Garmin Case Study: Strategic Management

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When Garmin first made an entry into the personal navigation devices (PND) market in 2007, it gained rapid popularity because of the superiority of what it offers. It soon became the dominant player in that industry in North American and European markets. However, the success was significantly affected by the entry of substitute products such as smartphones and vehicle navigation systems that offered superior value to customers (Sengul, 2019). The PND could not respond effectively to the new challenges it faces. The company lost 87% of its share value in one year, and its rivals such as Tom Tom did not perform any better. It became evident that they had to redefine their product portfolio and customer value to manage the new competition. Garmin opted to introduce new unique item to the market as a way of enhancing its sustainability. The company has diversified its products include aviation, automotive, marine, outdoor, and fitness. In this study, the focus is to assess Garmin’s personal navigation devices business, discuss its response to the rapid changes in the PND industry, and recommend actions that its management can take to strengthen its strategic position in the outdoor and fitness markets.

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Analysis and Implication of External Environment

The ability of a firm to achieve success in the market depends on its capacity to understand and manage external environmental forces. Garmin has been faced with numerous challenges since 2008, and some of its rivals have already been forced out of the market. To avoid facing the same fate, the management must understand the external factors, determine how they influence the company’s operation, and develop ways of aligning operation to these forces.

PESTEL Analysis

PESTEL analysis provides an opportunity to review critical factors in the external environment. The model has popularly been used to enable companies to understand the specific forces under which they have to be ready to operate to achieve success. It focuses on the political, economic, socio-cultural, technological, ecological, and legal factors.

The political landscape is one of the factors that the management should give a serious attention. In the United States and European markets, Garmin enjoys a stable political environment that can facilitate growth. In these countries, there is limited interference from political leaders as long as a firm is operating within the set laws and regulations. However, the Chinese market may pose a significant problem despite the attractiveness of growth opportunity. The immense power of the political class means that they can easily dictate the destiny of a foreign firm. India may not have a highly develop political system as that of Western Europe and the United States. However, it poses little threat compared with China.

The economic landscape is another factor that has to be considered when analyzing the external environment. The ability of a firm to achieve sales growth depends on the buying capacity of individual customers. As shown in the case study, there has been a consistent growth of the global economy since 2009 after the global recession. China and India are particularly attractive markets because of the growing economy and their massive population. This company can take advantage of the opportunity presented by the economic growth of the two countries.

Socio-cultural factors also have a direct impact on the performance of Garmin both in the local and in international markets (Sengul, 2019). In the United States and Europe, global positioning system (GPS) is becoming a basic need among travelers, especially those who are visiting new places (Sengul, 2019). In China and India, the system is gaining a new role of guiding drivers to avoid heavy traffic jams. The new technology-based lifestyle offers an attractive growth opportunity that the company can capitalize on to achieve growth.

Technological factors have proven to be the greatest challenge in this industry although they also offer major growth opportunities. When Garmin introduced its first personal navigation device in 2008, it was viewed as a revolutionary product, and as such, it gained popularity in the market. However, technological advancements in the mobile phone industry meant that companies such as Apple Inc and Nokia could install the software in their phones. These technological advancements almost rendered items in this industry redundant. Garmin and its competitors had to redefine their product offering to meet the new expectations based on emerging technologies. The company must find a way of responding to the emerging technologies proactively.

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Ecological factors can no longer be ignored if a firm seeks to achieve sustainable growth. According to Rothaermel (2020), companies are under pressure to ensure that their operations have the least impact on the environment. The United States and European Union have tough environmental laws meant to limit pollution. A new trend is also emerging where consumers prefer materials sourced locally as a way of reducing carbon footprint. Outdoor and fitness segment products that this company offers to its customers do not have any significant implication on the environment. However, the management should ensure that it uses renewable energy and enhance effective processing of wastes.

The legal landscape is another external environmental factor that has to be considered when defining strategic plans for the company. Each country has specific laws and regulations that a firm must observe. In North America and Western Europe, the company must be keen on environmental, customer protection, and competition laws. Its operations should not exploit clients or rival firms. In China, there may be additional rules besides those mentioned above. The country has strict laws meant to protect the government and minimize potential rebellion among citizens. India has regulations which facilitate ease of operation for both local and foreign companies.

Industry Structure

It is necessary to assess the industry within which this company operates to understand forces that may enhance or limit its growth. Exhibit 1 below shows specific elements of the industry structure that the management of Garmin should monitor. One of the major factors is industry rivalry. The competitive landscape should also be given consideration, especially when the market is volatile. According to Rothaermel (2020), successful companies view competition as an opportunity to improve their products and to offer superior quality to clients. In an effort to manage competition, a firm will always improve customer value and production processes to ensure that they lower the cost while at the same time improve the value offered in the market. However, stiff competition may sometimes have negative consequences, especially when it takes the direction of price wars. There is stiff competition in this industry, but all players are keen on avoiding price wars. Some of the major competitors in this industry include Tom Tom, MiTac, Navoco, and Xiaomi.

The bargaining power of suppliers is another issue that may be of concern to companies within a given industry. In the case study provided, it is evident that the power of suppliers is not a major issue that is of concern to the company. The firm can easily have access to materials it needs to make its products available to its customers. In cases where the bargaining power of suppliers is relatively weak, it is easy for a firm to dictate terms and conditions of the sale agreement (Rothaermel, 2020). Garmin can take advantage of this power to ensure that it lowers its cost of operation.

Bargaining power of buyers is a major concern that industry players should be keen on managing. The case study shows that one of the biggest challenges that players in this industry face is the bargaining power of buyers. The existence of numerous firms offering similar items to the same market means that customers have a wide choice. They can demand for lower prices whenever they want to purchase a product. The bargaining power is particularly strong when dealing with institutional/organizational buyers.

Another major element in the industry structure that they have to consider is the threat of new entrants. When operating in an industry where rival firms can easily enter and exit the market, then there is always the constant threat of competitive rivalry getting stiffer. The case study shows that the PND market has become increasingly unattractive, especially to the smaller players because of the emergence of numerous alternative products. Some of these small firms have already been acquired by the dominant companies in this industry. A possibility that others may emerge in the future is less likely if the industry continues on its decline path. As such, the management of Garmin does not have to worry about the threat of new entrants.

The threat of substitutes is real within this industry. When the company started its operations in this industry in 2007, the product was considered revolutionary. However, it lost its appeal when Smartphone companies started introducing substitutes that were considered superior. Apple Inc.’s iPhone, Samsung, and Huawei started installing the GPS software in their phones in 2008 (Sengul, 2019). The PND industry did not expect such a move. The management of Garmin was forced to redefine its product offerings. The outdoor and fitness segment of the market does not have as numerous substitutes as the other market segments where the firm operates.

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Analysis and Implication of Internal Capabilities

It is equally important to conduct an analysis of internal capabilities and understand the resulting implications. The external environment presents growth opportunities for a firm within a given industry, but the success of it greatly depends on its capabilities. This section will focus on VRIO framework and SWOT analysis, which are popular models of conducting an internal analysis of a firm.

VRIO Frame Work

The model focuses on resources, capabilities, and competencies of a firm as it seeks to achieve growth in the market. Exhibit 2 identifies these competencies, resources, and capabilities relative to that of rival companies within the industry. The ability of this company to access and dominate the global market, especially the new markets of China and India offers it a strong competitive edge. The only challenge is that this capability can easily be imitated by rival firms keen on exploring these markets.

Superiority in technological engineering and commitment to research and development is an area where this company has sustained competitive advantage. It is a valuable capability that is rare and costly to imitate. The management has fully exploited the ability to gain competitive advantage in the market. Financial capability of the firm is another area of competitive advantage. The resource is valuable and costly to imitate but not rare as long as a rival firm can achieve revenue growth. Effective networking and reliable strategic partnerships is a valuable capability that is neither rare nor costly to imitate. As the firm continues to exploit the capability, it offers temporary competitive advantage.

Customer loyalty is a valuable resource, which is rare but not costly to imitate. The company has exploited it fully and it offers potential competitive advantage. The ability of the firm to create a team of highly skilled workers is a valuable capability that is not rare but costly to imitate because it requires continuous training and high remuneration of the workforce. The company is using it to achieve temporary competitive advantage. The case study shows that the firm has a powerful brand image. It is a valuable asset that is rare and costly to imitate. Given the fact that Garmin fully exploits this resource fives it a competitive edge over its rivals in the market.

SWOT Analysis

Conducting a SWOT analysis makes it possible to understand strengths, weaknesses, opportunities, and threats that may enhance or inhibit the ability of Garmin to achieve sustained growth in the market. As shown in exhibit 3, one of the main strengths of this firm is diversification. The decision to explore outdoor and fitness segment of the market enabled it to remain sustainable. The company has also embraced creativity and innovativeness as a way of achieving sustained growth. The ability to explore new international markets and its dominance within the country also offers it a competitive edge. Its strong brand is also another factor that gives it a competitive edge in the market. However, the case study shows that this company has been unable to challenge mobile phone companies in their markets. It is also evident that it has been unable to understand and quickly respond to emerging market trends.

The market has opportunities that the company can exploit to achieve growth. The increasing purchasing power of its customers offers greater opportunities for growth. It is also evident that there is the increase in the number of people using outdoor and fitness products, which means that the market size will expand. The ease of exploring international markets is another major growth opportunity for Garmin. The fact that the number of direct competitors is reducing also reduces rivalry within the industry. The management of this company should be keen on operating threats in the market, top of which is the increasing number of substitutes. The company should improve its product portfolio to address this challenge. The weak global growth is another concern identified in the case study. The disruptive technologies have been affecting this industry and this firm must find ways of managing it.

Recommendations

Based on the analysis of the case presented, the researcher has made recommendations that propose how to leverage potential organizational strengths and overcome barriers during the strategy implementation process.

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Primary Objective 1

This management of Garmin should prioritize the delivery of high-end products for sportsmen and sailors. The niche is growing rapidly and most of these customers are often willing to pay premium prices for quality items.

Timeline: The products should be made available in the American market within the first quarter of the next financial year. It should reach the European market in the second quarter and the Chinese/Indian market within the fourth quarter of the same financial year.

Details: The United States and Europe have witnessed a growing number of ultra-wealthy individuals who are willing to pay high price for quality products. The company should focus on this niche because the study shows that the number of high-net worth individuals is going to increase.

Primary Objective2

The firm should invest more resources and time on promoting creativity and innovativeness. The strategy is meant to protect the company from unexpected impact within the industry.

Timeline: The investment should be a continuous project, but the first phase will need to be implemented within the next two years starting in Q4 of this financial year.

Details: The analysis has shown that disruptive technologies pose great threat to the sustainability of this company. Instead of responding to industry’s shocks, the company should invest in proactive projects meant to help create new innovative items in the market. It should not shy away from introducing new products in the outdoor and fitness segments that may expose it to new competitors.

Conclusion

The management of Garmin decided to expand its product portfolio when the PND faced a challenge of new market entrants in the industry. Outdoor and fitness are some of the two segments that have proven to be successful over the past recent years. These segments present impressive growth opportunities. However, the internal and external analysis shows that there are challenges that the company has to overcome to achieve success in the market. It must use its strength and overcome weaknesses to achieve success.

Exhibits

Exhibit 1: Industry Structure Elements

Industry Structure Elements

Exhibit 2: VRIO Framework

Core Competency Valuable? Rare? Costly to imitate? Exploited by organization Performance/competitive implications
Ability to access and dominate the global market (China and India) Yes No No Yes Potential competitive advantage
Superiority in technological engineering and commitment to research and development Yes Yes Yes (but emerging technologies may make it less costly to imitate) Yes Sustained competitive advantage
Financial capabilities Yes No Yes Yes Temporary competitive advantage
Effective networking and reliable strategic partnerships Yes No No Yes Temporary competitive advantage
Customer loyalty Yes (but sometimes they purchase products from rival firms) Yes No Yes Potential competitive advantage
Highly skilled human resources Yes No Yes Yes Temporary competitive advantage
Powerful brand image Yes Yes Yes Yes Sustained competitive advantage

Exhibit 3: SWOT Analysis

Strength
  • Diversification of products
  • Creativity and innovativeness
  • Ability to explore new markets
  • Market dominance
  • Strong brand name
Opportunities
  • Growing purchasing power
  • Growing number of people using fitness and outdoor products
  • Ease of exploring the international market
  • Reduced number of direct competitors
Weaknesses
  • Inability to challenge Smartphone companies in their market
  • Limited ability to understand and quickly respond to emerging market trends
Threats
  • Increased number of substitute products
  • Weak growth of the global economy
  • Disruptive technologies in the market

References

Rothaermel, F. T. (2020). Strategic management: Concepts (5th ed.). New York, NY: McGraw-Hill Education.

Sengul, M. (2019). Garmin 2019: Case study. The Business School for the World Case 2019-6356, 1-30.

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