Tata Steel Multinational Enterprise - Assignment Example

Multinational Enterprise assignment Contents Introduction 3 Brief introduction of emerging market multinational  3 Type of emerging market multinational  4 Analysis of Emerging Market where the company is based  5 Internationalization Path of Company 5 When did the company start to internationalize? 6 Sequence of market entries 6 Speed of internationalization 6 Entry modes and subsequent changes  7 How does the company compete in its market?  8 Application of Internationalisation Theories  8 Conclusion 10 Evaluation the internationalisation of the selected company 10 References 12 Introduction The following pages deals with a multinational enterprise in an emerging market scenario. The emerging market scenario that is considered for this particular case is India. Multinational enterprise has increased relevance in present day scenario as because business enterprises are expanding globally in order to diversify and expand their market presence. Diversifying into new markets helps the company in reducing the risk of operations and also catering to new range of customers. The multinational enterprises that are based in the emerging market derive additional benefit in terms of huge demographics and being part of the economy where the people have the money to invest in and purchase the goods produced. The company chosen for this report is Tata steel that is part of the Tata group which is a multinational enterprise having its head quarters in India. Brief introduction of emerging market multinational  Tata steel that is the company chosen for this report is a subsidiary of the Tata group. Tata group is a multinational enterprise that is headquartered in Mumbai in India. The operations of Tata group spans across 7 different business sectors. The sectors which are served by the Tata group are information and communication technology, engineering, materials, service, energy, chemical and consumer products. The group is currently head by its current chairman that is Cyrus Mistry. The group was founded by Jamsedji Tata in the year 1868. Tata group has about 100 companies operating under it. Amongst them 32 are listed. The 32 listed companies of the Tata group together have a market capitalization of $141.27 billion as on 2014. Most of the ownership of the group is held by major philanthropic trusts. TATA Steel, formerly known as Tata Iron and Steel Company limited is a subsidiary of the Tata group. The company is headquartered in Mumbai in Maharashtra. The company is the 11th largest steel producing company in the world. The annual crude steel capacity is 25.3 million tonnes. Tata steel is the second largest steel producing company in India after SAIL. Type of emerging market multinational  TATA Steel which is a large conglomerate and is a subsidiary of the Tata group is head quartered in India. It is one of the largest steel manufacturers in the world and ranks 5th among the world’s largest steel manufacturing companies. The reason for Tata steel success in the global steel market can be attributed to several unique skills that the company posses. Amongst the several unique abilities of the company is its ability to make steel at lowest cost possible. Tata steel has emphasized on cost leadership from very early period of the organization’s history in order to compete successfully with the importers. After it was able to successfully consolidate its position in the market Tata focussed on several innovations that helped it lower the cost of manufacturing steel. The cost of sell manufacturing is so low that the World steel Dynamics, a steel information service recognizes the company as the lowest manufacturer of steel in whole world. Tata has over the years mastered the science and art of steel making and has continued its investments n people who are sourced from different prestigious institutions across the India. These two unique capabilities have helped Tata reach to the zenith it is now. Tata also treats its manpower in a very efficient way and places then in international universities so that they can learn the best practices worldwide. Tata steel has also benefitted immensely from its parent company the Tata group. The group and the company have followed many of the business practices that are common place in today’s world from a time when these practices were not so common place. The company has been a natural benefiter of these soft skills and many other such skills which has augmented the company’s ability to apply these skills at their home company and has made the company a natural acquirer of overseas companies. The company started its acquisition process with first acquiring the smaller companies located in south east Asia and then proceeding to the big ticket acquisition of Corus in Europe. Analysis of Emerging Market where the company is based  An emerging market is considered a market or a country which has characteristics similar to a developed country but does not meet the standards of a developed country. The largest among the emerging countries in the world are the Brazil, Russia, India and China commonly referred to as the BRIC. These four countries from the largest economies amongst the emerging countries of the world in terms of nominal or GDP on purchase power parity basis. India is ranked 3rd in the world in terms of nominal GDP an seventh in terms of GDP that is measured on the basis of purchase power parity. As of 2014 the country was named as the best performing emerging market in the world. The country is home to 1.25 billion people and is the world’s largest democracy. The prime minister of the country is dubbed as the most pro business and pro investment political leader in the world (Holmes, 2015). Internationalization Path of Company Tata steel has its manufacturing base in 26 countries across the world. Among the several countries where the company has its manufacturing base are Australia, China, Singapore, Thailand, United Kingdom, Netherlands, and India etc. There are about 80,500 employees of the company. The largest manufacturing plant of the company is located at Jamshedpur in Jharkhand. In the 2007 Tata steel acquired Corus which was the largest acquisition by an Indian company till the year 2007. Tata steel’s international foot print was on the basis of acquisition of companies in Singapore and Thailand. Tata steel international operations started from acquitting Nat steel and millennium steel followed by the acquisition of Corus located in England and then rolling steel mills located in Vietnam in 2007. In 2004 the company acquired NatSteel that was a company based in Singapore (TATA, 2004). After acquisition of Nat steel the next company that Tata acquired was Millennium steel. Tata acquired millennium steel in 2005. By acquiring controlling stake in the millennium steel the company marked its entry into the Thailand market. The company in 2007 did a major acquisition when it acquired the Corus steel of Europe. Corus was much larger in size than the Tata steel. Corus was 9th largest steel producer in the world where as Tata was ranked 56th at the time of acquisition. After the acquisition Tata steel became the 5th largest steel producer in the world. When did the company start to internationalize? The company’s major step in international was started in the year 2004 with the acquisition of Nat steel of Singapore. Sequence of market entries The company started its international operation with the acquisition of smaller companies in the south eastern region. The first international acquisition of the company was in the form of NatSteel which was acquired by the company in the year 2004. The next international acquisition that the company made was to acquire Millennium steel in the year 200. These two companies were located in the countries Singapore and Thailand respectively. The most highly valued acquisition of the company till date which catapulted the company from its 56th position in the list of largest steel producers in the world to 5th largest steel producer in the world. Speed of internationalization The speed of internationalization of the company can be said to be pretty dramatic. The company previously focussed on building internal strengths and innovations to focus on building internal strength (Booz and company, 2007). The internal strength of the company lies in the fact that the company has focussed on innovations to manufacture steel at low cost. Another internal strength of the company lies in the fact that the company sources best of the talents from the Indian market and trains them in best of the foreign schools so that they acquire the best skills. The unique features of the company are its lost cost technology in the manufacture of steel that the company has developed through long years of innovation. The company has followed certain business practices from a period of time in the past long before it was fashionable to adopt those practices. Thus the company has been able to generate a unique advantage over several of its competing firms. When the company went on for internationalization process the company first started with the acquisition of small companies in the south east namely NatSteel and Millennium steel in the year 2004 and 2005. These two acquisitions which were relatively smaller in size enabled the company to enter into the markets of Singapore and Thailand. The acquisitions made the company to enter into the market of Singapore and Thailand. These two acquisitions were followed by the relatively larger acquisition by the company in the form of acquiring Corus. Corus was the 9th largest steel maker in the world. After the acquisition of the company Corus has become 5th largest company in the world. It can be said that the company has followed a huge speed of internationalization. Entry modes and subsequent changes  The entry mode that is adopted by the company in order to enter new international markets is through the process of acquisitions. The company has focussed on entering new market and new countries through the process of acquisitions. The company entered most of the new markets and new countries by acquiring majority stake in the leading company in that country. Most of the companies that have been acquired have been profitable and quite huge in the country in which they belonged. How does the company compete in its market?  Out of the several advantages that the company has the most profound is the fact that it is the lowest cost manufacturer of steel in the world. Among other important factors that makes the company able to compete in several countries is that the company employs the best of man power and treats them in the best possible way. Additionally the company trains its employees in the best practices of management worldwide so that they incorporate the best skills and can apply the same to the business. The company has been continuously rated as one of the best employers in the world and one of the best places to work in. The company is a subsidiary of the Tata group and benefits from the managerial skills of its parent organization. The company follows the best practices in business and cares for the stakeholders in the utmost manner (Weinstein, 2013). The company follows several best practices in business from a long time which has recently become popular amongst the companies. Through following these skills the company is able to generate a unique scale of competitive advantage that aids the company in its growth and leads the company far ahead of its competitors. Application of Internationalisation Theories  There are different methods that are stated in the literature by which a firm can enter a foreign market. Some of the approaches that are commonly followed by the firm to enter into a global market are Acquisition: A firm can use this model to enter into a market by acquiring another firm that operates in the same market (Lee, and Lieberman, 2010). Internal development: A firm can use this strategy to enter into a market if it wants to grow organically. The firm can focus on growing organically through the process of wholly owned subsidiaries (Gong, 2013). Joint venturing: In this model the firm enters another market by forming joint venture with another existing firm in the market. Licensing: A firm can enter into licensing agreements with other firms in the market in order to enter into a particular market (Lechner, 2009). Partnership: In this method the firm chooses to enter into a market by entering into a long term agreement with another firm in the market (Jones, 2010). According to Johanson and Vahle the enterprise gradually increases is internal involvement. The disturbances in the market entry of an enterprise are usually psychic distance that results from differences in political systems, language, and culture. These psychic distances are more prominent than the physical distances. Through the process of increasing the overseas experience a firm can acquire new knowledge and can gradually increase its commitment in the overseas market. Johanson and wiedershiem paul introduced the Uppsala internationalization model (Johanson, and Vahlne, 2006). This model which was composed of four different steps was based on the assumption that the internationalization process was a consequence of series incremental decisions (Wintzer, 2007). It was thought that the main obstacle which was needed to overcome was the lack of resource and knowledge. The four stages are: 1. not engaging in regular export activities 2. Exporting via agents 3. going for the establishment of sales subsidiary in the overseas market 4. Going for the production of overseas production and manufacturing units. Another globalization theory is put forward by Vernon and focuses on product lifecycle theory (Walby, 2009). The theory states that products are initially produced in the developed countries in the maturity phase and finally are used to serve the developing countries (Ballance, and Forstner, 2004). They state that it is a three step process (Commander, Kangasniemi, and Winters, 2004). The initial step in the development of the new product in the developed economy, then at the maturity stage the product is marketed through economies of scale and marketed to other developed countries and finally the product is marketed to the developing countries (Kirshner, 2006). However these modes of globalizations do not apply in many cases to the companies of the emerging markets. For example the globalization as a process is no more unidirectional and the companies from the developing and emerging markets are now growing towards the developed countries (Liu, 2007). It is not possible for the companies to always go for and follow the three stages of globalization as stated by the Uppsala model (Till, Geoffrey, Chew, Emrys and Joshua, 2008). This is what the other models regarding globalizations states (Ritzer, 2010). It states that these models of globalizations such as Uppsala and Vernon are outdated and that there are other theories to globalization which states that the globalization may not follow this step (Klenow, and Rodriguez-Clare, 2005). If these models are applied to see the Tata steels process of globalization then it is seen that the models are incapable in explaining the Tata steels process of globalization. Conclusion It is seen after going through the report that Tata steel is a global steel giant. The company has been able to achieve this through the leveraging of its skills and through going in for globalization. Evaluation the internationalisation of the selected company The internationalization process of TATA Steel has followed the process of acquisition of different overseas company. The company first of all focussed through the decades to build its internal strengths and a strong footprint in the domestic market. After building a consolidated position in the domestic market the company went in for internationalization and was quite successful in expanding its operation worldwide. The most successful acquisition was however the acquisition of Corus by the company. The company going forward and hope to improve its quality farther and go in for further acquisitions in order to leverage its internal strength and become amongst the top three steel manufacturers in the world. References Lee, G. K., and Lieberman, M. B., 2010. Acquisition vs. internal development as modes of market entry. Strategic Management Journal, 31, 140–158. Liu, C. Z., 2007. Lenovo: An example of globalization of Chinese enterprises. Journal of International Business Studies, 38(4), 573–577. Johanson, J., & Vahlne, J.-E., 2006. Commitment and opportunity development in the internationalization process: A note on the Uppsala internationalization process model. Management International Review, 46(2), 165–178. Gong, Y., 2013. 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