Reference no: EM132194957
Deere & Company in 2015: Striving for Growth in a Weakening Global Agriculture Sector In 2015, Deere & Company, headquartered in Moline, Illinois, remained the largest agricultural equipment and machinery manufacturer in the world, with operations in more than 26 countries. Despite a slowdown in the global construction industry, Deere had its best-ever year in fiscal 2013 with record net income for the third consecutive year. The company’s record sales and earnings of $37.8 billion and $3.54 billion, respectively, resulted from the success of its global strategy keyed to product innovation and quality, operating excellence, cost reduction, and best-in-industry customer service. The company built or acquired new plant capacity in Brazil, Germany, and China in 2013, and planned seven new factories in international markets in 2014. Deere’s prospects for even stronger financial performance appeared favorable as the global demand for agricultural products was forecast to double by 2050. International markets such as China, Brazil, and Russia already accounted for more than 35% of the company’s revenues in 2013, and these emerging markets would likely make up a much larger percentage of sales in the long term as living standards in emerging markets improved. The company’s prospects for stronger performance in 2015 were challenged, however, by a sudden and significant overall weakness in the global agricultural sector In 2014, continuing into 2015, a weakening farm economy resulted in lower agriculture sales which more than offset the increase in construction and forestry sales, resulting in a 5% drop in new sales, The company’s primary challenge in 2015 was the continuing declining demand for agricultural equipment, which was resulting in significant reductions in sales and earnings. In fiscal 2014, John Deere’s revenue declined by 3.4%, and net income fell by 10.6%. Deere’s Chief Financial Officer, Rajesh Kalathur, commented in 2015 that, “the company was facing the deepest downturn in the North American agricultural sector in 25 years,” Nonetheless, John Deere’s management expected to have a profitable year despite the prospect of lower sales. The company’s primary challenge, moving from fiscal 2014 to 2015, was how to best defend against the competitive pressures stemming from its chief rivals in the agricultural and construction equipment industry — Caterpillar, CNH Industrial N.V., and AGCO Corporation, and how to manage in face of the reduction in global demand for agricultural machinery and equipment.
1. How strong are the competitive forces confronting Deere in the global market for agricultural and construction equipment? Do a five-forces analysis and identify the key driving forces and key success factors to support your answer.
2. How have Deere’s business strategy choices strengthened or weakened its competitive position in the agricultural and construction equipment industries? Discuss how the company’s senior management has chosen to increase the horizontal or vertical scope of the firm.
3. Has Deere’s increase in scope also been a part of its international strategy? Is the international strategy best characterized as a multi-domestic strategy, global strategy, or transnational strategy? Explain.
4. Is Deere’s business strategy producing good results?
5. What business strategy recommendations would you make to Deere’s management? Should the company consider divesting assets or acquiring new assets? Are there other potential strategic options that should be under consideration? Please justify your recommendations by outlining the pros and cons of each.