John Deere focuses on small tractors

It has long been etched in our minds that when we think of tractors, we think green and yellow.  This has been the staple colors of John Deere since 1910.  It is now doubt that John Deere has captured a majority of the North American market (primarily US and Canada) and have done this with quality products that clearly defines their brand image.  With US sales of tractors becoming stagnat, John Deer is looking to global economies, mainly developing countries, to provide the growth that the company needs and the growth its shareholders expect.  In taking a look at the trends of developing countries and finding out what their needs are, John Deere has realized that they cannot look to grow their business by using the traditional US model in which they have excelled.  The reason being John Deere has market to large growth farmers who have thousands of acres of land that need to be harvested.  When they were looking at their test market, India, they realized the average farm size was about 3 acres.   Also in doing interviews with local Indian farmers, they were happy to see that many of them knew about John Deere, but did not purchase their tractors due to their large size and high cost.  It did not make sense to Pichandi, a local farmer who just purchased his third Mahindras tractor, a smaller more adapt tractor for his small farm, in 4 years. Samuel Allen, CEO of John Deere, is eying India as an opportunity that his company can capitalize on.   Mr. Allen had a couple of ways he could have entered into the India market, and he choose to invest in a $100 million dollar factory dedicated to building small tractors for the local market and export market.

This goes back to what we discussed in class about different ways to enter foreign markets.  He decided instead of building them in the US he would set up a local plant to be able respond quickly to the local market.  John Deere would also save in transportation cost because they are not only planning on selling to India but surrounding East Asian countries like China.  However, there are some drawbacks to his branding in India.  If it doesn’t work out not only will he loose the market, but also the $100 million dollar plant investment.  If he exported the small tractors out of an existing plant Allen would save on set-up costs.  Also investment companies don’t know if his plan will work out due to the low profit margins on small tractors, which is expected limit John Deere profits.

Despite concerns Allen believes this is the best way to grow the company and capitalize on foreign markets.  John Deere has captured the US market and will continue its stronghold for years to come, but with pressures to keep growing the company different action has to be taken.  Will this pay off? Only time will tell.