PESTEL-Analysis of BMW

Seminar Paper 2015 18 Pages

Business economics - Business Management, Corporate Governance


Table of Content

Table of Figures

1. Introduction

2. Automotive industry in the 21st century

3. PESTEL Analysis for BMW
3.1 Political
3.2 Economical
3.3 Social
3.4 Technological
3.5 Environmental
3.6 Legal

4. Conclusion
4.1 Critical discussion and overview of results
4.2 Overall assessment of the BMW Group
4.3 Recommendations for business strategy


Table of Figures

Figure 1: GDP Growth Rate Euro Area 2005-2015

Figure 2: CO2 per g/km for registration of new vehicles

Figure 3: BMW - Region of Applications for Patents

1. Introduction

Germany is one of the leading car manufacturer industries in the world. The German automotive market convinces customer preferences around the world with companies like Volkswagen, BMW or Daimler, as confirmed by export rates of 190 billion euro through vehicles and components in 2012 (Frankfurter Allgemeine Zeitung, 2013).

The Bavarian automobile manufacturer BMW is one of these highly regarded and venerated automobile brands. The enterprise BMW Group assert their top position in the premium segment with a new record in global sales of about 2.1 million automobiles in 2014. The additional brand MINI could hold the level of its sales from the previous year and, for the first time, Rolls Royce Motor Cars was able to increase the sales over 4.000 units in 2014, and thus assert the position as the market leader in the absolute luxury segment. Hawranek (2008) and Reithofer, chief executive of BMW, (BMW Group, 2015) emphasise that the company remain faithful to its strategy to continuously hold the position as the world’s top seller in the premium class.

The elaboration will present an environmental analysis of the BMW Group in the automotive industry with help of the principles of a PESTEL-Analysis. After a general overview of the automotive industry in the 21st century in chapter 2, each point of the PESTEL-analysis will be processed separately in chapter 3. The conclusion in chapter 4 includes the results, an overall assessment of the BMW Group and recommendations considering the focus of the business strategy.

2. Automotive industry in the 21st century

The car industry can be described as well-engineered, highly competitive and vibrant. An increase in product variety and customer services as well as a similarity of the existing models of different manufacturer leads to an elevated pricing competition (Guerzoni, 2013).

The automotive industry is constituted of three major sectors - USA, Northeast Asia and Western Europe. They achieve 80 % of total sales and nearly 90 % of total output (Lynch, 2006, p. 698; Donnelly, et al., 2002, p. 31).

Global sales of passenger cars hit over 74 million vehicles in 2015 and global production of passenger cars amounted over 67 million vehicles in 2014. Volkswagen is leading manufacturer in production with about 9.3 produced vehicles in 2013, followed by Toyota with 8.5 million vehicles. The leading manufacturers in sales are Toyota ex. Hino and General Motors with 10.2 million vehicles sold in 2014 (statista.com, 2015).

The annual turnover of the German automotive industry amounted to 360 billion Euro in 2013 (almost 1 % more than in 2012). With 14 million produced passenger cars, Germany still represents the fourth largest car manufacturer after China, USA and Japan (Bundesministerium für Wirtschaft und Energie, 2015).

Townsend & Calantone (2014) points out that the “car industry is an integral component of the global economy and is unique in that it encompasses every aspect of the value chain – from raw materials to design and development, manufacturing, sales and services, and even disposal. All of these value-creating areas are undergoing significant innovative change as a result of environmental and competitive forces.”

New trends constrain manufacturers to develop new business models and to cooperate with more partners like energy suppliers, telecommunications providers and other high-tech companies. Therefore, automotive organisations constantly need to optimise their global value chains.

3. PESTEL Analysis for BMW

“Companies are managing the new product development and innovation processes in an environment of increasing government oversight of energy policy and consumption, increased influences on ownership structures, and increased safety regulations.” (Townsend & Calantone, 2014, p. 4). Therefore, automotive manufacturer has to transform to global orientated enterprises.

Business analysts of organisations desire to understand the factors that can affect the environment in which the business operates. One framework for doing this is known as a PESTEL analysis. PESTEL illustrates an acronym that stands for Political, Economical, Social, Technological, Environmental and Legal (Yeates & Wakefield, 2004, p. 265).

The PESTEL Analysis provides an extensive list of influencing factors on the potential success or failure of certain strategies (Johnson, et al., 2011, pp. 80-83). The PESTEL concept will be employed to assay the different points in each area considering only those who are important for the automotive industry.

3.1 Political

Government regulations restrict most manufacturers as well as BMW in points of, for instance, political stability, missing trade agreements and congestion charges on vehicles. These aspects are affiliated to legal factors (cf. 3.6) whereby the decisions are set up by political authorities.

Regarding to the political stability, if BMW focuses on the headquarter location Germany, it is obvious that since Germany is politically highly stable, there is no reason to fear political conflicts or riots, however, it possesses a high tax burden which could be a clear competitive disadvantage. The political instability respectively risk of conflicts in emerging markets such as China, Brazil and Russia can not only have negative influence on local customer spending patterns, but also investments in these regions may be afflicted with risks. Also, assembly plant locations like Egypt need to be taken more seriously (Lagi, et al., 2014).

Another point illustrates the use of free trade zones. Chief executive Reithofer insists on a free-zone area between USA and Germany, since all SUVs are manufactured in the US plant Spartanburg. The export of these vehicles to Europe costs 10 per cent duty which is due to an increasing popularity of SUVs in Europe a distinct disadvantage (BMW Group, 2015; DIE WELT, 2014).

Furthermore, governments of several countries want to or already launched congestion charge zones such as the UK did in London which is also a distribution area of the BMW Group. This is a result of the enforcement of new laws related to CO2 emission which is picked up once more in part 3.5 and 3.6. However, when governments decide to distribute scrapping bonuses, it stimulates the buying of automobiles in the short term (Hansen, 2010).

3.2 Economical

The economical factor refers to macroeconimic aspects like changing customer demands and exchange rates which influence home and international markets. Furthermore, the factor relates to business cycles, different economic growth and inflation rates as well as consumer expenditures along with their disposable income.

Automotive manufacturer like BMW need to launch more vehicle models considering local available income and preferences of customers to satisfy customer expectations around the world, however its lifecycles abbreviate continuously. It is not possible to meet the demands of international markets through standard products anymore. Saturated markets urge to innovations such as more fuel-efficient cars (Rasch, 2013). Furthermore, the demand for smaller cars and SUVs increased in the last view years. Therefore, BMW developed, on the one hand, the series 1 models meeting customer expectations for smaller premium cars and, on the other hand, the series X models representing premium SUVs. In addition, BMW plans to launch a Mini-SUV called BMW Urban Cross to gain larger market share in the booming sector of smaller SUVs. Excess capital and high purchase power in emerging markets such as India or China benefit the company in these points (Euler Hermes Studie, 2014; Boeriu, 2015).

Next to strong distinctions in global inflation rates, it is obvious in the following figure that a volatility in the euro area GDP growth rate shows that especially financial crisis affect consumer purchase behaviours and credit facilities for potential car buyers like the economic recession did it in 2009.

source: (Trading Economics, 2015)

Figure 1: GDP Growth Rate Euro Area 2005-2015

illustration not visible in this excerpt

This includes the need of sensitivity of carmakers on price fluctuations. The clearest example can be seen in crude oil prices where one barrel cost averagely over 100 USD between 2011 and 2014 and less than 60 USD at the current time (InvestmentMine, 2015). Furthermore, DAX companies and their profit including BMW had to record heavy currency losses through the strong euro because of weak currencies in emerging markets. But, the constantly increasing value of Renminbi meets BMW (Knop, 2014; Kaya, 2014).



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Title: PESTEL-Analysis of BMW