Manufacturers of construction equipment Welcome to our presentation Goupe 9 would like you to present the Case Study: JCB goes to India The groupmembers are 1. (Sid) Reasons for entering India 2. (Thais) Joint Venture 3. (Anna) Results of Joint Venture (1979-2000) 4. (Emily) Regulation 5. (Sebastian) Conclusion JCB Case Study Group 9: Anna Constantino, Charlene Selle, Sebastian Eldrup-Jorgensen, Sidhesh Sarda, Thais Alvarez, Zien Huang,

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 First we would like to give you a short overview: 1. (Charlene) The company JCB 2. (Sid) Reasons for entering India 3. (Thais) Joint Venture 4. (Anna) Results of Joint Venture (1979-2000) 5. (Emily) Regulation 6. (Sebastian) Conclusion

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 JCB was founded 1945 by J.C. Bamford in England were still the Headquater is. JCB manufactures machines for use inconstruction, industrial, and agricultural They operate over 4 continents and sell products in 150 countries through 1,500 dealer depot locations. They established 7 factories in the UK, Germany, Brazil, North and South America, India and China. JCB has over 8,000 people employed And is one of the world's top three manufacturers of construction equipment.

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) In 2007 JCB's turnover increased to a record of 2.25 billon pounds 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. The total profis in 2007 was 1073.3 million pounds I’m passing the presentation on to Sid and Sid is going to tell you something about the Reasons for entering India 1 http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=7879509

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.

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

Real GDP

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. , roads. All of these especially in countries like India and China where the population is huge, and the countries are developing at relatively high rate.

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.

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. High tariffs made direct exports to India from JCB difficult. Tariffs are taxes levied on imports and exports. There are various types of tariffs: PROHIBITIVE, PROTECTIVE, AD VELOREM, REVENUE, RETALIOTORY Inefficient company : liberalists believe that it is unfair toward consumers and generally disadvantageous for a country to artificially maintain an industry made inefficient by local demands, and that it is better to allow a collapse to take place. Imposes on beneficial trade:The main concept of absolute advantage is generally attributed to Adam Smith for his 1776 publication An Inquiry into the Nature and Causes of the Wealth of Nations in which he countered mercantilist ideas.[7][9] Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is another nation’s import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage.[7] Smith also stated that the wealth of nations depends upon the goods and services available to their citizens, rather than their gold reserves Hgher costs of living. Liberalization in India received some impetus in the second half of the 1980s under the then Prime Minister Rajiv Gandhi, especially through de-licensing of many imports, introduction and expansion of export incentives that partially offset the anti-trade bias of the regime, and a significant depreciation of the exchange rate. But India’s liberalization became systematic only with the launch of the major reform package of 1991. In the 1990s and beyond, India undertook considerable liberalization of not just merchandise trade but also services trade and direct foreign investment. Indian WTO bound tariff rates on agricultural products, averaging 114 percent, are among the highest in the world. The majority of rates are between 50 and 150 percent, much higher than the average bound rates for other major developing countries such as Brazil and China. Broad intervention by the Indian government in the agricultural sector, including restrictive agricultural trade policies, is focused on three core domestic policy objectives: food security, food self-sufficiency, and income support for farmers. Agriculture is vital to the Indian economy, representing 17 percent of GDP and providing employment for more than 60 percent of the population. India is a major global producer of agricultural products and is largely self sufficient in agricultural production. Indian agricultural imports are relatively small and concentrated and supplied only 3 percent of Indian agricultural demand in 2008.
 http://www.usitc.gov/press_room/news_release/2009/er1211gg2.htm

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

Results from Joint Venture Twenty years later, sales soared. Increase in shares Deregulation licensing?

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

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

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. 6 times less revenue – compared to 2007 2http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=12663123