John Deere CEO Samuel Allen aims toincrease total sales to $50 billion by 2018, with half coming from outside theU.S. and Canada, up from 39 percent today. In the last few years, the companyhas finally begun to make significant gains in Brazil and other countries whereits rivals mainly Agco and CNH Global of Amsterdam, which makes Case and NewHolland have deeper roots. Twenty years ago, Deere had two tractor factoriesoutside the U.S. Today it has nine, in Germany, India, China, Mexico, andBrazil. Last year in Europe, Deere introduced more than 100 products. Nearlyhalf of Deere’s 61,300 full-time employees work outside the U.S.
Replicatingits domestic success overseas hasn’t been easy for Deere. For years, tractorsit designed for the Great Plains were too big or otherwise unsuitable foroverseas growers, who have to contend with smaller plots, roadway driving, anduneven terrain. You can’t go with a German tractor and conquer the world or aU.S. tractor and conquer the world, says Markwart von Pentz, who manages Deere’ssales outside the U.S. You have to design to the requirements of the market.European farmers tend to want more speed and turning ability, while ricegrowers in India prefer compact vehicles that won’t sink in paddies.
Onekey to Deere’s global expansion is the 8R tractor line, the first the companydesigned for farmers worldwide. The 8R is still too big for some places. India,for example, but it is suited to the growing number of large farms outsideNorth America. A base 8R is about 20 feet long, with a narrow snout juttingfrom a boxy, 11-foot-high cab. Depending on which attachments it carries, an 8Rcan weigh more than 30,000 pounds. Allen likes to boast that its technology hasmore lines of software code than a space shuttle.
Deere’s global ambitions areimportant not just to the company and its shareholders but also to the world.To feed a population expected to hit 9 billion by 2050, food production mustincrease by 60 percent, according to the United Nations Food and AgricultureOrganization. With arable land available, Brazil, Russia, India, and China haveemerged as new agricultural powers. But even they lack enough acres to meetdemand. Advances in seed, fertilizer, and pesticide technology must workhand-in-hand with tractors and other equipment to help farmers squeeze every lastbushel of yield from their fields. World tractor unit sales are expected togrow about 1.8 percent a year through 2015, to about 1.4 million; higher pricesand the mix of products may push revenue up about 5 percent, says consultingfirm AlixPartners.
Deere started developing the 8R in2006. After interviewing growers around the world, the company in 2009introduced the 8R with bigger cabs and easier-to-use displays. Even as the 8Rmade its debut, Deere was working on the next version, in part to meet stricteremissions standards in some countries. The company interviewed 1,500 customers.Many spoke of a labor shortage as the world’s population shifts to urban areas,putting a bigger premium on automated machinery.
Last year, Deere reconfigured theWaterloo tractor assembly line to be less linear. Major modules engines and front axles in the northeastcorner of the plant, transmissions and rear axles in the northwest are puttogether separately so that a mistake in either area won’t halt assemblyaltogether.
From March 2011 to March 2012,Deere says, customers ordered more than 7,800 different configurations of the8R. On average, each configuration was built only 1.5 times. More than half the8Rs were built just once, for a single customer. Thus, the global tractor: Onesize does not fit all, from Kansas to Kazakhstan.
Please discuss the following two Questions:
1.What are the business reasons behind John Deere’s offshoring of tractorproduction from the U.S. to other countries?
2.How can offshoring production be good operations management? Can it be badoperations management?