Over the recent past, we have seen companies going global by testing out their products in foreign markets. Companies such as Starbucks and McDonald’s have managed to expand successfully by tapping into consumer demands for their product. Car firms including BMW, Honda, and Volkswagen have seen an opportunity to take advantage of the global market. BMW has been at the forefront and even announced plans to build new factories in China. Strategies employed by BMW to enter foreign market varies significantly depending on countries’ policies.

Brief History of BMW

The acronym BMW stands for the German phrase, Bayerische Motoren Werke. BMW began by producing aircraft engines in 1913 which they supplied to the Germans during the first world war (BMW Group, 2022). The end of the first world war led to a halt in the construction of aircraft engines as the Versailles Treaty prevented Germany from building aircraft anymore thus forcing BMW to move to a different product line. BMW then started to deal in railway brakes and built-in motors (BMW Group, 2022). Introducing new products, particularly built-in motors has realized significant growth for BMW.

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BMW Operations in Germany

Whether it is production, planning, logistics, or quality assurance, all eight BMW plants in Germany set trends and drive the technological revolution forward with digital innovation, sustainability, and flexibility. BMW is the third leading car in terms of market size. In Germany, BMW comes third among the bestselling car brands behind Mercedes and Volkswagen having 8% of the total market share (Wagner, 2022). Consumers seem to be reacting well and there is a high demand for BMW automobile products. BMW’s chief executive, Oliver Zipse, in his own words said that never before in the history of their company have their pre-orders been higher than they were on the day of the global car semiconductor chip shortage. He went on to add that the markets signal that this high demand will continue. BMW saw its highest-ever annual sales in China last year, amid a strong focus on electric vehicles and resilience in the face of global chip shortages and pandemic drawbacks (Arab News, 2022). In China, demand for BMW cars recovered in the third quarter, after lockdowns plagued the first half, the CFO said, describing it as a “rollercoaster” year in its largest sales market (Reuters, 2022). BMW established a robust strategy to win customer loyalty, not even COVID-19 could lower demand for its products.

BMW registers high sale volumes event in its subsidiaries. Germany’s BMW said on Thursday that production has formally begun at a new plant in China with an investment of 15 billion Yuan ($2.24 billion) as the carmaker escalates electric vehicle (EV) production (Reuters, June 23). This is seemingly beneficial for the long-term growth of BMW as this will mean larger market access and a consequent increase in demand. BMW’s third-quarter sales grew from € 35 to €37.2bn, representing a 35% increase (Durbin, 2022). Such a surge assisted BMW to have strong demand for its products in China and simultaneously set higher prices for its luxury models.

The increase in demand has led to a proportionate increase in profit. This is reflected in the body language of the BMW CEO, who seems to be glad to watch the sales volume rise rapidly. From China alone, the German carmaker (BMW), has made a lot of profit making the highest profit from china than it made from all its subsidiary countries. The German carmaker’s net profit rose from € 2.6bn in July to €3.2bn in September last year (Mustoe, 2022.) The BMW Group more than tripled its net profit to a record 12.5 billion euros (13.8 billion U.S. dollars) in 2021 (Xinhua, 2018). The stability and safety of BMW cars have seen their demand rise to its peak in 2022.

To manufacture its vehicles, BMW relies on a network of over 100 auto parts suppliers from all over the world. 43% of its suppliers are located in Germany or are subsidiaries of German-based companies (Maverick 2019). 34% of the suppliers have their bases in other European countries (Sebastian, 2021). With this, the suppliers are split between the European countries in a ratio of almost 1:1(Maverick 2019). These supplies are numerous, including but not limited to Brembo, Dräxlmaier Group, Peiker Acoustic, Thyssenkrupp, Borg Warner, Elringklinge, Mahle, Bridgestone, GKN Driveline, Johnston Electric, Gestamp, Apag Elektronic AG, Delphi, Hirschvogel, Magma, and Kardon/Harman (Coe et al., 2017). The above-listed firms supply various materials.

BMW has sustainability guidelines for its suppliers. Being environmentally conscious, BMW insists its suppliers must work towards promoting a green environment (Maverick, 2019). As noted by Kotilainen et al. (2019), BMW uses guidelines such as the use of recycled aluminum, alongside employing the “Efficient-Dynamics concept”, which came about to increase fuel efficiency and reduce emissions. BMW has been featured in the Dow Jones Sustainability Index (DJSI) yearly since 1999, coming up first in 2020, and coming on top of 38 other car companies in the automobiles section (Mulcahy, 2021). BMW’s commitment to ensuring its suppliers adhere to environmental sustainability protocol has not only improved sales but also impact market size positively.

BMW is the third leading car in terms of market size. In Germany, BMW ranks third, behind Mercedes and Volkswagen, which occupy first and second positions, respectively. BMW serves a large proportion of the German market, equivalent to 8% of the total market share (Germany Trade and Invest [GTI], 2022). BMW sells at least a third of its cars to China, sharing its market with a bigger rival Volkswagen, which sells almost half of its cars to the same destination (Zhou, 2022). BMW said it sold 214,565 cars in China starting July through to September, an increase of 5.7% from the same period last calendar year (Mustoe, 2022). Being among the leading car brand, BMW finds it easier to influence its sales positively in local and foreign markets such as China by establishing effective supply chains.

Establishing production chains in large markets can help reduce tariffs substantially. BMW has enjoyed a fair share of the Chinese market due to the reduction of import tariffs for automobiles and car parts, opening up greater access to the world’s largest auto market (Ou et al., 2019; Schülke et al., 2017; Xinhua, 2018). BMW said it would look at its prices and said the move was a good sign that China will continue to open its doors for new investments (Global Times, 2022). China has issued several policies to boost the EV sector, some of these include Tax Exemptions on purchases of New Energy Vehicles. China is also negotiating with manufacturers about extending the costly electric vehicle (EV) subsidies that were set to expire in 2022

Operations of BMW in China

BMW entered China in 2003 through a joint venture with a Chinese company Brilliance Automotive Holdings Ltd., which was the leading automotive firm at the time of the strategic partnership (Adrian, 2022). In 2003 when BMW expanded its operations to the Chinese market, the company initially invested roughly a 500million USD (Naor et al., 2021). Recently, BMW increased its investment in China to 2.5 billion USD to improve Electric vehicle production volume. In keeping with the demand of the market, BMW launched several of its vehicles in China. It also launched localized versions of the BMW Series 5 and Series 3 vehicles for the Chinese market (Randall, 2022). BMW built a new 5 Series sedan. The vehicle with a long wheelbase offered luxury and comfort to the passengers seated in the back seats. The car, built in the Shenyang plant, had high-comfort rear seats, catering to Chinese luxury vehicle customers who were usually driven around the city by chauffeurs. Adaptations like these for the specific foreign market have seen BMW become one of the most popular foreign automotive brands in the Chinese market and now leading subdivisions such as the smart compact segment after the recent release of the adapted i3edrive (Moon, 2022). Strategic partnerships such as joint ventures enabled BMW to enter China and win more customers within a shorter time.

BMW’s campaigns have also played a pivotal role in seeing its successes in foreign markets. Some of its popular global campaigns were localized and released in China. One such was the ‘Joy of BMW’ Campaign. In 2009, the Joy campaign was launched in Europe and America to enhance the brand’s reputation and create an emotional connection with its customers (Hollebeek & Macky, 2019). In the localized version of the campaign, the word ‘Joy’ was translated into the Chinese word ‘Yue’ (Jiang, 2018). While expressing the feeling of joy, it also focused on the action of giving joy. BMW, in China, floated the concept of making emotional factors as important as rational factors. In one of the Joy advertisements, BMW used Chinese culture, calligraphy, painting, and opera masks to customize the brand for the local market.

In keeping with the demand of the market, BMW launched vehicles models in China. It also launched localized versions of the Series 5 and Series 3 vehicles. For the Chinese market, BMW built a new 5 Series sedan. The vehicle with a long wheelbase offered comfort and luxury to the passengers seated in the rear seats (Jiang, 2018) The car, built in the Shenyang plant, had high-comfort rear seats, catering to Chinese luxury automobile customers who were usually driven around by chauffeurs. The car had automatic air conditioning; adjustable sun blinds, foldable tables attached to the backrest of the front passenger seats, etc., and was launched in 2010 (Jiang, 2018; Moon, 2022). BMW treated campaigns as a vital tool for reaching out to potential customers in a new country of operation

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Chinese Impact on BMW

China impacts BMW through several aspects. To realize China’s growth dream, the Chinese government is developing enterprises, which is good for BMW. Economically, under the influence of the innovation-driven development strategy and “the made in China 2025 initiative”, BMW respond to the Chinese market by actively innovating new models and ensuring their excellent quality. Added to this, China is rapidly embracing digitalization, big data policies and internet thinking need to be reflected in new products for BMW. Environmentally, the Chinese government has to implement ecological reforms. Therefore, the company must also pay attention to protecting the environment and reducing the discharge of chemicals that pollute the environment. Lastly, with the implementation of the belt and road strategy, the Chinese government has vigorously promoted cooperation with other countries along the road, so BMW can seize the opportunity to invest in the Chinese market and strive for a win-win situation.

Dunning’s OLI

OLI (Ownership, Location, and Internalization) Paradigm, or Eclectic Paradigm developed by John Dunning provides a holistic framework to identify and evaluate the important factors influencing foreign production by enterprises and the growth of foreign production. The idea of OLI was first conceived, by Prof. Dunning, after realizing 2 to 5 times higher labor productivity of the US manufacturing industry in the UK industry, when the US affiliates in the UK were not any better than their UK competitors, and even poorer than that of their parent companies (Kyove et al., 2021). Subsequently, Dunning came up with the Ownership specific, Location specific, and Internalization advantages of an MNE (Multinational Enterprise), which became the OLI Paradigm, which explains the causes for differences in international production. Dunning himself assessed the practical application of this paradigm to the dynamic situations of international activities of MNEs, where he proved to be successful.

The advantage of internalization for BMW is to control the production and manufacturing process of cars in its own hands and prevent the leakage of patents and some confidential technologies and protect its interests. Generally, Chinese enterprises give land and setup space, while foreign enterprises bring technology, talent, patents, and more. Therefore, when BMW entered the Chinese market in 2003, it opted to cooperate with China Brilliance Auto Co., LTD., with each party holding 50% equity (Sachs, 2018). Such strategic partnerships remained advantageous for BMW because it continued to own production rights and technology.

Despite the many positive impacts of globalizing BMW operation, it also serves as a risk to other competitors. If BMWs strength goes unchecked, it is possible to see the fall of other automobile companies like Mercedes and Volkswagen. This would possibly mean a downgrade of the Chinese economy after having about 2 of its major automobile companies falling. BMW does not seem to stop after acquiring 100% ownership of Brilliance automotive, so BMW’s internalization advantage will be stronger than ever (Kyove et al., 2021). Expanding BMW’s operation abroad has played a pivotal role in its growth.

Ownership Advantages Of BMW

BMW is unique and special because of various reasons. To begin with, BMW has a strong brand image within the industry. As one of the renounced world brands, BMW offers popular models such as Rolls Royce and BMW with a reputation for quality and multiple patents—BMW has 61964 patents worldwide. More than a third of BMW patents are licensed technological innovation and skilled human resources. As an integral player in the luxury automobile industry, the organization set its sights on competing in the international market. The horizontal FDI approach was chosen as an effective measure of increasing the manufacturing and distribution of valuable vehicles. Plant investment is present in South Africa, India, China, Russia, and the USA (Baan et al., 2017). The growing economy in China evident over the last few decades has been a major motivator prompting FDI in the markets.

BMW has a potential future growth in Chinese market and other countries across the world. Undeniably, market growth is estimated as revenue for BMW and had been projected to reach US$4.63bn in 2022 (Statista, 2022). According to Statista (2022), BMW revenue is expected to show an annual growth rate (CAGR 2022-2027) of 1.11%, resulting in a projected market volume of US$4.89bn by 2027. BMW unit sales are expected to reach 95.1K vehicles in 2027 (Statista, 2022). The volume-weighted average price of BMW in 2022 is expected to amount to US$51.60k. (Som, 2016). BMW Benefit from a knowledge of a local player.

Criticism of BMW’s Operation

BMW faces stiff competition in the Chinese market, especially with local car dealers. This has fueled tension between it and domestic manufacturers. Chinese have become more aware of the luxurious drive that premium cars manufactured by BMW, alongside changing tastes and fashions. As a result, BMW sells more units, as local dealers suffer from low sales volume (Baan et al., 2017). In addition, Chinese consumers are slowly shifting their loyalties away from local brands. In response, local brands have lowered prices significantly to compete favorably in the home market. Stiff competition caused tension between home factories and BMW subsidiary factory established in Shenyang early this year (Blomberg, 2022). BMW failed to devise a strategy to deal with competition, designed with an intension of escalating conflicts.

In Summary, China is BMWs biggest market and with the subsidies that the Chinese government is offering, we could see BMW making much more profits than the forecasted potential. BMW. BMW should invest more resources to study the Chinese market and how better to meet their demands as it is its biggest market. BMW should seek to try other new markets apart from the 14 it currently operates in as there could be more yet untapped potential in some of these markets.

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