ASSIGNMENT 1 (30% of module)
Su Weiping marches into Beijing’s biggest Jaguar Land Rover showroom wearing a thick
gold chain and an ear-to-ear grin. “I’ve bought this one,” said the 58-year-old
businessman, pointing to a bright red Discovery Sport. He has just laid down 408,000 yuan
(£42,000) for the British off-roader. “It’s for my daughter. She loves this brand!” Su said, as
he inspected his purchase. “Everyone dreams of having one.” Selling the western
consumer dream to the freshly minted middle class in China has helped propel Jaguar
Land Rover’s (JLR) sales in the country from just a few hundred vehicles a decade ago to
tens of thousands a year.
That success prompted JLR to open its first factory in China last year in a £1bn joint
venture with state-owned carmaker Chery to capitalise on the burgeoning appetite for its
range of 4x4s, luxury saloons and sports cars.But more recently, sales of its upmarket
“Chelsea tractors” have begun to slow dramatically in line with a slowdown in the Chinese
economy.
China was still JLR’s fastest growing market in 2014. However, as Beijing attempts to shift
the country from an export-led economy to a more western-style consumer and servicesled one, it has not been plain sailing.China’s economy grew at an annual rate of 6.9% in
the third quarter of 2015, the slowest since the global financial crisis. That was well below
the 11.7% rates the country was achieving during the industrial boom years of 2003 to
2007. It is also below Beijing’s official 7% target. With less cash sloshing around the
economy, consumers have applied the brakes on spending. To compound matters, the
JLR was hit by a one-off charge of £245m to cover the cost of a chemical explosion at
Tianjin port in August, which damaged or destroyed up to 5,800 of its vehicles.
In November, the carmaker warned that this year’s pre-tax profits would be lower than last,
owing to some large investments in the business and losses from the explosion. It also
launched a review of its costs that could lead to £4.5bn of spending being cut.
JLR posted a pre-tax loss of £157m for the second quarter of 2015/16, hurt by falling sales
in China and weighed down by the blast charge. It also led Tata Motors, JLR’s Indian
parent company, to record a net loss for the period. Ralf Speth , chief executive of JLR,
has said he does not expect to match the £2.61bn pre-tax profit the British carmaker made
in 2014-15. “We will have this year a lower profit number than last year,” he said. “It’s
[because of] the investments number and this … very special event in China.”
JLR directly employs 37,000 people worldwide. In addition, 210,000 UK jobs are supported
through the supply chain and wider economy. It has factories in Halewood near Liverpool,
and in the West Midlands at Castle Bromwich, Solihull and Wolverhampton, where it has a
new engine manufacturing centre that JLR has committed to double in size, taking its
investment in the factory to £1bn. The carmaker is unrecognisable from the business that
Ford sold for £1.15bn in 2008 to Tata Group, the Indian conglomerate that also owns
Tetley and the former Corus steelmaker.
Under Tata, JLR has more than doubled staff numbers, opened new manufacturing plants
and launched a range of new vehicles.The popularity of its Evoque and Range Rover offroaders in the US and Russia as well as China has underpinned more than £11bn of
investments by JLR over the past five years.
As well as rebuilding its UK manufacturing base, JLR has opened overseas factories to
keep pace with demand. Besides China, it also produces vehicles in the conglomerate’s
home country India and is to begin production in Brazil next year. It has also agreed to
build a £1bn plant in western Slovakia, which will employ about 2,800 people and produce
up to 300,000 vehicles over the next decade.
In the first half of JLR’s current financial year, China accounted for 18.7% of net retail
sales, compared with 27.7% in the same period a year ago. As sales fall in the world’s
second biggest economy, the carmaker has moved up a gear in other regions. In
November, it sold 46,547 Jaguars and Land Rovers worldwide. The company sold 313,205
vehicles in the first eight months of the current financial year – up 6% on the same period a
year ago. Sales have soared 23% in the UK, 35% in the rest of Europe and 28% in North
America. But in China they are down 28% so far this year. The softer economy is making it
tougher for Jiang Tongbing, marketing director at China’s flagship JLR store in Beijing, to
drum up new business. He fondly recalls the showroom almost doubling sales in the four
years between 2009 and 2014. “In 2013, we sold about 1,500 vehicles, compared with
around 800 in 2009,” he said. Jiang reckons this boom in interest in the British marque
was the result of its association with the British royal family. The royal link grabbed the
attention of wealthy Chinese customers.
“If something is of the royal standard, it means the quality is credible,” he said. “What’s
more, if it is royal standard, it represents a noble concept of living. It is also a symbol of
your social status. Many businessmen like it.”
At the entrance to Jiang’s swish showroom, customers are welcomed by posters of a
cigar-smoking Winston Churchill and the Queen Mother, standing beside Land Rovers. But
even the royal connection is not enough to keep sales motoring now that China’s economy
is stuck in second gear. “We are also feeling pressure on the number of sales,” said Jiang,
who expects his showroom to shift 1,800 cars next year – the same number as in 2014.
He is right to be cautious about the outlook, but Speth reckons JLR may be about to turn a
corner in the world’s biggest car market. “We see that growth is coming back to China and
therefore we are cautiously optimistic,” the JLR chief said in November. Whatever the
outcome, nothing can dampen Su’s enthusiasm for the British brand. The businessman
currently drives a BMW, but said his next acquisition would be a Land Rover – for himself
this time.
Source: www.theguardian.com/business/2015/dec/29/jaguar-land-rover-china-figuresforecast
Briefing
You are working for a management consultancy team group specialising in the automobile
industry. JLR have commissioned your team to write a strategic report on the following:
• Discuss the key emerging issues & possible future scenarios in the
global automobile industry (Approx. 1500 words)
• Using appropriate strategic models, critically analyse JLR’s
organisational capabilities & weaknesses. (Approx. 2500 words)
• Devise a series of focused strategic recommendations that can help
the JLR group establish sustainable shareholder growth and value in
the future. (Approx. 1000 words)
Guidance notes:
• A 5000 word report (+/-10%) excluding Executive Summary, References & Appendices
Groups of 4-5 students
• Your team is not just writing a critical analysis but your building own case study through
research
• Further advice will be provided in designated seminars
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