Garmin Corporate Strategy
You are now the CEO of Garmin Incorporated. You’ve watched your industry and your business rise to prominence and you’ve watched as your competitors have slowly eaten away at your share of the market. At the same time, you’ve witnessed your bread and butter automotive opportunity erode before your very eyes.
Company Overview
Garmin has been an innovator in Global Positioning System (GPS) technology as well as a worldwide provider of navigation, communication, and information devices which are all somehow related to GPS systems. Garmin is a global company that operates through a global network of subsidiaries and the parent organization and home office is located in Taiwan. There are four broad categories in which Garmin’s products are produced in; the automotive, outdoor/fitness, marine, and aviation products are the respective product lines.
Within 5 short years, the GPS manufacturer went from a small niche producer to a publically traded mass producer of GPS devices. However, since GPS technology has peaked and there are now many companies competing within this segment, the opportunities for Garmin have diminished significantly in its core business. In late 2007, Garmin’s stock price reached a record high of over one hundred twenty dollars a share. The impacts of the boom and must that Garmin experienced are clearly visible on their 10-year stock price chart (pictured below).
However, later in 2008, the stock price plummeted below twenty dollars a share in the Great Recession. Afterwards, the company’s financials rebounded some and now rests in the fifty dollars per share neighborhood. However, the company faces a new set of immense obstacles. The diminishing automotive GPS segment is one of the cornerstones of the business however technology dispersion and advancements. Garmin, as a company, has to quickly reinvent itself and evolve to survive. This will likely require that the company diversifies into new market segments. Garmin must continue to dominate the segments that are in decline however to support its future ventures.
Figure 1 – Garmin 10YR (Google Finance, 2013)
The GPS Industry
In 2007 Garmin dominated the U.S. market in regards to market share. However, it concentrated on this market and was late to enter other advanced economies. The company was able to capture a forty-seven percent share of the market in the U.S. which was over double that of its nearest competitor. However, in 2006 and 2007, the industry for GPS devices was at its all time peak. This market grew exponentially as soon as the Department of Defense (DoD) let GPS equipment become available to the public in May of 2000. Since that time consumers have made the use of GPS nearly ubiquitous. Some experts predicted that the entire GPS industry would go from a three billion dollar industry in 2008 to a six to eight billion dollar industry by 2012 (Lorimer, 2008).
Figure 2 – GPS Industry 2007 (Fletch, 2008)
Advances in Technology
What most people didn’t realize at the time of the GPS explosion is that there were disruptive technology advancements looming. One of the most notable threats to the industry came from Google who was rapidily developing the cell phone platforms. When the Motorola Droid was released on the Android 2.0 phones’, it offers a feature known as Google Maps Navigation (Bourdeaux, 2009). Not only did Google offer this as a free application, but the application itself was superior in many ways. For example, while Garmin’s products have to store their map information on the device itself, Google’s technology uses the “cloud” for its map technology; which is in turn supported by advancements in mobile broadband. Furthermore, the Google GPS platform never needed an update because of the cloud technology and always had the most current map data available from Google maps. Garmin users, by contrast, would have to periodically update their maps manually through software updating releases. Thus the cloud-based mapping solution was deemed superior by many of millions of consumers.
Investors also started to recognize the decline of the GPS device; “What we saw for the first time is that selling prices fell, but volumes didn’t improve enough to compensate,” analyst Eric de Graaf of Petercam said after the financial results were reported. “It’s a signal the market is getting saturated (Sterling, n.d.).” The industry completely turned on Garmin in a relatively unpredictable fashion. While the market was formed in the U.S. By regulatory admissions, the increases in competition of different market players as well as the advances in technology have acted to bring the market leader down from its former glory as it experienced in its initial growth pattern (Harini, 2010).
Garmin has made many efforts to adapt to the emerging competitive landscape. In 2011, for example, Garmin greatly expanded its product mix to include innovative devices that were more specialized in nature. The company has made products specifically for golfers and is marketed with other golfing equipment and this niche has incredible room for expansion (Garmin, 2011). Despite such innovations, the industry and the opportunities for Garmin remained in a general state of decay. The majority of this trend is explained by the introduction of competing devices which has acted to make a standalone device irrelevant and mitigate the opportunities found Garmin’s core business.
Garmin’s New Strategy
As the total market for Garmin’s core business keeps declining over the upcoming periods, Garmin should continue to identify and develop as many specialty niches as it can. Garmin can basically keep the same strategy as it had before the GPS boom as the Niche Operator. However, the new niches that emerge will be more specialized for various activities. Since the automotive industry’s GPS market demand will continue to diminish Garmin needs to spot new opportunities as quickly as possible. These niches include aviation, marine, and the fitness/outdoor market segments. Despite the losses in its core business, the demand for specialty products in is estimated to grow at ten percent per year until at least the medium term.
Currently Garmin is already doing well in these market niches with roughly an average of twenty five percent control of the market share. However, as the other industries continue to shrink, Garmin could concentrate on growing its market share to thirty five percent in each of the market segments within the next five to six years. Furthermore, Garmin should expect to exit the automotive market completely within three years of the plan; with the exception of replacement and maintenance products. At this point the company will divest the mobile and automotive operations completely and receive $1.5 billion in cash from the proceeds. These assets should then be reinvested into the niche strategy to grow market share.
Year
Base Revenue (Millions)
Cash Outflow
Cash Inflows
Total Revenues
1.00
4,000.00
4,000.00
2.00
4,400.00
4,400.00
3.00
4,840.00
4,840.00
4.00
5,324.00
1,000.00
5,852.00
5.00
5,856.40
6,384.40
6.00
6,442.04
6,970.04
7.00
7,086.24
7,667.04
8.00
7,794.87
8,433.75
9.00
8,574.36
9,277.12
10.00
9,431.79
10,204.84
63,749.70
2,500.00
4,279.49
68,029.19
Once Garmin is completely out of the automotive and mobile industry, it should reinvest these assets into growing the market share of its niche lines. These projects can increase the total market share to an estimated thirty five percent. This will lead to a net present value of over a billion dollars calculated with a ten percent cost of capital. Garmin should stick with the niche strategy since it is already one of the organizations core competencies.
Project Returns
NPV (@10%)
$1,000.91
IRR
63%
ROIC
18.63%
ROE
22%
Using this funding to expand into more specialized niches will represent a strategy similar to the one Garmin was using before the market explosion. Garmin should continue scanning for opportunities for either horizontal or vertical expansion that are suitable to compliment this strategy. The company must make the best uses of the resources built though the boom and bust of the GPS market to foster the new strategy. It should also invest a considerable amount of its capital on research and development so that it can continue to innovate and hopefully find a new niche that is poised to go mainstream similar to the GPS explosion.
Works Cited
Bourdeaux, P. (2009, December 30). Google’s Impact on GPS Devices. Retrieved from Sun Dog: http://www.sundoginteractive.com/sunblog/posts/googles-impact-on-gps-devices
Fletch, P. (2008, May 8). GPS Brands Market Share Data for 2007. Retrieved from GPS Magazine: http://www.gpsmagazine.com/2008/05/gps_brands_market_share_data_f.php
Garmin. (2011, December 31). Garmin 10-k. Retrieved from About Garmin: http://www8.garmin.com/aboutGarmin/invRelations/reports/10-K_2011.pdf
Google Finance. (2013, December 9). Garmin Ltd. Retrieved from Google Finance: https://www.google.com/finance?q=NASDAQ:GRMN
Harini, A. (2010). Garmin (GRMN). Retrieved from Amazon: http://askville.amazon.com/Garmin-GRMN-Faces-Stiff-Competition-internet-giant/AnswerViewer.do?requestId=66533913
Lorimer, R. (2008, September 22). World-wide precision GPS market to grow from U.S.$3 Billion in 2008 to U.S.$6-8 Billion by 2012. Retrieved from PRLOG: http://www.prlog.org/10120262-world-wide-precision-gps-market-to-grow-from-us3-billion-in-2008-to-us6-8-billion-by-2012.html
Sterling, T. (n.d.). GPS market facing sliding prices and demand. Retrieved from abc News: http://abcnews.go.com/Technology/story?id=4734666&page=1#.T52nKquiG3M
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