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Tata Motor in UK

TATA MOTORS IN UNITED KINGDOM

Introduction:

Tata Motors was established in 1945 as Tata Engineering and Locomotive Co. Ltd. to
manufacture locomotives and other engineering products. It is India's largest automobile
company, with standalone revenues of Rs. 25,660.79 crores (USD 5.5 billion) in 200809. It
is the leader in commercial vehicles in each segment, and among the top three in passenger
vehicles with winning products in the compact, midsize car and utility vehicle segments. The
company is the world's fourth largest truck manufacturer, and the world's second largest bus
manufacturer.

The company's 23,000 employees are guided by the vision to be 'best in the manner in which
they operate best in the products they deliver and best in their value system and ethics.'

Tata Motors' presence indeed cuts across the length and breadth of India. Over 4 million Tata
vehicles ply on Indian roads, since the first rolled out in 1954. The company's manufacturing
base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar
Pradesh), Pantnagar (Uttarakhand) and Dharwad (Karnataka). Following a strategic alliance
with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at
Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat powertrains. The
company is establishing a new plant at Sanand (Gujarat). The company's dealership, sales,
services and spare parts network comprises over 3500 touch points; Tata Motors also
distributes and markets Fiat branded cars in India.

Tata Motors, the first company from India's engineering sector to be listed in the New York
Stock Exchange (September 2004), has also emerged as an international automobile
company. Through subsidiaries and associate companies, Tata Motors has operations in the
UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business
comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the
Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The
rechristened Tata Daewoo Commercial Vehicles Company has launched several new products
in the Korean market, while also exporting these products to several international markets.
Today twothirds of heavy commercial vehicle exports out of South Korea are from Tata
Daewoo. In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish
bus and coach manufacturer, with an option to acquire the remaining stake as well. Hispano's

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presence is being expanded in other markets. In 2006, it formed a joint venture with the
Brazilbased Marcopolo, a global leader in bodybuilding for buses and coaches to
manufacture fullybuilt buses and coaches for India and select international markets. In 2006,
Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company
of Thailand to manufacture and market the company's pickup vehicles in Thailand. The new
plant of Tata Motors (Thailand) has begun production of the Xenon pickup truck, with the
Xenon having been launched in Thailand at the Bangkok Motor Show 2008.

Tata Motors is also expanding its international footprint, established through exports since
1961. The company's commercial and passenger vehicles are already being marketed in
several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South
America. It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine,
Russia and Senegal.

The foundation of the company's growth over the last 50 years is a deep understanding of
economic stimuli and customer needs, and the ability to translate them into customerdesired
offerings through leading edge R&D. With over 2,000 engineers and scientists, the company's
Engineering Research Centre, established in 1966, has enabled pioneering technologies and
products. The company today has R&D centres in Pune, Jamshedpur, Lucknow, in India, and
in South Korea, Spain, and the UK. It was Tata Motors, which developed the first
indigenously developed Light Commercial Vehicle, India's first Sports Utility Vehicle and, in
1998, the Tata Indica, India's first fully indigenous passenger car. Within two years of launch,
Tata Indica became India's largest selling car in its segment. In 2005, Tata Motors created a
new segment by launching the Tata Ace, India's first indigenously developed minitruck.

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which India and the
world have been looking forward to. The Tata Nano has been subsequently launched, as
planned, in India in March 2009. A development, which signifies a first for the global
automobile industry, the Nano brings the comfort and safety of a car within the reach of
thousands of families. The standard version has been priced at Rs.100, 000 (excluding VAT
and transportation cost).

Designed with a family in mind, it has a roomy passenger compartment with generous leg
space and head room. It can comfortably seat four persons. Its monovolume design will set a
new benchmark among small cars. Its safety performance exceeds regulatory requirements in

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India. Its tailpipe emission performance too exceeds regulatory requirements. In terms of
overall pollutants, it has a lower pollution level than twowheelers being manufactured in
India today. The lean design strategy has helped minimise weight, which helps maximise
performance per unit of energy consumed and delivers high fuel efficiency. The high fuel
efficiency also ensures that the car has low carbon dioxide emissions, thereby providing the
twin benefits of an affordable transportation solution with a low carbon footprint.

In May 2009, Tata Motors ushered in a new era in the Indian automobile industry, in keeping
with its pioneering tradition, by unveiling its new range of world standard trucks. In their
power, speed, carrying capacity, operating economy and trims, they will introduce new
benchmarks in India and match the best in the world in performance at a lower lifecycle
cost.

The years to come will see the introduction of several other innovative vehicles, all rooted in
emerging customer needs. Besides product development, R&D is also focussing on
environmentfriendly technologies in emissions and alternative fuels.

Through its subsidiaries, the company is engaged in engineering and automotive solutions,
construction equipment manufacturing, automotive vehicle components manufacturing and
supply chain activities, machine tools and factory automation solutions, highprecision
tooling and plastic and electronic components for automotive and computer applications, and
automotive retailing and service operations.

True to the tradition of the Tata Group, Tata Motors is committed in letter and spirit to
Corporate Social Responsibility. It is a signatory to the United Nations Global Compact, and
is engaged in community and social initiatives on labour and environment standards in
compliance with the principles of the Global Compact. In accordance with this, it plays an
active role in community development, serving rural communities adjacent to its
manufacturing locations.

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The Host Country and General Environment:


Demographic Segment of UK:

According to the 2011 census, the total population of the United Kingdom was around
63,182,000. It is the 22nd-largest in the world. Its overall population density is 259 people
per square kilometre (671 people per sq mi), with England having a significantly higher
population density than Wales, Scotland and Northern Ireland. [2] Almost one-third of the
population lives in England's southeast, which is predominantly urban and suburban, with
about 8 million in the capital city of London, the population density of which is just over
5,200 per square kilometre (13,468 per sq mi).

The population of the United Kingdom is considered an example of a population that has
undergone the 'demographic transition' - that is, the transition from a (typically) pre-industrial
population with high birth and mortality rates and only slow population growth, through a
stage of falling mortality and faster rates of population growth, to a stage of low birth and
mortality rates with, again, lower rates of population growth. This population growth through
'natural change' has been accompanied in the past two decades by growth through net
international migration into the UK.

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The United Kingdom's assumed high literacy rate (99% at age 15 and above) is attributable
to universal public education introduced for the primary level in 1870 (Scotland 1872, free
1890) and secondary level in 1900. Parents are obliged to have their children educated from
the ages of 5 to 16 (with legislation passed to raise this to 18), and can continue education
free of charge in the form of A-Levels, vocational training or apprenticeship to age 18. About
40% of British students go on to post-secondary education (18+). The Church of England and
the Church of Scotland function as the national churches in their respective countries, but all
the major religions found in the world are represented in the United Kingdom.

The UK's population is predominantly White British. Being located close to continental
Europe, the countries that formed the United Kingdom were subject to many invasions and
migrations from the continent, especially from Scandinavia, including Roman occupation for
several centuries. Historically, British people were thought to be descended mainly from the
different ethnic stocks that settled there before the 11th century: pre-Celtic, Celtic, Anglo-
Saxon, Viking and Norman. Although Celtic languages are partially spoken
in Scotland, Cornwall, and Northern Ireland, the predominant language overall is English.
In North and West Wales, Welsh is widely spoken as a first language, but much less so in
the South East of the country, where English is the predominant language.

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The Economic Segment:

UK economic growth held up better than expected immediately after the Brexit vote,
particularly as regards consumer spending and services. For 2016 as a whole, growth now
looks likely to average around 2%.

In our main scenario, we project UK growth to slow to around 1.2% in 2017 due to the drag
on business investment from increased political and economic uncertainty following the
Brexit vote. But we dont expect the UK to suffer a recession next year.

The main reason for the slowdown will be a decline in business investment, driven in
particular by uncertainty about the UKs future trading relationships with the EU in the
longer term.

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Consumer spending growth is projected to hold up better, but will still slow from previous
strong rates, dropping to around 2% in 2017 in our main scenario. This reflects the impact of
a weaker pound in pushing up import prices and squeezing the real spending power of
households, as inflation rises to well above its 2% target rate by the end of 2017.

Service sector growth will slow but should remain positive in 2017, but construction will
suffer from lower investment levels. Capital goods manufacturers will suffer for the same
reason, but some manufacturing exporters will benefit from the weaker pound.

Slower growth will mean higher public borrowing over the next few years. But we think the
Chancellor should still have room to boost public investment over the next few years while
still keeping the public finances on a sustainable path in the longer term.

Looking further ahead UK trade prospects after Brexit will depend on business reorienting
its efforts towards faster growing non-EU markets, notably in the tradable services area
where the UK has relative strengths. The proportion of UK trade going to the EU27
countries could fall from around 44% now to only around 30-35% by 2030. Free trade deals
may help this strategic shift in the longer term, but UK businesses should not wait for these
before taking action to explore new markets beyond the EU.

UK economic growth held steady at just over 2% in the year to Q3 2016, with no immediate
marked deceleration after the Brexit vote.

In our main scenario, we now project UK growth to slow from around 2% in 2016 to around
1.2% in 2017 due to the increased political and economic uncertainty following the Brexit
vote. The UK would avoid recession in this scenario, although risks to growth are still
weighted somewhat to the downside. Businesses need to make contingency plans for these
alternative outcomes.

We project that London will remain the fastest growing region but its pace of expansion
could slow significantly from around 3% in 2015 to around 1.7% in 2017. Other regions will
see more modest growth in 2017, closer to 1%, but we do not predict negative growth in any
region in 2017 in our main scenario.

Have a look at our interactive data tool below to explore output and employment growth
trends and prospects for your region.

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World trade growth has slowed relative to global GDP growth since the financial crisis. This
slowdown has been exacerbated recently by weaker growth in emerging markets and the
commodity trade cycle.

UK export performance since 2007 appears to have been stronger outside the EU than within
the Single Market. The UK also has a strong comparative advantage in services trade, which
is growing more strongly globally than trade in goods.

Medium-term growth prospects remain strong in key emerging market regions, including
Asia, Africa and the Middle East. That suggests that the recent downturn in trade growth
outside the developed economies should prove temporary, and that UK export growth to
markets outside the EU should soon resume momentum, perhaps rising to around 65-70% of
total UK exports by 2030.

The key policy priorities for improving UK trade prospects after Brexit should be: securing
the best possible access to the Single Market; a programme of trade promotion in non-EU
markets; supply-side reform; and active engagement with other major international
institutions including the World Trade Organisation.

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Political/Legal/Regulatory Segment
The United Kingdom is one of the few developed countries that enjoy political stability. The
country provides vibrant and promising opportunities for foreign investors. It is the sixth
largest economy in the world and second largest in the European Union. Like every country,
the British government has implemented policies and regulations to streamline business
activities within the country. In addition to this, Britain is also an active member of World
Trade Organisation. This paper is divided into two parts. In the first part, Britain's political
environment will be discussed. In the second part, a discussion on legal requirements for a
firm, interested in starting a business in Britain will be presented.

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The United Kingdom is a constitutional monarchy. But it is only symbolic in nature. There
exists a parliamentary democracy in the country, with Prime Minister as the leader. The
United Kingdom has always been a champion of free market economy. During the recent four
years, from 2007 to 2011, Britain has become the most lucrative business destination for
foreign investors. Although there are quite large number of American firms operating in the
UK, there exist numerous opportunities for non-U.S. firms as well. Once the company has
become operational, the government is responsible to protect the rights of local or foreign
staff working in that particular company.

The recent banking sector reforms have enabled Britain to attract 23 billion in foreign direct
investment. Thus during the four-year period, the country has emerged out as the leading
business player. All the companies, whether local or foreign, are taxed alike at the same rate
of 21 percent. The personal income tax rate is 20 percent. Political and economic stability is
the hallmark of British investment culture. The Britain offers good opportunities to invest in
the manufacturing sector. The pound sterling is a free-floating currency and is easily
convertible.

The trend of inward investment has considerably helped local firms to protect their labour
and financial resources. Britain refused to acknowledge the single currency regime, currently
in practice in the European Union. This refusal provided Britain with a chance to improve
conditions for business on her own. Due to prevailing political stability, investors are
encouraged to come up with innovative ideas to boost foreign direct investment.

During the recent financial crises, the British economy was in turmoil. But due to some
effervescent and result-oriented steps taken by the government, the economic condition is
improving steadily. In recent years, the British economy has experienced an unprecedented
boom in foreign direct investment, but the GDP growth has suddenly decreased. The
continuously increasing unemployment rate, which currently stands at 7.7 percent.

The British Chamber of Trade and Commerce is at logger-heads with the government over
the issue of stringent tax policies. In fact it has become the most debated issue in the British
political and economic circles.

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Brexit impact on Tata Motors:

Tata Motors fears of a significant loss in the revenues of its subsidiary Jaguar Land Rover, in
the event of Britains exit from the European Union [BREXIT] have been realized. The
company had estimated a revenue decrease of nearly $ 1.37 billion (1 billion pounds) in this
event, which is now emerging as a reality. This hit is expected to come from a 10% levy on
vehicles being exported to Europe (produced in the U.K., which would no longer be part of
the EU) and 4% levy on import of components for the production of vehicles. While
some experts believe that after its exit from the EU, Britain might provide incentives to
automakers to negate the impact of these levies, this strategy would take some time to arise.
In May 2016, Europe accounted for more than 25% of JLRs sales by volume. Sales in
Europe for Jaguar models had witnessed a nearly 300% increase compared to the same month
in the previous year. Imposition of taxes to sell these vehicles in other European countries
will make these vehicles less competitive in terms of pricing. If the company does not pass on
the levies to consumers, it will impact profitability by bringing down the average revenue per
vehicle. Both units sold and revenue per vehicle, are significant drivers of the valuation of
Tata Motors for its Jagaur and Land Rover divisions. According to our estimates, both these
segments together account for more than 90% of the valuation of Tata Motors. Moreover, we
expect both of these models to witness a steady rise in units sold over our forecast period,
with revenue per unit sold remaining almost stable during our forecast period.

The dark clouds over JLRs profitability do have a silver lining. The company is building
300,000 units per year at an assembly plant in Slovakia, which is a part of the European
Union. Thus, the vehicles produced in this plant will not be subject to tax levies. This plant is
expected to start production in 2018, which coincides with the tax impositions. Experts also
believe that the UK government will work out a strategy to incentivise the automobile
industry, which is its largest employer, in the next 2-3 years before the tax barriers kick in.

Tata Motors been on a turnaround path, with a new domestic CEO and JLR sales picking up.
Brexit thus comes as a blow to the company. The exact impact of the tax barriers and
benefits from the incentives will only be known in future. Still, the companys strategy to
diversify production across the EU should work to its advantage.

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The Technological Segment:

Technology in the United Kingdom has a long history, producing many important figures and
developments in the field. Major theorists from the UK include Isaac Newton whose laws of
motion and illumination of gravity have been seen as a keystone of modern science
and Charles Darwin whose theory of evolution by natural selection was fundamental to the
development of modern biology. Major scientific discoveries include hydrogen by Henry
Cavendish, penicillin by Alexander Fleming, and the structure of DNA, by Francis Crick and
others. Major engineering projects and applications pursued by people from the UK include
the steam locomotive developed by Richard Trevithick and Andrew Vivian, the jet
engine by Frank Whittle and the World Wide Web by Tim Berners-Lee. The UK continues to
play a major role in the development of science and technology and major technological
sectors include the aerospace, motor and pharmaceutical industries.

The UK plays a leading part in the aerospace industry, with companies including Rolls-
Royce playing a leading role in the aero-engine market; BAE Systems acting as Britain's
largest and the Pentagon's sixth largest defence supplier, and large companies including GKN
acting as major suppliers to the Airbus project.[28] Two British-based
companies, GlaxoSmithKline and AstraZeneca, ranked in the top five pharmaceutical
companies in the world by sales in 2009 [29] and UK companies have discovered and
developed more leading medicines than any other country apart from the US. [30] The UK
remains a leading centre of automotive design and production, particularly of engines, and
has around 2,600 component manufacturers. Investment by venture capital firms in UK
technology companies was $9.7 billion from 20102015.

Data has been described as the new oil a fuel for innovation, powering and energising our
economy. It has the potential to provide insights into the behaviour of individuals,
populations, markets and other systems.

Governments, businesses and others are increasingly asking how information derived from
data can be used to inform decision-making and help to develop and deliver better products

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and services, improve the efficiency with which resources are managed, and personalise
relationships with customers.

Unlike oil, the amount and complexity of data being created is increasing dramatically:
predictions suggest that the total amount of global data could grow by about 40% year on
year for the next decade.

This increase has been attributed to a number of factors, including the creation of new data
sources such as smartphones, increased technical capacity to store and analyse data, and rapid
adoption of new forms of communication such as social media.

Technology and Innovation Futures is a forward look at a range of developments which have
the potential over the next 20 years to support sustained economic growth in the UK. Based
on interviews and workshops with 180 representatives from industry, research, international
institutions and social enterprises, the report identifies 53 technologies which are likely to be
important to the UK in the 2020s, because of the UKs comparative advantage today, its
future needs, or the size of the potential market. As the UK comes out of the economic
downturn, it seems likely that future economic prosperity will derive in large part from
seizing opportunities offered by technologies such as these. The 53 individual technologies
identified in this report can be readily grouped into 28 clusters, as described in Chapter 4.
From these, seven cross-cutting areas have been identified, which are likely to be particularly
important to the UK in the 2020s, regardless of how far individual technologies mature in that
timescale.

The Global Segment:

A market can be subdivided or segmented by geographic, demographic, psychographic or


behavioural variables (Kotler, 1993, p.54). Market segmentation is the division of a market
into distinct groups of buyers who act differently than other groups of buyers but behave
homogeneously within their segment (Tynan, 1987, p.327).

In 1956, Wendell Smith first introduced the concept of market segmentation, arguing that in
place of mass markets, goods would 'find their markets of maximum potential as a result of
recognition of differences in the requirements of market segments' (Smith, 1956, p.6). Since
that time, market segmentation has become a core concept both in marketing theory and real-
world applications (Meadows, 1998, p. 394).

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In one of his seminal articles entitled The Globalization of Markets, Theodore Levitt a former
Harvard professor and one of the leading thinkers of modern day marketing principles, put
forward the concept of a homogenized global market, driven in large part by low cost,
standardized goods (Levitt, 1983, p. 92). Levitt argued that the multinational corporation
focused heavily on localization and adaptation to local market conditions, would be replaced
by the global corporation that views the entire world as a single market (Quelch, 2007,
p.148).

Dr. Levitt popularized the term "globalization" and asserted that consumers worldwide were
becoming more and more alike because of changing technology and communications
(Quelch, 2007, p.148). All markets have one great thing in common, he wrote -"an
overwhelming desire for dependable, world-standard modernity in all things, at aggressively
low prices" (Levitt, 1983, p. 86).

However, export markets cannot be regarded solely as a single entity, nor do the products
offered have a universal appeal in many instances (Foedermayr, 2008, p.241). Accordingly,
an export market segmentation strategy allows firms to identify both differences and
similarities in various export markets and reach export segments that cut across
geographically defined markets (Foedermayr, 2008, p.233).

Furthermore, by focusing on similarities among export markets, firms can benefit from
'homogeneity in product, image, marketing tools and advertising message' in different export
destinations (Foedermayr, 2009, p.61). Tailoring the marketing mix for particular segments
leads to better planning and more effective use of marketing resources (Kotler, 1993, p.54).

Of the major segmentation criteria, geographic variables while useful are considered by some
to be ranked the lowest as a basis for market segmentation (Keegan, 2002, p. 193).

Geographic segmentation is segmentation based on geographical attributes such as population


density, region, language and weather. For instance, consumers may be segmented by region
(Wyner, 2009, p. 6).

When companies choose this approach, they might consider an entire continent. Many
companies opt to localize their products or services to accommodate the local needs and
wants of consumers (Foedermayr, 2008, p.246). Sometimes geographic segmentation may

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refer to the size of the population. In other instances, population density is a basis of
geographical segmentation. In such scenarios, companies classify their consumers on the
basis of their rural, urban or suburban preferences. Such an approach is common among a
wide range of companies (Kotler, 1993, p.54). Determining which global markets are the
largest based upon geographic segmentation depends on the variable you are focused on
(Foedermayr, 2008, p.233).

Brazil, Russia, India and China (BRIC) are four dominant markets based upon geographic
population density segmentation variables (Kilby, 2006, p. 30). With an estimated two billion
new consumers entering the global market and a population total in nearing three billion,
these emerging markets afford global companies with tremendous long-term opportunities
and clearly seem to be the major geographic segment of the global market.

Segmentation based upon demographics is when the market is divided along personal
characteristics such as age, sex, income, or occupation. These variables are easy to measure,
and consumer wants, preferences, and usage rates are often highly associated with
demographic variables (Selecting, 1996, p. 21). Finding groups of consumers with strong,
homogeneous bonds is the 'Holy Grail' of marketing. When such similarities exist, marketers
can offer the same (or very similar) product, to a large number of potential customers who are
more likely to respond in the way desired. Efficiency in marketing is realized and marketers
and consumers benefit (Schewe, 2004, p. 57).

A key demographic market segment appears to be teenagers. This demographic is most


appealing for companies looking to adopt a geocentric strategy due to the increasingly
homogeneous mature of this demographic (Budeva, 2007). By looking at groups of people
based upon age related cohorts, we can easily see similarities among these groups. The Y
generation cohert, born after 1977 is the youngest and most tech savvy (Schewe, 2004, p.59).

The youngest cohort, it has grown up with the advent of the internet. This has become a
defining event for them, and they will be the 'engine' of growth over the next two decades
(Schewe, 2004, p.61). Their core value structure seems to be quite different from that of Gen-
X. They are more idealistic and social-cause oriented, without the cynical, 'What's in it for
me? mindset of many Gen-Xers. The internet links them in a way not seen before and
provides marketers with a great opportunity to reach this targeted demographic through new
media such as social networking modes (Meredith, 2002). In India, there exist more people

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under the age of 20, then the entire population of The United States (Schewe, 2004, p.66).
With one of the youngest populations in the world, those companies looking to target the
teenager demographic will certainly need to look at India.

Among the myriad of complicated decisions an international business needs to make, entry
mode strategies are viewed by some as most important (Driscoll, 1997, p. 66). Apart from
deciding on an appropriate market and product combination, an important strategic issue is
the choice of a suitable entry mode that "makes possible the entry of a company's products,
technology, human skills, management or other resources into a foreign country" (Root 1982,
p.24). The selection of an entry mode has been identified as a crucial decision facing
managers (Drakulich, 2009, p. 51).

Entry mode decisions are those decisions made by a firm on how best to enter a foreign
market (Rasheed, 2005, p. 47). There are several core options available to companies looking
to expand into cross-border markets. Franchising, licensing, joint ventures, global strategic
partnerships (GSP's), acquisitions, exporting and green field investments are some of the key
strategic options available (Mayrhofer, 2004, p. 77).

Entering a new market can have substantial risks. In general, political, legal and economic
risk factors can and do play a central role in the decision making process of how best to enter
a market (Mottner, 2000, p. 178). Historically, these risk factors have caused companies to
adopt a cautious approach toward cross-border expansion. Additionally, many countries
concerned about loss of national sovereignty put in place barriers designed to limit the level
and scope of foreign investment (Kotabe, 1996, p.81).

As a result, licensing has become a widely used option for many companies trying to expand
into foreign markets (Kotabe, 1996, p.81). International licensing provides a door to global
opportunities for a firm that is unwilling or unable to leave its own shores (Mottner, 2000, p.
176). It allows the firm to benefit from the overseas exploitation of its mobile assets while
avoiding the greater risks inherent in foreign direct investment. Therefore, international
licensing is an attractive option to be employed for a firm seeking to expand into emerging
and transitional economies where there may be a higher perception of risk (Driscoll, 1997, p.
81). Among the many risk factors associated with licensing surrounds the potential violation
of intellectual property (Drakulich, 2009, p. 51).

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Consequently, the discussion of international licensing has focused increasingly on issues of


intellectual property rights (Takigawi, 2003, p. 893). Intellectual property rights are a major
concern for licensors, as they deal not only with more traditional forms of trademarks and
patented know-how, but also with the increased availability of copyrighted material,
including emerging computer technology (Mottner, 2000, p. 180). Highly developed nations,
which produce a large proportion of intellectual property, tend to have stricter laws
surrounding its use and violation (Kotabe, 1996, p. 83). Whereas, lesser developed economies
whose primary competitive advantage might be labor or resources, tends not to enforce
intellectual property rights as effectively (Johnson, 2008, p. 9).

According to Glazer (1993), firms are licensing assets that are in the form of
information/ideas or knowledge, and that have some characteristics of a commodity. Today
these assets may include research and development ideas, inventions, formulas, technological
know-how, services, brands, art, music, designs, and trademarks (Glazer, 1993, p. 517).

More recently, the role of licensing in international business has been considered part of a
firm's overall international strategy (Davis, 2000, p. 244). A firm's decision to license is based
on many different factors. Beyond the normal risks of business in general, and of
international business in particular, there are particular risks associated with international
licensing (Uhlenbruck, 2006, p. 412).

It is evident from a review of the various streams of research in international licensing that
the perceptions of seven risk factors have been identified in the literature: (1) suboptimal
choice; (2) risk of opportunism; (3) quality risks; (4) production risks; (5) payment risks, (6)
contract enforcement risks, and (7) marketing control risks (Mottner, 2000, p. 178).

In the music industry for example, the risk of piracy has been a major obstacle to
international licensing. In China, western companies have been disinclined to license western
pop music to local manufacturers because of the prevalence of pirate CD plants in the
southern provinces (Burpee, 1996).

Licensing in Japan poses far fewer risks then in developing nations as the government of
Japan appears to have focused increased attention toward protecting intellectual property. As
Japan has seen its competitive advantage in production slip away to other regional countries
in Asia, they have come to recognize the value and importance of innovation (Takigawi,

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2003, p. 877). In fact, The World Intellectual Property Organization's Statistics on Patents
2008 puts Japan at the top of the list of all patent grants by country, ahead of the United
States, South Korea and Germany (Licensing, 2009, p. 39).

Based upon the research, Japan appears to be a good potential market to license a product to.
The laws are such that any intellectual property will be protected and the industrial
efficiencies of Japan make it an optimal initial market to begin internationalizing the firm.

Global Strategic Partnerships (GSPs) are those alliances in which two or more companies
develop a common, long-term strategy aimed at world leadership as low-cost suppliers,
differentiated marketers, or both, in an international arena. Secondarily, the relationship
among GSP members is reciprocal. The partners should typically possess specific strengths
that they are prepared to share with their colleagues (Perlmutter, 1986, p. 139). A third
attribute associated with GSP's is the focus is a global rather than regional one (Inkpen, 2004,
p.591). The GSP should be focused on extending beyond a few developed countries to
include nations of the newly industrializing, less developed and socialist world (Perlmutter,
1986, p. 137).

The GSP model is typically more flexible about ownership and managerial control. It
encourages joint decision making, vertical and horizontal planning, and the fusion of
competent allies from around the world despite cultural differences (Inkpen, 2004, p. 587).
Managers who want to implement GSPs must be ready to make fundamental philosophical
changes. Without a new mind-set GSPs are bound to fail (Perlmutter, 1986, p. 133).

Finally, the GSP relationship should be highly organized along horizontal, not vertical, lines.
Technology exchanges, resource pooling, and other "soft" forms of combination are the rule.
The participating companies retain their national and ideological identities while competing
in those markets excluded from the partnership (Grossack, 1986).

Increasingly, to be globally competitive, multinational corporations must be globally


cooperative. This necessity is reflected in the acceleration of global strategic partnerships
(GSPs) among companies large and small (El Kahal, 2001, p.227). GSPs have become an
important new strategic option that touches every sector of the world economy, from
manufacturing to services.

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GSPs are not the exclusive domain of large multinational corporations. Enormous companies
will frequently combine with smaller ones to exploit their entrepreneurial capabilities and
market niches (Perlmutter, 1986, p. 144). This was the case years ago, when IBM teamed up
with Microsoft to exploit the latter's growing expertise in software for desktop computers.
The smaller companies like Microsoft, benefit by gaining access to global markets and the
resource strength of their bigger partners (Schlicher, 2006, p. 14).

On the other hand, another mode of entry option available to a firm would include Joint
Venture Partnerships (JVP's). A JVP is formed when two or more companies combine a
portion of their resources to create a separate jointly owned operation (Driscoll, 1997, p. 73).
Unlike GSP's, JVP's tend to be more localized within a particular market or region (Inkpen,
1999, p. 38). Typically JVP's will have two primary partners as opposed to GSP's which can
have multiple parties involved (Uhlenbruck, 2006, p. 413).

The research suggests that companies that have a geocentric view and strategy would be more
likely to form GSP's. There certainly are risks associated with both GSP's and JVP's,
however, because the risk is shared among more members in a GSP platform, it would seem
that this form of partnership tends to mitigate risks more so than JVP's.

The host country industry environment

5-Forces Model and UK Automobile Industry

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Potential Entrants:

It is very difficult for new firm to enter in automobile industry. An entrant has to
spend big amount on safety, motor management, comfort, design and numerous
electronic functions. Car industry focused on brand loyalty, and this is an
advantage of existing auto firms in the auto i n d u s t r y, b e c a u s e b u s i n e s s h a v e
i n v e s t e d m o r e t o w i n a c u s t o m e r t h a n k e e p h i m l i k e F o r d , Toyota, Honda.

Supplier Power:

There are different kinds of suppliers in auto industry. There are suppliers for
braking system, classic and frame, cooling system, electrical system and engine, exhaust
and fuel supply system. However the most important suppliers are steel suppliers
and the biggest suppliers come from china where labour and production cost is very
low. The automobile supplier industry is facing a strong restructuring process in the
concentration of car makers and an on going out-sourcing process of car
manufacturer represent new challenges for the supplier.

Buyer Power:
At the present time, car buyers have negotiating power. Buyers knowing the score forehand
and knowing how much automakers want to keep sales up in tough times, they can negotiate
the term of monthly payment, they can buy last years new car with a high discount because
backlogs are c a u s e d t o d e p r e c i a t i o n , t h e y c a n g e t d o w n t o a g o o d p r i c e
b e f o r e a d d i n g a n i n c e n t i v e , f o r instance negotiation a price before the financing and
the trade in value.

Substitutes:

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There are numerous amounts of substitutes in the automobile market and if the
price of one v e h i c l e i n c r e a s e s t h e d e m a n d f o r a s u b s t i t u t e w i l l i n c r e a s e .
S i m i l a r l y i f t h e g a s o l i n e p r i c e s increase consumer tend to buy cars which have less
fuel consumption. Generally, the higher the cost of operating a vehicle, the more likely
people will seek alternative transport options.

Internal Rivalry:

The auto industry is very concentrated, with top 8 global auto companies having more than
90%of global revenues and top 50 global auto parts companies having 80% of global
revenues. Due to globalisation the concentration in auto industry is increasing and
the effects of globalisation and economies of scale in auto market are
remarkable. The advantages of global market and economies of scale are leading
inexorably to the concentration of output on hand for fewer and fewer firms.

Conclusion 5-Forces Model

Conclusion from 5-forces model for UK automobile industry is that threat of new entrants is
low due to huge capital and cutting-edge technology. Suppliers are weak because they are
spread all over the world and cannot easily forward integrate. Buyers are medium
due to low demand for automobile and high switching costs; moreover, buyers
are not able to backward integrate. Substitutes are moderately strong due to different
and less-expensive transportation facilities. On the other hand, intensity of rivalry is strong
because of major players are dominant in the market by nearly same technology and
manufacturing processes, suppliers relationship and distribution systems.

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