TATA XENON

COUNTRY ENTRY STARTEGY IN MALAYSIA

GROUP 8 B

[Shiv Methil, Sumedha Sharma, Siddharth Ravishankar, Vivek, Viswanath]

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TABLE OF CONTENTS

EXECUTIVE SUMMARY.....................................................................................................................................3

BACKGROUND.................................................................................................................................. 4

MACROECONOMIC ANALYSIS...................................................................................................... 5PESTEL.......................................................................................................................................................... 5HOFSTEDE CULTURE................................................................................................................................ 6

BUSINESS ENVIORNMENT ANALYSIS.......................................................................................7GLOBAL MARKET OPPORTUNITY ANALYSIS:...................................................................................7TATA MOTOR’S ORGANIZATIONAL READINESS..............................................................................8TARGET MARKET – WHY MALAYSIA...................................................................................................9INDUSTRY MARKET POTENTIAL:...................................................................................................... 10

COMPANY INTERNAL ANALYSIS:............................................................................................115C’s ANALYSIS.......................................................................................................................................... 11VALUE CHAIN ANALYSIS:...................................................................................................................... 14SWOT ANALYSIS...................................................................................................................................... 15

COUNTRY ENTRY STRATEGY:.................................................................................................. 164 Ps............................................................................................................................................................... 16PARTNERSHIP STRATEGY:...................................................................................................................16

CONCLUSION...................................................................................................................................................... 17

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EXECUTIVE SUMMARY

The South Asia Market is witnessing a strong growth in the automobile sector.

Malaysia is one of the most stable economies in the South East Asia. Although until now

Malaysia was following strict government regulation to promote national brands but it

has now opened up its market under National Automotive Policy 2006 to promote

Malaysia as a manufacturing hub for automobiles and also to increase the presence of

foreign automobile players in the market. As per the Malaysian Automotive Association

(MAA), sales of commercial vehicles is expected to grow 4.6% to 68,000 units in 2012

from 65,010 units a year earlier. Moreover, Tata Motors has set up its Pick Up truck

manufacturing in Thailand and is looking at expanding in Malaysia.

This report looks at the feasibility study and entry strategy for Tata Pick Up truck

Xenon to enter in Malaysia.

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BACKGROUND

Traditionally, the pick up vehicle market in Malaysia was dominated by Toyota

Hilux and the Ford Courier. These were just utility vehicles for people to carry heavy

tools and machinery. The first company to add comforts and good looks in the pickup

segment was Ford Malaysia with the Ranger in nineties. Mitsubishi launched Storm in

the market which became Ranger’s top competition.

Almost a decade after the introduction of the Ranger, Nissan launched the

Frontier. Toyota made few changes in the Hilux to suit city drivers, and Mitsubishi

launched Triton. Also Isuzu launched D-Max in the pickup truck category. As of now

there are around eleven major players in the Pick Up category in Malaysia. The breakup

of the pickup segment is given in the graph below in which Toyota leads with almost

50% market share of the market.

Source: http://www.cbt.com.my/2012/04/03/sedans-are-out-lifestyle-cars-are-in/

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MACROECONOMIC ANALYSIS

The macro economic analysis of any country can be done through a PESTEL

analysis and the cultural analysis can be conducted using Hofstede Analysis.

PESTEL

Political Factors:

Malaysia is a constitutional monarchy with a parliamentary system of government. Political system is dominated by native Malays and though there are tensions among the different races, a competitive but collaborative governance is prevailing in Malaysia. A political risk index of 8 on a scale of 10 (Higher the index, lesser the political risk) is given for Malaysia which shows that political conditions are stable and conducive for business in the country.

Economical Factors:

Malaysia is the third largest ASEAN automobile market. Automotive industry in Malaysia registered a marginal decrease of 7.5% in sales during 2011 and it is expected to increase to 615000 units in 2012. Domestic investments in automotive industry amounted to RM 1350.4 million contributing to 70% of the total investment. (The Malaysian Automotive and Supplier Industry, 2012) The real GDP growth rate is estimated to be 5 % in 2012 and the inflation will be 3.3 – 3.5% (est. 2012 IMF). Imports of Commercial MPVs from ASEAN countries will be subject to only 5% import duty as they are declared as ASEAN Free Trade Area (AFTA).

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Social Factors:

Owing to its near-universal primary enrolment, Malaysia’s literacy rate stood at 92.8% in 2009. In spite of the slow economic growth, the unemployment rate is only 3% which indicates the availability of huge labour force. The average per capita disposable income income is $ 4552.

Fig: % of income against age group

A – Above 200%, B – 150%-200%, C- 100%-150%, D- 50%-100%, E- Less than 50%

Technological Factors:

Innovation and new technologies in manufacturing has improved the productivity by 44% between 2001 and 2006.

Environmental Factors:

Energy efficiency is given utmost importance and the Government encourages such cars. Excise and duty tax exemptions are granted for hybrid energy efficient cars.

Legal Factors:

According to National Automotive Policy (2012), the freeze on issuance of new manufacturing licenses will be lifted for pick-up trucks and commercial vehicles. Malaysia is ranked 23rd out of 183 countries in the World Bank’s Ease of Doing Business 2010 report. It takes just 11 days to start a business in Malaysia as against the 37 days it takes in China. It stands at 4th place in protection of its investors through effective investment and security laws.

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HOFSTEDE CULTURE

Malaysia Culture is a very high context culture where lot of emphasis is given on

relationships. Therefore, it is important for Tata to leverage on its brand image and

build a relationship with the customers.

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BUSINESS ENVIORNMENT ANALYSIS

The business environment analysis will be done by analyzing if there is a market

for TATA Xenon in Malaysia. Given below is the framework of Global Market

opportunity Analysis.

GLOBAL MARKET OPPORTUNITY ANALYSIS:

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TATA MOTOR’S ORGANIZATIONAL READINESS

Tata Motor’s is one of India’s largest car manufacturer With the Indian car market

slowing down owing to the increasing costs of ownership and the ever-increasing cost of fuel, Tata is

now looking for greener pastures abroad. Tata Motors currently has manufacturing facilities in the

UK, South Korea, Thailand, Spain and South Africa.

Sr. No

Facility Acquired in Collaborator Manufacturers

1 UK 2008 Jaguar Land Rover LV & SUV

2South Korea

2004Daewoo Commercial Vehicles Company

Trucks

3 Spain 2005 Hispano Carrocera Bus & Coach

4 Brazil 2006 Marcopolo Bus & Coach

5 Thailand 2006Thonburi Automotive Assembly Plant Company

Pickup vehicles

6South Africa

2008Tata Africa Holding (Pty) Ltd

Medium and heavy commercial vehicles

In 2006, Tata Motors entered into joint venture with Thonburi Automotive

Assembly Plant Company of Thailand to manufacture and market the company's pickup

vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun production of

the Xenon pickup truck, with the Xenon having been launched in Thailand in 2008. Tata

Motors is an international motor manufacturer and has a global footprint with its

commercial and passenger vehicles already being marketed in several countries in

Europe, Africa, the Middle East, South East Asia, South Asia, CIS, Russia and South

America. Further, it has franchisee/joint venture assembly operations in Bangladesh,

Ukraine, and Senegal.

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With a deep understanding of economic stimuli and customer needs, and the

ability to translate them into customer-desired offerings through leading edge R&D Tata

Motors is definitely ready to enter into a new market.

TARGET MARKET – WHY MALAYSIA

Malaysia has traditionally been a middle-income country but now Malaysia has

transformed itself into an emerging multi-sector economy spurred on by high

technology, knowledge-based and capital- intensive economy. It is one of the 20 largest

trading nations worldwide. After Singapore, Malaysia is EU‘s second largest trading

partner inside ASEAN, with bilateral trade in goods reaching 31.9 billion Euros in 2010.

The automobile customer market is the biggest in Malaysia in South-East Asia

due to the recently increased spending power of the consumers. Traditionally Malaysia

has protected its auto industry from foreign competition. They have introduced trade

barriers and high import tariffs on foreign brands of vehicles, which have protected its

two national carmakers, Proton and Perodua. Together, these two companies have

dominated the auto industry commanding close to 59% of the local mid size car market.

However, recently the government has taken certain measures to reduce trade barriers,

due to its obligations in the World Trade Organization (WTO) and in the ASEAN Free

Trade Agreement (AFTA)

Although the mid car segment is still dominated by the likes of Proton, Perodua

and Toyota, there has been relatively no major standout player in the pickup truck

market. To add to it with Tata’s Xenon manufacturing facility in Thailand, this market

seems a very good market to penetrate. With the Xenon already a success in Thailand,

and with Thailand and Malaysia sharing similar economic and geographic backdrops,

the Xenon seems a perfect fit.

(Reference: “Market Watch 2012”The Malaysian Automotive and Supplier Industry)

The graph by Frost and Sullivan below shows that Malaysia is a steady market to enter into.

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INDUSTRY MARKET POTENTIAL:

Malaysia has a growing potential for Pick Up trucks. The commercial vehicle

break up is given in the figure. Pickup forms the biggest segment in Commercial

vehicles. Also there is a big difference on the tax levied between SUV and pickup trucks

which is giving a thrust to the growth of lifestyle pickup trucks as compared to SUV

segment.

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COMPANY INTERNAL ANALYSIS:

5C’s ANALYSIS

A. Company:

Tata Motors is a subsidiary of Tata group. Tata Motor’s product line includes:

Passenger vehicles: Tata Indica, Indigo, Nano

Sport Utility vehicles: Tata safari

Commercial vehicles: Tata Sumo, Tata Xenon

Trucks & Buses

Tata motors acquired Jaguar and Land Rover business from Ford Motors, this

acquisition helped them to gain entry into European market, and also helped boosting

the brand image of Tata Motors. Also, Tata Motors saw immense potential in the Land

Rover as a premium Sports Utility Vehicle and have turned around the fortunes of the

LR in three years. In Malaysia, Tata motors forsee growth potential in the commercial

vehicle segment as this is a growing market in Malaysia and also because of lower

competition from local players. Tata will introduce Tata Xenon as there is an assembly

plant in Thailand and can be directly imported from Thailand.

Also, Tata Motors can also leverage the ASEAN free trade agreement (FTA) as

they have an assembly plant in Thailand.

B. Collaborators:

Tata can get into contract agreements with the local distributors in Malaysia.

Tata can partner with Isuzu Hicom Malaysia Sdn. Bhd to gain entry. It can also get into

agreement with component manufacturers for supplying spare parts and other critical

components.

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C. Customers:

The commercial vehicle market has increased by 12.1% YOY compared to June

2011 quarter (Malaysian Automotive Association, 2012).

Source: Malaysian Automotive Association, 2012

As in the above graph pickup truck share is higher and is about 68%. This gives a

good opportunity to get into pickup truck market. Most customers are small business

owners who requires to transport goods locally i.e. inside the cities and sometime

outside the city borders. As this truck will be imported from Thailand and this will be

under the laws of FTA, the price can be made very competitive, this will attract more

customers.

The urban Malaysians are also driving Pickup. It has a become a fashion statement in

the Malaysia automobile market.

D. Competitors:

The main competitors are:

Mitsubishi Triton, Nissan

Navara, Isuzu and Toyota

Hilux. The market share is

as as per the attached

graph.

Source: EU Delegation to Malaysia – Trade & Economic Section, Jan 2012

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E. Climate:

The climate or macro environment factors are as detailed in the PESTEL analysis.

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VALUE CHAIN ANALYSIS:

The Analysis below summarises which activities are important for Tata and

should be kept in house and which can be carried on in Thailand in the initial period or

can be transferred to third party and dealers. Since its a established product therefore

there is not much R&D needed, the component and manufacturing as of now is being

done in Thailand plant. If the market size increases considerably a manufacturing plant

can be started in Malaysia which is encouraging companies to set up its manufacturing

facilities. Initially marketing and customer service can be kept in-house as it’s crucial to

make an early impact in the market. The sales, distribution and logistics can be shifted

to outside vendors.

VALUE CHAIN ANALYSIS

  R & D DesignComponent Manufacturing

Manufacturing or Assembly

Importance of this activity to the firm as a strategic asset

Low importance : Already proven product to be launched

Low importance. Currently outsourced in Thailand.

High importance since the cost and quality of manufacturing is essential

Likelihood of Internalizing rather than outsourcing

High importance for an already proven product with continuous innovation to customize to the local market

Low importance as the process is already outsourced at Thailand

Low importance since the product is manufactured at Thailand

Geographic configuration: Home or abroad

Concentrated at Thailand

Produced at Thailand

Concentrated at Thailand

 Marketing & Branding

Sales, Distribution & Logistics

Customer Service

Importance of this activity to the firm as a strategic asset

Very important for the launch of a new product

Very important as the products are imported from Thailand

Very important as this is a new product

Likelihood of Internalizing rather than outsourcing

High importance as it is for a product launch for a totally new market

Medium importance since the product is distributed in Malaysia

High importance as the product is new to the market

Geographic configuration: Home or abroad

Branding and Marketing concentrated in Malaysia

Mainly concentrated in Malaysia and partially at Thailand in terms of exports

Customized to suit the market with local call centres

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SWOT ANALYSIS

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COUNTRY ENTRY STRATEGY:

4 Ps

Though the automotive policy of Malaysia is still not very open as compared to

other ASEAN countries, but there is a growth potential for pickup trucks and increase in

consumer base. The 4Ps have been given in the analysis below.

PARTNERSHIP STRATEGY:

Strategic partnership with Dealers and third party logistics to take advantage of

the following skills

Existing customers in terms of loyal customers

Sales and service expertise

Reputation/brand equity

Market access/knowledge

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CONCLUSION

Though the market in Malaysia has traditionally been a closed one to foreign

carmakers, however recently the government has taken certain measures to reduce

trade barriers, thanks to the World Trade Organization (WTO) and in the ASEAN Free

Trade Agreement (AFTA). Also, owing to the robust nature and reputaions of Tata

Motors and their cars in general Tata Motors seems a really strong player to be entering

the Malaysian pick-up truck market.

Add to this the detailed analysis done above, it clearly shows that Tata Motors

will only stand to gain by entering the Malaysian market with its successful model; the

Tata Xenon.