Manufacturers of construction equipment • JCB Case Study Group 9: Anna Constantino, Charlene Selle, Sebastian Eldrup-Jorgensen, Sidhesh Sarda, Thais Alvarez, Zien Huang, Introduction • • • • • • The company JCB - Charlene Reasons for entering India - Sid Joint Venture - Thais Results of Joint Venture (1979-2000) - Anna Transformation to subsidiary - Emily Conclusion - Sebastian The Company JCB • Founded in 1945 by J. C. Bamford • Headquartered in Rocester Staffordshire, England • JCB manufactures machines for use inconstruction, industrial, and agricultural • Operates in 4 continents and 150 countries • 7 factories UK, Germany, Brazil, North/ South America, India and China • Employees 8,000 • Today: Among the 3 largest players in the world Company facts • In 2007 JCB's turnover increased to a record of £2.25billion1 • Emerging markets proved to be the main source of business growth during 2007. JCB enjoyed success with significant growth in markets around the world including India, Bulgaria, Romania, Poland, Russia and South America. • Profits: £187million (record high) 1 http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=7879509 Looking at a New Market • When a company wants to invest abroad, they look for countries with a long term profitability potential. • the attractiveness of a country is determined by economic and political factors. • Making an FDI is a huge strategic commitment, you are exposing yourself to a new country  new risks: consumers, currency and general economic & political risks. Urbanization •In 1950 only 18% of people in developing countries lived in cities •In 2000 the proportion was 40% •Developing countries have much faster urban population growth—an average annual growth rate of 2.3%, compared to the developed world's urban growth rate of 0.4% Real GDP The construction Industry • The construction industry is second largest industry in India after the agriculture industry • When we talk about construction industry we are talking about making hospitals, schools, townships, government building, urban infrastructure. • Construction is essential for the socioeconomic growth ofany country. Early Mover • JCB got a good grip of the market in India because they were one of the first major companies who invested in automated construction equipment. • By the year 2000, JCB had managed to capture about 80% of the market share. Why Choose Joint Venture? • High tariffs • High trade tariffs made export to India difficult. • Government regulations – The government regulations at that time required foreign investors to create joint venture with local companies. Joint Venture Joint venture is a firm jointly owned by two or more independent firms. It is the most popular mode for entering new markets. Advantages Disadvantages Access to local partners knowledge Lack of control over technology Sharing development costs and risks Inability to engage in global strategic coordination Politically acceptable Inability to realize location and experience economies Results from Joint Venture • Twenty years later, sales soared. • Increase in shares • Deregulation • licensing? Foreign Investment • 1999 - purchasing 20 percent of Escorts’ equity to give JCB majority control • 2002 - JCB purchanse all of Escorts’ remaining equity, transforming the joint venture into a wholly owned subsidiary Government Regulations 1991: Economic reform programme begun by Prime Minister PV Narasimha Rao. India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms. 1998: - India carries out nuclear tests, leading to widespread international condemnation and India suffered the impact of economic crisis in Southeast Asia, the economics was getting worse. 1999: Signed bilateral Lahore peace declaration with Pakistan. The government budget deficit 5.8 billion U.S. dollars. 2002: March. The new export and import policy Conclusion • Case Type: Succesful FDI in a developing economy! • Target market: India Means: joint venture  Reason: regulation & tariffs • Company today: Sharp deterioration in market conditions in construction! Result: Revenue has fallen to £380 million (2009)2 OPERATEING LOSS of £68 million !!! JCB India is seeking to ride the recovery with a new range of products for 2010. 2http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=12663123