Tata Motors Case Study Analysis

Analysis, Pages 12 (2849 words)

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1.Introduction

Tata Motors Limited was established under Tata Group in 1945 and since then, it has emerged as largest automobile company of the India. In fact it was first Indian automotive firm to list on NY Stock exchange. A company with this stature needs a powerful and effective IMS process that ensures the company’s economic development and its competitive advantage in the market (www.tatamotors.com). The purchasing power of people is dynamically developing as economies of several emerging nations continue to develop and an overall global car market is currently experiencing a revolution.

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In coming years, there will be more individuals than ever who will desire to own a mobile and procure financial resources to do so.

Tata Motors became able to increase and maintain their competitive advantage and overall market share by effectively capitalizing on its core competencies. The company is considered as competitive, active, and dynamic in every aspect related with the automobile market which is evident of the fact that number of activities is responsible for the company’s overall competitive advantage.

Ultra-low-cost cars (ULCCs) received substantial popularity all over the world since number of eminent manufacturers announced the production of these cars and deliver quality products in automobile industry

2.Main reasons for Tata Motors to enter the global ultra-low car market

Approximately 16 million cars will be purchased by individuals all over the world by 2020 equivalent to 44% annual growth rate- in the lower-end segment per year (A.T. Kearney, 2008). According to this analysis, India will be the key market for ultra low-cost cars (ULCCs) in this scenario along some other markets of the Southeast Asia.

India will ultimately earn highest growth rates in the manufacturing of ultra-low-cost cars as soon as income levels in other populated areas of the world especially China and Russia increase. India and similar markets have also an obvious reason to grow in medium-size and compact segments of vehicle industry as economic and environmental issues are beyond control in those areas.

2.1.Future requirements in regard to global automobile industry

The vehicle industry in India could expect significant increase in development of potential car buyers in coming decades as there were only 208 million individuals were there in 2005 who could spend on a vehicle between $2,500 and $5,000. This figure will turn double, approximately 439 million individuals by 2020 and that would obviously double the market requirements for Tata Motors in India. As the competitive landscape has been changed permanently and drastically for global automobile industry, the global ultra-low-cost vehicle market is therefore expected to develop from 2 million vehicles (2008) to approximately 17.5 million vehicles by 2020 (Alfaro et al, 2009).

India is considered as a preferred vehicle sale and manufacturing location. The automobiles players working all over the India found significant interest in new ultra-low-cost cars and their segments since Tata Motors Nano was developed and launched in the India. The growth of low cost cars and their market segment in India is estimated at approximately 25% at a CAGR during the years 2010-2020. The increasing demand from Tier II cities and rural areas of the India is also evident of the fact that citizens of India want to adopt these low-cost-cars. The “consumers’ affluence level” and “low capita income” play a vital role in these proximities, driving the growth of Tata Motor’s Nano ULCCs. Another significant factor which impacts the overall economy of the India is middle-class and increasing number of young workers who now desire to own a compact, four-wheeler which could reduce their transport and conveyance problems (A.T. Kearney, 2008).

2.2.Demand and production of ULCCs

The figure of ULCCs demand and production is surprisingly high in India as well as China which is 60 to 70 percent. This actually gives Tata Motors a strong reason to enter into global ultra-low-cost cars production and earn greater profits. Other competitors including Toyota, Nissan, and Hyundai etc. have also identified the potential of low-cost car market segment in India which currently occupies three quarters of automobile market of the India. To cope with the modern requirements of the individual and to maintain competitive advantage over its potential competitors in India and all over the world, Tata Motors needed to develop strategies and introduce its efficacious Nano vehicle in the market (Meghdoot, Sharon and Gaurav Shah, 2011).

3.Competitive advantages that Tata Motors would enjoy with their Nano in emerging markets

3.1.Core competencies of Tata Motors

Tata motors always monitor its capabilities and potential to utilize opportunities in the ever evolving automobile industry to make continuous and increasing economic welfare through technological research and development. The Tata motors had successfully done this by manufacturing one of the most low-cost and efficient vehicles. Other core competencies which Tata Motors had embedded in organisation’ philosophy and structure were expansion and acquisition and merger. The company acquired Land rover and Jaguar which retained ultimate competitive advantage to it (Krishnan, Ravi, 2008). Another core competency is location of the Tata Motors. Being operated in India gives Tata motors an opportunity to understand the market needs and requirements fully and manufacture products accordingly. The labour costs are also greatly reduced by operating in India where low-wages helped organisation to source 97% components in India.

The production of high-volume part is expensive and difficult but Tata Motors enjoyed the advantage of its location thus achieving greatest competitive advantage over its global competitors. To further identify and assess competitive advantages that Tata Motors would enjoy in automobile industry, it is first required to overview the competitive environment it is surrounded by. The increasing and Aspirational middle and working class of India desire to have cheap and affordable vehicles. To bring the joy of motoring to millions of individuals and to target potential customers, Tata Motors came with their Nano cars.

It was only possible by studying and tracing the potential market advantage of Indian automobile industry which is mainly characterized by cost-cutting strategies and policies. In this way, Tata Motors manufactured and delivered standardized and cheap vehicles to those millions of Indians. The Nano partners and engineers didn’t come up with conventional car models with high horse power engines. Instead, they manufactured low horse-powered vehicles which could effectively serve the purpose and provide transport facilities in jam-packed cities of the India (G. Balcet, S. Bruschieri, 2008).

3.2.Cost-cutting: an effective marketing strategy

Cost-cutting is directly related with new emerging markets as customers all over the world now prefer less expensive cars due to certain reasons such as low incomes, inflation and high fuel rates. This eventually led automobile manufactures operating all over the world to deliver cheap cars so that millions of people could afford their own means of transportation. Nevertheless, it restricted the amounts of profit returns for those manufactures but small profits with increased customer loyalty and product demand served the purpose fully. Tata Motors eventually gained competitive advantage in the market by developing Nano Car and selling it for only $2,500. The profit returns were small but large number of people in India found this affordable. In fact individuals who can’t afford a $5,000 vehicle could now easily buy a four-wheel vehicle (Sheridan et al, n. d.)

3.3.Tata Motor’s competitive advantage

The increased automobile (commercial and passenger) sales and a general motorization concept in India supported the competitive advantage of Tata Motor’s Nano ULCCs. Tata sold millions of units in few past years and is also willing to spend $1.5 billion dollars in next four years to maintain its competitive advantage. Currently Tata Motors Nano is ranked at top among its competitors in the market including QQ3 manufactured by Cherry automobiles in China, M800 manufactured by Suzuki-Maruti in India, and Merrie Star and S-RV mini SUV manufactured by Geely automobiles in China.

All cars other than Nano are being sold at a price which doesn’t immediately compete with Nano which is being sold at $2,500. Other potential competitors that have announced to produce ultra-low-cost cars include Hyundai, VW and Toyota in India, China and Russia in near future. But these companies could only target potential market segments and competitive advantage over Tata Motors’s Nano if only they become able to deliver low-price cars. The announced ultra-low-cost car of Toyota was, however tagged with a price of $6,900-$7,850 which by no means competes with $2,500 Nano ultra-low-cost car (E. Marelli, M. Signorelli, 2011).

4.Screening criteria suggested for Tata Nano’s IMS process

Tata Motors can meet or exceed the quality, information security, environmental factors and service management through developing a sustainable IMS process for the customers, partners and employees working under the framework of company (Baron, David P., 2010). The company can achieve this by complying with applicable environmental, quality and information security procedures, by maintaining profitable and good business association with its clients, suppliers, sub-contractors and other related parties.

4.1.Environmental issues

One of the most significant things is Tata Motor’s impact on environment. It requires to continually improving the environmental conditions associated with ULCCs in order to limit environmental hazards and preventing pollution. It must seek to minimize the employment of natural resources and raw materials as it will otherwise cost Tata Motors environmental and economic penalties (Foster, Andrew and Naresh Kumar, 2011). The company should co-ordinate the implementation and integration of effective service management processes that could provide greater efficiency, on-going control and opportunities for persistent improvement. In a nutshell, the status Tata motors has earned during last couple of decades requires business continuity and customers and business partners’ satisfaction. It will be achieved through understanding of business requirements as well as improving business strategies and policies (Canes-Wrone et al, 2011) 4.2.Potential Market capture

Another unavoidable aspect of company’s growth is depended upon its global market cover. India provides uncountable opportunities for ultra-low-cost vehicle manufacturing industry but spreading the business to potential regions will greatly strengthen Tata Motors. Supply chain operations have also their vital role to play in economic development for the company. Tata Motors should revise and standardized its supply chain activities all over the India and other countries where it’s currently operating so that production-to-delivery process become smooth and free from extra liabilities. The systematic supply chain network will also help Tata Motors in future when the business will be expanded to larger regions and countries of the world and a similar network could be devised and implemented with great ease and effectiveness (Krehbiel, Keith, 2004)

5.Suggested regions and specific countries outside India and China for Tata Nano business capture

5.1.Scope and Potential

Tata Motors gained immense popularity in India by manufacturing cheapest ULCCs thus providing individuals what they desired for a long time. The concept of low-cost cars may be restricted to specific regions in the beginning like India and Russia where per capita income is low and fewer resources are available to the individuals. But changing economies have led other developing countries to consider manufacturing/importing ultra-low-cost vehicles to fulfill requirements.

In this way, populated and developed countries could be those regions where requirement of ultra-low-cost cars is substantially high (Rodden, Jonathan, 2011). Nevertheless many of those countries do not possess operational capabilities to manufacture ULCCs therefore competent manufactures all over the world could serve the purpose. Tata Motors have an excellent ultra-low-cost vehicle which it could export to many regions and countries of the world where their requirement is getting high day by day. These regions may include Europe/ North America and other adjoined countries of India in Asia (Evenson, Norma, 1989).

5.2.Global Motorization requirements

The most probable reason why Tata group should export its ULCCs to such countries is same as applicable in India. The rate at which population and motorization is growing in these countries will soon led these countries to replace bulky and expensive vehicles with compact and cheap cars. Countries all over the world experienced a deadly recession period which sabotaged the economies and living standards of the individuals. The income levels observe slight degradation and survival of individuals in disturbed environments became difficult. In this case, when an individual in devastating financial position will desire to own a vehicle, he will find it difficult to buy one. Ultimately he will buy a two-seater, $1,000 motor bike instead five-seated $7,000 (average) vehicle. Nano car which is being sold at $2,500 in India will then facilitate such customers. Asian countries especially South-Asian, Russian and some Arabic countries are characterized with potential customers which could actually use of ultra-low-cost cars (Ashok Kurtkoti, Sandeep Prabhu, 2011).

5.3.Potential Barriers

Obviously Tata group possess the potential to deliver ultra-low-cost Nano cars to these countries but there are some barriers it needs to consider while planning export of its Nano cars to these regions especially Europe and North America. Potential barriers may include safety regulation and emission standards which area comparatively high in Northern America and Europe than India. Safety regulations are being developed and maintained by their governments which include seat belts, frontal and side, and rear and roll-over protection standards. Obviously by incorporating these items in the ultra-low-cost Nano will affect its price. The emission standards were being regulated and implied in North American, Japan and some western countries more than a decade ago.

Tata Motors adopted these emission standards but with a five-years lag like other counties. They have, however optimist beliefs that ultra-low-cost cars will meet emission standards with their modest fuel-compensation and small engines (V.Valli, D. Saccone, 2009). Taxation and export regulations also act as potential barriers since people living in heavily-taxed countries bear extra price for private cars. In this case, Tata Motor’s Nano may lose its value in countries like Denmark where there taxation rate is high. Some other countries might restrict the import of new cars and only three or five years old cars are allowed in the country. Some other countries might not allow outsourced manufacturing which come handy in the India due to low wages etc.

6.Summary

It is quite probable that manufacturing and delivery of ultra-low-cost vehicles i.e. under $3,500 will be difficult to achieve but from market perspective, Tata Motors Nano has advantage that more and more individuals require ULCCs thus giving Tata motors an opportunity to rapidly capture the industry. This is only possible by meeting the expectation of customers and standards of auto-mobile industry thus achieving long-term customer loyalty and satisfaction. The core competencies of Tata motors include; ultra-low-cost cars, acquisition and merger and location of the organisation which ensures strong competitive advantage.

Tata Motors require meeting the requirements of the customers in the first place which it substantially fulfilled in previous years but due to changing marketing trends, the manufacturing of cheap vehicles only will not serve the purpose. Customers will obviously demand cheap cars accessorized with modern equipments and facilities. The company should develop engineering facilities that could improve performance of Nano ULCCs. Tata’s Nano have strong potential to enter into Europe, Northern America and subcontinent of Asia if necessary requirements are fulfilled. If Tata motors overview some of the barriers and difficulties in the global market by devising policies and standards, it can easily earn substantial economic growth both for the company and the Nation. The need for ultra-low-cost vehicles is substantially high all over the world and serious efforts could result in long-term economic development.

References

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a Big Punch." [Online] Available at: [Accessed 15, December, 2012] •Meghdoot, Sharon and Gaurav Shah, (2011), “Gujarat's Sanand to become the next major auto hub," CNN/ IBN-Live •Rodden, Jonathan, (2011), “The Geographic Distribution of Political Preferences", Annual Reviews of Political Science, 13, 321-40 •Sheridan, T.B., Humans and Automation: System Design and Research Issues, to be published by Human Factors and Ergonomics Society, Santa Monica, CA, and John Wiley, New York, NY •T. B. Sheridan, P.W. Young, D. Ngo, K. Calef, E. Bachelder, J. Cooper, (2011), “An Ultra-Low-Cost Moving-Based Diving Stimulator”. [Online] Available at: < http://www.nads-sc.uiowa.edu/dscna/2001/Papers/Sheridan%20_%20An%20Ultra-Low-Cost%20Moving-Base%20Driving%20Simulator.pdf> [Accessed 15, December, 2012] •V.Valli, D. Saccone (2009), “Structural Change and Economic Development in China and India, in “European Journal of Comparative Economics”, n. 1, pp. 101-129. •www.tatamotors.com