MANAGING STRATEGY

Managing Strategy

Managing Strategy

Megers and Acquisitions:

Case BMW:-

1. What were the reasons for the BMW acquisition of Rover?

The automotive industry in the early 1990's when the acquisition took place was influenced by a growing trend towards consolidation. A report published by the Economist Intelligence Unit concluded that by the year 2000, the car industry would be dominated by a group of only five global manufacturers.

BMW was like Rover too small to survive on its own as a manufacturer. This situation forced the company to change their strategy towards extension. Having monitored Rover's development very well, the BMW management came to the conclusion that the two companies were a perfect fit in terms of possible synergies. The take-over of Rover meant a chance to achieve economies of scale along the value chain in one go. The acquisition offered a row of advantages, especially for BMW, which are described below:

Market entry:

BMW being a niche manufacturer of high-performance luxury cars at that time, gained immediate entry to two important market segments, the small car market and the four-wheel-drive sports/utility market. As BMW has always been very concerned about its exclusive brand reputation, the company avoided entering the small car market although being aware of an increasing trend towards smaller cars. The take-over enabled them to enter this market segment under Rover's brand name. Furthermore, the purchase of Land Rover placed BMW in the forefront of the fast-growing sector of four-wheel-drive sports/utility vehicles without losing time and money on internal development.

Market share:

Although increasing market share was no major objective in BMW's decision to purchase Rover, it should be mentioned that by means of this horizontal integration the European market share of the companies doubled to 6.4 %. For BMW, this meant being 3.5 % ahead of its arch rival Mercedes.

Reduction of competition:

As BMW and Rover increasingly competed in certain market segments, for instance BMW's 5-Series and Rover's 800, competition amongst the companies was eliminated through the acquisition.

Distribution channels:

Concerning distribution channels, Rover took advantage of the much stronger BMW dealer network, especially in crucial markets such as Germany and North America.

Product development:

As mentioned above, BMW gained immediate access to two new and important market segments (small car and sports/utility car) - the alternative would have been internal development which would have taken time and would have been expensive - likely even more expensive than the acquisition price BMW paid for Rover. BMW, being a niche manufacturer before, achieved access to a wide product range through the take-over as Rover's product range was complementary to their own in most parts.

Technology acquisition:

Many synergies were emanating in terms of technology. On the one hand, Rover gained access to BMW's know-how in diesel engine expertise which Honda lacked. On the other hand, BMW gained access to front-wheel-drive and four-wheel-drive technology. Furthermore, access to a low-cost production base and control of a manufacturer that learned very much about Japanese production and engineering methods.

2. Why did the acquisition fail?

Although BMW did a lot of research into their target Rover, the company seemed to ...