Tata Motors International Business

TATA Motors-International Business
INTERNATIONAL BUSINESS ANALYSIS ON TATA MOTORS

PREPARED & SUBMITTED BY: SAMEER (ROLL#7) SOHAIL (ROLL#18) SANKAR (ROLL#30) HIMAN
SHU (ROLL#42) ARUN V M (ROLL#54)
Submitted by: Sameer, Sohail, Sankar, Himanshu, Arun
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Executive Summary
The report talks about the Indian automobile industry in general and Indian auto
mobile giant TATA Motors in particular. We have analyzed Indian automobile indus
try using Porter’s 5 forces model & its performance in the recent past. Particular
ly we have tried to track the path of TATA Motor’s expansion of international busi
ness in the recent past, at present as well as its future plans. We have also di
scussed the impact of current financial meltdown on the recent international ven
tures of the company. The company is rapidly increasing its global footprint and
is aiming to match the standards of international automobile manufacturers in n
ext 3 to 5 years. This rise to the level of a world-class automotive manufacture
r would involve a large quantifiable increase in revenues from outside India wit
h a focus on certain foreign markets. Currently international business contribut
es 18.4% to company’s revenues. Company is aiming to increase it by 200% in near f
uture to reduce its dependence on one single economy and one single business cyc
le. This ambition of the company has led to numerous joint ventures and increase
d activity in countries like the U.K., South Africa, South Korea, Thailand, Braz
il and Spain, as well as the company is listing on the NYSE. With the recent acq
uisition of Jaguar Land Rover (JLR) from the Ford Motor company in early 2008, t
he company has entered into the world of high-end luxury brands. Customers of hi
gh-end luxury brands value image and exclusivity factors, while image and exclus
ivity conflict with the proposition of TML’s other recent venture, the inexpensive
Nano. In this manner, the decision to compete in both the high-end luxury and l
ow-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 prov
en compatible, could mitigate each other’s risks.
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Table of Contents
Executive Summary ..............................................................
.......................................................... 2 Indian Automobile I
ndustry ........................................................................
.................................... 4 Porter’s Five Forces Analysis of Indian Aut
omobile Sector .................................................. 5 TATA GROUP .
................................................................................
.............................................. 8 TATA MOTORS ...................
................................................................................
......................... 9 SWOT Analysis ......................................
................................................................................
9 BCG Matrix for Tata Motors ..................................................
.............................................. 11 TATA Motors- Making Waves Inte
rnationally ....................................................................
........ 12 Impact of Current Global Slowdown on TATA-JLR Deal .................
.......................................... 18 Recommendations ..................
................................................................................
....................... 21 References ..........................................
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........... 22
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Indian Automobile Industry
Hailed as ‘the industry of industries’ by Peter Drucker, the founding father of the
study of management, in 1946, the automobile industry had evolved continuously w
ith changing times from craft production in 1890s to mass production in 1910s to
lean production techniques in the 1970s. The automotive industry in India grew
at a computed annual growth rate (CAGR) of 11.5 percent over the past five years
, the Economic Survey 2008-09 tabled in parliament on 2nd July’09 said. The indust
ry has a strong multiplier effect on the economy due to its deep forward and bac
kward linkages with several key segments of the economy, a finance ministry stat
ement said. The automobile industry, which was plagued by the economic downturn
amidst a credit crisis, managed a growth of 0.7 percent in 2008-09 with passenge
r car sales registering 1.31 percent growth while the commercial vehicles segmen
t slumped 21.7 percent. Indian automobile industry has come a long way to from t
he era of the Ambassador car to Maruti 800 to latest M&M Xylo. The industry is h
ighly competitive with a number of global and Indian companies present today. It
is projected to be the third largest auto industry by 2030 and just behind to U
S & China, according to a report. The industry is estimated to be a US$ 34 billi
on industry. Indian Automobile industry can be divided into three segments i.e.
two wheeler, three wheeler & four wheeler segment. The domestic two-wheeler mark
et is dominated by Indian as well as foreign players such as Hero Honda, Bajaj A
uto, Honda Motors, TVS Motors, and Suzuki etc. Maruti Udyog and Tata Motors are
the leading passenger car manufacturers in the country. And India is considered
as strategic market by Suzuki, Yamaha, etc. Commercial Vehicle market is catered
by players like Tata Motors, Ashok Leyland, Volvo, Force Motors, Eicher Motors
etc. The major players have not left any stone unturned to be global. Major of t
he players have got into the merger activities with their foreign counterparts.
Like Maruti with Suzuki, Hero with Honda, Tata with Fiat, Mahindra with Renault,
Force Motors with Mann. Key Facts: • India ranks 12th in the list of the world s
top 15 automakers • Entry of more international players • Contributes 5% to the GDP •
Production of four wheelers in India has increased from 9.3 lakh units in 2002-0
3 to 23 lakh units in 2007-08 • Targeted to be of $ 145 Billion by 2016 • Exports in
creased from 84,000 units in 2002-03 to 280,000 units in 2007-08
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TATA Motors-International Business Porter’s Five Forces Analysis of Indian Automob
ile Sector
Threat of New Entrants
Bargaining Power of Suppliers
Industry Rivalry
Bargaining Power of Customers
Threat of Substitutes
1. Industry Rivalry
• Industry Concentration: The Concentration Ratio (CR) indicates the percent of ma
rket share held by a company. A high concentration ratio indicates that a high c
oncentration of market share is held by the largest firms - the industry is conc
entrated. 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 th
e industry is characterized by many rivals, none of which has a significant mark
et 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 F
ixed costs When total costs are mostly fixed costs, the firm must produce capaci
ty 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 resu
lts in increased rivalry. The industry is typically capital intensive and thus i
nvolves 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 y
ears (about 8 to 15%), it takes a beat in even slight economic disturbances as i
t involves a luxury good. Aggressive pricing is needed to sustain growth in such
situations Diversity of rivals: Industry becomes unstable as the diversificatio
n increases. In this case the diversity of rivals is moderate as most offer prod
ucts which are close to standard versions and the competitors are also mostly si
milar in strength
•
•
•
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• Highly competitive industry: The presence of many players of about the same size
little differentiation between competitors, and a very mature industry with ver
y little growth were the features of a highly competitive industry. Higher the c
ompetition in the industry lower would be the profit margin. To remain ahead in
competition, auto-makers were tempted to offer value added services to the custo
mers incurring more costs
2. Threat of New Entrants
These are the characteristics that inhibit the entrance of new rivals into the m
arket and in turn protect the profits of the existing firms. Based on the presen
t profit levels in the market, one can expect the entrance of new firms into the
market or not. The entrance is however also affected by the start-up costs • Econ
omies of scale: The Minimum Efficient Scale (MES) is the point at which unit cos
ts are minimized. The greater the difference between the MES and the entry unit
cost, greater is the barrier. Economies of scale are becoming increasingly impor
tant as competition is driving the profit margins to lower levels. Also being a
capital intensive industry economies of scale have important consequence Governm
ent policies: o Automobile Industry was delicensed in July 1991 with the announc
ement of the New Industrial Policy o The passenger car industry was delicensed i
n 1993. No industrial licence is required for setting up of any unit for manufac
ture of automobiles except in some special cases o The norms for Foreign Investm
ent and import of technology have been progressively liberalized over the years
for manufacture of vehicles including passenger cars in order to make this secto
r globally competitive o At present 100% Foreign Direct Investment (FDI) is perm
issible under automatic route in this sector including passenger car segment. Th
e import of technology/technological upgradation on the royalty payment of 5% wi
thout any duration limit and lump sum payment of USD 2 million is allowed under
automatic route in this sector o The automotive industry comprising of the autom
obile and the auto component sectors has made rapid strides since delicensing an
d opening up of the sector to FDI in 1991 o The industry had an investment of ab
out Rs. 50,000 crore in 2002-03 which has gone up to Rs. 80,000 crore by the yea
r 2007. The automotive industry has already attained a turnover of Rs. 1,65,000
crore (34 billion USD) o The industry provides direct and indirect employment to
1.31 crore people. The contribution of the automotive industry to GDP has risen
from 2.77% in 1992-93 to 5% in 2006-07. The industry is making a contribution o
f 17% to the kitty of indirect taxes of the Government
•
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With all the policies regarding the FDI and Tariff barriers as mentioned above,
it has become easier for the foreign players to enter the Indian automobile indu
stry.
3. Threat of Substitutes
The replacement market is characterized by the presence of several small-scale s
uppliers who score over the organized players in terms of excise duty exemptions
and lower overheads. • A product’s price elasticity is affected by the presence of
substitutes as its demand is affected by the change in the substitute’s prices • The
cost of the automobiles along with their operating costs was driving customers
to look for alternative transportation options • The new technologies available al
so affect the demand of the product e.g.: In case of Maruti’s products, the threat
of substitutes is high. The competition is intense as several players have prod
ucts in the categories given by Maruti. However, in the 800cc range it is the ma
rket leader and the threat of substitute products is low. Price performance comp
arison favors heavily towards Maruti in most product categories. Also the high a
vailability and quality of services offered by Maruti gives the customer a bette
r trade-off •
4. Bargaining Power of Suppliers
• • • Suppliers can influence the industry by deciding on the price at which the raw m
aterials can be sold. This is done in order to capture profits from the market.
Steel is a major input in this industry and so steel prices have a sharp and imm
ediate impact on the product price The industry being capital intensive switchin
g costs of suppliers is high, other than steel as raw material which is highly p
rice sensitive and the firm may easily move towards a supplier with lower cost
5. Bargaining Power of Buyers
• • It specifies the impact of customers on the product When buyer power is strong,
the buyer is the one who sets the price in the market. Here there is purchases o
f large volumes • There is prevalence of alternative options • Price sensitive custo
mers were some of the factors that determined the extent of influence of the buy
ers in this industry e.g.: In the case of Maruti, the sales volumes have shown i
ncreasing trend over past so many years. The customers are more or less concentr
ated in metros or other tier two cities. The industry is also concentrated in th
ese regions mostly. Most of them are have good amount of knowledge about the pro
duct. Except the 800cc range in other categories brand loyalty is only moderate.
Also it is difficult to measure since repurchases are rare. Product differentia
tion is high as there are many categories in the passenger vehicle segment. Buye
rs get incentives in the form of cost discounts and better after sales services
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TATA GROUP
TATA Group is more than 150 years old. In terms of market capitalization and rev
enues, Tata Group is the largest private corporate group in India and has been r
ecognized as one of the most respected groups in the world. It has interests in
steel, automobiles, information technology, communication, power, tea and hospit
ality. The Tata Group has operations in more than 85 countries across six contin
ents and its companies export products and services to 80 nations. In the past f
ew 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 commit
ted to its traditional values of leadership with trust, the Tata group is spread
ing its footprint globally through excellence and innovation The Tata group’s reve
nues for 2007-08 from its international operations were $38.3 billion, which con
stitutes 61 per cent of its total revenues. Each operating company in the group
develops its international business as an integral element in an overall strateg
y, depending on the competitive dynamics of the industry in which it operates. E
xports from India remain the cornerstone of the Tata group’s international busines
s, but different Tata companies are increasingly investing in assets overseas th
rough 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 b
igger 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 Singapo
re, and Tyco Global Network and General Chemical in the US. Priority markets Whi
le individual Tata companies have differing geographical imperatives, the Tata g
roup 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, Chin
a, the Netherlands, Germany, South Africa, members of the Gulf Cooperation Counc
il, Brazil, Vietnam, Thailand and Sri Lanka. Ratan Tata, Chairman, Tata Sons, su
ms up the Tata group’s efforts to internationalize its operations thus: “I hope that
a hundred years from now we will spread our wings far beyond India, that we bec
ome 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 autom
obile 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 secon
d largest in passenger vehicles. Previously TATA Engineering and Locomotive Comp
any (Telco), TATA Motors is listed on the New York Stock Exchange in 2004. Compe
tition at Home • TATA Motors is vulnerable to greater competition at home. Foreign
vehicle makers including Daimler, Nissan Motor, Volvo and MAN AG have struck lo
cal 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 cent
re for small-car production International praise came from Standard & Poor’s, whic
h in December 2006 expressed the view that the “policy to support its companies an
d the improved financial profile of its entities also enhances the overall finan
cial flexibility of TATA Motors.”
SWOT Analysis STRENGTHS Strong domestic player Steady revenue growth R&D Activit
ies 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 Regulation
s
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TATA Motors-International Business Strengths
Strong domestic player: Tata Motors is India’s largest automobile manufacturer by
revenue. The company’s market share in the Indian four-wheeler automotive vehicle
market (i.e. automobile vehicles other than two and three wheeler categories) st
ood at 26.1% in FY2008. The company is also the leader in the Indian commercial
vehicles with a market share of 62.7% and is the second largest player in the In
dian passenger vehicles market with a share of 14.2% in FY2008. Steady revenue g
rowth: The company recorded strong revenue growth during 2004-08. During this ti
me, the revenues of the company grew at a CAGR of 27.1% to reach INR365,230.6 mi
llion (approximately $9,072.3 million) in FY2008 from INR139,696 million (approx
imately $3,096 million) in 2004. The strong revenue growth of the company has co
ntributed to its market dominance. Research and development activities: Tata Mot
or has strong research and development (R&D) capability. The company incurred la
rge expenditure for its R&D activities. The company’s R&D activities focus on prod
uct development, environmental technologies and vehicle safety through its Engin
eering Research Centre (ERC). The ERC is one of the few government recognized in
house automotive R&D centers in India. In the recent period, the ERC developed t
he Tata Nano, an affordable family car. The strong R&D capability enables the co
mpany to build a broad range of vehicle portfolio and improves its competitive s
trength in the automotive industry.
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 585,64
9 vehicles, a growth of 0.9% over last year. During the same time, the automotiv
e 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 20
08 as compared to a market share of 27.8% in 2007. The decline in sales would fu
rther affect the company’s market share, and erode investors’ confidence. Employee p
roductivity: 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 $0.24 million), significantly lower when compared to its global co
mpetitors such as Toyota Motor ($.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 (2007–08). For instance in December 2007, Tata Motors introduced i
ts 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 Int
ernational Motor Show. In FY2008, the Submitted by: Sameer, Sohail, Sankar, Hima
nshu, Arun Page 10
company launched the Indigo sedan and Indica with the Direct Injection Common Ra
il (DICOR) and Sumo Grande. Furthermore, the launch of its small car, ‘NANO’ in Janu
ary 2008 would further fuel its presence in the passenger vehicle market. Acquis
ition of Jaguar and Land Rover brands: These brands had sales operations in more
than 100 countries with over 2,200 dealers. Acquisition of JLR provides the com
pany with a strategic opportunity to acquire iconic brands, and increase the com
pany’s business diversity across markets and product segments.
Threats
Increasing competition: Tata Motors face intense competition from its domestic a
s well as foreign competitors including General Motors, Honda Motor, Maruti Udyo
g, Mitsubishi Motors, Fiat, Ford and so on. Competition is expected to intensify
further as Indian automotive manufacturers obtain greater access to debt and eq
uity financing in the international capital markets or gain access to more advan
ced 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 rega
rding vehicle emission levels, noise, safety and levels of pollutants generated
by its production facilities. These regulations are likely to become more string
ent in the near future. In addition, Jaguar Land Rover has significant operation
s in the US and Europe which have stringent regulations relating to vehicular em
issions. The proposed tightening of vehicle emissions regulations will require s
ignificant costs for the company.
BCG Matrix for Tata Motors
HIGH Business Growth Rate
TML Passenger Vehicle Segment Light Commercial Vehicles (e.g.ACE) TML Heavy & Li
ght Commercial Vehicles
Nano JLR New Inventions
LOW
None HIGH Relative Position (Market Share) LOW
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TATA Motors-International Business TATA Motors- Making Waves Internationally
Major international ventures of TATA Motors in recent past are discussed below:
1. TATA Daewoo Commercial Vehicle- In 2004, TATA Motors acquired the Daewoo Comm
ercial Vehicle Company of South Korea. TATA remains India s largest heavy commer
cial vehicle manufacturer and TATA Daewoo is the 2nd largest heavy commercial ve
hicle manufacturer in South Korea. The reasons behind the acquisition were:
a)
Company s global plans to reduce domestic exposure. The domestic commercial vehi
cle market is highly cyclical in nature and prone to fluctuations in the domesti
c 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 comme
rcial 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 pl
ans to diversify into various markets across the world in both MHCV as well as L
CV segments. b) To expand the product portfolio TATA Motors introduced the 25MT
GVW TATA Novus from Daewoo’s (South Korea) (TDCV) platform. TATA plans to leverage
on the strong presence of TDCV in the heavy-tonnage range and introduce product
s 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 th
e 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 b
us segment, TATA Motors acquired 21% stake in Hispano Carrocera SA, Aragonese bu
s manufacturing company with an option to acquire 100% holding. Hispano Carrocer
a is an established and reputed bus and coach manufacturer in Spain enjoying exc
ellent reputation for developing high quality vehicles. It operates in two manuf
acturing locations namely, Zaragoza in Spain and Casablanca in Morocco, North Af
rica. Hispano has proven competence in development of buses and coaches. With th
is deal Tata Motors acquired the license for technology and brand rights from Hi
spano. The total deal consisting of equity, debt and technology licensing amount
ed to about Rs 70 crore to Tatas. This partnership gives both Submitted by: Same
er, Sohail, Sankar, Himanshu, Arun Page 12
companies an opportunity to use their complementary strengths to create high-cla
ss transport solutions for intra-city and intercity mass transportation in Spain
, India and many other countries around the world. Besides Tata Motors is also s
eeing this deal as a gateway into the highly competitive and matured European ma
rkets considering the success Hispano s bus range enjoys in these markets. Hispa
no enjoys a market share of 25 per cent in the bus market in Spain and sells con
siderable numbers in Europe in addition to other countries outside Europe as wel
l. Further, the Hispano deal will help the Indian commercial vehicle giant grow
in the bus and coach segment as the Daewoo acquisition helped it in trucks. This
strategic alliance with Hispano Carrocera gave TATA Motors access to its design
and technological capabilities to fully tap the growing potential of this segme
nt in India and other export markets, besides providing it with a foothold in de
veloped European markets. 3. TATA Marcopolo (TMML) - TATA Motors has formed a 51
:49 joint venture in bus body building with Marcopolo of Brazil. This joint vent
ure is to manufacture and assemble fullybuilt buses and coaches targeted at deve
loping mass r apid transportation systems. The joint venture will absorb technol
ogy and expertise in chassis and aggregates from TATA Motors, and Marcopolo will
provide know-how in processes and systems for bodybuilding and bus body design.
TATA and Marcopolo have launched a low-floor city bus which is widely used by D
elhi, Mumbai and Bangalore Transport Corporations. TMML JV’s first assignment in I
ndia was to supply 500 premium class low floor buses for Delhi Transport Corpora
tion. Joint venture has started its operations at Dharwad, Karnataka & Lucknow,
U.P. Future Plans: TMML has plans to set up the world’s biggest bus plant at Dharw
ad. It is aiming to cater to the fully built bus requirements of Indian mass as
well as luxury markets. To compete in high volume, low cost market a vendor park
has been established in Dharwad itself. The company plans to make 20,000 buses
a year at its full capacity.
4. TATA Xenon- TATA Xenon was released in late 2007. It was first displayed at t
he 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 es
pecially in Spain and Italy. SPRINT was the code name of the Project for develop
ment of Tata s World Pick-up (truck). World Pick-up market (other than USA) is d
ominated 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 s
ubstantial market share of world Pick-up market. Tata initiated Submitted by: Sa
meer, Sohail, Sankar, Himanshu, Arun Page 13
an in-depth market study in various countries in Europe, Middle East, S Africa,
Thailand, Australia, Latin America etc to understand needs of target segments fo
r a new Pick-up. While a new product development timeline takes between 36 to 50
months, it is said that so far only Toyota has achieved the Timeline of 18 mont
hs. Hence, the name SPRINT which signifies and continuously reminded project tea
m about the Speed of the project. The team worked round the clock relentlessly,
applied principles of "Concurrent Engineering", distributed work load in 9 diffe
rent countries in order to crash timeline by overlapping maximum possible key ac
tivities. The team delivered project in 17 months—from styling freeze in Dec 05 to
SOP ( Start of Production) in May 7. Bologna Motor Show 2006 (Dec) was the occa
sion when Xenon was unveiled for public display and later in March 2007, it was
also displayed at Geneva Motor Show 2007. Till date Xenon has been launched in 1
4 countries in Europe, Middle East, Africa and SE Asia. Tata Motors signed a joi
nt venture with Thonburi Automotive Assembly Plant Co. (Thonburi), the Thailand-
based independent assembler of automobiles to manufacture, assemble and market p
ickup trucks in Dec’06. The joint venture, in which Tata Motors holds 70% of the e
quity and Thonburi 30%, gets vehicles manufactured in Thonburi’s manufacturing fac
ility. The joint venture facilitated Tata Motors address the Thailand market, th
e second largest pickup market in the world after the US. Both partners jointly
manage the operations. 5. TATA Fiat- The TATAs and Italian car giant Fiat kicked
off their partnership with the former marketing Fiat cars since Mar’06. Fiat bran
ded cars are distributed by Tata through the Tata-Fiat dealer network. The partn
ership took off to the next level in Dec’06 with both the sides announcing the for
mation of a joint venture with aggregate investments of over Rs 4000 crore (over
euro 665 million) in a phased manner to manufacture vehicles for the Indian and
overseas markets. The 50:50 joint venture enabled Fiat plant at Ranjangaon, Pun
e with capacities to produce in excess of 200,000 cars and 300,000 engines and t
ransmissions yearly, at steady state. The JV may be expanded to produce trucks a
s well. This strategic alliance with Fiat enables the two companies jointly to p
resent a wider range of product offerings to the Indian market. It enables Tata
Motors to access world-class powertrains from Fiat for its next generation car o
fferings while enhancing the model line at its dealerships. Fiat’s Ranjangaon manu
facturing facility is benchmarked against the global car manufacturer’s units in T
urkey and Brazil. It compares well as the lowest-cost manufacturer, and Fiat wil
l eventually source right-hand drive Linea cars from here for the Submitted by:
Sameer, Sohail, Sankar, Himanshu, Arun Page 14
UK and Australia. Fiat has a cost advantage of 14-17% over Brazil and Turkey due
to localisation of parts and labour costs. Fiat had almost decided to quit the
Indian market but for Fiat chief executive officer Sergio Marchionne and Tata gr
oup chairman Ratan Tata coming together in 2005. Such was the level of confidenc
e among both the partners that investments began at least two years before even
a formal agreement was signed. JV is already producing the Fiat Palio, Stile and
Linea models and select Tata Indica models. Future Plans: The company is readyi
ng to launch the Grande Punto, a compact car, in the third quarter of the fiscal
year2009-10. The second model will be Tata Motors’ new three-box Fiat Linea- Dist
ributed by TATA Motors in India offering, code-named X1. Planned launch of the F
iat Bravo is being delayed because of the economic slowdown. Fiat manufactures T
ata Motors’ 1-tonne pick-up truck at its plant in Argentina for Latin American and
overseas markets. The JV is expected to break even by 2011-12. 6. City Rover- T
he City Rover was a hatchback car model offered by MG Rover Group in the UK mark
et. Launched in the Autumn of 2003, the car was a rebadged version of the Tata I
ndica. MG Rover group used to import TATA Indica from India and sold as City Rov
er in UK market. The City Rover s running costs were rather high, and its asking
price was high compared with newer, better built and better specified rivals su
ch as the Fiat Panda. MG Rover was reported to be paying Tata £3,000 for each car
and, despite each model featuring a Rover corporate nose and revised suspension
settings, the buying public was not impressed by the £7,000 starting price. Along
with the rest of the MG Rover range, production of the City Rover ended in April
2005 when the company went into receivership, the last vehicles brought into th
e UK being purchased and sold on by a non-franchised discount dealer group. Alth
ough MG Rover was bought by Nanjing Automobile of China in July 2005, the compan
y s new owners did not include the City Rover or indeed any direct successor in
their plans for a new model range. This was one of the unsuccessful attempts of
Tata Motors to go global.
Page 15
7. Exports Market (CV)- TATAs export its commercial vehicles to neighboring Asia
n countries like Nepal, Sri Lanka, Bangladesh, Afghanistan apart from South Afri
ca and Middle East markets. It competes with the likes of Mercedes, Volvo, Hyund
ai etc in Middle East markets.
8. World Truck- TATA Motors unveiled its ‘World Truck’ range, developed jointly with
TATA Daewoo Commercial Vehicles of South Korea in May’09. The developing infrastr
ucture 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 tru
cks in India is scheduled during July-September’09. 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 Kore
a. 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 cheap
est car in India in Mar’09. The car has cost over Rs 2,000 crore to the company.
The car is expected to boost the Indian economy, create entrepreneurial-opportun
ities 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 de
scribed 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 hu
b known for A Promise is a Promise cheap labor. It has shown to the world that I
ndia 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 w
ill 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 in
telligent 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
bargain after all, for many Americans. Tata s Nano shows that there is a huge op
portunity for Indian companies to build profitable low-cost products and then ta
ke them to the US.
Future Plans: Tata Motors will be launching it in Nigeria within the next year a
nd 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 the
re 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 ava
ilable 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 u
nveiled at the Geneva Auto Show. The Nano Europa will be launched in 2011. 10. T
ATA-JLR: TATA Motors bought the iconic Jaguar and Land Rover operations from For
d for 1.15 billion pounds in MarApr’08. Tata gained the rights to the Daimler, Lan
chester, and Rover brand names. In addition to the brands, Tata Motors also gain
ed access to 2 design centers and 3 plants in UK. The key acquisition would be o
f the intellectual property rights related to the technologies. With the acquisi
tion of Jaguar and Land Rover (JLR), Tata Motors killed several birds with one s
troke. The acquisition paves the way for the company’s entry into the European car
market and gives the company a comprehensive range of models ranging from the l
uxury Jaguar to the $2,500 Nano. It provides an entry point into India’s growing l
uxury car market which gives new impetus to the company’s development program as w
ell and provides a captive customer base for the component companies of the Tata
s. 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 vo
lumes) and Western Europe (55% of volume). Analysts believe that TATAs’ ownership
of JLR will open doors for outsourcing of parts from India, particularly from th
e current pool of suppliers who service TATA Motors in India. Present and Future
Plans:
Page 17
A year after Tata group purchased Jaguar and Land Rover, it launched the British
iconic luxury brands in the Indian market. The India foray comes at a time when
worldwide sales of luxury cars are falling. The global meltdown dragged JLR int
o huge losses as consumers halted purchases. Sales, after the $2.5 billion takeo
ver by Tata Motors last June, dropped a third to 1.67 lakh vehicles. The bridge
from the Nano to Jaguar XF is probably the biggest that exists in the industry.
A $2,500 car and a $100,000 car: no other company in the world has a portfolio t
hat wide. Why JLR? • Long term strategic commitment to automotive sector • Opportuni
ty to participate in two fast growing auto segments • Increased business diversity
across markets and products • Land rover provides a natural fit for TML’s SUV segme
nt • Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portf
olio • Benefits from component sourcing, design services and low cost engineering
Impact of Current Global Slowdown on TATA-JLR Deal
“We went too far with JLR”: Ratan Tata Tata Sons Chairman Ratan Tata recently said h
e may have overstretched himself in paying 1.15 billion pounds for Jaguar Land R
over just as a recession loomed. A year after the Tata group took over the two o
f Britain’s most iconic automobile brands, Jaguar and Land Rover, it is faced with
newer and bigger challenges than it would have expected when it paid $2.3 billi
on to Ford for the acquisitions on March 26, 2008. In FY 2008-09, Tata Motors Lt
d posted its first annual loss in at least eight years after sales at the luxury
units, Jaguar and Land Rover plunged amid the global recession. The consolidate
d net loss was Rs 2,500 crore in the year ended 31 March, 2009 compared with a n
et income of Rs 2,200 crore billion a year ago. Ratan Tata is slashing investmen
ts by as much as 38% in the year to March on slow economic growth. At the time o
f acquisition of JLR by TATA Motors, there were some who called for caution. The
y pointed out that buying into an automobile major when the market for automobil
es was set for a downturn might not reflect good business sense. Moreover, post
acquisition, debt at the level of both parent and the United Kingdom subsidiarie
s in the TATA group was slated to rise sharply. Unfortunately for Tatas, the wor
st fear of the skeptics has come to pass. Within months of the acquisition, the
world witnessed the onset of a financial crisis that triggered a credit crunch a
nd precipitated a real economy recession. Industries such as steel and automobil
es were among the worst affected. This had two implications. First, the sales an
d revenues of JLR were far short of Submitted by: Sameer, Sohail, Sankar, Himans
hu, Arun Page 18
expectations, making it difficult for Tatas to meet commitment on their debt and
reduce the degree of leverage. Second, with much of this debt being of a bridge
loan kind, loans that mature and cannot be repaid have to be refinanced and rol
led over to prevent default. Given the current circumstances, this is difficult,
as Tatas discovered this May, when the $3 bn it had borrowed to finance acquisi
tion of JLR was due for refinancing. After the Tatas acquired the company, busin
ess challenges were mostly a result of adverse market conditions. In the first h
alf of 2008, Jaguar’s sales volume was 11.2 % more than in the same period in 2007
while Land Rover’s was 0.6 % ahead of 2007. At the end of 2008, Jaguar was 8.2 %
ahead of 2007 for the year, while Land Rover had felt the impact of the downturn
and its full-year sales were 17.6 % less than in 2007. In the first two months
of 2009, Jaguar was 6.9 % ahead of 2008 and Land Rover 45 % down when compared w
ith the same period last year. There have been a series of non-production days a
t all three of its UK assembly plants — Castle Bromwich and Solihull in the West M
idlands and Halewood on Merseyside. Each plant lost an average of 25 days’ product
ion, which equated to a volume reduction of approximately 25 per cent month on m
onth. A worsening economic situation could lead to further job losses and even p
lant closures at Jaguar Land Rover (JLR) in Britain. Tata’s bankers are seeking to
secure short-term finance of between £500 million and £1 billion to allow Jaguar La
nd Rover to pay off supplier payments due by the end of the summer and stop it r
unning out of cash. The Tatas are trying to persuade the British government to s
tand guarantee for loans that they plan to seek from the UK banks to bail out JL
R. The British government has been reluctant to provide these loan guarantees so
far. If the UK government’s help does not come soon, Tata Motors will have to cut
down its investment plans for Jaguar Land Rover (JLR) with possible job losses
and plant closures. While Tata looks to sustain JLR through the downturn, the UK
government s support is crucial as JLR wants it to guarantee a pound 340 millio
n European Investment Bank loan sanctioned in April. Although JLR has the option
of getting guarantees from private banks, it may work out to be an expensive pr
oposition. To get the government s help, Tata may have part with some equity int
erest in JLR, besides giving board representation. According to a recent report
in The Economic Times, the company is negotiating at the moment and if there was
a large financial package from the UK government to the company then there woul
d be a commensurate level of representation on the board. Despite the challenges
, there have been some good news, the company’s 14,000-odd workers agreed to a two
-year pay freeze on condition of no compulsory layoffs. This is expected to save
the company up to £68 million a year. The company also bagged a significant order
from China for supplying 13,000 cars worth £600 million over the next three years
. More recently, the UK Submitted by: Sameer, Sohail, Sankar, Himanshu, Arun Pag
e 19
government approved a grant of £27 million (Rs 192 crore) to JLR for producing a n
ew ecofriendly car based on Land Rover’s LRX Concept. Luxembourg-based European In
vestment Bank is also considering giving a loan of £275 million (Rs 2,100 crore) f
or research to reduce the CO2 emissions from JLR’s future products. What is remark
able is that the Tata group has been able to ride the waves and come ashore safe
ly this time as well. Tata Motors returned $1.11 bn of its original bridge loan
by mobilizing funds through a rights issue, launching a fixed deposit scheme and
by selling the shares of Tata Steel it held. Second, the Tata group has mobiliz
ed the support of the Indian government. Even when the group embarked on its amb
itious overseas acquisition strategy, there was evidence that it had the backing
of the Indian government, which too was seeking to build India itself as a glob
al brand. Tatas mobilized Rs 42 bn through bond markets with the help of governm
ent-owned State Bank of India. Tatas are also in talks with defense establishmen
t to obtain secure orders for the Land Rover. Finally, the Tatas have used innov
ation to obtain support from the Indian public for its UK operations. Tatas laun
ched Nano in Apr’09 and received 203,000 advance orders & raised Rs 25 bn from Ind
ian public. This money was in essence a loan from public at large & Tatas will p
ay interest rate on the same. This money is also crucial to the Tatas’ survival st
rategy. In sum, despite its grievous errors in the form of the crisis-eve, debt-
financed acquisition JLR, the Tata group has escaped a group-wide crisis by leve
raging its brand, the Indian government and the Indian public. That is indeed re
markable, even if fortuitous to some degree.
Page 20
TATA Motors-International Business Recommendations
Industry analysts expect GM to sell the Hummer brand in 2009 and without a selle
r in sight, there is a real possibility that the brand will cease to exist. A pu
sh in developing cutting-edge products in the Land Rover brand could enable Tata
to capture Hummer customers as they look for comparable - or better products. C
ompany needs to focus on these 3 aspects to attract the consumers of the high-en
d market products: 1. Brand Appeal and Endorsement 2. Performance Characteristic
s 3. Quality TML can greatly enhance customers’ perceptions of these three criteri
a with targeted increased investments. Brand appeal, performance and quality are
all functions of the investments made in product development and marketing. As
competitors such as Volvo, Saab, Hummer and others fail to maintain investments
in either development or marketing, this leaves the door open for TML to capital
ize and gain both market share and momentum. TML is in a unique position to inve
st given the company s strong balance sheet and overall financial health. The tw
o ways firms compete are by either a differentiation strategy or a low cost stra
tegy. However, as we ve seen the route TML has taken involves competing on both
strategies. While the Nano targets the price conscious common man, the Jaguar La
nd Rover deal shows us that TML is now targeting brand conscious, high-end consu
mers. TML needs to have a similar differentiated strategies focusing separately
on these brands. TML’s vision is to be “best in the manner in which we operate, best
in the products we deliver and best in our value systems and ethics”. TML has com
e to be known as an innovator in the passenger car segment not just in manufactu
ring but along multiple areas along the value chain. The Tata Indica and Tata Na
no are prime examples of the company’s innovation capabilities and bear testimony
to the strength of the company’s R&D efforts. This innovation fuelled growth coupl
ed with strategic acquisitions is expected to catapult the company to a preemine
nt position internationally.
Page 21
TATA Motors-International Business References
• • • • • • • • • • • www.tata.com www.tatamotors.com http://en.wikipedia.org/wiki/Tata_mot
en.wikipedia.org/wiki/Tata_group http://en.wikipedia.org/wiki/Indian_automobile_
industry http://en.wikipedia.org/wiki/Tata_Xenon www.rediff.com www.ndtv.com Kel
ly School of Business Report on Tata Motors Limited Comprehensive Strategic Anal
ysis IHS Global Insight Report: India (Automotive)- July’09 The Economic Times
Page 22

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INTERNATIONAL BUSINESS ANALYSIS ON TATA MOTORS

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