Manufacturers of construction equipment

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Manufacturers of construction equipment

• JCB Case Study
• Group 9 Anna Constantino, Charlene Selle,
  Sebastian Eldrup-Jorgensen, Sidhesh Sarda,
  Thais Alvarez, Zien Huang,

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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

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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

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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/stock
s/private/snapshot.asp?privcapId7879509
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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.

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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 growthan average annual growth rate
  of 2.3, compared to the developed world's urban
  growth rate of 0.4

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Real GDP
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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.

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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.

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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.

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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
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Results from Joint Venture

• Twenty years later, sales soared.
• Increase in shares
• Deregulation
• licensing?

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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

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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

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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?privcapId12663123