COLLEGE OF HIGHER EDUCATION STRATEGIC MANAGEMENT BUSA635 Case Study The Rover Group - a new future for the

millennium?

Instructed By Prepared By

: Dr.Grace Khory : Ameed Bshara (1095029)

Oct.27,2011

Summary:
The Rover Company is a former British car manufacturing company founded as Starley & Sutton Co. of Coventry in 1878. The Rover marque became the primary brand of the then newly renamed Rover Group in 1988 as it passed first through the hands of British Aerospace and then into the ownership of BMW Group. Technological know-how gained from Honda and financial investment during the BMW ownership led to a revival of the Rover marque during the 1990s in its core midsize segment. In 2000, BMW sold the Rover and related MG car activities of the Rover Group to the Phoenix Consortium, who established the MG Rover Group at Longbridge. BMW retained ownership of the Rover marque, allowing MG Rover to use it under license. In April 2005, Rover branded cars ceased to be produced when the MG Rover Group became insolvent. BMW sold the Rover marque to Ford in 2006 for approximately 6 million, heralding an option of first refusal to buy it as a result of its purchase of Land Rover. Ford thus reunited the original Rover Company marques, primarily for brand-protective reasons, in preparation for divesting its Premier Automotive Group subsidiary.

Problem that force Rover to build alliances with others

The British car manufacturing industry was one with many international well-known automotive brands. However, its recent development seems to show the once shining star has lost some of its glory. British car manufacturers have experienced dramatic changes in recent years as global competitors have successfully produced superior products with beneficial external factors such as labor and economic conditions. They face severe challenges in all aspects of business operation, such as production, marketing, and management. Rover as a car producer initiated in 1904 and has managed to be a symbol to British society throughout the development of industrialization in the 20th century. Manufacturing has been an important factor in the United Kingdom, and the car industry has created a sense of pride to those involved right through all stages of building the product. Unfortunately, the industry succeeded in creating excellent brands based on previous recognitions, but not solid, independent organizations consistently able to deliver top class vehicles. Before the interwar years, the motor vehicle 2

was a luxury good, bought by the wealthy and produced by relatively small independent craftsmen: small-scale production for limited markets. For many people the motor vehicle industry symbolizes the changing fortunes of the UK economy as a whole. From a position of dominance immediately after the Second World War, the industry is seen as having progressively lost out to competitors from abroad and, in particular, to producers from Germany and Japan. British manufacturers have had no option but to be intervening either on partnerships or take-overs by foreign competitors that have been able to stabilize and form superiors management techniques with fresh and accurate strategies.

Rover and Honda

With operations already established in North America, at this time Honda was looking for ways to expand even further into Europe. Meanwhile, the Austin-Rover Group was in serious trouble. Short of investment funds and beset by management problems, it desperately needed new models and an efficient way of working. These were commodities Honda could supply, so the Japanese firm decided to acquire 20% of Rover as a new venture in the European market. The companies signed a joint model development policy deal in 1979. Rover's most immediate problem was for a new model to replace the Triumph Dolomite. The answer was to build a version of the Honda Ballade. Around 80% of the content was British, with engines, transmissions and some moldings brought in from Japan. The Triumph Acclaim was a much-needed immediate success, thanks to its fit, finish and, above all, reliability. In the meantime Honda and what later became the Rover Group were working on the next model. On the financial side, Honda and Rover took a 20% equity stake in each other. This used a Rover engine, which required a substantial re-design of the vehicle, with Rover gaining an excellent understanding of Honda's engineering methods and technology.

Rover and BMW

Although BMW has been a global company in its sales, it has been essentially ethnocentric in its approach to production and marketing. Its internalization for production outside Germany was fairly limited, with production plants in Austria and the United States. In 1994 Rover Group was sold to BMW for 800 million; and the17-year collaboration with Honda ended. 3

Honda's European strategy suffered a setback in 1994, when BMW made a preemptive strike and bought Rover from British Aerospace from under the nose of Honda. Honda was taken by surprise. It did not want to buy out the British company but would have been prepared to deepen co-operation further. As it was BAe preferred a quick sale. Events would later prove - to Rover's cost - that BMW's strategy was fatally flawed. . BMW bought a company; Rover that had a track record of losing money since the 1970s whether incorporated into British Leyland BL, or in partnership with Honda, Rover was decidedly on its knees at time of purchase. . There were apparently obvious benefits to both BMW and Rover in the deal. The logic of the deal from BMWs perspective would seem to stem primarily from the opportunity for its entry into different market segments of the auto industry with the acquisition of important new brands such as Land Rover, Austin and MG. Particularly Land Rover was a highly prized name that was profitable in a recognized segment market. BMW considered the investment as a relatively cheap access to small car markets without diluting their own name. The German firm already had premium products in the upper niche of the market with high profit margins. Nevertheless, their brand had reached economies of scale in the upper niches but growth opportunities were limited. Rover was attractive and provided excellent horizons for expansion. For Rover the deal provided great advantages. For example, BMWs distribution network could give opportunities for extra sales of units per year. Also, technical and manufacturing support as well apparent new investments for product development and R&D. This could have given Rover excellent economies of scale by integrating distribution, purchase of components and services activities. When BMW took over, Rover achieved 15% of the market share in the UK. Soon after Rovers lost popularity until the brands name dipped to 10% and then it was a free fall decomposing to around 5% of the market. Nevertheless, even though Rover was losing 2 million a day, BMW publicly assured that had no intentions of abandoning and would persist and turn its fortunes round .For a car manufacturer of this level a 10% market share are signs of decay, so understandably in March 2000 BMW had enough and decided to break up the company. Rover TOWS Analysis Internal Factors Internal Strengths (S) Cultural norms, education system, successful sales, Brands & Marques (Land Rover and range Rover models, Mini, Saloon), natural resources, infrastructure, technological innovation,4 wheel Internal Weaknesses (W) Management problems Making losses

External Factors

External Opportunities (O) Expansion in other areas North America, Eastern Europe, Former Soviet Republics, Pacific Rim & Asia. Alliances with other remarkable companies External Threats (T) Controlled by others Utilize Rover weaknesses

drive, off-road design , Much Lower production cost S-O Strategy: Maxi-Maxi Lower cost to expand in other areas (Mass Production)

W-O Strategy: Mini-Maxi

A developmental strategy to overcome management problems in order to take Brands and technological innovation advantage of alliances to build alliances with other big Making profits by companies in the world expansion and building alliances with others S-T Strategy: Maxi-Mini W-T Strategy: Mini-Mini Utilize the cultural norms, brands Invite foreign investments and other technological strengths to and make it attractive to develop a strategically management those firms or Industries to protect the company from others

Look into the future (conclusion)

The company should start from their strengths that they are not exist in the other companies; by R&D they will enhance this industry by creating new series of vehicles with new technological innovation. The company has to overcome the management problems; the huge industrial relations problems, ineffectual management and product duplication that had plagued the company up to the nationalization continued throughout the late 1970s. The problems centered around Longbridge union leader and shop steward Derek Robinson (nicknamed "Red Robbo" by the British press). Robinson had assumed a greater level of control over BL (British Leyland Company) than any of its senior managers, and his network of union leaders in the various BL plants had the power to end production if he had instructed them to do so. After a number of different corporate and industrial relations strategic approaches, Austin Rover's strategy since 1975 has been top-management driven in an essentially bureaucratic organization. The goal has been to achieve a highly productive, cooperative, quality-conscious work force. Productivity goals have been attained, but increasingly vital quality targets have lagged as the unions have felt deprived of their legitimate roles while certain management roles have seemed to conflict with the goals of top management. While the treatment of the paper is from a role perspective, certain major themes are highlightedcentralization, management control, unionmanagement relations, efforts at developing commitment, quality, and supervision. Mass production parallel with brands and marques that the company has been invented and creates new products will make the company making profits instead of losses, especially when the company enters new markets.

Expansion to new market in North America, Latin America etc. by building alliances Not to overcome Rover weaknesses but by attracting the others to utilize from the Strengths Rover has, this will increase the profits.(when the company is strong will force the others to accept its conditions and follow it not the leading company follows the others). Rover should produce new types of vehicles to fit new market segments such as Middle East and Africa, relevant to the nature of their land and absolutely relevant to their incomes in order to compete the Korean companies that sell huge number of cars. This will come to be real by keeping the brand name and the quality of the cars and so by cutting off costs through entering these markets which have much lower labor cost s and raw materials , in addition to investment and governmental policies to encourage foreign investments.