Manfest-2005

Tata Motors Case Contest

Global Strategies for Tata Motors

Authors:
Abhishek Thakur abhishek_d05@iift.ac.in (0)-9891254622 Satya Prakash Sahoo satyaprakash_d05@iift.ac.in (0)-9891330053

School of International Business Management Indian Institute of Foreign Trade Qutab instititional area New Delhi-110016

Table of Content

1. Introduction 2. Tata Motors: The Internationalization Process 3. SWOT analysis and TWOS matrix 4. The Fundamental Strategies 5. Gap Analysis: Matching Strategy with Action 6. Some New Suggestions 6. Bibliography and URLs 7. Appendix
Global Automotive Scenario Diagrams and Table

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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.

Tata Motors: The Internationalization Process

Tatas 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, Tatas 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. Tatas moved to this stage after one year they launched into Indias 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 Tatas 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.

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 1. 2. 3. 4. WEAKNESSES Perceived to be technically inferior Low international presence Sales and services network Lack of aggressive marketing in the heavy commercial vehicles segment 5. Slower than competitors in relaunches 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 OPPORTUNITIES 1. Huge untapped markets 2. Used Car market 3. Strategic Alliances International

THREATS 1. Competition 2. Perception about Quality 3. Mergers & Acquisitions

Based on these characteristic and risk-opportunities, the some of the strategies of the company be guessed as well as suggested-

TOWS matrix for Tata Motors STRENGTHS S-O Strategies W-O Strategies WEAKNESS

1. Economically Priced Cars: Tata Motors can 1. Tie-up with renowned player in the produce a car of same quality and technology developed world. As in case of City Rover, in far less cost than any other global player Tata Motors can tie up with the leading player due to availability of raw materials in in the market. They can provide necessary competitive price in vicinity. OPPURTUNITIES vehicles to expand the portfolio of the player and in return can find the acceptance of the 2. Exporting to Developed Nations: They can product in the area. This will avoid huge test the technology in advance market investment in marketing and building the conditions of developed nations. This can brand name. Also the knowledge of Tata throw light on crucial issues of launching a Motors about the European or the US market product in highly competitive market, where is less. The market have to be studied and this 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. need investment in exploratory market research and more tie ups and joint ventures

S-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 THREATS 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.

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 below1. 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-

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 companys ability to manage risk.

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

1. 2. 3. 4.

CORPORATE Dominant share in relatively unoccupied areas Building up basic competencies Combination of method vs. market Leverage the accumulated insight for major markets

INTERNATIONAL AUTOMOTIVE ENVIRONMENT

FUNCTIONAL 1. Build distinct product benefits 2. Raise funds from foreign markets 3. Improvement in production technologies and processes

EXECUTION 1. Spreading the business to hedge against cyclical risks 2. Offer cost effective product and services 3. Learn in different markets and create synergies

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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 possibilities1. 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 11

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 southeast Asia, Europe and other global markets Functional Strategy: According to Mr Ravi Kant, executive director, Tata motors, the companys 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 ones 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 ones 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 Tatas IT prowess in R&D for cars. The future cars are going to be even more microprocessor dependent. In such a case, Indias 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)

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Rebadging
Original Developer Mitsubishi Colt Suzuki Ignis Suzuki Wagon R Ford Galaxy Holden Monaro Opel Corsa Tata Indica Rebadged Dodge Laser Chevrolet Cruze Vauxhall Agila Volkswagen Sharon Pontiac GTO Chevrolet Corsa Rover Indica

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

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