BMW uses strategic alliances to leverage its existing resources and capabilities while working with partners to develop additional resources and capabilities as the foundation for differentiation.
Strategic alliances have become a cornerstone of BMW’s differentiation competitive strategy (Hitt, Ireland & Hoskisson 2012).
A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities for the purpose of creating a competitive advantage.
Hitt, Ireland & Hoskisson (2012) noted that strategic alliances involve firms with some degree of exchange and sharing of resources and capabilities to co-develop, sell and services products.
The major risk associated with a differentiation strategy centres on the difference between added costs and incremental price.
Harrison & John (2009) noted that customers may not sacrifice some of the features, services or brand image possessed by BMW because it costs too much.
BMW achieves good engineering design and high performance of its vehicles through product innovations and provision of superior quality and service.
These factors are then sustained and leveraged through creative advertising, brand building and strong strategic alliances.
This means that BMW must carefully manage costs across its entire production process from idea inception to delivery but particularly in those areas that are not directly related to the sources of differentiation (Mun 2010).
Harrison & John (2009) argued that BMW’s differentiation strategy leads to increased sales only if buyers value the attributes that make the vehicles unique enough to pay a higher price for it, or if they choose to buy from BMW preferentially.