It will include the strengths and weaknesses that Tata, as an internationally branded company, could potentially face.
Tata motors wanted to compete in the Indian automotive industry by creating a form of transport that could carry up to 5 passengers. One of the requirements of the car was to provide an alternative to a traditionally used overloaded motorcycle which was unsafe. The main feature of the car was definitely its low sticker price, making it affordable for the growing middle class family in India.
So, Tata Motors priced the ultra low-cost car at 2500$.
But, how could Tata set the price of its product without even having done a study on production costs? They took the barrier of 2500 dollars as a challenge, so working closely with its suppliers should succeed in producing the car and also get some small margins for providers.
Now I am going to develop a SWOT analysis of Tata Motors and name a few key strategies:
International strategy based on the competitive advantage: a new product, Tata Nano; the cheapest car in the world.
They took a smart approach in responding to the market demand.
Tata Motors is part of the Indian conglomerate Tata Group which comprises 98 companies in seven business sectors. That is a really positive point for future needs of Tata Motors, as it might have to do business or look for any necessities to develop the business inside the Tata Group instead of going outside the global market (other companies) to find out what it could be looking for.
Therefore, Tata motors have extensive backward and forward linkages and it is strongly interwoven with machine tools and metals sectors from other parts of the Tata Group. But it must be said that Tata Motors is not self-sufficient in all products and raw materials it needs to develop the Nano.
Tata motors is gearing up for the global market as one of India’s largest automobile makers, however has a lower than 20 % share of the Indian passenger car market and has recently been suffering a sales slump. This can be changed with the favourable government policies and regulations to boost the auto industry including incentives for R&D.
With the acquisitions of Jaguar and Land Rover give Tata Motors an entry into the US and other potential markets. With another deal, with Fiat, Tata may expand the offering into South America, a Fiat stronghold. Alliances with key players that produce a transfer of knowledge from high end markets.
Other distinct advantages in comparison to other multinational company competitors is the cost advantage as labour cost is 8-9% of sales against 30-35% in developed economies.
One big strength of Tata Motors is the pricing strategy. There are various factors to determine a price of a car. These factors are such as market condition (it can’t be too low or too high with the prices of same vehicle from competitors, it has to be at par), cost incurred to build a car, profit by company, dealer profit. Important point of competitive advantage of the labour workforce in India compared to developed countries.
About the weaknesses; its medium-term goal is to export the Nano to Europe and North America and Tata Motors has weak of experience in certain new sectors as well global countries. Tata Motors didn’t diversify into carmakers sector and focusing all their efforts based only on ultra low-cost car market.
The main threats they face are: The environmentalists are concerned about the impact that exponential increase sales in ultra low cost car might cause in pollution ranges, replacing motorcycles, much less polluting. The other one is about the safety regulations. Thinking in exporting Nano in Europe and North America where the safety standards are much more advanced and strict than in emerging countries, Tata Motors will have to be aware of the latest updates in safety regulations. A part from those two main reasons, there also exist a high level of competition
The opportunities; the rise of the middle class in India and globally widespread reduction of household income due to the economic downturn may have a positive effect on the demand for ultra low-cost cars sector. There is no doubt that first movers will have the opportunity to capture market share and build consumer loyalty. TM should also take advantage of the government support (10 year plan) to overcome the disadvantage of being newcomers in passenger car business.
Part two: using Michael Porter’s model I will analyse the value chain and business model of Tata motors.
The primary activities relate to the physical creation of the product, sales and after-sales service, and can also turn differentiate into sub-activities. The model of the value chain identifies five primary activities:
Internal Logistics (inbound): receipt, storage, inventory control, transportation planning. One reason the Nano is the cheapest car in the world is because 97 per cent of its parts are locally sourced.
Half of the 100 vendors for the project are locating with Tata in a vendor park in a suburb area. The manufacturing plant has been installed there because the salary wages are lower. Most of these independent suppliers can only be profitable on Nano parts because they produce high-volume parts in a low-wage country like India.
Tata Motors has a long term contract with service provider’s-transporters and agents. Have settled personnel at regional offices for overseeing the smooth transit of goods. Transparency and monitoring through deployment of IT-all transactions through SAP. Have efficient storage facilities-easy storage and retrieval.
Operations (Production): Includes machinery, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform raw materials into the final product. Tata had a low budget so it had to constantly improve their components through conducting some research and development. By focusing on the essentials and encouraging creativity in making components smaller, lighter and cheaper, Tata Motors avoided engineering non-functional, non-essential parts. They have ensured a stable source of skilled manpower.
Outbound logistics: The activities required to achieve that the final product reaches the customers: warehousing, order fulfilment, transportation, distribution management. Tata had located stockyards all across the country.
Long term contracts with transporters – higher volume of business to transporters ensure competitive prices. Regional sales office and vehicle dispatch section linked through SAP A central warehouse will stock spare parts and accessories, with efficient security system for prevention of any kind of pilferage.
Marketing and Sales: The activities associated with getting buyers to purchase the product, including: distribution channel selection, advertising, promotion, and selling, pricing and retail management. Structured approach to understanding the requirements of individual customers – QFD’s (quality function deployment) conducted at regular intervals. Clear identification of product requirements, leading to development of innovative products. Use of independent teams for addressing the requirements of institutional customers. Quick assessment of the changing market dynamics and consumer preferences. Large network of dealers – use of technology.
Service: The activities that maintain and enhance the value of the product, including customer support, repair services, installation, training, spare parts management, upgrades, guarantees etc. Tata Motors offer an easy availability of spare parts.
With a large network of workshops, dealer workshops and TASS (Tata Authorised Service Stations) the department is fully equipped to handle all the service needs of a Tata Commercial Vehicle customer.
The primary activities are supported or aided by the also called secondary activities
Procurements: raw materials, maintenance and machinery.
Tata Motors has global sourcing team, basically in China, a key destination for sourcing essential items like tires, power steering units etc. Long term relationship with a stable and loyal pool of suppliers Centralized strategic sourcing for key components.
Group resources: Tata steel and Tata International.
Technology development: research, development, process automation, design. Approximately 2% of the annual profits of the company invested in research and development. It has a knowledge portal that helps employees keep abreast of the latest technologies Strategic partnerships:
Firm infrastructure: General Management, Planning Management, Financial Management, Public Affairs. Multi location facilities Strong leadership, under the aegis of Tata sons. Best in class prototype building facilities.
To complete and support the above explanation of the value chain, and development activities undertaken by Tata generating value to the end customer, we will focus now on the company’s FSA’s & CSA’s.
The CSA (country specific advantage) are all these advantages that can exploit the company and that are given by the features of the country where the company was founded and is mainly operating and manufacturing. The Tata Motors CSA’s are the global consideration of India as an emerging country full of opportunities, with cheap workforce and highly skilled white collars. This attracts new investors and businesses will want to locate their production there.
The FSA (firm specific advantage) are all those distinctive competences held only by an individual firm being much less likely to be imitated. There are two different kinds: knowledge based and marketing based. Tata created an unconsolidated market space because it didn’t exist anywhere else that price level for that product type. They create and capture the new demand through differentiation and low-cost, making the competition irrelevant breaking the value-cost trade off.
The Tata Motors group’s goal is to market its flagship Tata Nano. I have to develop a Potential Market Assessment (PMA) which in will remain only one country as an investment destination.
What is a PMA? A PMA is basically a process to identify which markets are better to invest or export a product. Is very difficult to choose which markets are the ones where a company should or not invest in.
To do that I will help myself with a model for selecting foreign markets adapted from Walvoord, 1980; using PESTEL analysis and extending it with Porter’s Five Forces model. A Potential Market Assessment is based on: the company perspective, macro analysis & potential market attractiveness and the screening process.
The strategy that a company chooses to compete is not only to respond to the environment, but also about shaping the environment to your advantage (Porter, 1987). Tata wants to find a country with similar characteristics, with the same needs to cover the same need that once had India, where the population and the country are ready to take in both, the product and the use of this. This country would be an emerging country, because of the GDP growth and the opportunities that this fact gives to their mid-class citizens to afford new products as the Nano car.
About the corporate strategy: defines the basic thrust of the company: its mission, business in which to compete and how to develop these business. Examples might be betting on internationalization. That country has to satisfy the blue ocean strategy that Tata Motors is willing to achieve.
What I am going to evaluate in this section is about the general and specific characteristics that Tata Motors might look in its target country. That will include political, economical, social, technology, environmental and legal aspects.
The PESTEL analysis shows the external macro-environment in which a business operates. These are factors which are beyond the control or influence of a business, however are important to be aware of when doing product development, business or strategy planning.
Tata Motors wants its product Tata Nano to be traded in another country. It has to decide which country is most appropriate considering the similitude’s with the PESTEL country target analysed above. Getting back to the PMA view of point, Tata has to analyse its potential customer features and needs. Does the people of the car buying market, has a car to work, or they use it for a leisure time. Do they go shopping? How many families has a car? How many cars do each family has? What do they use it for? What kind of cars?
I propose to introduce the Nano following the next business model. Tata Motors will keep manufacturing in India due the factors of production are not yet saturated. Then, would set up a dealer network to supply customers in the country of investment. Tata will just spend in transportation costs. Will evaluate this further in the next section.
Over the past decade, Brazil’s political stability and sound government policies have supported the nation’s economic growth an established it self as one of the more stable and prosperous countries in Latin America. Had cut down interest rate from 12% to currently 10,5%, however interest still high in Brazil. Widespread corruption when business are seeking government contracts, tendency to bribery, occurring when businesses must deal with government.
The interest rates have suppressed the growth of automobile sectors, among others. Another major challenge for the Brazilian economy is the regional economic disparity present in the country. Brazil faces many challenges in terms of income inequality and the nation’s high crime rate. A stable Brazilian government and its economic reform policies, however, are anticipated to steer the economy through its trials, leading to economic growth over the long term. The current and projected economic situations in Brazil make it one of the more favourable destinations for investments in various sectors such as energy, automotive, retail, and construction. Many infrastructures under current construction are to facilitate the hosting of 2014 World Cup and 2016 Olympics which will help economy growth. The existing challenge of improve the environment of the country through the efficiency of transport.
In the social environment, the increasing proportion of middle class will increase consumer demand. The 30% of the population is still illiterate. As a result many companies are reluctant to invest in Brazil’s economy.
About technology, there is an estimated 750.000 new IT professionals by 2020. Recently becoming up to date with the use of technology.
There policies for protecting the environment and reducing emissions. Govern wants to incentive the use of cars using ethanol or electricity
In the legal scope there are restrictions on the foreign investment in which restricted areas it’s found the transportation. Capital gains earned by local resident entities are taxed at a higher rate than the capital gains of non-residents.
Once this PESTEL analysis of Brazil, an investor might think there is definitely a good country to invest because of the superiority of negatives against the positives in the analysis done previously.
I recommend Tata Motors to marketed Nano in Brazil and I’ll explain why in detail below.
Tata Motors can negotiate with the Brazilian government to let Tata take action in the Brazilian market by several factors:
At the time to negotiate, we have seen before, there are barriers to entry. But recently, Tata Group has signed an agreement to form a join venture with Zara (Inditex) to develop Zara stores in India. This can be a very positive aid to enter the Brazilian market, because Zara is already operating there. Moreover, Tata Motors has a deal with Fiat, who is distributing its cars in India. That could help to introduce the Nano car into the Brasilian market, where Fiat has been operating there for over 36 years now, and supplies a significant share of the car market. Although, Fiat doesn’t compete in the ultra low-cost car market therefore is a great strategic alliance.
Anyway it wouldn’t be any problem if at the end Tata Motors has to bribe government officials.
After all, Tata Motors first years strategy is to modify the environment where it wants to launch its product despite of adapting its product to the main cities in Brazil. After years of marketing Nano in Brazil, Tata Motors could also make a deal with the Brazilian government to face future monopolistic concessions to reorganize the automotive market. Tata can offer the solution to reduce environmental pollution launching an electric car or an ethanol engine car.
I encourage Tata Motors to keep producing in India, as it has established its base of operations there, its manufacturing industrial polygons, its network of suppliers is relatively close and it’s own workforce: blue-collars and skilled labour.
My proposal is to create a distribution logistics base in Brazil from which Nano cars will be sent to each investor who wanted a Tata dealership in Brazil. Producing more Nano cars taking advantage of all the factors of production, increasing these if necessary by creating economies of scale. Transportation will be made with high capacity marine vessels. Due to the small size of the Nano could fit large orders on each trip. Tata would establish a Tata Motors distribution center in the suburbs around the main cities in Brazil (Sao Paulo and Rio de Janeiro) with a human resources department, to create and develop a local dealer network reference.
Finally as I said before, another potential agreement with the government could be to negotiate soft loans for buying a Nano car.
Summarizing, it is true that there are barriers and difficulties when entering a new market, but Tata has great allies already operating in the country and can offer a product of great interest to the consumer and to the government in effects of environmental and urban improvement.