Land Rover and its Business System - Case Study Example

LAND ROVER- STRATEGIC MARKETING AND PLANNING Table of Contents Background 3 Strategically View point 4 PESTEL Analysis: 5 Porter five force’s model 7 Evaluation of stockholders 8 Value adding activities 9 Company analysis 10 Background note Land Rover, a leading car manufacturer is famous for its SUVs, Multipurpose vehicles all over the world. The company works from Solihull, West Midlands, and UK. It has the operation in United States, Middle East, UK, Russia, Italy, Australia, France, South Africa, Belgium, Canada, Spain, and Deutschland. The Land Rover cars are exported to over 160 countries. It has the global brands like Range rover, Range rover sport, Discovery 3, Freelander 2, Defender and presently the company is working on LRX Concept. Land Rover has a range of four-wheel drives under the succession of owners including British Leyland, British Aerospace, BMW and Ford. Now finally the Land Rover is working under the hands of Tata Motors from 2008. (Land Rover confirms grant offer to build new model, March 2009) (Land Rover Company Profile, April, 2009). At present the company is all set to start its revolutionary project of making the smallest, lightest and most fuel efficient car that Land Rover has ever built, based on the LRX concept vehicle displayed in the auto show at Detroit last year. The project has got the grand welcome by the UK government by a stimulus package of £27 million in the month of April, as a support to the UK auto industry whose sales has gone down by 30% in the second half of 2008 and as per the analysis report the situation is yet take some more time to get back to the same level. Phil Popham, the managing director of Land Rover, said: "At the moment we are planning on the assumption that it will be a couple of years before the industry starts to improve drastically, and may be five years before returning to the pre-credit crunch trends we were seeing globally in the motor industry." (Arnott S., April 2009). The project is going to be cost around £400 million and is to be started by the year end in Halewood, on Merseyside. The project is primarily taken up due to the shift of the global auto industry towards green cars to check the global warming and also is a part of raising efforts towards making more fuel efficient and cost effective cars. The prevailing economic recession which has made consumers more cautious about their spending and other related factors have driven the demand for lighter, relatively low priced, fuel efficient and environment friendly cars. Under European law, auto makers have to cut carbon emission of new vehicles by 19% within a period of five years (Arnott S., April 2009). But, Jaguar-Land Rover under sustainability programme is expecting to cut the same by 25%. (Arnott S., April 2009). The parent company of Land Rover has already taken the initiative to make the world’s lowest cost car “Nano” (Scanlon J., March 2009). Now it’s the turn for JLR to capture the niche market of low cost car segment, it is their turn to convert themselves from the most environment unfriendly car makers to the status of ‘Climate friendly manufacturer’. Strategically View point Auto giants from all over the world are facing their toughest time in the recent years and the prediction for next 2-3 years is also not good. With financial crisis fuelled by subprime and credit crisis along with instable oil prices the consumers are shifting their buying trend towards those cars which give more mileage and also are cost effective. The business’ trend is towards cutting down costs in all form to compensate the fall in revenue and profit margin. Land Rover is also not an exception among that list; the sales have come down for the company. The company has taken steps through policies like pay freeze with the consideration of unions, avoiding inventory pile up conditions , cutting double shifts to single shift in all plants (Jaguar Land Rover cuts jobs at British plants, January 2009). A considerable amount of money has been saved in due course of these measures. And the company firmly believes that only a new product can excite new customers to buy the again. Due to this the reason Land Rover does not want to take its eyes off from investing in new projects which it believes are promising for the company. Land Rover’ idea to go for the green car is just the outcome of their strong belief in this strategic vision. SWOT analysis: Strength 1. e_Terrain Technological strategy to reduce carbon emission (Griffiths J., March 2009) 2. Ability to produce high quality, durable cars 3. Tata Motors, Land Rover’s parent company is already into this segment 4. Strong brand equity 5. Technological support by Ford as per the agreement during JLR-Tata Motors Deal (kiley D., June 2002) Weakness 1. The image of making High cost cars petrol guzzling cars 2. The status of high carbon emissive manufacturer 3. Strong association of the brand with SUVs and MUVs Opportunity 1. The market is still comparatively unexplored and under developed 2. The steel price has fallen a lot 3. Demand curve for customers are shifting towards environment friendly cars 4. Less number of competitors 5. Market potential is very high (Webster B., January 2008) Threat 1. Lot of new players are on the verge of entering into the market 2. Industry behavior is not certain PESTEL Analysis: Political The UK car industry has faced the largest downturn for the past decades. In fact the car sales have slowed down by 30.5% in March this year (UK car sales 30.5% lower in March, April 2009).The industry is more or less shifting towards the stage on consolidation. The government of UK has recently announced a stimulus package of £2.3bn to be spending over four years to revive the auto industry, creating more jobs (Murichie K., January 2009). £27m package to Land Rover is just the initiation of that. On successful launching of the project, the government is going to support the green car manufacturers a lot. So, there lies a huge political support at present. Economical The whistle of economic is blowing all around the world. The housing buddle burst, crude oil touching 150$ per barrel (Conway E., and Quinn J., September 2008), forex losses had made the companies worldwide to face the severe financial turmoil and consequences of the credit crunch. The revenues have shrunk which has lead to major job cuts, salary freezing, shutting down of plants and even bankruptcies. The UK economy is increasing at a slow rate or even facing a slowdown. Even after almost one and half years, the scenario is still not clear. In this kind of economic downturn green cars are expected to make a great start, if they are made considering the cost effective factor and their environment friendly nature. Customer’s inclination towards spending less money and her concern for the causes like global warming is a factor of confidence behind projects like these. (Simms A., et. Al. March 2009) Social: The petrol and diesel cars are responsible for a lot of contamination of the atmosphere in the form of toxic exhaust by these cars. Experts predict that this would cause climate to be unstable and that would lead to social and environmental instability. As an obligation towards the society, the people have become more environment conscious. Green car, in this kind of scenario is going to get great appeal because it will help the people to fulfil their need to get more environment friendly which is a social pertinent too. Green car will also get a warm welcome from environment conscious NGO’s. Technology A great amount of technological know how is required to launch green cars. As the manufacturers have to make a trade off between the price, the fuel efficiency and quality as well, they have to be very careful in choosing the technology. Land Rover certainly has good technology to make robust cars suitable for almost every condition and places but it has also got somewhat of a bad name by producing petrol guzzling big SUVs and MUVs (Greenpeace launches first national day of action against gas-guzzling 4x4s across the UK, June 2005) The company would have to be prudent in its choice of technology for this new car to make this venture a success. On the other hand its joint parent body TATA motors and the deal with FORD with ensure that it has access to low cost but high technology in the sphere of producing low cost eco friendly cars ( Suttie a., n.d.,). Environmental Wit each passing year glaciers are melting giving rise to rising sea water level which would eventually endanger human habitat. To control or to reduce this phenomenon, eco friendly cars are the need of the hour. Legal Under European law the automakers have to reduce the C02 emission by 15% within 5 years. Failure is likely to drive legal consequence against the concerned party, depending upon the extent of the offense. These norms are going to augment the search for better technologies to reduce the emission. For that the companies may put more emphasis on developing a better green car which would result in bringing down overall emission of a manufacturer. Porter five force’s model (CSUEB College of Business and Economics, n.d.) Threat of new entry The idea of green car has been introduced much before, but still the market is not yet developed. The green manufacturing requires a lot of technological knowhow, because the task of making a fuel efficient, environment friendly car with great performance is not easy. Here the C02 emission is to be replaced by a better option which won’t be responsible for global warming. A lot of research work is to be carried out before actually getting into the task of manufacturing. This is also a highly capital segment too. A lot of global car makers find it difficult to completely shift their vision from fossil fuel based cars to this new technology and so the threat of new entrants is present but is comparatively lower. Bargaining power of buyers The green car segment is just in the nascent stage with very few cars in the market and lot many are yet to be set forth. The cars which are there in the market are not very cost effective, but not getting much option the consumers are opting for those cars only. The situation is that there lot many buyers who want to opt for an efficient green car but the market has only limited number of cars. So, the bargaining power of buyers is low. Power of suppliers The green cars need a lot of technological support to make it an efficient one. If the manufacturer is well capable of accessing these high technology on their own then it will be a great thing. But, it is not practically possible. This is the reason the manufacturers have to bank upon suppliers a lot. Due, to the complexities of the technologies the suppliers will always have an upper hand than manufacturers. And outsourcing some of the technologies can reduce the cost incurred by the manufacturers also. Threat of Substitutes The green cars can be manufactured which will have engines based on energy sources like; hydrogen, bio fuel, electric or battery. The cleanest car can be produced using battery as the fuel source. The substitute will depend not only on the performance but also on basis of type of fuel used. But the market is yet to get a lot of cars in the near future. Due to the lack of number of manufacturers, the threat of substitutes will be very low. Rivalry among existing competitors The industry has seen a bit of existing players like Toyota Prius, Civic Hybrid and others which have excited the consumers (With hybrids accepted, automakers focus on driving down price, 2009). A lot of players have already taken their initiatives into green car segment. In this time of economic doom every car maker has seen its revenue has coming down (except a few), this is the reason they are keen to explore this new market. At present, the competition is lean and in the near future with development of market the competition is going to be intense in the form of pricing, technologies and all other aspects involved in the project. Evaluation of stockholders Consumers The green cars with greater fuel efficiency, high cost effectiveness and being environment friendly in nature are almost dream products for any consumer in the world. With the launch of these kinds of products consumers are surely to get inclined towards them. During times of economic slowdown consumers would surely like products like these. And more players into the segment will make their bargaining power more intense. Shareholders With the successful launch and better performance of the car the company is going to book a huge amount of profit out of it. This will eventually raise the brand value of the manufacturer and suppliers and the positive impact of this is surely going to be fall upon the share price of the company in the form of better return. The possibility of dividend and other share benefits are also high. So this will help the shareholders to increase their wealth. But the reverse may be true if the product is a failure. And the shareholders will lose a lot of their money in terms of opportunity cost due to this. Suppliers The firm which is going to supply parts or technologies to the manufacturer will improve the profit to a great extent. Not only because of their rise in revenue but also due to the fact they can take the advantage of least number of rivals which means they can focus more on their competitive advantage. They can also charge high prices for their supply. If the suppliers are fail to maintain their competency then they will lose much of their revenue as new suppliers will be there to capture the market and will imitate their technologies. Government UK Government has launched a stimulus package for the auto industry (Automotive Industry, April 2009). The grant towards the green car of Land Rover is just a fraction. If the company can successfully launch the product and also can give good after sales performance, then the revenue of this car will surely excite other players to enter into the market. And with the rise of government’s confidence the segment can expect further backing in the near future. But, with the failure of green car, government will not be willing to put more funds into this segment. Because in this period of economic recession where government has tightened its monetary belt to revive the economy at any cost, with the failure of any segment the focus will be automatically shifted to other areas. Value adding activities There is a lot of value adding activities as compared to fuel cars that are possible in this project :- Factors Fuel Car Green Car (Land Rover) C02 emission 198gm C02/km (mid size) Zero level is possible Weight 300 kg kerb weight (no set limit) Lightest land rover car Cost No set limit Much cheaper than other models Energy Cost Depends upon crude oil Likely to be lower cost /km Power consumption High BHP is needed Low power is sufficient Engine life Low High Fuel level Petroleum is depleting Alternative energy source is renewable Source : (Austin D. and Sauer A., 2003) Company analysis The estimated cost projection for this green car project is £400 million and the government is backing with £27million. The rest of the money can be easily raised from the company’s past earnings or from Tata Motors. And the interest rate has come drastically down at present date. Manufacturing of almost all Land Rover models are done in UK. Its manufacturing plant at Halewood in Merseyside is an exception, which is shared basis site with Jaguar. In this site Freelander 2 and some models of Jaguar X-Type are produced. Areas like Research and Developments and other functional works are also carried out in UK itself. Some of the works is also carried out at Jaguar R and D centre. So to start of this new product the plant facilities available for the company are situated in UK only. Apart from Halewood plant, other plants are overcrowded with models like Range rover, Range rover sport, Discovery 3, Defender and other variants of Jaguar. This is why company is wants to start its ‘Green Car’ project in its Halewood plant, on Merseyside in the latter half of the year. 2000 people have been employed and the plant is yet to receive the JD Power Gold Standard. Technology has a very vital role in this type of projects. Regarding the technological side Land Rover has already developed a LRX concept model car which is a hybrid car which will be much more fuel efficient than the existing products. Tata Motors can also help in the development process since it has the experience of making world’s lowest cost car “Nano”. Land Rover can take the help of Tata Motors to import cheap and effective body parts of the car, which will reduce the cost. The last task would be meeting Euro Norms and other pollution norms, that are to be followed with utmost precision. If the proposed Green car of Land Rover can show strict adherence to above mentioned factors and is launched in the market with proper marketing strategies, then it can be said that this product is going to make a mark for itself in the market in terms of market share, revenue and profitability too. The successful launch of the car will promote Land Rover from an environment unfriendly car maker to a brand which can well take care of environmental concerns and the economic condition of people. It will further confirm its commitment to reduce the CO2 level. It can be a leap forward for Land Rover towards Corporate Social Responsibility which can drive the value of the organization positively. This will also be a driving factor for its increased Brand Value. (Our sustainability report 2007/2008, n.d.) Reference Land Rover confirms grant offer to build new model, March 2009, Corporate news, [Online], Available: http://www.landrover.com/int/en/about-us/latest-news/Corporate_News.htm [April 19, 2009] Land Rover Company Profile, April, 2009, Yahoo! 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