BMW’s Market Analysis in China Environmental， Opportunity and Market Analysis （2017）

Summary：conduct an environmental analysis under PESTLE framework to identify the significant trends that are influencing global automotive and mobility service industries. Then， after an opportunity screening and analysis regarding accessibility， profitability， and market size， China has been selected as the emerging market exhibiting growth potential. Finally， Porter’s five forces model has been applied to evaluate the competition landscape of Chinese market.

Keywords：BMW；PESTLE； Market Analysis；China

1.Environmental Analysis – PESTLE Analysis

The macro-environment that BMW is operating in was examined using PESTLE framework as follows. Several global trends in car manufacturing and mobility services industries havebeen identified as the most influential to BMW’s international marketing strategy.

1.1Political/Legal

1.1.1Vehicle Emission Standards

Motor vehicles sold in most of the countries are subject to fuel-efficiency and emissions regulations. A clear trend has been identified in most countries to shift existing auto emission legislation from setting emission standards to encourage the development of alternative engine/vehicle technologies （Continental 2009）. These trends have a created positive environment to develop its mobility services and electric car line-up.

1.1.2Car Ownership Restriction

In order to address the air pollution and traffic congestion issues， large cities encourage the use of public transport， car-sharing services， and even implement licence plate lottery to lower car ownership （BBC 2013）.

1.2Economic

1.2.1Rising Fuel Prices

Fuel price is expected to rise soon due to the changes in the supply （Close 2017）. The demand for small and new energy vehicles may increase accordingly. Unlike many competitors produce strong SUVs and pickup trucks alongside the light vehicle， BMW did not invest much into its line of trucks. Thus， the trend of rising fuel price would bring more opportunities for BMW’s smaller vehicle range.

1.2.2Shifting Production towards Emerging Market

Although the automobile was rooted in central Europe， Asia has become the most attractive market for passenger vehicle production. From 2015 to 2022， emerging markets are expected to contribute over 90% to light vehicle production growth （Statista 2017）.

1.2.3Increasing Middle-class Population

As illustrated in Figure1， the growth of size of the global middle class will be primarily driven by the Asian middle class， which will represent 66% of the global middle-class population （Pezzini 2012）.

1.3 Socio-cultural

First， people from cultures with high power distance and strong social hierarchies respect influential leaders’ opinion. Purchase decisions are often made by heads of families and top managers. As premium car brand， BMW will be more favourable to leadership and management in countries with higher power distance when it represents the success and emphasises the group benefit.

Second， BMW provides comprehensive after-sales services， which will be more appealing in the countries with high uncertainty avoidance since customers in these societies prefer product characteristics clearly stated with quality guaranteed and specific features.

1.4 Technological

1.4.1 Demand for Autonomous Vehicles

During recent years， there have been 33 companies working on autonomous vehicles. The estimated demand for autonomous vehicles is expected to be US$45 billion by 2025. It seems that autonomous vehicles will be the next ‘big thing’ for automobile industry.

Following an alliance with chipmaker Intel and supplier Mobileye， the BMW planned to create an open standards-based platform aiming to put autonomous vehicles on the road by 2021 （CB Insights 2016）.

1.4.2 Growth Market for New Energy Cars

Based on industry estimates， the sales of Electric and Hybrid vehicles would be around USD 41 million by 2040， which will be 90 times larger than the current figure （SP 2017）. BMW already has a presence in the HEVs segment with the “BMW i” range of cars.

1.5Environmental

1.5.1 Eco-friendly Consciousness

The shift in automobile purchase preferences towards more eco-friendly cars was displayed on many environmentally conscious consumers. This evolvement increases the implication of brand management as well as Corporate Social Responsibility rather than product excellence only.

2.Opportunities Analysis

After scanning the emerging markets in the world by comparing accessibility， profitability and market size among major developing countries including the “BRICs” and the “NEXT 11”. As depicted in Figure 3， countries are ranked and plotted based on Human Development Index （Profitability）， Average Tariffs （Accessibility）， while market size is proxied by total car sales in 2016 and illustrated as the size of the bubbles.The Chinese market has been selected as a growth opportunity for BMW， due to its high ranking in accessibility and profitability with much larger market size. A thorough opportunity analysis was conducted to explore China market further.

2.1Accessibility

Major trade barriers for BMW in China has been assessed to evaluate the accessibility of Chinese market. Those barriers include tariffs and government regulations. Overall， BMW’s accessibility in China is high and will be improved in the future.

Though China has imposed a 10% extra tariff for luxury cars costing more than USD190，000 since December 2016 （Clover and Ju 2016）， it is not considered as a major threat to BMW since most BMW’s products are below the threshold. Secondly， China has started legalising “Parallel Imported Cars”， which allows unauthorised dealers to sell imported cars and would be an addition distributions channels for BMW. Thirdly， the high concentration of BMW’s target population in the megacities also improves the accessibilities of the Chinese market to BMW.

Regarding mobility services， plate-restriction and traffic restriction on fuel cars are fostering the growth of new energy car-sharing businesses in China during the recent years. Meanwhile， the central government has expressed the encouraging attitude towards the industry.

2.2Profitability

In the assessment of the profitability of Chinese market， manufacturing costs， local purchasing power， and government subsidies were considered.

The BMW-Brilliance joint venture manufactured low-to-medium range cars in China. Costs in manufacturing， logistics， and import duties can be saved through the local plant. In new energy car sector， the Chinese government is expected to gradually stop all subsidies towards local new energy carmakers in 2020， which would undermine the price competitiveness of BMW’s Chinese competitors.

In terms of mobility services， low-cost car sharing companies have experienced a rapid growth in major Chinese cities. BMW’s car sharing service， represented by DriveNow， is targeting on premium car-sharing customers， which may find it difficult to compete with those competitors on price.

2.3Market Size

BMW’s target customers in China is comprised of middle-to-upper class individuals. Hence the company was positioned as a strong competitor of Mercedes-Benz and Audi since it entered the Chinese market in 1994. The key determinants of the premium car market size are the population of high-income earners， availability of financing， and fuel price （IBISworld 2017）.

The Premium cars in China had an existing market with large growth potential underpinned by growing middle class. It is expected that by the end of 2020， Chinese middle-class households would reach 23 million， equal to the total number of households in U.K. today （Sha， Huang， and Garbardi 2013）. The new mainstream households with annual income from USD16，000 to 34，000 constitute a greater small-engine premium car market.

The availability of financing is also critical for many young premium car buyers. As the automakers push financing deals to the customers， 30% of the car buyers bought their cars on credit in 2016， which expanded BMW’s products accessible to more young families with lower purchasing powers （Spring 2016）.

Regarding Mobility services in China， there is a large incipient market of mobile-connected parking services as the scarcity of the parking spaces in the urban area became severer. BMW’s ParkNow service is expected to fulfil the demand of car owners for convenient parking.

3. Competition Analysis

More than ever， the competition in the premium car market is rather intense， along with the concerns about huge investment in RD and advertising， and high exit cost.

First， the rivalry is concentrated on global top car manufacturers. Three German-based car manufacturers remain their predominance in Chinese luxury industry with reducing gaps （Figure3）.

Second， competition has been threatening than before due to the emergence of new competitors， which might potentially erode the market share in the future. Jack Ma has officially announced the move into ‘Internet car’ industry in cooperation with a Chinese state-owned automaker， SAIC， in 2016； this cooperation may intensify the fierce competition in the luxury car market （Bloomberg 2016）.

Third， huge investments have been made by Chinese carmakers to develop new energy vehicles. BYD’s 2016 sales volume is far ahead in Chinese NEV marketplace， but recent news has described that BMW focuses on its electrification strategy.

Summing up， Chinese premium cars industry maintains its attractiveness， but fierce competition still exists. Because the successful performance that had been achieved and the confirmed significantly profitable Chinese environment to BMW’s strategy in this new era， the importance of China to BMW extends far beyond sales volume. The greater opportunity requires BMW to seize the potential growth and effectively deal with the existing challenges.

References：

[1] BBC 2013， Beijing to restrict private car use to tackle pollution， British Broadcast Corporation， viewed 10 April 2017， .

[2] CB Insights 2016， 33 Corporations Working on Autonomous Vehicles， viewed 06 April 2017， https：//www.cbinsights.com/blog/autonomousdriverlessvehiclescorporationslist/.

[3] Close， K. 2017， Gas Prices Will Spike in 2017. Time.com， viewed 06 April 2017， http：//time.com/money/4621643/gaspriceshigher2017/.

[4] Clover， C. and Ju， S. F. 2016， ‘China slaps extra tax on superluxury cars’， Financial Times， 1 December， viewed 5 April 2017， < https：//www.ft.com/content/6e3de226b78811e6ba8595d1533d9a62>.

[5] Continental 2009， Worldwide Emission Standards and Related Regulations， Continental， viewed 06 April 2017， http：//www.contionline.com/www/download/ automotive_de_en/general/contact_services/downloads/commercial_vehicles/powertrain/common/pow_emission_booklet_pdf_en.pdf.

[6] FT 2017， Watching and waiting for Donald Trump’s protectionism， Financial Times， 21 March， viewed 11 April 2017， https：//www.ft.com/content/09bcb23e0d6c11e7b030768954394623.

[7] IBISWorld 2017， Global Car Automobile Manufacturing Industry Report 2016， 26 March 2017.

[8] Pezzini， M. 2012， An Emerging Middle Class， OECD Observer， viewed 06 April 2017， http：//oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html#sthash.jOSjrRFN.dpuf.

[9] Pham， S. 2017， ‘Tesla's new China backer： A tech giant with hundreds of millions of users’， CNN tech， 29 March， viewed 31 March 2017， http：//money.cnn.com/2017/03/29/technology/tencentteslaponymaelonmusk/.

[10] Sha， H.， Huang， T. and Gabardi， E. 2013， ‘Upward mobility： the future of china’s premium car market’， McKinsey Company.

SP 2017， BMW SWOT PESTLE Analysis， SWOT PESTLE， viewed 06 April 2017，http：//www.swotandpestle.com/bmw/#.

[11] Spring， J. 2017， ‘Chinese consumers take credit for boom in car loans’， Reuters， 3 September， viewed 5 April 2017， http：//www.reuters.com/article/uschinaautosloansidUSKCN11A012.

[12] Statista 2017， Global light vehicle production forecast 2022 | Statistic， Statista. viewed 06 April 2017， https：//www.statista.com/statistics/266813/growthoftheglobalvehicleproductionsince2009/.

[13] Yu， R. 2017， ‘Parking in china can be a long march’， Wall Street Journal， 18 January， viewed 8 April 2017， http：//blogs.wsj.com/chinarealtime/2017/01/18/parkinginchinacanbealongmarch/.

Author profile：

Huan Fang，Yanting Zhang，Guangzhou College of Technology and Business.