Manfest-2005

Tata Motors Case Contest

Global Strategies for Tata Motors

Authors:

Abhishek Thakur Satya Prakash Sahooabhishek_d05@iift.ac.in

satyaprakash_d05@iift.ac.in(0)-9891254622 (0)-9891330053

School of International Business ManagementIndian Institute of Foreign Trade

Qutab instititional areaNew Delhi-110016

Table of Content

1. Introduction … (3)

2. Tata Motors: The Internationalization Process … (4)

3. SWOT analysis and TWOS matrix … (5)

4. The Fundamental Strategies … (8)

5. Gap Analysis: Matching Strategy with Action … (11)

6. Some New Suggestions … (13)

6. Bibliography and URLs … (14)

7. Appendix

Global Automotive Scenario … (15)

Diagrams and Table … (16)

2

Introduction

Some time back, the president of the renowned Switzerland-based International Institute for

Management Development (IMD) Peter Lorange had remarked to Tata group supreme, Ratan

Tata that large Indian corporations lacked the mindset to become global. He believed that they

seemed content being just regional players.

But today the case is different. Tata has stepped on the accelerator and taken two major

decisions in recent times which show the pace with the auto major is marching ahead towards

globalisation. The decision to enter the European market in the name of Rover and then

acquiring Daewoo CV in Korea focuses on two different approaches that Tata Motors is

adopting in its attempts to go global. In case of Rover it is using the rover name to market and

position itself, whereas in case of the Daewoo it is using its high end technology and ability to

produce world class trucks to enter markets such as China, South Africa, Italy & Spain. Here,

we discuss some of the general strategies of Tata Motors and the overall direction that it is

following.

3

Tata Motors: The Internationalization Process

Tata’s have moved from step by step in their endeavor to make their products, particularly

Indica, a truly global product. Their entry into the International arena can be broadly classified

into the following stages.

Infrequent Foreign Marketing: Initially when the Indica was launched in India, Tata’s

had neither a well planned strategy as to how they will market Indica in the foreign markets

nor any exporting targets. The exports were based as per the demand that came without any

regularity. Some of the markets included Sri Lanka, Pakistan Bangladesh and Mauritius.

No technical change was done on the vehicle to adapt to the local conditions.

Regular Foreign Marketing: At this level, the firm has permanent production capacity

devoted to the production of goods to be marketed on a continuous basis to the foreign

markets but the main focus was on domestic markets. Tata’s moved to this stage after one

year they launched into India’s market. They have dedicated sales personnel; set export

targets, and are selling Indica through its subsidiaries abroad. The marketing strategies for

individual countries have been developed and pursued on a regular basis. Indica has been

made Euro-III compliant to make it compatible as per European standards. Italy, Malta and

Portugal have seen Indica being marketed in similar fashion.

International Foreign Marketing: At this stage the company seeks markets all over the

world and sells products as a result of planned production. This also involves setting of

production facilities outside the home market. The Tata’s are now moving in this direction

in their strategy for making their products truly global. The process of setting the

production plant in China has also started and may be finalized soon. For the LCV

segment, the acquisition of Daewoo vehicles has been done both to expand the product and

competency range as well as to enter important markets like China.

4

SWOT analysis and TWOS matrix

We now do a SWOT analysis of Tata Motors laying more stress on international perspective.

SWOT analysis

STRENGTHS

1. Low cost of production

2. Economies of Scale due to

Domestic Market

3. High degree of resilience and

ability to bounce back

4. Ability to successfully engineer

variants based on a basic platform

WEAKNESSES

1. Perceived to be technically inferior

2. Low international presence

3. Sales and services network

4. Lack of aggressive marketing in the

heavy commercial vehicles segment

5. Slower than competitors in re-

launches and facelifts of leading

brands

6. A large market, its own home

market, does not demand the kind

of products it wants to sell

elsewhere

THREATS

1. Competition

2. Perception about Quality

3. Mergers & Acquisitions

OPPORTUNITIES

1. Huge untapped International

markets

2. Used Car market

3. Strategic Alliances

Based on these characteristic and risk-opportunities, the some of the strategies of the company

be guessed as well as suggested-

5

TOWS matrix for Tata Motors

STRENGTHS WEAKNESS

OP

PU

RT

UN

ITIE

S

S-O Strategies

1. Economically Priced Cars: Tata Motors can

produce a car of same quality and technology

in far less cost than any other global player

due to availability of raw materials in

competitive price in vicinity.

2. Exporting to Developed Nations: They can

test the technology in advance market

conditions of developed nations. This can

throw light on crucial issues of launching a

product in highly competitive market, where

growth is less but replacement is very high.

3. Export to the 3rd world countries and less

developed areas such as Africa and Latin

America where the local taste is similar to the

Indian taste. The product portfolio demand

and infrastructure is same. Investment is

needed but success in high growth market can

recover all the expenditures.

W-O Strategies

1. Tie-up with renowned player in the

developed world. As in case of City Rover,

Tata Motors can tie up with the leading player

in the market. They can provide necessary

vehicles to expand the portfolio of the player

and in return can find the acceptance of the

product in the area. This will avoid huge

investment in marketing and building the

brand name. Also the knowledge of Tata

Motors about the European or the US market

is less. The market have to be studied and this

need investment in exploratory market

research and more tie ups and joint ventures

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TH

RE

AT

SS-T Strategies

1. Matching low cost prowess with a strong

brand is a tough challenge. Also technology

wise Tata motors cannot match the global

auto majors. Hence they need to invest

heavily in R&D to improve their quality and

at the same time, launch a concentric brand

building efforts, something that the Tata

group is already planning to do.

2. At home, Tata motors has shown its

resilience of fighting back from adverse

situations. But globally, handling such

situations is even tougher. Sticking to the

basic vision and developing a dynamic

strategic response would facilitate the job

here.

W-T Strategies

1. Competition by Global players in domestic

market. As the Indian Government is opening

the gates for the international players. Soon

the domestic markets will be flooded by the

international vehicles. To compete they have

to move global and match them in technology

and quality. This will provide platform to

fight in domestic condition. In domestic

market they should be able deliver the same

quality. This requires heavy investment in

R&D which is possible only if enough

vehicles are sold to achieve breakeven point.

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The Fundamental Strategies

In the preceding section, we analysed the company through a TWOS matrix. This included

both the strategies that the company is following as well as the points that could be

implemented.

However, the limitation of the TWOS matrix is that while some of the combinations may lead

to similar alternatives while some might simply be not feasible, at least in the shorter run. Also,

they give a short range view of the whole scenario. In order to take a broader view and become

able to analyse better, we describe the strategy being followed by Tata Motors under the

following three headings-

CORPORATE STRATEGY

There are several elements of the corporate strategy of Tata motors. All these are described

below-

1. Build up a dominant share in the markets which are relatively unoccupied. This

includes places like China, South Korea, South Africa, Pakistan, the Mercosur block et

al.

2. Build up basic competency like entering a market, setting distribution networks and

marketing.

3. Find out the combinations of what works in which type of market/country, e.g.,

acquisition, joint ventures or simple exports.

4. Leverage these accumulated insight and use them to break into the major markets.

FUNCTIONAL STRATEGY

We now come to the functional strategies being followed by Tata motors. These refer to the

more microscopic factors inasmuch as they are to implemented and worked upon by a no of

personnel and planning involves multiple layers. In this case the following steps by the

company can be clearly spelt out-

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1. Build distinct product benefits:

- Strength

- Price

- Style

All this would mean that the product is upgraded continuously in the reliability and

durability, the primary differentiators of any brand, before the subtler aspects like

product imagery start coming into the picture.

2. Raise funds from the foreign markets so as to create a base of foreign investors, obtain

a currency to use for overseas acquisitions as well as to increase the efficiency, by

bringing down the cost of funds acquiring.

3. Making improvements in production technologies and processes needed for quality

control and tight monitoring of factors like defects per vehicle, better safety standards

etc

EXECUTION STRATEGY

To implement as well as to complement the two types of strategies discussed so far, Tata

Motors is looking for measures to benchmark their executing efforts. We have decided upon

the following factors that the company is using to benchmark their implementation

1. Spreading the business to different countries so as to act as a hedge against

cyclical trends

2. To offer cost-effective products and services to each market suited to the stage

of development of that market.

3. To draw on experiences in different markets and create strong synergies. This

assures a greater degree of stability and, going forward, will strengthen the

company’s ability to manage risk.

All these elements can be described in the form of a diagram as shown in the next page.

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10

CORPORATE1. Dominant share in relatively

unoccupied areas2. Building up basic

competencies3. Combination of method vs.

market4. Leverage the accumulated

insight for major markets

FUNCTIONAL1. Build distinct product benefits2. Raise funds from foreign

markets3. Improvement in production

technologies and processes

EXECUTION1. Spreading the business to hedge

against cyclical risks2. Offer cost effective product and

services3. Learn in different markets and

create synergies

INTERNATIONAL AUTOMOTIVE ENVIRONMENT

Gap Analysis: Matching Strategy with Action

Having stated Tata motors strategy in clear and unambiguous terms, we now come down to

doing a gap analysis for the company so as to be able to comment on the whole system of its

strategy formulation and whether the policies are getting transformed into action or not.

Vision: The first thing that comes out is that whether Tata motors has a vision on which

it can work on. To look into that perspective, we find that the global trend is towards

consolidation and the major markets are all too saturated with the major players. In

such a scenario, if a small and new player like Tata motors wants to become, it has to

have a vision and long term.

What could be it? We consider two possibilities-

1. The company aims to sell it of at a premium to any of the big players.

Traditional companies like Renault, Rover and Rolls Royce have all been

acquired and merged with GM and BMW respectively.

2. The company keeps operating in a niche segment of LCV and low cost

passenger vehicles. In this way, not only it avoids direct completion from the

big players but also enhances the possibility of emerging as a truly global

player, albeit a smaller one compared to others.

Judging from both alternatives, we can conclude that the second vision is more

appropriate. Becoming the major global player in its narrowly defined segment is a

long term goal that can not only inspire everyone in the team but also act as a

measurable and observable value. In any case, if the Tata groups wants, it can sell it off

at a suitable time, but pursuing this vision would act as a true value enhancer in either

way. Also, according to the company's executive director, finance and corporate affairs,

P. P. Kadle, the company's vision is to “create a brand that is internationally respected

and to have products that are globally competitive". We can see that it envisages a

similar kind of future for the company.

Corporate Strategy: Based on the news reports, Tata Motors has decided not to

spread itself too thin and has identified a dozen countries where the company will have

a major presence. These are geographically spread and include three-four countries in

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Europe, Africa, West Asia and South Asia. The countries chosen include, among

others, China, South Africa, Russia, Sri Lanka and Bangladesh. The company sources

have hinted that they will be adopting a combination of direct marketing,

distributorships and appointing consultants to study these markets.

At the same time, there is also an effort to facilitate inorganic growth by acquiring what

complements its portfolio. For instance, to enter into the profitable bus segment, it

plans to acquire a Spanish bus-building and designing firm to strengthen its capabilities

and global presence in the bus segment. While Daewoo brought to the table product

development and integration capabilities, the Spanish deal will fortify Tata Motors’

design skills in the bus business and equip it with a range of buses saleable in south-

east Asia, Europe and other global markets

Functional Strategy: According to Mr Ravi Kant, executive director, Tata motors, the

company’s capabilities in design, world-leadership, software skills, technology

assimilation capabilities and labour productivity will ensure that it is not only

benchmarked with world-class companies, but is itself benchmarks in certain areas.

The company is already into raising funds from foreign markets. However, what it

needs to look forward is the possibility of collaboration for joint platform development

with other companies. Of course, this stage is not going to come too soon but the

possibility is always there.

Execution Strategy: The trick in execution lays in maximising one’s current revenues

and profits which also act as a springboard for your future growth and efficiency.

Acting along the similar lines, Tata motors is also looking into the opportunities for

revenues from non-vehicle areas like auto components, services and vehicle financing.

To conclude, judging from what we feel it should do and what it is doing, it can be said that

Tata motors is on the right track The rest, we believe, is just a question of having enough faith

in one’s ability and the resilience of coming back from reverses faced at an international level.

The alliance with Rover has already run into trouble but in this particular case, Tata Motors

was only looking for a launch pad at that point in time, so this would give it an opportunity to

look at other joint venture partners and tap other markets.

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Some New Suggestions:

Given below are some of the newer suggestions that the company can use in order to fulfil its

ambition of becoming a global player. Some of these might already have been implemented in

one way or the other but they are presented nonetheless.

1. Use Tata’s IT prowess in R&D for cars. The future cars are going to be even more

microprocessor dependent. In such a case, India’s IT image can help in a big way and

act like a big differentiator.

2. Open R&D centres in other places apart from India, in order to cater to widely different

markets in a more efficient way.

3. As the company diversifies, it should put more emphasis on currency risk management,

preferably putting a separate team in place.

4. Market the 1-lac rupee car carefully should the made ever materialize. This single car

has the potential to become an outright winner in ALL cost conscious countries and

will act as substantial entry barriers for all other competitors.

5. Have a clear cut mechanism for issues like transfer pricing so as to minimize losses

and maximize capital efficiency.

6. Make individualized, customized strategies and policies for each country, then see to it

that they are in harmony with the over all objective. In this way, a portfolio of strategy

can be made which would allocate optimum amount of resources in the long run view

along with having a balanced and profitable product range for the specific country.

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Bibliography

1. Prahalad, C. K.; Hamel, Garry; Competing for the future, HBS press, 1994

2. Parnell, John, Strategic Management: Theory and Practice, Atomic Dog Publishing, USA,

2003

3. Daniels, J. D., Radebaugh, L. H., Sullivan, D. P., International Business: Environments

and Operations, (10th edition), Pearson Education, 2004.

4. Bartlett, C. A., Ghoshal, Sumantra, Managing Across Borders: The Transnational solution,

HBS press, 1998.

5. The Second Automotive Century, A report by PricewaterhouseCoopers, 2000.

6. Keegan, W. J. , Global Marketing Management (8th edition), Prentice-Hall, 2002

URLs

1. www.tata.com/tata_engg/media/20030926.htm

2. www.ibef.org/artdisplay.aspx?cat_id=365&art_id=3695

3. www.outlookmoney.com/scripts/IIH021C1.asp?articleid=5279&

4. www.tata.com/tata_engg/articles/20040104_driving_change.htm

5. www.hindu.com/2004/12/09/stories/2004120903761600.htm

6. www.tata.com/tata_engg/media/20031111.htm

7. www.deccanherald.com/deccanherald/apr052004/b1.asp

8. http://economictimes.indiatimes.com/corpshow/891023.cms

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Appendix

Global Automobile Scenario

The automotive world is essentially split into six markets, three of which are high volume

markets close to maturity – North America, West Europe and Japan plus Australia – and three

of which are developing, long-term growth markets – developing Asia, East Europe and South

America. Mature markets in developed economies demand “lifestyle” vehicles; while emerging

markets demand basic, cheap and affordable transportation.

At the international level, globalization is having the following effects-

Gaining incremental volume leveraging “know-how” from other parts of the

world, i.e. grow volume over a relatively stable cost base.

Consolidation, which aims to decrease the cost base supporting relatively

stable volume, usually through the elimination of duplicate/redundant assets,

such as the number of production facilities and suppliers. It has the following

advantages-

Increased access to volume generating markets

Potential economies of scale through the expansion of the enterprise

Access to expanded skill-sets and competencies

Access to innovation

Platform deproliferation aims to provide a wider end-product range across a

smaller number of basic design structures, thereby leveraging development

and other costs for a presumably greater volume opportunity.

Two different patterns of globalization are evident in their global production footprints:

Renault-Nissan and DaimlerChrysler have adopted a “Global Balance” approach in which they

are building production distribution in line with the perceived regional share of global output.

Conversely GM, Ford, Toyota and VW are combining domestic market dominance with global

reach. This strategy entails building and maintaining a substantial domestic regional presence,

targeting selected strategic global markets for secondary strong footholds to counter cyclicality

and then using this solid foundation to penetrate other global markets.

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(source: The new auto century, PWC, 2000)

16

Rebadging

Original Developer Rebadged

Mitsubishi Colt Dodge Laser

Suzuki Ignis Chevrolet Cruze

Suzuki Wagon R Vauxhall Agila

Ford Galaxy Volkswagen Sharon

Holden Monaro Pontiac GTO

Opel Corsa Chevrolet Corsa

Tata Indica Rover Indica

   

This table shows some other instances of ‘ rebadging’, apart from Indica-Rover

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