An Analysis of the Partnership Between Jaguar Land Rover and Chery Automobile Company Ltd.


Elaboration, 2017

28 Pages, Grade: 2,0


Excerpt

TABLE OF CONTENTS

I. Assignment Part A
1. Which Developments Impelled Jaguar Land Rover (JLR) to Implement the Partnership with Chery Automobile Ltd.?
1.1 The Anticipated Internal Benefits and Synergies
1.2 Why is the Chinese Government involved?
2. Categorization of the Partnership Between JLR and Chery Automobile Ltd
2.1 Which Risks does a Joint-Venture Entail?
2.2 The Acquisition of Jaguar and Land Rover by Tata Motors
3. The Possible Influence of National and Corporate Culture on the Joint-Venture
3.1 The Possible Influence of National Culture
3.2 The Possible Influence of Corporate Culture
4. The Importance of Exchange Rate Movements for JLR and Chery Automobile Ltd

II. Assignment Part B
5. Aspects or Challenges of Doing Business Internationally

III. List of Tables

IV. List of Figures

VI. References

VII. Bibliography

I. Assignment Part A

1. Which Developments Impelled Jaguar Land Rover (JLR) to Implement the Partnership with Chery Automobile Ltd.?

The automotive industry is changing. Home-markets of world-known automakers become saturated. Many companies seek new opportunities and chances in new markets (McKinsey&Company, 2016). To understand which external factors influence JLR, a Pestle analysis (Institute of Leadership & Management, 2007) is conducted as can be seen in figure 1.

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Figure 1. Pestle Analysis for JLR.

As can be concluded from figure 1, the major future challenges for JLR are from economic nature. Economic growth in Europe is stagnating which leads to moderately increasing sales. Additionally, there is pressure to adhere to environmental standards which complicates competition further. Although Europe is a mature market with comprehensive intellectual property rights (The International Property Rights Index, 2016), and low corruption (Transparency International, n.d.), without satisfying growth, JLR needs to seek new markets.

In general, there are 3 types of motives for companies to engage in foreign direct investments (FDI), market-seeking motives, resource-or asset-seeking motives and efficiency-seeking motives (Cavusgil et al., 2017). The partnership with Chery Automobile Ltd. intends to seek new markets, as the demand for Jaguar and Land Rover cars has been increasing (BBC, 2012) and car sales in Europe have increased slightly (ACEA, 2016).

How profitable entering China could possibly be for JLR cars, can be analysed by using the BCG Growth- Share Matrix (Scharf et al., 2009) as can be seen in figure 2.

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Figure 2. BCG Matrix - JLR Cars in China. Adapted from Scharf, A., Schubert, B., & Hehn, P. (2009). Marketing: Einführung in Theorie und Praxis (4th ed.), page 103, Stuttgart: Schäffer-Poeschel

In 2015, China was the world’s number one car market, with a significant growth of 4,7%. The automobile market of china was also expected to be the number one for 2016 (Rapoza, 2016). In 2012, before the partnership with Chery Automobile Ltd. was implemented, 17,2% of all JLR sales were originated in China, which indicates the demand for the British luxury cars in China (Wachman, 2012). Therefore, according to Scharf et al. (2009), JLR cars in China are strategic question marks as there is market growth but JLR’s market share is not high yet. This means, with higher market share, the cars can turn into stars which are highly profitable and from highest strategic significance (Scharf et al., 2009).

1.1 The Anticipated Internal Benefits and Synergies

In academic literature, joint-ventures are associated with several chances and risks (Cavusgil, 2017). Synergy effects can appear for example in the area of sales through bundling distribution channels, using the same sales staff or providing them the opportunity to develop themselves (Cavusgil, 2017). In operations, the efficient use of resources and facilities and common learning curves (Scharf et al., 2009) can bring significant market advantages. Surely, economies of scale and scope and market seeking (Cavusgil, 2017) are often associated as major benefits of a joint-venture. As can be seen in figure 3, a comprehensive benefits and synergies analysis has been conducted.

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Figure 3. Benefits and Synergies expected from the joint-venture.

A significant benefit associated with thejoint-venture for JLR is a high sales potential due to the increasing demand of JLR cars in China (Wachman, 2012). For JLR, market entry without or with low market knowledge could entail high risk. Through thejoint- venture, this risk but also the chances are shared (Cavusgil, 2017). At this point, JLR takes advantage of the experienced local partner Chery Automobile Ltd. Chery Automobile knows what Chinese customers need. For instance, the necessity of tailored products could be seen at the longerjaguar XF which has bigger legroom (Gibbs, 2016).

The most significant benefit for JLR seems to be the avoidance of import tariffs and fulfilling local production requirements, which decrease sales prices and make the companies cars competitive and more profitable (Ybanez, 2015; BBC, 2014).

1.2 Why is the Chinese Government involved?

Before the partnership could be implemented, the companies had to wait for the approval of the National Development and Reform Commission of China (NDRC). The main function of the NDRC is to formulate macroeconomic policies and the supervision of the restructuring of the Chinese economy (NDRC, n.d.). Thus, its functions also include the protection of the domestic manufacturers (NDRC, n.d.) and consequently the local automotive industry. As increasingly automakers realized the sales potential in China, the NDRC imposed tariffs on imported cars (Shanghai Daily, 2008 in China.org, n.d.). These tariffs increase the sales prices and make JLR cars uncompetitive. The local production at thejoint-venture therefore, avoids these taxes and additionally lowers labour costs for JLR (Ybanez, 2015).

2. Categorization of the Partnership Between JLR and Chery Automobile Ltd.

The decision which foreign market entry strategies is appropriate, depends on the specific company’s situation, its financial situation, experience, and capabilities. In general, there are several market entry modes which have advantages/chances but also disadvantages/risks they entail. As can be seen in figure 4, the control over the firm, the resource commitment, the flexibility, and the risk of the partnership depend on which market entry strategy has been chosen (Cavusgil, 2015).

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JLR as a MNE (multinational enterprise) has the capabilities of choosing an appropriate market entry strategy (Cavusgil, 2015). Smaller companies or start-ups often lack the opportunities to choose a strategy which would possibly be the best (Scharf, 2009). The type of the partnership between JLR and Chery Automobile Ltd. is an equity joint­venture (HSBC, 2012). A joint- venture is defined as a “...international collaborative venture.” (Cavusgil, 2015 p.100). It is characterized by a joint venture partner who “creates and jointly owns a new legal entity through equity investment or pooling of assets” (Cavusgil, 2015 p.100). Although the shares between the 2 cooperating companies could also be distributed unequally, JLR and Chery Automobile are each holding 50% of thejoint-venture’s equity (HSBC, 2012). As can be seen in figure 4, a 50/50 owned joint-venture, as it is in this case (HSBC, 2012), entails relatively low flexibility, relatively high resource commitment, relatively high control over the venture and a substantial risk which will be outlined in chapter 2.1.

2.1 Which Risks does a Joint-Venture Entail?

There have been studies which revealed that a significant percentage ofjoint-ventures fail (Bamford et al., 2004).

Cavusgil et al. (2015) classify risk in international business in cultural risk (see chapter 3), political risk, currency/financial risk (see chapter 4) and commercial risk. Cavusgil et al. (2015) mention for instance the complex management structure, the coordination between the partners and possible political issues as origin of failure. Often the partners follow divergent strategies for thejoint-venture and ignore the partner’s objectives for the collaboration (Homburg, 2017). If the partners have not comprehensively negotiated about decision-making and accountability, or do not accept the agreements anymore, thejoint venture is likely to fail. The (not accepted) allocation of profits and particularly the allocation of losses can cause conflicts and destroy the trust irreversibly (Homburg, 2017). Additionally, cultural aspects can affect working together and achieving objectives (Hofstede, 2010) as will be outlined in chapter 3.

As mentioned in chapter 1, China, compared to European countries, has a very bad intellectual property rights index (The International Property Rights Index, 2016) which could entail high risk for carmakers as JLR, as they invest highest amounts in their technologies (McKinsey&Company, 2016). Producing directly in a foreign country like China and not only exporting to China could simplify the unethical competitors to copy products and harm JLR. Indeed, this happened recently when Jiangling Motors copied the successful model Evoque and has been sued by JLR. Nevertheless, JLR is not expecting Chinese courts to intervene appropriately (Cars UK, 2016).

2.2 The Acquisition of Jaguar and Land Rover by Tata Motors

As mentioned in chapter 2, the partnership between JLR and Chery Automobile is a 50/50 owned equity joint-venture (HSBC, 2012). Figure 4 (see page 7) has shown the type of the partnership and its characteristics.

In 2008 Tata Motors, an Indian group which was producing trucks and small cars, bought the luxury carmakers Land Rover and Jaguar from Ford Motor Company for 1.3 billion £ (Gribben, 2013). The acquisition included all production facilities, the brands, and the intellectual property rights. For Tata Motors, the acquisition was the opportunity to get into the league of global automakers (Autocarpro, n.d.). Basically, through the acquisition by Tata Motors, JLR turned to a wholly owned subsidiary company of the Tata Motors group. From Tata’s perspective, there is no market entry strategy with higher control possibility as can be concluded from figure 5 (page 9).

Hlgh-control strategies

Compared with thejoint-venture between JLR and Chery Automobile, Tata Motors has the full control over JLR, while JLR only has partially control over the jointly owned company with Chery Automobile. Tata has the highest resource commitment, the minimum of flexibility and bears all risks alone, which makes the acquisition riskier than a joint-venture as is is between JLR and Chery Automobile.

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Details

Title
An Analysis of the Partnership Between Jaguar Land Rover and Chery Automobile Company Ltd.
College
Northumbria University
Grade
2,0
Author
Year
2017
Pages
28
Catalog Number
V376522
ISBN (eBook)
9783668551183
ISBN (Book)
9783668551190
File size
946 KB
Language
English
Tags
analysis, partnership, between, jaguar, land, rover, chery, automobile, company
Quote paper
Ender Gülcan (Author), 2017, An Analysis of the Partnership Between Jaguar Land Rover and Chery Automobile Company Ltd., Munich, GRIN Verlag, https://www.grin.com/document/376522

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