Professional Documents
Culture Documents
PREPARED & SUBMITTED BY: SAMEER (ROLL#7) SOHAIL (ROLL#18) SANKAR (ROLL#30) HIMANSHU (ROLL#42) ARUN V M (ROLL#54)
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Executive Summary
The report talks about the Indian automobile industry in general and Indian automobile giant TATA Motors in particular. We have analyzed Indian automobile industry using Porters 5 forces model & its performance in the recent past. Particularly we have tried to track the path of TATA Motors expansion of international business in the recent past, at present as well as its future plans. We have also discussed the impact of current financial meltdown on the recent international ventures of the company. The company is rapidly increasing its global footprint and is aiming to match the standards of international automobile manufacturers in next 3 to 5 years. This rise to the level of a world-class automotive manufacturer would involve a large quantifiable increase in revenues from outside India with a focus on certain foreign markets. Currently international business contributes 18.4% to companys revenues. Company is aiming to increase it by 200% in near future to reduce its dependence on one single economy and one single business cycle. This ambition of the company has led to numerous joint ventures and increased activity in countries like the U.K., South Africa, South Korea, Thailand, Brazil and Spain, as well as the company is listing on the NYSE. With the recent acquisition of Jaguar Land Rover (JLR) from the Ford Motor company in early 2008, the company has entered into the world of high-end luxury brands. Customers of high-end luxury brands value image and exclusivity factors, while image and exclusivity conflict with the proposition of TMLs other recent venture, the inexpensive Nano. In this manner, the decision to compete in both the high-end luxury and low-end economy markets certainly creates a big and audacious task ahead for TML. If proven successful, this strategy would provide the company with high margin (JLR) as well as high volume (Nano) revenues. These two revenue streams, if proven compatible, could mitigate each others risks.
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Table of Contents
Executive Summary ........................................................................................................................ 2 Indian Automobile Industry ............................................................................................................ 4 Porters Five Forces Analysis of Indian Automobile Sector .................................................. 5 TATA GROUP ............................................................................................................................... 8 TATA MOTORS ............................................................................................................................ 9 SWOT Analysis ...................................................................................................................... 9 BCG Matrix for Tata Motors ................................................................................................ 11 TATA Motors- Making Waves Internationally ............................................................................ 12 Impact of Current Global Slowdown on TATA-JLR Deal ........................................................... 18 Recommendations ......................................................................................................................... 21 References ..................................................................................................................................... 22
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TATA Motors-International Business Porters Five Forces Analysis of Indian Automobile Sector
Industry Rivalry
Threat of Substitutes
1. Industry Rivalry
Industry Concentration: The Concentration Ratio (CR) indicates the percent of market share held by a company. A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the market is less competitive (closer to a monopoly). A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. If rivalry among firms in an industry is low, the industry is considered to be disciplined High Fixed costs When total costs are mostly fixed costs, the firm must produce capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry. The industry is typically capital intensive and thus involves high fixed costs Slow market growth In growing market, firms can improve their economies. Though the market growth has been impressive in the last few years (about 8 to 15%), it takes a beat in even slight economic disturbances as it involves a luxury good. Aggressive pricing is needed to sustain growth in such situations Diversity of rivals: Industry becomes unstable as the diversification increases. In this case the diversity of rivals is moderate as most offer products which are close to standard versions and the competitors are also mostly similar in strength
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3. Threat of Substitutes
The replacement market is characterized by the presence of several small-scale suppliers who score over the organized players in terms of excise duty exemptions and lower overheads. A products price elasticity is affected by the presence of substitutes as its demand is affected by the change in the substitutes prices The cost of the automobiles along with their operating costs was driving customers to look for alternative transportation options The new technologies available also affect the demand of the product e.g.: In case of Marutis products, the threat of substitutes is high. The competition is intense as several players have products in the categories given by Maruti. However, in the 800cc range it is the market leader and the threat of substitute products is low. Price performance comparison favors heavily towards Maruti in most product categories. Also the high availability and quality of services offered by Maruti gives the customer a better trade-off
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TATA GROUP
TATA Group is more than 150 years old. In terms of market capitalization and revenues, Tata Group is the largest private corporate group in India and has been recognized as one of the most respected groups in the world. It has interests in steel, automobiles, information technology, communication, power, tea and hospitality. The Tata Group has operations in more than 85 countries across six continents and its companies export products and services to 80 nations. In the past few years, the TATA group has led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals. The TATA group is 11th most reputable company in the world according to Forbes. At home in the world Anchored in India and committed to its traditional values of leadership with trust, the Tata group is spreading its footprint globally through excellence and innovation The Tata groups revenues for 2007-08 from its international operations were $38.3 billion, which constitutes 61 per cent of its total revenues. Each operating company in the group develops its international business as an integral element in an overall strategy, depending on the competitive dynamics of the industry in which it operates. Exports from India remain the cornerstone of the Tata groups international business, but different Tata companies are increasingly investing in assets overseas through greenfield projects (such as in South Africa, Bangladesh and Iran), joint ventures (in South Africa, Morocco and China) and acquisitions. Acquisitions are a crucial component of the global expansion of Tata enterprises. Over the past eight years the group has made overseas acquisitions of $18 billion. Among the bigger deals on this front have been Tetley, Brunner Mond, Corus, Jaguar and Land Rover in the UK, Daewoo Commercial Vehicles in South Korea, NatSteel in Singapore, and Tyco Global Network and General Chemical in the US. Priority markets While individual Tata companies have differing geographical imperatives, the Tata group is focusing on a clutch of priority countries, which are expected to be of strategic importance in the years ahead. The regions are North America, UK, China, the Netherlands, Germany, South Africa, members of the Gulf Cooperation Council, Brazil, Vietnam, Thailand and Sri Lanka. Ratan Tata, Chairman, Tata Sons, sums up the Tata groups efforts to internationalize its operations thus: I hope that a hundred years from now we will spread our wings far beyond India, that we become a global group, operating in many countries, an Indian business conglomerate that is at home in the world, carrying the same sense of trust that we do today.
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TATA MOTORS
TATA Motors is the flagship company of the TATA group & is India's largest automobile player, with revenues of $7.2 billion in 2006-07. With over 4 million TATA vehicles plying in India, it is the leader in commercial vehicles and the second largest in passenger vehicles. Previously TATA Engineering and Locomotive Company (Telco), TATA Motors is listed on the New York Stock Exchange in 2004. Competition at Home TATA Motors is vulnerable to greater competition at home. Foreign vehicle makers including Daimler, Nissan Motor, Volvo and MAN AG have struck local alliances for a bigger presence. TATA Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.
Making Waves Internationally NANO will mark the advent of India as a global centre for small-car production International praise came from Standard & Poors, which in December 2006 expressed the view that the policy to support its companies and the improved financial profile of its entities also enhances the overall financial flexibility of TATA Motors.
SWOT Analysis STRENGTHS Strong domestic player Steady revenue growth R&D Activities WEAKNESSES Decline in vehicle sales
Employee Productivity Image of low quality makers
SWOT
OPPORTUNITIES
International Growth New Product Lines Acquisition of JLR brands
THREATS
Competition from Global players Global Economic Factors Environmental Regulations
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Weaknesses
Decline in vehicle sales: Tata Motors recorded decline or marginal growth in its vehicle sales in the last financial year. The company recorded a sale of 585,649 vehicles, a growth of 0.9% over last year. During the same time, the automotive industry in India recorded a growth of 10.4% to reach the total vehicle sales to 2,309,324 units. The overall market share of the company stood at 25.4% in 2008 as compared to a market share of 27.8% in 2007. The decline in sales would further affect the companys market share, and erode investors confidence. Employee productivity: Tata Motors posted weak revenues in proportion to the total number of its employees. The revenue per employee of the group stood at INR10 million (approximately $0.24 million), significantly lower when compared to its global competitors such as Toyota Motor ($.73 million), and Nissan Motor ($.53 million). The weak revenue per employee of the company compared to the global auto majors indicates its weaker productivity and operational inefficiency.
Opportunities
Product launches: Tata Motors has launched various new products during the last two year period (200708). For instance in December 2007, Tata Motors introduced its new range of Medium and Heavy Commercial Vehicles. In March 2008, Tata Motors (Thailand) launched the Tata Xenon 1-ton pickup truck at the annual Bangkok International Motor Show. In FY2008, the Submitted by: Sameer, Sohail, Sankar, Himanshu, Arun Page 10
Threats
Increasing competition: Tata Motors face intense competition from its domestic as well as foreign competitors including General Motors, Honda Motor, Maruti Udyog, Mitsubishi Motors, Fiat, Ford and so on. Competition is expected to intensify further as Indian automotive manufacturers obtain greater access to debt and equity financing in the international capital markets or gain access to more advanced technology through alliances. Additionally, in recent years, the government of India has permitted automatic approvals for foreign equity ownership of up to 100% in entities manufacturing vehicles and components in India. Environmental regulations: The company is subjected to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by its production facilities. These regulations are likely to become more stringent in the near future. In addition, Jaguar Land Rover has significant operations in the US and Europe which have stringent regulations relating to vehicular emissions. The proposed tightening of vehicle emissions regulations will require significant costs for the company.
TML Passenger Vehicle Segment Light Commercial Vehicles (e.g.ACE) TML Heavy & Light Commercial Vehicles
LOW
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Company's global plans to reduce domestic exposure. The domestic commercial vehicle market is highly cyclical in nature and prone to fluctuations in the domestic economy. TATA Motors has a high domestic exposure of ~94% in the MHCV segment and ~84% in the light commercial vehicle (LCV) segment. Since the domestic commercial vehicle sales of the company are at the mercy of the structural econo mic factors, it is increasingly looking at the international markets. The company plans to diversify into various markets across the world in both MHCV as well as LCV segments. b) To expand the product portfolio TATA Motors introduced the 25MT GVW TATA Novus from Daewoos (South Korea) (TDCV) platform. TATA plans to leverage on the strong presence of TDCV in the heavy-tonnage range and introduce products in India at an appropriate time. This was mainly to cater to the international market and also to cater to the domestic market where a major improvement in the Road infrastructure was done through the National Highway Development Project. TATA Motors has jointly worked with TATA Daewoo to develop trucks such as Novus and World Truck.
2. Hispano Carrocera- In 2005, sensing the huge opportunity in the fully built bus segment, TATA Motors acquired 21% stake in Hispano Carrocera SA, Aragonese bus manufacturing company with an option to acquire 100% holding. Hispano Carrocera is an established and reputed bus and coach manufacturer in Spain enjoying excellent reputation for developing high quality vehicles. It operates in two manufacturing locations namely, Zaragoza in Spain and Casablanca in Morocco, North Africa. Hispano has proven competence in development of buses and coaches. With this deal Tata Motors acquired the license for technology and brand rights from Hispano. The total deal consisting of equity, debt and technology licensing amounted to about Rs 70 crore to Tatas. This partnership gives both Submitted by: Sameer, Sohail, Sankar, Himanshu, Arun Page 12
4. TATA Xenon- TATA Xenon was released in late 2007. It was first displayed at the 2006 Bologna Motor Show. The car is assembled in Thailand by Tata-Thonburi JV and in Argentina by Tata-Fiat JV. The Xenon has been well received in Europe especially in Spain and Italy. SPRINT was the code name of the Project for development of Tata's World Pick-up (truck). World Pick-up market (other than USA) is dominated by Japanese Auto majors like Toyota, Isuzu, Mitsubishi, Nissan. As per the study conducted by Tata Motors, there is a big opportunity for TML to grab substantial market share of world Pick-up market. Tata initiated Submitted by: Sameer, Sohail, Sankar, Himanshu, Arun Page 13
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8. World Truck- TATA Motors unveiled its World Truck range, developed jointly with TATA Daewoo Commercial Vehicles of South Korea in May09. The developing infrastructure in India makes it possible for transporters to reap the benefit of trucks with higher power, speed and carrying capacity. The new range from Tata Motors will meet those needs. It will also help it penetrate international markets more effectively and competitively. Future Plans: The commercial launch of these trucks in India is scheduled during July-September09. They will debut in South Korea, South Africa, the SAARC countries and the Middle-East by the end of the fiscal. The trucks will be made at the Jamshedpur facility and at Gunsan in South Korea. The company expects international volumes to be at par with numbers in India.
9. TATA Nano- Conceived in 2003, Tata Motors had launched the much- hyped 'cheapest' car in India in Mar09. The car has cost over Rs 2,000 crore to the company. The car is expected to boost the Indian economy, create entrepreneurial-opportunities across India, as well as expand the Indian car market by 65%. The car was envisioned by Ratan Tata, Chairman of the Tata Group and Tata Motors, who has described it as an eco-friendly "people's car". For the first time, thanks to Tata's Nano, India has been established as an R&D leader, and not just a low-cost hub known for A Promise is a Promise cheap labor. It has shown to the world that India can be a technology leader. It is a great innovation, because innovation is all about thinking of the next decade and not the next quarter. The Tata Nano will certainly find big takers in India. However, it can have a market in the US, as well. If the car is enriched with high technology functions to make it an intelligent car, many in the US will look forward to own it. An intelligent car at $3000 would be a good Submitted by: Sameer, Sohail, Sankar, Himanshu, Arun Page 16
Future Plans: Tata Motors will be launching it in Nigeria within the next year and a half. In Nigeria, the Nano will cost 357,480 NGN (Rs 1.16 lakh), almost the same as its cost in India, making it cheaper than even used cars in the country. According to TATA Motors officials, Nano will greatly benefit Nigerians as there is no proper public transport system in the country. Company is yet to decide whether the car would be assembled in Nigeria itself or if it would be made available as a Completely Built Unit (CBU). The company is planning to market Nano in other countries, but timelines, modes and countries are yet to be finalized. Earlier this year, the Tata Nano Europa (the European version of the Nano) was unveiled at the Geneva Auto Show. The Nano Europa will be launched in 2011. 10. TATA-JLR: TATA Motors bought the iconic Jaguar and Land Rover operations from Ford for 1.15 billion pounds in MarApr08. Tata gained the rights to the Daimler, Lanchester, and Rover brand names. In addition to the brands, Tata Motors also gained access to 2 design centers and 3 plants in UK. The key acquisition would be of the intellectual property rights related to the technologies. With the acquisition of Jaguar and Land Rover (JLR), Tata Motors killed several birds with one stroke. The acquisition paves the way for the companys entry into the European car market and gives the company a comprehensive range of models ranging from the luxury Jaguar to the $2,500 Nano. It provides an entry point into Indias growing luxury car market which gives new impetus to the companys development program as well and provides a captive customer base for the component companies of the Tatas. In the long-run TATA Group and TATA Motors footprint in South-East Asia should help Jaguar/Land Rover diversify their geographic dependence from US (30% of volumes) and Western Europe (55% of volume). Analysts believe that TATAs ownership of JLR will open doors for outsourcing of parts from India, particularly from the current pool of suppliers who service TATA Motors in India. Present and Future Plans:
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