strategic management on BMW

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BMW COMPANY

EXECUTIVE SUMMARY

1.In 2001 the Border, Midland and Western Regional Assembly, as one of two NUTS II

Regional Assemblies established in Ireland under the National Development Plan 2000- 2006

set out on a very ambitious, challenging yet exciting mission. The mission was to frame a

credible and substantive Regional Innovative Actions Programme proposal which would

address the main prevailing innovation challenges & technological deficiencies throughout

the regions economy and involving all of the key regional stakeholders. Being recognised

throughout the EU as a competent authority to manage and deliver a Regional Programme of

Innovative Actions represented an extension to the Assemblys core management and

monitoring responsibilities under the National Development Plan. More importantly the

Assembly had a unique opportunity to establish itself as a proactive authority striving for the

increased economic development of the region through new and innovative approaches to the

delivery of collaborative initiatives. Following an extensive consultation process with the key

agencies, a two year programme involving a process of Innovation auditing, pilot actioning

(embracing novel approaches to ICT delivery, education outreach delivery, company

innovation & policy assessment) and a strategic planning process was approved by the

European Commission. The approved actions under each of the strategic themes were as

follows:

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Contents

History of BMW.Milestones of success..

BMW innovations....Current situation at the company.Competitors.Future of the company.Personal attitude to the company.

BMW GROUP

Introduction

Nowadays BMW Group Company is powerful international company represented

all over the world with more than 94.000 employees and over one million vehicles sold every

year. Importers in 120 countries represent the BMW and worldwide sales organization

comprised 24 sales subsidiaries. BMW has worldwide subsidiaries and manufacturing plants

in Germany, Austria, the UK, the USA, Mexico, Brazil, South Africa, Egypt, Thailand,

Malaysia, Indonesia, the Philippines and Vietnam.

The activities of the business fields of the BMW Group are broken down into the

segments BMW automobiles, Rover Automobiles, BMW motorcycles and Financial

Services.1

BMW automobiles and Rover automobiles account for the larger part of activities within

Group. These business fields manufacture, assemble and sell automobiles, spare parts and

accessories.

The BMW Motorcycles segment develops, manufactures, and sells motorcycles as

well as spare parts and accessories. The Financial Segment focuses on the leasing of

automobiles and financing credit for customers and dealers.

Miscellaneous and consolidated companies segment include Aero Engines business, Software

and other intra-segment activities.

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Background

BMW was founded in 1916 as an aircraft-engine factory in Munich. In 1923 BMWbuilds first motorcycle. In 1928 BMW bought the car factory at Eisenach, Thuringia with thelicense to build a small car called the Dixie. This first BMW car was developed in Munich,

like all other BMW products. In 1932 BMW 3/20 was developed in Munich, in 1933 - 6

cylinder's BMW 303. Until Second World War BMW showed active growth in all three

branches: automobile, aero engine and motorcycles industries.

o In 1973 the first BMW subsidiaries were created in France and North America. In 1979BMW developed first digital engine electronics and began R&D on hydrogen engines. In

1984 the first European models with catalytic converters appear. Computers and robots

revolutionize work in planning and production. In 1989 in the year the Iron Curtain fell,BMW has another first by producing half a million cars. The company also has a turnover of

DM 20.000 million, and acquires Kontron GmbH, a specialist in process engineering.

o The BMW Group is the most successful premium manufacturer in the automotive industry.One of the fundamental prerequisites for this success was and is ongoing leadership and

innovation in the construction of cars perceived and acknowledged as leaders by the

customer. Innovation upgrades the product in its substance, and only attractive product

substance can secure the long-term success of a company in sales.

A further point is that innovation is the right tool to clearly stand out from the competition inan increasingly competitive premium market. Modern premium cars today have reached a

comparably high level of technology in many respects, the customer taking features such as

passive safety and quality for granted right from the start.

A few examples:o - Jet-guided High Precision Injection direct gasoline injection technology significantly

reduces fuel consumption and increases engine output at the same time.

o - Runflat tyres save space and weight by omitting the spare wheel and at the same time offera significant enhancement of safety.

o - Active Steering offers the driver supremacy on the road on fast straight-ahead stretches,outstanding agility in a rapid succession of bends, and comfortable steering behaviour when

parking.

In addition, the BMW Group will successively introduce the Auto Start/Stop Function featureto their range of models, starting with the BMW 1 Series. This innovation automatically

switches off the engine as soon as the vehicle stops moving and starts it again extremely

quickly as soon as the driver wishes to continue the journey. This technology can help to save

a great deal of fuel, especially in urban stop-and-go driving conditions.

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BMW GROWTH POLICY

The fundamental objective of the BMW Group is to continue the process of profitable growthby concentrating on high-profit market segments. Precisely, this is why the BMW group will

use the potential of the BMW brand to an even greater success in a future.

In the first half of the year 2000 BMW has already achieved best sales results ever in thehistory of the company. Worldwide deliveries have increased by almost 9% to 421 000 units;

the turnover was approximately 15% above the corresponding figure in the first half of

previous year.

The production of BMW Group is developed to satisfy different customers needs, providinga variety of models for luxury, middle and low segments of market. Company constantly

works out new technological decisions and improvements and nowadays sets new standards

in production.

BMW has already achieved in individual requests fulfilling. Now its ambiguous objective isto provide every customer with his individual, personalized car on a defined date agreed in

advance. Moreover, BMW Group is setting a new benchmark to process the time required for

a new car in distribution and production to 10 days.

BMW Company continues to develop the concept of hydrogen engine automobile whichaccording specialists estimations will dominate in the future automotive market because of

the limited natural resources. First experimental cars with hydrogen engines already exist.

In the future BMW heavily relies on the big E-commerce project, which supposed to increasethe number of employees and customers five times within the next three years.

BMW Group will bundle its e-business activities in a new company named nexolab. Withnexolab, BMW Group creates a platform that will support the entire process chain - from the

buying to the sales process for the manufacturing industry. Company has well-defined personnel policy. BMW treats people who works for the company

not like corporate funds, but rather the key to its success. This concept leads to lower cost

and economic growth.

Nevertheless, the commonwealth of big multinational company strongly depends onsuccessful performance of all its segments and divisions.

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History of BMW company

Bayerische Motoren Werke AG (BMW), (English:Bavarian Motor Works) is an

independent German automobile manufacturer founded in 1916. BMW is a worldwide

manufacturer of high-performance and premium automobiles and motorcycles, and is the

current parent company of both the MINI and Rolls-Royce carbrands.

1916 Founding of Bayerische Flugzeug-Werke. The new company incorporated Otto-Werke. BMW acquired the BFW site in 1922, but Bayerische Motoren Werke continues to

regard BFWs establishment as its date of founding.

1917Rapp-Motoren Werke was renamed Bayerische Motoren Werke GmbH. The companyconstructed a large plant and built engines for military aircraft there till 1918.

1918 Bayerische Motoren Werke GmbH was converted into a stock corporation with ashare capital of 12 million Reich marks. BMW GmbH becomes BMW AG.

After World War I, BMW (and Germany) were forced to cease aircraft (engine) productionby the terms of the Versailles Armistice Treaty. The company consequently shifted to

motorcycleproduction in 1923 once the restrictions of the treaty started to be lifted, followed

by automobiles in 1928.

The circular blue and white BMW logo or roundel is often alleged to portray the movementof an airplane propeller, an interpretation that BMW adopted for convenience in 1929, which

was actually twelve years after the roundel was created. In fact, the emblem evolved from the

circular Rapp Motorenwerke company logo, from which the BMW Company grew. The

Rapp logo was combined with the blue and white colors of the flag ofBavaria to produce the

BMW roundel so familiar today.

By 1959 the automotive division of BMW was in financial difficulties and a shareholdersmeeting was held to decide whether to go into liquidation or find a way of carrying on. It was

decided to carry on and to try to cash in on the current economy car boom enjoyed so

successfully by some of Germany's ex-aircraft manufacturers such as Messerschmitt and

Heinkel. Therefore the rights to manufacture the tiny Italian Iso "Isetta" were bought using a

modified form of BMW's own motorcycle engine. This was moderately successful and

helped the company get back on its feet. The dominating shareholder of the BMW

Aktiengesellschaft since 1959 is the Quandt family. Stefan Quandt, Johanna Quandt and

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Susanne Klatten (born Quandt) together own about 46% of the stocks. The rest is in public

float.

BMW AG purchased the British Rover Group (which at the time consisted of the Rover,Land Rover, MINI and MGbrands as well as the rights to defunct brands including Austin

and Morris) in 1994 and owned it for six years. By 2000, Rover was making huge losses and

BMW decided to sell the combine. The MG and Rover brands were sold to the Phoenix

Consortium to form MG Rover, while Land Rover was taken over by Ford. BMW,

meanwhile, retained the rights to build the new MINI, which was launched in 2001.

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BMW innovations

1. BMW's reputation for innovation can be traced to its equally innovative lateralmanagement techniques.

"At lunch and breaks everyone is discussing ideas and projects all the time. It's

somewhat manic. But it makes things move faster," says BMW chief designer Adrian van

Hooydonk.

Companies such as BMW that leverage workers' tacit knowledge through networks

(cross-functional teams) "are widely ahead of their competitors.

BMW is one of a handful of global companies including Nokia (NOK) and Raytheon

(RTN ) that have turned to networks to manage day-to-day operations, superseding classic

hierarchies.

2. Lightning-Fast Changes

BMW figures some 90% of the innovations in its new models are electronics-driven.

3. Mobile-Phone Messages

To reach a younger crowd of potential buyers for its new 1 Series launch in 2004,

BMW used mobile-phone messages as the main source of buzz, directing interested people to

signups on BMW's Web site for pre-launch test drives in August that yearsomething

unheard of in the industry at the time. The experimental tactic worked: BMW sparked

responses from 150,000 potential customersand sales of the 1 Series took off when it was

launched in September, 2004.

4. Ideas First

Workers at the Bavarian automaker are encouraged from their first day on the job to

build a network or web of personal ties to speed problem-solving and innovation, be it in

R&D, design, production, or marketing. Those ties run across divisions and up and down the

chain of command. BMW's complex customized production system, the polar opposite of

Toyota's (TM ) standardized lines, is easier to manage if workers feel empowered to drive

change. Like Dell Computer(DELL ), BMW configures its cars to customers' orders, so each

auto moving down the production line is different.

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Current situation at the company

BMW brand - has stood for one thing: sheer driving pleasure. Sporting and dynamicperformance combine with peerless design and exclusive quality, resulting in the unique

appeal of BMW automobiles.

o The MINI brand wins hearts and turns heads. MINI is refreshingly different: extroverted,spontaneous and in every respect something out of the ordinary. Ideal for a society, the MINI

Classic became a cult vehicle in the sixties and seventies. MINI is part of a lifestyle that is

cosmopolitan and confident, ready for everything.

o Rolls-Royce is one of the most fascinating and well-known brands in the world, the luxurymotor car par excellence. For over 100 years, motor cars of the Rolls-Royce brand have stood

for truly outstanding engineering, quality and reliability.

o Premium is the key word for BMW Group motorcycles as well. BMW group sets standardswith regard to technology, environmental protection and safety, and provides outstandingcustomer service in the pre- and after-sales phases.

Financial services are a key factor for success in today's mobile world. They have establishedan extensive product portfolio which supplies expert information and advice for situations

and questions relating to the finance sector. They provide the following services: financing

and leasing, asset management, dealer financing and company car pools.

German luxury car group BMW said its third quarter results 2008 were hit by the globalfinancial crisis despite a rise in sales.

"The financial crisis worsened and the consumption climate grew dark again."o In October 2008 the sales volume of one of the biggest producer of premium-class

automobiles fell on 8.3% in comparison with October 2007 till 113005 cars.

o It is connected with the decrease of demand on developed markets. The sales in WesternEurope fell on 12%, in the USAon 5%, in Japanon 29%. Sales in developing countries

have risen: in Indiaon 10%, in Chinaon 36%, in Russiaon 40%.

The performance of the BMW Group in the third quarter 2008 was perceptibly influenced bythe economic downswing in the wake of the financial crisis. Ongoing consumer reticence in

the main sales markets, the weak state of the used car markets as well as increasing

refinancing costs had a substantial negative impact on the earnings of the BMW Group.

Earnings for the nine-month period reflect the ongoing effect of the various adverse externalfactors described above. In the third quarter 2008, the BMW Group increased the cumulative

amount of expense recognised for additional risk provision for residual value and bad debt

risks to a total of euro 1,037 million. On top of this, expenditure in conjunction with

previously announced measures to reduce the workforce reduced nine-month earnings by

euro 258 million.

The BMW Group continues to aim to achieve a return on sales of at least 6 % in 2010. Thecorresponding EBIT margin in the Automobiles segment would then be just under 6 % or

better. This does, however, depend on the markets recovering

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Competitors

The current situation in the market is a growing and heavily competitive one. It has

blossomed into a full-scale war between mostly the up-scale automobile manufacturers.

BMW competitive landscape includes:

Daimler Toyota Volkswagen

DAIMLER

Daimler AG with its businesses Mercedes-Benz Cars, Daimler Trucks, Daimler

Financial Services, Mercedes-Benz Vans and Daimler Buses, is a globally leading producer

of premium passenger cars and the largest manufacturer of commercial vehicles in the world.

The Daimler Financial Services division has a broad offering of financial services, including

vehicle financing, leasing, insurance and fleet management.

Daimler sells its products in nearly all the countries of the world and has production

facilities on five continents.

The current brand portfolio includes the worlds most valuable automobile brand,

Mercedes-Benz, as well as smart, Maybach, Freightliner, Sterling, Western Star, Mitsubishi

Fuso, Setra, Orion and Thomas Built Buses.

TOYOTA COMPANY

Toyota Motor Corporation, Japan's 1 carmaker. The company makes a hybrid-

powered (gas and electric) sedan -- the Prius -- that is being snapped up in US and European

markets. Its gas-powered cars, pickups, minivans, and SUVs (Sport Utility Vehicle) include

such models as Camry, Corolla, Runner, Land Cruiser, Sienna, the luxury Lexus line, the

Scion brand, and a full-sized pickup truck, the V-8 Tundra. Toyota also makes forklifts and

manufactured housing, and offers consumer financial services. Once a dark horse in the

global automotive game, Toyota has already passed Chrysler and Ford and is closing in on

General Motors.

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THE VOLKSWAGEN GROUP

Volkswagen (VW) is one of the worlds leading automobile manufacturers and the

largest car producer in Europe. In 2007, the Group increased the number of vehicles delivered

to customers to 5.734 million, corresponding to a 9.7 percent share of the world passenger car

market. In Western Europe, the largest car market in the world, nearly every fifth new car

(19.9 percent) comes from the Volkswagen Group. The Group consists of eight brands:

middle classVolkswagen; luxury classAudi, Bentley, Bugatti, Lamborghini; family cars

SEAT (Spain), Skoda (the Czech Republic). It also holds 68% of the voting rights in Swedish

truck maker Scania and about 30% of MAN AG. The product range extends from low-

consumption small cars to luxury class vehicles. The Group operates 44 manufacturing

facilities in 12 countries in Europe and in a further six countries in America, Asia and Africa.

VW also offers consumer financing.

Company Goods ServicesBMW Premium class cars (MINI)

Luxury class automobiles

(BMW, Rolls-Royce)

Motorcycles

Financing and leasing, asset

management, dealer

financing and company car

pools

Daimler AG Luxury cars (Mercedes-Benz

Cars),

Trucks (Daimler Trucks),

Vans (Mercedes-Benz Vans),

Buses (Daimler Buses)

Daimler Financial Services:

vehicle financing, leasing,

insurance and fleet

management.

Toyota Motor Corporation Luxury cars (Lexus, Scion)

Premium cars (Camry,

Corolla, Sienna)

Pickups

Minivans (Runner, Land

Cruiser, RAV)

Truck (V-8 Tundra)

Consumer financial services:

auto loans and leases and a

full lineup of factory-backed

insurance services and

products

Volkswagen Group Low-consumption small,

family cars (Volkswagen,

SEAT, Skoda);

Premium cars (Audi,

Volkswagen);

Luxury class automobiles

(Bentley, Bugatti,

Lamborghini)

Trucks (Scania, Man)

Consumer financing services:

vehicle financing, direct bank

business, insurance products,

leasing, fleet management

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Products & Services

The BMW Group is one of the most successful multi-brand premium car manufacturers in the

automobile industry. The BMW and Rolls-Royce brands of the company serve the premium

and ultra premium segments of the automobile market. The BMW brand includes Sedans,

Coupes, Tourings, Compacts, etc. The company sells small cars through its Mini premium

brand.

The following table illustrates key vehicle ranges under each of the Groups automobile

BMW Brand

BMW 1 Series BMW 3 Series models

Sedan Convertible Coup Compact Touring

BMW 5 Series 525i Sedan 530i Sedan 545i Sedan

BMW 6 Series models Coup Convertible BMW Individual 6 Series

Convertible BMW Individual 6 Series

Coup BMW 7 Series models

Sedan Security vehicle

BMW X3 Series (X3) BMW X5 models

X5

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Security vehicle BMW Z4 (Z4) BMW M models

M3 Coup M3 Convertible

Mini Brand MINI One MINI One D Rolls-Royce Brand Rolls-Royce Phantom Rolls-Royce 100EX MINI Cooper

Rolls-Royce Phantom (Centenary model), limited MINI Cooper S MINI One Cabrio

MINI Cooper Cabrio MINI Cooper S Cabrio M5 M5 Individual M6

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The Result Of Ordinary Business Activity In The BMW Automobile Segment Was Up By

5.1% To 2.106 Million Euro. Generated By BMW Automobile Roi Has Increased From

20.46% In 1998 To 20.83% In 1999. This Branch Also Generates The Highest Earnings On

Sales 8.56% In 1999.

Sales In Bmw Motorcycles Segment Rose Significantly By 17.8% To 769 Million Euro. This

Allowed An Improvement Of The Operating Result Up By 12.5% Comparing To The

Previous Year.

Sales In The Rover Automobiles Was Up By 2% Over The Previous Year To 8 368 Million

Euro. The Losses In The Rover Automobiles Due To The Market Conditions And Currency

Effects Were Up By 250 Million Euro To 1 207 Million Euro Or 26.1%. The Roi Drops

From16.77 % In 1998 To19.23% In 1999. The Return On Sales Declines From -11.30%

In 1998 To -13.97% In 1999.

The BMW segments performance

assets, sales result from ordinaryBMW segment million euro million euro Bus. Activities, mil.

euro

1999 1998 1999 1998 1999 1998

BMW automobiles 10108 9792 24610 21980 2106 2003

Rover automobiles 6277 5705 8638 8466 -1207 -957BMW motorcycles 313 303 769 653 18 16

Financial Services 20530 15287 6153 5771 316 298

BMW segments ratios

return returnBMW segment on investment, % on sales,%

1999 1998 1999 1998

BMW automobiles 20.83% 20.46% 8.56% 9.11%

Rover automobiles -19.23% -16.77% -13.97% -11.30%BMW motorcycles 5.75% 5.28% 2.34% 2.45%

Financial Services 1.54% 1.95% 5.14% 5.16%

The Financial Services division was successful; sales increased by 6.6% to 6 153 millioneuro. The result in this segment of the BMW Group increased by 6% to 316 million euro.

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COMPARISON WITH THE FORD MOTOR COMPANY

The main competitor of BMW Group takes the greater share of automobile market.The total balance sheet value of Ford Motor Company exceeds 7 times correspondent valueof the BMW Group. Sales of Ford Motor Company counted 7220 thousand of vehicles

(136973 million of dollars) against 1187 thousand of vehicles (34677 million of dollars) soldby BMW Group in 1999.2 See Exhibit 2 to compare financial performance of the companies.

INVESTMENT OVERVIEW

The BMW ordinary share is listed since 1926. After the currency reform BMW shares weretraded as shares with a par value of DM 50, DM 100 and DM 1000. In 1989 BMWintroduced preferred sharestraded with a par value of DM 50. The preferred shares are incontrast to ordinary shares non-voting shares, but bear an extra dividend. In 1999 BMWGroup introduced the 1 Euro per value share. As of December 31, 1999 the subscribed capitalof BMW AG amounted to EUR 670,687,730 and comprised of 622,227,918 ordinary shares

and 48,459,812 preferred shares.

During 1999 BMW ordinary and preferable share trends kept with market trends

(See Figure 6). Uncertainty about development at Rover decreased the share price in the first

half of the year. Then the successful development of the BMW brand and the markets

growing confidence in successful outcome of the restructuring measures at Rover pushed up

the price. On the last day of the month year-end price was 30.65 euro and the BMW ordinary

share lay 22 % above the price quoted in the previous year, beating CDAX automobile index.

While the BMW preference share in contrast was enable to turn in the same result as theordinary share. The closing price of 14 euro put the preference share 5% below the previous

year price.

In the course of a decade, investors who bought shares at the beginning of 1990 have

achieved an average annual return of nearly 19 %. Over the past 5 years yields have been

high as 24 % (yields on federal bonds only reached 7 % respectively).

In the first half of the year 2000, BMW common stock showed a better development than the

shares of any other German car manufactures. Compared with the value of 25.42 on 30 June

1999, stock value has increased in the meantime 24.7% to euro 31.70.

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BMW AND FORD RATIOS IN COMPARISON , 1999

BMW FORD

LIQUIDITY

Current ratio 2.13 1.98DEBTQuantity (total liabilities/total funds) 89% 90%

Quality (current liabilities/debt) 39% 17%

ASSETS MANAGEMENT

ASSET TURNOVER (sales/assets) 0.92 0.50

DAYS

collection period 25.64 10.04credit period 23.74 38.51

SALES(sales 99 - sales 98)/sales 98*100% 6.6% 15.0%

EXPENSES

roduction cost/sales 83.59% 86.91%

marketing and administration

cost/sales

13.66% 6.97%

total expenses/sales 97.25% 93.88%

MARGIN AND PROFIT

ROS (profit/sales) 2.71% 6.12%GROSS PROFIT (gross profit/sales) 16% 13%ROI (EBIT/assets) 2.48% 3.03%

DUPONT ANALYSIS /ROI(EBIT/sales x sales/assets) 2.71% X 0.92 6.12% X

0.50

ROE (net profit/equity) beforeextraordinary result

16.86% 26%

ROE (after extraordinary result) -63.25%

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BMW Marketing Innovation

Since the competition started to imitate BMWs advertising messages of outstanding quality,

BMW decided to come up with a unique way of reaching its target audience. The company

did so by hiring Fallon Worldwide, and advertisement agency based in Minneapolis, MN, to

come up with a new campaign. Fallon developed the concept The Hire series. Fallon's

responsibility also included the way in which these movies were to be delivered to BMW's

target audience. It was also questionable whether the campaign should be the same

throughout the world, or if it should be localized to adapt to language and consumer taste

differences. In order to attract highly recognized directors, as well as actors, BMW was

willing to spend a large amount of money.

In addition to coming up with a unique advertising campaign, BMW also wanted to

change their image. One of the goals was to make BMW look, not only cool, but likeable,

which the brand needs to do to combat negative perceptions some people have based on oldassociations with the 80s style yuppie arrogance.

BMW's Revenue Sources

0%

10%

20%

30%

40%

50%

60%

70%

80%

Auto Motor

Cycles

Finance

Leasing

Other

2000 Revenue

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BMW: THE PRODUCT LIFE CYCLE

BMWs strategy is to keep its products in the introduction and growth stages by

periodically introducing new models in each of its product lines. In fact, in contrast to many

auto manufacturers who launch a new model and then leave it unchanged, BMW works

continually to improve its existing products. Explains McDowell, Anyone can sell a lot of

cars the first year, when a car is new. It is our challenge to constantly improve the car and to

continuously find new innovative ways to market it.

BMW started in 1916 as a manufacturer of airplane engines. When you look at our roundel,

the BMW symbol, it is a blue-and-white circle, says McDowell, that is meant to represent

the spinning propeller on a plane, to remind us of our heritage. Since then the company has

added motorcycle and automobile production. Today, BMW is one of the preeminent luxurycar manufacturers in the world.

BMW produces several lines of cars including the 1, 3, 5, 6, and 7 series, the Z line of

roadsters, the X line of sport activityvehicles, and the M line of motor sport sedans.

Currently, the U.S., Germany, and the United Kingdom are BMWs largest markets. BMW

recently introduced its 1 seriesa compact car designed to compete with the Volkswagen

Golf in Europe and the Rabbit in the U.S.to attract a new younger audience. In addition

BMW owns the MINI and Rolls-Royce brands. Combined sales of BMW, MINI, and Rolls-

Royce exceed $59 billion and are expected to increase 40% by 2020. Reasons for the growing

popularity of BMW include high-performance products, unique advertising, an award-

winning website, innovations such as smart technologies that learn what the driver prefers,

and new vehicles such as the V-serieswhich will compete with popular minivans.

BMW cars typically have a product life cycle of 7 years. To keep products in the introductory

and growth stages, BMW regularly introduces new models for each of its series to keep the

entire series new. For instance, with the 3 series, it will introduce the new sedan model one

year, the new coupe the next year, then the convertible, then the station wagon, and then the

sport hatchback. Thats a new product introduction for five of the seven years of the product

life cycle. McDowell explains, So, even though we have seven-year life cycles, weconstantly try to make the cars meaningfully different and new about every three years. And

that involves adding features and other capabilities to the cars as well. How well does this

strategy work? BMW often sees its best sales numbers in either the sixth or seventh year after

the product introduction.

As global sales have increased, BMW has become aware of some international product life

cycle differences. For example, it has discovered that some competitive products have life

cycles that are shorter or longer than 7 years. In Sweden and Britain, automotive product life

cycles are 8 years, while in Japan they are typically only 4 years long.

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BMW uses a system of product advocates to manage the marketing efforts of its product

lines. McDowell explains that a series advocate would actually use and drive that series and

would constantly be thinking How can I better serve my customer? In addition to

modifying each model throughout the product life cycle, BMW modifies the markets it

serves. For example, during the past 10 years BMW has expanded its market by appealing to

a much larger percentage of women, African Americans, Asians, and Hispanics. BMWs

positioning strategy is the same worldwide and that is to offer high-performance, luxury

vehicles to individuals. You wont find it as a taxi or a fleet car, says McDowell. Generally,

once a model is positioned and introduced, BMW avoids trying to reposition it.

The Z, X, and M series dont quite fit in with this system. BMW had a tradition of building

experimental, open-air cars and calling them Zs, so when one of them was selected for

production, BMW decided to continue with the Z name. For the sport activity vehicles BMW

also used a letter namethe X seriessince the four-wheel-drive vehicle didnt fit with the

sedan-oriented 1, 3, 5, 6, or 7 series. The M series has a 20-year history with BMW as theline with the luxury and racing-level performance. The lettered series now includes the Z4,

X3, X5, M3, M5, and M6. Compared to the evocative names many car manufacturers choose

to garner excitement for their new models, the BMW numbers and letters are viewed as a

simple and effective branding strategy.

The ultimate extravagance in buying a car is having everything customized to the owners

preferences. Today, 80% of European buyers and 30% of U.S. buyers use the BMW website

to choose from 350 model variations, 500 options, 90 exterior colors, and 170 interior trims

to create their perfect vehicle!

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McKinsey 7S Framework

McKinsey's 7S Model that was created by the consulting company McKinsey and

Company in the early 1980s. Since then it has been widely used by practitioners and

academics alike in analyzing hundreds of organizations. The paper explains each of the seven

components of the model and the links between them. It also includes practical guidance and

advice for the students to analyze organizations using this model. At the end, some sources

for further information on the model and case studies available on this website are mentioned.

The McKinsey 7S model was named after a consulting company, McKinsey and Company,

which has conducted applied research in business and industry (Pascal & Athos, 1981; Peters

& Waterman, 1982). All of the authors worked as consultants at McKinsey and Company; in

the 1980s, they used the model to analyze over 70 large organizations. The McKinsey 7SFramework was created as a recognizable and easily remembered model in business. The

seven variables, which the authors term "levers", all begin with the letter "S":

McKinsey's 7S Model

These seven variables include structure, strategy, systems, skills, style, staff and shared

values. Structure is defined as the skeleton of the organization or the organizational chart.

The authors describe strategy as the plan or course of action in allocating resources to achieve

identified goals over time.

The systems are the routine processes and procedures followed within the organization. Staff

are described in terms of personnel categories within the organization (e.g. engineers),whereas the skills variable refers to the capabilities of the staff within the organization as a

whole.

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Description of7 Ss

Strategy:Strategy is the plan of action an organizationprepares in response to, or anticipation

of, changes in its external environment. Strategy is differentiated by tactics or operational

actions by its nature of being premeditated, well thought through and often practically

rehearsed. It deals with essentially three questions (as shown in figure 2): 1) where the

organization is at this moment in time, 2) where the organization wants to be in a particular

length of time and 3) how to get there. Thus, strategy is designed to transform the firm from

the present position to the new position described by objectives, subject to constraints of the

capabilities or the potential.

Structure:

Business needs to be organized in a specific form of shape that is generally referred

to as organizational structure. Organizations are structured in a variety of ways, dependent on

their objectives and culture. The structure of the company often dictates the way it operates

and performs (Waterman et al., 1980). Traditionally, the businesses have been structured in a

hierarchical way with several divisions and departments, each responsible for a specific task

such as human resources management, production or marketing. Many layers of management

controlled the operations, with each answerable to the upper layer ofmanagement. Although

this is still the most widely used organizational structure, the recent trend is increasingly

towards a flat structure where the work is done in teams of specialists rather than fixed

departments. The idea is to make the organization more flexible and devolve the power by

empowering the employees and eliminate the middle management layers (Boyle, 2007).

Systems:

Every organization has some systems or internal processes to support and implement

the strategy and run day-to-day affairs. For example, a company may follow a particular

process for recruitment. These processes are normally strictly followed and are designed to

achieve maximum effectiveness. Traditionally the organizations have been following a

bureaucratic-style process model where most decisions are taken at the higher managementlevel and there are various and sometimes unnecessary requirements for a specific decision

(e.g. procurement of daily use goods) to be taken. Increasingly, the organizations are

simplifying and modernizing their process by innovation and use of new technology to make

the decision-making process quicker. Special emphasis is on the customers with the intention

to make the processes that involve customers as user friendly as possible (Lynch, 2005).

Style/Culture:

All organizations have their own distinct culture and management style. It includes

the dominant values, beliefs and norms which develop over time and become relativelyenduring features of the organizational life. It also entails the way managers interact with the

employees and the way they spend their time. The businesses have traditionally been

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influenced by the military style of management and culture where strict adherence to the

upper management and procedures was expected from the lower-rank employees. However,

there have been extensive efforts in the past couple of decades to change to culture to a more

open, innovative and friendly environment with fewer hierarchies and smaller chain of

command. Culture remains an important consideration in the implementation of any strategy

in the organization.

Staff:

Organizations are made up of humans and it's the people who make the realdifference to the success of the organization in the increasingly knowledge-based society.The importance of human resources has thus got the central position in the strategy of theorganization, away from the traditional model of capital and land. All leading organizationssuch as IBM, Microsoft, Cisco, etc put extraordinary emphasis on hiring the best staff,

providing them with rigorous training and mentoring support, and pushing their staff to limitsin achieving professional excellence, and this forms the basis of these organizations strategy

and competitive advantage over their competitors. It is also important for the organization toinstill confidence among the employees about their future in the organization and futurecareer growth as an incentive for hard work.

Shared Values/Superordinate Goals:

All members of the organization share some common fundamental ideas or

guiding concepts around which the business is built. This may be to make money or to

achieve excellence in a particular field. These values and common goals keep the employees

working towards a common destination as a coherent team and are important to keep the

team spirit alive. The organizations with weak values and common goals often find theiremployees following their own personal goals that may be different or even in conflict with

those of the organization or their fellow colleagues.

Skills:

A detailed case study or comprehensive material on the organization under study isrequired to analyze it using the 7S model. This is because the model covers almost all aspectsof the business and all major parts of the organization. It is therefore highly important togather as much information about the organization as possible from all available sources suchas organizational reports, news and press releases although primary research, e.g. using

interviews along with literature review is more suited. The researcher also needs to consider avariety of facts about the 7S model.

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PORTFOLIO ANALYSIS

The objective of portfolio analysis is to help managers construct a balanced portfolio ofbusinesses which will allow the organization to achieve its objectives.

BCG MATRIX

The original portfolio matrix was developed by the Boston consulting group and described byJohnson and Scholes. Note that the two parameters on the matrix are market growth and

relative market share (defined as a company's sales in a particular market divided by the salesof its largest competitor).These parameters are derived from the experience curve with its emphasis on market share asa prime cause of superior profitability and the life cycle concept which divides markets into

phases according to rates of growth.Most texts calibrate the axes as follows: on the vertical axis the midpoint is 10% per annumand on the horizontal axis the midpoint is x 1.5 with the far right as x. 1 and the far left x 10.

BCG or growth share matrix

Stars

High growth / high share. Rapid growth using large amounts of cash to maintain

position. Also generate large amounts of cash because they are business leaders.

The products which comes under these:

BMW 5 Series 525i Sedan 530i Sedan 545i Sedan

Coup BMW 7 Series models

Sedan Security vehicle

High Low

High Stars Questionmarks

Low Cashcows

Dogs

Market share

Market

growth

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Cash cows

Low growth / high share. Should have a superior market position and low costs.

Profits and cash flow should be high.The products which comes under these:

BMW 1 Series BMW 3 Series models

Sedan Convertible Coup Compact Touring

BMW 6 Series models Coup Convertible BMW Individual 6 Series

Convertible BMW Individual 6 Series

Dogs

Low growth / low share. Poor competitive position and poor profits. Low growth

means that there is little hope of building share.

The products which comes under these: MINI Cooper Cabrio MINI Cooper S Cabrio M5 M5 Individual M6

Question marks

High growth / low share. Cash needs are high because of high growth but cash

generation is low because of low share.The products which comes under these:

BMW X3 Series (X3) BMW X5 models

X5 Security vehicle

BMW Z4 (Z4)

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THE INDUSTRY ATTRACTIVENESS-BUSINESS

STRENGTH MATRIX

The Industry Attractiveness-Business

Strength Matrix

BusinessStrength

Industry Attractiveness

High

Medium

Low

High Medium Low

BusinessStrength

Industry Attractiveness

High

Medium

Low

High Medium Low

Invest/

Grow

Selective

Investment

Harvest/

Divest

Product Life CycleProduct Life Cycle

Time

ProductDevelop-

ment

Introduction

Profits

Sales

Growth Maturity Decline

Losses/Investments ($)

Sales andProfits ($)

Sales and Profits Over the Products Life From

Introduction to Decline

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Grand Strategy

General plan of major action by which a firm intends to achieve its long-

term goals.

Growth Strategy

Promoting internally by investing in expansion or externallyby acquiring additional business divisions

to current product lines or that take the corporation intonew areas: Joint VenturesStrategy of expanding operations into new business orindustry and producing new goods or services

PepsiCos diversification into snack food businessPhillip Morriss tobacco giant diversification with brewing

industry with the acquisition of Miller BeerGE move into broadcasting with its acquisition of NBC

Stability

size or grow slowly and in a controlled fashion

business

growth, managers focus on a Stability strategy to

integrate strategic business units & ensure that Orgis working efficiently

Example: Allied Tire Stores; motto is We just sell tires

Retrenchment

decline by either shrinking currentbusiness units or selling off or liquidatingentire businesses

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no longer seem central to the Corporation

corporation were going through periods ofretrenchment, also called downsizing

cash value of assets, thus termination itsexistence

usually done when the company is facingbankruptcy & needs to repay Loans.

SWOT Analysis of MINI

A SWOT analysis conducts an external and internal scan of the potential business

environment; it is an important part of the strategic planning process. Environmental

factors internal to the firm usually can be classified as strengths (S), or weaknesses

(W), and those external to the firm can be classified as opportunities (O) or threats (T).

Such an analysis of the strategic environment is referred to as a SWOT analysis. The

SWOT analysis provides information that is helpful in matching the firm's resources

and capabilities to the competitive environment in which it operates. As such, it is

instrumental in strategy formulation and selection.

Strengths:

The MINI is its own niche market. There is no other automobile that specifically rivals

the MINI brand in its size and unique style. This is a strength that they have successfully

executed in its initial launch in 2002. People that own MINIs are loyal consumers and

enthusiasts. They take pride in the fact that their car is unique and original. The original

flare comes from the outstanding amount of customizable options. In fact, there are over

2.7 billion different ways to customize a MINI.

Weaknesses:

A weakness of MINI is and always will be the cars size. Many people see the size

and dont feel confident in the performance of the vehicle. Also, the style of the car

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can intimidate consumers and force them to believe that the car costs more than it

actually does. This doesnt mean that the car needs to be larger and cheap looking, but

there should be improvements in the way people perceive the car. This boils down to

marketing and advertising. This is a unique car, but that doesnt mean certain people

should feel excluded from owning one.

Opportunities:

There is an opportunity to reach everyone while highlighting diversity and originality.

These are things that define the MINI. MINI is not trendy but a trendsetter. The car

is for anyone that wants to celebrate their differences and show they are original. The

MINI also appeals to a wide range of people, for varying reasons. The MINI is diverse

in design, function, and personality, which allows something for everyone. There is the

opportunity to educate car buyers on the benefits of owning the MINI. This allows the

mind set of the American public to change.

Threats:

The MINI has the threat of becoming too much of a trend in the eyes of consumers. It

also could become a car that only a certain type of people buy, thus eliminating the rest of

the population of potential car buyers. The way people view the current branding boxes

MINI into a corner, and the owner of the MINI becomes a stereotype.

Conclusion:

We can conclude that due to the strengths of the company, there can be further increases

in sales of MINI through effective promotional activities adopted by the new advertising

agency selected by the company. The features and benefits of MINI can be highlighted

further specifically and further effective advertizing by the new agency will lead to

increased sales of MINI and increased market shares for BMW as well. There will be

increased brand awareness among our target market.

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HIERACH OF STRATEGY

1.2.1 CORPORATELEVEL STRATEGY

As we noted earlier, strategy formulation activities occur at three basiclevels: corporate, business and functional. This section focuses on thetwo dominant approaches to corporate strategy- grand strategy and the

business portfolio.

Grand Strategy

Grand strategy is an overall framework for action developed atthe corporate level. It is most commonly used when a corporationcompetes in a single market or in a few highly related markets.

Hershey Foods, for example, competes only in the confectionerymarket. There are three basic grand strategies that corporationschoose to pursue: growth, stability, and retrenchment.

As term implies, a growth strategy calls for overall corporate growth.Growth can be generated internally by introducing new products,opening new outlets, and increasing market share. It can be inducedexternally through acquisitions of other businesses, mergers and jointventures. Such growth is called related diversification when it is in thesame or related businesses. Heinzs purchase of Weight Watcherswas related diversification. Growth into areas unrelated to current

operations is called unrelated diversification. The Dial Corporation,makers of such personal care products a Brecks shampoo, Dial andTone soaps, recently bought Premier Cruise Lines in a move towardunrelated diversification. Growth is most often appropriate whenthe corporation has ample resources to support it and when thereis reasonable likelihood that growth is possible. For example, Wal-Mart Stores, Inc., has been growing rapidly by expanding into parts ofthe country not currently served. Many firms today see much of their

potential growth as coming from foreign markets.

A retrenchment strategy (also called a turnaround strategy) calls for

shrinking current operations, cutting back in a variety of areas, oreliminating unprofitable operations altogether. Such downsizing has

been quite popular in recent years. A firm is most likely to downsizewhen it is unprofitable, has excessive operating costs, has excesscapacity, or had diversified into markets it should never have entered.It may also be necessary after a bitter price war with a competitor orwhen the firm takes extreme measures to protect itself. For example,in an effort t remain independent and avoid being taken over. Avonincurred substantial new debt and reduced it contributions t retainedearnings by increasing its dividend payout. As a result, the firm also

reduced its work force and implemented several cost-cutting measures.

A stability strategy calls for maintaining the status quo. A company

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adopting such a strategy plans to stay in the businesses its currentlyin, manage them as theyve been managed, and try to protect itselffrom environmental threats. This approach is most often adopted bycompanies that lack the resources to grow or are in markets or whosemanagers simply arent interested in growth. Stability is also a useful

strategy to adopt after a period of rapid growth or retrenchment .A fewyears ago, Mattel went through a period of retrenchment. The firmclosed plants, laid off workers, reduced its product line drastically.Many observers wrote the firm off. But by adopting a strategy ofstability, Mattel was able to gradually recover from its retrenchmenttrauma and has now started to grow again.

BUSINESS-LEVEL STRATEGY

After determining corporate strategy, managers must then developbusiness-level strategies for each SBU. A business-level strategy is

concerned with how to best compete in a given market. Even if anorganization competes in only one market, it must still develop its owncompetitive strategy for that market. The most common approaches to

business-level strategy are the adaptation model, porters competitivestrategies, and the product life cycle.

Adaptation Model

The adaptation model of business strategy argues that managersof a business should attempt to match the businesss strategy with

basic condition in its environment. In particular, this model suggests

that different levels of environmental complexity and change call fordifferent forms of strategy.

Defenders A defender strategy may be appropriate when thebusiness operates in an environment characterized by relative stabilityand little uncertainty or risk. The defender attempts to carve out foritself a relatively narrow niche in the market and to direct a limited setof products or services at that niche. Although defenders may employcompetitive pricing or high-quality production standards to guard their

positions, they are likely to ignore trends and developments outsidetheir chosen domains. For example, Hershey Foods pays little

attention to what happens in the market for soups, meats, or soft drinksbecause it makes and sells only confectionery products. Defendersalso tend to concentrate on the most efficient production anddistribution techniques, with little concern for long-term effectiveness.The often maintain a rigid, bureaucratic form of organization tofacilitate control and efficiency. Lands end is somewhat of a defenderin that it has chosen a certain position in the environment and has asmajor goal maintenance of that position. Management in Practicedescribes how another successful defender, Wrigley, remains firmlyentrenched in the chewing gum market.

Prospectors The prospector strategy is almost the exact opposite ofthe defender. The prospector approach usually works best when theenvironment is dynamic, growing, and characterized by uncertainty

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and risk. Prospectors develop a knack for discovering and capitalizingon new-product locate and then systematically develop suchopportunities. Because prospectors focus on new products andmarkets, they try to avoid a long-term commitment to any single type oftechnology, instead using several different technologies. This allows

the organization to shift from one product or in a new plants and

Management, Fourth EditionCopyright Ricky W. Griffin, Houghton Mifflin Company

University of North-WestGraduate School of Business and Government LeadershipMBA/MPA ProgrammeADM 007equipment. Prospectors usually adopt flexible forms of organization,relying o decentralization and rewarding creativity, innovation, and risk

taking. ITT is a good example of a prospector. The firm has operationsin diverse industries including hotels (Sheraton), insurance (Harford),wood products, and auto parts.

AnalysersThe analyser strategy is midrange approach appropriatewhen the environment is moderately stable but still offers some degreeof uncertainty and risk. It attempts to identify and take advantage ofnew products and markets while maintaining a nucleus of traditional

products and customers. The analyser works to achieve a balancebetween the conflicting demands for flexibility and stability in its

technology. Analysers are usually structured in such a way as tosupport the forces of stability associated with the nucleus of existing

products and technologies while still accommodating the forces fordynamism stimulated by the organizations some units and groupsmaintaining the traditional products and other units exploring anddeveloping new products and markets. A prime example of an analyseris The Procter & Gamble Co. The firm has a core of traditional

products, such as Crest toothpaste and Head and Shoulders shampoo,but it continues to search for new products to add to its list.

Reactors

A strategy that some firms inadvertently use is thereactor strategy. Essentially, reactors are strategic failures. Theyrespond to their environment in appropriate ways, which resulting poor

performance. Poor performance causes reactors to become lessaggressive in the future. Several factors might cause organization to

become reactors. First, top management may not have clearlyarticulated the organizations structure to fit its chosen strategy. Ormanagement may try to maintain the organizations strategy-structurerelationship despite major changes in environmental conditions. Anexcellent illustration of an organization employing the reactor strategywas W.T Grant, one of the largest retailers in the United States beforeits bankruptcy in 1976. In response to the success of K mart Corp.inthe discounting area, Grant adopted the ill-conceived strategy ofexpanding rapidly without the necessary resources. Further, the

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company had inadequate training programs for its managers and toofew controls over day-to-day operations. The company simply tried todo too many things too fast, and then it refused to step back andretrench.

FUNCTIONAL STRATEGIES

Yet another basic level of strategic planning involves the developmentof functional strategies. These functional strategies focus on howthe organization will approach its basic functional activities. Manyorganizations develop marketing, financial, production, research anddevelopment, and human resources strategies. Issues that these

strategies typically address are summarized in Table 7.1

Marketing Strategy

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For many organizations, the marketing strategy is the most importantfunctional strategy. Some companies (like McDonalds Corp. andthe Coca-Cola Company) promote their products heavily. Their goalis to establish customer loyalty and make sure customers alwaysremember their products. ToysRUs has achieved phenomenal success

by promoting itself as a warehouse where you can find any toy a childwants for a reasonable price. And Kellogg Co. has increased its salesin a stable cereal market by promoting the health benefits of some ofits cereals. A company needs a marketing strategy whether it wantsone or not. Managers at Coors Brothers, for example, would prefer tonot advertise- they think that they make the best beer in the market and

people should buy it for the reason. However, heavy marketing hasbeen necessary for it to grow into a national brewing company.

The marketing strategy deals with a number of major issuesconfronting the organisation. One of these is the product mix. For

General Motors Corp.s Chevrolet Division, the product mix includesthe various lines (Camero, Corsica, and Beratta) and different versionsof each model. Other major issues in marketing strategy include thedesired market position (Kmart and Wal-Mart Stores, Inc., competefor fist place in retailing), distribution channels ( a major reason forTimexs initial success was its decision to sell watches in drugstores),sales promotion (such as an initially high price to skim off the creamfollowed by planned price cuts), and public policy (dealing with legal,cultural, and regulatory constraints). International firms often find thatthey must tailor marketing strategies to each individual country wherethey do business.

Financial Strategy

Developing the right financial strategy is essential to an organization.An important part of this strategy is deciding on the most appropriatecapital structure: what combination of common stock, preferredstock, and long-term debt (such as bonds) will provide the firm withthe capital it needs at the lowest possible costs? Another elementin financial strategy is debt policy: how much borrowing is allowedand in what forms? Assets management focuses on the handling of

current and long-tem assets: how should the firm invest a cash surplusto optimise both return and availability? Dividend policy determineswhat proportion of earnings is distributed to stakeholders and what

proportion is retained for growth and development. Disney has adopteda financial strategy of low debt. It pays for most of its theme parkadditions from operating funds. The new European Disneyland outsideParis was paid for almost entirely by issuing special classes of stockrather than by borrowing money. In contract, Continental Airlines,I., borrowed so much money to finance its growth in the 1980s thattoday it is barely able to cover its interest expenses. International firmsusually manage their financial strategy from a centralized corporate

perspective.

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Production Strategy

In some ways, and organizations production strategy stems from itsmarketing strategy. If the marketing strategy calls for promoting high-quality, high-priced products, productions should naturally focus on

quality, with cost only a secondary consideration. Several major issuesstill remain, however. For example, methods for improving productivityneed to be developed. Production planning (when to produce, howmuch to produce, and how to produce) is especially important formanufacturers. Finally, production strategy must take into accountthe regulations of government bodies such as the EnvironmentalProtection Agency (EPA) and the Occupational Safety and HealthAdministration (OSHA). Areas of major importance for the productionstrategies of many companies are automation, robotics, and flexiblemanufacturing systems. Some companies (such as General Electric,

Nissan Motor Co. Ltd., and Toyota Motor Corp.) are investing large

sums of money in automated technology; other manufacturers (suchas Du Pont and Exxon Corporation) are proceeding more slowly.

Nevertheless, contributing breakingthroughs in production technologieswill ensure that these issues remain a major concern for managers.International firms often profit by locating production facilities incountries where labour or raw materials (or both ) are inexpensive.

Human Resource Strategy

Organizations find it useful to develop a human resources strategyfor a number of reasons. Human resources policies are required

on such matters as compensation, selection, and performanceappraisal. Another aspect of human resources strategy is labourrelations, especially negotiations with organized labour. Governmentregulations, such as the Civil Rights Act of 1964, also need to be takeninto account . And executive development usually warrants strategicattention. For example, if an organization anticipates opening eightnew plants within the next six years, it must start now to locate anddevelop potential managers for those plants. We mentioned in Chapter

Management, Fourth EditionCopyright Ricky W. Griffin, Houghton Mifflin Company

University of North-WestGraduate School of Business and Government LeadershipMBA/MPA ProgrammeADM 0071 that some companies have developed training programs that areso good that they are thought of by some recruiters as second MBAs.Strong emphasis on management development, then, is also anelement of some firms human resources strategy. Training managersfor international assignment and adjusting to local labour marketconditions are important issues for international firms to address intheir human resources strategy.

Research and Development Strategy

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Most large organization, and many smaller ones as well, find itimportant to have a research and development strategy. A primaryarea of concern here is making decisions about product development.Should the firm concentrate on new products or on the modification

of existing product? What use should be made of technologicalforecasting-predictions of technical trends, new discoveries andbreakthroughs, and so on? Some organizations R&D strategies alsoinclude a policy on patents and licenses. If a firm develops a new

product or procedure and patents it, other firms cannot use it. It may beprofitable, however, to license the use of the patent-that is, to sacrificesome degree of competitive advantage in return for fees gained byallowing other firms t use the product or produce. Merck & Co., Inc.,is one of the United States most-admired companies. One reason forits success has been long history of new-product breakthroughs andtechnological innovation. This innovation is brought about by a strong

and consistent commitment to research and development. Internationalfirms must make important decisions regarding where they locateresearch and development facilities. Kodak, for instance, recentlyopened a major R&D centre in Japan.