Strategic Operational Study

Strategic Operational Study

            BMW is a German multinational corporation that produces automobiles and motorcycles. Founded in 1916, the company has its headquarters in Munich, Germany. The firm produces motor vehicles in various parts of the world like; Brazil, India, China, the UK, the US, etc. Its large global market share is what is making the firm a top car-seller in the automotive industry. In Asia, BMW controls a large car market industry, while China is its main hub. Its large global market share is what pulls other small start-up firms to want to make joint ventures with this giant carmaker. One example is its joint venture with China’s Great Wall Motor. Our focus on this study, therefore, will dwell on BMW’s strategic decision for the joint venture, its challenges, and recommendations based on analysis of the problem.

As the Chinese economy took off on the path to economic development, various challenges came as a result. Pollution levels drastically rose, and the air quality in the country deteriorated. The automotive industry became the sole highest polluter of the air. Several countries like Australia, the US, UK, and others who were concerned about the rising levels of environmental pollution in China, pressured the Chinese government to restructure its economic model to help address the problem. Carmakers like BMW, which produce gasoline cars, took the brunt of the new legislation meant to curb toxic emissions. Tougher vehicle emission standards started to be implemented in China.

In 2019, sales and registration of new vehicles in Shanghai, Beijing, and other areas were required to comply with the China V emission standards. The steps are meant to help China battle with air pollution. Therefore, car sales in the country continued to drop drastically. BMW’s car sales plunged because of the restrictions. Other carmakers like Mitsubishi and Daimler also saw a drop in sales volume. In response to the tough restrictions on emissions, BMW signed a joint venture with GWM.

BMW’s decision also partly related to the ongoing trade war between the US and China. The retaliatory tariffs imposed by China on the US auto industry had a massive negative impact on BMW sales in China. BMW and Daimler sell six of the most popular US vehicle brands exported to China. The trade war cost BMW about 300 million Euros in the year 2018. Its shares fell 3.2% because of the trade war. In 2018, the company stated that the total cost from the US-China trade war cost the company upwards of 600 million euros, mainly on their vehicle brands manufactured elsewhere and exported to China. That prompted the company to strategize a way of avoiding the tariffs levied on vehicles exported to China.

The US-China trade war ate into the profits of the automaker, thus, prompting BMW to sign a joint venture with GWM renamed Spotlight Automotive Limited. The joint venture would produce new energy vehicles that meet the emission standards set by the Chinese government. A factory to produce 160, 000 EVs annually was proposed. The venture’s total investment was valued at RMB 5.1 billion. The plant’s proposed factory site in Zhangjiagang, covering an area of 620,000 meters. Annually, the Spotlight Automotive Limited aims to produce 160,000 fossil fuel-powered PVs. They also aim at carrying out research and development for all the electric PVs in China.

The BMW/GWM joint venture, however, experienced many challenges after its inception. Political and cultural challenges continued facing BMW on its venture with GWM. Politically the firm faces the problem of legal system corruption. Being a western company where the rule of law is adhered to, BMW’s joint venture with GWM has to navigate a tricky path to success. The political system in the country is not transparent enough. Therefore, the risk it poses to the company is immense. One political challenge facing BMW working with GWM is nepotism and bribery. The firm will grapple with the fact that most of the deals done with other players in the industry may involve shoddy activities like bribery. Therefore, this negatively affects BMW’s vision of diversity and transparency.

One other political challenge is bureaucracy. Overseas firms often struggle with laws and regulations in China because the consumer environment is much more diverse than how it was decades ago. Many firms have thus become attached to the Chinese system because of the promising fortunes the market offers. However, recent laws and regulations passed have negatively affected foreign firms operating in the country. Most complaints recorded revolve around obtaining licenses and business permits. For instance, at the earlier phase of this BMW/GWM joint venture, reports emerged that the venture was faced with regulatory uncertainties and that it failed to get approval to build a factory in Changsu, China. Thus, underscores the political challenge BMW faces as it teams up the joint venture with GWM.

Governmental challenges on laws governing intellectual property are another challenge that BMW faces in its venture with GWM. Government laws do not fully regulate intellectual property theft. The laws of joint ventures in China often require that the foreign firm share its intellectual property with the domestic firms for approval to operate in the country. There is no doubt that BMW’s intellectual property is superior to GWM’s. Therefore, there is a possibility of BMW having to share its most coveted asset; intellectual property. This can be disastrous for BMW in the long run because whenever the venture is over, GWM may take advantage of the acquired expertise and do reverse engineering using BMW’s obtained intellectual property; thus, it can become a distinct company capable of outcompeting BMW.

Culturally, BMW faces the problem of different business cultures. These behaviors and beliefs determine how a company’s management and employees handle and interact outside of the business setting. Confucianism massively influences the business culture in China. The concept of Confucianism means that a relationship network in business is crucial, and it is based on loyalty, solidarity, courtesy, and modesty. On the other hand, the German business culture is characterized by planning and perfectionism. Business relationships are very formal and are a reflection of the German values privacy, punctuality, and order. Therefore, the clash of cultures will precede BMW’s venture with GWM and may take time and resources to adjust to the new Chinese business culture.

The human resource challenge is another problem BMW experiences in its cooperation with GWM. Researchers have noted the human resource challenge that many western firms doing business in China face. It remains difficult to recruit qualified human resource personnel in the diversified Chinese economy. It is also hard to recruit talented and skillful employees for various managerial profiles in various firms in the country. The main cause of a lack of qualified human resources is the negative perceptions in the Chinese culture towards skills acquisition. There is an absence of thinking and decision-making. Therefore, BMW has to restructure its workforce and find a better recruitment strategy to tap into the scarce human resource problem in China.

Lastly, the language barrier is another challenge that will cost BMW a lot of money. The language barrier leads to poor communication, fear, and risk management. A joint venture like that of BMW and GWM is exposed to many unavoidable risks, both political and cultural. These risks can be mitigated when there are good internal and external communications in the company. However, in this case, the German executives of the BMW Company might not be able to swiftly address common issues and raise awareness swiftly with their Chinese counterparts because of the language barrier. The language barrier may also challenge the BMW management in understanding the customer needs and tastes, meeting customer expectations, and recognizing brand image problems, whether intentional or unintentional.

Recommendations

1. BMW should take time to understand its customers in China, their needs, tastes, and preferences. In doing so, they will be able to solve the difference in the business culture.
2. I recommend that BMW take advantage of the knowledge of the local company, and in this case, GWM, so that they can solve the human resource challenges.
3. The company has to strategize how to grow the company’s brand for the future. Through adhering to laws and regulations, the firm’s brand reputation will be positively built.
4. For the BMW/GWM joint venture to be successful, I recommend that both firms jointly invest in Research and Development and support the manufacture of local vehicles while maintaining a hedge in the market.