Impact of Globalisation on the UK Car Manufacturing Sector - Case Study Example

Impact of Globalisation on the UK Car Manufacturing Sector by Student’s Name Code + Course Professor’s Name University Name City Date Impact of Globalisation on the UK Car Manufacturing Sector Executive Summary For the past few decades, the UK car manufacturing sector has undergone a complete transformation. The UK government and the automobile industry committed a long-term engagement in 2009 with immediate formation of the Automotive Council. The manufacturing sector is the 3rd biggest contributor of the total GDP with an average contribution of 11 percent revenue. Out of the 11%, the car production industry accounts for 2/3 with a yearly turnover of about ₤60 billion. Possibly, the UK car manufacturing sector has been influenced by changes in the global automobile industry as a result of globalization. There has been improved transport infrastructure, expansion in information and communication technology and considerable advancement in the abolition of tariff and non-tariff barriers. Introduction The UK automotive industry has undergone significant changes over that last few decades. According to the report prepared by Monaghan and published in the Guardian Magazine (2014, n.p), over 1.13 million cars were manufactured in all the UK’s industry production lines in 2014. The SMMT, however, confirmed that 1.13 million cars, approximately 0.6% more than a year earlier, was the highest performance since 2008. In September 2014, the productivity in the auto industry fell by 2.8% compared to the previous year, which comes to 137,068 cars. The decline in production affected the number of cars meant for export that were lower at 8.1% or 102,947. However, domestic demand for new cars rose to 17.7 percent, about 34, 121. SMMT alleged that the decline in car production was as a result of planned re-tooling of the factories’ production lines to prepare for model adjustments. Findings The Current UK Car Industry; Jaguar and Land Rover: With the UK government aiming at rebalancing the economy, state regulations have led to a decline in the company sales. The car manufacturing sector only grew by 0.2% in the second quarter of 2014. The Tata Company uses the aircraft technology in its operations. In 2009, the merger recorded extremely high sales that translated into bumper profits and implied an optimistic future for investors. The 2008 financial crisis that lasted until mid-2009 compelled customers to freeze considerable income purchases especially new vehicles. After buying JLR from Ford in 2008 at the price of ₤1.2billion, the company incurred a loss of ₤376million in the sales of about ₤4.45billion in the following year. The company sought government aid, but its bid was rejected. Tata staggered financially and almost shut down some of its branches but it made a serious decision to invest. This was the turnaround for JLR Company in 2009. According to analysts and competitors, as reported by the New York Times magazine, the turnaround was likened to Tata’s financial reserves that assisted the company to manage through tough times. The merger company also made a wise decision to give independence to its managers in England. According to a report published by Telegraph in the UK by Ronald Gribben (2013, n.p), the sales for the company were up by approximately 100,000 cars up to 360,000 cars. Out of these cars, 80% were produced outside the UK and were majorly due to the impressive performance of the Land Rover factory over this period. Gribben reported that the sales of Jaguar dropped by 12,000 cars, and thus the company just managed to sell 54,000 cars by last year. Discussion The global drivers that enhanced the success of Jaguar Land Rover merger include cultural and technological factors and are analyzed as below; Cultural Factors: The change of ownership in a merger has little impact on the changing culture of the parent companies; Jaguar and Land Rover. TATA is an Indian company and its acquisition of JLR companies based in the UK implied a significant cultural challenge to the management. The two countries have considerable differences in culture and religion. As a way of avoiding a collision of these two diverging cultures, the Indian owners allowed the existing management style of JLR to proceed. After acquiring the two companies, TATA’s management style experienced several effects as a result of the change of ownership. First and foremost, TATA resolved not to distort the existing management structure and continue to work with the national UK managers. The new owner did not attempt to impose Indian executives on JLR and allowed all fundamental staffs to retain their positions. Therefore, JLR received immeasurable boost from the positive influences of globalisation to cultural diversity despite that internationalization comes along with significant negative impacts. TATA had to work much harder to understand Jaguar and Land Rover’s distinctive motoring tradition and business culture but not just being familiar with British business culture. Since JLR was previously owned by Ford, an American Company, it was very easy for the merger to understand and quickly integrate the new and challenging Indian culture. The previous company structure was previously founded on US business culture, an international culture hence, the management had enough experience. The company was able to uphold clear and open communication channels with all the personnel. Technological Impact on JLR: Evidently, technological, policy, organizational, and cultural development lead to globalisation, (Yueh 2011, p.303). The success of Jaguar Land Rover over the years received much boost from the advanced design, engineering and technological advancement. The company ventures more in research and development over any other manufacturing factory in Britain. As a result, the company has enabled hundreds of thousands of engineers to establish and progress world-class technological innovations. The company’s breakthroughs in technology have enabled it to produce more advanced and better-performing cars, minimize its harm to the ecosystem and motivate more customers. A team of experienced world-class designers, engineers, and manufacturing specialists enhances JLR’s technological development because they ensure that every Jaguar or Land Rover vehicle produced is innovative and desirable by clients across borders. Influence from Foreign Markets: China and India: Jaguar Land Rover company has enjoyed much success trading their brands in China. More than 80% of JLR product sales are exported to overseas markets with China taking over the UK as the JLR’s biggest market in 2012. Sales from the JLR brands in the Chinese market grew by 71% in 2012, which translated to about 72,000 vehicles. In the year 2013, the sales of JLR brands in the China market rose to 90,000 vehicles. China imports already assembled vehicles due to high import tariffs in Beijing, Shanghai and other showrooms such as Tier 1 and 2 implying that the price is twice in China compared with the UK price of similar JLR brands. JLR established a foothold in the Chinese market by building a fully-owned National Sales Company in July 2010 to enhance the development of dealer networks in China. JLR then entered into a business deal with Chery Automobile scheduled for construction near Shanghai and ready for opening in 2015. This joint venture would facilitate JLR access to a vast and much developed dealer networks all over China, and it currently has about 150 dealers developed cities of China. Although JLR brands are assembled in China, consumers hold much preference for UK-based vehicles. JLR merger anticipates its sales in the Chinese market to double more than 2.5 million by 2020. According to a financial report published by Morningstar magazine (2014, n.p), beginning a peak of 26% in sales in 2008, TATA’s share of total sales of vehicles in the Indian market has dropped to 17% in 2014. The decline in sales was explained by a decrease in passenger car share in the Indian automobile market. The proportion of cars fell because TATA took long to launch new models compared to its competitors, deregulation of diesel prices affecting its fuel range. Faster growth in the sales of motorcycles overtook the sales of passenger vehicles in the struggling Indian economy. Despite a decline in total sales in the domestic market, TATA recorded an increase in sales in the India in the subsequent quarter reported on May 29, 2014. Revenues from sales rose to 23% compared to the previous year, which translate to about $39.46 billion. Cultural and Ethical Issues Associated with Overseas Production: Companies usually operate under a common culture in a local country. However, when they engage in foreign production, significant number of customers come from a culture with different values, (Crane & Matten 2010, p.20). For this reason, the company must decide the extent to which it will honor foreign market practices while at the same time preserve core ethical and social principles that it cannot compromise. Firms that engage in overseas production typically create local operations across borders with routine practices that the home country would consider as illegal. Possible cultural and ethical issues that might emerge include providing safe work environment, minimizing environmental damage, reimburse living salaries, and stick to contractual agreements. Sometimes, companies opting to produce overseas might be required to resolve free-speech issues, for example, freedom of expression. The foreign country could impose sanction to an organization that promotes forbidden communication. Some countries might not allow large sums of money paid to businesses that could be identified as bribes. Furthermore, the foreign government might limit the extent of advertising and how it impacts on the society. In addition, the domestic country might incur extra tax costs that result from tax evasion by the company operating overseas in terms of transfer pricing due to the adoption of a low-tax jurisdiction. Conclusions and Recommendations: Conclusively, TATA has enjoyed a lot of success in the automotive industry since acquiring the JLR merger. Although the company encountered difficulties immediately after the purchase of the two UK-based companies, it has recorded increase in sales over the subsequent years especially its satellite factories in China. There has been improved transport infrastructure, expansion in information and communication technology and considerable advancement in the abolition of tariff and non-tariff barriers. These factors have been crucial to the company’s turnaround in 2008 and the following breakthroughs afterwards. The success of the UK car industry, JLR in particular, can attributed to global factors the enhance globalisation in the manufacturing sector. After purchase the two foreign companies, cultural and technological factors were quite influential to the success of the TATA merger since the purchase. In addition, the sales from its branches situated across international borders boosted its total revenues. The Chinese market is the highest seller of JLR brands while the Indian market has been downswings and upswings. In order to help JLR to improve its performance both locally and internationally, it should consider the following recommendations. JLR should outsource all forms of resources including labour, technology and raw materials in order to boost the quality of brands and creativity. The company should involve external cultures so as to promote diversity within the organization. Diversity will promote product varieties that conform with customer needs. With the ever changing innovations and technologies, the company should appoint a task team tasked with the roles of designing new applications that will help to keep the company in the frontline technologically. JLR Company should promote local UK sales by reducing the total prices that it sells it brands. Perhaps, the company should discriminate among the distinct class of buyers based on prices. Finally, JLR Company should adopt these recommendations in order ensure augmented sales and high revenues. Reference List Bajaj, V. (2012). Tata Motors Finds Success in Jaguar Land Rover. The New York Times Magazine, [online] p.n.p. Available at: http://www.nytimes.com/2012/08/31/business/global/tata-motors-finds-success-in-jaguar-land-rover.html?_r=1&module=ArrowsNav&contentCollection=Global%20Business&action=keypress®ion=FixedLeft&pgtype=article [Accessed 23 Mar. 2015]. CRANE, A., & MATTEN, D. (2010). Business ethics: managing corporate citizenship and sustainability in the age of globalization. Oxford [u.a.], Oxford Univ. Press. p.20 DLABAY, L. R., & SCOTT, J. C. (2011). International business. Australia, South-Western Cengage Learning. p.97-98 YUEH, L. Y. (2009). The law and economics of globalisation: new challenges for a world in flux. Cheltenham, UK, Edward Elgar. Jain, P. (2014). Tata is well-positioned to gain from the growth of luxury vehicles in emerging economies. The Morningstar, [online] p.n.p. Available at: http://analysisreport.morningstar.com/stock/research?t=TTM®ion=USA&culture=en-US&productcode=MLE [Accessed 23 Mar. 2015]. Read More