Jaguar Land Rover – Strategy to expand in China Essay Example

and high prices acceptable to buyers. Audi, BMW, and Mercedes-Benz accounted for 76% of premium car sales in 2009 with an average growth rate of 30% in 2010. Other luxury players include Ferrari, Aston Martin, Rolls-Royce, Lamborghini and Porsche. Although sales weakened in developed markets, Chinese consumers' demand has attracted several brands to the Chinese market.

The competition to boost sales and market share among Mercedes, BMW, Audi, and Lexus is intense. The retail sales trend for these brands and the market share of the top three players (Mercedes, BMW, and Audi) as well as Lexus reflect this fierce competition. Despite facing challenges in meeting demand, all companies have confirmed their dedication to China by increasing local production, expanding global models, strengthening business expertise, investing in local research and development, and expanding their dealer network. In comparison with other competitors they enjoy advantages like offering customized vehicles at lower prices which has further implications that are detailed below.

Local automotive partnerships in China involve international luxury brands like Audi, BMW, and Mercedes. Audi was the first to produce cars in China and partners with FAW Group, while BMW operates with Brilliance China Automotive Holdings. Mercedes has an agreement with Beijing Auto Industry Company. These partnerships enable these brands to gain local knowledge and avoid high import tariffs, thereby making their cars more accessible and affordable to Chinese consumers.

The automotive industry is catering to diverse consumer profiles by introducing a comprehensive portfolio of models. Companies like Mercedes offer a complete range of vehicles. Additionally, industry leaders are adapting their products and marketing strategies to suit local tastes and preferences. Buyers are looking for stylish designs, color, durability, and

performance. Chinese buyers, in particular, are looking for exclusivity in their cars, as it reflects their social standing. Hence, companies have responded by offering limited editions in the country.

One noteworthy trend in the Chinese automotive market is the substantial proportion of female buyers, constituting nearly 30%. This demographic influences marketing strategies and model choices. Additionally, Chinese companies have not met the high-level standards of established automotive markets like the US and Germany. To bridge this gap, Chinese companies are acquiring foreign assets at discounted prices following the recession.

In March 2010, Geely Holding group acquired Volvo from Ford, as an example. In the early stages of development, the Chinese automotive industry is fragmented with over 150 registered vehicle manufacturers. This environment does not promote stable development for domestic players. The government has proposed to consolidate the industry into two distinct tiers.

The Chinese automotive market is divided into two tiers based on annual capacity: Tier 1 for companies producing over 2 million units and Tier 2 for those making at least 1 million units. With the luxury car sector growing by 10% annually, numerous global manufacturers have set up production facilities in China to avoid high import duties. Luxury vehicles offer a profitable opportunity for all manufacturers seeking to enter this lucrative segment of the market, thanks to their high margins and lower production costs.

As a consequence of the worldwide recession in the automotive industry, non-Chinese corporations have entered the luxury car market in China, leading to elevated competition. Their tactic of investing assets into markets with greater growth potential, like China, has resulted in a significant rise in capital investment and regional allocation within this

market. Given that China represents over half of the projected 4.6% compound annual growth rate in the Asia-Pacific region, it is anticipated that this trend will persist.

To combat the increased pollution from China's expanding vehicle sector, the government introduced a stimulus package in 2009. The main aim was to promote the uptake of eco-friendly and fuel-efficient cars. This involved incentivizing smaller vehicles by reducing sales tax by 50% for those under 1.6 liters while imposing extra taxes on larger models. Moreover, regulations on small car usage were relaxed to encourage their adoption.

Major players in the market, including Mercedes, BMW and Audi, have intentions of introducing their Hybrid models to China. The automotive industry in China holds the position of being the largest car market globally, indicating potential for worldwide growth. Notably, a significant proportion of a car's total cost is attributed to its manufactured components; hence there has been an evident shift towards relocating supplied parts production to China.

China's tax rate reductions on vehicles with engine displacements under 1.6L and fiscal subsidies for rural customers who replace their cars have been made possible due to the benefits of sourcing in China and the Chinese government's initiatives to promote brand equity among local manufacturers. This is especially advantageous for local brand manufacturers that specialize in producing small, compact cars with smaller engine displacements.

China's automotive market has experienced growth and prosperity as a result of the country's economic development and multi-tiered city structure, which has led to significant population migration from rural areas to cities. To examine current trends and attributes of this market, a PESTEL analysis is presented below.

The Automotive Sector in China is

a significant contributor to GDP, ranked second. Despite being dominated by foreign car manufacturers, with highly fragmented domestic companies, it is fast becoming the largest market for luxury car brands such as BMW, Rolls Royce and Mercedes. China ranks as the third largest market for Jaguar-Land Rover cars in 2011 and while it is a lucrative market, exporting cars to China has been the main focus up until now.

For the company to take advantage of the opportunity, it is logical to produce in the country as their intention is evident. Nonetheless, manufacturing and marketing in China presents obstacles, including the Chinese government requiring foreign car makers to possess a maximum of 50% ownership of the company, reducing the firm's autonomy.

The sharing of technology is a potential outcome of this form of FDI, despite the fear of many companies. China already has many knock-offs on the market. However, this technology transfer may also result in increased competition in the future. A drawback is that protecting patented technology can be difficult due to China's current requirements for local partners. In the 90's, for example, Red Flag sedan, a car similar to Audi 5000, was launched by Audi's partner.

China has over 1000 component manufacturers with smaller scales and limited technology and efficiency. However, the government's favorable tariffs for local component use encourage their utilization. Despite plans to enhance industry efficiency and consolidation, Land Rover may face difficulties in procuring necessary components locally. The 11th 5 Year Plan aims to decrease the number of component manufacturers by 70%.

Consolidation among auto component suppliers would lead to an increase in their purchasing power. While it may be more economical to

source components locally due to elevated expenses, this could result in a decrease in quality. For premium car manufacturers, lower quality is not a viable option.

Volkswagen and GM have been leading in auto sales in China for over a decade. Audi recently sold its one millionth car and plans to sell another million within the next three years by using the knowledge gained through the operations of other sections. They have already started production in China. However, Jaguar-Land Rover may take some time to build their network from scratch to compete with other luxury car manufacturers, even though they already have local sales offices.

The localization of products is necessary for manufacturers to meet the unique needs of non-domestic markets. Land Rover must follow BMW's lead in modifying their products for the idiosyncrasies of China, where young executives hire chauffeurs to drive them around. BMW found that Chinese users require more legroom at the back and enhanced control over the audio system, and therefore adjusted their vehicles accordingly.

5. The issue of counterfeits is a significant problem for various manufacturers such as Mercedes, Honda, and Smart Car, among others. There have been numerous legal actions against the sale of imitations of their car models under different names. 6. Addressing this issue is a challenge for every manufacturer.

Although the automobile industry has faced challenges in logistics, improvements have been made. In 2004, Volkswagen, Audi, DaimlerChrysler, and BMW came together to form the Coreteam partnership to handle issues related to logistics and the supply chain. Despite these efforts, infrastructure remains congested due to increased economic activity and the sector's fragmentation causes problems with multiple handling points. Consequently,

this negatively impacts the smooth flow of goods.

At present, JLR faces logistical challenges in sending four daily containers from the United Kingdom to China. Additionally, manufacturing within China and distributing across the enormous country presents further obstacles.