The external environment of a particular company, such as the carmaker BMW, may include any outside factor that influences the day-to-day running of the business. External factors affecting BMW may be political, economic, technological, and social. External factors such as the environment and legal factors include trends (Anderson et al., 2018) in external factors affecting the company. This work highlights the topic of the external business environment, taking into account the trends, risks, and developments of BMW.
BMW carries out the scans on the external business environment so that it can identify the latest market trends such as those in technology, the different innovations of their competitor companies, and the arrival of new players (Crane et al., 2019), who might change the market trends. An example is cars produced by new arrival companies that may be preferred to those paid by BMW. Secondly, since BMW cannot be able to control the cultural trends of a particular society (Hamilton & Webster, 2018), it needs to examine the cultural trends to make sure its policy, production techniques, and the significant decisions made by the company are in alignment with the various social, political, and technological, cultural trends.
Thirdly, each company’s primary goal is to maximize profits; BMW needs to research the external environment to have a broader picture of the exact factors that slow or hinder the company’s growth. In addition, the company will be able to note factors that may affect the company in the future. With the above being done effectively, the company can make relevant measures to enable its growth, achieving its primary goal. BMW carries out its regular scans on its external business environment. PEST analysis is among the many ways used by BMW; it includes researching the political sector, which consists of the legal requirements of the company; the economic sector, which puts into consideration the trends in inflation; and the social and technological sector, which analyze the age and technological changes respectively.
BMW analyzes its environment as part of its external environment; this is done in various ways, including gathering information from newspapers, listening to radio podcasts, and reviewing their comments on social media. This allows them to acquire critical information (Heather et al., 2017) on what their customers and other potential customers think about their products. SWOT analysis includes BMW’s significant assets as far as analyzing the external environment is concerned. It involves analyzing their competitors’ strengths, weaknesses, opportunities, and threats (Michael Armstrong, 2020) and their investors to know whether their company’s product line or marketing techniques need changes or if they are strong enough to prevail in the current market. In conclusion, BMW uses the PESTLE analysis method to analyze external market trends, especially after the arrival of a new industry. It includes analyzing the political, environmental, social, technological, legal, and environmental factors that may come about with the onset of a new company. It has been ranked as the most effective method for analyzing their external environment.
Political factors may influence BMW’s business operation in the next five years, from 2022 to 2027, in various ways. With countries making various promises at the COP26 summit in Glasgow, different government policies are expected to change, which may affect BMW’s operations. As states are required to reduce carbon emissions, they may implement policies that require carmakers such as BMW to produce electric vehicles (Pankaj Ghemawat, 2019). Having more than fifteen production companies worldwide, there are chances that one of the states that BMW has invested in may have challenges such as political instability, which may affect the consumer’s purchasing power, affecting the company’s sales and putting their investments at risk.
Political instability in Africa is characterized by religious wars and inter-ethnic wars that have led to a poor economy and inflation hence a reduction in the purchasing power of customers. This can be attributed to the low markets in Africa as in this continent there are countable cars of the BMW brand because only millionaires and heads of states can afford to buy them. It should also be noted that even though political factors may influence operations in BMW, the company can also control the government legislation due to the high capital the company is attributed; an example is when the company lobbied to slow down the implementation of the European plan to increase fuel efficiency. Economic factors may influence BMW’s operations, especially when there are cases of fluctuations and inflations; with the onset of COVID 19 and the invasion of Ukraine by Russia, there is a rise in cases of inflation that cloud the ability of BMW to speculate on its profit and losses since the currency is volatile if these scenarios continue to repeat themselves, operations at BMW will be affected.
It is not only global economic fluctuations but also the various tariffs in various countries that may affect operations in the next five years. Producing a car in Mexico and selling it in Europe is cheaper than having it in the United States and selling it in Europe. Unlike Mexico, the USA attracts a 10% tariff; production may be affected if this persists in the coming year. Public image is a crucial factor in the growth of any company, social aspects, therefore, influence the operations of BMW in the coming years. Having different production zones in other countries means that the company has different cultures to meet its needs. If perhaps the company does not regularly and efficiently scan the external environment, it may produce goods that are inconsistent with the social conditions; operations may be affected.
Although BMW has accounts on Twitter, Facebook, Instagram, and other social media platforms used to post updates on new productions and entertain its millions of followers, it only replies to the necessary comments on Twitter. This may reduce the customer-company interaction and the amount of data they may have to produce cars that meet social needs, hindering its operations. So that the company might reduce the chances of its operations being affected in the five years, it is logical to monitor its external environment by replying and considering the comments on its social media accounts. This will enable them to know the public views of their potential and actual customers and know changes in culture to produce cars that meet their customer’s cultural specifications.
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BMW is affected by the trade wars between leading economies, specifically China and the United States of America. This has affected the Stocks at BMW due to the various taxes that were imposed on the trade between these economies. An increase in tariffs by the U.S can influence other countries to raise taxes on imports which increases the cost of production that customers later pay. BMW depends on raw materials such as steel and aluminum. With the increase in tariffs on imports from Europe to the United States, the cost of production might rise, which will be, of course, met by the consumer; this may increase the prices of BMW in the country hence affecting the sales in this country bearing that it has large populations which offer many consumers for their products.
The United Kingdom has recently left the European Union after Brexit. This will influence BMW as it has to meet the different government legislation for countries in the European Union and those in the United Kingdom. This will increase the cost of production hence a decrease in volume in the United Kingdom compared to their counterpart countries in the European Union.
One of the characteristics of a multinational company is that it has vast assets and capital, a multinational can have more funds than the GDP of the United Kingdom, and this can be used as leverage for BMW to use these funds to arm-twist countries that have unfavorable legislation to implement favorable ones. China and the USA can also be influenced using the above strategy. In addition, if states refuse to be arm-twisted, the organization can stop producing in those countries and seek greener pastures in other countries with favorable government legislation. BMW can explore various places in different states in the United States of America where they can get regions to mine aluminum and steel, enabling the company to save on imports of the raw materials used.
Business operations in BMW are also influenced by the fact that in third world countries, there is poor transportation which is not suitable for driving the luxurious produced by BMW; with good presidents elected in this country, roads can be built hence an increase in demand for luxurious cars such as the BMW. This is evident as cars such as Toyota are primarily used in these countries as they can maneuver quickly on poor roads.
The above can be solved if the company collaborates with these countries and the relevant organization such as the World Bank to fund these countries to improve the transport sector. The company can also use its financial power to lobby countries in the third world to build roads and improve the already established transport system; this being done, BMW can be the world’s number one automobile industry. Involvement of the World Trade Organisation in the international trade arena has positively impacted BMW in that excessive government protection has been reduced; this enables the company to trade within the borders of members of the WTO without any restrictions. Trade liberalization, being the primary agenda at the WTO, has enabled BMW to export its cars to this WTO country with ease.
Porter’s five forces are used to analyze an organization’s competitive environment, which includes the political and economic power of the organization’s competitive rivals if there is a possibility of other companies entering into the business to solve a problem, an organization’s suppliers, and the views of their customers and the general public. As seen below, it is mainly used for strategy development in an organization. By analyzing competitors’ sales and performance, and why customers have decided to choose people over the competitor, one can be prepared (Taylor & Perkins, 2021), and as the five forces framework states’ preparation is essential. With these, a company will know when to increase their prices and whether to lower them to attract customers and apply relevant measures to counter their competitors.
Through the Five Forces Framework, strategies to counter new entry into the market can be employed efficiently; this is because an existing organization’s power is reduced with the entry of a new organization into the market. This necessitates substantial barriers to curb entry into the market by another organization; this can be done by lowering an organization’s price of product such as new entry will lead to losses. With the knowledge that suppliers can increase the cost of inputs, an organization is obligated to have many suppliers for their products because if an organization has fewer suppliers, it will be dangerous as these suppliers might use this as leverage to charge more prices for their products which might increase the cost of input. An organization uses this strategy to ensure that they maintain low inputs hence less output.
Substitute goods and services that can be used instead of the output of an organization pose a threat to the profits of an organization. When a customer decides to shift his consumption to substitute goods, an organization’s power might reduce. This information is essential for an organization to employ the necessary strategy, such as making customers’ cost of shifting to the other product low to counter the companies that produce substitutes. Since the customers have the power to buy, it ensures the organization’s existence. It is important to note that these customers can pressure a product price or customer service. Organizations are required to employ strategy to ensure brand loyalty by their customers.
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