Internal and External Environments of Tata Motors - Case Study Example

Executive Summary Tata is a longstanding and successful Indian company, which wants to make an effective global foray after achieving success in the domestic market. Being a group of companies, its Tata Tea, Tata Steel and Indian Hotels have already made a global imprint by acquiring companies completely and by buying sizable stakes in companies. As the company has certain key strengths and opportunities, they are continuing their already initiated globalization or internationalization strategies. On those lines, Tata Motors wants to buy the well-known luxury car brands of Land Rover and Jaguar. Although, their wish to acquire two popular Western luxury car brands were seen by critics as a stretch beyond their capabilities and even scale, they have aptly shown their capabilities in operations as well as management. Tata To assess the globalization strategies of the India based Tata Group operating companies, particularly Indian Hotels, Tata Tea, and Tata Steel, and also the role of the Tata Group center in those globalization strategies, the technique of SWOT is being used. As SWOT provides an analysis of the internal environment of the organization, as well as the external environment, in which the organization operates, it can provide optimal inputs in this case study. Strength Tatas partnership with the foreign companies like AT&T, Mercedes-Benz, IBM, Honeywell, etc., when these companies entered India for the first time, helped the Tata to gain as well as build their capabilities to compete in the global marketplace. Tata Groups IT player, Tata Consultancy Services (TCS) was a already a global player with footprints in many countries including United States, Australia, China, Japan, Mexico, Uruguay, etc. Tata steel already has a strong presence in Southeast Asia, China and also Australia having acquired number of firms and also initiating the operations there. As Tata Steel has mines rich in iron ore and coal at their disposal, it was able to source majority of its raw material needs from its own mines, thereby insulating it from global price fluctuation. Group Center has established offices in key markets including US, UK, South Africa and China, to coordinate government and media relations, Tata brand promotion and procurement Weakness A key company in Tata group, Titan, watch and jewelry brand, incurred major losses, when it made it entry into the European markets in the 1990s. Lack of synergies with the newly acquired companies and the Tatas Group Center. "That was happening, but not to an extent which would justify it." (Khanna, Palepu & Bullock, 2009). Corus had very slight profit margins, and that made it imperative on the part of Tata management to work harder to improve Corus operating efficiencies. Opportunities This global acquisition strategy could bring in more revenues and even constitute the majority portion of Tatas total revenue. Already, because of the Corus deal, Tata was expected to derive 65 percent of its collective revenue outside India in the FY 2007-08. As Tatas Indian Hotels Company (IHC) is successfully following the strategy of preferring management contracts with small equity positions in properties instead of going for outright ownership (and thereby have gained many hotel properties), they could continue this strategy, thereby opening many opportunities Acquiring steel companies in more advanced markets would provide Tata with enough opportunities to improve its R&D capabilities, as well as its operating practices. Acquisition of Corus gave Tata Steel an instant major presence in European markets and importantly in the high-value added product segments like the automobile and construction sectors. Group Center wanted to acquire companies in the global sphere that not only positively impacts the specific operating company, but the whole Tata Group in general. Threat Tatas globalization strategy was not without threats, because during acquisition opportunities, Tata cannot have a free ride. That is, other strong companies from around the world would also compete to acquire prospective but struggling companies as part of their acquisition strategy. This happened during Tatas acquisition of Corus, with Tata getting hold of it after having a tense auction with Brazilian steel company CSN, even paying around 33.6 percent more than their initial bid. Unlike Tata steel, its foreign acquisitions including Corus are vulnerable to fluctuations in steel and raw material prices. Tata Motors’s bid for Ford’s Land Rover and Jaguar units Multiple conclusions/ recommendations Tata Motors is Indias largest automaker which has been dominating countrys passenger car market as well as commercial truck market. It wanted to internationalize mainly to make an impression in the global scene, and also, due to the increasing foreign competition in its home markets, as more Asian and European makers made a beeline for India. In addition, as mentioned above, Tata motors by internationalizing wanted to equip itself technologically, which in turn can be utilized to fight off the foreign competition in India. Tata Motors already had successful M&A, albeit in a medium scale, as it acquired Korean company Daewoo in 2004, thereby making an entry into Korea as well as the key market of China. In addition, it strengthened its global presence by buying 21 percent stake in Spanish bus-maker Hispano Carrocera in 2005, by forming a joint-venture with Brazilian bus-maker, Marcopolo and importantly by entering into agreement with Italian automobile giant, Fiat. From the above conclusions, the recommendations that can be made are for Tata Motors to go ahead with the bid for completing acquiring Land Rover and Jaguar. The other recommendation is, based on Tata’s strength in manufacturing buses and light trucks, as well as its newer global initiatives in that direction, it could be better if Tata acquires a strong bus maker. Conclusions flow from the analysis Based on the SWOT analysis, it is clear that Tata has optimal strengths to make a mark in the global scene, further aided by the opportunities. Although, it has certain weaknesses, it has been managing it well. Thus, as part of conclusions flow, this strategy of acquiring can be aptly taken to the next logical level in the form of integrating with the existing business. This has been the strategy of Tata because, they do not generally resuscitate ailing firms or even resell those acquisitions quickly, instead they have a long term perspective and in that direction, they mainly work towards in integrating their acquisitions into its existing businesses Recommendations flow from the conclusions The flow as a result of the conclusions could border on what factors could be considered for favoring Tata taking over of Land Rover and Jaguar. One of the key factors is, Jaguar and Land Rover cannot be sold separately because they have shared factory in Liverpool, plus some technology as well as business operations like procurement are also shared. Considering this perspective, if Tata decides to acquire the companies, they have to take both for operational as well as commercial reasons. Risks in the recommendations and relevant mitigations Although, takeover of both the brands could provide Tata Motors a global footprint, it could also put the companys cash flow in a problematic situation, and added to this is the poor operating profitability of the takeover targets, which could cause long payback periods. This risk could be mitigated by generating resources from other quarters. As Tata group is a huge conglomerate with good standing, they can source funds both internally as well as externally. As Tata mainly targeted lower and middle income level economies as well as customer segment, its’ brand image got oriented on those lines, without tinge of luxury brand image. Although, this strategy and focus was success in its home market as well as in other developing economies, it could negatively impact its decision to acquire Land Rover and Jaguar. However, this risk can be mitigated based only on the basic fact that brand image could only be corrected, if Tata goes ahead with the purchase of the luxury brands. Alternate conclusions An alternate conclusion can be of Tata entering into a partnership or joint venture with Land Rover and Jaguar, thereby pumping in the funds needed by the struggling companies and correcting its course. However, Tatas early attempt in 2003 to partner with UK based MG Rover to sell its Indica cars in the European market met with meager response, leading to the dissolution of the partnership. Considering this unfavorable track record, it would not be wise for Tata to opt for this alternate conclusion, and instead go for the earlier mentioned recommendation of acquiring both Land Rover and Jaguar. SMAC Specific: The specific recommendation is acquiring Land Rover and Jaguar. Measurable: Acquisitions of Fords Land Rover and Jaguar can provide Tata Motors access to some of the advanced automobile related technologies, and importantly door to newer potential markets. Actionable: With Tata motors reducing the prices of its spare parts costs, by optimally managing the total life-cycle cost of its products, it can provide optimum service. Complete: Considering their background in manufacturing and selling cars and importantly their global forays, it can successfully achieve complete takeover of both the brands. Reference Khanna, T., Palepu, K. G & Bullock, R. J. (2009). House of Tata: Acquiring a Global Footprint. Boston: Harvard Business School of Publishing. Read More