Post on 13-Apr-2017
2017
A PESTLE analysis of Jaguar Land Rover: opportunities and threats in the next five years
BM4115: THE GLOBAL BUSINESS ENVIRONMENT
KUPIEC, EMILY
S1600935
WORD COUNT: 1,648
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Introduction
PEST analysis is a tool to examine and monitor the macro-environmental elements
that have an influence on an organisation (Capon, 2009, pp. 4). External environments
can be explained and analysed using PEST, examining “political, economic,
sociocultural and technological categories into which external influences on the
organisation can be placed” (Capon, 2009, pp. 6). This paper will conduct a PEST
analysis on the car manufacturer Jaguar Land Rover (JLR), as well as identifying
opportunities and threats from the events of the external environment. A variety of
books, journal articles and website reports will be included to reach a conclusion of
whether JLR has greater opportunities or threats from the external environment in the
next five years.
Background
Jaguar Land Rover is the UK’s largest automotive manufacturer, which is built around
two iconic British car brands: Land Rover and Jaguar (Jaguar Land Rover 2017a). The
west Midlands-based company has sold more than 460,000 vehicles during 2015, with
more than eight out of 10 cars sold abroad (Hickey, 2015). China is JLR’s leading
market, followed by mainland Europe, the UK and north America (Hickey, 2015). JLR
employs around 29,000 people globally and support 190,000 more through
dealerships and local companies (Jaguar Land Rover Annual Report, 2016). JLR’s
operations are split across five sites with three vehicle manufacturing plants – in the
West Midlands, Solihull, Halewood, Gaydon and Whitley (Jaguar Land Rover, 2017b).
The organisation is looking to expand its production in the UK, and another
manufacturing plant in China as they expect this emerging market to be “the best-
selling market in 2016” (Feijter, 2016).
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Summary PEST table
PEST factors Opportunities Threats
Political:
Brexit
The rise of emerging markets in China and
the One belt, One road initiative
Increased levels of
autonomous vehicles in the future, and the chance to innovate in
this market
Taking advantage of the skill shortage in the UK and engaging
in the STEM Agenda
The detrimental effects of Brexit and
how it potentially will cause profits to fall
Technology is
becoming cheaper, leading to a rise in competition from
new car manufactures in the
electric car market
Economic:
Emerging markets (Appendix A, Campbell,
2016)
Unemployment
Skills shortage in the
UK
Social:
Organisational culture
Brand identity
Technology:
Autonomous vehicles
Technology becoming
cheaper
Electric cars
Political
On February 20th Britain’s prime minister set June 23rd 2016 as the date for a
referendum in the country’s membership of the European Union (The Economist,
2016, “A background guide to Brexit” 24 February). Leave won by 52% to 48%, with
more than 30 million people voting (Hunt and Wheeler, 2017). This historic event in
British history is thought to have a detrimental effect on the car manufacturing industry,
as around 78% of the cars built in UK factories in the first year were produced for other
countries – with the EU being the biggest market (Monaghan, 2016). One of the main
threats to the industry because of Brexit is the loss of interconnectivity, for example
the supply of a fuel injector for diesel lorries is manufactured from countries that are
members of the EU (Appendix A, Campbell, 2016).
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Economic
Emerging markets, generally characterised by low levels of absolute economic
development but high growth rates, are growing at rates approximately twice of those
of developed markets (Sharma, 2016). Emerging markets’ share of global sales will
rise from 50 percent in 2012 to 60 by 2020, whilst their share of global profits is set to
rise by 10 percent (McKinsey, 2013, “The road to 2020 and beyond” 20 September).
The World Bank believes that a 1% increase in U.S. GDP next year translates into an
additional 0.6% growth rate for emerging markets – such as Brazil (Rapoza, 2017).
The employment rate in the UK is at a record high, however economists have pointed
out that the rate of new jobs growth is declining and raised concerns over increase in
unemployment (Bradshaw, 2016). The problem facing the UK is not just a shortage of
skills, but the skills that people have and what organisations want are different
(Lawton, 2015). The STEM agenda is the idea that all young people should learn or
be aware of science, technology, engineering and maths. Local schools have been
interested in this agenda, and are encouraged to engage with this programme to
improve skills and innovation for the future (Gov.uk, 2015).
Social
“Ethnocentrism denotes the inflexible approach of relating to the world only in terms
of our own culture, while polycentrism is the approach of attempting to overcome our
own cultural assumptions” (Morrison, 2011, pp. 196). When organisations consider
manufacturing in another country, they must be aware of language barriers and values
that the country holds (Morrison, 2011, pp. 197). The car manufacturing industry is
successful at this, as they cater for the environment that they operate in. Volvo have
understood the UK culture, as popularity has reached new heights in 2015 with a new
large and loyal customer base (Reed, 2015).
Today, products are so similar that customers are entirely indifferent as to which one
they will buy; therefore, organisations must establish a brand identity for society to
recognise those main brands (Blythe and Martin, 2016). Germany’s Volkswagen was
one of the biggest firms in the world, who admitted cheating emissions tests in the US
(Bowler, 2015). Because of this scandal, Volkswagen could lose up to $34.5 billion
(Forbes, 2015). This had a detrimental effect on consumers view of the brand and
Volkswagen has since pledged to regain consumer’s trust (McGee, 2016).
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Technological
Half of today’s car owners will not want to own a vehicle and more will want self-driving
cars in the future, a survey of car manufacturing bosses has found (Rawlinson, 2017).
5G (or fifth generation) will enable billions of things to become connected – including
the self-driving car (Tilley, 2017). The car manufacturer Tesla have already released
self-driving features that give the car ability to drive itself (Business Insider, 2016, “10
million self-driving cars will be on the road in 2020” 15 June). In fact, Tesla claimed
more than 780 million miles have been travelled whilst using an Autopilot program
(Markman, 2016).
Autonomous driving is not the only change in the macro-environment, technology is
becoming cheaper as it becomes more advanced and products get better (Rosoff,
2015). In relation to the car manufacturing industry, “electric cars will be cheaper than
conventional vehicles by 2022” (Carrington, 2016). The key factor supporting this is
due to the falling costs of batteries, which would start a mass market for electric
vehicles (Bloomberg New Energy Finance, 2017). Organisations must adapt to this
technological shift to maintain competitiveness.
Opportunities and threats
One opportunity for JLR that arises from the external environment, is the growth of
emerging markets. The company is looking at expanding its production with a
manufacturing plant in China to address the emerging Chinese market (Jaguar Land
Rover, 2017b). One of the biggest stories in business is China’s One Belt, One Road
initiative (Appendix B, Jinchen, McKinsey, 2016). The new initiative has the potential
to be perhaps the world’s largest platform for regional collaboration (Sneader, 2016).
If JLR expand into this market in the next 5 years, they will be able to take advantage
of this new trading platform. JLR would be able to trade to 65 percent of the world’s
population, and create trading platforms with other countries to increase global market
share (Sneader, 2016). If JLR decide to manufacture in emerging markets, they will
be able to increase their interconnectivity with the world.
Another opportunity presented is the shift to autonomous vehicles. Fierce competition
from the likes of Volvo and Google, reiterate the necessity for JLR to consider
expanding into the driver-less market (Mui, 2014). In fact, JLR has said it will create
more than 100 research vehicles by 2020 (Smith, 2016). The head of research for
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JLR, Tony Harper, said the company’s technology includes a 3D view of the street
ahead to recognise barriers and radio signal communication between cars (Harper,
2016). It is vital for JLR to remain competitive within the future, as the autonomous
vehicles market is worth £900bn (Smith, 2016).
Finally, JLR can take advantage of the lack of skilled employees in the next 5 years.
Britain’s auto industry is the most productive in Europe, but could struggle without
more engineers and technicians in the future (Tovey, 2015). JLR’s “Inspiring
Tomorrow’s Engineers’” programme promotes engagement with STEM subjects
(Jaguar Land Rover, 2017c). JLR have identified that it is critical that they encourage
more young people to become the next generation of engineers to address the skills
shortage. If JLR engage with this form of CSR, they will be able to continue competitive
innovation in the future (Reeves, 2012).
However, because of the analysis of the macro-environment, there are threats to JLR
in the next 5 years that should be identified. JLR estimates its annual profit could be
cut by £1bn by the end of the decade because of Britain leaving the European Union
(The Guardian, 2016, “Brexit could cause £1bn drop” 21 June). Taxes and tariffs on
imports into the UK would also mean higher costs, as half of JLR’s spending on
materials goes to Europe (Sky News, 2016, “Jaguar Land Rover admits Brexit could
threaten its future” 17 November). The future of JLR in the UK is unknown, as the
unpredictability of the process is very high. JLR should have contingencies in place,
as they must seriously consider the negotiations they may have to make.
Another threat is that technology is becoming cheaper. Researchers estimate that
once electric vehicles batteries cost $150 per kilowatt hour, they’ll be cost-competitive
with gas vehicles (Harrington, 2016). JLR hopes to build and design electric cars in
the UK – however, many car manufactures are already ahead (Tovey, 2016). Volvo
already have a range of electric cars that have less of an impact on the environment
(Volvo, 2016). There is a threat that JLR might fall behind, as big brands such as Apple
reveal that they are investing heavily in driverless cars. Therefore, JLR need to
increase innovation in electric cars to stay ahead of the competitors and remain
environmentally friendly.
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Conclusion
The identified opportunities and threats will have an influence on the car manufacturing
industry – especially JLR. Overall opportunities significantly outweigh the threats, as
the main external trend is the increase of connectivity. JLR’s expansion into Asia will
benefit them greatly, as they have access to a connected world. Even though the role
of uncertainty may not be on their side, JLR has the experience to successfully make
the correct management decisions regarding opportunities in the next 5 years.
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Appendices
Appendix A
Campbell, P. (2016) UK car industry fears effects of Brexit tariffs on supply
chain. Available: https://www.ft.com/content/c397f174-9205-11e6-a72e-
b428cb934b78. Last accessed 13th Jan 2017.
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Appendix B
Jinchen, T. (2016) ‘One Belt and One Road’: Connecting China and the
world. Available: http://www.mckinsey.com/industries/capital-projects-and-
infrastructure/our-insights/one-belt-and-one-road-connecting-china-and-the-world.
Last accessed 13th Jan 2017.