18221607 TATA Motors and TATA Steel

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From:-

Shivani

MBA-2nd sem.

TATA Motors and TATA Steel

TATA Group

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they are not known for at this time. Tata, like many new businesses it acquires, is

allowing this new segment ofthebusinesst o be run by previous managementsincethey

have moreexperience in theluxury automotivebusiness. Tata will give ussomespace.

They want usto run our business, be a premium British car company (Mike ODriscoll,

managing director of Jaguar). This is yet another large acquisition for the Tata Motors

group and could create greatsuccess for the company in the near future.

CORPORATE GOVERNANCE

Since Tata Motors is a part of a large conglomerate company it needsto have a strong

corporate governance to ensure that its employees act ethically and the business

continues to run smoothly especially during the ever changing and dynamic global

economy. Tata Groups corporate governance is founded upon a rich legacy of fair,

ethical, and transparent governance practices (tatacarsworldwide.com). One of the

more important parts ofthis isthetransparency ofthe company people have a rightto

know what the company is doing not only to ensure ethical practices, but for the

insurance oftheir many shareholders whom have a rightto know the inner workings of

the company

Tata has created some models for employees to guide themselves through everyday

business practices to ensure that the corporate governance is continuously being

upheld. The Tata business excellen ce model is upheld by Tata quality management

services. Quality management is an in-house group dedicated to helping the various

Tata companies achieve their business objectives through specific processes. The two

main processesthatthe quality managementservicesemployees focus on arebusiness

excellence and business ethics. These two objectives have helped build Tata into the

strong, dynamic company it is today. These models are entrenched in the companys

ethnical standards and Tata feels strongly about enforcing both throughout the

company. Tata quality managementservices playsthe role ofsupporter and facilitator

in the journey that Tata enterprises undertaketo reach the peaks ofbusinesseminence

while, atthesametime, adhering to the highe stethicalstandards (Tata.com).

To further provetheir commitmentto quality and ethical practices Tata has introducedannual quality awards for those companies conducting business with the utmost quality.

These awards are called the JRD quality value awards named after thelate chairmen JRD

Tata. These awards are presented annually on July 29th

, thebirthday of JRD Tata. Tata

has committed to ensuring quality and ethical standards not only within Tata Motors,

but throughout their many other branches and sectors of the Tata Group. They have

doneso by benchmarking quality standardsthrough the Tata businessexcellence model

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as well as providing incentives for companies to strive to improve the quality of their

service, by awarding JRD quality management awards.

FINANCIAL POSITIONTata Motors have increased itsearnings over the yearsthrough their various acquisitions

and jointventures with truck manufacturers in Southeast Asia. Gross profit in the year

2006 was 1,160.9 million and increased to 1,510.1 million in the year 2007. Earnings

after taxes also increased significantly between 2006 and 2007 increasing from 336.6

million to 405.5 million in 2007. After a large drop in revenues from 2004 to 2005 when

the company first went public on the NYSE it has been increasing revenues greatly

annually, from 4,422.0 million in 2005 to 7,354.0 in 2007.

CORE COMPETENCIESTata Motors is ableto maintain, as well as increase, their marketshareby capitalizing on

their core competencies. Tata Motors is active, competitive, and dynamic in all aspects

of the automotive industry, which means that there must be many different activities

going on in all areas of the company. As a result of the ever evolving automotive

industry Tata Motors must alwaysbe changing and one way to stay atthe forefront of

the industry is to make continuous improvements in technology through research and

development. One way that Tata Motors has donethis isby producing one ofthe most

efficient and low costvehicles on the market. Acquisitions, mergers, and expansion is

anoth

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and philosophy. Another core competency that Tata Motors holds isbeing located in the

India. Thislocation has allowed them to understand not only the Indian marketbut also

the dynamics of emerging and developing markets. This market understanding and

knowledge allows Tata Motors to manufacturetheir products at lower costs, sellthem

to emerging markets while making profits as well astake advantage ofthestrong labor

base in India.

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PEST ANALYSIS

POLITICAL

Since Tata Motors operates in multiple countries across Europe, Africa, Asia, the Middle

East, and Australia, it needsto pay close attention to the political climatebut also laws

and regulations in allthe countries it operates in while also paying attention to regional

governing bodies. Laws governing commerce, trade, growth, and investment are

dependent on the local government as well as how successful local markets and

economies will be due to regional, national and local influence. In accordance, Tatas

headquarters in Mumbai, India, strictly controls and regulates operations in all

dealerships and subsidiaries, in addition to knowing and abiding by alllab or laws in the

multiple countries where they have manufacturing plants it has to watch political

change.

ECONOMIC

Operating in numerous countries acrossthe world, Tata Motors functions with a global

economic perspective while focusing on each individual market. Because Tata is in a

rapid growth period, expanding or forming a jointventure in over five countries world -

wide since 2004, a global approach enables Tata Motors to adapt and learn from the

many different regions within the whole automotive indust ry. They haveexperience and

resources from five continents acrossthe globe, thus when any variable changes in the

market they can gather information and resources from all over the world to address

any issues. For instance, if the price of the aluminum required to make engine blocks

goes up in Kenya, Tata has the option to get the aluminum from other suppliers inEurope or Asia who they would normally get from for production in Ukraine or Russia.

Tata Motors also has to pay close attention to shifts in currency rates throughout the

world. Currency fluctuations can equate to higher or lower demands for Tata vehicles

which in turn affect profitability. It can also mean a rise in costs or a drop in returns. But

they also haveto pay attention to not justthe domestic currency, the rupee, but also to

the dollar, euro, bhat, won, and pound, to just name a few. Justbecause the rupee is

strong against the dollar does not mean it is strong against all the other currencies.

Attention to currency is important because it influences where capital investment will

develop and prosper.

SOCIAL

Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a

company will affect how well a company performs. This includesevery stakeholder from

the CEO and President, down to theline workers who screw the door panel into place,

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from the investor to the customer, the culture and attitude of all these people will

ultimately determine the future of a company and whether they will be profitable or

not. For this reason, Tata Motors tends to use an integration and rarely separation

technique with foreign companiesthey acquire. In 2004, Tata Motors acquired Daewoo

Commercial Vehicles Company, which was at the time Koreas second largest truck

maker. Rather than using de-culturation or assimilating Daewoo, Tata took an integrated

approach, and continued building and marketing Daewoos current models as well as

introducing a few new models globally just as it had been done under Korean

management.

TECHNOLOGY

Tata Motors and its parent company, the Tata Group, are ahead of the game in the

technology field. The foundation of the companys growth is a deep understanding of

economic stimuli and customer needs, and the ability to translatethem into customer -

desired offerings through leading edge R&D (Tata). Employing 1,400 scientists and

engineers, Tata Motors Research and Developmentteam is ahead ofthe pack in Indias

market and right with the rest of the field internationally. Among Tatas firsts are the

first indigenously developed Light Commercial Vehicle, India's firstSports Utility Vehicle

and, in 1998, the Tata Indica, India's first fully indigenous passenger car, as well asthe

increasingly famous Tata Nano, which is projected to bethe worlds cheape st production

car (Tata). In the automotive industry, it is becoming increasingly crucial for

manufacturersto stay on top of thetechnology curve with new problems always rising

such asescalating gas prices and pollution problems. Tata recognizesthis an d dedicateslots of resources and time into research and developmentto beeven with or preferably

ahead of other competitors, global trends, and changing economies. In all, an

automobile manufacturer must change, adapt, and evolve to stay competitive in the

automotive game, and this is exactly what Tata is doing with their rapid growth, and

extensive research and development.

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SWOT ANALYSIS

STRENGTHS

Tata Motors excels when it comes to innovation through intensive research and

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Nanowhich will retail for $2,500, is far beyond what any other car dealership has created. This

innovation gives Tata Motors their main competitive advantage. Tata Motors makes

everything from tractor-trailersto the worldsleastexpensive car. This product diversity

grants them a competitive advantage over their competitors because they can satisfy

more markets and customer needs. Another strength that Tata Motors possesses is high

corporate responsibility. They donate a portion of their profits from stock increases

towards a specific charity. This highlights Tata Motors overall desire for community

improvement while also emphasizing Tata Motors high morals and values which is

something money can notbuy. Tata Motors is unique in a way in which when itbuys a

company. Tata Motors keeps the original management of that company intact. The

company that Tata Motors purchases willlook exactly thesame in terms of management

and organizationalstructure as if it was never purchased by Tata Motors.

WEAKNESSES

There are strings attached with every new invention and improvement on products.

These strings are Tata Motors weaknesses and what other groups perceive as their

weaknesses. One weakness that Tata Motors faces is its inability to meet safety

standards. Although they have madethe most inexpensive car out on the market, it has

yet to pass all the safety standards which is a legal factor. Some consumers and

pessimists inquire asto how Tata Motors can makesuch a cheap car and withstanding a

car accident or not just falling apart after hitting something once. Pessimistic people

also want to believe that car manufactures are already doing everything they can to

keep costs low for the consumer, and if that isthe case, then putting the cheapest car

out on the market automatically questions if it is safe to drive.Tata Motors only have

been making passenger cars for the approximately lastten years. This can beviewed as

a weakness from a customer standpoint since a decade does not seem like a lot to

consumers and therefore they will think that Tata Motors is inexperienced car

manufacturing.

OPPORTUNITIES

Tata Motors has already opened the doors for many new and innovative ideas, but not

only for their company, but their competitors as well which could turn into a threat.

One ofthe major opportunitiesthat Tata Motor faces isthat as of right now 90 percent

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of China and Indias adult population do not own cars, partly because cars are costly and

require more expenses after purchased. So the market for a low-priced car is huge

which benefits Tata Motors perfectly since they produce the lowe st priced car on the

market. This is a huge opportunity for Tata Motors because if they can get their feet

into that market of peoplethat do not have carsbecausethey cannot afford them, then

they will makelarge profits down the road. Chinastotal ca r sales areestimated at over

8 million dollars annually and they werethe worldssecond largest car market in 2006.

Chinas government forecasts that demand for cars will top 20 million by 2020. With

Tata Motors in the market with the cheapest car, Chinas demand for cars will probably

increaseeven moresignificantly which will in turn increasesales for Tata Motors. As of

March 2008 Tata Motors finalized a deal with Ford Motor Company to acquire the

British businesses, Jaguar Cars and Land Rover. This is a huge opportunity for Tata

Motorssincethey will acquirethelarge knowledgebase and technologies for producing

and marketing luxury vehicles. This acquisition helps them dive into the more maturemarkets in Japan, Europe and the U.S. The knowledg e transfer from these two

companies will greatly improve Tata Motors ability to continue to grow and flourish in

both developing and developed marketsegments.

THREATS

The obvious threat to Tata Motors is intellectual property rights. Tata invented the

cheapest car on the market and every automobile manufacturer wants to know how

Tata did it. Headhunters aresoon going to find outthisvaluable information and make

it availableto their own company. This is a hugethreatto Tata Motorsbecause at firstthey had low competition, but once other car manufactures find out how they invented

such a low cost car, and then these companiestoo will jump on board and design their

own line oflow cost automobiles. On one hand this can be a threat, but on the other it

may not affect Tata Motors at allbecause people willstill wantto purchasetheir product

since they were the pioneers of all the excitement. Another main concern that Tata

Motors faces is that cheap cars in India will have an adverse effect on pollut ion and

global warming because most ofthe population willbe ableto afford the cars.

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PRESENT STRATEGIC ISSUES

Global Leader/presenceboth in means of Quality and Quantity. Security & procurement of raw materials Entering the new markets Eliminating the RED color from balancesheet Struggleto digestthebig ticket global acquisitions Leadership crisis within the company

GLOBALLEADER/PRESENCE/ INTERNATIONAL IMAGE

Over last few years TATA have acquired lot of companies across the globe. They have

presence in 8 differentsectors with 118 different companies and are working in more

than 85 countries. TATA make presence felt in every major market of the world. The

future plans of the company must be the consolidation of its image and markets inwhich it works. To becometheleader the company haseither acquired new companies

, increased the capacity of exiting companies or started green field projects. So as to

maintain good international image the company has never compromised with the

quality. TATA hasbig portfolio in the automobilesector from entry level passenger cars

, to SUV to luxury brands , Light utility vehiclesto trucks , buses , concept car , electric

cars to military vehiclesetc ..

When the TATA acquire new companies it never scrapes off the exiting management

instead it mixes a few people from its parent company so as to maintain itsinternational image. Example : In 2004, Tata Motors acquired Daewoo Commercial

Vehicles Company, which was at the time Koreas second largest truck maker. Rather

than using de-culturation or assimilating Daewoo, Tata took an integrated approach, it

did not removed its exiting management but just added two more people in the

management from India.

TATA motors has set a target move from mid-size player to big player on the world

market to 1.8% marketshare from 0.81% by 2015. With the new acquisition of Jaguar

and Land Rover, Tata will have to be careful with how they handle the acquisition.

Industry analysts also struggled to see whatvalue Tata could add that had eluded Ford,

and whatsynergiesthere could bebetween a maker oftrucks and basic cars and two

luxury marques. Separation could be a good approach for the immediate futureto keep

the name of Jaguar and Land Rover distinguishable and associated with the luxury

automobile market. Overall, Tata does a good job of integrating some aspects oftheir

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large multi-national conglomerate into new acquisitions; however, the company must

also understand that separation from the name Tata can be valuable in some social

areas.

RAW MATERIALS

Security & procurement of raw materials is one ofthe major issue company faces in this

competitive market. TATA steel can acquired of mines and smelting units across the

global. TATA motors can go forward in acquiring technology. The TATA Motors have

proper distribution channel across India , but its utilization was much below its capacity.

Thus Tata Motors also formed a jointventure with Fiat and gained accessto Fiats diesel

enginetechnology So asto maintain itsSecurity of raw material at differentlevel , TATA

have extensive backward and forward linkages and it is strongly interwoven with

machinetools and metalssectors.

y From minesto chemicals required for Steel productiony From engines to completebody for car manufacturingy Relay on scales ofeconomy

It also helps them attain the knowledge, technology, and programs that allow them to

succeed in that particular sector of the automotive industry or in a particular region o r

culture. For instance, the purchase of Jaguar and Land Rover allows Tata to enter into

the luxury car market without having to research the market, build the technology,

among other important aspects of getting into a new marketsegment. It further helps

them enter into thevery competitive and highly desirable mature markets in Europe and

in future hopes of securing market segments in the United States. Tata Motors is

currently in a growth stage as stated on their website: Tata Motors Ltd is in a mega

expansion mode. The investments would be in product development, capital

expenditure in capacity enhancement, domestic and international acquisitions and

mergers.

RED COLOR

Total debt in the company crossed 1,00,000Cr for the financial year 2008-09. Credit

rating was brought down from BB- to B+. Company has to pay loan/interest of about

20,000Cr by theend of August2009 . Debt ratio hasslipped from 1:1 to about 3:1

Most of the companies were acquired when their valuation were at/near their peak

level. Acquired companies already had lot of debt collected in their balance sheets

examplethe purchase of Jaguar and Land Rover . Demand fellbecause of global melt

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down. The demand ofthesteel and Jaguar and Land Rover in the US market have fallen

drastically in thelast2 years. These areas werethe major markets for the company. The

year 2005-06saw a woping increase in the price ofsteel dueto sudden increase in the

demand ofsteel in the world market. Government removed subsidy on steel import that

the TATA were enjoying. But by the late 2007 the demand falled but the government

didnt called back thesubsidy removed. When the companies were acquired the rupee

wasstrong againstthe dollar but now rupeevalue hasslipped from 40to 50. Above all

theloanstaken by the TATA in US Dollar or Euro to buy the companies from thebanks.

Banks have recalled/unwilling to extend theloan wasthey themselves are face crisis and

are not in a stateto maintain their liquidity.

To come out ofthisthe TATA group will haveto dilute itsstakes in various companies

across the globe. Will have to attract more international clients . Will have to generate

funds from groups other companiesto pay oftheloan by Aug so asto improve its creditrating and thereby avail moreloan.

LEADERSHIP CRISIS

When in early 90tiesthe Ratan Tata wasbattling for supremacy with powerful chieftains

like Russi Mody of TATA Steel , Darbari Seth of TATA Chemicals and Ajit Kerkar of Indian

hotels. A new retirement policy was cooked to goose out these chieftain which stated

thatexecutive chairman haveto retireby 65 and non executiveby 70. But when Ratan

Tata turned 68 he avoided the succession question by behaving a bit like Pakistani

military dictators who habitually postpone their retirement. Its expected that the Mr.

Tata willend up adopting the Vladimir Putin governance model whereby heextents his

regimethrough popular mandate.

Most ofthesenior manager in the TATA group are aboutto retire in a coming year or so.

There is much leaders available insidethe company who can takethe place oftheexiting

managers. Alleyes and speculations are revolving around K N Tata who issupposed to

takethe place of Mr. Ratan Tata in yearsto come. He is right now lo oking after the retail

division ofthe group and in thelast few years has help the TATA group to consolidate in

the retailsector.

NEW MARKET

Theshare ofthe foreign brands of TATA in Domestic market islessthan 10%. Thusthere

isvery large untapped market. Jaguar Cars and Land Rover are notbeing sold in the

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Asian markets , so this new area can be utilized. Electric version of TATA Ace which are

being sold in the Australian and European market can also be sold in the Indian and

African markets. Many construction/Trucks/Bus which are quite successful in global

market can also besold in allthe markets where TATA motors work.

NANO which isexpected to rolled outby July can also besold is African and European

countries as there is strong demand of small cars. NANO which has put TATA world

automobile map should be used to trap the market in the developing countries . Tata

OneCAT - the world's first prototype of a compressed air car. To begin production by

2010. Isbeing planned for European and Australian market only. Good potential in South

Africa and Indian market also , TATA should try to capturethis markets also. Theshare

ofthe domestic brands in the international market islessthan 18%. Domestic brand like

Indica , Indigo and Ace have a good demand in the African market , TATA should try to

get hold in this market Differentversion with internationalstandardsshould besold.

Biblograpy

www.tatamotors.com

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