Emily Kupiec - s1600935 - submitting a file for BM4115 assessment task 2

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.

Emily Kupiec - s1600935 - submitting a file for BM4115 assessment task 2

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