall, BMW has survived a critical phase. Learn about the increased importance of these forces in the automobile industry mainly in BMW’s context.

Political factors

Growing role of government and regulatory agencies in the area of international business has necessitated special focus upon political factors. BMW’s business is affected by two major political factors in 2018 and 2019. They are Brexit and the trade wars. The uncertainty created by these factors had an evident effect on its business in the previous year. BMW has revised its business strategy to consider the downward pressure created by these forces. Trade conflicts in 2018 made it a challenging year for the entire industry. However, BMW has still proved itself versatile and managed the increased pressure efficiently. The uncertainty in the political environment had a negative effect on auto stocks globally. From the elections in Italy to the trade disputes between China and America, the U.S. and Europe, several political changes around the world continued to affect auto stocks and sales. Other factors like trade restrictions, customs policies and international trade policies also had a definite impact on vehicle sales in both 2018 and 2019. The management board of BMW has made the political conditions around the world an important priority in terms of business planning. In 2018, the board held a detailed discussion on this issue and how the volatile political situation globally was going to affect its business over the next five years.

Political risks are also an important consideration in the area of annual budget planning at BMW. Numerous political uncertainties rocked the stock market throughout 2018. Trade disputes globally and political uncertainties in Europe dampened investor sentiment during the year. At the end of the year, BMW stock was down 18.6% compared to the beginning of the year. However, despite the uncertain political situation in key markets, BMW’s performance was satisfactory. Political risks have continued to affect the company’s performance in 2019. Moreover, managing political risks remains difficult for automobile brands. Controlling political risks is difficult because the political environment of any market can be difficult to predict and sudden changes can force auto brands to change their strategy. While these risks are not under their control, compared to other risks, political and legal risks can create higher pressure. These risks are best overcome through focus upon customer experience and business planning. At the end of 2018, the company had a market valuation of €46 billion (Annual Report, 2018). BMW also remained at the top of the charts in the stock market. It was among the top ten domestic businesses listed on the German stock market. Several automobile brands globally are facing growing heat from government and regulatory agencies. Many of them are facing growing financial pressure including Japanese auto brands. BMW’s performance was stable. Compared to other automobile businesses BMW did better. Its performance is expected to improve in future. On the one hand, it has managed to avoid any major legal issue, on the other, it values customer experience and innovation.

Economic Factors

The global economic environment has a direct impact on the business of automobile brands. General economic environment of the world and the performance of local economies affect the overall business performance of BMW. In 2018, the automobile and motorcycle sales of BMW reached record heights. The business performance of BMW is affected by several factors. However, political and economic factors are interrelated. In 2018, global economy grew at 3.7% and demand for BMW automobiles was strong like previous year. Political uncertainties prevailed but globally most economies saw growth. Across Europe and China, economic growth slowed down. Compared to 2017, these economies were in less healthy shape but the U.S. economy did better. Economic output of the United States in 2018 was better than 2017.

From 2017 to 2018, the U.S. economy saw significant growth. 2018 growth rate was 2.9% riding on strong domestic demand. With historically low unemployment rate of 4% and rising wages, American economy was in good shape. In U.K., economic output declined again. Economic growth rate was 1.9% in 2018 in the United Kingdom. China’s economic growth rate was lower than 2017 at 6.6%. Japan experienced significant decline. The economic growth rate of Japan reached 0.8% in 2018. Asia business of BMW continued to experience growth in 2018. Strong demand for BMW cars in 2018 was a result of overall balanced economic situation globally.

Overall economic situation is nearly same as last year. BMW’s business has continued to improve. Automobile market has entered a difficult phase but BMW is growing against market trends. In Asia and mainly China, it again recorded second strong growth. BMW was able to deliver 1,252,837 vehicles between January and June 2019 against 1,242,507 during the same period last year. 2019 has proved even better for BMW. Car sales of BMW have again broken records in 2019. Strong performance of BMW can be attributed to the strong performance of the global economy. World GDP has grown at an impressive rate in recent years and world bank expects strong growth momentum in 2019.

Sociocultural Factors

Society and culture are central to international business. For any company to perform in the international environment, it is essential to watch these social and cultural changes. In recent years, the society and culture have changed a lot. Digital technology is changing the society and the world. It is changing people’s lifestyles and giving rise to new trends. From Asia to Europe and the Americas, society has undergone a major change in a decade. The relationship between society and businesses is changing. Businesses are focusing on building strong relationships with their customers and employees. Digital technology is changing every industry but it is also changing people’s lives. Most automobile brands including BMW are using digital technology to provide their customers a superior experience. Needs and desires of customers are changing. BMW has also adopted its business strategy to suit the needs and expectations of its employees. People are looking for cars with advanced technologies which provide a safer driving experience. They also like cars with lower emissions. BMW is also investing in autonomous driving technology since the demand for such cars has grown. In 2018, demand for electric cars shot up. It was evident in higher sales of electric cars by brands including Tesla, BMW and Volkswagen. All leading car brands are investing in electric cars. These cars offer fuel efficiency and are good for the environment. This has helped brands grow sales and maintain growth momentum even in difficult seasons.

Another important factor is the social responsibility of automobile brands. As a leading automobile business, BMW is also focusing on social responsibility and investing in projects that benefit people and community. An integral part of BMW’s CSR program is social engagement. It has supported intercultural exchange for several years now. The company awards exemplary projects in this field in partnership with the UN Alliance of civilisations. It also rewards its employees for exemplary contribution through volunteering. The company also uses its size and scale to address social challenges. The company works in partnership with BMW Herbert Quandt Foundation to empower people and help them live better lives.

People’s taste has changed a lot. Focus on design aesthetics has become important. Car brands are making more attractive cars than ever. BMW released BMW NIGHT SKY for lovers of style and beauty. This car is a unique masterpiece with a rare meteorite in its interior. Artful processing of the meteorite makes the interiors look irresistible. The car is just as beautiful inside as on the outside. In the automobile industry, differentiation is important for retaining competitive advantage. Style and design are important components of differentiation for auto brands. Cars need to look beautiful inside and outside to grow sales. This is also an important aspect of the sales strategy of BMW. Focus on beauty and style of cars has helped it maintain high level sales in most markets. People want the best value for their money and something that makes their lives beautiful. The focus is not just on utility but on a wholesome experience.

Technological Factors

Technology is playing a central role in driving the growth of the automobile industry. Digital technology has helped the automobile industry grow faster. It has helped auto firms offer their customers a superior experience. Technological factors are now at the core of the entire customer experience. BMW is investing in digital technology to make driving BMW cars a safer and better experience. Autonomous driving technology has also helped the companies grow their customer base and tap into new customer segments. Digital technology is helping businesses market their brands with higher efficiency and effect. From websites to microsites and social media networks as well as blogs, companies are using several channels to reach their customers and grow their sales. BMW uses a global website and regional websites to access its customers in regional markets. Technology is shaping the growth of the automobile industry and helping it fill the customer experience gap. From production to supply chain, marketing, sales and after sales service, digital technology has helped brands improve their efficiency in all areas. Growth in the automobile industry is not possible without investing in technology and researching how it affects its customers’ lifestyles. BMW has made digital technology a core focus in its business strategy. As customers’ lifestyles are changing with evolving technology, the growth of auto firms depends heavily on technological innovation.

BMW automobiles is making its cars superior in terms of efficiency, performance and passenger safety. It has introduced several new models of electrical cars to meet the growing demand in the world market. Research and development plays a central role in the growth and success of BMW. Electrical mobility, digitalisation and autonomous driving are the most important concerns in the area of research and innovation for the producer of luxury cars. BMW group has established a large research and innovation network spread over 16 locations in five countries. More than 16,000 people are a part of BMW’s global research and innovation team. As time advanced, research and development expenses of BMW have also grown. From 2017 to 2018, R&D expenses of BMW grew by 12.8%. These expenses were 6,108 million Euros in 2017 and rose to 6,890 million Euros in 2018. BMW’s ratio of total capitalised development costs to its research and development costs or capitalisation ratio was 43.3% in 2018 compared to 39.7% during 2017 (Annual Report, 2018). BMW group won several prizes for innovation excellence in 2018. This highlights the focus of BMW group on research and innovation and technological excellence.

Environmental Factors

Environment and sustainability have become key factors affecting popularity of vehicle brands. In the automotive industry, there is now growing focus on managing environmental impact and carbon footprint. Leading auto firms like BMW are investing in managing their environmental footprint with an efficient sustainability strategy. On the one hand, BMW has grown its focus on electric models, on the other, it is also leading in the area of sustainability. There are several advantages of investing in sustainability and environment. Governments are also rewarding businesses that have lowest carbon footprint. Another major advantage of producing sustainably is reduced operational costs. Focusing on sustainability leads to higher popularity and growth in sales. 2018 and 2019 remained tough years for the automobile industry but BMW maintained strong sales and revenue. This is a result of planned investment in sustainability. Over years, BMW has kept growing its focus upon sustainability. Back in 1973, it was among the first automobile businesses that appointed an environmental officer to track and manage environmental impact. The brand has remained committed to sustainability all these years and the result has been more consistent operational and financial performance. BMW has an environmental board which sets the strategic direction of its sustainability planning, sets targets and tracks progress.

Preserving natural resources is an important focus point in BMW’s sustainability plan. The group has taken a holistic approach to sustainability that encompasses entire BMW value chain from sourcing to logistics, production, sales and service. Resource preservation is a central focus of BMW’s new strategy called ‘NumberOne -> Next’. Across the entire BMW value chain, ecological and social sustainability is a central focus. Some of the key components of BMW’s sustainability strategy include reducing C02 emissions, operational environmental protection, sustainable supply chain, employee orientation and social commitment. In the last 15 years, BMW has cut its C02 emissions from new vehicles in European market by more than 42%. During 2018, BMW managed to bring emissions down to 128g CO2/km in Europe. The company sold more than 140,000 electric vehicles for the first time in 2018. EU has made its vehicle emission laws stiffer. Beginning September 2018, EU requires vehicles to be approved in accordance with new WLTP testing cycle. Vehicle emission laws are growing increasingly complex worldwide. BMW has also set ambitious targets for itself in the area of use of renewable energy. The electricity BMW bought in 2018 included 79% renewable energy. BMW has also included its suppliers in its supply chain strategy. It has set rules for its suppliers related to sustainability and resource management. BMW requires its suppliers to adhere to these rules for increased efficiency, transparency and better resource management. These steps have helped the company manage its carbon emissions, grow its resource efficiency and reduce wastage of resources in its value chain.

Legal Factors

Law and legal factors are now also as relevant as political factors for automobile businesses. Compliance is an important focus for automobile firms. Vehicle makers like BMW have compliance committees that take care of legal issues and compliance to ensure no legal hassles. In the recent years, EU as well as other government structures have grown their focus on how vehicle makers are dealing with carbon emissions. There are other laws too including labor and product quality which require focus. BMW’s success in global markets can also be attributed to its responsible and lawful conduct of its business. The company has made business responsibility and compliance integral components of its culture. The entire company including BMW Board of Directors and employees act in compliance with laws and regulations in various parts of the world where BMW operates. Not just BMW, but its partners are also obliged to act in a responsible manner and adhere to the applicable laws and regulations. Several years ago, the BMW Board of Management created the compliance committee which oversees all legal affairs of BMW. The compliance committee also established a compliance management system throughout the BMW group. An effective compliance management system is a set of tools and techniques that help the company and its employees ensure that throughout the system people follow the rules and regulations. The compliance management system at BMW includes a coordinated set of instruments and topics which ensures that people throughout the system and its representative bodies act in a lawful and responsible manner. The compliance management system places central emphasis on compliance with antitrust laws and prevention of corruption and money laundering throughout the BMW system.

BMW has given its compliance team an efficient structure. Heads of departments including legal affairs, corporate and governmental affairs, corporate audit, group reporting, organisational development and corporate human resources are a part of the compliance management team. Compliance team regularly reports to Board of Management on several issues including the progress made in the area of refining its compliance management system, investigations it carried out, any sanctions it has imposed as well as any preventive steps taken by the team. Any important issue worth the board’s attention comes to light immediately. The efficient structure of the BMW compliance team also ensures that compliance issues do not arise. BMW manages and monitors activities that prevent non-compliance and unethical behaviour. These activities include legal monitoring, internal regulation, communications and training as well as complaint and case management, compliance reporting, control and tracking non-compliance. Extensive focus on compliance has become essential for several reasons including managing operational costs, controlling unethical behaviour, creating harmony throughout the system and avoiding unnecessary non-compliance related fines. The company has managed a strong reputation and prevented any damage to its image through its compliance management system. Such issues can damage reputation, affect demand and drive operational costs high. Having strong compliance management structures in place ensures that the company employees abide to local laws and regulations and the entire system including supplier network behaves ethically.

Conclusion

PESTEL forces help understand how various factors and the overall industry environment affects a business. Political and legal factors are now a central focus in every brand’s business strategy. For international automobile businesses, it is even important to keep an eye on how the political and legal environment is changing in key markets. It is important to keep an eye on these forces since even minor changes in political environment are affecting markets deeply. Economic factors have always been a major consideration for global businesses since the economic environment affects vehicle sales. BMW performed well during 2018 and in 2019 the performance is expected to grow better. The company considers all these challenges to create plans and fresh strategies for its regional markets. China is strategically an important market for BMW and so is the U.S. BMW has maintained its performance in both the markets. Technology is also an important factor that has kept driving the popularity and sales of BMW cars higher. The overall importance of technological factors in the international environment has grown. Sustainability on the other hand has grown more important than ever for automobile firms. BMW has created a sustainability strategy that enables it to manage production costs and create better products. Focusing on sustainability will benefit the brand in the short and the long run. However, the automobile industry is in a phase of transition where the demand for electric cars has grown. BMW has released a large range of electric and hybrid cars. It was also a reason the brand managed to sustain sales and revenue in 2017 and 2018. Overall, while several auto businesses have faced troubles and challenges of varying nature, BMW has managed to grow its business in an efficient and smooth manner. The company had taken steps in a positive direction quite early in its history. Sustained focus on quality, safety and environment have brought BMW to a point where it will be easier for the company to transition into a new era of mobility.


Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.