Tata Motors
Professor Prashant Salwan, Indian Institute of Management – Indore
Introduction
Economically lower-class Indians felt empowered when they walked into a Tata Motors
(TML) showroom in Mumbai, India, on April 21, 2009, and reserved their first family
car for Rs 1,00,000 (US $2,000). In that month, India was under the spell of two
global influencing acts. The first was the holding of general elections in which the
world’s largest democracy was going to the polls. The second was the first day on
which the world’s cheapest car was available for purchase. No one had thought it possible to sell a car with all the required safety features and design for just under US
$2,000. Tata Motors, a company that changed the basic automotive business model,
had products ranging from the costliest—Jaguar and Land Rover—to the world’s
cheapest car, the Nano. Tata Motors is the only automobile company in the world
offering products ranging all the way from the smallest car to the luxury segment.
The success of Tata Motors lies in its international growth strategy (Appendix I),
“to consolidate position in the domestic market and expand international footprint
through development of new products by:
l Leveraging in-house capabilities.
l Acquisitions and strategic collaborations to gain complementary capabilities.”
In 2009, Tata Motors had operations in 35 countries around the world (Exhibit 1),
and it was on the 100 New Global Challengers list released by Boston Consulting
Appendix I Growth Strategy of TML
1984 : India’s first LCV (407 truck)
1996 : India’s first SUV (Safari)
1998 : India’s first passenger car—Indica
2004 : Acquisition of Tata Daewoo, Korea
2005 : India’s first mini-truck (Ace)
2005 : Acquisition of stake in Hispano, Spain
2007 : Formed an industrial JV with Fiat
2007 : JV in India with Marcopolo of Brazil
2007 : JV in Thailand with Thonburi
2008 : People’s car—Tata Nano
2008 : Acquisition of Jaguar Land Rover
Group. TML became the largest player in the 8-ton heavy truck segment in South
Africa and the second-largest player in the 2- to 4-ton segment in South Africa. TML
is the largest player in light buses and the second-largest in light trucks. The story of
global expansion of Tata Motors started in 2004.
Domestic Economy
The Indian economy in the year 2004 had a growth rate of 8.0 percent. Indian
gross domestic product (GDP) grew by 4.4 percent in fiscal year (FY) 2001, by 5.8
percent in FY 2002, and by 4.3 percent in FY 2003, with an expected future growth
rate of 7.0 percent in FY 2005, 9 percent in 2006, and 11 percent in 2007. However, according to Goldman Sachs, India will have the highest growth rate in
GDP in comparison with other emerging economies until 2045–2050.
Governmental Initiation
The government of India in the years 2002–2003 invested heavily in infrastructure,
implementing the following six-point strategy:
- Strengthening and four-laning of high-density corridors.
EXHIBIT 1 International Markets for Tata Motors
Passenger Vehicle Commercial Vehicle
International Markets International Markets
Venezuela Chile
Senegal Algeria
Ghana Nigeria
Congo Ghana
South Africa Zambia
Ethiopia Angola
Tanzania Mozambique
Kenya Uganda
Russia Mauritius
Ukraine Australia
Spain Turkey
Italy Egypt
Poland Russia
Turkey Ukraine
SAARC Spain
Thailand Italy
Malaysia Poland
Middle East SAARC
Thailand
Malaysia
Middle East
Senegal
Ghana
Congo
South Africa
Ethiopia
Tanzania
Kenya
286 Part 2 Integrating Case 1 - Golden Quadrilateral (5,846 kilometers).
- NSEW Corridor (7,300 kilometers).
- Road connectivity to major ports.
- Private sector participation in financing construction and maintenance.
- Improvement, maintenance, and augmentation of the existing national highways network.
This investment was expected to enhance commercial vehicle penetration in
India. Furthermore, in 2008, India became the:
l Second-largest two-wheeler market in the world.
l Fourth-largest commercial vehicle market in the world.
l Eleventh-largest passenger car market in the world and is expected to be the
seventh-largest market by 2016.
Demographic Shift in India
It was expected that by 2009, 60 percent of India’s population would be 25 years of
age and less. The consumption of food and beverage, which was 62.5 percent in
the years 1970–1971, came down to 44.5 percent in 2001 and was trending toward
further reductions. The consumption of transportation was 2.8 percent in the years
1970–1971 and grew to 13.5 percent in the year 2000–2001. The increasing percapita disposable income is leading to a subsequent decline in the proportion of
spending on basic necessities and an increasing proportion on transportation.
Transportation became the second-largest spending category in 2002.
Domestic Automobile Industry
According to Goldman Sachs’ BRIC Team, there will be a significant increase in
the middle-class population in India, coupled with an increase in per-capita GDP
(in terms of purchasing power parity, PPP), and the team expects India to hit the
“sweet spot of car ownership” between 2015 and 2025.
These structural changes have totally altered the commercial vehicle market;
there will be a structural shift toward heavy commercial vehicles (HCV). The
demand for buses will increase substantially, especially for large, luxury buses.
International Automobile Market
Global Automobile Trends
International automobile markets are at crossroads. Factors like consumer preferences, competitive dynamics, the cyclical nature of product design, environmental
factors, and regionalism are all factors affecting the global strategy of automobile
giants.
Motorization and population increases are the two most influential factors in
automakers’ strategic product management. In countries where population is
increasing but motorization is saturated, auto companies have to consolidate their
present position as well as launch new products to attract new, young customers.
In areas where both factors are increasing, they have to invest in services, supply
chain, and new product launches.
Integrating Case 1 Tata Motors 287
In the United States, Western Europe, Japan, and South Korea, there was an
average sales reduction of 20 percent from 2007 to 2009. The sales growth was
unaffected in China but grew in India and Eastern Europe.
The global automobile industry is varied not only in strategic orientation but
also in customer preferences. For example, for an American automaker, styling
means boxiness, a large nose/deck, and an emphasis on size. For a European, it
can mean roundness, a short nose/deck, and emphasis on aerodynamics and
space efficiency. The engine body, from an American point of view, will be large
and powerful engine, a heavy body with slow response. For a Japanese car, the
engine can be small, with a light body; the emphasis is on fuel economy and
sharp response. In terms of value added, a European wants total balance, while
the Japanese want options and many features as standard equipment. The overall
image for an American vehicle is that of an all-purpose road cruiser—large, comfortable, powerful; for a European the automobile is a driving machine—responsive, precise, sophisticated.
The automobile companies make more profit in selling luxury cars rather than
in selling small cars. The revenue shares for participants in the automobile value
chain are as follows: suppliers have a 60 percent share of the recommended retail
price, assemblers have 10 percent, marketing logistics another 10 percent, and
dealers 20 percent. Vehicle manufacturers in mature markets derive about 20 percent of revenues and 40 percent of operating profits from sales of spare parts.
Tata Group
Tata Group has been one of the largest and most respected industrial houses of
India, with a pioneering track record over 130 years. In FY 2004 Tata Group had
over 80 companies with leadership presence in most of the sectors. Its revenues
were approximately Rs 615 billion (US $13.4 billion, equivalent to 2.6 percent of
India’s GDP at current prices), and its net profit was Rs 57 billion (US $1.3 billion).
Tata Motors
In 2004, Tata Motors was India’s largest automotive company in terms of revenue.
Tata Motors was the market leader in commercial vehicles and the second-largest
player in passenger vehicles. In 1954, it began manufacturing vehicles. The firm
has demonstrated very strong R&D skill sets with the capability of developing vehicle platforms indigenously at a relatively low cost. In 2003, Tata Motors had three
manufacturing facilities, in Jamshedpur, Pune, and Lucknow. In 2004, it acquired
Daewoo Motors and added the Gunsan plant in South Korea, its first outside India.
It had the widest range of product offerings in the Indian market, consisting of
commercial vehicles, multiutility vehicles, and passenger cars.
International Business Initiatives by Tata Motors in 2004
In 2004, exports were 15 percent of revenues, and Tata Motors made a target of
increasing the exports by 20 percent in 2006.
Ravi Kanth, Managing Director TML, thought that the best strategy for Tata
Motors was focused positioning and marketing in selected countries.
l South Africa: The market was 360,000 units annually and was comprised of passenger cars and pickup trucks. Tata Motors positioned itself as a seller of a
“value for money” product there. The production plan was to make the
288 Part 2 Integrating Case 1
products in India and ship them to South Africa in 2005. The initial target was
2,000 or more by the third quarter of that year.
l Sri Lanka: The commercial vehicle volume was approximately 13,800, primarily
medium to heavy commercial vehicles (MHCVs) and light commercial vehicles
(LCVs). The competition in Sri Lanka was from secondhand imports of Japanese vehicles. Tata Motors had to cut the Japanese market in Sri Lanka. The
plan was to export around 700 vehicles in the third quarter of 2005 and approximately 1,800 units in 2005.
l Russia and East Europe: Targeting the LCV truck market in Russia, Tata Motors
started operations in 2004 in the Ukraine through bus assembly.
Tata Motors replicated these strategies in other key markets of Southeast and
South Asia, Southern Europe, the Middle East, and Africa.
Organic Growth Strategies of Tata Motors
To develop and sustain a competitive advantage, Tata Motors developed a twopronged strategy. First, it expanded its capacity. In 2004, the utilization was around
75 percent for commercial vehicles (CVs) and utility vehicles (UVs), and 100 percent for the Indica plant, which made passenger cars (PCs). Indica’s PC capacity
was expanded by 50 percent by the end of 2005. In the same year, CV capacity was
expanded and new products were developed (small pickups and intercity and intracity buses). By 2006–2007, new platforms had been created for global trucks, a new
utility vehicle, and compact cars. For the people’s car, there were new engine offerings and commensurate expansion in R&D capability. The goal was for expansion
into new markets and product categories, both domestically and internationally.
Inorganic Growth Planning of Tata Motors in 2004
Tata Motor’s philosophy of inorganic growth was as follows:
l Acquiring an international company for (a) access to markets, (b) access to new
technology and R&D capability, and (c) growth in international business.
l Marketing tie-ins for (a) distribution and (b) cobranding.
l Asset purchases for (a) new products, (b) new technology, and (c) new
capacities.
l Strategic alliances for (a) product swaps and (b) R&D alliances.
There were further challenges for Tata Motors, such as cost pressures on input
materials like steel, engineering plastics, aluminum, copper, and so on. As of April
2005, the company also felt the impact of emission compliance measures. Eleven
cities in India have migrated to Euro III, while the rest of the country will migrate
to Euro II emission norms. The cost of meeting the emission standards may lead to
an increase in price, leading to sluggish demand conditions in 2006. Fuel price
increases are also a factor.
Furthermore, the automotive business model was changing. Automobile manufacturers were making money not only by selling cars but also by maintaining them
and selling accessories.
Tata Motors acquired Daewoo Commercial Vehicle Co. (DWCV) of Korea and
made it a 100 percent subsidiary on March 30, 2004. The HCV was a product segment of DWCV and a complementary product for Tata. The acquisition gave Tata
access to assembly technology for high-end trucks, the potential for leading the
Integrating Case 1 Tata Motors 289
domestic market in high-end trucks, and an entry to the South Korea market for
medium and intermediate commercial vehicles. Tata had a market share of 25 percent as well as an additional annual production capacity of 20,000 units. The purchase was a very profitable venture, earning Tata US $5.4 million on a turnover of
US $222 million in fiscal year 2003 on a 21 percent of Daewoo’s capacity utilization.
Positioning of Tata Motors in the Global Markets
Ravi Kanth, Tata’s Managing Director, had to decide on a positioning strategy for
Tata Motors in the global markets. Tata Motors aspired to be among the top global
manufacturers in the product group of medium and heavy trucks. In pickup
trucks, Tata had to establish a presence in the global segment and couple that
with a high domestic demand potential. Tata also targeted the niche global markets in the compact car segment.
Enhancing Capabilities: Partnering with World-Class Players
Tata Motors is no stranger to global partnering: - In a joint venture with Marcopolo (Tata Motors, 51 percent; Marcopolo, 49
percent), the goal was to take advantage of product development and participation in mass transport opportunities in Indian and international markets.
The target is to produce 150,000 buses (24- to 54-seaters) in five years using
India’s low-cost advantage. - In an alliance with Fiat, (a) Fiat distributes products in India and (b) the two
companies engage in a joint manufacturing venture (Tata Motors, 50 percent;
Fiat, 50 percent) in India. Tata gained access to world-class car engine technology. Both companies gained access to a production capacity of 100,000 cars
and 250,000 units of engines and transmissions for use globally. - To capitalize on the regional trading block ASEAN and local country competencies, Tata formed a joint venture in Thailand with Thonburi Thailand
(Tata Motors, 70 percent; Thonburi, 30 percent). In Phase I, the production
capacity was 12,500 units per annum. In March 2008, Xenon was launched in
Thailand, and an eco car project started. - To deal with customs in South Africa, Tata Motors formed a subsidiary (Tata
Motors, 60 percent; Tata Africa, 40 percent). The products manufactured will
be passenger and commercial vehicles.
Despite this track record, many were surprised when Tata Motors acquired Jaguar
Land Rover for US $2.3 billion. Tata had its reasons for the purchase: (a) the opportunity to participate in two fast-growing auto segments (premium and small cars)
and to build a comprehensive product portfolio with an immediate global footprint;
(b) to increase business diversity across markets and product segments; (c) to get a
unique opportunity to move into a premium segment with access to world-class
iconic brands; (d) to fit Land Rover naturally above Tata’s utility/sport utility/crossover offerings for the 4 ! 4 premium category and to broaden the brand portfolio
with Jaguar’s performance/luxury vehicles; and (e) to enjoy long-term benefits from
component sourcing, low-cost engineering, and design services.
For any company to survive, its organizational structure must be excellent and
coupled with a suitable business model, effective cost control mechanisms, appropriate products and services, ample resource capabilities, process, and quality, as
well as with organic and inorganic growth strategies.
290 Part 2 Integrating Case 1
CASE DISCUSSION QUESTIONS - What are some of the features of the Indian market
that make it an attractive domestic market to Tata
Motors? - Prepare a SWOT analysis for Tata.
- What does a five forces model look like for Tata in the
global automotive market? - What are the key success factors for a global automobile major?
- As mentioned in the case, the international success
strategies for Tata were “to consolidate position in
the domestic market and expand international
footprint through development of new products
by leveraging in house capabilities, acquisitions,
and strategic collaborations to gain complementary
capabilities.” Did Tata achieve these goals? Please
elaborate your answers with examples from the
case. - Ravi Kanth said that international success will take
place through focused positioning and marketing
in selected countries. Do you agree with his
viewpoint?
Integrating Case 1 Tata Motors 291
Sample Solution
