Managing International Operations - Tata Nano - Case Study Example

Managing international operations Table of Contents Introduction 3 Market Entry Modes 4 Exporting 4 Joint Ventures 5 Licensing 7 Foreign Direct Investment (FDI) 7 Recommended mode of entry 8 Procedures for successful implementation of entry modes into foreign country 10 Promotion 12 Distribution 13 Conclusion 13 References 15 Introduction Tata Nano, the cheapest car in India. Tata Motors Limited holds the accolade for manufacturing and launching Tata Nano. Tata Motors Limited also happens to be the largest and leading automobile company in the country. It has revenues of INR 1, 23,133 i.e. $27 billion. Tata motors have set its operations in UK South Korea, Thailand and Spain through the subsidiaries and other associate companies. Mr., Ratan Tata then chairman of Tata Motor is the visionary behind its creation as he wanted Tata Nano to be the “People’s Car”. The target market segment happens to be the middle income group. He wanted a car that can be afforded by all. On the 1st of April 2009 Tata Nano was launched in India. Since then it has a created quite a buzz. Despite of a few initial hick ups the number of booking has kept increasing since the launch. There are three types of Nano car available: Tata Nano LX, Tata Nano and Tata Nano CX. According to Mr. Ratan Tata the driving forces behind such an innovation is the transportation system and the problem faced by the people of India due to the transportation system. Lack of availability and low quality in the domain of mass transportation system is the problem faced by almost every middle class Indian. A father driving with a children standing in front while his wife with another baby in hand struggles to hold on the kid. This indeed is a very common picture in India. Such circumstances led Mr. Tata to innovate a car like Tata Nano (TATA Motors. 2012, p.1). Tata Nano has been positioned as a cheaper, smaller lighter can without compromising the safety and environmental factors. It is believed that Tata Nano provides better millage than some car and yet it has the emission of a scooter. Based on its success in India and present market opportunities Tata Motors is looking to take Tata Nano to an overseas market. The present study would try to identify different market entry modes, analyze them and recommend an appropriate strategic approach keeping the type of Industry and the product in mind. Market Entry Modes While entering an overseas market the biggest challenge faced by any marketer are the entry barriers. Such barriers may vary from one market to another as well as region to region. However some of the most common problems encountered by marketers may include Lack of Infrastructure Lack of brand awareness (especially foreign markets) Product Distribution Network Over all supply chain management Political , Economic, Social and Technological factors Therefore while entering a new market especially an overseas market the points mentioned above points need to be kept in mind while choosing appropriate market entry strategy Let us now have a look at some of the most common market entry modes Exporting It is the marketing and sales of a product in a foreign country. Exporting is an old and established form of market entry strategy because it doesn’t require investment in manufacturing facilities as the product is produced in the domestic market. Experts believe that exporting is typically the choice of market entry for those who are in the early stages of foreign activity. It requires partnership between exporter, importer, government and transport. Without the coordination of these four exporting has very slim chances of success Advantages 1. Product is being manufactured at home, thus it is less risky as compared to overseas based production 2. It provides you the much required time to study the overseas market before investment in bricks and mortars reducing potential risks 3. Exporting allows companies to manufacture products for several countries while the base of manufacturing being the same thus allowing the company to achieve economies of scale 4. It is also a significant speed of entry Disadvantages 1. Lack of control as sometimes you have to rely on the foreign agents 2. Trade Barriers and tariffs adding to the cost as well as transportation cost 3. The company may run into problems regarding transportation, rates, documents, insurances, financial information, etc. Joint Ventures Joint venture is a partnership between two or more participating companies that have come together to form a separate legal entity. Such partnerships are made between companies, licensed organizations or even governments; but not with individuals. Off late joint ventures have become popular as firms are starting to identify the benefits of Joint venture Advantages 1. Companies can share the risk of a new venture 2. Companies may fresh ideas, skills or even core competencies 3. Companies with new technology and product attributes gain market access and set up efficient distribution network Disadvantages 1. Companies entering into joint venture to risk but they also share rewards that may lead to a conflict 2. Often different organizational objectives of two different firms may lead to a conflict. For example expansion against increasing cash flows 3. In general the local firm in JV is smaller as compared to foreign company in terms of size which may be leads to overall operational problems 4. Another factor that often is neglected but should always be taken into consideration is the cultural differences 5. From local company’s perspective control over marketing as well as distribution network should not much of an issue. But the parent firm may wish to differ. They may wish to adopt bigger marketing strategy this may lead to conflict between the participating firms Licensing Licensing allows a company to use the property of the licensor which is intangible in nature. It usually includes trademark, patents, etc. The licensee usually pays a fee in exchange for the rights to use the property Advantages 1. Reduces risk and financial investment 2. Increases speed of entry 3. Probability of high ROI Disadvantages 1. Less control over use of assets 2. Licensee may become competitor 3. License period is usually is limited Foreign Direct Investment (FDI) It is the direct possession of amenities in the country. It involves the transfer of resources which includes manpower, technology as well as capital. FDI is possible via acquisition an entity or even by the establishment of a new enterprise. FDI provides high degree of control in resources as well as the mode of operations. But it also requires high degree of commitment (Agarwal and Ramswami, 1992 p.8). Advantages 1. Better knowledge of local market 2. Minimizes knowledge overflow 3. Provides better control over resources Disadvantages 1. Higher risk than other modes 2. Needs more commitment as well as resources 3. May be difficult to manage the local resources Recommended mode of entry After closely analyzing the pros and cons of different modes of entry as well as other factors such as product specification, level of risk, market entry barriers etc. into consideration the following mode of entry may be chosen by Tata Nano. Tata Nano could be imported to an overseas country; however not as a whole but in parts. It could be then assembled in a production unit or factory. Some distribution centres could be set up in the target country. Tata Nano cars manufactured in the production units would be distributed in country through these distribution centres only. Each distribution centre might have its individual website. Orders could be made though these distribution centres or the websites only. It can be presumed that in such a way customers would be able to deal directly with the dealers and get the chance to make the chance to book cars by visits the sales office. They may also do the same by visiting any special event or marketing campaign if they wish does so. Besides these they can also get information or make booking though toll free numbers as well the websites of the distribution centres. This will allow the company to save cost and keep up cheaper price than the retailers or any other resellers (Hu, 2007, p.11). Physical flow of distribution From the chart above we can see that Tata Nano will send the parts to the target country where they will be stored in a warehouse. Those parts would be assembled in a factory or assembly workshop. The end product will be delivered to the customers. Probable payment flow As far as payment is concerned may pay the bill by cash or conduct financing from the bank. By this way the customers don’t need to pay any extra commission to the third party like retailers or wholesalers. It will also help Tata Motors to collect the payment in an easy yet efficient manner. The information flow will be Two-way As far as information flow is concerned customers can gather information directly. The information could be regarding new product, price, and offers or regarding any other development. Just like the customers Tata Motors can also develop understanding about customer need or complaints through customer responses, calls, mailing or even blogs. This will help them to deal with customer needs and complaint immediately and directly. Thus, this will result in satisfied customers (Koch, 2001, p.57). Procedures for successful implementation of entry modes into foreign country Two-steps recovery process after the global recession has been confirmed like an enduring realty for the growing businesses around the world. It has become very transparent that growth of many industries including automobile in the near future will occur through diversification into the emerging markets which have tremendous potential in terms of increasing level of income and rapid improvement in leaving style. Therefore, companies like TATA Motors which has been tough competition in the domestic market need to diversify in the potential emerging foreign countries. As a market entry plan of TATA Motors for its newest innovation i.e. TATA Nano, the company needs to focus on the emerging markets in the developing or third world countries. Therefore emerging market entry plan by the company for Nano should develop a clear corporate strategy. The ultimate objective of developing implementation for entering into the targeted market should be to create long term value for the brand as well as the company itself. From the in-depth analysis of different effective market entry strategies, exporting strategies would be best at initial states of market entry. Now, to implement exporting strategy in the targeted emerging market, there are some processes that the company need to follow for successful implementation for the he developed strategies. An implementation plan of a selected market entry strategy refers to complete set of some efficient strategic business activities that need to conduct considering important business environmental factors, market competition and demand and trend of the target consumer in the selected market. There are varieties of ways and procedures to implement successful exporting strategies in the foreign markets as a market entry strategy. The main objective of procedures or the activities would low cost business operation and minimum investment in operating activities. First or the initial step before starting exporting in a foreign market would be in-depth industry analysis in the specific market. Different market has different extent of potentiality in terms of favourable market environmental forces for a new foreign brand of car. History has evident that simultaneous change in market entry strategy lead to no single achievement of initial targets of revenue as well as market penetration in the foreign markets. Second important step is to build a global brand among the target audience as well as in the overall market and this will drove the demand of product as it is a basic instinct of people to priorities any foreign brands. This is one of the major advantages of exporting product in the foreign markets (Firstbrook, 2011, p.4). Third important step of entry strategy should be tapping into local skilled talent pools for marketing and sales force. This will benefit the company by providing actual understanding of the consumer buying behaviour and preferences regarding a small car like TATA Nano. Fourth the company would be developing skills or acquiring skills into competitors’ insights. Apart from these important stages of implementation process, another two important and mandatory stages are promotion and distribution of the product. Promotion Even before determining the promotion strategies one must be crystal clear about the objectives to be achieved. Tata would is most likely to be very new for the foreigners. Hence the first foremost objective should be to create brand awareness. Tata Nano could be the cheapest car on the planet and it has burst in to the scene in a very short time but still as mentioned before it is a very new brand for the target audience. So any promotional campaigns should be set up to create awareness to provide the much required foundation for brand equity. While developing the promotional strategy the USP of Tata Nano should always be kept in mind. Any kind of promotional strategy must be developed around the USP which happens to be ‘The cheapest Car’. Positioning of Tata Nano will be the key to create a unique brand image in the minds of the consumers. Price quality positioning approach could be adopted by the marketers. It can be compared with cars of higher price; a price that is not affordable by middle or lower income group people as well as students. Another proposed way to position Nano could be as a second or third car for a family. Say, a family already has a Sedan but they require another car may be for other family members. Hence instead of going for an expensive car they may choose Tata Nano. Potential buyers could be given an opportunity such as a test drive before purchase to enhance user experience. Customers can also be provided warranty. Distribution centres will play a key in the promotional activities as the will be the ones executing the whole plan. Some proposed modes of marketing and communication could be 1. Television 2. Radio 3. Online 4. Newspaper Distribution As discussed before Tata Nano will be exported to the foreign countries in parts; from there will be assembled and sold to the end customers through the distribution centres. Although it sounds all good on paper the real challenge for the company would be attract distributors. Keeping in the mind the fact that although it is the world’s cheapest car it still would be a very new one not only to the customers but also to the foreign distributors. One of the most effective ways to get hold of distributors is to have an attractive incentive structure for them. Say for example, certain slabs could be developed for the distributors as far as incentive schemes are concerned. Say once the distributor is able to able to an x amount of target he will be given certain amount of incentive. If he is able to achieve a higher target he will be given higher incentive. A part from these other tactics such as ‘best distributor award’ can create healthy competition among the distributors also. This will help the company to set up an efficient and profitable distribution network. Conclusion From the overall analysis of various market entry strategy for a specific product of TATA Moors i.e. TATA Nano, the export strategy would be most effective. This is mainly because of cost effectiveness of this strategy than other market entry strategies and lowest initial investment and requirements of operating cost. Therefore, risk of lower demand of the product in the targeted market might not affect much to the overall earning and foreign country diversification cost of the company. For market diversification for TATA Nano, the company needs to focus on the emerging markets. Three major factors of business like expansion, competition and innovation would accelerate the business in any of the potential emerging market of the world and also apart from the other three BRIC countries except India. References Agarwal, S and Ramswami, S. N. 1992. Choice of foreign market entry modes: Impact of Ownership, Location and Internationalization factors. [Pdf]. Available at: http://aib.msu.edu/awards/23_1_92_1.pdf. [Accessed on 19 February, 2013]. Firstbrook, C. 2011. Emerging Market Entry — Keys to Success. [Pdf]. Available at: http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Emerging-Market-Entry.pdf. [Accessed on 19 February, 2013]. Hu, L. 2007. An Analysis of Entry Modes In The Chinese Car Industry. [Pdf]. Available at: http://edissertations.nottingham.ac.uk/1161/1/07MSclixlh10.pdf. [Accessed on 19 February, 2013]. Koch, A. J. 2001. Selecting overseas markets and entry modes: two decision processes or one?. [Pdf]. Available at: http://www.uniurb.it/lingue/matdid/musso/2011-12/Selecting%20markets%20and%20entry%20modes.pdf. [Accessed on 19 February, 2013]. TATA Motors. 2012. Tata Nano begins international journey with Sri Lanka, as Tata Motors celebrates 50th year of its International Business. [Pdf]. Available at: http://www.tatamotors.com/media/press-releases.php?id=676. [Accessed on 19 February, 2013]. Read More