Corporate Governance Mechanisms of JCB Construction Equipment Company - Case Study Example

JCB Construction Equipment Company and With the rapid growth being experienced in all growingeconomies, the construction equipment manufacturing companies are experiencing extensive and high demands. Construction and infrastructural developments are going through a high expansion globally and hence, construction equipment companies are witnessing an increase on the demand for their products and services day by day. JCB, which specializes in construction and infrastructure development equipment, is one such company that has seen huge demand for its products. Established in 1945, the company has gradually grown from a single store to over 2,000 depot locations (JCB, 2014). By late 2013, the company had a record of about 11,000 employees who are spread across 150 countries in four continents where it has established operations. In 2012, the company had a profit of 2.8 billion Euros, a figure that many construction equipment companies are striving hard to attain (CNBC, 2013). The company’s operations and conduct are guided by its vision and mission. The company states its mission as “to grow our company by providing innovative, strong and high performance products and solutions to meet our global customer needs”. On the other hand, it states its vision as “being a truly world class company” (CNBC, 2013). According to the company values, the greatest stakeholder is the company, and hence they are highly respected. Other stakeholders include the members and shareholders from the other subsidiary companies that have been opened to co-work with the parent company. Examples include shareholders from JCB financial service providers, JCB card insurers and the shareholders from the parent company. Different construction companies that partner with JCB and different banks from the different countries where the company has its operations are also major stakeholders. The mission and vision statements, and the value statement of the company act as a in the conduct of operations. The employees work to deliver and the management ensures that there is a smooth flow of operations so that the customers, all over the globe, are 100% satisfied (JCB, 2014). The satisfaction is evidenced in its annual returns, and in the increasing number of equipment, which is currently over 300, including diggers, excavators and diesel engines among others. The company has been ranked the world’s third company in the construction and infrastructure development industry. Porter’s five forces model This model was developed in 1979 by Michael Porter to guide businesses and customers to analyze their competition environment. The model can be used by a business which intends to gain competition advantage over rival firms to establish the key points and considerations. It is necessary for any business, whether it is already in existence or it is newly established, to study the industry in terms of competition and figure out which strategies to adopt to gain competitive advantage. Porter argues that there are five forces that affect the competitive ability of a company, and this as a result have varying effects on the economy. One of the factors is the threat of new entry. A market that has high profits definitely lures new businesses to be established and as a result, the profitability is minimized. The new entrant countries can be from any country, field or in a marketing form. The incumbent company must therefore have measures, strategies and plans to ensure that its profits are not windswept. It may utilize its economies of scale, plan carefully on its capital requirements and lay out other strategies to ensure that its profits do not decline (Porter, 2008). Another force is the supplier power. Companies should carry frequent assessments on how easy (or opposite) it is for suppliers to change or control the prices. When the suppliers are few, they will have more power to dictate on the prices as opposed to an economic environment where they are many. One should also consider the uniqueness of the different products and services offered by the different suppliers. When they are few, it might be hard to switch from one supplier to another. The third factor that affects the competition of businesses is the threat of substitutes. One should measure the chances of customers switching to buy alternatives. Are the substitutes available, and if so, at what price are they sold? Is it higher or lower? One should therefore measure the impact of the substitutes to the business. Porter also advises on the buyer power. A business operating in an environment where the buyers are few may be at a disadvantage as the buyers will most likely dictate their own terms. However, a business where the buyers are too many, and many similar businesses exist may also be disadvantaged. The last factor that affects the competitive position of a business may be attributed to all the above four forces combining together. This is the competitive rivalry. What is the level of competition on the market? This factor is also determined by the number of businesses in a market that supply similar or substitute products, their strengths and their weaknesses. The market attractiveness is greatly affected by competition rivalry, and the success of the company depends on its ability to counter this competition (Porter, 2008). Porter’s five forces model is as illustrated below. Figure 1: Porter’s 5 forces model JCB SWOT analysis SWOT analysis is pertinent in establishing the position of any business. It has been famously applied by successful businesses and has been recommended by many economists. SWOT analysis acts as a reflector as a business is able to establish where it is, where it should go and its chances of getting there. The SWOT analysis for JCB is as discussed below. Strengths One of the major strength of JCB is the fact that it is recognized for its wide array of construction equipment products. As earlier mentioned, the company has excavators, diesel engines, diggers and tractors among many others. Many construction and road development companies recognize JCB as their company of choice. Strength is the geographic diversification that JCB has attained. It has established many depots in over 150 countries in four continents. The company has operating depots in already developed countries and developing countries too. Its dealer network is not only large but also available in the many countries, and this an additional advantage. The other strength is the recall value of their brand that the company has been able to attain over the years. The customer service is not only high but it remains unrivalled (JCB, 2014). The fact that it already has factories and depots established in places such as U.K, North America and India is a great strength to JCB Company. In addition, it has customers who are very loyal to purchasing its products. Weaknesses Weaknesses wane the performance of a business and to an extent reduces the profits. Once identified, the company should lay out strategies to deal with them and mitigate any effects of the weaknesses. One of the weaknesses in the JCB Company is the fact that its operational efficiency has been affected by the Euro zone crisis. This has made reduced its overall effectiveness, especially in the factories based in the U.K. The other weakness is realized from its not having diversified its operations into related businesses (CNBC, 2013). Lastly, the other weakness is the limited market share which is as a result of the still competition in JCB. Opportunities Opportunities are the chances that a business can take in order to maximize its competitive advantage and increase the value of profits. There are several opportunities that JCB can take. To begin with, it can expand its warehouses in the different countries where it has operations. This will definitely boost and promote the value of customer service. Another opportunity that JCB can look into is the growing demand in construction services in many parts of the globe. It should make strategies to ensure that it can supply equipment needed, no matter how far the interested customer is from the nearest factory. Infrastructure growth and construction services are high in Latin America, and hence the company can greatly benefit from this. Threats The unbending competition from Caterpillar Company, Komasu and other large equipment companies continue to threat the performance of JBC (CNBC, 2013). Another threat is from the weakened real estate in Europe, which has consequently led to increase in demand of construction equipment. The company may also suffer from skill shortage in the labor department. Strategy to act on the SWOT analysis results As seen from the above SWOT analysis, JCB must act to mitigate the threats and take advantage of the opportunity. Currently, from the above realized results, they have a higher chance of succeeding if they act on the opportunities. Since they have already established JCB financial services, they can go ahead and establish JCB consultancy services. The consultancy services will not only advise the customers but also the employees with regard to equipment purchase. They shall advise companies interested in purchasing equipment on the best equipment to purchase depending on the intended use. This strategy will have helped the company in diversifying their operations and services, and as a result, the risks and threats will be diversified and some of the threats tackled. They should also ensure that they maintain or even improve on their customer service as this is a great determinant of how successful a company eventually becomes. The consultancy services might even go hand in hand with the financial services as referral can be made from one department to another. This will not only boost the sales but also attract more customers. Levels and strategies that JCB may use to maximize competitiveness There are three levels of competitiveness that may be adopted by JCB to ensure that it maintains its competitive advantage and profitability. The three are corporate level strategy, business level strategy and functional level strategy (Porter, 2008). The corporate level strategies provide a bigger picture of the desired goal for the company. The strategies show which products or services are to compete and in which geographical area, depending on the suitability and chances of success. It also shows how resources are going to be allocated and hence, this strategy is the market domain definition. JCB can use this strategy, especially if it intends to open a new factory or carry out a merger in a new country. This strategy can also help them decide whether they will have related diversification or unrelated diversification. They will then adopt the one which has higher chances of success. Business level strategies focus on a single rather than a business assortment. The company focuses on one business alone, chooses one action that concentrate on this one. This is advantageous in ensuring that all resources are channeled and close monitor of the project is done. The third level is the functional level, which ensures that all organizations, actions and departments are harmonious. For the case of JBC, the corporate level strategy is the best to adopt to maximize on its competitiveness and profitability. Communication plan Communication is undeniably important in any successful company. It is important for informing, creating an understanding between groups and explaining/understanding the change in behavior. It is also important in presenting ones point of view and mitigating barriers that may arise between groups or individuals as a result of change. It is important that JBC adopts an effective communication plan to make the strategies known to all stakeholders. A committee can be formed by the management. This committee shall be expected to explain the changes, plans and strategies to all people who enquire or who need to be enlightened on the strategies. The committee shall also take any views and suggestions from the stakeholders and present them to the responsible board for review. The committee shall also be responsible for conveying any information from the management to the stakeholders. This can further be done by scheduling meetings and sending emails whenever needed. Corporate governance mechanisms and leadership effectiveness Corporate governance mechanisms are methods, systems and strategies by which corporate companies are controlled. They put clear the rules and protocols to be followed when decisions are to be made in a company. Some of the mechanisms include the use of a board of governors, internal controls and balancing power (Boubaker, Nguyen and Nguten, 2012). Board of governors and internal controls are two of the mechanisms used in JCB. The use of the two has been very successful. The board of governors ensures that the interests of the stakeholders and external investors are observed. The board in the company is comprised of individuals who are not employees or investors in the company. The internal control ensures that all procedures and rules that are laid out by the company are followed by all individuals. They ensure that the rules to be followed in hiring and firing, retrenchment or promotions are followed. These mechanisms have reduced the managerial costs that the company could have incurred. They have also been effective in minimizing wastage and promoting transparency. The leadership within JCB has been termed by many as being exemplary and one to be emulated by many companies. The corporations leadership can however be improved if it incorporates leaders from the host countries in the leadership team. The expatriates should be included in the management team and these further increases the chances of business operating with less government and policy interference. The company has also been recorded as one of the companies which strive in developing the society, apart from providing employment for people in all countries where it has operations; the company also contributes towards the growth and development of the society. One example that illustrates this is from its campaign for environmentally clean societies. The company advocates for people to adopt environmentally friendly practices and this has been very successful. References Bohm, A. (2009). The SWOT analysis. London: Grin Verlag. Boubaker, S., Nguyen, B., & Nguyen, D. (2012). Corporate governance: Recent developments and new trends. New York: Springer. CNBC. (2013). Heavy construction market: Global trends and forecast to 2018.CNBC.COM. Retrieved from JCB.CO.UK (2014).Company information-About us. JCB.CO.UK. Retrieved from < http://www.jcb.co.uk/About.aspxv> Porter, M. (2008). Competitive strategy: Techniques for analyzing industries and competitors. New York: Simon and Schuster. 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