BMW has decided to only compete in the luxury car market, that is where the company has its competitive advantage, and this has limited the type of decisions that the company can make. BMW will have to continue to make cutting edge cars that the luxury market is expecting and if BMW fails in the luxury car market it has no other source of revenue.
Luxury car consumers expect the best car at that moment and that means a successful luxury car maker must have the best of today's technology but at the same time developing the technology of the future. However, what the future technological advances in cars will be is difficult to predict and tomorrow's cars could be unrecognizable today. The future car may be electric, hydrogen, self-driven or all the above but will most certainly be fuel efficient1 However, car companies today are spending a lot of money in all these areas so that they can be the first one to develop it, $102 billion sector wide last year when the defense and aerospace sector was only $25 billion2.
Figure 1
Figure 2
Figure 3What the future car will be is really important for BMW because the luxury car market will be the first one to receive these technological advances. New technology is expensive, and usually appears in the luxury market then later gets transferred to affordable cars. The most successful future luxury car company will be the one that has the best technological advancements, and that company could be in a position to dominate the market if its technology is unique enough that the other companies cannot come close to replicating it.
However, the luxury car market is competitive and has a lot large companies, like Toyota and Volkswagen, to compete with. These companies R&D budgets are much larger then BMW's3 (appendix 1) and are able to research a large array of projects. With BMW's limited resources, BMW will have to use the most of its research money to stay competitive. Although the larger companies have to put research into the other areas of their company, a lot of it will be in the luxury market because there is a trickle-down effect where the technology you research for your luxury car today will be used in your cheaper cars in the future. BMW has made the decision to only stay in the luxury car market, a good decision, but with that decision BMW must understand that they have competitors with big purses, and the luxury market is all about research and development. This might also affect BMW's profitability as they will have to spend more money to keep up with the other companies and it can see in appendix 1 that BMW is currently spending a high % of its revenue on R&D.
Appendix 1
1 Leah Goldman, "Check out the 10 coolest cars of the future." http://www.businessinsider.com/luxury-cars-of-the-future-2010-10?op=1
2 "R&D investments" Auto Industry. http://www.autoalliance.org/auto-innovation/randd-investments
3 "The top innovators and spenders" strategy& http://www.strategyand.pwc.com/global/home/what-we-think/global-innovation-1000/top-innovators-spenders