TATA MOTORS

Tata Motors
1. Describe the economic characteristics of the global motor vehicle industry.
The characteristics of the global motor vehicle industry are a boom in certain places and a bust in others all due to economic conditions in different nations. Four years after tow of Detroit Michigan’s big three went into bankruptcy American car makers are going “full throttle” with sales in August hitting an annual rate that if substantiated can take them back over 16 million and that is a rate that was last hit before the economic crisis and 80% higher than 2009 when GM and Chrysler went into bankruptcy. The opposite is happening in Europe being in its sixth year slump now and with a weak economy, high petroleum prices and an aging population being weighing factors on mass market car makers. This has led to cost cutting and over capacity for European car makers. This seems to be a trend worldwide as well as car makers are depending on there luxury brands to make them profitable. Tata has seen a profit due to Jaguar and Land Rover surging there net sales up 71% to 566 million dollars and raising revenues 31% to 568.82 billion rupees. This came dispute as the company said “a weak operating environment in the India business which was more than offset by increasing wholesale volumes and richer product and market mixes at JLR”. This is similar to Renault depending on Nissan and sales of cars produced in low cost factories in Romania to cover domestic losses. Mercedes and BMW are generating healthy profits but Volkswagen despite having a leading European market share relies on Audi for 60% of there profits. This is the same story for Tata as Mahantesh Sabarad, an analyst at Fortune Financial Services India Ltd. Stated that JLR is driving more than 100% of the profit while the parent is incurring losses.
2. What are the key success factors for a successful firm in the global motor vehicle industry.
I believe the first key factor for a successful firm in the global motor vehicle industry is to have sustainable practices be it the wages they pay, dealer networks, or operating cheap effective factories to produce high selling luxury cars at an affordable rate. The next factor is to have a quality, compelling products that innovate and capture the customers attention. This is clear in that while people are statistically staying away from buying a car in exchange for public transportation especially in England, that luxury cars are selling well in worldwide poor economies. I would say the next factor is to create cars to sell to the U.S. market. Take the foreign market for example where the Ford focus in the United states is a clear C list car that isn’t that desirable is a great seller in countries like Germany where it is highly desired. The third factor is public perception. Auto makers must capture the public attention for sales, not just make the “best” or cheapest car. For years in America we have an opinion that due to the bailout for example that foreign cars are better and as such seek out Mercedes, Audi, BMW, Jaguar etc. and not a Cadillac. We seen this with GM who was trying to sell the ponaic G8 that was half the cost of European performance sedans and was a failure in the U.S. despite being one of GM's most exciting cars ever made for the market. The forth factor would be to study the market carefully. Motor vehicle companies must compete globally to make a living and as such must examine the growing markets worldwide and examine what cars sell and what customers want to see in the future of automobiles. In summery take Japan for example in that operational efficiency, product differentiation and customer satisfaction were key factors in the success of Japanese automakers. Localization also played an important role in capturing market share. All of these factors show the changing dynamics of the global automotive industry.
3. What are Tata Motors' internal strengths and weaknesses? Identify competencies that the company's major competitors are lacking. What market opportunities does the company have and what threats can you identify that may have negatively impact the company's future?
One of Tatas strengths is that the strategy to keep local managers in new acquisitions seems to be a key for Tata. That along with only transporting a couple of senior managers from India into new markets seems to work for them. This allows them to trade expertise such as learning a work discipline and getting the product right the first time as it is stated from them that they learned after the Daewoo acquisition. The ownership of Jaguar and Land Rover is in my oppion there greatest strength due to that these brands have been giving Tata there only success and profitability in the global market while they are losing market share in their home market. Tata also has the strengths of being the number 1 manufacturer in India, 3rd largest bus manufacture by volume, 3rd largest passenger vehicle manufacturer in India, and 4th in manufacturing trucks by volume in the world. Tata also has a very high employee satisfaction of 65%. I see Tata as having many weaknesses that really need to be evaluated to make this company last as long as other motor vehicle makers have. First factor would be that Tata is very limited in there debt and financing agreements. Another weakness is the Nano. With sub par sells, lack of any bells and whistles, and questionable safety standards makes this poor performing car a major weakness especially since this was Tata's big product for their home market and simply isn’t selling there as well as cannot sell in the U.S. without costly additions and redesign. Although JLR was purchased by Tata no one associates them with the luxury brands and looks at Tata as commercial vehicles and low cost vehicles. Another key weakness for Tata is that they have a very high plant cost and the large variety of cars they design can increase complications in their supply chain management. Tata does face a few key opportunities that could potential boost the company to a positive note. The first factor would be a concentration on new JLR models to boost sales with them since this is simply the only products selling and reevaluate the Nano and their approach in India. Opportunities for Tata also can be the growing infrastructure on a massive scale in India that if utilized could boost Tata's sales on the home market. Also if Tata can penetrate the rural market in India before the competition they will find a niche to sell to that is projected to keep growing. Tata also has the opportunity to grow the business with new acquisitions and increasing exportation in nations such as China and England where sales are increasing for Tata. Tata is in a poor position in the global motor vehicle industry and as such face a great deal of threats. The first threat is the poor economic conditions in the foreign and domestic markets. In India they face a lowering growth rate, poor availability of credit, lower disposable income, high fuel prices, and inflation issues that are only predicted to be worse in the future. Tata also faces the threat of increased competition from foreign and domestic competition as they are losing claim in the home market to other Indian companies such as Maruti and also facing competition in the cheap, affordable car market with GM, Ford, and Renault all selling affordable cars international that are much more well equipped than the Nano. Tata as with many other manufacturing companies face environmental regulations that could cut into their business with such factors as the diesel taxes, emission levels, noise, safety, and pollution of their production facilities. Another threat for Tata is that in their home market they face political instability and changes in tax policies and regulations that always generates a threat for any business because it makes forecasting the marketplace that much more difficult. My last threat for Tata is a bit of a funny one that you will see from time to time in the business world. The word Tat in English means rubbish and this is something to take into consideration if they are to advertize there business when selling jaguar and land rover to a brand sensitive British market although sales of these two brands are up in the U.K.
4. Would you describe Tata Motors international strategy as a global, transnational, or multidomestic strategy? Explain your answer.
I would describe Tata Motors international strategy as a multidomestic strategy. This is due to the very definition of the multidomestic strategy that a company tries to achieve a maximum local responsiveness by customizing both their product offering and marketing strategy to match different national conditions. This strategy also has companies such as Tata create different headquarters in different nations that are separated into different regional offices globally based on the cardinal directions: North, South, East, West. We can also see this also with Tata's strategy of the Nano in their home country of India and the sales of JLR in other nations such as England that have gave Tata their means for profitability as of right now. This differs from a global strategy due to Tata does not sell a standardized product all around the world and it is clear that Tata does not have a tight, controlled price of products across international markets and locations. Although transnational and multidomestic strategies are fairly close transnational differs from Tatas multinational business operates in several foreign countries, but it delegates strategic decision-making responsibility to its overseas subsidiaries, which operate as autonomous businesses where as transnational contain a varying degree of coordination between foreign nations and create value added features for a global environment but customized implications for regions that Tata doesn’t due besides in India.
5. What are the driving forces in the global motor vehicle industry?
The first driving force in the global motor vehicle industry is innovation. Worldwide auto makers need an innovative edge as we seen in the Under Armour case to beat the fierce competition to the market with the next big car idea that will capture the imagination of the global populous. Innovation promotes an openness to think differently, welcome change, prepare for the unknown, wrestle with present problems, find solutions and recognize opportunity. The automotive industry embraces the hallmarks of innovation, from discoveries of pure science to the development of technologies and even the evolutions of practices on the manufacturing floor. The next driving force are the market trends. Auto makers studying the ins and outs of the global market and compete with fierce competition to capture a market share in key markets like China. To capture key margins companies are cutting prices, especially at the low end market that directly affects Tata's Nano even more to sell cheap middle income cars to growing markets worldwide. The next driving force is the production of the cars that these global forces make. This is a major disadvantage for Tata because they continue to carry a high cost of goods sold as well as a continuing growing inventory that hits Tata for a large amount of money and also connects to my argument for their poor supply chain management and the creation of models that fail to sale that Tata refuse to cut for a lose and move on. Worldwide driving force that we see is very prevalent today is export cost of cars. We see many companies opening facilities in emerging markets such as India, China, Brazil, and Russia to take advantage of huge markets as well as cheap labor and export cost to assist auto makers to help cut cost to achieve profitability and competitive advantage.
6. What are the relative strengths of the five competitive forces affecting the global automobile industry.
The greatest factor affecting the global automobile industry is the shear intensity of rivalry in the industry. For Tata they face an emerging home market that is highly competitive that is improving its infrastructure and has robust growth prospects compared to other mature markets. These global competitors bring with them international expertise, global scale, advanced technology, and significant financial support. On top of the intense rivalry Tata faces losing market share in India and a failing car in the Nano that has not been improved on since 2010. The next factor is the bargaining power of buyers and it is mixed intensity in different nations. In the United States we always haggle with an automobiles price where as in locations such as Singapore this is far less common. Internationally the bargaining power of buyers in the CV segment is much higher than in the PV segment. However lowering a low cost product also lowers the bargaining power of buyers. With bargaining power of suppliers it truly depends on how each and every manufacturer handles all the automobile makers. For data my data show as -30 to -60 days working capital and inventory turnover of around 13 days so they are doing decent in this factor but the switching cost of suppliers no matter the company is increasingly high. The threat of substitutes is relatively low as no other method of travel offers the same level of freedom, ease of use, and speed as an automobile does. For Tata they create other means of travel being two- three wheelers being a direct substitute product and public transportation as an indirect substitute of transportation. There is research international that show less and less people are opting out of buying a car and using public transportation more often so this is defiantly a factor that may creep up and hurt the global marketplace. The threat of new entries is low due to the high cost of entry but it is easy for existing company’s to enter new markets as we can see in the case study with GM, Ford, and Renault all entering the Indian market not 2 years ago and hitting Tata hard with affordable cars that are greater equipped to sell to India and the global market as a whole.
7. What is the financial condition of Tata Motors as indicated from case Exhibits 3 and 4? What is the ability to meet short term obligations? What advice can you offer to Tata's management based on the information in the financial statement?
Tata has many factors that must be observed in this income statement that must be examined. First is that Tata needs to look into reducing their cost of materials consumed as it increased more than 30 million rupees and only produced 4 million more in ending profit for the year. I would also recommend to Tata to reduce the cost they have with their employees. With my research of Tata employees being happy working their with a 65% approval rating they would not suffer from reducing this expense and trimming the fat so to speak. Also Tata must dive into their taxes as in 2011 they gained over 1 million rupees then the following year lost 40,000 rupees in the same category. With Exhibit 4 I would recommend that Tata use surplus revenue to pay off extensive liabilities and invest this capital their net worth into R&D as well as share capital. Tata as described in Exhibits 3 and 4 is unstable with a current ratio under 1 at .88 . This validates the issues Tata has with converting there products to cash minus the JLR branch that carries Tata. The last bit of advice I would offer to Tata is to simply buckle down and hit the drawing board to release products that are researched to sell globally and scrape the Nano in exchange for a passenger car that can sell globally. Due to great exchange rates in Tata's favor due to the Rupee decrease in value Tata must concentrate on selling in foreign markets like how the Jaguar and Land Rover are increasing in sales by 56 per cent in China, 51 per cent in the U.S. and up 20 per cent in the UK. I also believe that Tata is simply a new brand and if they want to compete with the giants of the industry like GM, Ford, Chrysler, Nissan, BMW etc. they have to create a name for themselves and not just depend on Jaguar and Land Rover for sales that they received from Ford on a fire sale.
8. What do you consider to be the most important problems and issues facing Tata Motors, based on your analysis of company and the global motor vehicle industry? Prioritize these problems and issues beginning with the most important.
I believe the most important problem facing Tata Motors is there poor current ration and there dependence on the JLR branch to generate “over 100% of the profitability for the company. This is clearly a huge issue for Tata as it show that they cannot quickly convert inventory to cash as well as they have no brand recognition past the Indian marketplace for there name brand products. With the continuing failure of the Nano and their continuing support of this failing product Tata really needs to reevaluate the overall business structure and see that without JLR they are nothing. For the global market a major issue is the under performance of passenger cars but the resurgence of luxury automobiles. This creates fierce competition for the high end luxury brands as well as creates businesses ex Tata that may move a heavy concentration to their luxury brands. I would rate the global environment as the next major factor where growth rates are declining to five year lows and the general populous in large geographic regions are opting to use public transportation instead of buying a new car. The next factor is that Tata has to regain there share of the Indian market. With such an emerging market that is building an improved infrastructure and a growing urban and rural populous Tata would be daft not to reevaluate the Nano strategy and create an automobile that can sell in India, compete with the foreign company’s penetrating their marketplace, and also create a vehicle that can sell overseas. Tata must look to rebuild image and save face in the India marketplace as well as create automobiles under the Tata name that will sell to the masses to not only generate profit but increase what in my opinion is a low brand awareness. With a weak stock and poor turnaround time on merchandise it should be clear that Tata is not a company I would recommend to invest in unless management comes to grips and takes the market by the horns.
9. What actions would you suggest to the company's management team to help Tata Motors sustain or improve its competitive position in the domestic market and global markets, and its long -term financial performance?
The first action I would recommend to Tata Motors is to concentrate on the global market with automobiles that will sell worldwide and meet worldwide standards of performance and safety. I believe if Tata would concentrate on there advantage of being an India company and truly utilize the exchange rates as they have with JLR they can release a worldwide automobile to get their brand name out to the people such the United States and we have seen many times before that despite some of our nations shortcomings that other nations look to the U.S. for the next big thing and Tata could capitalize on that with innovation and a revitalized production. For the domestic market the Nano is simply not selling and automobiles are seen as a luxury Item in India so I see Tata could look into their two and three wheel manufacturing for innovation and sales in there home market. If everyone uses scooters and motorcycles create the next big thing in two wheel travel in your home country and capture the home market again. Scooters are very popular in other nations such as Italy as well and could easier sell an innovative scooter to other nations thereby using the exchange rate to their advantage and again building new brand awareness. Tata must remove the stigma of being the guy that makes that cheap car and become the new big India brand in order to succeed. As much as I like Jaguars I feel that they cannot depend on their sales alone to carry the company and nor should they. Tata must examine their supply chain management and weak understanding of the Macro environment as well as in my opinion ether sell or innovate substantiates sales to invigorate the brands such as their passenger cars dropping 33.44% and utility vehicles dropping 13.18 %. Hyundai is having a field day in India while Tata suffers to regain market share but motorcycle sales did increase 18% which reenforces my call on increasing R&D on motorcycles for international sale as well as go to the drawing board and see why your passenger cars are failing and fix it because it will get worse before it gets better. In summery for Tata I feel they need to look into better supply chain management, R&D, concentrate on global market with building a stronger brand, stronger CV and PV sales, and with these factors in check hopefully increase demand for what could be an emerging brand if restructured accordingly.