Case Study On John Deere Brand Global Growth
John Deere began manufacturing and marketing farming equipment in 1837, when John Deere, a blacksmith and inventor, began forging steel plows for mule-drawn walking plows. The company added corn planters, wheeled sulky plows, and cultivators during the late 1800s, but its walking plows accounted for the majority of its business until the company acquired motorized tractor producer Waterloo Bay in 1918. Deere’s shift in strategy began with disastrous results, with the Waterloo Boy brand selling only 79 tractors in 1921. The first John Deere branded tractor, the Model D, was launched in 1923 and was so popular that it remained in the company’s product line for 30 years. John Deere has grown and prospered through a long-standing partnership with the world’s most productive farmers.
Today, John Deere is a global company with several equipment operations and complementary service businesses. These businesses are closely interrelated, providing the company with significant growth opportunities and other synergistic benefits. Deere is committed to providing Genuine Value to the company’s stakeholders, including our customers, dealers, shareholders, employees and communities. In support of that commitment, Deere aspires to grow and pursue leadership positions in each of their businesses, extend preeminent leadership position in the agricultural equipment market worldwide, create new opportunities to leverage the John Deere brand globally. How will they get there you might ask? By pursuing the broader corporate goals of profitable growth and continuous improvement, each of the company’s businesses is expected to: Achieve world-class performance by attaining a strong competitive position in target markets, exceed customer expectations for quality and value, Earn in excess of the cost of capital over a business cycle. By growing profitably and continuously improving, each of the company’s businesses will benefit from and contribute to John Deere’s unique intangible assets by distinguished brand, heritage of integrity and teamwork, advanced skills, and the special relationships that have long existed between the company and their employees, customers, dealers and other business partners around the world.
What are the markets served by the organization and their current positions?
In the United States and Canada, the Equipment Operations for John Deere, excluding certain consumer product lines, distribute equipment and service parts through one agricultural equipment sales and administration office supported by seven agricultural equipment sales branches, one construction equipment sales and administration office and one commercial and consumer equipment sales and administration office (collectively called sales branches). In addition, the Equipment Operations operate a centralized parts distribution warehouse in coordination with several regional parts depots in the United States and Canada and have an agreement with a third party to operate a high-volume parts warehouse in Indiana. The sales branches in the United States and Canada market John Deere products at 3, 400 dealer locations, all of which are independently owned. Of these dealers, 1, 685 sell agricultural equipment, while 420 sell construction equipment. Smaller construction equipment is sold by all of the construction equipment dealers and larger construction equipment, forestry equipment and a line of light construction equipment are sold by most of these dealers. Commercial and consumer equipment is sold by most John Deere agricultural equipment dealers, a few construction equipment dealers, and about 1, 300 commercial and consumer equipment dealers, many of whom also handle competitive brands and dissimilar lines of products. In addition, the Sabre, Homelite, Green Machine and Scott’s TM product lines are sold through independent dealers and various general and mass merchandisers. Outside North America, John Deere agricultural equipment is sold to distributors and dealers for resale in over 110 countries by sales branches located in five European countries: South Africa, Mexico, Argentina, Uruguay, and Australia. Associated companies in Brazil and China sell these equipment resales through export sales branches in Europe and the United States, and. Commercial and consumer equipment sales overseas occur primarily in Europe and Australia. John Deere has concentrated its agriculture segment into several divisions: Tractors that include models ranging from 20 horsepower series up to 425 horsepower series, combines that includes the 50 series combine and the draper platforms. The company also manufactured and marketed forestry equipment, turf equipment, and diesel engines for marine and construction equipment uses.
John Deere product have shown to be sold at the following store John Deere distributes their agriculture products primarily through its 468 dealer distribution centers that are located all over the United States. In addition to the distribution centers in the United States, John Deere has 86 international centers. John Deere’s customers can buy the smaller tractors and lawn care equipment through discount merchandise stores such as Wal-Mart and K-Mart and secondarily to home supply centers such as Home Depot and Lowe’s. Through these large distribution channels, John Deere is able to make their products accessible to everyone in the United States and is rapidly expanding to international markets. Wal-Mart has emerged as an industry leader among retail outlets, as it operates over 1900 stores nationwide. Their strategy has been straight forward, as they continually reduce their prices in order to increase net sales. These massive price reductions are forcing suppliers to cut down their own costs through improved operations. This is becoming a constant and necessary process for suppliers in related industries. K-Mart is another retail chain that has widespread distribution power, as it is currently operating over 800 stores nationwide. Although Target is half the size of Wal- Mart, but this fact in no way suggests that K-Mart cannot catch up in the near future. A way that K-mart is gaining ground is by increasing its advertising in the television market and by keeping its prices at competitive levels in comparison to Wal-Mart’s. Home Depot is currently the world’s largest home-improvement retailer, operating over 800 stores in the United States. In 1998, net sales reached 30. 2 billion dollars, with an estimated 180, 000 employees. Home Depot expects to be operating over 1600 stores in the United States by the year 2004. John Deere is able to sell many of its smaller tractors and lawn and garden equipment through this di stribution channel. Lowes is another nationwide distributor of home improvement product, as they operate 500 stores in 26 different states. Although, they are not as large as their counterpart Home Depot, Lowes reported an impressive 10 billion dollars in net sales during 1988. Lowes employs over 65, 000 people and was listed in Fortune Magazine as one of the top 100 companies to work for in America last year.
What are the main issues the organization faces and what past actions caused them to be in their current position?
John Deere has some issues that I see as main issues. International Expansion Along with the opportunity of international expansion come additional threats. The first of these is that in diverting its attention to newer markets, Deere will be forced to lessen its concentration on more established markets such as the U. S. and will run the risk of losing market share to more active competitors within them. Economy, interest rates, and government regulations Industries such as construction are very sensitive to changes in the economy and any downturn would result in a dramatic reduction in the demand for new houses and therefore also of construction equipment. Similarly, government regulations and even weather conditions can severely affect the level of demand for Deere’s products. U. S. Dollar Strength Currency fluctuations are very important for the capital goods (agricultural equipment) industry. U. S. based companies are also beginning to take advantage of the strong U. S. dollar to relocate manufacturing jobs to Asian countries, where low-cost labor is available. The devaluation of the local currencies versus the U. S. dollar means that the labor costs for producing in these overseas markets has effectively been lowered. This situation can be of detriment if a U. S. producer and exporter is faced with a stronger dollar, thus making its products more expensive in the international marketplace relative to foreign competing goods. Thus, although the costs of production might decrease with an increase in the dollar value, there will be a larger proportionate decrease in the buying power of customers and so an increase in the exchange value of the U. S. dollar is a threat to John Deere.
Conversely, a decrease in dollar value would increase buying power of customers outside the U. S. more than it would the costs of production and Deere would benefit from such a change. How we do business is critical to our continued success. The “How” is represented by our core values of Integrity, Quality, Commitment, and Innovation. You see the “How” in our people, products, and processes. You recognize it in how we operate every business, every day, and in the ways, we treat employees, customers, suppliers, dealers, and other stakeholders. Our core values define us. They unite us and differentiate us from competitors. Our commitment to these core values is not optional, and never wavers. Integrity means telling the truth, keeping our word and treating others with fairness and respect. It is demonstrated through honest relationships, decisions that consider the balanced interests of stakeholders, and unquestioned commitment to ethical and legal behavior. Integrity is one of our most cherished assets. It must not be compromised. Quality means delivering value to customers, employees, shareholders and others. Quality is exhibited in many ways by selling and supporting products and services that delight customers, establishing a work environment in which employees thrive, delivering financial results that meet investor expectations, and maintaining sound relationships to the benefit of our stakeholders. Innovation means inventing, designing, and developing breakthrough products and services that have high appeal in the marketplace and strengthen customer preference for the John Deere brand. Innovation extends to using the latest technology to establish world class manufacturing processes and applying the most advanced information technology tools and practices throughout the company. Commitment means doing our best to meet stakeholder expectations in a predictable, consistent way over time. We recognize that our customers, as well as employees and investors, have many options in choosing a company with which to be associated. Our opportunity to serve should be viewed as a privilege that is not to be taken for granted.
Another main issue for John Deere are Caterpillar, one of Deere’s closest competitors in the construction industry has a superior setup and can guarantee that any replacement part will be delivered to the customer within 48 hours. With assertions like that to compete against, Deere will have to invest considerable resources into their own distribution channels. Caterpillar has a network that features 23 distribution centers in 11 countries and has facilities in 1500 locations in over 200 countries. Caterpillar and John Deere are very comparable companies as both companies offer the same products and services. Where Caterpillar offers over 300 machines for agriculture and construction purposes. Caterpillar designs, manufactures and markets earth moving, construction and materials handling machinery and heavy-duty engines. Along with the financial alternatives and insurance to purchase equipment that Caterpillar offers its customers, the company also has business segments consisting of parts and services, a rental store, and CAT Logistics; which entails customized distribution solutions for businesses and services that include information technology, inventory management, warehouse and operation management and transportation management. Below will be John Deere SWOT analysis which is a way of evaluating the strengths, weaknesses, opportunities, and threats. Strengths are diverse product portfolio, an excellent Customer Relationship Management (CRM) system, strong Financial Position, a high asset leverage, has an employee base exceeding 55, 000, and it is a leader in agricultural equipment, construction and forestry heavy equipment. Their weakness is limited global brand awareness and penetration compared to a few industry leaders, the obligations of its IT communications and network turn out to be more compound and bigger by the day. Opportunities are Deere’s capability to quickly budge into fresh rising market, its present current policy of expansion and the supporting changes in Asia, Europe, and East have presented many fresh market places for them to compete in, collaborations and tie-ups with global companies. Lastly their threats are Deere will be forced to reduce its attention on further established market places, for example the U. S and will sprint the danger of down-market share to very active competitors inside them, labor and workforce issues, and economy interest rates and Government Regulations.
What should be the markets serviced by the organization and what has to change for the organization’s past in order to enter and sustain those markets?
John Deere is implementing a strategy that will increase its international presence in an effort to increase global sales. Deere has identified several key factors to rationalize the focus on global markets. Deere is focusing its growth in six global regions: North America (United States and Canada), Europe, Brazil, Russia, India, and China. John Deere sees opportunities within these regions due to a global increase in population and trending economic growth. They believe the majority of economic and population growth will be generated by emerging economies and that will position their agriculture, construction, and forestry businesses in a place to take advantage of the growth in these sectors. John Deere also sees opportunity in agriculture from the standpoint of more people transitioning from rural to urban areas, establishing a larger market for efficient agricultural equipment as human resources decrease.
This international focus is aligned with a strong growth strategy and increased sales and market share. All individual employee, unit, and divisional goals are integrated with the company’s overall business goals which align them with a culture of teamwork as opposed to individualism. John Deere is targeting four additional strategies to meet the demands of stakeholders, specifically to accomplish their sustainable SVA growth initiative. The four initiatives that Deere will focus on are: Deep Customer Understanding, Delivering Customer Value, World-class Distribution System, and Growing Extraordinary Global Talent.
What recommendations would you make to the organization regarding how to make the implement the changes you believe are necessary?
Some recommendations I would make to the organization would-be short-term John Deere should start reducing its short-term debt so that the company will have more capital in order to stay competitive in the markets of the future. The uses of this capital can be used to maintain its hold on the agriculture market by increased spending in product development and process innovations. The ways that John Deere can decrease their short-term debt is by issuing more stocks and using the proceeds. This plan will not be easy to accomplish because it will undertake a lot of financial reorganization. Though the positives of this plan are John Deere can improve the financial stability of the company and increase their cash flows in the near future. John Deere should also concentrate its efforts on the Internet market, in order to precedent in the industry and offer increased availability to its customers, where Deere’s competitors are not equally established. Some long-term recommendation would be John Deere should try to establish a strong base in the Asian markets; so, it can benefit the company in the coming years. The reason for this is that Asian markets are modernizing, expanding their infrastructure and production capacities. To accommodate these tasks, the Asian economies will require modern and efficient products. This will in turn increase demand for agriculture equipment and increase the presence of John Deere in these developing markets.
There was a section in the text that discussed competitive forces that I see can be applied to John Deere. John Deer barriers of entry facing the industry include capital requirements since the farm and construction machinery industry are capital intensive, the capital requirements needed to set up operations, manufacturing facilities and equipment are immense. When taking into consideration the start-up losses and inventory needed to enter the industry, this obstacle seems insurmountable in this industry, brand preferences and customer loyalty. When a company is looking to enter this industry, it must also take into consideration this important barrier. Many customers in this industry do not purchase equipment very often but count on the lifetime of the equipment they have already purchased in the past. The client support and service are critical in this industry where capital expenditures by clients are few and far apart. A company wanting to enter must be able to demonstrate that their product is better than the competitor. This is a hard goal to accomplish, especially in the farming industry where customers prefer consistency, reliability and stability and trust the products that their grandparents did before them, and economies of scale. A potential newcomer must be prepared to endure an onslaught by other competing firms when entering the industry. An overcapacity might occur within the industry forcing established companies to lower their prices. Entering firms will see their potential profits squeezed and even become negative due to the intense price war the industry could face in when adjusting to a new competitor.
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