Discuss the trends in the global and Indian

automobile industry. Despite being present in India

for the past 10 years, VM’s cars failed to become
popular and accepted by customers. Was the group
justified in continuing to give importance to the
Indian market?
 Increase of 4.8 percent from 2015 reaching 88 million units in 2016

 Strong emphasis on the growing economies with growth slowing in the established markets

 Growing trend of “region-centric” products

 Declining worldwide domination of large automobile manufacturers

 The total shareholder returns of an average automaker were only 5.5 percent, and in 2016,

the return on invested capital of the 10 players was only 4 percent

 Raising environmental and safety concerns

 Digitization, growing automation, new business models, technology driven trends – shared

mobility, independent driving, electrification and connectivity

 THREATOF
THREAT OF NEW
NEW ENTRANTS
ENTRANTS COMPETITIVE RIVALRY
COMPETITIVE RIVALRY
MODERATE
MODERATE HIGH
HIGH
- high level of
of brand
brandidentification,
identification, -intense competition
customer loyalty -low
-low concentration
concentration
-product proliferation -few dominants
dominants(e.g.
(e.g.Maruti
MarutiSuzuki,
Suzuki,
- attractiveness
attractiveness of the market
market Hyundai)
Hyundai)
Porter’s
5 Forces BARGAINING
BARGAININGPOWER
POWER OF OF
BUYERS
BUYERS
HIGH
HIGH
-- there
there are
arevariety
varietyof
ofproducts
productsavailable
available
in
in the
the same
same range
range
BARGAINING POWER
BARGAINING POWER OF
OFSUPPLIERS
SUPPLIERS
LOW
LOW
- most of
ofthe
theauto
automanufacturers
manufacturersare
are
THREAT OF
THREAT OF SUBSTITUTES
SUBSTITUTES
specialised
specialised ininsome
somesegment
segmentrelated
related to
to
only one
one client
client LOW
LOW
-use of public
public transportation
transportationhashas waned
waned
- use of
of two-wheeler
two-wheelerbikes
bikesisisexpected
expectedto
fall
to fall
 • Headquartered in Pune HINDERANCE
• Total Investment of $603
mn • Cultural Incompatibility
• VM Entered India with • Positioning
2001 Skoda
Audi and Volkswagen Volkswagen has positioned itself as
Brand a relatively premium brand, and
2007 thus doesn’t compete in this high
Lamborghini and growth segment.
Porsche
• 12676 units • High Competition
manufactured in 2012
India (16.4% inc.) Volkswagen’s sedan offerings
haven’t been able to compete
• Dealers 100 -> 65
2015 strongly with models such as Maruti
• Investment of $33.6 Swift Dzire and Honda Amaze.
million for Indian • 13.5% drop in units
specific diesel engine 2016 sold of Skoda Strong brand recognition of Maruti,
Hyundai and Honda, which have
• 70% jump in sales of
Indian specific cars
vast dealership networks across
India
JUSTIFIED BECAUSE WORK ON DRAWBACKS :

• Growing Economy • HIGH Total Cost of Ownership

• Quite High Purchasing Power • Poor Service Network
Parity
• Determine Exact Positioning
• Large Population with high growth
• Low Mileage
• Growing Economy
• Brand its USP of international
• Increasing Living Standards standards of quality and safety.
• Low Cost of Production
• Emerging markets are not
saturated
• India had the potential to be used
as a export hub to other emerging
economies.
Is there a business case for VW and Tata Motors to
look for a partner with which to enter into a
strategic alliance in India?
VW entered India in 2001 and has gained market share close to 1% as of 2016. Though it
has world class production facility, high manufacturing costs and waning customer confidence
has caused VW to be non-competitive in Indian market

Passenger vehicle segment, growing at CAGR of 10.09% provides huge market potential for
automobile manufactures in the country. Some segments like sports utility segment witnessed
tremendous growth rate of 29.91% during fiscal year 2016-17, promising growth
opportunities

VW might consider partnership to

• gain deeper understanding of Indian market,
• scale up production capacities and achieve economy of scale,
• to seize the growth opportunities in India,
• Thereby increasing market share, with relatively less capital and risks
Strategic Alliance will provide an opportunity to leverage each other’s strengths
TATA might consider partnership to
• Diversify in Global Markets
• Improved strategic position
• Learning opportunities
• Technological Advances
The conflicting interests of both the players – maximizing the market share in India and
globally might result in misleading goals in the long term and increases the risk of failure

Alternatively, Tata and VW might consider a complex alliance with clear cut terms to ensure
focused engagement of partners for achieving desired outcomes for both the companies
VW and Tata Motors made the decision to work with
each other as alliance partners. Comment on the
fit between the two partners.

TATA MOTORS
• Trusted brand of cars –$42 billion
• R&D, design and manufacturing
facilities – 20 + locations
• Association with international
players
• Drop of 96% in profits in Q3, 2016
of passenger vehicle division
• Declining market share – below
5% in 2017 from 13% in 2013
VOLKSWAGEN
• Major player in the automobile industry (7.2 %
of global market share)
• 120 manufacturing plants
• “TOGETHER – strategy 2025” – aspirating to
be global leader of sustainable mobility
VOLKSWAGEN IN INDIA
• 5000 + employees, current market share -
below 0.5 per cent
• Huge investment in setting up plant
• 5 brands – Skoda, Audi, Volkswagen,
Lamborghini, and Porsha
• Good dealership network
Volkswagen already have the advantage by having its manufacturing base in Pune,
Maharashtra where Tata Motors had its plant. Also, Tata Motors was being led by German
CEO

Tata is one of the most trusted brands in India, they were the first to develop a native
passenger car in India and had the resources, innovative capability to be among the top
players with global commercial and passenger vehicles

 Volkswagen being second best auto manufacturer globally and TATA having deep
knowledge of Indian Market.
On paper made a very good fit as these companies coming together will be GLOCAL FIT at
best, but,
 Practical feasibility was doubtful as the culture and style of working of these two organizations
was quite different and hence possibility of conflict was quite high.
Also they both had some common drawbacks like service networks, weak brand image in
personal compact cars.
Doubt on Interdependency i.e. Together in a long term whether the required level of strategic
benefits will be met or not.
Volkswagen wants to crack the emerging markets while Tata wants to grow in global
markets like the European one, where Volkswagen is really strong

The automakers would want to share technologies and bring down the costs. But in the
process, Tata will need to work to get that right product and fix the pricing so as to offset
those losses coming out of such cannibalisation. It is largely a mathematical question
What are the individual and joint values that can
be created by the firms in the alliance
• VOLKSWAGEN’S OBJECTIVE WAS TO
EXPAND BUSINESS IN EMERGING
• TATA GROUP WANTED TO RE-
MARKETS. ALLIANCE WOULD LEAD TO
ENERGIZE THE PASSENGER VEHICLE
COST ADVANTAGE(DEVELOPMENT &
BUSINESS.
PRODUCTION).

• BE READY FOR FUTURE WITH

• SHARED VALUE CHAIN - REDUCE PRODUCTS SATISFYING CUSTOMER
COSTS, UNIQUE KNOWLEDGE OF NEEDS.
MARKET, LOCAL DEVELOPMENT OF
PRODUCTS • HIGH VOLUME PRODUCTION

• CUSTOMER SERVICE
• HIGH SERVICE QUALITY, EFFICIENCY

• INCREASE CONFIDENCE OF CUSTOMERS

Probable risks the firms will be facing.
•UNCERTAINTY- TATA MOTORS CANNOT MEET EXPECTATIONS. (RIGHT PRODUCT,
RIGHT PRICING)

•USING AMP PLATFORM CAN HAMPER WITH INTERNATIONAL BRAND VALUE OF VW

•CULTURAL DIFFERENCES

•NO WARRANTY OF SUCCESS, TATA MOTORS HAS TO BEAR THE ENTIRE COST

•DIFFERENT TARGET MARKETS FOR THE 2 COMPANIES

•LIMITED PRICE RANGE OF CAR IN PERSONAL COMPACT CARS SEGMENT(TG:

MIDDLE CLASS)
In the event of the companies sorting out their
differences, what do you recommend with respect
to the structure of the alliance, and the terms and
conditions of the alliance agreement that should
be clearly laid down by the partners?
 Advantages
● Better focus on research activities such
as sustainable mobility materials and
manufacturing methods worldwide
while appointing Tata Motors for the
production phase in India, which can
also give VW cost advantages (AMP)
● Use Tata as a market test before mass
producing
● Tap into market knowledge of Tata to
cater to consumers' needs
● Cultural differences can be minimized
since there is just a contract
agreement in place
Disadvantages
● Risk of uncertainty (Tata Motors
company fails to deliver the
expectations)
● Using the AMP platform can lessen the
VW’s high brand reputation
● Slower market share increase (lack of
brand confidence)
● Lack of control over process (costs to
appoint staff to monitor operations
and/or production could take longer
than expected)
 Advantages
● Sharing costs, risks and profits
● Share of Value Chain activities
● Access to partner’s knowledge (VW can have more
information on the Indian market)
● Tailored offers standing on a localization concept
● Consistent with the company’s growth strategy in
India
● Similar goals and interest with respect to electric
vehicles
● VW could acquire Tata platform to enter in other
emerging markets worldwide - economies of scale
● Tata has a deep experience of working with
international players
● Using the Tata brand → the most trusted brand among
the Indian customers (MS)
Disadvantages
● Cultural differences
● Different working effort and operational
control
● No warranty JV will continue in the long
run, if so, Tata has to entirely bear the
cost of the AMP
● Inferior quality of work given by Tata
Motors
● Limited price range of the car ($3,175 to
$5,556) that is outside the scope of VW
in the short term
● Different target markets from the
standpoint of VW and TATA
● VW would not see an increment in its
brand recognition
 Advantages
Drawbacks
● Low cost development of cars because
● Royalty fee
of the AMP platform
● Need training on the AMP platform
● Flexible architecture production thanks
● High expenditures for the engines
to the AMP platform
● Little information of the market
● Labour cost advantage
● Slower increase of market share
● No need to bridge cultural differences
What should the companies do - call off the
alliance or sort out their differences?
● NO CMA BECAUSE VW BRANDED CARS LACK OF CONSUMERS' CONFIDENCE
● NO LICENSING AGREEMENT DUE TO GREATER DEVELOPMENT COSTS (ENGINE) AND LACK OF CONSUMERS'
CONFIDENCE

● JV IS A DOABLE APPROACH SINCE THEIR COOPERATION CAN BOOST SALES AND MARKET SHARE OF BOTH
COMPANIES. TO DO SO, THEY SHOULD CLARIFY THEIR SCOPE AND INTENTIONS. MOREOVER, THE CREATION OF A
SPECIAL INTERNATIONAL TEAM WOULD ALLOW MORE COORDINATION, A SMOOTHER COMMUNICATION AND WOULD
SHRINK THE CULTURAL DIFFERENCES THROUGH BETTER FORMAL AND INFORMAL RELATIONSHIPS. (CEO OF TATA
IS GERMAN AND THUS CULTURAL BARRIERS COULD BE MITIGATED)

● WITH JV THEY COULD GAIN A GROWTH OPPORTUNITIES IN THE INDIAN MARKET, WHICH IS GOING TO SEE A BOOST
IN CONSUMERS' PURCHASING POWER IN THE NEXT YEARS

● IN ORDER TO MEET VW FINANCIAL GOAL IN THE SHORT TERM, THEY COULD INTRODUCE A SPORTS UTILITY
VEHICHLE(ALONG WITH TATA) WITH AN HIGHER AVERAGE COST BUT STILL AFFORDABLE, WHERE THE MAIN ISSUE
WILL BE TO EDUCATE INDIAN CONSUMERS ABOUT THE BRAND AND THE CAR'S FEATURES. WE ADVISE A
MARKETING PUSH STRATEGY EXPLOITING DEALERS' CONNECTIONS