Garmin GPS Company Ltd
Garmin is a worldwide provider of navigation and communication products and services. The company specializes in sectors such as the automotivemobile, marine, fitness and aviation. The company designs, manufactures and markets a varied product profile of navigation and GPS (Global Positioning System) enabled products which are portable, fixed mounted or hand-held. The company also produces software and applications for its different navigation and communication devices.
The companys business model from its navigation division is based on a subscription fee model through which costumers pay anywhere between 5 and 10 per month for using the navigation services from their cars, motorbikes or other automotives. Similarly the company also charges its customers for downloading and updating maps. The company also has strategic links with the OEMs (Original Equipment Manufacturers) such as automobile manufacturers (BMW, Saab, Ford etc) who use built-in devices of Garmin in their vehicles such arrangements with OEMs give the company a strong base and market for its navigation products and software. The company is an important vendor for many avionics manufacturer and car manufacturer and the financial health of these industries has a direct impact on the sales level of Garmin
Products and Services Offered at Garmin
Garmin offers navigation devices and maps in the automotive, motorcycles, trucking, and traffic sectors. Some of the products in the automotive sector include nuvi 1200, nuvi 1250, and nuvi 775T. In the traffic receiver market the company offers products such as GTM 25 and GTM 21. The company also markets and manufactures mobile phones with built-in GPS features such phones main USP (Unique Selling Point) is the ability to allow navigation services using GPS technology and letting consumers communicate at the same time. One such example from Garmin is the nuvifone. Just like some of the products discussed above Garmin offers products and services in the Avionics market and sports market. Flight decks, Avionics and safety are some of the other product categories that Garmin provides to its customers.
Price Elasticity of Demand
The elasticity of products in terms of demand varies with each product and division though essentially because the company operates in the technological sector the general elasticity of demand for the companys products is price elastic. Another reason for price elasticity is that there are a number of substitutes available in the market for Garmins mobile phones, navigator devices and avionicsports devices this keeps prices in a check and any change many cause the customers to switch quickly. The products are also considered price elastic because they are comparatively expensive and considered as a luxury especially some of the navigators which are priced 500 upwards. In terms of some of the services such as the maps downloading and upgrading we see that there is an element of price inelasticity this is because once a navigation device or navigation phone is bought customers will have to buy maps and upgrade them out of necessity.
New Product Development
The research and development at Garmin have continued in recent years. In 2009 the company brought to the market a number of new versions in its personal navigation device (PND) product line. One such product is the nuvi 1690, this product offers Garmins nuLink service, which allows customers access to Google search engine, traffic, weather and flight status information amongst other important daily news. There are other new models in the mobileautomation category such as the nuvi 1200 and 1300 series the distinguishing features of these models are their design features, enhanced maps, voice-activated maps and other latest features. The new nuvi 465T is so powerful that it supports multiple truck profiles and also enhanced routing and guidance. This features lets truck related information on the road such as restrictions on height, weight, length etc get through to computers and drivers.
The February 2009 partnership and launch of the co-brand mobile phone Garmin-Asus nuvifone series subsequently meant that Garmin could move into the location centric mobile phone market. The company also launched nuMaps Lifetime in 2009 which allows customers to download latest maps and important information every quarter up to the useful life of their PNDs the defining feature of this product is that it is a single fee program.
Garmin has expanded and developed new products in outdoorfitness product market with Forerunner line and Edge line being enhanced. Moreover we also see expansion in the marine product lines with the introduction of GPS 72H last year. Similarly there is a trend of innovation at Garmin for its avionics division as well. The expenditure on research and development is also substantial at Garmin for instance in 2009 about 8 of the sales revenue was spent on research and development.
Role of Technology and Product Life Cycle
Typical of the technology sector we see that new improvements and better technology leaves older products as redundant and obsolete for the market. This is also the case when it comes to Garmin which offers products highly dependent on technology. The product life cycle is extremely limited in life and most products at Garmin earn their potential revenue stream in the growth stage which is just before the maturity stage. The middlematurity phase of the product life cycle is the shortest compared to the products of other sector. This is because constant development and demand for lower prices and efficient products leads to the introduction of new models by the same company. For instance Garmins new phones which offer enhanced navigation tools will make the older versions of the phone redundant and of less value compared to the new model.
Major Market Trends
As we move into a recovery phase in the world markets we will see more money being plugged into technological products. Moreover the introduction of Android by Google and
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C-dragon technology by Microsoft is an indication of where the navigation device market is headed. As shown in the graph above for a good time especially from 2006 to 2008 the personal navigation device manufacturers enjoyed a large market share without much competition though as whole (as an industry) the navigation device manufacturers would find it very difficult to maintain market share for stand-alone navigators. This is especially because the close partnership between Google and Apple has meant that free mapping and navigation technology will be at the doorstep of costumers and they would be able to use their mobile phones to get the work which was previously done by navigation devices.
The only significant sigh-of-relief for navigation device manufacturers such as Garmin is that Garmin also has telephone technology and it can use Googles android software to compete with Apples IPhone applications. The main point still is that in the near future lets say in the next two to three years people would rather have all important facilities from their smart phones rather than different services from different dedicated devices. The blackberry devices are one such example which has reduced the use of laptops for business executives and other travelers.
Demand and Supply Scenario
A report that discussed the fundamentals of the Japanese electronic map market stated in its findings that in the recessionary years of 2008 and 2009 the private demand for personal navigation devices declined though because the experts believe that in 2010 and 2011 the demand for cars and incomes will increase we will see recognizable growth in the car navigation and PND sector in Japan the market is expected to grow from 48.75 billion yen in 2009 to 50.35 billion yen in 2010 and 51.9 billion yen in 2011(Yano Research Institute Ltd., 2009).
The important demand factors that drive the growth for navigation maps and other such devices and services include firstly the attention to car safety by governments and consumers secondly factors such as high efficiency, convenience, entertainment information, pollution reduction, market information and other entertainment requirements have meant that more and more people are demanding either in-built (factory fitted) navigation devices or they are buying these PNDs (Portable Navigation Devices) from the market.
A report on global and China car navigation industry says that by 2011 the shipments of factory original equipment manufacturer (OEM) car navigation devices will increase to above 14 million from about 7 million in 2008. This piece of research suggests that companies like Garmin which have penetrated the OEM market with links in the auto-industry will benefit and such companies will have opportunity to grow and increase sales revenues from the OEM market (Reportlinker, 2009-10).
In terms of the supply side the market that Garmin serves will change significantly in the next few years. Firstly the smart phones will virtually put a halt to the growth of PND market share therefore Garmin will have to focus on OEM and mobile phone technology to maintain overall profitability growth and growth in sales revenues. Secondly companies like Garmin must develop better software to compete and maintain supply levels for the future because companies like Google, Microsoft and Apple will enter the other markets of Garmin such as supportoutdoor product line, Avionic navigation and marine product line. The only way to maintain strong share is buy investing and developing better and superior class software which could match the class of android or IPhone applications.
Production Inputs and Cost Structure
Garmins main cost advantage exists because the company has a reputation of implementing latest engineering techniques that allows Garmin to introduce products into the production stage and receive feedback and only than going into full scale mass production. The company achieves cost competitiveness also through design and process optimization, logistical agility, and materials input and handling.
The manufacturing facility is made up in such a way that it develops prototypes, concepts and new processes and tests them in such a way that higher efficiency is obtained from the production process. The advantage of manufacturing facilities to Garmin is that in case of component shortages and long lead times for raw material arrival Garmin can bypass and re-engineer product requirements or develop new designs to overcome component shortages.
Cost Implications
The cost of raw materials is an important part of the cost of goods manufactured and sold. For instance in 2009 gross margins for the automotivemobile division increased by about 350 basis points as a result of derived benefits of declines in the raw material prices. Similarly in 2008 the prices of flash memory, significant raw material, declined subsequently the margins were not affected even though selling prices were depressed in 2008.
From the year 2005 to 2007 the cost of good sold showed an upward trend which was well in line with the increase in sales level. From 2008 to 2009 cost of goods sold declined from 1.94 billion to 1.5 billion as a result of a decline in sales of goods and therefore lesser production. This trend in the cost of sales implies that changes in cost of production are dependent on the sales and manufacture of goods and in part the level of efficiency also determines the profitability margins of the company.
As a percentage of sales in different divisions the cost of production was 34.6 of the sales level in the Outdoorfitness division, 41 in the marine division, 58 in the automotivemobile sector, and 31 in the aviation sector. These numbers explain that the lowest margins and efficiencies are achieved in the automotivemobile sector a probably reason is the increased competition in this sector in recent times. An important point to not here as well is the fact that out of the total sales in 2009 automotivemobile division was the biggest contributor to the sales (consolidated) figure. The contribution of sales from automotivemobile sector was about 70 to consolidated sales in 2009.
(000 figures for Fiscal year 2009)OutdoorfitnessMarineAutomotiveMobileAviationSales468,924177,6442,054,127245,745Advertising23,2629,682118,7133,864RD2377621,448110,90782,247Selling, general and admin expenses4779918,177172,47325,753Total Expenses94,83749,307402,093111,864Total Expense as a of sales0.202243860.2775610.1957488510.455204
The important factor to note here is that in the aviation division the ratio of RD to sales expenditure is extremely high as compared to other divisions. Advertising expenditure is a major component for the outdoorfitness division as analyzed from the above table. What is still relevant here is that on a ratio analysis basis the highest spending division in the categories of RD, selling, administration and advertising we have the aviation division.
Industry Composition and Market Structure
The industry in which Garmin Ltd is categorized can be considered as quite competitive and it can be safely called a monopolistic competition market especially in the portable navigation device market. The companys main competitors in the portable automotive products are TomTom N.V., MiTAC Digital Corporation and Navigon AG. The important factors in this sector include the quality of software and user friendly features of the product, product design, manufacturing efficiency, weight and cost price. If companies can come up with better software and technologically advanced products in the navigation automotive market than they have a fair chance of taking a large chunk of the market.
The industry is also considered extremely competitive because of the impact of technology and the launch of products to the market. Although companies might develop great technological products but it is essential to launch them into the market at the right time so that enough products are sold to recoup investments. The concept of branding in the market is dependent on factors such as reliability and quality of the product. It plays a crucial role in the identification of the product but the ultimate success of any product in the market is based on the product features and technological advancements introduced in that particular product.
The industry of portable navigation devices is under severe threat from technology companies such as Google and Apple who have developed phones and applications which can offer navigation services with lesser charges and better software interface. This means that people would rather prefer to use navigation options from their smart phones such as Apples IPhone then to use a dedicated navigation device which costs more and not as user friendly as their smart phones.
This shift in the product requirement and availability of superior features in the product of another industry has meant that companies like Garmin must adapt newer technology in software market and develop greater product lines in the OEM sector and other niche markets which are too small for companies like Google and Apple. It should also be considered an important factor in deciding on future mergers or acquisitions because one way of strengthening product portfolio is to acquire other companies with brighter ideas or buy small startups with promising product offerings.
In the outdoor market the companys main competitors are Magellan, which is a subsidiary company of MiTAC, Delorme, and Lowrance Electronics Inc., a subsidiary of Navico. Garmins main competition in the fitness product market includes Nike Inc., Polar Electro Oy, Suunto Oy and Timex Corp. In the marine sector the company faces competition from the likes of Raymarine Ltd, Furuno Electronic Company, Simrad and Lowrance. Garmin faces competition in the fishfinderdepth sounder product division from Lowrance, Raymarine, the Hummingbird division of Johnson Outdoors, Inc., and Furuno. In the aviation market the company competes with companies such as Honeywell, Inc., Avidyne Corporation, L-3 Avionics Systems, Rockwell Collins, Inc., Universal Avionics Systems Corporation, Chelton Flights Systems, Aspen Avionics, and Free Flight Systems for GPS panel mounted units.
We believe that the toughest competition that the company will face is in the following category of smart phones. Garmin competes for market share in the smart phone market with companies such as Apple, Inc., HTC Corporation, Nokia Oyj, Samsung Corporation, Sony Ericsson Mobile Communications AB, Google, Inc., Motorola, LG Electronics, Palm, Inc., and Research in Motion Ltd. In this market if Garmin can establish its market share and control significant markets through superior quality software and product features then we can expect Garmin to make a comeback in the navigation device market.
Governments Role in the Electronics Navigation Manufacture Market
The government as a regulator plays a critical role in the telecommunications industry and the GPS technology related sector. In recent times the US government has allowed more precise positioning of objects, roads, and other land marks for the use of general public through hand-held and other portable navigation devices. Apart from the GPS regulations other mapping technology such as C-dragon has also been introduced which has received governments green signal and it is an indication toward greater freedom.
In terms of the certification requirements companies that sell smart phones in the US and in foreign countries must hold certification from FCC (Federal Communications Commission) for instance when Garmin sells products in foreign locales such as Europe requires the company to comply with the appropriate regulations of the European Commission. Any delay or nave response in the acquisition of a certification can negatively impact the business concerns of any company in the telecommunications sector. Stringent certifications are also required for the sale and use of aviation products in aircrafts. In the US certification is needed from FAA, European Aviation Safety Agency in Europe, and other similar agencies in the rest of the world where the aircraft will be operational.
One of the companys subsidiary known as Garmin Corporation is situated in Taiwan and therefore the foreign exchange control laws and regulations of Taiwan will impact the business especially because these controls impact the remittances of profits from and into Taiwan. At present the laws that govern the foreign exchange capital movement in and out of Taiwan are favorable for trade-related activities. Exporters are free to use their revenues earned from abroad and they can remit it where ever they want to though there are caps on the free movement of capital for imports.
Business Environment in the Global Arena
As we take the view of Garmin Ltd from the top of the world we see that there are certain patterns that are forming and there are some changes that will impact Garmin or any other such company. Firstly, in the telecommunications sector and more specifically in all major technology related industries there has been a wave of mergers and acquisitions all aimed at gathering a bigger market share and adding to the list of innovative products a particular company already owns. Companies such as Apple which are still growing through indigenous expansion might also turn to the acquisition model very soon.
The idea here is that in such a business environment there are both positives and negatives for instance on the optimistic front acquisitions by Google, Microsoft and other technology firms give creative entrepreneurs an exit strategy and substantial rewards for their hard work. On the other hand the disadvantage of such rapid acquisition strategy is that after sometime companies like Google, Apple, Yahoo and Microsoft will dominate major markets and the scope for competition will reduce driving real prices higher than current levels.
Another important trend that has emerged recently is the increased regionalization of markets. For instance the difficulties that Google is facing in China means that technology and development companies can not expect similar regulatory treatment all across the globe. Certain regions still have conservative policies with regards to media and internet freedom therefore companies must tailor products according to markets they want to enter.
An important change in the mindset of technology companies is also related to diversification. This new kind of diversification approach is different from previous methods. What companies like Microsoft and Google are doing is that they are entering into markets and product lines of companies which can be potential direct competition in the future. For instance when Google developed the Google Chrome it was direct threat to Internet Explorer similarly Microsofts launch of Bing search engine is a direct competition to Google search engine. Essentially what we are trying to get at is the fact that companies like Garmin must either acquire new companies with innovative ideas or look to develop product which are a direct entry into somebody elses pie. These strategies have almost become the fundamental ways of growing in the dynamic technology sector.
Since Garmin is also placed as a vendor in the OEM market there is a lot of scope for the company in developing factory fitted navigation tools especially in growing markets such as China, India and Brazil. Garmin should focus on automakers from India, China, Russia and Brazil and develop solid business relations with them so that this market is secured especially when these economies are becoming automated at a rapid pace.
In light of these major changes companies need to adapt and look to take advantage from every possible opportunity that presents itself. This is especially true for markets that are dependent on technological innovation and product development based on creativity and not on market demand.
Location Factors
For a technological firm such as Garmin Ltd location factors are important in terms of where the manufacturing facilities are located and what sort of competitive advantage does that location offer Garmin currently has operations in the US and Taiwan and in the near future it can move into other markets such as India and China. A move to these developing nations would mean that Garmin could manufacture some of its products in these countries and benefit from the low cost of labor. Another advantage of opening or shifting operations to India or China is that by going closer to a potential market Garmin can ensure it has proximity to automakers in India and China.
Closeness to a particular market has a number of advantages and allows a particular company to develop links not only with other suppliers in the market but also study the general market in the host country. There is a build up of skilled labor in both India and China and more importantly these skilled laborers continue to work on comparatively lower wage-levels then workers in the western world hence Garmin has more cost incentives to come to these countries and setup manufacturing facilities.
Which ever way you look at it for a company like Garmin which wants to expand into different markets and fields it is imperative to have some sort of regional proximity. For regions such as the South Asian belt and the Middle East which represent ever growing population and even better market of expanding middle class with greater purchasing power we see that companies such as Garmin must establish some sort of presence in either China or India as major markets of the concerned region.
Innovation and Entrepreneurial Acumen
Businesses in todays world are going through a tough set of changes the economic and financial crises have left most businesses wounded and looking for inspiration so that they could make a comeback and show strong performance and boost their top and bottom lines. Apart from a few industries most sectors have faced certain kinds of problems due to the economic and financial issues. When companies like Garmin want to expand and maintain their growth pattern they must look inwards for inspiration and innovation. The sort of product lines that Garmin has it is pretty evident that technological advancement and innovative products are an important part of the companys business model.
If we look at the smart phone market the company has a huge potential to achieve for example the touch screen market provides a great opportunity for the company to come up with a new product that could compete with HTC phones or Apples IPhone. This penetration will require innovation and some great ideas and this is one way to counter the surge of Apple and Google into the portable navigation device market of Garmin.
Another way of looking at it is through the spectrum of acquisition and expansion through external sources the company needs to plan and form a strategy through which it could decide on buying innovation and new ideas from external sources. This would involve buying companies or even a strategic merger. For a company like Garmin and its financial size going into a strategic merger is not a bad option when a major division and its share are under threat. It might be look upon as an important sacrifice to stay alive and not be eventually driven out of the market or acquired by another company. Innovation and creative ideas can always cause a major turn around Apples example is a case in point when Steve Jobs inspired his company and launched the IPod his firm went on the path of phenomenal success and glory therefore such a piece of innovative genius is needed for the navigation industry at large to bring it back into contention.
Conclusion
It is significant to point out that companies in the electronics and technology sector are going through an expansion shift companies from different sectors are entering each others market share and there is a constant flux in the way new products are being tailored to fulfill increased number of needs. Another key factor that is changing the way markets operate is that new technology is making older products and even industries obsolete and redundant.
A potential example is the portable navigation device market with the arrival of IPhone and its applications that can download maps and navigation tools there are few people who would not want a smart phone which could be used as a portable navigation device as well. This means that a major chunk of the navigation device manufacturers would have to look to either develop better software technology or move into new markets as it is a case of survival for them.
We must also understand that globalization has been taken over by a bigger and more fundamental change which can be called the phenomenon of regionalization regions are shaping as powerful blocs which an influence the decision making of businesses and other nations. Security concerns and sophistication of costumers are also opening new markets for businesses in the electronic manufacturing sector.