Jaguar Land Rover - Strategy to expand in China
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Business in China Practical Work June 2011 | Practical work numbers: 10544, 10577, 10731, and 10556 OWN WORK DECLARATION FOR PRACTICAL WORK (electronic upload) We hereby certify that the following piece of work complies with the Own Work Declaration form already issued and with the University's Rules and Regulations relating to plagiarism and collusion, as listed in the Essential Information for Students and the MBA Course Handbook. Industry and Competitive Landscape The market for premium cars in China, estimated to be 400,000 units, accounts for only 7 per cent of the total passenger vehicle market in the nation much lower than 15 to 20 per cent in developed economies. The segment however is experiencing massive growth. It is expected to grow by 100 per cent by 2015 and further reach 1.4 million units by 20201. The main factors driving the growth are the increase in income of the Chinese consumers as well as shift in socio-cultural factors. In 2009, there were 477,000 millionaires in China as opposed to 2.9 million in the United States. However, 206 of every 1000 Chinese millionaires bought a super-luxury car while only 78 per 1000 did in US2. As the figure represents, there is a greater propensity to spend money on premium cars in China. A premium car represents a milestone in a (mostly young and typically from real estate, finance and mining and export businesses) Chinese's life and uplifts his social standing. The market is expected to further grow disproportionately with the rise of Chinese elite. For reference, it is expected that 3.5 million people in China will have the financial means to buy a premium car by 2015 up from 1.8 million today.
The below PESTEL analysis summarizes the current trends and characteristics of the Chinese automotive market. Hurdles and Obstacles The Automotive Sector in China is the second largest Contributor to GDP. The industry is dominated by foreign car manufacturers. In addition, the domestic auto manufacturers are highly fragmented. China is fast becoming the largest market for most of the luxury car manufacturers including BMW, Rolls Royce, and Mercedes etc. In 2011, for Jaguar-Land Rover, China became the third largest market for its cars. Although a lucrative market, it has up till now been mainly exporting cars to China. In order to make use of this opportunity it makes sense for the company to manufacture in the country. Their intent is also clear in that respect. However manufacturing and selling in china also throws challenges. 1. Form of Investment Chinese Government insists on any foreign car manufacturer to own only up to 50% of the company6. This limits the flexibility of the firm to make independent decisions. It also leads to sharing of technology which most companies are afraid to. A lot of knock offs are already being sold in China. Sharing of technology may lead to increase in competitors in the future. A disadvantage of this form of FDI is protecting their patented technology under the current technology transfer requirements to local partners that China has. For instance, in the 90's, Audi's partner launched the Red Flag sedan, which was similar to the Audi 5000. 2. Local Component Requirement There are more than 1000 component manufacturers in China. They lack in technology and efficiency due to their smaller scale. On the other hand the government encourages local component use by imposing favorable tariffs for use of local components.
Leveraging the differentiated brand image- JLR is a late entrant after Daimler, BMW, Audi and Lexus; however, the Chinese consumers are looking for a brand that is different. JLR is less commonly seen and therefore will become a compelling reason for consumers to choose it. Its marketing strategy- choice of channels, ambassadors, sponsored events are vital to leverage on this and maintain the exclusive image. Riding on its increased popularity from the success of its new launches in Europe and US and acclaim from auto analysts in last two years, JLR will get better brand acceptance in China. 6. Effective relations with state- JLR has to ensure that it understands the structure of the state and its working. It has to maintain relationships at every level of the concerned government authorities. This is necessary to get the necessary grants and permissions to carry out its business. For it to form a JV, it needs the approval of the relevant government authority. The local government also affects the business through taxes, audits, ad-hoc fees and approvals. E.g. Volvo maintained a great relationship with the state official right throughout in its construction equipment business.18 1http://site.securities.com/doc.html?pc=CN&doc_id=273811091&auto=1&query=Audi%3A&db=en_1y_d&hlc=en&range=365&sort_by=Relevance 2http://site.securities.com/doc.html?pc=CN&doc_id=278397089&auto=1&query=premium%3Acar%3A&db=en_1y_d&hlc=en&range=365&sort_by=Relevance 3 http://www.worldcarfans.com/110102229131/audi-bmw-and-mercedes-dominate-premium-sector-in-china#ixzz1OJgCgmVr 4 http://www.daimler.com/Projects/c2c/channel/documents/2019069_MB_China_Ltd_May_2011.pdf 5 http://www.daimler.com/Projects/c2c/channel/documents/2019069_MB_China_Ltd_May_2011.pdf 6http://www.linklaters.com/News/LatestHotTopics/2011/Pages/China_New_Foreign_Investment_Catalogue_Released.aspx 7 http://www.kpmg.de/docs/Momentum_auto_components.pdf 8 http://factsanddetails.com/china.php?itemid=360&catid=9&subcatid=61 9 http://www.dailymotion.com/video/xfk9di_the-keys-to-china-s-luxury-car-market_news 10 http://knowledge.wharton.upenn.edu/papers/download/BCG_SpecialReport2.pdf 11 Jaguar Land Rover Expands its presence in China - 25th April 2011 Shanghai Daily 12 Craze for luxury cars in China, hope for automakers but consumption mentality called flawed 3rd May 2011Xinhua Business Weekly Copyright 2011, Xinhua News Agency. 13 http://www.china.org.cn/business/2011-04/25/content_22433200.htm 14 http://www.china.org.cn/business/2011-04/25/content_22433200.htm 15 http://www.autocar.co.uk/News/NewsArticle/AllCars/255353/ 16 Relationship Mapping - Qi Tang 17 JLR to open sales firm in China to push volumes - 19th June 2010 Press Trust of India. 18 Brief Note on Chinese Construction Equipment Engineering Industry by Dry Eric Thune April 2011. ?? ?? ?? ??
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