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Analysis of Jaguar Case

Analysis of Jaguar Case. Determination of the Strategic Position. Question:. Perform a strategic analysis for Jaguar in the context of the international market for luxury cars Recommend a suitable strategy(ies) for Jaguar. How to approach this?. Read case thoroughly

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Analysis of Jaguar Case

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

  5. External Environmental Analysis - PEST • Government’s 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 Jaguar’s 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. Risk of entry by potential competitors Rivalry Among Established Firms Bargaining power of suppliers Threat of substitute products Porter: The Five Forces Model Bargaining power of buyers

  12. Porter’s 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. Porter’s 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. Porter’s 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. Porter’s 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 • Government’s 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, Porter’s 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 (Jaguar’s hedging in the right direction) and Government’s 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 • Egan’s 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: enteredLeMans

  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. Jaguar’s 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; don’t 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 Government’s goldenshare

  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 Government’s 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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