The external factors evaluated in this Five Forces analysis of BMW, using Porter’s model, demonstrate a competitive industry. BMW and other automakers and motorcycle manufacturers aggressively innovate to compete in the international market. This Five Forces analysis case accounts for the bargaining power of customers, the bargaining power of suppliers, the threat of substitution, the threat of new entry, and the degree of competitive rivalry in the automotive and motorcycle industry environment. The fulfillment of business goals based on BMW’s mission statement and vision statement depends on the effects of the factors in this Five Forces analysis and on the company’s response to competitive challenges. Strategies must improve business performance despite the competitive pressure illustrated in this Five Forces analysis of BMW.
BMW (Bayerische Motoren Werke/Bavarian Motor Works) has business competencies and competitive advantages for mitigating and managing the effects of the external factors outlined in this Five Forces analysis. The external factors evaluated in this Five Forces analysis relate to issues that BMW needs to include in strategic decision-making processes for growth in the global markets for automobiles and motorcycles.
Summary: Five Forces Analysis of BMW
The external factors relevant to BMW in this Five Forces analysis case indicate a competitive industry where firms and suppliers have considerable leverage. The other three of the five forces are significant but have limited impact on the automotive and motorcycle business. The following are the intensities of the Five Forces affecting BMW:
- Bargaining power of customers: Weak
- Bargaining power of suppliers: Moderate to Strong
- Threat of substitutes: Weak to Moderate
- Threat of new entrants: Weak
- Competitive rivalry: Strong
Recommendations. The strong force of competition determined in this Five Forces analysis directs attention to the importance of the core competencies and competitive advantages shown in the SWOT analysis of BMW in supporting the company’s competitiveness. Managing the bargaining power of suppliers may require other approaches, such as a supply-chain diversification strategy for the automotive company. BMW’s competitive strategy and growth strategies need to align with the effects of the external factors considered in this Five Forces analysis. However, competitive rivalry and supplier power in the automotive and motorcycle industries must receive strategic prioritization. The following are recommendations based on this Five Forces analysis of BMW:
- Further investment in technological innovation for cars and motorcycles, to address competitors’ high rates of innovation.
- A more innovative marketing strategy to counteract customers’ switching and reduce the impact of competition on BMW.
- Strategic improvements to diversify the supply chain for managing the bargaining power of BMW’s suppliers.
- Strategic improvements for vertical integration to manage supplier power in BMW’s automotive and motorcycle manufacturing operations.
Bargaining Power of Customers (Weak)
Buyers’ leverage and bargaining power over the automaker are evaluated in this component of the Five Forces analysis. The following factors influence the bargaining power of BMW’s customers:
- Low cost of switching between BMW and competitors
- Moderate substitute availability
- Small size of individual customers
Customers face low switching costs representing the ease of buying an automobile or motorcycle other than what BMW offers. The moderate availability of substitute transportation options, such as mass transit, has a moderate contribution to customers’ bargaining power in this Five Forces analysis case. Also, target customers’ small size relative to BMW’s business operations limits this bargaining power. These external factors lead to the weak bargaining power of customers in this Five Forces analysis of the automaker. The social, economic, and technological trends enumerated in the PESTLE/PESTEL analysis of BMW determine customers’ tendency to switch to other manufacturers or to use substitutes.
Bargaining Power of Suppliers (Moderate to Strong)
Suppliers’ bargaining power and influence over the automotive company are considered in this component of the Five Forces analysis. The following factors shape the bargaining power of BMW’s suppliers:
- Low presence of substitute inputs
- Moderate to high supplier specialization
- Moderate to high cost of switching between suppliers
The low presence or availability of substitute inputs strengthens supplier power in this Five Forces analysis of BMW. For example, the company cannot readily substitute a car component with a different material or input. On the other hand, BMW relies on suppliers that specialize in car or motorcycle components. In Porter’s Five Forces analysis model, this external factor strengthens the bargaining power of suppliers. This factor also relates to the moderate to high cost of switching between suppliers, which further strengthens supplier power over BMW. This component of the Five Forces analysis determines the moderate to strong bargaining power of suppliers in the automotive and motorcycle industries. Practices for efficiency, effectiveness, and productivity in BMW’s operations management help mitigate supplier power and leverage.
Threat of Substitutes (Weak to Moderate)
The negative effect of substitution is evaluated in this component of the Five Forces analysis of the automotive and motorcycle business. Substitutes’ threat to BMW are based on the following external factors:
- Moderate substitute availability
- Low to moderate substitute performance
- Customers’ low to moderate propensity to substitute
Mass transit, bicycles, and other alternatives to cars and motorcycles are only moderately available substitutes that compete with BMW’s products. Many suburban and rural areas lack public transit. In this Five Forces analysis of BMW, moderate substitute availability has a moderate contribution to the intensity of the threat of substitution. Also, many substitutes’ performance is low or moderate compared to driving a car. For example, mass transit options may come with inconvenient schedules, while bicycles do not offer protection from the elements. This external factor has a limiting effect on the substitution threat to BMW in this Five Forces analysis. These factors relate to the moderate propensity of customers to use substitutes instead of the company’s cars or motorcycles. The combination of these external factors leads to the weak to moderate threat of substitution for BMW vehicles in this Five Forces analysis case.
Threat of New Entrants (Weak)
The competitive impact of new entry on the car and motorcycle company is considered in this component of the Five Forces analysis. New entrants’ threat to BMW are based on the following factors:
- High cost of entry
- High cost of vehicle brand development
- Low cost of switching between BMW and other vehicle manufacturers
The high cost of establishing a vehicle manufacturing business and the high cost of brand development are barriers to entry that limit the threat of new entrants in this Five Forces analysis of BMW. On the other hand, the low switching costs when customers buy from a different manufacturer can strengthen new entrants’ competitiveness. These external factors lead to the weak threat of new entry, which has a limited influence on competitive pressure and the competition considered in this Five Forces analysis of BMW.
Competitive Rivalry (Strong)
The force of competition and its impact are evaluated in this component of the Five Forces analysis of the automotive and motorcycle business. The following factors influence the degree of competitive rivalry with BMW:
- Low to moderate differentiation among manufacturers
- High rates of innovation
- Low cost of switching between vehicle manufacturers
BMW competes with automotive firms, such as Ford, General Motors, Tesla, and Toyota, as well as motorcycle companies, like Harley-Davidson. These competitors’ low to moderate differentiation and their innovation capabilities add to the degree of competitive rivalry in this Five Forces analysis case of BMW’s automotive and motorcycle business. On the other hand, buyers’ low switching cost when shifting from BMW to other brands or manufacturers intensifies competition. In Porter’s Five Forces analysis model, these external factors lead to the strong force of competitive rivalry in the automotive and motorcycle industries. The strategies and tactics included in BMW’s marketing mix (4P) help maintain profitable relations with target buyers and mitigate the effects of the competitive rivalry evaluated in this Five Forces analysis.
References
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