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Analysis of Jaguar Case Determination of the Strategic Position.

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Presentation on theme: "Analysis of Jaguar Case Determination of the Strategic Position."— Presentation transcript:

1 Analysis of Jaguar Case Determination of the Strategic Position

2 Question: Perform a strategic analysis for Jaguar in the context of the international market for luxury cars Recommend a suitable strategy(ies) for Jaguar

3 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)

4 Basic Planning Process Missions and Goals External Analysis - Opportunities and Threats Internal Analysis - Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Strategies Strategic Planning A Basic Planning Model A Basic Planning Model

5 External Environmental Analysis - PEST Governments golden share (designed to prevent takeover) to end 1990 British industry highly unionized; many different unions

6 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

7 External Environmental Analysis - PEST Move towards environmentally friendly cars Conscience factor - not to be seen to be flaunting wealth

8 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

9 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 Jaguars suppliers quality Joint venture with GKN Sankey to produce body pressings instead of buying from Rover - Backward integration?

10 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

11 Porter: The Five Forces Model Risk of entry by potential competitors Risk of entry by potential competitors Rivalry Among Established Firms Rivalry Among Established Firms Threat of substitute products Threat of substitute products Bargaining power of suppliers Bargaining power of suppliers Bargaining power of buyers Bargaining power of buyers

12 Porters 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)

13 Porters 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

14 Porters 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

15 Porters 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

16 SWOT Analysis 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

17 SWOT (Contd) Weaknesses: Small car range Engineering/R&D disadvantage UNION problems Dealership network in Germany Jaguar unable to radically alter design No economies of scale

18 SWOT (Contd) Opportunities: Economic growth Japanese market opening up New technology readily available US$ exchange rate vis-à-vis DM

19 SWOT (Contd) Threats: Competition from Mercedes, Porsche & BMW Japanese may try to enter market Substitutes - what is a luxury car? US$ exchange rate fluctuations US legislation Governments golden share Environmental pressures

20 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, Porters Analysis go into Appendices One such way of documentation presented in the next few slides

21 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 (Jaguars hedging in the right direction) and Governments Golden share due; US regulations. Threat from volume manufacturers who appeared to be able to match luxury cars on product attributes

22 Sum Up Strengths Jaguar successfully recreated quality culture Jaguar taken on market orientation - customers paramount Egans 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

23 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

24 Jaguars 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

25 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)

26 Proposed Strategy (contd) Strategic Direction: market development and consolidation rather than product development (keep the small range; dont 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 Governments golden share

27 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

28 So what happened to Jaguar? When Governments 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

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