Analysis of Jaguar CaseDetermination of the Strategic Position

Question:Perform a strategic analysis for Jaguar in the context of the international market for luxury carsRecommend a suitable strategy(ies) for Jaguar

How to approach this?Read case thoroughlyUse strategic planning framework to analyze caseNext: to write out the case: can again use strategic planning framework to document your analysis and suggested strategy(ies)

Basic Planning ProcessMissions and GoalsExternal Analysis - Opportunities and ThreatsInternal Analysis - Strengths and WeaknessesSelection of Appropriate StrategiesImplementation of StrategiesStrategic Planning A Basic Planning Model

External Environmental Analysis - PESTGovernments golden share (designed to prevent takeover) to end 1990British industry highly unionized; many different unions

External Environmental Analysis - PESTEconomic developments have led to major upturn in demand for luxury carsOil prices/interest rates low; standard of living improvements; low cost of capitalExchange rate fluctuationsCar manufacturing capital intensive

External Environmental Analysis - PESTMove towards environmentally friendly carsConscience factor - not to be seen to be flaunting wealth

External Environmental Analysis - PESTCar manufacturers with broader ranges exploiting technical/engineering meritsNew technologies not solely the domain of original innovators - available to competitorsTechnological diversification (i.e., aerospace industry) produced spinoffs for car industry

External Environmental Analysis - PEST (Others)Legal:Legislation move in US - remove tax deductible status for cars > $21,000Japan opening upNew emmision standards in EuropeSuppliers:Improvement of Jaguars suppliers qualityJoint venture with GKN Sankey to produce body pressings instead of buying from Rover - Backward integration?

External Environmental Analysis - PEST (Others)Customers:Customers of luxury cars mostly wealthy - want to make fashion statementCustomers expect quality, service & excellenceCompetitors:Mercedes, Porsche & BMW main competitors in luxury sector (Cadillac & Lincoln in US)Acquisitions taking place

Porter: The Five Forces Model Bargaining power ofbuyers

Porters 5 Force Analysis (Structural Analysis)Potential entrants: JapaneseBarriers: Economies of Scale: Large investment reqd; existing players enjoying large economies of scale; also high exit barriers due to high investmentProduct differentiation: customers look for certain attributes in luxury carsCapital requirements: Car makers require large investments; however, interest rates lowAccess to distribution channels: Difficulty by Jaguar in Germany, secured Saibu in Japan, upgrading of distribution channels (divorce themselves from BL)

Porters 5 Force Analysis (Contd)Threat of SubstitutesOther forms of transportVolume car manufacturers (what is a luxury car?)Fashion statement through other means - Condo, etc

Porters 5 Force Analysis (Contd)Power of Buyers & Sellers: Buyers demanding excellence, quality & serviceAppears to be no forward/backward integration (except parts). However horizontal integration through acquisitions

Porters 5 Force Analysis (Contd)Competitive Rivalry:Appears low in the luxury cars? Mercedes & BMW in Europe; Lincoln & Cadillac in USDifferent cars appeal to different people

SWOT AnalysisStrengths:Quality/culture identityHistory of culture (Pre-BL Years)Image of luxuryRe-entry into international car racesUpgraded distribution channelsArrangement with SEIBU

SWOT (Contd)Weaknesses:Small car rangeEngineering/R&D disadvantageUNION problemsDealership network in GermanyJaguar unable to radically alter designNo economies of scale

SWOT (Contd)Opportunities:Economic growthJapanese market opening upNew technology readily availableUS$ exchange rate vis--vis DM

SWOT (Contd)Threats:Competition from Mercedes, Porsche & BMWJapanese may try to enter marketSubstitutes - what is a luxury car?US$ exchange rate fluctuationsUS legislationGovernments golden shareEnvironmental pressures

Strategic Planning - Written PresentationHaving 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 argumentsSWOT, PEST, Porters Analysis go into AppendicesOne such way of documentation presented in the next few slides

Sum up External EnvironmentLate 1980s a period of economic recovery with increase in demand for luxury vehicles, oil prices down and interest rates lowMore specifically, competition for Jaguar from Mercedes, BMW and Porsche in Europe (especially from Germany), and from Cadillac and Lincoln in the USFewer players in luxury market - less intensive competitive rivalry (Jaguar not in good position vis--vis competitors, Japan to enter market). Adverse currency movements (Jaguars hedging in the right direction) and Governments Golden share due; US regulations.Threat from volume manufacturers who appeared to be able to match luxury cars on product attributes

Sum Up StrengthsJaguar successfully recreated quality cultureJaguar taken on market orientation - customers paramountEgans heart and minds approach - increased productivityJaguar upgraded distribution channels in various countries Features in Jaguar cars not found in German makes - image of luxuryBoosted image: entered LeMans

Sum Up WeaknessesDistribution channel in GermanySmaller range of vehicles compared to competitorsCould 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

Jaguars Present Strategy Want to Grow Reduce dependence on US market - though most profitable, adverse currency movements and legislation seen as threatsWant to increase in Germany and enter JapanImprove quality and dealer networksIncrease range of cars producedDiversification (consultancy) and want to spend more on R & D

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)

Proposed Strategy (contd)Strategic Direction: market development and consolidation rather than product development (keep the small range; dont go into consultancy, R&D).Market development: China, HK, Taiwan & Singapore, oil rich SEA countries and MEConsolidate in US and UKHowever, Jaguar needs to continue to lower costs, improve quality and productivity (to support main strategies, and to forestall takeover after Governments golden share

Some RatiosJaguar appears to generate enough profits to fund market development; Profits before tax increased 685% from 1980-1987However, 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

So what happened to Jaguar?When Governments 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.Sexchange rate fluctuations proving difficult. But in mid-late 90s, Jaguar more successful in US. Retro looka 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 reachednew 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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