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Business Policy & Competitive Strategy

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Business Policy & Competitive Strategy

INTRODUCTION TATA
Group
Established under the parent company, Tata Group, in 1945, Tata
Motors Limited has become India’s largest automobile company. It was
the first Indian automobile company to list on the New York Stock
Exchange. Tata Motors began manufacturing commercial vehicles in
1954 with a 15-year collaboration agreement with Daimler Benz of
Germany. This partnership has led Tata Motors to not only become
India’s largest automobile company but also India’s largest commercial
vehicle manufacturer; the world’s top five manufactures of medium
and heavy trucks and the world’s second largest medium and heavy
bus manufacturer. Having just entered the passenger vehicles market
segment in 1991, Tata Motors now ranks second in India’s passenger
vehicle market. Tata has enjoyed the prestige of having developed Tata
Ace, India’s first indigenous light commercial vehicle; Tata Safari,
India’s first sports utility vehicle; Tata Indica, India’s first indigenously
manufactured passenger car; and the Nano, the world’s least
expensive car.

CURRENT SITUATION
The Tata Motors group is a passenger and commercial vehicle
manufacturer based in India. The motor group was established in 1945
as part of the larger Tata Group. They have long been known for their
commercial vehicles and in the past ten years entered into the
passenger car market. Currently, Tata Motors has a line of five
passenger vehicles and a large line of commercial vehicles producing
pickups, trucks, tractor trailers, tippers, and buses. Both product lines
of the Tata Motors group have seen success, but much of this has been
built upon the more deeply established commercial vehicle product
line.

Tata Motors commercial line has been established for several years in
many market segments such as Europe, Africa, The Middle East,
Australia, Southeast Asia, and South Asia. Tata Motors has expanded
their business and market share around the world through a series of
acquisitions. In 2004, they acquired Daewoo commercial vehicle
Company in South Korea which was South Korea’s second largest truck
manufacturer. This acquisition gave Tata Motors a significant presence
in the Korean market. They have also entered into joint ventures with

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companies such as Thonburi Automotive in 2006, which allowed them


to manufacture and market pickup trucks in Thailand.

Tata Motors have been making global headlines in the auto industry
lately; the largest news being their acquisition of Jaguar and Land
Rover from Ford. “Tata paid 2.3 billion dollars to Ford for the two
brands that cost Ford 5.3 billion” (Carty, USA Today). This is a major
step for the company because it catapults them into the luxury car
business which

they are not known for at this time. Tata, like many new businesses it
acquires, is allowing this new segment of the business to be run by
previous management since they have more experience in the luxury
automotive business. “Tata will give us some space. They want us to
run our business, be a premium British car company” (Mike O’Driscoll,
managing director of Jaguar). This is yet another large acquisition for
the Tata Motors group and could create great success for the company
in the near future.

CORPORATE GOVERNANCE
Since Tata Motors is a part of a large conglomerate company it needs
to have a strong corporate governance to ensure that its employees
act ethically and the business continues to run smoothly especially
during the ever changing and dynamic global economy. “Tata Group’s
corporate governance is founded upon a rich legacy of fair, ethical, and
transparent governance practices” (tatacarsworldwide.com). One of
the more important parts of this is the transparency of the company
people have a right to know what the company is doing not only to
ensure ethical practices, but for the insurance of their many
shareholders whom have a right to know the inner workings of the
company

Tata has created some models for employees to guide themselves


through everyday business practices to ensure that the corporate
governance is continuously being upheld. The Tata business excellence
model is upheld by Tata quality management services. Quality
management is an in-house group dedicated to helping the various
Tata companies achieve their business objectives through specific
processes. The two main processes that the quality management
services employees focus on are business excellence and business
ethics. These two objectives have helped build Tata into the strong,
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dynamic company it is today. These models are entrenched in the


company’s ethnical standards and Tata feels strongly about enforcing
both throughout the company. “Tata quality management services
plays the role of supporter and facilitator in the journey that Tata
enterprises undertake to reach the peaks of business eminence while,
at the same time, adhering to the highest ethical standards”
(Tata.com).

To further prove their commitment to quality and ethical practices Tata


has introduced annual quality awards for those companies conducting
business with the utmost quality. These awards are called the JRD
quality value awards named after the late chairmen JRD Tata. These
awards are presented annually on July 29th, the birthday of JRD Tata.
Tata has committed to ensuring quality and ethical standards not only
within Tata Motors, but throughout their many other branches and
sectors of the Tata Group. They have done so by benchmarking quality
standards through the Tata business excellence model

as well as providing incentives for companies to strive to improve the


quality of their service, by awarding JRD quality management awards.

FINANCIAL POSITION
Tata Motors have increased its earnings over the years through their
various acquisitions and joint ventures with truck manufacturers in
Southeast Asia. Gross profit in the year 2006 was 1,160.9 million and
increased to 1,510.1 million in the year 2007. Earnings after taxes also
increased significantly between 2006 and 2007 increasing from 336.6
million to 405.5 million in 2007. After a large drop in revenues from
2004 to 2005 when the company first went public on the NYSE it has
been increasing revenues greatly annually, from 4,422.0 million in
2005 to 7,354.0 in 2007.

CORE COMPETENCIES
Tata Motors is able to maintain, as well as increase, their market share
by capitalizing on their core competencies. Tata Motors is active,
competitive, and dynamic in all aspects of the automotive industry,
which means that there must be many different activities going on in
all areas of the company. As a result of the ever evolving automotive
industry Tata Motors must always be changing and one way to stay at
the forefront of the industry is to make continuous improvements in

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technology through research and development. One way that Tata


Motors has done this is by producing one of the most efficient and low
cost vehicles on the market. Acquisitions, mergers, and expansion is
another core competency that Tata Motors has is embedded in their
company structure and philosophy. Another core competency that Tata
Motors holds is being located in the India. This location has allowed
them to understand not only the Indian market but also the dynamics
of emerging and developing markets. This market understanding and
knowledge allows Tata Motors to manufacture their products at lower
costs, sell them to emerging markets while making profits as well as
take advantage of the strong labor base in India.

PEST ANALYSIS
POLITICAL
Since Tata Motors operates in multiple countries across Europe, Africa,
Asia, the Middle East, and Australia, it needs to pay close attention to
the political climate but also laws and regulations in all the countries it
operates in while also paying attention to regional governing bodies.
Laws governing commerce, trade, growth, and investment are
dependent on the local government as well as how successful local
markets and economies will be due to regional, national and local
influence. In accordance, Tata’s headquarters in Mumbai, India, strictly
controls and regulates operations in all dealerships and subsidiaries, in
addition to knowing and abiding by all labor laws in the multiple
countries where they have manufacturing plants it has to watch
political change.

ECONOMIC
Operating in numerous countries across the world, Tata Motors
functions with a global economic perspective while focusing on each
individual market. Because Tata is in a rapid growth period, expanding

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Business Policy & Competitive Strategy

or forming a joint venture in over five countries world-wide since 2004,


a global approach enables Tata Motors to adapt and learn from the
many different regions within the whole automotive industry. They
have experience and resources from five continents across the globe,
thus when any variable changes in the market they can gather
information and resources from all over the world to address any
issues. For instance, if the price of the aluminum required to make
engine blocks goes up in Kenya, Tata has the option to get the
aluminum from other suppliers in Europe or Asia who they would
normally get from for production in Ukraine or Russia. Tata Motors also
has to pay close attention to shifts in currency rates throughout the
world. Currency fluctuations can equate to higher or lower demands for
Tata vehicles which in turn affect profitability. It can also mean a rise in
costs or a drop in returns. But they also have to pay attention to not
just the domestic currency, the rupee, but also to the dollar, euro, bhat,
won, and pound, to just name a few. Just because the rupee is strong
against the dollar does not mean it is strong against all the other
currencies. Attention to currency is important because it influences
where capital investment will develop and prosper.

SOCIAL
Undoubtedly, the beliefs, opinions, and general attitude of all the
stakeholders in a company will affect how well a company performs.
This includes every stakeholder from the CEO and President, down to
the line workers who screw the door panel into place,

from the investor to the customer, the culture and attitude of all these
people will ultimately determine the future of a company and whether
they will be profitable or not. For this reason, Tata Motors tends to use
an integration and rarely separation technique with foreign companies
they acquire. In 2004, Tata Motors acquired Daewoo Commercial
Vehicles Company, which was at the time Korea’s second largest truck
maker. Rather than using de-culturation or assimilating Daewoo, Tata
took an integrated approach, and continued building and marketing
Daewoo’s current models as well as introducing a few new models
globally just as it had been done under Korean management.

TECHNOLOGY
Tata Motors and its parent company, the Tata Group, are ahead of the
game in the technology field. “The foundation of the company’s growth

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is a deep understanding of economic stimuli and customer needs, and


the ability to translate them into customer-desired offerings through
leading edge R&D” (Tata). Employing 1,400 scientists and engineers,
Tata Motors’ Research and Development team is ahead of the pack in
India’s market and right with the rest of the field internationally. Among
Tata’s firsts are “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,” as well as the increasingly
famous Tata Nano, which is projected to be the world’s cheapest
production car (Tata). In the automotive industry, it is becoming
increasingly crucial for manufacturers to stay on top of the technology
curve with new problems always rising such as escalating gas prices
and pollution problems. Tata recognizes this and dedicates lots of
resources and time into research and development to be even with or
preferably ahead of other competitors, global trends, and changing
economies. In all, an automobile manufacturer must change, adapt,
and evolve to stay competitive in the automotive game, and this is
exactly what Tata is doing with their rapid growth, and extensive
research and development.

SWOT ANALYSIS
STRENGTHS
Tata Motors excels when it comes to innovation through intensive
research and development. Their ability to make the least expensive
car on the market, the Nano which will retail for $2,500, is far beyond
what any other car dealership has created. This innovation gives Tata
Motors their main competitive advantage. Tata Motors makes
everything from tractor-trailers to the world’s least expensive car. This
product diversity grants them a competitive advantage over their
competitors because they can satisfy more markets and customer
needs. Another strength that Tata Motors possesses is high corporate
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responsibility. They donate a portion of their profits from stock


increases towards a specific charity. This highlights Tata Motors overall
desire for community improvement while also emphasizing Tata Motors’
high morals and values which is something money can not buy. Tata
Motors is unique in a way in which when it buys a company. Tata Motors
keeps the original management of that company intact. The company
that Tata Motors purchases will look exactly the same in terms of
management and organizational structure as if it was never purchased
by Tata Motors.

WEAKNESSES
There are strings attached with every new invention and improvement
on products. These strings are Tata Motors weaknesses and what other
groups perceive as their weaknesses. One weakness that Tata Motors
faces is its inability to meet safety standards. Although they have
made the most inexpensive car out on the market, it has yet to pass all
the safety standards which is a legal factor. Some consumers and
pessimists inquire as to how Tata Motors can make such a cheap car
and withstanding a car accident or not just falling apart after hitting
something once. Pessimistic people also want to believe that car
manufactures are already doing everything they can to keep costs low
for the consumer, and if that is the case, then putting the cheapest car
out on the market automatically questions if it is safe to drive.Tata
Motors only have been making passenger cars for the approximately
last ten years. This can be viewed as a weakness from a customer
standpoint since a decade does not seem like a lot to consumers and
therefore they will think that Tata Motors is inexperienced car
manufacturing.

OPPORTUNITIES
Tata Motors has already opened the doors for many new and innovative
ideas, but not only for their company, but their competitors as well
which could turn into a threat. One of the major opportunities that Tata
Motor faces is that as of right now 90 percent

of China and India’s adult population do not own cars, partly because
cars are costly and require more expenses after purchased. So the
market for a low-priced car is huge which benefits Tata Motors perfectly
since they produce the lowest priced car on the market. This is a huge
opportunity for Tata Motors because if they can get their feet into that

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market of people that do not have cars because they cannot afford
them, then they will make large profits down the road. China’s total
car sales are estimated at over 8 million dollars annually and they were
the world’s second largest car market in 2006. China’s government
forecasts that demand for cars will top 20 million by 2020. With Tata
Motors in the market with the cheapest car, China’s demand for cars
will probably increase even more significantly which will in turn
increase sales for Tata Motors. As of March 2008 Tata Motors finalized
a deal with Ford Motor Company to acquire the British businesses,
Jaguar Cars and Land Rover. This is a huge opportunity for Tata Motors
since they will acquire the large knowledge base and technologies for
producing and marketing luxury vehicles. This acquisition helps them
dive into the more mature markets in Japan, Europe and the U.S. The
knowledge transfer from these two companies will greatly improve Tata
Motors ability to continue to grow and flourish in both developing and
developed market segments.

THREATS
The obvious threat to Tata Motors is intellectual property rights. Tata
invented the cheapest car on the market and every automobile
manufacturer wants to know how Tata did it. Headhunters are soon
going to find out this valuable information and make it available to
their own company. This is a huge threat to Tata Motors because at
first they had low competition, but once other car manufactures find
out how they invented such a low cost car, and then these companies
too will jump on board and design their own line of low cost
automobiles. On one hand this can be a threat, but on the other it may
not affect Tata Motors at all because people will still want to purchase
their product since they were the pioneers of all the excitement.
Another main concern that Tata Motors faces is that cheap cars in India
will have an adverse effect on pollution and global warming because
most of the population will be able to afford the cars.

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PRESENT STRATEGIC ISSUES


 Global Leader/presence both in means of Quality and Quantity.
 Security & procurement of raw materials
 Entering the new markets
 Eliminating the RED color from balance sheet
 Struggle to digest the big ticket global acquisitions
 Leadership crisis within the company

GLOBAL LEADER/PRESENCE/ INTERNATIONAL IMAGE


Over last few years TATA have acquired lot of companies across the
globe. They have presence in 8 different sectors with 118 different
companies and are working in more than 85 countries. TATA make
presence felt in every major market of the world. The future plans of
the company must be the consolidation of its image and markets in
which it works. To become the leader the company has either acquired
new companies , increased the capacity of exiting companies or
started green field projects. So as to maintain good international image
the company has never compromised with the quality. TATA has big
portfolio in the automobile sector from entry level passenger cars , to
SUV to luxury brands , Light utility vehicles to trucks , buses ,
concept car , electric cars to military vehicles etc ..

When the TATA acquire new companies it never scrapes off the exiting
management instead it mixes a few people from its parent company
so as to maintain its international image. Example : In 2004, Tata
Motors acquired Daewoo Commercial Vehicles Company, which was at
the time Korea’s second largest truck maker. Rather than using de-
culturation or assimilating Daewoo, Tata took an integrated approach, it
did not removed its exiting management but just added two more
people in the management from India.

TATA motors has set a target move from mid-size player to big player
on the world market to 1.8% market share from 0.81% by 2015. With
the new acquisition of Jaguar and Land Rover, Tata will have to be
careful with how they handle the acquisition. Industry analysts also
struggled to see what value Tata could add that had eluded Ford, and
what synergies there could be between a maker of trucks and basic
cars… and two luxury marques.” Separation could be a good approach
for the immediate future to keep the name of Jaguar and Land Rover

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distinguishable and associated with the luxury automobile market.


Overall, Tata does a good job of integrating some aspects of their

large multi-national conglomerate into new acquisitions; however, the


company must also understand that separation from the name Tata can
be valuable in some social areas.

RAW MATERIALS
Security & procurement of raw materials is one of the major issue
company faces in this competitive market. TATA steel can acquired of
mines and smelting units across the global. TATA motors can go
forward in acquiring technology. The TATA Motors have proper
distribution channel across India , but its utilization was much below its
capacity. Thus Tata Motors also formed a joint venture with Fiat and
gained access to Fiat’s diesel engine technology So as to maintain its
Security of raw material at different level , TATA have extensive
backward and forward linkages and it is strongly interwoven with
machine tools and metals sectors.
• From mines to chemicals required for Steel production
• From engines to complete body for car manufacturing
• Relay on scales of economy
It also helps them attain the knowledge, technology, and programs that
allow them to succeed in that particular sector of the automotive
industry or in a particular region or culture. For instance, the purchase
of Jaguar and Land Rover allows Tata to enter into the luxury car
market without having to research the market, build the technology,
among other important aspects of getting into a new market segment.
It further helps them enter into the very competitive and highly
desirable mature markets in Europe and in future hopes of securing
market segments in the United States. Tata Motors is currently in a
growth stage as stated on their website: “Tata Motors Ltd is in a mega
expansion mode. The investments would be in product development,
capital expenditure in capacity enhancement, domestic and
international acquisitions and mergers”.

RED COLOR
Total debt in the company crossed 1,00,000Cr for the financial year
2008-09. Credit rating was brought down from BB- to B+. Company has

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to pay loan/interest of about 20,000Cr by the end of August 2009. Debt


ratio has slipped from 1:1 to about 3:1

Most of the companies were acquired when their valuation were


at/near their peak level. Acquired companies already had lot of debt
collected in their balance sheets example the purchase of Jaguar and
Land Rover. Demand fell because of global melt

down. The demand of the steel and Jaguar and Land Rover in the US
market have fallen
drastically in the last 2 years. These areas were the major markets for
the company. The year 2005-06 saw a woping increase in the price of
steel due to sudden increase in the demand of steel in the world
market. Government removed subsidy on steel import that the TATA
were enjoying. But by the late 2007 the demand falled but the
government didn’t called back the subsidy removed. When the
companies were acquired the rupee was strong against the dollar but
now rupee value has slipped from 40 to 50. Above all the loans taken
by the TATA in US Dollar or Euro to buy the companies from the banks.
Banks have recalled/unwilling to extend the loan was they themselves
are face crisis and are not in a state to maintain their liquidity.

To come out of this the TATA group will have to dilute its stakes in
various companies across the globe. Will have to attract more
international clients. Will have to generate funds from groups other
companies to pay of the loan by Aug so as to improve its credit rating
and thereby avail more loan.

LEADERSHIP CRISIS
When in early 90ties the Ratan Tata was battling for supremacy with
powerful chieftains like Russi Mody of TATA Steel , Darbari Seth of TATA
Chemicals and Ajit Kerkar of Indian hotels. A new retirement policy was
cooked to goose out these chieftain which stated that executive
chairman have to retire by 65 and non executive by 70. But when
Ratan Tata turned 68 he avoided the succession question by behaving
a bit like Pakistani military dictators who habitually postpone their
retirement. Its expected that the Mr. Tata will end up adopting the
Vladimir Putin governance model whereby he extents his regime
through popular mandate.

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Most of the senior manager in the TATA group are about to retire in a
coming year or so. There is much leaders available inside the company
who can take the place of the exiting managers. All eyes and
speculations are revolving around K N Tata who is supposed to take the
place of Mr. Ratan Tata in years to come. He is right now looking after
the retail division of the group and in the last few years has help the
TATA group to consolidate in the retail sector.

NEW MARKET
The share of the foreign brands of TATA in Domestic market is less than
10%. Thus there is very large untapped market. Jaguar Cars and Land
Rover are not being sold in the

Asian markets , so this new area can be utilized. Electric version of


TATA Ace which are
being sold in the Australian and European market can also be sold in
the Indian and African markets. Many construction/Trucks/Bus which
are quite successful in global market can also be sold in all the markets
where TATA motors work.

NANO which is expected to rolled out by July can also be sold is African
and European countries as there is strong demand of small cars. NANO
which has put TATA world automobile map should be used to trap the
market in the developing countries. Tata OneCAT - the world's first
prototype of a compressed air car. To begin production by 2010. Is
being planned for European and Australian market only. Good potential
in South Africa and Indian market also , TATA should try to capture this
markets also. The share of the domestic brands in the international
market is less than 18%. Domestic brand like Indica , Indigo and Ace
have a good demand in the African market , TATA should try to get hold
in this market Different version with international standards should be
sold.

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