TATA MOTORS

Introduction

Tata Motors is currently India's largest automobile company with revenues of $12,179.2 million in Q4 FY 16. It is by far the leader in commercial vehicles and the second largest player in the passenger vehicles market with winning products in the compact, midsize car and utility vehicle segments. Employing around 23000 people and headquartered in Mumbai, Tata Motors became the first company from India's engineering sector to be listed in the NYSE in September 2004. While currently about 18% of its revenues come from international business, the company's objective is to expand its international business, both through organic and inorganic growth routes.

Internationalization

As a part of the company's new internationalization strategy, the company has decided to focus on a narrow base of 14-15 countries where market conditions are similar to that of India. In these countries, Tata Motors now has dedicated manufacturing facilities, marketing teams and sales teams. The idea is to have self-sustained operations in this narrow band of countries. The company evaluates locations on the basis of market opportunities and labor skills. In the framework pertaining to international expansion strategies, Tata Motors can be identified as an Extender, and is focusing on expanding into markets similar to those of the home base, using competencies developed at home (see Exhibit 1).

Exhibit 1: Where Tata Motors Stand?

History of Internationalization Korean Operations Tata Motors entered the advanced Korean Market by acquiring Daewoo, with which it has tremendous synergies in terms of product strategy and R & D. Tata Motors has planned to use this merger and leverage the technology for developing a World Truck for India and international markets.

South African Operations In the export market, Tata Motors moved from a fragmented approach to specific markets, chosen in terms of consumer behavior, distribution networks, supply chain, etc. and identified South Africa as one of the best markets. The sales in this region are about 15,000 units. This is a significant improvement over what Tata Motors was cumulatively exporting (8000 units) before adopting its new internationalization strategy.

Thailand Operations Tata Motors formed a joint venture with Thonburi Automotive Plant to enter Thailand. Thailand is the second most competitive market for pickups, and the new pickup trucks developed here will be sold in both domestic and export markets.

Latin American Operations Tata Motors has taken its alliance with Fiat to produce a new one-ton pick-up truck, for Latin American markets from Fiat's facility in Argentina. This arrangement will also see Tata Motors forming a joint venture with a subsidiary of Iveco, the commercial vehicle division on Fiat, to set up a distribution network. Now that Tata Motors has established a sustainable model in some countries, its main challenge is to replicate this model in other countries as well.

Analysis of dynamic strategy

Tata Motors was somewhat of a pioneer in foreign automobile acquisition. In 2004, it became the first India-based automobile firm to make an overseas acquisition when it bought Daewoo Commercial Vehicles (Daewoo). The move was a calculated attempt to meet the company’s public goal of increasing its revenue stream from other countries by from 10% to 15% over the three-year period of 2004 to 2007. As a leading South Korean automobile company, Daewoo offered a low-risk means of entering the global auto market for the modest price of $116 million. The acquisition allowed Tata Motors to combat domestic overexposure because Daewoo had significant markets in South Korea and Pakistan. The deal was also in line with Tata Motors’ aggressive global expansion goal. According to Praveen Kadle, executive director of finance, “We acquire a company only if it gives us new technology, new markets, new products, new customer bases, or a new product development capability. The deal must also make financial sense.” To convince Daewoo that its new Indian owner was capable of a smooth transition, Tata Motors translated all its literature into Korean for the board and hired professional translators to facilitate communication. Tata Motors’ management also interacted directly with

Daewoo employees and assured them that they would all retain their positions after the acquisition. In another concerted effort to increase its international presence, Tata Motors acquired a portion of the Spain-based bus company Hispano Carrocera SA (HC) in 2005. The deal gave Tata Motors rights to 21% of HC’s shares, technology, and brand rights. Tata Motors was primarily interested in HC’s large commercial vehicle platforms and in replicating its compliance with safety and emissions standards. In an act of forward thinking, Tata Motors stipulated in the deal that the remaining 79% of HC could be purchased in the future if both companies came to agreeable terms. The deal allowed Tata Motors to simultaneously enter the bus market and develop an international presence. HC produced high-end public transportation buses, which were in high demand in Middle Eastern countries; similar demand was emerging in India as the government’s infrastructure overhaul began. In both the Daewoo and HC acquisitions, Tata Motors was intent on obtaining platform technologies for new vehicle types, so it didn’t have to engineer new components to generate new categories of vehicles. As a result of its experience with these two foreign acquisitions, Tata Motors had realistic expectations and the confidence to pursue a potential deal with JLR. Industry Analysis India is home to a vibrant automobile of more than 40 million vehicles. It has been one of the few worldwide which saw growing passenger car sales during the recession of the past two years. In fact, in 2009-10 it has recorded its highest volumes ever. It is believed this upward trend will be sustained in the foreseeable future due to a strong domestic market and increased thrust on exports.

The Indian economy has grown at an average rate of around 9 percent over the past five years and is expected to continue this growth in the medium term. This is predicted to drive an increase in the percentage of the Indian population able to afford vehicles. India’s car per capita ratio (expressed in cars per 1,000 population) is currently among the lowest in the world’s top 10 auto markets. The twin phenomena of low car penetration and rising incomes, when

combined with increasing affordability of cars, are expected to contribute to an increase in India’s automobile demand. The automotive industry is one of the key drivers of India’s economy, accounting for around 4 percent of India’s GDP1 and over 200,000 jobs.

The Indian automobile industry has seen interesting dynamics in recent times with the effect of the global downturn, followed by recovery in domestic demand. The future of the industry in the medium term based on current trends, is analyzed here along two broad themes in the global automobile industry: • Growth • Consolidation

As discussed below, the nature of demand in the Indian automotive industry and the associated drivers are likely to take it along a path, which is different from the evolving global automotive landscape. Growth India’s automobile market has grown steadily over the last seven to eight years, with the exception of the previous two years where the effects of the global downturn were felt,

primarily in sales of commercial vehicles. However, even during the downturn, the two-wheeler and three wheeler segments, which were until then experiencing low growth or losing volumes, bucked the trend. As Figure 5 shows, India’s vehicle demand is quite different from other top automobile markets – with the exception of China – in that two-wheelers constitute a significant portion of vehicle demand (more than 3/4th of the Indian market is in two-wheelers). In the context of the unique characteristics of the Indian automobile market, growth is expected to be driven by the following:

Affordability While quite a few new vehicles launched in the Indian market have been developed locally, vehicle affordability remains a significant concern as seen in Figure 6. Although the price of an average motorcycle in India (about USD 900) is comparable to the average per capita income, the prices of passenger cars have a long way to go. Although the entry level car (Nano) is priced at around USD 2,500, the passenger car market could grow multi-fold if there is a break-through of another price level in the years to come. John Flintham, global CEO of Amtek Auto, believes four-wheelers are particularly well placed to take advantage of these changing trends. “If you look at the Tata Nano, people buying two-wheeler bikes who have a bit more disposable income and can now afford to buy a car instead. I think you’re going to see a doubling of sales over the next three to four years and I think that’s going to be driven by both domestic demand and by India becoming a small car export hub.”

Ford India Managing Director, Michael Boneham, believes changing demographics in India will see auto sales scale new heights. He argues that the increasing number of educated people entering the working age bracket will provide a fertile environment for a buoyant economy and healthy demand for private light transport. “The Indian auto industry should have double digit growth levels for the next five years and beyond, depending on taxation, legislation, infrastructure and global conditions,” he says.

Analysis of Diversification Strategy Tata Motors is a part of large conglomerate Tata Son, hence does not need to diversify in different industries or products. Tata Motors is primarily diversifying in related business (automobile) in different countries as discussed above.

High Industry Attractiveness Low

High Low

Business Unit Competitive Advantages

TATA MOTORS: Building there business with international acquisitions.

HOLD

HOLD HARVEST

Analysis of Stakeholders strategy: Primary Stakeholders Secondary Stakeholders Employee Government Shareholders Community Customers Suppliers

Tata Motors Shareholders Policy •Build a formidable captive financier by consolidating strengths available in-house and within The Group •De-risk the Company’s revenue stream from the cyclicality of vehicles sales business •Ensure customer loyalty by enveloping a complete value chain of customer’s life cycle spending on vehicles •Generate sustainable profit stream to increase shareholders ‘value

Analysis of international strategy Sustainable competitive advantage lies not in one, but a combination of multiple resources, each of which Individually need not necessarily be the best, but in overall weighted average terms, presents the best solution. For Tata Motors, the combination of resources providing it competitive superiority on a weighted average basis includes: 1. Product Reliability 2. Service Network 3. Channel Reach In terms of product reliability, Tata Motors offers products of reasonably high standards. However, foreign players like Volvo and even local competitors like Ashok Leyland arguably offer products that are far more refined. But this is more than compensated by a dependable service network and extensive channel reach. Tata's service and distributor network is by far the most extensive of any player in the trucks industry. Hence in overall weighted average terms, Tata Motors still has a winning proposition. Based on a close scrutiny of the resource based view of Tata Motors and the challenges it faces, we propose a recommendation matrix arranged along three broad dimensions - Tangible, Intangible and Capabilities.

Tangible The strategies in this domain are primarily directed at sustaining Tata Motors' first mover advantage with respect to its offering various segments. Strategy: National Footprint Product Portfolio Intangible In intangible terms, Tata Motors needs to bolster its brand loyalty, by providing a unique customer experience. Strategy: Brand Reputation Unique Customer Experience Capabilities There are two broad capabilities that Tata Motors should seek to acquire. Strategy: Robust Supply Chain Technical Appropriation Conclusion Tata Motors has never had it so good. Today the company is the undisputed market leader in the commercial vehicles industry in India and is gradually emerging as one of the key players internationally too. It has been forging ahead on a number of fronts in an attempt to further entrench its position as a market leader. The company enjoys a number of key strengths that enable it to present a unique value proposition to its customers. However this success is far from being a given. The company must focus on combining its unique strengths, as it endeavors to replicate its recent successes in new segments and across new geographies. Apart from product reliability, the most important determinant of future success would the company's ability to bolster its support framework. If the company gets it right, the spoils could indeed be breathtaking. Not only will that catapult the company to the forefront of creating a unique customer experience, but also help spawn altogether new revenue streams. The future presents challenges and opportunities for the company in equal measure both domestically and internationally. While pitfalls are many, Tata Motors looks well positioned indeed to capitalize on these opportunities and take on the world.

References: Acquisition Strategy: Analysis of Tata Motor’s Jaguar Land Roar, Dr. Seema Laddha Sri Chandrasekarendra Saraswati Vidyapuram, Nerul, Navi Mumbai, Maharashtra, India. ISSN 2230-9519 (Online) | ISSN : 2231-2463 (Print) IJMBS Vol. 6, Iss ue 1, Jan - March 2016 TATA MOTORS,Q4 FY 16 BUSINESS REVIEW The Indian Automotive Industry Evolving Dynamics, , KPMG IN INDIA AUTOMOTIVE, 2010 Growth of Indian Automobile Industry, M. Krishnaveni* and R. Vidya, Department of Commerce, L.R.G. Government Arts College for Women, Tirupur (Dt.), Tamilnadu, India, International journal of current research and academic review, ISSN: 2347-3215 Volume 3 Number 2 (February-2015) pp. 110-118 AUTOMOBILES, Indian Brand Equity Foundation JANUARY 2016, www.ibef.org