Multinational Company Bmw Economic Essay

BMW is the multinational company that I choose for the assignment. BMW is a company that operating in more than 1 country. They are not only operating in their home country (Germany) but they also operate in many countries like: Malaysia, Singapore, Thailand and etc. Beside that BMW also have manufacture in country like UK, USA, Mexico, South Africa and etc. So BMW is proving as a multinational company. BMW Group is one of the world’s largest premium carmakers and BMW is also the parent of the company of BMW MINI and Rolls-Royce car brands, and, formerly, Rover. BMW headquarters in Munich, Germany. The company slogans in English are “The Ultimate Driving Machine” and “Sheer Driving Pleasure.” BMW was founded by Karl Friedrich Rapp in October 1913. Automobiles, motorcycles and financial services are three segments that operate by BMW and they manufactured the first passenger car running by hydrogen.

BMW manufacturing is plant in Germany, Austria, UK, USA, Mexico, South Africa, Egypt, Brazil, Malaysia, Indonesia, Philippines and also Vietnam. BMW’s main competitors include Acura, Alfa Romeo, Audi, Cadillac, Infiniti, Jaguar, Lexus, Mercedes-Benz and Volvo all of this are consider luxury brands of the car products. Nowadays, BMW is support by 11different types of series which is: BMW C1, BMW 1, 3, 5, 6, 7 series, BMW X3, 5, 6, BMW Z4, BMW M5, BMW M6, and BMW Z4 M. According to the research, shown that there are 2 new divisions for BMW been introduce in October 1, 2007. Which are corporate and brand development will be lead by the director of corporate planning this is focus on the vital for brand management, corporate planning, and strategic implementation BMW. Second, purchasing and supplier network that headed by Dr.Herbert.Diess. The purpose is to reduce the material cost and expenses factor. These are few of the new management strategy that BMW Company is using to operate the company. 15

Sentence of credit crunch in general are stand for credit crunch make it almost impossible to the lender like bank and investor to borrow the money because they become very chary of lending the money to the corporation. They scared of bankruptcies and defaults, which they drive up the price of debt products for borrowers which result in higher rates. The consequence is drag on of recession, which the shrinking of the credit supply wills happens as a result. 2

Credit crunch overall background is starting with the lender like bank are suffering loss because of their previous lending loans, and this make them normally unable and averse to lend the money again to the borrowers. This happen when the borrower in arrears and the properties underlying a defaulted loan and drop in the value. As in this case the borrowers default, the bank can only foreclose on hypothecate and trying to sell this property to compensate the funds they loaned out. Thereby, if the pricing of the house is decreasing, the bank is considered left selling at the cost. The banker capital position is reducing; when they suffer losses which are reduce the amount that they are able to lend out. The lending institutions are requiring keeping down the minimum levels of capital. 3

The reasons that cause to the credit crunch are first: speculation. Many people go to obtain additional loans with very easy terms for instance no initial down payment because it is too easy to gain the credit from the banks so that all of the peoples and investors think that the price will going to increase also. The rapidity increase in property value make investors to jump into the investment with low and no fundamentals. This situation will make the investors to feel that they are missing out and left behind, in case as many investors going to heap up it will cause increasingly unsustainable to the price of property. Next is lack of the regulatory oversight, the distrustful of loans are make by mortgage brokers and bankers, the underwriters who working in the bank are determine whether the ability of the borrowers is there for them to repay the loans and turn a blind eye to what is going on so that the increasing of the profit can see by the loans that they have written. In additional, there are others reasons like Adjustable-rate mortgages (ARMs) and subprime loans, the repeal of the Glass-Steagall Act, Historically low interest rates, and as well as politics which happen because many of the politicians going to say that the higher of the rate of the home ownership for Americans is better, but what would happen to the economy from the perspective of those that can’t afford their homes when an inevitable slowdown occurred.4

The occurring of the credit crunch will actually affect the economy of a country and company in few ways. First, the banker will actually tighten up the credit for all types of loans and become more caution to lending the loans. So that this directly affects the small businesses peoples that who are depend on the loans and the credit to fund their day to day operation and become illiquid. Next, unemployment rises is one of the ways that will affect a company and country where the businesses are unable to pay for all the immediate bills and so that they also facing the problem that they cannot pay for the employee’s salary and so that caused the situation like unemployment increasing in nationwide. The bankers and the brokerage firms are hit by this credit crunch. Apart of that a spiraling domino effect occurs, above these two economies effects of the economies crisis can make the economy of a country going down and than affect the whole country economy and if the economy of a country continues to going downward, it will lead to the difficult to stop the cycle. 5

On year 2008, America was affected by the serious economy crisis, and their economy is actually hit really hard by this economy crisis. We can see through the secondary data that done by research show that BMW also hit by 2008 economy crisis. According to (Chris Reiter 2010) BMW and Mercedes this two world largest luxury car makers was only sold a combine 31,000 fewer vehicles last month because of the occurring of economy crisis and cause credit crunch that discourage the power purchasing of consumers. The percentage of sales are also falling down 8.3% to 113.005 cars and sport- utility vehicles from 123,300 vehicles a year earlier by BMW Company whose are also owns the Mini and Rolls-Royce auto brands. Next, Auto sales in US BMW as a biggest market also decrease 32 percent in October of 2008 to the lowest monthly total since January 1991. They look back to their 2008 profile target on November BMW plans to cut production by 65,000 cars and SUVs according to (Chris Reiter 2010).

Chris Reiter (2010) states that BMW is involved in the extremely changeling market and the vehicles sales are decreasing for the whole year because of this. As what Ian Robertson who are the Munich-based carmaker’s sales chief said: in a statement today, reiterating a forecast released Nov. 4. “The retail gains made in our growth markets were unable to fully offset” declines in Western Europe, Japan and the U.S. Chris Reiter (2010) also states that BMW posted 12% drop in Western Europe, 5% drop in US and the worst is Japan drop 34%. Furthermore, David Gow (2010) states that credit crunch put brakes on BMW 2008 also when US economy goes down turn and BMW reported that a step fall down in first quarter earnings. The son company of BMW Mini and Rolls Royce said that the pre-tax profits spilled 25% to (£505m), dragged down by increased risk provisions, tighter credit and the strong euro.

According to (S. wall, S. Minocha, B. Rees, 2010)[case study 4.2 BMW after Rover], show Rover in Britain worsened and hopeless in early of March 2010 due to the strong pound damaging the exports of Rover. Finally Rover sells to Alchemy. This happened and uproar Britain press and politicians because scaring big number of unemployment in Rover and few supplier are located around the region. Alchemy withdrew from bidding process and sell to Phoenix consortium for £10. Previous 6 years BMW spent total £34billion to save Rover but posted big losses. The disposal provoked a political storm in Britain, and BMW bosses were someone parliamentary before this. Britain government furious, Milberg (who took over CEO of BMW in 1999) retorted government slow to get the signals he sent in a phone call before the situation worsened. This criticism infuriated the government again. This shows that government and political mess will also cause a problem to a company. Apart from that, the case study also stated that the decreasing and increasing of a currency will also give a huge impact to a company. The pounds became stronger and then give a direct effect to the company and destroy their exports businesses are one of the problem that we can see from the case and this may indirectly lead to the occur of credit crunch as well. 14

David Gow (2010) states BMW a 5.6% rise across its three brands to a record 351,787 despite a 9.1% drop in their biggest market, US. “The international financial crisis deteriorates the climate for consumer spending became gloomier,” it said, pointing to March 2008 as the peak of the crisis. Before this BMW still expect to beat the last year sales record to 1.5m but the US’s economy getting worst and lead to the dropping of the profits.

The world largest luxury carmaker BMW have became the victims of the credit crunch on 2008. It took a 236 million euro (S$500 million) charge because of falling prices and rising bad debt in the United States. The move is the provision made of the divinable losses in business area. This move could cause to increased nervousness about the impact of the financial crisis on the economy in Europe, even as most companies report robust first-quarter results. This is what reported by The Financial Times. The Click here to find out more!Daimler chief executive Dieter Zetsche say’s that in 2008 may that month the general car sales of US is fall down this year but the growth in emerging in market can expiation it. 6

In addition, research shows that 2008 BMW son’s company MINI has declared that axes 800 redundancies in Cowley, Oxford hire prompting protests from unions over a perceived lack of sensitivity towards the rights of agency workers. The redundancy pay will not received by many of the staffs that who have been made the contract through the agency Manpower. At the same time the sales of the luxury cars are drop very ruggedness, so because of that supermini segment has experienced a less severe downturn driven by a consumer shift to smaller and more economical vehicles. Seen from secondary data, clearly we can see the Society of Motor Manufacturers and Traders (SMMT) January figure, the trend towards the smallest segment the mini or city car segment is growing stronger as the recession deepens, with new car registrations up 40.8% on 2008 figures. At British, Mini was one of the last of the car manufacturers that are continue working through these suffering times, but they are not produce any cars on that relevant week because of to the significant fall in global demand. Around 20% of these 800 axes redundancies are going to tha manufacture like: Jaguar, Nissan and etc. 7

BMW became the first victim of the credit crunch on 24 of April, that who are the world largest luxury carmaker. BMW took a €236m ($369m) charge because of falling prices and rising bad debt in the US are showing through the research. But however the pre-tax level is slightly increased compare with last year. 8

The strategy that BMW use to overcome credit crunch are first: that are one of the reason why BMW and Mercedes are teaming up. There are fewer options for OEM (original equipment makers), consolidations of period have gone through by automobile suppliers and this trend is expected to speedup for the next few years. It becomes difficult for the investment capital because credit crunch makes suppliers harder to fund their business. 9

Many organizations are affected by the credit crunch in UK industry and so BMW. But BMW consider one of the successful from them and six awards are goes to BMW and German manufacturer sales rise and new models bring in new customers. Although BMW also affected but they get the award for best small car with the MINI, best small premium car for the 1 Series and best large premium car for the 3 Series. In addition, The 5 Series took the gong for best executive car and the X5 won best SUV and BMW was presented with the Fleet News environmental award for the EfficientDynamics package. 10

Next, BMW also trying to protect himself from credit crunch by helping some of the suppliers. The stronger suppliers are encouraging by BMW to take over weaker supplier in this case and BMW will pay more for the parts, speedup the payment and as well as they will temporary pay higher price for the parts. 11 Apart from that, in UK, during credit crunch the governments are actually asking to help the car manufacture and government helping a litter bit where we just seem it banking sector. According to the research, on that time if the government is still not aware of this problem and the unemployment will become worst and the number of import export within UK and other country will be reduce and shown that UK government will loss £110 billion revenue and UK £146.2 billion tax next couple of year if the government despise this case. 12

However, in Malaysia it will still have at least a litter bit effects because of credit crunch but the god strategy need to be prepared to face the credit crunch. According to Briscoe, he believes that the luxury car like BMW needs to have a better positioned for it to growth in the industry when facing difficulty at the economic side. He also said that: “There would be an impact but we feel that the volume-based car segment would be more affected than the premium segment.” According to him as well in Malaysia market in 2009, was to provide the right car at the right market at the right time. Extra key are they are now focusing on their credit crunch strategy are introduce more diesel powered cars. 13

This are few strategy that BMW done or the place government done to solve the various problem during credit crunch. But actually they are pro and con for every strategy they used and pro and con as well for the helping from the government, it is just depend on each of us to criticize either each of this strategy are falls into pro or con. In my opinion, as the first point I listed above BMW are teaming up with Mercedes, to invest in the suppliers and the next point that BMW are encourage strong supplier to take over weaker suppliers. It is just a good decision I think because it is not a good decision if we just leave our car’s part supplier to facing and suffering alone with the credit crunch without any assisting. In the tough time during credit crunch, if we are not helping each other among supplier even competitor we might just die together because of the wrong decision. We can actually helping each other according to our capability like what BMW and the rest done.

Next, the ethical issues are very vital for a company. According to (S. wall, S. Minocha, B. Rees, 2010), an organization must make sure that every decision they make, have a conscious ethical content. If it is an internal problem, it maybe about the labour working hours, or their wages problem. When come to the BMW do 　international business with other country, company must ensure they does not apply their own ethical norms to the foreign country but is conforms to the local customs, and ethical as well as morality enough when making any of the business decision and also during economy crisis. Although the company situation is worse and worried but any decision making by BMW will be ethical enough; example during credit crunch any methods using to solve the credit crunch problem, it must be with ethical.