Introduction
International business refers to commercial transactions that are conducted across political boarders. The boarder may describe countries, nations, states or even regions. International business is normally undertaken for purposes of profit making though transactions by governments at times carry political benefits.
This paper seeks to discuss aspects of international business with respect to a case study about TATA Company. The paper will look into the case study to identify contemporary issues that are facing the company and to carry out an evaluator analysis into the company’s position and environment.
The house of Tata
The house of Tata is a family enterprise that was established in the year 1868. Having been established as a trading organization, the firm evolved over time to expand and diversify its operations in different sectors. Just six years after its establishment, the firm turned into dealing in textiles. The company also expanded in its financial capacity and was able to establish a luxury hotel in the country in the year 1903.
Four years later, the firm established a steel company. Though the firm then took time before entering into another venture, it made a major step in the year 1932 to own an airline. The house of Tata also developed a subsidiary firm that, in the year 1968, deals in software. Besides its economic significance, the Tata group has been identified as a socially sensitive enterprise following its participation in charity activities.
By the year 1938, the group had expanded to thirteen companies following the ventures that established its subsidiaries. One of the administrative approaches that the group developed under J. Tata as its chairman was the autonomy that the subsidiaries were granted. A level of independence in management was advocated for which led to the group’s firms expanding to overlap in their products.
By the end of J. Tata’s reign as the group’s chairperson in the year 1991, Tata group had expanded from thirteen companies to three hundred companies. The entrance of R. Tata in the year 1991 to head the group was characterized with a lot of change in the organization. Ratan managed to revive some of the organization’s subsidiaries that were not stable such as the steel company and the motors company.
He also restructured the firms many subsidiaries to work in groups that were based on the type of products offered. His restructuring reorganized the group into sectors that were “information systems and communications; engineering; materials; chemicals; consumer products; energy; and services” (Khanna, Palepu and Bullock, 2009, p. 2). Some of the company’s later significant developments have been international ventures through acquisitions and mergers with foreign companies (Khanna, Palepu and Bullock, 2009, p. 2).
Contemporary issues facing the company
The long time duration in which the Tata group has existed has been characterized with features of opportunities, threats, strengths and even weaknesses. One of the issues that have been evident with the group, with specification to the Tata motors, has been its exploration and existence in the global market (Tata, n.d., p. 1).
The group has a record of entry into the international market since the beginning of the twenty first century. The move by the company that includes acquisitions and integrations has been its strategy for exploration of and expansion into markets. The bid by the company to acquire Jaguar and Land Rover that were out for bids in the United States was an example of such explorations.
Surowiecki reports that by the year 2008, Tata Company had not explored the motor vehicle industry in the United States and its brand of product were not even available on the American roads. Though the company had a strong history with productions in India, it was not even yet known in the United States.
The company’s dominance in its domestic market without any significant feature in foreign markets such as the United States and European markets, according to Surowiecki were due to the economic environment that surrounded the global market (Surowiecki, 2008, p. 1). Another international move by Tata motors was its partnership with MG rovers of Britain in the year 2003 that enabled the company to explore the European market.
This move led to the introduction of “the Indica into the European market as the CityRover” (Khanna, Palepu and Bullock, 2009, p. 11). In the partnership, Tata exported the brand of vehicle that was then sold in Europe by MG motors. Other acquisitions and partnerships were made with respect to companies in countries such as Spain, Brazil and Korea among others (Khanna, Palepu and Bullock, 2009, p. 14).
The company’s engagement in international trade is still on its course with an increasing trend being registered in the company’s exportation of vehicles. In April 2010 for example, the company exported one unit of a Nano brand of car that it had developed. The level of exportation of the same brand grew to reach four hundred and ninety eight by April 2011. The company is also reported to be making plans to further expand its international influence with plans to establish production units in regions such as the Latin America and Africa. Marketing techniques to expand its market in the already explored areas are also international avenues that are still being explored (News, 2011, p. 1).
Apart from the direct establishment of the company in the external markets, it has been deriving mutual exchange of expertise from the regions in which it expands. Acquisitions have for example been relinquishing technological rights to the company. The company has also to a great extent benefited from exchanging its management within its structure in different regions.
A movement of a manager from one environment to another will lead to transfer of skills to the new region (Tata, n.d., p. 1). There are also a number of issues that face the company in the form of weaknesses. One of such is the brand of vehicles that the company has been producing. Its brands have been associated with middle economic class which can not afford expensive cars.
The brands are also outdated in the environment that has realized innovations from competitive companies. With the availability of many companies in the motor industry in the Indian market and the competition provided by international automobile producers, the company has been struggling to cope with the market that is influenced by new car models in fashion (Research, 2009, p. 7).
Also significant among the issues facing the company is the quality of its products in relation to those from other producers in the industry. A survey that was conducted over manufacturer’s ratings in the motor vehicle industry reveals that the company is not among consumer’s favorites.
The result of the research that was based on factors such as “safety, quality, value, performance, environmental friendliness, design and technology” revealed a preference of other manufacturer’s vehicles as opposed to those of Tata. In relation to safety of vehicles, there are competition from brands such as “Volvo, Ford, Subaru” among others that are rated above Tata (Consumer, 2010, p. 1).
Quality also rates brands such as “Toyota, Honda and Ford” among others as preferred and value ranks “Honda, Toyota and Ford” among others in the level of preference (Consumer, 2010, p. 1). With brands such as those of Toyota, Honda and Ford among others being preferred over Tata with respect to all the aspects of the research, it is a clear indicator that regardless of the lower price of the Tata brands, they might not be preferred among those that have enough money to purchase the brands such as Toyota which have also diversified to realize production of cheap car models.
The lowly priced productions of the company which has been associated with inefficiency with respect to aspects such as safety, value and quality among other car properties has thus in the long run worked to the disadvantage of the company. Other companies in the motor vehicle industry therefore have the capacity to beat Tata both in the international market as well as in India which the companies have infiltrated (Consumer, 2010, p. 1).
Another survey that ranked vehicle brands with respect to number of problems registered per one hundred vehicles also reveals lack of efficiency in the vehicle model. According to the survey, Honda closes the list of top five with ninety nine problems registered out of every one hundred vehicles sampled. Tata vehicles are therefore characterized with at least 100 problems per 100 sampled vehicles.
This reveals a probability that each and every Tata brand of vehicles have problems. Such cases of problems associated with its vehicles may turn customers away from the company’s brands (Top, 2011, p. 1). Tata together with the entire Indian auto mobile industry has also been criticized with poor strategy in its attempt to acquire market for its products.
Though the company has realized growth in market control, it is feared that this influence could be short leaved. The company has been criticized for not employing modern technologies in its production and marketing processes. One of the poor strategies that have been realized of Tata is the offensive move to counter competition that it realizes in the market without appropriate long term plans.
A move that Tata has not yet identified though is perceived to be of great benefit to it is the reduction in its expenditures and development of the quality of products that it offers (Rediff, 2004, p. 1). Weaknesses facing the company are also reported to include lower return on investment which gives reflection of low profitability. The company’s sales in India are also reported to be less than its targets besides its inability to capture the market of luxury cars (MBA, 2009, p. 1).
The issue of Tata’s acquisition of Jaguar and Land Rover
Though Tata has had a past of acquisitions and mergers with other companies especially in the bid to expand its market influence, it ought not to acquire the two brands of vehicles, Jaguar and Land Rover.
Available options to Tata group
Though the Tata group has majorly resorted to mergers and acquisitions in its bid to expand, especially to the international market, it in general terms has a variety of options for expansion of its market in foreign countries.
Ansoff’s growth matrix
One of the strategies that the group can adopt is the matrix approach that is based on consideration of both market forces and the organizations products. Under this approach, considerations are made with respect to existing markets and products as well as possible new markets and products. The approach then gives rise to elements such as “market penetration, product development, market development and diversification” (Action, n.d., 1).
Market penetration: market penetration refers to the move by a firm to increase its control of an existing market. Under this move, the Tata group can make efforts to capitalize on the control of its domestic market that it has experienced and has good knowledge of. This approach may be less risky and relatively cheaper for the company as compared to the acquisitions that are directed to new and distant markets from the firm’s original location.
Market development as an approach to the matrix method on the other hand entails the introduction of an organizations existing product into new markets. The market could be the organization’s domestic or a foreign one. Under this approach, the group can resort to exploring its unexploited markets in terms of geographical regions and social classes.
It can take its products to these markets and employ marketing strategies to increase its sales in these markets. This, if successful can enable the company to increase its sales and hence its revenues and profitability. Product development on the other hand establishes new products into an existing market. With this approach, the firm can enter into innovations of new brands of commodities such as its own initiatives into new brands of luxury vehicles for example.
With its originality, the organization can then take advantage of the good will that it has over time developed in India and its other markets. Following the company’s ability that has given it market share in the past, its newly introduced products will be acceptable and even perform better if they are associated with developed quality and efficiencies.
Tata can similarly introduce its new products and venture them in entirely new environments. Such could have been the case instead of acquisitions. The company could have been introducing its originally invented products into markets such as the United States, Europe and even other regions like Latin America and Africa. The diversification approach can be in the organization’s lines of production or can be ventures into other lines such introduction of a different commodity (Action, n.d., 1).
Franchising and licensing
The use of franchising and licensing over intellectual property is another avenue that the company can employ to help it improve its revenues. With relatively less investments into inventions, the company can earn from contracts over its intelligence. The advantage behind franchising is the fact that it is not capital intensive and is therefore less risky once the property is established. Such moves will also help Tata in developing capacity into innovative moves for more quality products (Action, n.d., 1).
Public equity
Generating funds from public investors into major development steps that could only be unaffordable to the company can also be a strategy. Given enough resources such as finances, the firm can for instance have the capacity to develop new brands and their manufacturing sites in its domestic and foreign markets. Direct ventures such as increasing its direct exports into foreign markets are also a positive move (Action, n.d., 1).
Foreign direct investments
Another venture that Tata could have adopted in its initiative to diversify into international market is through foreign direct investments into its target countries. With the general wave of countries encouraging for foreign direct investments with even government initiatives to facilitate the same, Tata could take the advantage to establish its production units in foreign markets (Bento Joao, 2009, 2).
Evaluation
The decision against Tata’s acquisition of the two models is based on the circumstances that have surrounded the vehicle brands. One of the issues that clouded the acquisition of the brands is the economic downfall in the brand’s dominant markets which is the United States and Europe. With the melt down, Tata company was undertaking a risk that could impact its financial stability.
This is because the vehicle brands had in the first place been associated with significant loses and coupled with the poor economic status in their markets; Tata stood a risk of failing to recover its investments in the two brands. The currency factor that would over time change due to cross border transactions also posed a threat to Tata’s financial interests in the transaction.
The move thus put Tata’s profitability at great risk (Icmirida, 2008, p. 7). Another challenge to the acquisition would be the barriers in the culture between the operational set ups of the acquired brands and that of Tata’s India. In India for instance, there is an established culture that any business that is crumbling can be revived even under limited resources and poor business environment.
Though this is a good philosophy, it is not very promising in environments where productions are based on efficiencies and resource limitation is not a factor. The two brands that are at their poor financial states might not be successfully revived to a competitive level with other European and American brands as would be possible in India where domestic competitors depend on the philosophy (Thite, Wilkinson and Budhwar, n.d., p. 2).
The poor quality production reported of Tata, that could be associated with its Indian philosophy of working under limited resources, could as well pose a threat to the development of the already loss oriented car brands. This is actually significant in the environment where unlike India, quality is given preference. The investment might therefore not pick up to sustainability (Hall, 2011, p. 1).
The general trend that was adopted by the firm in its move to venture into the international market appears to be more risky relative to other available options for expansion into international markets. Measures such as the growth matrix and exportation allow an investing entity a basis of originality that could drive well among customers.
Direct foreign investments that are well initiated with established authority and rights of the investor are another positive avenue for expansion. Acquisitions and mergers especially with entities that are not profit making in on the other hand a more tasking initiative (Action, n.d., 1), (Bento Joao, 2009, 2).
Recommendations
Regardless of the company’s moves to expand its market control in the motor vehicle industry, it is still faced with problems such as inefficiencies in its production processes leading low quality products. The company should therefore develop a strategy into transforming its operations to be in line with the level of technology and quality in the market.
This will help the company’s products to gain preference among consumers. The company should also take measures to directly improve its image in the market. Contrary to moving to have acquisitions as a strategy to increasing its sales, the company should concentrate its efforts on marketing its cheap brands in developing country where customers might resort to lower cost as opposed to expensive brands.
The company also has better and safer approaches into the international market. Instead of rushing into acquisitions and mergers, the firm can independently make avenues into the international markets. Foreign direct investments, exportation and market expansion would be better for the Tata group of companies.
Conclusion
The Tata group having been established as a family business developed over time to have independent subsidiaries. Its development has also included diversification of its market by acquiring enterprises in international markets. The company is however characterized by a weak system that produces poor quality products.
Its move to acquire Jaguar and Land Rover don’t seem to be a good move following its weaknesses and the threats that such acquisitions are associated with. On the contrary, the firm should have adopted other techniques in exploring the international market.
References
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