Transcript Analysis of Jaguar Case

Analysis of Jaguar Case
Determination of the Strategic
Position
Question:
• Perform a strategic analysis for Jaguar in
the context of the international market for
luxury cars
• Recommend a suitable strategy(ies) for
Jaguar
How to approach this?
• Read case thoroughly
• Use strategic planning framework to
analyze case
• Next: to write out the case: can again use
strategic planning framework to document
your analysis and suggested strategy(ies)
Strategic Planning
• A Basic Planning Model
Basic Planning Process
Missions and Goals
External Analysis - Opportunities and Threats
Internal Analysis - Strengths and Weaknesses
Selection of Appropriate Strategies
Implementation of Strategies
External Environmental Analysis
- PEST
• Government’s golden share (designed to
prevent takeover) to end 1990
• British industry highly unionized; many
different unions
External Environmental Analysis
- PEST
• Economic developments have led to major
upturn in demand for luxury cars
• Oil prices/interest rates low; standard of
living improvements; low cost of capital
• Exchange rate fluctuations
• Car manufacturing capital intensive
External Environmental Analysis
- PEST
• Move towards environmentally friendly
cars
• “Conscience factor” - not to be seen to be
flaunting wealth
External Environmental Analysis
- PEST
• Car manufacturers with broader ranges
exploiting technical/engineering merits
• New technologies not solely the domain of
original innovators - available to
competitors
• Technological diversification (i.e.,
aerospace industry) produced spinoffs for
car industry
External Environmental Analysis
- PEST (Others)
• Legal:
• Legislation move in US - remove tax deductible status for
cars > $21,000
• Japan opening up
• New emmision standards in Europe
• Suppliers:
• Improvement of Jaguar’s suppliers’ quality
• Joint venture with GKN Sankey to produce body pressings
instead of buying from Rover - Backward integration?
External Environmental Analysis
- PEST (Others)
• Customers:
• Customers of luxury cars mostly wealthy - want to
make fashion statement
• Customers expect quality, service & excellence
• Competitors:
• Mercedes, Porsche & BMW main competitors in
luxury sector (Cadillac & Lincoln in US)
• Acquisitions taking place
Porter: The Five Forces Model
Risk of entry
by potential
competitors
Bargaining
power of
suppliers
Rivalry
Among
Established
Firms
Threat of
substitute
products
Bargaining
power of
buyers
Porter’s 5 Force Analysis
(Structural Analysis)
• Potential entrants: Japanese
• Barriers: Economies of Scale: Large investment reqd; existing players
enjoying large economies of scale; also high exit barriers due to high
investment
• Product differentiation: customers look for certain attributes in luxury
cars
• Capital requirements: Car makers require large investments; however,
interest rates low
• Access to distribution channels: Difficulty by Jaguar in Germany,
secured Saibu in Japan, upgrading of distribution channels (divorce
themselves from BL)
Porter’s 5 Force Analysis
(Contd)
• Threat of Substitutes
• Other forms of transport
• Volume car manufacturers (what is a luxury
car?)
• “Fashion statement through other means Condo, etc
Porter’s 5 Force Analysis (Contd)
• Power of Buyers & Sellers:
• Buyers demanding excellence, quality &
service
• Appears to be no forward/backward
integration (except parts). However
horizontal integration through acquisitions
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Porter’s 5 Force Analysis (Contd)
• Competitive Rivalry:
• Appears low in the luxury cars? Mercedes
& BMW in Europe; Lincoln & Cadillac in
US
• Different cars appeal to different people
SWOT Analysis
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Strengths:
Quality/culture identity
History of culture (Pre-BL Years)
Image of luxury
Re-entry into international car races
Upgraded distribution channels
Arrangement with SEIBU
SWOT (Contd)
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Weaknesses:
Small car range
Engineering/R&D disadvantage
UNION problems
Dealership network in Germany
Jaguar unable to radically alter design
No economies of scale
SWOT (Contd)
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Opportunities:
Economic growth
Japanese market opening up
New technology readily available
US$ exchange rate vis-à-vis DM
SWOT (Contd)
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Threats:
Competition from Mercedes, Porsche & BMW
Japanese may try to enter market
Substitutes - what is a luxury car?
US$ exchange rate fluctuations
US legislation
Government’s golden share
Environmental pressures
Strategic Planning - Written
Presentation
• Having done an external and internal environmental
analysis, how do you proceed?
• How do you present your arguments?
• There are many ways: you can use the strategic planning
format as a framework for your written arguments
• SWOT, PEST, Porter’s Analysis go into Appendices
• One such way of documentation presented in the next few
slides
Sum up External Environment
• Late 1980s a period of economic recovery with increase in demand for
luxury vehicles, oil prices down and interest rates low
• More specifically, competition for Jaguar from Mercedes, BMW and
Porsche in Europe (especially from Germany), and from Cadillac and
Lincoln in the US
• Fewer players in luxury market - less intensive competitive rivalry
(Jaguar not in good position vis-à-vis competitors, Japan to enter
market).
• Adverse currency movements (Jaguar’s hedging in the right direction)
and Government’s Golden share due; US regulations.
• Threat from volume manufacturers who appeared to be able to match
luxury cars on product attributes
Sum Up Strengths
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Jaguar successfully recreated quality culture
Jaguar taken on market orientation - customers paramount
Egan’s heart and minds approach - increased productivity
Jaguar upgraded distribution channels in various countries
Features in Jaguar cars not found in German makes image of luxury
• Boosted image: entered LeMans
Sum Up Weaknesses
• Distribution channel in Germany
• Smaller range of vehicles compared to
competitors
• Could not radically alter vehicle design as
this would damage luxury reputation (fuel
efficient, more aerodynamic, green cars)
• UNION problems with 11 unions - hence
affects productivity
Jaguar’s Present Strategy
• Want to Grow
• Reduce dependence on US market - though most
profitable, adverse currency movements and legislation
seen as threats
• Want to increase in Germany and enter Japan
• Improve quality and dealer networks
• Increase range of cars produced
• Diversification (consultancy) and want to spend more on
R&D
Proposed Strategy (Need for some
rationalization and streamlining)
• Generic strategy: differentiation (cost leadership is
difficult as Jaguar does not have economies of
scale and manpower productivity). Emphasize
luxury and ample design. Emphasize participation
in races.
• Within differentiation, focus on wealthy buyers
(Mercedes emphasizes on Engineering and attracts
upcoming rich; BMW attracts yuppies - compete
with S class & 7 Series rather than all)
Proposed Strategy (contd)
• Strategic Direction: market development and consolidation
rather than product development (keep the small range;
don’t go into consultancy, R&D).
• Market development: China, HK, Taiwan & Singapore, oil
rich SEA countries and ME
• Consolidate in US and UK
• However, Jaguar needs to continue to lower costs, improve
quality and productivity (to support main strategies, and to
forestall takeover after Government’s golden share
Some Ratios
• Jaguar appears to generate enough profits to
fund market development; Profits before tax
increased 685% from 1980-1987
• However, current and acid test ratios low
(1.75 & 1.02)
• Low debt to equity ratio (25% in 1987)
• Jaguar in a good position to attract loans for
market development
So what happened to Jaguar?
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When Government’s Golden Share expired... in 1989, Ford acquired
Jaguar. Chairman resigned.
In 1992, the XJ220 tested the exotic car market in Europe but never made it to
the U.S…exchange rate fluctuations proving difficult. But in mid-late 90s,
Jaguar more successful in US.
Retro look…a little bit of the same thing. No change in the basic shape.
Emphasize luxury, wealth niche. Small range maintained. Participation in
races continued.
Despite the economic decline in 1990, the company established record sales in
Germany, Italy and Japan during the year.
Towards the end of 1990, a new hourly paid working agreement was
reached…new arrangements with labour developed.
During 1993 Jaguars went on sale in Russia and many of the new Eastern
Block countries. In October...China, a country with tremendous opportunity
for economic growth.
Jaguar appeared to continue R&D expenditure