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Losing competitiveness long term<\/u><\/p>\n
Company sources estimate that as a result, JLR\u2019s annual profit could be cut by 1 billion pounds by 2020 (Annual Profits in 2015-16 were 1.6 bn GBP) [5]. However, in the long term, the effects could be even more catastrophic. Company CEO Ralf Speth is worried that his company might not be able to attract top overseas engineers after Britain leaves\u00a0the EU, due to higher immigration controls [2]. This would be seriously damaging to the company\u2019s long-term innovation capability and put into question its vision of achieving complete electrification of all models after 2020 (from no electric models today) [6].<\/p>\n
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JLR\u2019s response: Lets diversify<\/u><\/p>\n
In the short term, JLR is trying to mitigate the potential Brexit impact by diversifying its supply chain. In particular, it plans to spend 1 bn GBP to open up a new production facility in Slovakia to cater to European demand. The new plant will be initially equipped to produce 150,000 cars annually with the capability to subsequently increase capacity to 300,000 cars [7]. The extended capacity should be enough to satisfy demand from the EU for the foreseeable future and will shield JLR not only from future tariffs but also from any currency fluctuations related to the GBP.<\/p>\n
The company is also considering opening a new office in Brussels in order to maintain influence with European policymakers and make it easier to attract and retain European talent [7]. However, company officials have made it clear that JLR is and will remain to be headquartered in the UK.<\/p>\n
In the long term, JLR is planning to increase its presence in emerging markets such as China, Brazil & India in order to reduce reliability on European sales. It recently built a new production facility in China to better serve the local market there & also has plans to invest in Brazil [8].<\/p>\n
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What about R&D?<\/u><\/p>\n
The biggest risk for JLR in my opinion is losing its innovation capability as a result of having both fewer resources to spend on R&D (due to the possibility of lower profits) and an inability to attract the right level of global talent. At a time when the automobile industry is going through a massive transformation toward newer technologies, losing innovation will drastically impact JLR\u2019s long term competitiveness.<\/p>\n
Thus, I would recommend that JLR open a new innovation facility either in Europe or Silicon Valley. With immigration controls into the UK likely, shifting innovation to another country will increase JLR\u2019s ability to attract world class engineers and thus improve its ability to develop better cars in the future. I would also suggest that JLR leverage its heritage and premium brand image to partner with companies that are looking to develop next generation automobile technologies (such as UBER and Alphabet Inc). This will ensure that the cost burden of R&D is shared and also improve JLR\u2019s innovation capability as a whole since they will now be able to learn from companies at the forefront of global technology.<\/p>\n
Lastly, in addition to geographically diversifying their manufacturing bases, they should also look to diversify their sourcing strategy by decreasing reliance on European auto parts. A strategy of vertically integrating in the UK would help reduce risk across the supply chain.<\/p>\n
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Open questions <\/u><\/p>\n
Will JLR be able to attract the leading technology companies to partner with it? How will JLR deal with further protectionist policies in its major markets, for example potentially in the USA? How will increased competition from companies like Tesla affect traditional manufacturers like JLR, BMW & Mercedes in the future?<\/p>\n
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Word Count: 756<\/u><\/p>\n
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<\/pre>\nSources:<\/h3>\n
[1] \u201cJaguar Land Rover profits hit top gear as firm is making more than \u00a3182,000 an hour\u201d, The Mirror, May 25, 2017,\u00a0 http:\/\/www.mirror.co.uk\/lifestyle\/motoring\/jaguar-land-rover-profits-hit-10498919<\/a><\/u> , accessed November 2017<\/p>\n
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[2] \u201cJaguar Land Rover chief latest to warn of Brexit\u2019s effects on UK industry\u201d, The Independent, April 21, 2017, http:\/\/www.independent.co.uk\/news\/business\/news\/jaguar-land-rover-brexit-ceo-ralf-speth-effects-uk-industry-cars-a7694246.html<\/a><\/u> , accessed November 2017<\/p>\n
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[3]\u201dJaguar Land Rover warned Brexit deterring suppliers, EU workers\u201d , Reuters, September 7, 2017 , \u00a0https:\/\/www.reuters.com\/article\/us-jaguarlandrover-tech-europe\/jaguar-land-rover-warns-brexit-deterring-suppliers-eu-workers-idUSKCN1BI1WH<\/a><\/u>, accessed November 2017<\/p>\n
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[4]\u201dHard Brexit will leave us uncompetitive, says Jaguar Land Rover\u201d , Financial Times, September 28, 2016, https:\/\/www.ft.com\/content\/8858900c-854c-11e6-8897-2359a58ac7a5<\/a><\/u> , accessed November 2017<\/p>\n
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[5] \u201cJaguar Land Rover could face 1-billion-pound Brexit hit\u201d , Reuters, Jun 21, 2016,\u00a0 https:\/\/www.reuters.com\/article\/us-britain-eu-jaguarlandrover-exclusive\/exclusive-jaguar-land-rover-could-face-1-billion-pound-brexit-hit-sources-idUSKCN0Z71SJ<\/a><\/u> , accessed November 2017<\/p>\n
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[6]\u201dJaguar Land Rover to make only electric or hybrid cars from 2020\u201d , The Guardian, September 7,2017 , <\/u>\u00a0https:\/\/www.theguardian.com\/business\/2017\/sep\/07\/jaguar-land-rover-electric-hybrid-cars-2020<\/a><\/u> , accessed November 2017<\/p>\n
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[7] \u201cBrexit could cause \u00a31bn drop in Jaguar Land Rover profit by 2020\u201d , The Guardian , June 21, 2016 , <\/u>\u00a0https:\/\/www.theguardian.com\/business\/2016\/jun\/21\/brexit-could-cause-1bn-drop-jaguar-land-rover-profit-sources-say<\/a><\/u>,\u00a0 accessed November 2017<\/p>\n
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