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Tata Motor’s Potential for Global Success

Tata

A corporate strategy article by Thunderbird students.

Tata has their sights on global expansion, but can they replicate their domestic success in advanced markets? Tata’s recent success with Jaguar Land Rover (JLR) certainly is a start. Acquiring JLR during the global economic recession was a big risk for Tata. The acquisition strained Tata’s cash supply and required Tata to raise billions in debt to finance the purchase. Through a series of cost cutting measures, Tata led JLR to recovery which now contributes handsomely to Tata’s healthy profits.  JLR gave Tata direct access to the luxury car market in developed countries like Europe and the U.S.

In parallel to Tata’s effort in advanced markets, Tata has historically aggressively penetrated markets similar to India, where they are more comfortable and experienced. By focusing its international expansion on countries with markets similar to India, Tata has been able to leverage its market expertise in these emerging markets.

Tata

A corporate strategy article by Thunderbird students.

Tata has their sights on global expansion, but can they replicate their domestic success in advanced markets? Tata’s recent success with Jaguar Land Rover (JLR) certainly is a start. Acquiring JLR during the global economic recession was a big risk for Tata. The acquisition strained Tata’s cash supply and required Tata to raise billions in debt to finance the purchase. Through a series of cost cutting measures, Tata led JLR to recovery which now contributes handsomely to Tata’s healthy profits. JLR gave Tata direct access to the luxury car market in developed countries like Europe and the U.S.

In parallel to Tata’s effort in advanced markets, Tata has historically aggressively penetrated markets similar to India, where they are more comfortable and experienced. By focusing its international expansion on countries with markets similar to India, Tata has been able to leverage its market expertise in these emerging markets.

Tata's NanoGlobally known for the Nano, “the cheapest and smallest car on earth,” Tata succeeded in the small vehicle and truck segment in developing markets. Tata gained momentum after making slight product changes to the Nano, which was originally plagued with problems. The large population and lower income demographic in India and other developing countries made the Nano ideal since people could more easily afford the car.

This two pronged strategy, however, of penetrating not only developing but also advanced markets, may prove an ill-fate for Tata if not executed properly, and Tata’s reach for success in advanced markets could dilute the success it has achieved in developing markets.

What is Tata’s Globalization Plan?

Tata is primarily focusing on 14-15 countries that have similar market conditions to India. Tata has built manufacturing facilities and a sales and marketing force in these countries. Tata is also taking its globalization plans to the next level by building passenger car plants in strategic overseas markets to assemble its Indica, Indigo, and Nano-budget-cars in Indonesia, South Africa, and Brazil, and from there tap the East Asian, African, and South American markets. Additionally, to build its overseas presence and recruit leadership talent in the car industry, Tata recently appointed former BMW head of sales in Qatar, Johnny Oommen, as head of its international business department overseeing passenger cars.

In Europe, the company’s plans are largely centered on small city cars, mainly electric ones. Recently, the company unveiled the Pixel, a city car based on the Nano platform, and plans to offer an electric variant as well when the car goes into production.

Tata Taps into Subsidiaries and Joint Ventures

Tata have leveraged acquisitions and joint ventures to gain a foothold in markets outside of India. This provides Tata with brand-specific global distribution networks, access to the premium vehicle segment, further support in the global markets, and strong R&D capabilities that Tata can use to grow their product line.

Chinese Operations: Tata raised $1.5 billion to support the expansion of JLR manufacturing facilities. China was the ideal location since demand for luxury cars skyrocketed in recent years. Just last month, Tata via JLR entered into a joint venture agreement with Chery Automobile Co. to manufacture and sell its Jaguar and Land Rover models in China. Simultaneously, Tata is cutting JLR units production costs by sourcing raw materials from cheaper sources and reducing manufacturing and design cycle times.

South African Operations: Through a joint venture with Tata Africa Holdings Ltd, Tata developed a South African assembly plant for light, medium, and heavy commercial vehicles. Tata viewed South Africa as a lucrative export market after studying consumer behavior, potential distribution networks, and supply chain possibilities.

Thailand Operations: Since Thailand is highly competitive in the pickup truck market, Tata created a joint venture with Thonburi Automotive Plant in Thailand. The trucks manufactured with Thonburi will be sold in domestic and international markets.

Latin American Operations: In 2006, Tata formed a joint venture with Marcopolo, the Brazilian global leader in bus and coach bodies through which Tata Motors produces busses and coaches for the Indian and other specific global markets. Tata Motors has taken its alliance with Fiat to produce a new one-ton pick-up truck for Latin American markets from Fiat’s facility in Argentina. This arrangement will also see Tata Motors forming a joint venture with a subsidiary of Iveco, the commercial vehicle division on Fiat, to set up a distribution network.

In addition to developing markets, Tata is beginning to make headway in advanced markets.

Korean Operations: Tata first entered advanced markets when it acquired Daewoo in 2004. This acquisition provided Tata synergies in product strategy and R&D for a World Truck for India and international markets.

Spanish Operations: In 2009, Tata acquired Hispano Carrocera, a bus and coach manufacturer located in Spain, after holding a 21% stake in the company for three years.

Norway Operations: Tata Motors has picked up a majority stake in Norway-based Miljo Grenland/Innovasjon, which specializes in developing solutions for electric vehicles supporting their efforts to develop the electric version of the Indica and an electric-Nano. European countries have shown an interest in an electric version of the Nano. Unlike existing electric vehicles, the Indica EV will be a more practical option for the consumer; capable of carrying four people, with adequate luggage space, a predicted range of up to 200 km and acceleration of 0-60 kmph in under 10 seconds. Tata Motors believes that this investment in Miljo will help the company realize its strategy to develop convenient, affordable, and sustainable mobility solutions through electric and hybrid vehicles.

UK Operations: Tata kick-started a move to jointly develop engines and vehicles with its UK subsidiary, JLR, over two years after its $2.3 billion acquisition of the British marques. Initiatives have been taken on joint developmentTATA_JAGUAR_LAND_RO_481507f programs for engines, vehicles and platforms, which would leverage skills of Tata and JLR, resulting in synergies in operations of the company and its subsidiaries yielding substantial savings in the operations of the company and its subsidiaries. Earlier, JLR had announced plans to increase sourcing of components from low-cost countries, including China and India in the coming years to reduce input costs. Material cost is a significant challenge, and JLR previously said over the next few years it would grow the amount of materials and components it purchases from lower cost countries. To facilitate sourcing from India and China, JLR had opened purchasing offices in the two countries in 2009.

What Challenges will Tata Face?

Growing in a Mature Market: The global automotive industry is already highly competitive and is likely to continue to grow, as competitors are striving to retain their position in established markets, while trying to gain a presence in emerging markets.

Management of Multiple Subsidiaries and Joint Venture Partnerships: With the number of subsidiaries and joint ventures, Tata will struggle to manage vision and implementation. Tata will have to decide whether certain divisions can run autonomously or need direction and handholding from corporate.

Existing Competition/Deteriorating Market Share: In view of the continuing globalization in the worldwide spectrum, the automotive industry remains highly competitive and is only expected to further intensify. Overall, Tata’s market share has declined from 65.2% in 2007 to 62.7% in 2011. Factors impacting competition and market share include features such as quality, safety, and price management. As the market demands continue to evolve, other innovative features, such as fuel economy technology and reliability begin to emerge only to require further product development in terms of speed at minimal cost to keep up with competitor’s advancements. Tata’s competitors in India are Suzuki, Hyundai, Mahindra & Mahindra, GM, Honda Motor, Mitsubishi Motors, Fiat, and Ford. In premium markets, such as that including Jaguar, Tata’s competitors consist of other European brands such as Audi, BMW, Mercedes Benz. In the SUV’s category of which Land Rover exists, Tata’s competitors expand to Infiniti, Lexus, Porsche and Volkswagen.

Emissions Reduction: Global trends in the commercial vehicle sector have seen increased government regulations aimed at reducing emissions.  As new emissions standards are implemented, truck prices increase and manufacturer profits decrease as R&D costs increase to develop vehicles compliant with the new standards. Tata Motors, however, is in a unique position to leverage its existing joint ventures, particularly with Brazil, to position itself as a leader in reduced emissions commercial vehicles.

How can Tata Grow Efficiently with Two Strategies?

First, Tata should continue developing model variations of highly affordable more sustainable vehicles and investing in new products and technologies to meet strict environmental regulations and ever-changing consumer preferences i.e. launching aluminum vehicles (Jaguar XJ & XK) and light, fuel efficient vehicles (Evoque Range Rover) puts Tata in the right steps toward reducing emissions and offering a wide array of products that can appeal to varying markets.

Second, Tata must have strong central management and strong local operations in order to be a successful transnational corporation. Tata’s central management must have a strong vision yet be flexible. Tata should take feedback from subsidiaries and engage them in decisions that impact their subsidiary and the overall Tata enterprise. Developing a strong connection to their regional operations will enable Tata foster a culture of cooperation which facilitates decision making and implementation.

To that end, Tata must rely on their subsidiaries and joint ventures to understand the markets they have entered (developing markets and advanced markets alike) and continue to learn new technology. To a large extent, Tata is already finding ways to utilize their subsidiaries and joint ventures to compete globally. For example, Tata partnered with Italy’s Fiat SpA to build a new small car for the Indian market. The primary benefit in this relationship is that Tata will learn new technologies and Fiat will gain R&D support from Tata.5 When working with subsidiaries, Tata must be careful to insert their strategy but not to micromanage implementation. They need to focus on building strong relationships with their partners and disperse responsibilities, where there are varying roles and responsibilities that best serve the local market or match internal capabilities. The goal should be to empower employees across the Tata enterprise, regardless of location or structure, to contribute their strengths and local expertise.

Lastly, as Tata has gained expertise in emerging markets, it has left the Western commercial vehicle space largely untouched, making advanced markets a curious territory. These are strategic markets Tata must continue to explore as they expand their global footprint and strive to be the global leader in commercial vehicles.

Tata must not get too distracted by advanced markets however. By continuously identifying and addressing institutional voids, Tata Motors has created unique products that meet the demands of ‘the bottom of the pyramid’ consumers. Cheap labor and innovative operating solutions enabled Tata Motors to offer affordable vehicles such as the Nano car for the economical price of $2,900 USD.  According to the US Bureau of Census, the world population by 2050 is expected to grow by 2.3 billion, eventually reaching over 9 billion – of which majority is from emerging markets. Hence, as an emerging market leader, expansion into developed countries should not be the primary goal for Tata. Rather, remaining focused on emerging markets where 70% of future growth is projected to come from is more viable growth option for Tata.