¶ … Business Environment in Japan BMW Group)

Business Environment of Japan

History of BMW in Japan

Competitors

Sales volume statistics

Political and Legal Environment of Japan

Barriers of entry for foreign-owned companies

Safety and environmental issues

Cultural environment of Japan

Customer demographics

BMW marketing strategy

The BMW Group has enjoyed immeasurable success in the Japanese market through ambition, determination, the appointment of several clever key people, comprehensive research undertaken on the nature of the Japanese political, business and cultural environment, and a very slick, carefully orchestrated marketing campaign. This paper endeavours to analyze this success by identifying the key decisions and decision-makers in the development of BMW Japan from 1981 to the present day. From the poachment of Yoji Hamawaki from Kawasaki America to head up BMW's venture into Japan, to the establishment of their dealer network that defied convention and their carefully targeted marketing campaign, the BMW Group have continued to amaze their detractors.

Their approach in setting up their operations and implementing their system of manufacturing, selling and distribution of their vehicles has silenced the cynics.

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The business environment in Japan is notorious for discouraging entry of foreign-owned companies. The automotive industry in Japan is no different. Where many automotive companies have attempted and failed to derive any economic success from entering the Japanese market, the German-owned BMW group has reversed the trend in leaps and bounds. This paper endeavours to analyze the business, political and legal, and cultural environment in Japan through studying the experiences of the BMW Group in their quest to conquer the Japanese market. Despite many obstacles created by the overly cautious Japanese Government and the Japanese culture, the BMW Group was still able to capitalize on their opportunities in Japan and is enjoying the fruits of their initial gamble today.

In order to comprehensively analyze BMW's success story in Japan, one must provide insight into the business environment immediately after World War II to understand the barriers of entry the BMW Group faced when they entered the Japan market in 1981. Dr. Helmut Panke, Chairman of the Board of Management for BMW AG, summarised BMW's progress and future expectations succinctly, "Ten years ago, BMW had one brand and three product lines: the 3, 5 and 7 Series. Today, we have the BMW brand and the Mini brand and six different model lines. Within the next five years, we'll expand to ten different model lines and three brands when we add Rolls-Royce in January."

In 1981, the BMW Group was the first European car manufacturer to launch its own subsidiary in Japan. Japan was the last and most difficult developed market BMW penetrated. There were already a number of car companies competing for the yen but the two dominant car companies, Toyota and Nissan, enjoyed such supremacy that the rest competed with each other for distant 3rd and 4th place. The BMW Group approached Yoji Hamawaki, the man responsible for establishing Kawasaki America and making the traditionally shipbuilding company one of the top firms in the U.S. motorbike industry. They wanted him to do for them what he had accomplished for Kawasaki - build a successful sales and service network from nothing in a country known for its hostility towards foreign-owned companies.

Hamawaki was definitely up against some major obstacles. The two oil shocks in Japan impacted heavily on Japan by 1979. Also, most foreign cars were imported by specialized import agents who only targeted consumers driven by self-image. The agents maintained low unit sales but high retail prices in order to optimize their profit margins. Then, when the consumer had purchased the luxury vehicle, servicing for a costly foreign automobile was inferior to servicing of a cheaper Japanese vehicle - hence, low sales.

BMW wanted to change this approach. They advocated one BMW organisation and brand, consistent in every country, as opposed to a myriad of BMW agents with their own agendas. In 1977 BMW established a corporate identity plan to promote its 'one company, one image.' All BMW operations utilized the same logo, all dealers worked in white offices, and everything from the showroom floors to the corporate stationery was consistent with that of other offices in other countries.

BMW had a very ambitious goal: to establish a dealer network, launch their operations, and sell 10,000 cars in 5 years. Numerous industry experts had little faith in their aspirations but Hamawaki accomplished all that in three years.

Hamawaki...

BMW did not have anything that even resembled a dealer network. Popular sentiment manifested in foreign cars possessing a negative image due to poor marketing by import agents. Veteran dealers preferred to sell already-established Toyota and Nissan cars since there was no re-education of the customer required and their own image would not be tainted by selling potentially inferior vehicles. In Japan if one cannot establish personnel through parent companies outside of the country, one normally relies on university and business contacts, and acquaintances in financial institutions, to arrange for essential introductions. This system allowed one to establish a first-rate organization in 10 years. However, since Hamawaki had a lead time of 5 years, he approached the problem in the most unorthodox manner - he took out advertisements in the national papers: "Car Dealers Wanted, Inquire BMW Japan." "Most people said it was embarrassing to do advertising and we should stop immediately," recalls Executive Director Tanegashima. "But the truth is, a lot of good people answered those ads, people from all different kinds of businesses, and they became our dealers."
Auto dealers in Japan usually work for little regional sales companies, which act as agents for bigger sales companies. These auto dealers prioritize the interests of their regional sales company as opposed to the car manufacturer. However BMW wanted to faze that thinking out of their organization by making each dealership accountable to the head office in Tokyo which in turn was answerable to the global head office in Germany. Instead of conducting themselves autonomously, the dealers' activities had to be consistent with what was supported by the global head office in Germany. BMW inculcated in all dealers the whole BMW concept, "from manufacturing to after-sales service, sales techniques, how to hire salesmen and office staff, how to train them, how to oversee the business of a BMW dealership, how to set up a dealership: what physical structure; how much space for sales, how much for offices, how much capital to get started "

The Tokyo headquarters set up a customized dealer development department to facilitate the new network. For Japanese car manufacturers this was the norm: each company housed a department to employ and educate new dealers, conduct seminars, release direct mail to support their marketing efforts. However, foreign car makers did not incorporate this in their business operations. They also did not invest millions of dollars to develop a local parts center to support dealers, like BMW did. BMW's obligation to its dealer network was unique to the Japan market involving foreign companies. BMW treated its dealers very well.

1981-1983 involved building the foundation of the dealer network. From 1985 the lengthy and costly investment in establishing the dealer network started to bear fruit for BMW as dealers really began to place their faith in and practice BMW's corporate philosophy. Sales and service sections now possessed the experience to conduct business like real professionals. After 1985, all the hard work started to translate to sales.

There were some contentious issues BMW had to address. One was the level of consistency required amongst all dealerships. Many dealers believed that spending millions of dollars to get an exact match for every single dealership in the country and the world was a waste of money and time. Another area of contention concerned the 'BMW-only' rule. Prior to BMW's entry into the Japan market, foreign car dealers could sell Mercedes, Volvos and Audis on their premises, and the customer would merely choose what they wanted. However, Hamawaki forced dealers who wished to sell BMW cars to be exclusive to BMW. Gradually, word spread that 'if you do as they say and follow their instructions, BMW will back you up 100% and sales will take off.' Currently, 98% of BMW's approximately 150 outlets in Japan sell only BMW's.

BMW's current strategy is to maintain its products in the introduction and growth phases through introducing new models in each of its product lines in stages. BMW prefers not to sell any of its products in the mature or declining stages of its product life cycle (which in Japan is 4 years). One method that has proved effective in catering their vehicles to their target market is through the BMW website (www.bmwusa.com).From anywhere in the world, customers can log onto the website and update themselves on the latest models in the market. They can e-mail queries and ask their local dealership for BMW literature or arrange appointments for test-drives. What makes BMW unique is the ability of customers to configure a car to their own needs and wants (such as interior and exterior selections, engines, package offers and other options). "The BMW website…