Navigational, Measuring, Electromedical,
And
Control Instruments Manufacturing
Prensented By:
Brian Dimsdale, John Melche, Lesley Small, Mary McCloud
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Table of Contents
Part I…………………………………………………………………………………………………… 3
Part II…………………………………………………………………………………………………. 11
Part III…………………………………………………………………………………………………..13
Part IV…………………………………………………………………………………………………….17
References……………………………………………………………………………………………….20
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PART I: DESCRIBE TWO PUBLICLY TRADED BUSINESS RIVALS
1. When we were thinking about which rival companies to choose, we wanted something that you might
not initially think of. This is why we decided to analyze Garmin and TomTom. While the navigation
industry has been around for some time, personal navigation is still fairly new. Because the navigation
industry includes many of different segments, our analysis focuses primarily on personal navigation.
Garmin was founded in 1989 by Gary Burrell and Dr. Min Kao (Garmin). The company
specializes in products that operate with the Global Positioning System. Today, it is traded on the
NASDAQ under the ticker GRMN. Garmin has the simple mission to “create navigation and
communication devices that can enrich our customers’ lives”(Garmin). They accomplish this by offering
a wide range of automotive, aviation, marine, fitness, outdoor recreation and wireless products (Garmin).
The corporate address for Garmin is 1200 E. 151st Street, Olathe KS, 66062-3426 (Garmin).
TomTom was founded a few years after Garmin in 1991 by Peter-Frans Pauwels, Pieter Geelen,
Harold Goddijn and Corinne Vigreux (TomTom). It is impressive that all four founders are still apart of
TomTom. The company first was focused on providing software, but quickly shifted toward navigational
systems. However, TomTom has always been centered on technological innovation. It is traded on the
NYSE Euronext Amsterdam symbol is TOM2 and has four customer facing business units: Consumer,
Automotive, Business Solutions and Licensing (TomTom). It produces “portable navigation devices, indash infotainment systems, fleet management solutions, maps and real-time services” (TomTom).
TomTom is corporate address is Oosterdoksstraat 114, 1011 DK Amsterdam, The Netherlands
(TomTom). It is important to note that because TomTom is a European company; its financial statements
are presented in Euros, not US dollars.
The name of the industry according to IBIS World is navigational, measuring, electromedical,
and control instruments manufacturing segment of the computer and electronic product manufacturing
industry (Measuring). The personal navigation industry is segment of this overall industry. Products
produced in this industry depend on the Global Positioning System. This system “enables the precise
determination of geographic location using established satellite technology” and is made up of rotating
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satellites around the earth (Garmin 10-K). GPS access is free and overseen by the US Department of
Defense (Garmin 10-K).
2.
The navigational, measuring, electromedical and control instruments manufacturing industry is a
segment of the overall computer and electronic product manufacturing industry. According to the Bureau
of Labor Statistics, the computer and electronic product manufacturing industry employed 1.2 million
wage and salary workers in 2008 (Computer). The navigational, measuring, electomedical, and control
instruments manufacturing segment employed about 441,600 wage and salary workers (Computer). This
accounts for 35.4% of the overall industry is the largest segment of percentage of employees within the
computer and electronic product manufacturing industry (Computer).
Because the navigational industry is do diverse, there are many different trends associated with its
employment prospects. Employment in the overall industry is expected to decline over the next decade.
While there is a project 11% increase in all industries for wage and salary employment, the computer and
electronic product manufacturing industry employment is expected to decline 19% between 2008 and
2018 (Computer). The main reason for this decline is expected growth in productivity due to
technological advances. Continued increases in imports of electronic and computer products will also
excel growth in productivity (Computer).
Much of the manufacturing process has been relocated overseas, causing a decline in
manufacturing jobs. However, employment in the navigational, measuring, electromedical, and control
instruments segment of this industry is only expected to decline by 1.7%, which is the least percentage
decrease of the six different segments found in this industry (Computer). The small decline is mainly due
to heavy spending on military and healthcare electronics. According to The Bureau of Labor Statistics,
“Sales of consumer navigational devices also will help mitigate job losses in this segment” (Computer).
Furthermore, there should be a smaller decrease in employment among professional and related
occupations. This is due to the fact that many American manufacturers prefer a U.S. based team since
they are believed to have a better understanding and knowledge of the domestic market (Computer).
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Many employment opportunities will continue to rise, even though there is a projected decrease
in employment. Technological advancements are the main cause of this. Improvement in semiconductors
and telecommunications will also add to these opportunities (Computer). Workers who are retiring from
the industry will also need to be replaced. Of these opportunities, many should arise in the area of
research and development. “Computer software engineers are also in high demand in this industry
because many complicated hardware products require software.” (Computer)
3.
To gain a better understanding of their business strengths and weaknesses, we evaluated the
trends in strategic and financial ratios for Garmin and TomTom. we have the key statistics for Garmin.
Return on equity was calculated by taking Net Profit ÷ Average Shareholder Equity for the years 20062010. Next, we examined stock price for the company each year, based on the closing date of Dec. 31st.
Total assets of the company was obtained off of each company’s financial statements. To evaluate
operational efficiency, we used the inventory turnover ratio, which is revenue/average inventory. Last, we
have we have share of industry value. We calculated this using the percentage of market share, provided
by the Garmin Website. For this statistic, we were only able to find the values for years 2007-2009.
Exhibits 1A-5B show the relationship of each of these ratios plotted on a line chart. In each exhibit, the
x-axis is years.
Garmin
Return on Equity
2006: 37.9% 2007: 43.8% 2008: 32.0% 2009: 27.8% 2010: 19.9%
Stock Price
2006: 2.38 2007: 3.95 2008: 3.51 2009: 3.51 2010: 2.97
Total Assets
2006: 1,897,020 2007: 3,291,460 2008: 2,924,581 2009: 2,393,871 2010: 3,988,688
Operational Efficiency
2006: 7.5 2007: 8.2 2008: 7.5 2009: 8.0 2010: 7.7
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Share of Industry Value
2007: 28%, 2008: 34%, 2009: 36%
TomTom
Return on Equity
2006: 51.8% 2007: 33.3% 2008: -93.5% 2009: 11.3% 2010: 10.0%
Stock Price (based on closing price of Dec 31)
2006: 32.32 2007: 51.50 2008: 4.30 2009: 6.25 2010: 7.89
Total Assets
2006: 902,968 2007: 1,969,591 2008: 2,766,690 2009: 2,685,760 2010: 2,622,758
Operational Efficiency
2006: 12.1 2007: 13.7 2008: 12.1 2009: 14.0 2010: 18.9
Share of Industry Value
2007: 27%, 2008: 29%, 2009: 30%
EXHIBIT 1A
ROE- Garmin
2006
2007
2008
2009
2010
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EXHIBIT 1B
ROE- TomTom
2006
2007
2008
2009
2010
While TomTom started with a higher ROE than Garmin, it seems to be more volatile to market changes.
In 2008, TomTom’s ROE dropped to a negative number, while Garmin experienced a less drastic decline.
EXHIBIT 2A
Stock Price- Garmin
2006
2007
2008
2009
2010
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EXHIBIT 2B
Stock Price- TomTom
2006
2007
2008
2009
2010
TomTom again seems to be more volatile to changes in the market. Its price began above 60, then fell to
less then 5 in 2008. Garmin’s stock was never that high, and it only experienced slight decline in price
compared to TomTom.
EXHIBIT 3A
Total Assets- Garmin
2006
2007
2008
2009
2010
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EXHIBIT 3B
Total Assets- TomTom
2006
2007
2008
2009
2010
TomTom has less assets than Garmin today. TomTom steady inclines till 2008, where it seems to begin
to decline, then level off. Garmin’s drops low in 2009, then seems to be increasing till the current year.
EXHIBIT 4A
Operational Efficency- Garmin
2006
2007
2008
2009
2010
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EXHIBIT 4B
Operational Efficiency- TomTom
2006
2007
2008
2009
2010
TomTom has a higher operational efficiency than TomTom. Furthermore, it is increasing. Garmin’s is
declining.
EXHIBIT 5A
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Share of Industry Value- Garmin
2007
2008
2009
EXHIBIT 5B
Share of Industry Value- TomTom
2007
2008
2009
In 2009, Garmin contains more of the market share than TomTom. Both companies are experiencing
growth in industry value, however, Garmin has moved from 27% to over 35%. TomTom has only moved
3 percentage points.
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PART II: OPPORTUNITY
1.
The computer and electronic manufacturing industry is comprised of six different segments,
including audio and visual equipment manufacturing, communications equipment manufacturing, and
computer and peripheral equipment manufacturing. The largest segment in this industry and the one that
will be discussed here, however, is the navigational, measuring, electromedical, and control instruments
manufacturing (Computer). The focus here will be on the navigational manufacturing part of the segment
and the use of Global Positioning Systems.
The Global Positioning System market is currently dominated by Japan. However, due to the
recent recession in 2009, this technology has had a hard blow, with sales plummeting and consumers no
longer buying the products. However, with the ever-increasing use of technology and the consumer’s
desire to have instantaneous results as far as navigation, the demand for portable navigation device
systems have begun to increase as well as an increase in sales. The world global positioning systems
market is forecasted to reach $28.9 billion by the year 2015 (Global). An indicator that the demand and
sales are beginning to trend up is explained in the Global Strategic Business Report for GPS systems:
“Economic stimulus packages extended by governments to revive rural, infrastructure, telecommunication
network development, commerce, justice and science, energy & water, housing and transportation and
military, will aid in shaping up key end-use application markets for GPS. For instance, restoration of
health of the transportation industry will positively expand vehicle fleet size, and thereby the potential for
GPS devices for in-vehicle navigation,” (Global).
Although the Global Positioning System market is looking alive and well, manufacturers of these
products will have to take into account other non-traditional competitors. As the cell phone age is
continually growing and thriving, smartphones have almost become a commodity among the everyday
consumer. Applications for these smartphones are beginning to be released allowing a user to have GPSenabled software at their fingertips right from their phones. Recently Google and Nokia both announced
they would soon be providing free turn-by-turn satellite navigation as applications that can be
downloaded directly from their phones. Thomas Miranda points out, “Once an industry dominated
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almost entirely by Personal Navigation Device (PND) manufacturers like Garmin and TomTom, mobile
device manufacturers are emerging as a force to be reckoned with.” He goes on to say that the navigation
industry is on the brink of experiencing drastic changes due to these emerging technologies (Miranda).
2.
The Global Positioning System market can be found in a number of different countries, including
Europe, Japan, the United States, Canada, India, and China (World). Of these industry leaders, Japan has
emerged as the country with the most demand for GPS devices. This is due to the fact that it is the most
advanced in navigation system technologies, especially in reference to PNDs. In fact it has been
estimated by ROA Group that the number of PNDs in Japan will increase to 1.87 million devices by
2010. The total number of navigation devices in this market will climb to 7.49 million units by 2010 as
well (Personal).
PART III: INDUSTRY ANALYSIS
Force
Threat Level
Threat of
Threat of
Threat of
Threat of new
Threat of
Suppliers
Rivalry
Buyers
entrants
Substitutes
High
High
Moderate
Low
High
Threat of new entrants: This force is ranked as low as it is a difficult industry to enter. In order for a
firm to enter this industry it must invest a significant amount of money into research and expensive
technology to start competing in this segment (Computer). The cost of insurance is high for navigational
equipment due to possible defects creating liability claims (Computer). The industry is already in its
mature phase and it is difficult for a company to enter when there are already established companies such
as Garmin and TomTom. These companies hold a significant portion of the market and have lower cost
structures due to economies of scale. The Navigation Equipment is heavily regulated which can place
heavy restrictions on companies and deter them from entering the industry (Computer).
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Threat of Rivalry: This force is ranked high due to the intense competition in the industry. Two of the
major players, Garmin and TomTom, control large segments of the market with smaller firms taking up
the rest. Keeping up with new technology is a huge part of this industry. In order for a company to stay in
business, it must be able to quickly find and improve technologies. It must also be able to offer updates
for their systems such as maps. Due to the recent recession, profits are not increasing as they had before.
Price is a key factor in which companies compete for in this industry. The decreased profitably in the
industry has caused the companies to compete head to head for the revenues that still exist in the industry.
Since the products typically are high in cost and are not purchased on a regular basis, fierce competition
exists to obtain these sales (Young lecture).
Threat of Substitutes: This force is ranked high due to the new capabilities of GPS. A large number of
people have begun switching from Personal Navigation Devices, such as Garmin and TomTom, to using
GPS navigation systems offered on smart phones and PDA’s. These PDA’s include Nokia’s free
navigation phone service (Sandstrom). Companies in this industry constantly have to come up with new
technologies in order to compete with the cell phone carriers who provide easy access to navigation by
offering applications with their services. Another substitute would be using online mapping services like
Google maps, that can also be displayed on cell phones. These substitutes threaten profits in the industry
and increase rivalry and competition.
Threat of Suppliers: The threat of suppliers is rated at a medium because the industry deals with
complicated technology products. These can be critical to the navigation systems being produced
(Computer). The companies rely on a few suppliers that provide the companies with the essential parts
and services it needs to create its navigation systems. Since there are not many companies, those supplies
to this industry the suppliers are better able to regulate prices (Young lecture).
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Threat of Buyers: The threat of buyers is ranked as moderate due to purchasing patterns for customers in
this industry. The buyers in this industry typically do not purchase the Personal Navigation Devices on a
regular basis and only purchase newer ones when they become outdated. The threat is raised due to other
options, which buyers can purchase such as GPS systems on cell phones. The threat of buyers is lowered
due to the fact that with the technology of these Personal Navigation Devices constantly increasing the
customers are pressured to upgrade to the latest technologies. The force becomes moderate with the need
for customers to upgrade their systems balancing out with the customer’s infrequent purchases.
The overall threat to profitability in this industry is high because of high rankings in threat of
rivalry, threat of suppliers, and threat of substitutes. The threat of buyers is moderate due to the
dependence of customers on new technologies. The threat of new entrants is the only low threat due to
regulations and difficult technology to match (Computer). The low threat of entry is the one driving force,
still allowing the companies in this industry to obtain a reasonable profit. The other forces including
threat of suppliers, threat of substitutes, and threat of rivalry are causing profitability in the industry to
decrease. Because the industry only has one low force, it can be expected that the profitability is less than
the cost of capital in the long run.
Key Success factors are defined as “Specific Resources & activities any competing company
must be good at if they are to be profitable satisfying demand and defending against hi-power competitive
threats” (Young PowerPoint). There are multiple key success factors for this industry. Four of these
include economies of scale, operational efficiency, G* and Employee efficiency. For a company to be
successful in this industry, they must be able to be efficient at reaching these key success factors. This
industry contains various key success factors that are critical for a company to be successful and defend
against threats to profits.
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Key Success Factor
Economies of Scale
Operational Efficiency
G*
Highly Skilled workforce
Description
Ability to purchase in bulk
quantities at a lower rate to
reduce costs
Ability to generate sales of
products while having lower
operational costs than
competitors
Ability for a company to grow
Ability to retain quality
employees with reducing hiring/
employee training costs while
producing a quality product
Formula
Cost/Total Assets
Revenue/Avg. Total Inventory
((1-Div Payout)*ROE)
Revenue/Total Number of
Employees
An important key success factor in this industry is Economies of scale. Economies of scale can
be achieved by a company by being able to purchase supplies in bulk quantities. This key success factor,
is critical in defending against high threat of suppliers in the industry. Suppliers can typically influence
price for the personal navigation device manufacturers because of the highly complex parts they require.
There are not an abundance of suppliers for company’s to choose from; therefore, the companies must be
willing to pay what the suppliers ask. A way to defend against this threat to profit is by achieving
economies of scale. Companies can typically get a reduced rate from suppliers when they purchase large
quantities of items. Suppliers will want the business and be willing to reduce prices in order to capture
these large orders. If a company in this industry is able to reach this KSF, it can defend against the threat
of suppliers while obtaining an advantage over its competitors.
A second key success factor, which is critical for the industry, is retaining highly skilled workers.
Highly skilled workers are important in this industry because of the complexity involved in producing
these navigation systems. A high threat to profit is created by the threat of rivalry in this segment. There
are two major players, Garmin and TomTom, who control a vast majority of the market share. These two
companies are constantly competing in a shrinking and constantly changing market for profits. With a
shrinking market, it is important for companies to reduce their costs as a percentage of revenues. One way
to do this is by retaining its current workforce. By achieving low employee turnover, a company can
greatly reduce hiring and training expenses for employees. If a company is able to retain skilled
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employees, it not only can become more profitable by reducing costs, but can as well increase the quality
KSF
Economies of Scale
(costs/total assets)
TomTom
77,018,000/2,622,758,000 =
.029 = 2.9%
(TomTom)
Garmin
1,343,537,000/
3,988,688,000= .337
33.7%
(Garmin)
of
its
prod
uct.
Operational Efficiency
(inventory turnover ratio)
G*
((1-Div Payout)*ROE)
Access to Highly Skilled
Workers
(revenue/number of
employees)
18.9
(TomTom)
1-0.0023= (.9977*.1)= .09977
= 9.977%
(TomTom)
1,520,000,000/3500=
434285.71 (TomTom)
Converted to US $=
637,010.57
7.7
(Garmin)
(1-0)=(1* .199)= .199
= 19.9%
(Garmin)
26,899,000,000/ 8897=
302,236.71
(Garmin)
PART IV: STRENGTH ASSESSMENT
1.
Here we have created a chart with the calculations of our key success factors. All data is based on
the year 2010. Our first key success factor is economies of scale. This is calculated by dividing the total
assets into the costs. The lower a company’s costs are the more production they are capable of having.
According to the growth strategy lower economies of scale the better on to the strength assessment.
Our second key success factor is the operational efficiency. This is how the company is at
maximizing profit, while cutting waste down to a minimum. We viewed the operational efficiency of each
company with the inventory turnover ratio (COGS/ average inventory). Higher efficiency will bring in
higher profits.
Our third key success factor is G*. This is calculated by subtracting the dividend payout ratio
from 1, then multiplying that number by the return on equity. It helps show growth. G* is an important
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key success factor to evaluate when comparing TomTom and Garmin. A higher G* on the strength
assessment is better.
Our last key success factor is the access to highly skilled workers. This is very important for any
company, no matter what industry. This factor will help increase their efficiency, which will increase their
profits. We calculated this factor by taking revenue and dividing it by the number of employees. The
higher access of skilled works a company has is better.
2. Distinctive Competency Score:
KSF
Economies of Scale
(costs/total assets)
Operational Efficiency
G*
((1-Div Payout)*ROE)
Access to Highly Skilled
Workers
(revenue/number of
employees)
TomTom
5
Garmin
1
5
1
1
5
1
5
3. Average of Scores
TomTom
4
4.
Garmin
2
TomTom and Garmin are very close rivals. They have different business models, yet still try to
target the same customers. Because they are in the same industry we believe the same key success factors
can be evaluated for each company. After comparing both companies on what we believe to be factors
that will contribute to the success of both, TomTom prevailed over Garmin with an average score of 4 on
the strength assessment. This score shows that TomTom will have a sustainable competitive advantage
over Garmin.
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References
Computer and Electronic Manufacturing. Bureau of Labor Statistics. 17 Dec. 2009. United States
Department of Labor. 28 April 2011 <http://www.bls.gov/oco/cg/cgs010.htm>.
Garmin. N.p., n.d. Web. 20 Apr. 2011. <http://www.garmin.com/garmin/cms/site/us>.
"Garmin 10-K." Edgar Database. N.p., n.d. Web. 20 Apr. 2011.
<http://www.sec.gov/Archives/edgar/data/1121788/00011442041101035 8/0001144204-11010358-index.htm>.
Global Positioning Systems (GPS): A Global Strategic Business Report. 1 Oct. 2010. Information
Technology. 28 Apr.2011 <http://www.companiesandmarkets.com/Market-Report/global-
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positioning-systems-%28gps%29-a-global-strategic-business-report-405051.asp>.
"Measuring, Testing & Navigational Instrument Manufacturing." IBISWorld. N.p., n.d. Web. 20 Apr.
2011. <http://www.ibisworld.com/industry/default.aspx?indid=763>.
Miranda, Thomas, Gary Gale, Roger Jollis, et al. PND vs Mobile IS Landscape Shifting? June 2010.
Coordinates. 28 Apr. 2011 < http://mycoordinates.org/pnd-vs-mobile-is-landscape-shifting>.
World GPS Market Forecast To 2012. 20 Mar. 2008. Space Daily. 28 Apr. 2011
<http://www.spacedaily.com/reports/World_GPS_Market_Forecast_To_2012_999.html>
Personal Navigation Device (PND) Market in Japan and South Korea. Jan. 2008. Global Information,
Inc. 28 Apr. 2011
<http://www.bizreportshop.com/product/roa/Personal-Navigation-Device-PND-Market-in-Japanand-South-Korea_58899.html>.
TomTom. n.d. Web. 20 Apr. 2011.
<http://www.tomtom.com/>
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