Strategic Marketing and Planning - Research Paper Example

 Abstract Jaguar Land Rover, taken over by India’s Tata Motors last year has been reeling under the impact of recession with plunging sales and reducing profits. They have been seeking support from the government by way of loan guarantees to continue with their research and development. Despite the global downturn and the impact on the car industry, the UK government has imposed regulations on car emissions and according to the new regulations, only those car makers that bring out cars with low-carbon emissions would be included in the support programme. JLR has decided to introduce the smallest and most efficient low-carbon car in the UK. They have already been granted approval by the government for £27 million which is separate from the scheme. In addition the EIB has also approved their loan application for £340 million to bring out greener cars. However, the support from the British government is at a very slow pace as they are apprehensive of the survival of many car makers in the industry. Besides, all car makers in the UK are now foreign owned to which there is strong reaction from the government. JLR is confident of overcoming the current crisis as they have already reached an agreement with the staff for pay cuts against job security. The focus is on green cars and JLR is very strategically placed with the rivals. They have a sound technological base and would be the first in the small car segment to introduce green cars. Table of Contents 1. Introduction 1 2. Land Rover’s competitive position 2 3. Key stakeholders 3 4. Key external drivers of change 4 5. Analysis of the external environment 5 6. Structural analysis - Five Forces 7 7. Resources, balance and value chain 9 8. Conclusion - Strategic event adds value to land Rover 11 References 13 Appendix 1 1. Introduction The global car industry is undergoing consolidation under the impact of recession while the British Government and the European Commission (EC) have allocated £2.3bn support to the car industry. The support is to make the firms become firms become greener, more innovative and more productive. Applications from the car makers and the suppliers for funds would be assessed against the criteria set out by the Department for Business, Enterprise and Regulatory Reform (DBERR). However, Jaguar Land Rover (JLR), now owned by India’s Tata Motors, will receive a government grant of up to £27 million against the total project cost of £400 million, to help them develop a new Land Rover vehicle. This money has been allocated from a separate government scheme and is subject to approval from the European Commission. The car to be developed will be the smallest, lightest and the most efficient car produced by JLR. The UK car industry needs the support of various department and organizations. It first needs the support of the government by way of funds and the approval comes from the European Commission. The Prime Minister has also admitted that the industry would get more help from the banks to help them through the recession. Apart from the banks, funds are also given by Automotive Association Programme (AAP). All projects seeking funds have to be assessed by the DBERR against the pre-defined norms. British Chambers of Commerce has also been taking a keen interest in the car industry specially because this industry can steer the economy out of recession. 2. Land Rover’s competitive position The global car industry is facing plunging sales, job losses and scaled down production levels. The latter half of 2008 has been disastrous for the UK car industry in both the luxury and the popular brands, as can be seen from Appendix A (BBC March 2009). Ford, Vauxhall and VW are the most popular brands in the UK but all have been experiencing low sales. Renault and Mitsubishi, the less popular models too have faced low sales and production of cars. The car makers are not reducing the car prices just to attract customers. In fact Ford and Vauxhall have increased their pieces by about 5% as they do not want to sacrifice on their profits. BMW makes Mini, the SUV and the sports model that reduce the overall emissions of its fleet (Webb 2009). None of JLR cars offer this advantage and even though they have been granted certain exemptions, they still need to reduce the emissions by a quarter. Apart from these, JLR has competition in Nissan as far as funding is concerned. European Investment Bank (EIB) has approved funding for both these car makers (BBC, April 2009). The package for Land Rover is to help cut vehicle emissions and for Nissan to bring out more fuel-efficient cars. EIB necessarily grants loans to car makers that must invest in technology to lower emissions. 3. Key stakeholders For any company managing stakeholders is a mammoth task because invariably there is conflict of interest between the expectations of the different stakeholders. While the internal stakeholders at JLR comprises of the directors, owners and the unions and employees, the external stakeholders include the banks like EIB, the DBERR, British Chambers of Commerce, the UK government and the EC. The market place stakeholders include the customers, the competitors and the suppliers. The UK government is reluctant to support the car makers in the UK, as all the car makers are now foreign owned, thus giving rise to the conflict of ownership versus funding. However, since the job losses are at stake, the government has been taking interest but decision are slow to come by. The industry leaders are apprehensive whether the support packages announced by the government are sufficient to restore confidence and boost sales. The industry leaders want the government to follow Germany and France with a "new for old'' trade-in scheme but the government is yet to take a decision. The employees are the internal stakeholders and since the British car industry is on the verge of collapse, the workers have agreed for a pay freeze and a four-day week to avoid compulsory job losses (Milner 2009). This deal would save the company about £68 million and the scheme would continue until 2010. The company has agreed that there would be no non-management redundancies. The employees have agreed to three hour extension of the working week to 40 hours in addition to the pay freeze. Unite, the most powerful union in Britain, is urging the workers to accept the deal for pay cuts so that redundancies do not occur (Sutherland 2009). This is a very strategic move as it demonstrates team effort to steer the company out of the crisis. It would also help them to take advantage when the downturn finally ends. The conflict between mass redundancies or short-term pain ended with this deal with the employees which secures the future of the workers. 4. Key external drivers of change UK car makers are the most efficient in the world but now all are foreign owned. Tata’s have invested $1.2bn in JLR and also taken a bridge loan of $3bn which has put the company under heavy debts just before the car sales dipped. According to The Independent (25 March 2009) JLR has been pressurizing the government not for a bailout but support by way of loan guarantees to facilitate commercial loans as the banking system has come to a halt in the UK. They are seeking government backing to squeeze the much-needed banking system. However the government has made it mandatory that only car makers that invest in technology and bring out greener cars would be granted the financial aid. Most car companies in Europe receive day-to-day support from their government but the UK government has made it mandatory that support would be extended only if the cars agree to bring out low-carbon vehicles (Gribben 2009). Hence the government has linked their short-term survival with long-term plans for greener cars, which is a tricky proposition. Besides, The Independent (25 March 2009) reports that supporting a foreign-owned business will be politically tricky. These factors have forced JLR to invest in the smallest and the most efficient car – the mini Land Rover and for which they have been granted £27 million. 5. Analysis of the external environment 5.1 Political There are tougher emission regulations and the concerns over climate change are pushing the car makers to make their cars greener. New rules require the car makers to cut the emissions of their new vehicles by 18% from 2012 (Webb 2009). The combination of recession and the emission rules have made a profound impact on the industry. Loans are now being made available only to low-carbon projects (Hutton and O’Connell, 2009). Most European countries have a scrappage scheme where the customers are compensated for getting rid of their old cars and buying new ones (Milner 2009). The UK government has not yet responded to industry proposal to follow suit. The government is not very supportive in ensuring the long-term future of the industry (Gribben 2009). There have been delays in finalizing the plans for a programme aimed at easing the provision of finance to try and halt the slide in sales. The Society of Motor Manufacturers and Traders (SMMT) and its members feel that a new credit scheme should be provided to the salesmen with better financial offers to the customers (Gribben 2009a). The government considers such an approach as short-term boost to sales and they have been struggling to reach an agreement with Treasury. The framework for the scheme has not been finalized due to differences between the Bank of England and Lord Mandelson's Business Department. 5.2 Economical JLR has joined the rank of automotive giants like GM and Ford as they too have been shunned by major trade credit insurers for fear of bankruptcy, says The Independent (18 February 2009). This is because of the falling consumer index and scarce credit which has affected the sales of cars. The UK car industry has been facing one of the worst crises where the car sales have been reduced to one fifth as loans have dried up. The credit famine will impact the suppliers and the dealers as well (Webb 2009). All the car makers including Honda, Toyota and JLR have offered pay cuts rather than job losses in the face of a slump in demand (Buckley and Duncan 2009). Toyota too has cut pay and working hours by 10pc for staff at their plants in the UK where the unions have agreed to a work-share agreement for one year (Gribben 2009). There has also been a slump in exports thereby leaving most manufacturers with over capacity (Gribben 2009a). 5.3 Social There has been a decline in the income of the people affecting their lifestyle and the decision to buy new cars. The retail prices index gauge of inflation turns negative for the first time in half a century (Buckley and Duncan 2009). Pay cuts are not only in the car industry but is affecting most of the sectors. Employees prefer job security and are accepting lower settlements. Even though the fuel prices and the mortgage rates have fallen but the prices of other goods and services are continually rising. 5.4 Technology JLR’s spend on research and development accounts for half the industry’s total in the UK (Webb 2009). Before the recession the company had earmarked £600 million to spend on developing new technologies and models between 2007 and 2012. They hope to meet the target by 2012 by using better aerodynamics or using an electric motor. They are also developing the stop-start technology which turns off the engine when the car is not moving, in addition to the hybrid models that combine electric and diesel motors. They have developed the design for the mini land rover without losing the design, look and performance of the existing models. JLR have hi-tech centres at Gaydon and Whitley in the Midlands and the valuable R&D work done here provide employment to thousands (Webb 2009). Limo Green is a "series hybrid", which means it is an electric car with an on-board generator to keep the batteries charged (Hutton and O’Connell 2009). This sets it apart from Toyota’s hybrid cars that use a combustion engine and an electric motor. Because of rules being imposed by the government all car makers are becoming fuel efficient and trying to introduce low-carbon cars. 6. Structural analysis - Five Forces 6.1 Threat of entry Globalization has allowed East Asian car makers to enter the UK and today all the car companies in the UK are foreign owned. They have entered through acquisition or alliances. There is no threat from new entrants because the demand being so low, no new manufacturer would venture to start afresh as they would neither have the cost advantage nor would they be able to achieve the economies of scale. The government support for new entrants would also not be forthcoming. However, Vauxhall is planning to enter the market with a European version of its Chevrolette battery electric car in response to the green motor technology (Gribben 2009). 6.2 Buyer power Imports are free in the UK and hence the luxury segment import cars. The buyer power is very high as a large number of substitutes are available. As far as small efficient cars are concerned, JLR will be unique in its offer. There is over capacity in the other segments but the demand for this segment is expected to be high. Consumer demands are ever-changing and product life cycles have become shorter. Besides, the demand being low, the buyer power increases as they are few in number. 6.3 Supplier power At the time of recession the supplier power is low because they are dependent on the car makers for survival. The number of suppliers being high, their power is reduced and JLR can dictate terms of business. 6.4 Substitutes When consumers get the same product at the same price there are chances of the buyers to switch brands. Hybrid cars by Toyota and Honda are available which are low-carbon cars but they are expensive. JLR’s new version is expected to gain on prices and the size of the car. So far no car of this size is available with alternative fuels or with low-carbon emission. The cost of switching is expected to be eased out if the government accepts the proposal to provide incentives to the car owners to scarp their old cars and buy new ones. Because of new technology being imposed by the government many car makers would be able to offer low-carbon cars. 6.5 Competitive rivalry The car industry is highly competitive and even Nissan has been granted the loan from EIB along with JLR. Price is not an issue because recently some car makers have refused to compromise on profits and have increased the prices. Hence when JLR introduces the new low-emission car it can price it with substantial margin as there are no competitors as of now. The point of differentiation would be the smallest, lightest and most efficient car. 7. Resources, balance and value chain The current project for the most efficient car is based on the emission regulations imposed by the government. JLR was facing credit crunch after taking over the company and responding to the demand for low-carbon cars will help them to come out of this current crisis. Even EIB has approved a loan to JLR for £340 million to reduce vehicle emissions. JLR owned by Tata Motors is literally begging the British government for loans and loan guarantees but in the meantime they have received an order of 13,000 vehicles from China amounting to £600 million to be supplied over three years (Guthrie 2009). This gives the company a solid base to build up their business in China. It has boosted the company’s confidence because it also conveys the message to the external stakeholders that the company would continue to be in business even after three years. JLR has excellent research and development centres and technical knowhow. They are seeking the support of the government not by way of cash but support in the form of loan guarantees. The Independent (25 March 2009) reports that it does not require money to run its day-to-day business but for its business £400 million per year research programme and £800 million for its five-year product development plan. The Department of Business appears to be apprehensive of supporting JLR and is studying their long-term plans. However, JLR has received £27 million from the government and £340 million from EIB, EU’s main source of lending (Kollewe 2009). JLR has already secured approval for this loan for investment in research and development of more fuel-efficient cars at its Midlands and Merseyside factories. As far as manpower is concerned, JLR feels it has the resources to handle the situation. The Group has more than 80 businesses across the globe and they feature in every major international market. According to The Independent on Sunday (12 April 2009) the company understands that they may have to go for refinancing but for now things are under control. JLR is in continuous talks with ministers, banks and its owner Tata over refinance that could save 15,000 jobs (Dunkley 2009). The company needs to provide sufficient security to the government and the other stakeholders including the various banks. DHL, the supply chain specialists take care of the material handling and in-plant logistics for JLR (DPWN 2009). Their UK transport operations have been completely overhauled resulting in major financial and operational benefits to the JLR. DHL and JLR personnel work together in partnership to deliver a major change project in a short time scale without disturbing the production. This has helped to reduce the supply chain costs and improve efficiencies. JLR has started an environmentally advanced, Technical Academy for its dealers, technicians and apprentices (Tallis and Rzeznik 2009). The Academy conducts and coordinates training for the technical staff as well as for the international dealer network. This is one of the largest and most successful apprentice programmes in the automotive retail sector. They are committed to the training and development of a world class workforce to deliver excellent customer service. Their dealers are technically capable of maintaining the sophisticated products. 8. Conclusion - Strategic event adds value to land Rover JLR is planning to launch the smallest and the most efficient car – mini Land Rover for which they have received a grant of £27 million which is capable of doing 60 miles to a gallon (Gribben 2009). It is the recession and the need for funds, the gap between demand and supply that has forced JLR to enhance technology and bring out greener cars. This event has added value to the company in several ways. JLR has been able to exert pressure on the government for support which benefits not just JLR but the industry as a whole. If whole-hearted support from the government is provided, the industry will become central to drive the economy out of recession. JLR itself provides employment to several thousand people and with the intervention of the unions they have been able to make the workers agree to pay cuts against job security. JLR is focusing on technology and research and development and their requirement for cash too is meant for investment in this area. With its efforts in technology, JLR would be able to contribute to environmental protection and be the leaders in this segment. They would be carrying out the production at the company's Halewood plant in Merseyside. This ensures employment at the Halewood facility. Most importantly, they would be maintaining the design capability of JLR in the UK while enhancing features and entering green segment. Low emission cars would be one way to expand sales in the mature UK car industry. Toyota’s Prius hybrid cars are expensive and hence being a small car, the prices of mini Land River would be competitive to attract customers. JLR is very comfortably placed in the business environment with the new model that they intend to launch. References BBC March 2009, ' The plight of the UK's motor industry', viewed April 15 2009, http://news.bbc.co.uk/2/hi/business/7910645.stm BBC April 2009, ' UK car firms get European funding', viewed April 15 2009, http://news.bbc.co.uk/2/hi/business/7986755.stm Buckley, C & Duncan, G 2009, 'Zero hour is at hand as inflation plunges to historic 50-year low', The Times, 24 March, viewed April 15 2009 http://find.galegroup.com/ips/start.do?prodId=IPS. DPWN, 2009, 'Jaguar and Land Rover recognizes DHL's supply chain performance with quality award', viewed April 15 2009, http://www.pressreleasepoint.com/jaguar-and-land-rover-recognizes-dhl039s-supply-chain-performance-quality-award Dunkley, J 2009, 'Triple boost for car industry', Daily Telegraph, 13 April, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS. Gribben, R 2009, 'Lifeline for car industry 'delayed by Bank' Jaguar Land Rover secures pounds 27m of help as Toyota imposes pay cut', Daily Telegraph, 12 March, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS. Gribben R 2009a, 'Sales slide sees UK car makers begging ministers for a boost', Daily Telegraph, 6 April 6, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Guthrie, J 2009, 'Jaguar Land Rover secures [pounds sterling] 600m order from Chin', The Financial Times, 28 February, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Hutton, R & O’Connell, D 2009, 'Jaguar drives to be green; MOTOR INDUSTRY Jaguar Land Rover; Scientists at the carmaker are gearing up to give people a cleaner drive', Sunday Times, 22 February, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Kollewe, J 2009, 'Financial: Car firms win pounds 720m to make greener vehicles', The Guardian, 8 April, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Milner, M 2009, 'Financial: Jaguar Land Rover workers take short week and pay freeze', The Guardian, 6 March, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS The Independent 2009, 'Insurers cut cover for suppliers to Jaguar', 18 February, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Sutherland, K 2009, 'UK car industry boost: Jaguar Land Rover strikes deal to supply 13,000 vehicles to China', MailOnline, viewed April 15 2009, http://www.dailymail.co.uk/news/article-1157807/UK-car-industry-boost-Jaguar-Land-Rover-strikes-deal-supply-13-000-vehicles-China.html Tallis, C & Rzeznik, N 2009, 'Jaguar Land Rover Unveils New Energy Efficient Academy', viewed April 15 2009, http://uk.tata.com/media/releases/inside.aspx?artid=aGNYr/GvXoY= The Independent 2009, 'JLR faces devastation(tm) without government help', 25 March, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS The Independent on Sunday 2009, 'Tata looks to restructure [pounds sterling]2bn Jaguar and Land Rover debts', 12 April, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Webb, T 2009, 'Business & Media: Business: A British car icon faces up to reality: Jaguar Land Rover's technology is state-of-the-art, and it needs to be: as if a crushing global downturn wasn't bad enough, punishing emission regulations are just over the horizon', The Observer, 22 March, viewed April 15 2009, http://find.galegroup.com/ips/start.do?prodId=IPS Appendix A UK car sales Source: BBC (March, 2009). 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