BMW's Market Entry Strategy into Mexico: A Business Report

Desklib provides past papers and solved assignments. This report analyzes BMW's potential in the Mexican market.

Student ID Number S00039845
Programme Title BSc Business Management
Module Title Business Organisations and Environments in a Global
Context
Module Code QAB020C410A
Module Convenor Olufisayo Oderinwale
Coursework Title BMW Report-Mexico
Word Count 2500 words
without
coversheet
and
references
Data
submitted 15/12/2018

Table of Contents
INTRODUCTION........................................................................................................................5
BACKGROUND INFORMATION ON BMW.................................................................................6
BACKGROUND INFORMATION ON THE BUSINESS ENVIRONMENT (MEXICO)........................10
ANALYSIS OF THE BUSINESS SCENARIO..................................................................................15
ATTRACTIVENESS OF THE MARKET.........................................................................................16
CONCLUSION.......................................................................................................................... 17
REFERENCES........................................................................................................................... 18

List of Figures
Figure 1 condensed income statement of the BMW Group.....................................................5
Figure 2 cost of sales of the BMW group.................................................................................5
Figure 3 quarterly GDP Mexico................................................................................................8
Figure 4 GDP progression of Mexico........................................................................................8
Figure 5 top 10 exports by Mexico...........................................................................................9
Figure 6 Value of NAFTA trade...............................................................................................10
Figure 7 US export to Mexico.................................................................................................10
Figure 8 economic growth......................................................................................................11

INTRODUCTION
The strategic global position is occupied by Mexico. Also, it serves as a bridge between the
US, Canada and southern countries of Latin America. Mexico is in 15th position in the largest
FDI recipients around the world and is one of the largest trading countries in Latin America.
The Mexican government is known to have created an open as well as a secured business
environment for foreign investors (Covarrubias and Ortiz, 2017). The recent policies framed
by the Mexican government allow the investors and ensure them about their operations
security regardless of unfavourable external business environment around the world.
Mexico is one of the emerging countries, which is open to foreign direct investment. The
inflow and outflow of FDI strongly fluctuate in Mexico on the basis of arrivals and departure
of large international groups.

BACKGROUND INFORMATION ON BMW
BMW stands for Bayerische Motoren Werke and is a parent company of BMW group. It is
involved in manufacturing, evolving, selling engines, all the vehicle that equipped engines
including automobiles and motorcycles and also offers
financial services. Approximately 31 production and
conclave facilities are operated by BMW in around 14
countries and it also has a superficial network in more
than 150 countries during the financial year 2017. The
sales network of BMW comprises approximately 1,580
MINI, 3,300 BMW and 140 Rolls-Royce dealerships
around the world (BMW annual report, 2019).
MINI, BMW and Rolls-Royce are sold under the 3
premium brands. The company operates around the
world however it is majorly present in the US, China and Germany. Sustainable profitable
growth is transferred by the financial services segment in the third quarter (BMW annual
report, 2019). A total of 1,828,604 new credit financing and leasing contracts were signed by
BMW group with its retail customers between July and September which is about 1 per cent
more from 1,811,157 new credit financing and leasing contracts in 2016.
For financial services, the profit before tax is increased by 1.9 per cent from € 2,166 million
in 2016 to € 2,207 million in 2017. More than 100,000 electrical vehicles were sold by the
group during the last year. Excellent earning performance is delivered by the Group thereby
maintaining its leading position in the premium segment with record deliveries. The local
management of the group is based on the use of key financials as well as non-financial
performance (Stumpf, 2018). During the procedure analyse, stability is observed between
the financial condition of the BMW group and actual business development in 2017.
The BMW group recorded an increase of 10.2 per cent from € 9,665 million to € 10,655
million. A strong increase in profit before was predicted by the Group in its quarterly report
on 30th September 2017 (BMW annual report, 2019). It slight increase was anticipated by
the group in its annual report in 2016.

Annual growth is achieved by the BMW group in profit before tax, income and distributions
during the financial year 2017. 2,463,526 units are the total number of brand vehicles such
as BMW, Rolls-Royce and MINI, which were distributed to the customers in 2017. It is 4.1
per cent more as compared to 2,367,603 units in 2016 (BMW annual report, 2019).
Figure 1 condensed income statement of the BMW Group
Source: BMW Annual report, 2017
The annual increase is observed in the profit before tax of BMW in the financial year in 2016
and 2017.
Figure 2 cost of sales of the BMW group
Source: BMW Annual report, 2017

There is an increase in the cost of sales of the BMW group in 2017 due to capacity and mix
effects as compared to last year. Also the cost of sales related to financial services business
in 2017 was notably higher than that of in 2016 (BMW annual report, 2019). The cost of
sales s correspondingly affected by the increase in revenue from the sale of returned leasing
vehicle. The scale of the increase was held down due to currency effects.
INTERNATIONAL OPERATIONS:
China is the most popular destination for producing a car by UK car makers such as BMW. It
accounts for more than 32 per cent of the total exports from its manufacturing plants. Due
to imposing 40 per cent import duty tariff by China, BMW would be charged with
approximately $948 million of its $2.37 billion in exported vehicles to continue shipping its
cars from the US to China (BMW annual report, 2019). Earlier in 2018, after China lowered
its import tariffs to 15 per cent which made BMW anticipate to pay almost one-third of its
costs that is $356 million. Increase in overseas production resulted in the warning by BMW
to the US Department of Commerce that the jobs as the largest worldwide production plant
that is Spartanburg, South Carolina would likely be threatened by the continuous trade
dispute (Schassberger and Estrada, 2017).
MAJOR COMPETITORS:
Audi, Mercedes, Lexus and porches are some of
the major competitors of BMW. Audi is a
German company and is the oldest of the
competitors. Continuous innovative ideas and
great technologies led to different unique and
strong features of cars increasing engine
performance and making it a strong BMW
competitor (Lehnert, 2018). The nets profit
margin of Audi is 8.23 per cent which is significantly better than that of BMW that is 7.23
per cent.
Another major competitor is Mercedes which is also a German company. The gross profit
margin of Mercedes is 20.79 per cent which is slightly better than that of BMW that is 20.01
per cent. Porsche is another major competitor of BMW, which manages to generate

revenue of € 14.326 billion in 2013 as compared to that of BMW that is €76.06 million.
Lexus is the youngest competitors of all that has a unique collection of models due to their
prime consideration for innovation and researches (Dong and Koo, 2018).

BACKGROUND INFORMATION ON THE BUSINESS ENVIRONMENT
(MEXICO)
Mexico is an official United Mexican state and a federal republic in North America. It is the
second largest economy of Latin America. The engagement between the World Bank Group
and Mexico is structured around a model so as to provide development solutions to be
adapted to the country with an integral package of knowledge, financial and convening
services (Alvarez and Valencia, 2015). Mexico is the most populated Spanish-speaking state
that has large, dynamic landscapes and rich history.
It has the temple of Chichen Itza, Cinco de Mayo, the Mexican Revolution and the Mexican-
American War. The overall population of Mexico was 122.273 million in 2016 which is
expected to reach to 129.352 million in 2022 Green et al., 2017. The unemployment rate in
Mexico was 4.304 per cent of the total labour force in 2017. Mexican GDP was
approximately MXN 14460.97 billion in 216 while nominal GDP was about MXN 19522.65
billion. According to the GDP per capita, the rank of Mexico is 71st among the 196 countries
Green et al., 2017.
Figure 3 quarterly GDP Mexico
Source: Green et al., 2017

Figure 4 GDP progression of Mexico
Source: Green et al., 2017
Residing in Mexico is loaded with various benefits in areas such as affordable housings,
business parks, lakes, schools, and trails. Around 11,543 residents gain the benefits of
government services, nationally recognised schools, arts and culture and over 30,000 acres
of neighbouring lakes and parkland (Amadeo, 2019). The low taxation and high quality of life
are maintained by attending to the details, budget and planned growth by the city.
According to Kimberly Amadeo, it is observed that Mexico is the 13th largest exporter
around the world. About 81 per cent of the export by Mexico is gained by the US in 2017.
After signing the NAFTA agreement in 1994, the trade with the US and Canada has tripled
(Jun and Park, 2016). Mexico has agreements with around 44 countries which are more than
any other country; this led to the success of Mexico. The goods manufactured and exported
by Mexico is equivalent to the same by the rest of Latin America combined. Number one
exports of Mexico are its manufactured products. Vegetables, fruits, silver, coffee and
cotton are exported by Mexico (Sada, 2015). Mexico is the 8th largest oil producer of the
world with almost 3 million barrels per day.

Figure 5 top 10 exports by Mexico
Source: Alvarez and Valencia, 2015
MACROECONOMIC POLICIES
It has a very strong policy organization and policies. The government of Mexico had
estimated to meet its fiscal target in its 3rd consecutive year also the public debt-GDP ratio is
designed to support over the medium term. Closing the gap in the tax compliance,
upgrading the public spending, and strengthening the fiscal framework results in an increase
in long-term credibility and countercyclicality of fiscal policy in order to help build stronger
fiscal buffers (Jones, 2017). Easy monetary policies should be positioned by the government
so as to assist in activity and also managed the downward path of inflation. It also must
monitor inflation expectations.
PESTLE ANALYSIS:
Political Factors: political department provides an understanding regarding the political
system as well as principal figures that are relevant to concern in the state as well as
administration index. The federal authorities not only pass but also enforce statute law
referring to the entire state (Alvarez and Valencia, 2015). The actions of both provinces, as
well as local authorities, must not overlook environmental analysis.

Figure 6 Value of NAFTA trade
Source: Amadeo, 2019
Figure 7 US export to Mexico
Source: Amadeo, 2019
Economic factors: the services sector dominates the Mexican economy through it's
approximate 63 per cent of total contribution to the total GDP in 2015. Public
administration, social activities, financial institutions and real estate are the major
contributors to the service sector (Stumpf, 2018). The GDP rate of Mexico was declined to
negative 4.6 per cent due to the hindrance by the global financial crisis as well as a recession
in 2009 however the Mexican economy managed to recover with 5.1 per cent growth rate in
2010. Domestic, as well as dynamic external demand, drives the growth.