What Did BMW Do in Order to Manage Global Financial Risk and Why?

Essay by shaythorn01 December 2009

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BMW expanded its production operations to the United States and other countries mainly due to the rise of the deutschmark threaten BMW's ability to compete in the US and rising production costs in Germany. BMW used several methods to manage global financial risk which included plant location, mergers and acquisitions, product sourcing and input mix, productivity improvements, product strategy and market segmentation, and incentive packages. I will discuss why BMW used each of these methods.

BMW chose to locate a plant in the US based upon the lower wages it would pay its US employees, approximately 50% less then there German counterparts, and a reduction in production costs of about 30%. BMW also built an assembly plant in Mexico as a way to jumping into the growing sales in Latin America and using a cheap labor source. By diversifying their production plants in several different countries BMW has reduced its economic exposure.

BMW now has the ability to shift production from one country to another based upon currency rates to build their car for a lower price and sell it in country were the exchange rate is higher. BMW also acquired British automaker, Rover. This purchase gave BMW a 13 percent share of the British market and a low-cost production plant in Britain. Additionally, this acquisition gave BMW great purchasing power from supplies enabling BMW to negotiate better prices for its supplies and doubled the size of BMW.

BMW's was spending several hundred million dollars annually in North America for parts and materials that exchange rates made cheaper to purchase and import to Germany than they were able to acquire in Germany or any where else where in Europe. With a new plant in the United States BMW would not have to import as many parts to their plants in...