Tata Motors Limited - Case Study Example

TATA MOTORS LIMITED Student’s name Course Professor Institution’s name Date TATA MOTORS LIMITED Contents Introduction 3 Company Indicators 5 Tata Motors Mission, Vision, and Strategy 5 Market size 6 Products and Services 8 Profitability 9 Internal Resources and capabilities 10 Capital requirements 10 Capacity position 11 Human Resources and Management Capabilities 11 Technology Capabilities 12 External Market Environment 13 Entry and Exit barriers 13 Industry attractiveness 13 Level of fragmentation or Consolidation 13 Customer Characteristics 14 Industry Driving Forces 14 SWOT Analysis 14 Strengths 14 Weaknesses 15 Opportunities 15 Threats 16 Porter’s Five Forces Model 16 Bargaining power of the buyers 16 Bargaining power of the suppliers 16 Barriers to entry or threats of new entrants 17 Threats of Substitutes 17 Intensity of existing rivalry or competition 17 Tata Motors Limited Current Position in the Automobile Industry 18 Future Outlook for Tata Motors Limited. 18 Business Strategy Recommendation 18 References 20 Introduction Scholars that commenced management studies once hailed the automobile Industry as the industry among industries. The industry has been evolving over the years with the improvement of technology from the 1890's where it specialized in production through craft, 1910's which was a period of mass production, and the 1970’s where production was by lean techniques. The automobile industry in India ranks 12th in the world concerning the top automobile manufacturers. The automobile Industry in India has been growing at an estimated rate of 11.5% annually over the last decade. This industry has a strong influence on the Indian economy as it is related to some of the main economy segments, in fact, it contributes to approximately 5% of the countries GDP. The credit crisis in the financial year 2008/2009 prompted a downturn in the Indian automobile industry but it still managed to register an annual growth rate of approximately 1% (Chang, 2008). The Indian automobile market industry is segmented into three main parts including two wheelers, three wheelers, and four wheelers. The companies involved in the automobile industry in India include Suzuki, TVS Motors, Honda Motors, Hero Honda, and Bajaj Automobile in the two-wheeled sector. Tata Motors and Maruti Udyog dominate the passenger cars segment. Companies such as Volvo, Tata Motors, Eicher Motors, Ashok Leyland, and Force Motors manufacture commercial vehicles. This paper focuses on Tata Motors and all its environmental analysis and strategic management. Tata Motors is a manufacturing company based in India; it specializes in the manufacturing of commercial and passenger vehicles. Tata Motors was established as a subsidiary of the larger Tata Group in the year 1945. The company has grown into the largest automobile organization in India regarding revenue. The company the first automobile company in India to feature in the New York Stock Exchange. Today, Tata Motors covers three markets in the global automobile industry including commercial vehicles, passenger, and utility vehicles. Tata Motors registered revenues of approximately 7.2 billion USD in the financial year 2006/2007. This revenue grew as in the financial year 2008/2009 the company registered revenues of approximately 14 billion USD. The company has its largest operations in India but has grown globally and has its operations in countries such as South Korea, Thailand, Spain, and the larger United Kingdom. Starting its operations in 1945 after entering a joint venture with Daimler-Benz, the company has been able to establish both organic and inorganic growth in over seven decades that it has been in existence. The company acquired Daewoo Truck manufacturing a South Korean firm in 2004 and later that year it also acquired a South African firm Hispano Carrocera. Further acquisitions were witnessed in 2008 as Tata Motors made a huge statement by acquiring Land Rover and Jaguar from Ford Motors, which are considered among the top prestigious brands globally (Carty, 2008). The company has continually shown its ability innovate and grow over the many years that it has been in existence as it has been putting improved models of existing versions into the market. Company Indicators Tata Motors Mission, Vision, and Strategy The company’s mission is to be passionate in anticipating and provision of excellent experiences and vehicles that provide excitement for all our customers globally (Tata Motors Limited, 2008). The company’s vision is to ensure that it is most admired by its customers, business partners, employees, and all shareholders for the value and experiences they obtain for being associated with the company (Tata Motors Limited, 2008). Concerning strategy, the company employs disruptive innovation as it aims at offering products at lower prices to exceed the market objectives and expectations. Some of the main strategies are focusing on the customer and this has been a major source of success in the last seven decades of the company’s existence. With proper culture and values, the company has been able to master a functioning strategy. The company’s culture is focused on excellence, speed, accountability, and customer satisfaction through efficient production. The main values of the company are innovation, passion for excellence, accountability, integrity, environmental concern, inclusion, and having a passion for excellence (Tata Motors Limited, 2008). With these values and a properly established culture, the company has been able to perform at top levels. Market size TATA Motors holds over 56% of commercial vehicle manufacturing in India and therefore it is the largest manufacturer of commercial vehicles in India. The Chart below shows the market share of major manufacturers of commercial vehicles in India. For the Passenger cars, TATA motors are not on top in the Indian Market but are among the top three with a market share of over 11%. The chart below shows the percentage market shares for the main passenger vehicle manufacturers in India. The company has however continued to drop in terms of market share over the last few years as shown on the charts bellow. Products and Services TATA Motors offers a wide range of services that are designed to adapt to the changing market environment of the automobile industry and to meet all consumer demands at the same time maintaining efficiency, quality, and ability to compete. The company offers services in vehicle finance and vehicle insurance (Tata Motors Limited, 2008). The company has offered financing on vehicles it manufactures ranging from passenger to commercial vehicles over the seven decades it has been in existence. Concerning vehicle insurance, the company has an Insurance Broking and Advisory unit that is licensed by the Insurance Regulatory and Development Authority (IRDA). The company offers insurance in both non-life and life businesses. The company offers solutions that are customized to its customers through both the public and private sectors. The company, therefore, plays an integral part in portfolio management through risk management and advisory (Tata Motors Limited, 2008). Apart from vehicle finance and insurance, the company also offers customer care services to its customers. The services offered in customer care are reliable, efficient, and responsive. Customer education is also an integral part of the customer care services offered by the company. TATA Motors manufactures a wide range of products from commercial vehicles to passenger vehicles. Concerning Trucks and buses, the main passenger vehicles manufactured by the company in this category include Magic, Magic Iris, Buses, Winger Platinum, Winger, and Tata Venture. Cargo vehicles in the truck and buses category include Ultra, Xenon Pickup, Ace, Super Ace MINT, Prima, Light trucks, M&HCV Cargo, and M&HCV Construct (Tata Motors Limited, 2008). TATA Motors also manufactures the Jaguar and Land Rovers after acquiring the brands from Ford Motors in 2008 (Krishnamoorthy, 2008). The company also manufactures defense products ranging from troop carriers, water tankers, trippers, load carriers, prison vans, and fire tenders. Profitability Profitability 2007-03 2008-03 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 2015-03 2016-03 TTM Tax Rate % 30.73 27.68 — 28.22 14.78 3.89 30.43 26.88 34.88 22.12 23.97 Net Margin % 5.46 3.89 -8.32 4.11 5.96 5.89 4.69 5.58 4.89 3.55 3.28 Asset Turnover (Average) 1.40 1.14 1.26 1.09 1.27 1.35 1.22 1.22 1.16 1.09 1.08 Return on Assets % 7.66 4.43 -10.44 4.50 7.56 7.97 5.73 6.78 5.66 3.86 3.54 Financial Leverage (Average) 2.97 3.51 22.66 9.08 4.94 4.35 4.51 3.48 4.38 3.43 4.81 Return on Equity % 21.02 14.44 -86.07 56.45 47.50 36.50 25.39 26.20 22.07 14.77 13.54 Return on Invested Capital % 14.89 10.19 -8.38 13.12 18.16 18.13 12.66 15.12 12.58 9.39 9.38 Interest Coverage — — — 2.29 3.35 4.16 4.16 4.37 4.80 3.60 3.42 Internal Resources and capabilities Capital requirements Period Instrument Authorized Capital Issued Capital - P A I D U P - From To   (Rs. CR) (Rs. CR) Shares (nos) Face Value Capital (Rs. Cr) 2015 2016 Equity Share 900.0 679.3 3395680306 2.0 679.1 2014 2015 Equity Share 900.0 643.9 3218680067 2.0 643.7 2013 2014 Equity Share 900.0 643.9 3218680067 2.0 643.7 2012 2013 Equity Share 900.0 638.0 3190115771 2.0 638.0 2011 2012 Equity Share 900.0 634.7 3173546570 2.0 634.7 2010 2011 Equity Share 900.0 634.6 634613990 10.0 634.6 2009 2010 Equity Share 900.0 570.6 570557544 10.0 570.6 2008 2009 Equity Share 900.0 514.0 514008314 10.0 514.0 2007 2008 Equity Share 450.0 385.5 385503954 10.0 385.5 2006 2007 Equity Share 450.0 385.4 385373885 10.0 385.4 2005 2006 Equity Share 410.0 382.8 382834131 10.0 382.8 Capacity position Tata Motors is valued at 42 billion USD and is a leading automobile manufacturer globally with a product portfolio that ranges from different types of commercial and passenger vehicles. The company has employed over 60,000 people with over 9 million vehicles sold since its establishment. The company is part of the larger Tata group, which is valued at approximately 100 billion USD. This proves that the Tata Motors is the highest revenue earner for Tata group with around 40% of the total revenue earned by Tata motors. Human Resources and Management Capabilities The company believes in a people’s culture that is progressive in nature. With the notable rise in the rates of employee satisfaction by up to 65% over the last few years, the company is viewed to be fostering human resource management and thus capable of managing its employees (Tata Group, 2008). The company puts human capital on top of its essential aspects of company success. The company has an effective human resource management strategy established under Tata Sons and Tata sons associated portions. The main aspects addressed in this strategy are: Development of learning and training programs to improve the knowledge and skills of its staff thereby ensuring that the organization grows and maintains a competitive advantage over its rivals. Improving compensation packages that are based on performance for the purposes of customer satisfaction and talent retention. Formation of a group of talented managers within the company through inter-department and inter-unit job rotations. Formulation of proper codes of conducts that allow for good working environments, good employee relations, and fair business processes. Creation of efficient management systems and strategies that are essential in identifying and differentiating high-level performers from non-performers. In line with the strategy, the company has also put in place different initiatives to improve the company’s human resource and management capabilities. Below are some of the initiatives. Global employee engagement programs through the process of benchmarking. Performance reviewing that is dependent on the relationship between salary and quality of work output. Promoting cultural transformation and diversity in the organization. Implementing a system used for identifying talent. The system is known as Fast Track Selection Scheme. Technology Capabilities The growth of Tata motors over the seven decades it has been in existence is founded on translating customer needs and values through innovation and cutting edge technologies. Innovation and technology are described as being in the culture and DNA of the organization since it is one of the core organizational values. The specialized technological and innovation centers located in Pune, Italy, United Kingdom, and South Korea demonstrates the company’s association with technology and innovation. The company has over 4,500 scientists, technicians, and engineers that deal with the dynamic nature of technology through innovation processes. The company has put its focus on technology both current and future in its attempt to create an exciting experience to its customers through their vehicles. External Market Environment Entry and Exit barriers Tata Motors entry barriers entail the threats posed by the increased competition from new entrants into the automobile industry especially passenger vehicles unit. Because of the rapid growth in economy and increase in spending power especially from the middle class, other companies are now grabbing the opportunity to invest in the passenger vehicle segment of the automobile market industry. The threats from the new entrants can, therefore, be classified as high. The major exit barrier includes the heavy investments by the organization in the automobile industry. The organization cannot simply exit the market, as it will have to consider the investment put into the industry and other important factors before reaching a decision. Industry attractiveness The automobile industry attractiveness is considered as being low mainly because the threats from the new entrants is classified as high. Level of fragmentation or Consolidation Tata Motors level of consolidation or fragmentation is considered as being high because the company has been in existence for seven decades and therefore has its own loyal customers. Through creating value for the customer, Tata Motors has been able to consolidate the market share in India and globally. The company is the largest commercial vehicle manufacturer in India and third largest in the passenger vehicle category, therefore, is consolidation level in the market is classified as high. Customer Characteristics The customer characteristics are subdivided into three economic categories depending on the way they spend and the income they earn. It includes strivers, seekers, and aspires. Strivers are the upper-middle-class individuals that earn a lot of money and purchase cars such as Sumo and Manza. Low middle-class earners also known as seekers purchase cars such as Indigo and Indica. Low-income class earners purchase cars such as the Nano and Indica. The Tata Motors customers’ behaviors are dependent on the product usage, benefits, readiness to purchase, and brand loyalty. All these behavioral characteristics determine the purchasing patterns of Tata Motors customers. Industry Driving Forces The driving forces in the automobile manufacturing industry include exports, imports, and government regulatory efforts. Other subsequent forces include industry rivalry between competitors, increased bargaining power from the suppliers and customers, threats from new entrants, and the availability of substitutes to the services and products offered by the companies in the industry. SWOT Analysis The SWOT analysis involves the analysis of the Strengths, Weaknesses, Opportunities, and Threats. Strengths Major strengths of Tata Motors include: Innovation that is achieved through improved development and extensive research. In the passenger and small vehicle market, the company has been able to manufacture the cheapest vehicle known as the Nano and this is proof of the creativity and innovation of the company (Krishnan, 2008). Tata Motor’s innovation has allowed the company to maintain its competitive advantage over its rivals in the market. Environmental protection through the manufacture of emission friendly vehicles is another strength that Tata Motors possesses. The natural compressed airbus that was launched in 2000 is one of the most eco-friendly vehicles found in the world (Korzeniewski, 2008). The company also possesses a strong image concerning the brand and also has high rates of employee satisfaction. Finally, the company’s management style is unique and is extended to joint ventures, mergers, and acquisitions that the company partakes itself into. The company possesses effective organizational management strategies. Weaknesses Inability to attain the required safety standards. Safety standards are one of the key legal factors that the company has failed to meet especially in the Tata Nano, which is the cheapest car globally. These safety standards are concerned with the customer especially in accidents. Over the last decade, the company has been focusing on the manufacturing of passenger vehicles only and this is considered a weakness as it has moved from the commercial vehicles. Low levels of infrastructure development in India where the capital and the main manufacturing firms are located. Opportunities Projected growth of infrastructure in the Indian market is an opportunity for Tata Motors to increase its revenue even further. The acquisition of prestigious brands Jaguar and Land Rover provides an opportunity for Tata Motors to grow its sales and its brand name. The growing and emerging markets are dependent and thrive on low-cost vehicles, which Tata Motors provide. Threats High levels of competition High manufacturing costs Poor or low economic growth rates or conditions. The increase in process of diesel fuel. Safety and environmental regulations. Porter’s Five Forces Model The Porter’s Five Forces Model is an essential tool in the analysis and assessment of an industry or market’s attractiveness. They include the barriers to entry, threats of substitutes, bargaining power of customers or buyers, bargaining power of suppliers, and the intensity of the existing rivalry or competition. Bargaining power of the buyers The switching cost is very essential when it comes to the customer’s bargaining power since if switching products is cheap and simple then many customers will opt for that process. The increase in demand for the Tata NANO is because the switching cost from bike to the car is not very high (Krishnan, 2008). The number of buyers also determine the bargaining power as few buyers dictate the terms easily. The Tata brand image has been the most incredible aspect, especially through the Tata NANO. Because of the good relations with its customers, the bargaining power of its buyers is low. Bargaining power of the suppliers Tata Motor's supplier's bargaining power is influenced by factors including the high levels of competition among the suppliers and the ability of the company to switch to different suppliers at a low cost. Besides, the diverse distribution channel and the volume or raw materials required are major characteristics that influence the bargaining power of suppliers associated with TATA Motors. Barriers to entry or threats of new entrants For new organizations wanting to enter the automobile industries, which Tata Motors is a market shareholder, there are several threats associated with the scenario. The threats include high requirements concerning investing capital, high entry barriers, the requirement of highly advanced technologies, strong distribution networks, and requirement of the economies of scale. Threats of Substitutes Tata Motors and other companies in the automobile manufacturing industries are threatened by two main substitutes, which are airlines and railways. However, these substitutes will not be for every situation or customer. For example for short journeys, both airlines and railways are not substitutes. The main threat substitutes are the two-wheeled motorbikes. Intensity of existing rivalry or competition Tata Motors faces high levels of competition from other companies mainly because of the fast growth rate of the automobile industry and the industry size, which is considerably large. High production costs and huge investments have governed the industry because of the increasing competition levels. The presence of many companies in the industry that are about the same size leads to small differentiation levels concerning competition and revenue. Some of these companies include Suzuki, Honda, Nissan, Eicher, Ford, M&M, and Maruti just to name a few. To ensure that it remains ahead of its competitors and maintain its competitive advantage, Tata Motors has been involved in the addition of value to the customers through the provision of low-cost vehicles and therefore the company incurred more costs. Tata Motors Limited Current Position in the Automobile Industry In the past five years, Tata Motors has been performing well in the automobile manufacturing industry. Tata Motor’s market share has been decreasing until the year 2015 but in the financial year 2015/2016 it showed signs of improvement and the company is even projected to regain and go above its highest market share by 2020. The company is ranked in the top twenty among automobile manufacturing industries and the latest value of the company is 42 billion USD, which demonstrates that the company is a global giant in the automobile manufacturing industry. Future Outlook for Tata Motors Limited. As stated earlier, Tata motors are projected to surpass its highest market share by the year 2020 (David, 2008). However, this is not just achieved by merely continuing with what it has been doing since there is a need for more effective financial and management strategies to be put in place. Business Strategy Recommendation Tata Motors has put in place a business strategy that aims at providing assistance as the company gets towards achieving its goals. Some of the major company strategies include: Capability leveraging which entails manufacture of a wide range of products in both the commercial and passenger vehicle units. I recommend that the company should further expand and leverage the wide product range to raise the levels of brand recognition. The company should have a better understanding of the preferences and needs of the local consumer. Cost and break even points reduction. Since the company has a strong advantage over its competitors especially in the commercial vehicle market, then it has the free will to reduce the prices of its products to maintain its competitive advantage and even increase market share. One such vehicle the company has launched recently is the Tata NANO, which is the cheapest vehicle. Expansion of the global business. The company has put in place two main parts of the expansion strategy. First, is venturing into new geographical locations and the second is growing the already established global markets especially those with similar market environment characteristics with India (David, 2008). I believe that the company can venture into raw untapped markets, for example, Africa for example in countries with rapid economic growth, such as South Africa and Nigeria. Innovation and technology advancement. Tata Motors looks to continue investing in innovation and technological improvement, as they are key aspects of creating a competitive advantage over its rivals. The company should continue innovations on vehicles that are fuel efficient and environmental friendly concerning emissions. References Carty, S., May 2008. "Tata Motors to Buy Jaguar, Land Rover for $2.3B." USA Today. Chang, R. S., 2008. "Can Detroit Be Relevant?" The New York Times. Accessed from: http://wheels.blogs.nytimes.com/2008/01/11/can-detroit-be-relevant/. [22 April 2017]. Tata Group. May 2008. "Corporate Governance." Accessed from: www.tata.com. [22 April 2017]. David, R., May 2008. "Tata Motors: Ready to Take on the World?" Accessed from: www.forbes.com. [22 April 2017]. Korzeniewski, J., 2008. "A New Agreement Between Tata Motors and MDI Bring the Air- Car Closer to Reality." AutoblogGreen. Accessed from: http://www.autobloggreen.com/2007/03/21/a-new-agreement-between-tata-motors-and- mdi-bring-the-air-car-cl. [22 April 2017]. Krishnan, R., 2008. "Tata Small Car Throws a Big Punch." Livemint.com. Accessed from: http://www.livemint.com/2008/01/11001158/Tata-small-car-throws-a-big- pu.html. [22 April 2017]. Krishnamoorthy, A., 2008. “Jaguar Purchase Drives Tata Motors Shareholders to End Holdings.”Bloomberg.com. Accessed from: http://www.bloomberg.com/apps/news? pid=20601091&refer=india&sid=aYHS5AD.zR 5c. [22 April 2017]. Tata Motors Limited, 2008. "Profile." Tatamotors.com. Accessed from: http://www.tatamotors.com/our_world/profile.php [22 April 2017]. "Tata Motors to Step into Armored Vehicles Production." INDIADEFENCE. Accessed from: http://www.india-defence.com/reports-3099. [22 April 2017]. Read More