Tata Motors International Business Strategy

Tata Motors

Tata motors is an Indian’s largest multi-holding company. It was established in 1945. This company caters to three market segment internationally. The passenger cars, Utility vehicles and commercial vehicles. The company produced the first mini-truck, first light and heavy vehicles and many more firsts in India, being an inventor in their industry. Tata motors has entered into strategic acquisition and joint ventures in its mid stage and launched new products at a rapid pace in various markets. Now a days, Tata motors enjoys the position of being Indian’s leading auto-mobile manufacturer with increasing presence in Europe, South East Asia, Africa, Australia, and the middle East with a total more of US $ 4 billion. The company focuses on providing customers the best value for their money meets European standards and environmental regulations through their advance technologies. A newer version of the car, named Indica V2, was a major improvement over the previous version and quickly became mass favourite. In United Kingdom a badge engineered version of this car was sold (Rover City Rover), which was big failure and declared the worst car ever driven on BBC Top Gear show. Tata motors also successfully exported large quantities of the cars in South Africa. The success of Indica in many ways marked the rise of Tata Motors.

The proposal will include the current position of Tata motors and its international expansion, what are the things they have done to be successful? What are their weaknesses? How can they improve. Marketing factors effecting Tata motors. The company’s Swot analysis, its Boston matrix, Its market planning and strategy will all be included in the proposal.

(Yadong Lou 1999) suggests International Expansion is a process by which regional economies, societies, and cultures have become integrated through a global-spanning network of communication and trade. This report would not only define how Tata motors and tea expanded internationally but also what are the reasons of organisations to globalise, how complex this expansion is actually as it may seems to be mouth watering because of high profits and economies of scale but in practise it is not that easy. It is important to understand why Tata Motors did expand, though companies in the international arenas have experienced many benefits, however the complexity of the international business also brings a lot of risk with it. For Tata motors to justify international business activities, therefore, relied on the below reasons.

International customers :

Tata motors wanted to continue serving his customers who became international. To make them feel the same as when they were in the home country.

New expanded market :

New different market was available outside their home country; additional resources including management, skills just to name the few.

Increase sales:

Tata motors wanted to increase the sales of his vehicles. Because of this they had to go into markets where consumers had a very strong purchasing power. And also to industrialise courtiers where products such as heavy commercial vehicles were needed or demanded.

Generally international expansion is not easy as it may sound since many factors have to be taken in to account. For example Tata motors started from India with an international view but faced problems like political new country’s legislation and laws. For example Nano’s launch in October maybe delayed due to political issues related to plant land. Reference Free research report for 1Q 09 results. It should be taken in to account that Plant of Tata motors in India would be much more cost beneficial rather than a plant in Europe as there would be a difference in minimum wage laws. So to decide where a plant should be build lot of thinking is required. Economic factors were also taken in to account, since different countries would have different per annum income of the people hence to produce cars that would be affordable. Recession has not hit the third world countries as such but has hit European countries to much more effect so different international strategy is required. One of the reasons of Tata motors success is that they faced such challenges successfully.

As it is shown above Tata motors expanded with consideration of a lot of factors and proved to be successful. To understand the concept it is important to know how did they market their products, what their planning was? What marketing strategy did they use.

Marketing:

Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customer in return. Tata motors market their product differently when producing in different regions.

(Gary Armstrong 2009)

Market targeting is a process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. Segmentation is dividing into distinct groups of buyers who have distinct needs, characteristics, or behaviour and who might require separate products or marketing programmes. As the Tata Group is a worldwide concern operating in more than 100 countries with thousands of products, there is almost no industry which seems to be untouched by the group. The focus of Tata’s market entry will be UK. There were several reasons for selecting UK as the target market. These favourable factors were the status of India as the favourable economic agent, UK Car market dynamics and potential, language similarity. The other countries which were considered as potentially attractive were: the USA – the largest market size in the world, Russia – emerging market with significant sales potential. The option of the USA as target market was declined due to extremely high quality requirements and other non-tariff barriers which make it hard for a new entrant to enter this market  

(Roger A. Kerin 1994)

Through strategic planning, the company decides what it wants to do with each business unit. Market planning involves deciding on market strategies that will help the company attain its overall strategic objectives. A detailed marketing plan is essential for each business, product or brand. The plan begins with an executive summary, which quickly overviews major assessments, goals and recommendations. Tata Nano is the cheapest car in the world. It is sold in home country India around Rs 1-lakh i.e. approximately USD 2000. Tata Nano was first launched in India on 1st April 2009 and expected to be in Indian market by July 2009. Since launching, it has created a huge buzz all over India. Within the first two days of lunching, it has received 5500 booking. The figures keep increasing every day since the launching. What makes Tata Nano so cheap? Basically, by making things smaller, lighter, do away with superficial parts and change the materials wherever possible without compromising the safety and environmental compliance. It is said that Tata Nano has better mileage than Toyota Prius and same gas emission as a scooter. The planning of this car is that it will be imported to Malaysia in parts by Tata motors and is assembled in its two assembly plants. There are forty sale offices in Peninsular Malaysia nationwide. All Tata Nano cars will be distributed through these sale offices only. Order can be made vide these distribution centres or its web site.

(Robert.E)

Market strategy:

Market strategy outlines the broad marketing logic by which the business hopes to achieve its marketing objectives and the specifics of targets markets, positioning, and marketing expenditure levels. How will the company the company create value for customers in order to capture value from customers in return? This section also outlines specific strategies for each marketing mix element and explains how each responds to the threats, opportunities and critical issues spelled out earlier in the plan.

Product:

Over the years Tata Motors have been successful in creating their brand image especially they use some famous stars as their spokesman. Other important marketing strategies are such as the packaging, innovations, and quality control. Tata Motors provide many innovative features to attract car lover. One of these innovations is the Tata Safari 4X4 Decor that has “Reverse Guide System”. A weather-proof camera is fixed to the rear car to help the driver while reversing the car.

Pricing strategy:

There are number of factors to determine the price of the car. Factors include like market condition for example it cannot be too low or too high with the prices of same vehicles of the competitors. Giving discount every month and special promotion for certain type of vehicle also one of the strong strategy use by Tata Motors. Discount can be made from Company’s profit or from dealer’s profit at certain range.

Place:

It includes the company activities that make the product available to target customers. Channels of distributions, locations and sales is usually adopted. Vehicle should be distributed in a systematic way, from the plant to dealership and to end user. Tata Motors has an extensive dealer network covering Indian and International markets. Wherever you are, there is a Tata Motors Sales and Service dealership close to you

Promotion:

Personal selling: There is cold calling to customer, this is done by collection of customer data bases done by the sales officers. Hence there is minimum personal selling involved.

Advertising is any paid form of non personal presentation and promotion of ideas, goods or services by an identified sponsor. It is designed to promote the sale of a product or service. The various media that can be used for advertising are T.V, Newspaper, Magazines, Hoardings, and Internet etc. Tata Motors is responsible for the advertising of its products. The dealer conducts point-of-purchase displays to advertise the products. The advertisements done by the Co. help the dealer to capitalize on the market. Advertising is often used to make consumers aware of a product’s special low price or its benefits. But an even more important function of advertising is to create an image that consumers associate with a product, known as the brand image. The brand image goes far beyond the functional characteristics of the product. The products of Tata Motors have many special characteristics to them, but when consumers think of it, they not only think of its features, but they may also associate it with quality, performance, and class. All of these meanings have been added to the product by advertising

Sales promotion is a short term incentive to encourage the purchase or sale of a product or service. Its purpose is to supplement and coordinate advertising and personal selling. It is designed to persuade consumers to purchase immediately by providing special incentives to them for example extra product, prizes or gifts. During festivals such as diwali customers are given festive discounts.

Public relations is building good relations with the company’s various publics by obtaining favorable publicity, building a good corporate image, and handling or heading off unfavorable rumors, stories and events. The Co. takes serious measures to maintain good public relations. The Co. follows business ethics to ensure that the customer is satisfied and receives good service whenever and wherever he desires.(Edmund Jerome McCarthy).

SWOT ANALYSIS:

SWOT analysis helps a firm in strategy formulation, in responding strategically to the environment, the goal is to reduce identified threats and take advantage of the best opportunities. The following is the SWOT analysis of Tata motors

Strengths

The internationalisation strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The benefit is that Tata has been able to exchange expertise. For example after the Daewoo acquisition the Indian company leaned work discipline and how to get the final product ‘right first time.’

The company has a strategy in place for the next stage of its expansion. Not only is it focusing upon new products and acquisitions, but it also has a programme of intensive management development in place in order to establish its leaders for tomorrow.

The company has had a successful alliance with Italian mass producer Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of production and knowledge exchange. For example, the Fiat Palio Style was launched by Tata in 2007, and the companies have an agreement to build a pick-up targeted at Central and South America.

Weaknesses

The company’s passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers.

Despite buying the Jaguar and Land Rover brands (see opportunities below); Tata has not got a foothold in the luxury car segment in its domestic, Indian market. Is the brand associated with commercial vehicles and low-cost passenger cars to the extent that it has isolated itself from lucrative segments in a more aspiring India?

Opportunities

In the summer of 2008 Tata Motor’s announced that it had successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK £2.3 million. Two of the World’s luxury car brand have been added to its portfolio of brands, and will undoubtedly off the company the chance to market vehicles in the luxury segments.

Tata Motors Limited acquired Daewoo Motor’s Commercial vehicle business in 2004 for around USD $16 million.

Nano is the cheapest car in the World – retailing at little more than a motorbike. Whilst the World is getting ready for greener alternatives to gas-guzzlers, is the Nano the answer in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will cost up to 85 times more than a standard Nano!

The new global track platform is about to be launched from its Korean (previously Daewoo) plant. Again, at a time when the World is looking for environmentally friendly transport alternatives, is now the right time to move into this segment? The answer to this question (and the one above) is that new and emerging industrial nations such as India, South Korea and China will have a thirst for low-cost passenger and commercial vehicles.

The range of Super Milo fuel efficient buses are powered by super-efficient, eco-friendly engines. The bus has optional organic clutch with booster assist and better air intakes that will reduce fuel consumption by up to 10%.

Threats

Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean production.

Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem could be alleviated.

Since the company has focused upon the commercial and small vehicle segments, it has left itself open to competition from overseas companies for the emerging Indian luxury segments. For example ICICI bank and DaimlerChrysler have invested in a new Pune-based plant which will build 5000 new Mercedes-Benz per annum. Other players developing luxury cars targeted at the Indian market include Ford, Honda and Toyota. In fact the entire Indian market has become a target for other global competitors including Maruti Udyog, General Motors, Ford and others.

Rising prices in the global economy could pose a threat to Tata Motors Limited on a couple of fronts. The price of steel and aluminium is increasing putting pressure on the costs of production. Many of Tata’s products run on Diesel fuel which is becoming expensive globally and within its traditional home market. These all factors held lot of importance for Tata motors to expand inte rationally.

(Peter Jackson 1982).

The strategic positioning of an organization admits the inventing the desired future position of the organization on the groundwork of present and predictable exploitations, and the constructing of programs to realize that positioning. Strategic positioning can be analysed by Porters SWOT analysis approach and Boston Consultants Group (BCG) Matrix (See Figure 2). BCG Product portfolio matrix indicates the ‘Cash Cows’ refers to the industries with a high market share and low growth such as Power (Energy), Steel and Oil & Gas. ‘Dogs’ refer the industries with low market share and low growth such as Tata Sky, Tata Tele services etc. the stars shows the industries such as Automotive, Tea, and Chemicals with high market share and high growth. However; “the each industry position in the matrix is an opportunity open to business” (Sutherland and Canwell, 2004, p 16; Stacy, 1993, pp 48-49, Thompson, 2002). For example; in “cash cows”, Tata’s acquisition with Corus (UK) and gained a big share of market. In “stars” Tata’s acquisition of Daewoo (Korea) and achieved a high market share in the Korean automobile market.

Figure: 2

Tata motors takes in to account the value proportion of what is proposed in the market and also make sure that target customers segments also are addressed by the value proposition. For example; the Tata’s recent announcement, of launching the cheapest cars for the Indian market for the target market of two wheeler owners such as motorcycle and scooter. Tata motors has developed effective distribution channels to reach the customers and to develop relationship with them

(David Mercer)It is very important for a company like Tata motors which is a global company that it considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The macro environments that can affect Tata motors include political, economical, Socio cultural and technological factors.

Political arena:

Political arena can have a lot of influence upon the regulation of businesses and also one the spending power of the consumers and other businesses. The political factors that can affect Tata motors are, strong tax incentives for inbound investors, different countries would have different laws so company has to take in to account what they are dealing with, strong motivation and trust, there was a negative effect on the IT industry after 2009 because the government’s initiative of Tax holiday under STPI expires (Thinking street 2007)

In order to be successful marketers need to consider the state of a trading economy both in the long and short term. It would be essential when Tata motors plan to do international marketing. As interest rates, Inflation, employment level per capita and gross domestic product per capita would all play important roles. Tata motors would also be affected by competitive labour cost model and highly mobile work force.

Social and cultural factors:

Social and cultural factors influence the business varies from country to country. It includes factors like, dominant religion in the area? The attitudes to foreign products and services? How much effect language has upon the diffusion of products onto markets.

Technology:

Technology is one thing which is very important in the car industry. Since technology will give Tata motors a competitive advantage over others and is a major driver of globalisation. For example technology can allow the products to be made cheaply hence reducing cost and increasing revenues, It offers new innovative products to the consumers that will make sure that the product don’t get obsolete, Tata motors internet site provides all the information about the cars, 3d view and videos can be seen making information easily accessible to the consumers. It also adds the concept of customer relationship manager who will be in touch with the consumers even after the car has been purchased. Thus consumer will feel themselves part of the organisation. So to be competitive Tata motors have to do strong R & D culture and facilities, strong tie-ups with western technology companies and be adaptive to new technologies. The various motives behind buying an automobile are Need, Prestige, Comfort, Fashion, Jealousy and Novelty. The R & D Department continuously strives to bring new innovations in their product. Tatas have an industrial experience of over 100 years and they are well known with the Psychology of Indian customers, who desire more at less price. This experience has helped them to develop products which fulfil the expectations of Indian consumers.

Porters 5 Forces Analysis:

Porter’s 5 forces analysis deals with the factors outside an industry that influence the nature of competition within it. According to Porter (1985), competition is at the core of the success or failure of firms. The intensity of rivalry will determine the extent to which competing companies will give away the value that they have created. They will either pass this value to the buyer in lower prices or it will be absorbed by higher costs of competing (Porter, 1991). Michael Porter has provided a framework that models an industry being influenced by the five forces which will give below. That helps the strategic business manager to develop an edge over rival firms as this model helps in understanding the industry context in which firms operate.

Figure 1 shows the five forces model:

Barriers to Entry:

Time and cost of entry:

When launching a product time is the most essential thing. The launch of NANO is a good example since demand for small cars is on the rise of the market. Cost of entry actually means the initial capital that would be required to setup a new firm is very high.

Knowledge and technology:

It is from knowledge and technology that firms get competitive advantage over others. Tata motors have great knowledge and technology because of the experience they had and also from the fact that they have done few mergers and acquisitions over the last few years.

Product differentiation and cost advantage:

The new products should be attractive and different to be accepted by customers. Attractiveness can be measured by feature, price etc. NANO car price is one of its things which are very attractive for customers at the moment.

Buyers:

Switching costs: In the case of NANO the switching cost from bike to car is high. Thus increasing the demand of the car.

Number of customers: Few buyers can dictate their terms. The bargaining power of buyer is higher if there are a lot of choices available to the buyers. In the case of NANO the price tag that it has got no compromise have been done at front.

Brand Image: The brand image of Tata company is one of their strength in the market.

Suppliers:

Number of size of suppliers:

Suppliers give raw material to the company, if there are few suppliers then they can set high prices to capture the profit. The NANO car has 128 suppliers in all.

Unique product/service:

Suppliers industry is dominated by few substitutes. Some parts of the Tata motor cars are obtained from few suppliers and limited substituted are available to their product.

Competitive Rivalry:

Price competition: Advertising battles can increase the demand in the industry, but may be costly to small competitors. NANO is the only player so it has the price competition but as the Maruti and Honda are planning to launch a car in the same segment so price competition will start. Product quality and number of diversity of competition also effect the competitive rivalry.

(Charles Hill 2009)Strategies can be made but the real thing is to make sure that theory works in practicality, for this purpose monitoring and evaluation system is used for an organisation to have a check on policies and procedures through out the time. If an organisation does not care about how well it is doing or about what impacts it is having, why bother to do it at all? Monitoring and evaluation allows you to assess the quality and impact of your work, against your action plans and your strategic plan. In order for monitoring and evaluation to be really valuable, you do need to have planned well

Conclusion:

Given the intensity of competition and fast changing business environment in the segment, the world over, the acquisition, undoubtedly, is a strategic fit for Tata motors, as far as its globalization gambit is concerned. And, the number one spot, which it is aiming at, may not be far away. But of course, it would have to put its best cup forward. The hybrid strategy is used by the company in various industries, it involved a higher degree of organisational excellence and integration of all the departments. Here the strategy of the group is to maintain the cost of raw materials as lowest as possible and to achieve the lowest cost of final products. The group also invested a huge amount in research and development in order to achieve the highest degree of quality at the lowest price.