JCB is a leading manufacturer of variety of equipment ranging from construction machinery to agricultural equipments. The company was established in 1964 in the United Kingdom. Currently, it is one of the top three companies in the industrial machine production. It has operations in four continents, market in over 150 countries and a workforce of over 10,000 people.
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Strategic Rationale Underlying JCB’s Entry into India in 1979 and China in 2005
In 1979 JCB employed an expansion strategy in India, which was aimed at increasing its market presence in the world. The expansion as a strategy was also necessary in order to promote the sales of its machines and equipments in markets that it had not yet penetrated (Hill 615).
This would have made it possible for the company to fight of competition in the country of origin and at the same time secure markets share in the production of industrial and agricultural machines (Thompson and Martin 455).
The entry to China was also a strategy to expand the market for the machines it produced. There was also the need to take advantage of the cost of production which was low in these countries. Therefore the company hoped to increase its bottom line by setting operations in China and India.
The expansion of JCB in India and China was economically justifiable given the objectives of the company and the strategy it hoped to employ in order to achieve its goals. In 1979, India was an emerging country. As an emerging economy, the middle class was growing and investment levels in the country were also in the rise due to the increased expenditure by this population (Cavusgil, Ghauri and Agarwal 460).
Therefore the market potential was very high as compared to developed markets such as France and Norway. The company also sought to achieve the advantage of a first mover. This is the advantages a company gains by setting operation in the emerging markets (Hill 619).
The company in this case is able to establish itself as the country develops and to gain acceptance and loyalty of the people. The company that gains the first mover advantage is able to fight off competition that may come up later. Therefore JCB aimed to take advantage of this before other foreign companies decide to set operations.
India also offered new access to capital which was not offered by the developed economies. By investing in this economy, JCB hoped to take advantage of this source of capital both for the India’s operations and in is country of origin (Thompson and Martin 461).
The cost of labor in India is low as compared to the cost of labor in the developed countries such as France, Norway and Germany (Cavusgil, Ghauri and Agarwal 469). By exploiting this cheap labor, the company hoped to reduce its operation costs which would have given it a competitive advantage over its competitors in the domestic and international markets.
Labor relations were also conducive for business operations in India which motivated JCB to set base in this country (Thompson and Martin 465). India also had made arrangement with many countries including United Kingdom to avoid double taxation of foreign companies operating in the country. It also had a tax system which offered incentives to foreign based company such as JCB (Hill 625).
Such incentives included five years of tax holiday, tax exceptions on earning from exports during and after tax holiday period, states and central tax exceptions on sales and production, lease machinery installation rights and the right to access self liquidating loan denominated in foreign currency at interest rates that were commendable among others.
These tax complimented cheap labor therefore reducing costs of operations further. JCB sought to take advantages of these benefits by setting operations in India.
Market entry in China was also justified by most of the above reasons for India’s market entry. China has experienced a tremendous economic growth (Cavusgil, Ghauri and Agarwal 470).
The ever expanding market in India coupled with high income levels potentially formed the market for JCB products. There was also availability of cheap source of capital that the company could access.
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Reasons behind the Choice of JCB to Enter India’s Market through a Joint Venture
JCB decided on the joint venture for a number of reasons. Escort Company that formed a joint venture with JCB had operated in India where it had established its name in the earth moving machines.
Therefore this company had the experience of the market which JCB targeted (Cavusgil, Ghauri and Agarwal 476). By forming a joint venture, JCB would have benefited from the experience of Escort without the need for costly market research.
JCB also hoped to gain local acceptance by joining Escort Company. This could have been as a result of the association which would have made Indians to consider the company as a local company (Hill 640). Also JCB would not have needed to employ complex entry strategies since it would have had the advantages of operating in the market already established by Escort.
Reasons why JCB did not License Escort
By licensing Escort, JCB would have lost control of India’s production. The company would not have been able to determine the quality of production in this country (Thompson and Martin 467).
The advantages of cheap labor would also not have been achieved as well as the cheap source of capital offered by the India’s market (Spero and Hart 519). There were also tax benefits offered by the India’s economy which the company would not have gained. Therefore the company preferred a direct entry in order to gain these advantages as well as use India to establish itself in Asia.
Potential Disadvantages of the Joint Venture between JCB and Escort
By forming a joint venture with Escort, there was possibility of emergence of problems due to misunderstandings on business operations. This is because partners in a joint venture requires a lot of time to develop a healthy business relationship. Also the main objectives of joint ventures are not always clear at the start of the venture (Hill 645). This may lead to costly mistakes later in the life o the venture.
Another disadvantage involves the imbalance that exists in the level of investment, expertise and experience contributed by the partners in the joint venture (Thompson and Martin 473). Therefore, by joining this joint venture, JCB was faced with the possibility of unfavorable imbalance in the contribution of technology, investment and expertise.
Benefit of Gaining Control of Joint Venture by JBC in 2002
The full control of venture by JBC gave it the ability to control all operations of the venture in India. This therefore increased the flexibility of the company to respond to the challenges posed by the market (Spero and Hart 526). By gaining the control of the venture, JBC could now determine the structure of the company and appropriate segments of the market to target, without the fear of opposition from Escort Company.
Today JCB is one of the leading manufacturers of industrial machines. As a result of its joint venture with Escort, the company is now the leading company in the world in the production of backhoe loaders and also load-alls (JCB Ltd par 3).
It is also ranked as the third largest manufacturer of material handling equipments, earthmoving machines and agricultural equipment. This is the success gained from the company’s expansion strategy in India and other countries.
Cavusgil,Tamer, Ghauri Pervez and Agarwal, Milind. Doing Business in Emerging Markets; Entry and Negotiation Strategies. Los Angeles: SAGE, 2002. Print
Hill, Charles. International Business: Competing in the Global Marketplace,” 8th edition, New York: McGraw Hill Irwin, 2011. Print
JCB Ltd. Key Performance Indicators. Online 2012 < www.jcb.com/crs/kpi.aspx>
Spero, Joan, Eldelman and Hart, Jeffrey. “Politics of International Economic Relations,” 7th edition, Boston: Cengage, 2010. Print
Thompson, John and Martin Frank. Strategic management. London: Cengage Learning EMEA, 2010. Print