Tata Motors is an automotive manufacturing company based in India. The company specializes in the design, development, assembly, financing, manufacture, and sale of Tata vehicles. In addition, it sells accessories, and spare parts. The company has its primary operations in India, South Africa, Thailand, South Korea, Spain, the UK, and Bangladesh.
Tata has its headquarters in Mumbai India with approximately 52,244 employees. For the fiscal year ended march 2011, Tata recorded revenue of $26860 million representing a 33 % increase over the 2010 period. Its operating profit over the same period stood at $1,068.2 million in 2011 compared to $156.4 million in 2010.
Current Strategies Pursued by Tata
The companys main strategy is to expand its global presence. The company is moving quickly in acquiring other companies in different countries to expand its business globally. According to Goldman (2), Tata has successfully built a sound business in South Africa, which is a key element in its current global expansion strategy.
Tata is not new in acquisitions; in 2000 the company bought Tetley Tea a company based in the UK that was suffering from losses. This was the companys first major acquisition.
According to Krishnan (4), the companys acquisition of two premium vehicle brands Jaguar and Land Rover may boost the companys image as an international company; in addition, it will help the company in its up scaling efforts similar to the way the acquisition of Tetley Tea Ltd boosted Tata Tea Ltd and Corus Group Plc (Carty 2).
Aims and Objectives
The objective of this report is to carry out a detailed strategic analysis for Tata Company. The analysis will be based upon secondary from the Internet including the companys financial statements, case studies, and other online sources.
The aim of this report is to provide a useful strategic analysis that can be used not only as point of reference for Tata motors but also as a theoretical framework for undertaking the companys valuation.
The report may be used as a primary guide for researchers who seek to appreciate and understand Tata company strategies and also get a practical perspective about Tata as a public listed company.
Methodology
An in-depth analysis of the companys strategy will be undertaken. In analyzing the companys strategy, the report will make use of both qualitative and quantitative analysis based on the data and information gathered from various online sources, published reports about Tata company, and the companys website. The conclusion arrived at shall be a mix of the students own belief as well as factual presentation.
Scope of the Report
The scope of this report is academic and will be based on academic data in addition to past academic and professional analysis of Tata motors. We will present the entire report as a practical framework based on research findings about the company and apply the findings of the research to Tata Motors.
There are two major areas that will be covered that include SWOT analysis (strengths, weaknesses, opportunities, and threats), and PEST Analysis (Political, Economic, Social, and Technological).
Limitations
The report and the analysis will be done based upon data and published reports sources from recognized business databases on the Internet. It will be done from the students point of view for academic purposes; as a result the output may not qualify as a complete analysis of Tata company.
Even though maximum efforts will be applied to ensure that both the analysis and the conclusion arrived at will be as comprehensive as possible and can be adopted in professional scenarios.
PEST Analysis
Political
Given that Tata Motors operates in several countries across Asia, Europe, Australia, Middle East, and Africa, it has to consider the political environment, including regulations and laws in the specific countries in which it operates. Regulations that govern trade, commerce, investment, and growth are largely influenced by the political climate.
A good example is in 2008 when Tata reached an agreement with a UK based Ford to purchase Land Rover and Jaguar. To do this, it had to fully comprehend the laws that regulate commerce in its home country in addition to the countries where Jaguar and Land Rover operate in.
As Tata advances in its global expansion strategy, it is important that it keeps an eye on political changes. The Tata head office reports that India has very strict regulations that govern the regulations of the company in all its dealings and its subsidiary operations (Tata Motors Limited 1).
Economic
Given its presence in several continents, Tata focus its marketing strategy on the individual markets while keeping a close watch on the global economic developments. From 2004, the company has expanded its global presence through joint ventures.
For this reason, it must understand the global economic perspective, to learn, and adapt to the different regions which it operates. Given its wide presence, the company has a competitive edge in gathering of resources and information.
For instance, if aluminum prices go up in Africa, Tata has the choice of sourcing them from other suppliers in Europe or Asia at an affordable cost (David 5). The exchange rates equally affect the companys business. Fluctuations in the exchange rate can significantly affect the companys profitability it can also imply that costs increase or reduce in return.
For this reason, the company has to pay a closer attention not only to the Indian currency (rupee) but also other currencies, including the pound, dollar, euro among others (Krishnamoorthy 4).
Social
How well Tata performs is determined by the opinions, general attitude, and beliefs of all the stakeholders in the organization. The stakeholders include the companys management, employees, and suppliers. The attitudes and culture possessed by the stakeholders ultimately influences Tatas future in terms of profitability.
It is because of this that Tata tend to use an integration strategy for the new companies it acquires in various continents. Demographic characteristics equally affect the company. For example the demand for cars in India significantly differs from the demand for cars in Italy.
The Indian market is significantly large than that of Italy in addition, the company has to take into account the individual purchasing power in each market. In Italy for example, individuals have higher incomes as such they can afford to drive big luxury vehicles.
Cheap vehicles like Tata Nano can do well in India than in Italy. The social factors significantly affect the companys marketing and product design strategies.
Technology
In terms of technology, Tata motors in one of the leading companies in the industry. Given its global presence, the company has a significant pool of resources and experience that it can use to undertake research and development initiatives.
The company translates the needs of the customers into products desired by the customers through innovative research and development (Tata 4). The company employs approximately 1400 engineers and scientists. In addition, it has a Research and Development team that meets the international standards and leads in the Indian market.
With the automotive industry, individual manufacturers must keep pace with technology given the emerging problems of high fuel prices and global warming. The company must invest sufficient resources in Research and Development to come up with new innovative solutions that can address these problems and keep the company viable.
SWOT Analysis
Strengths
Tata has an upper hand in innovation because it is fully committed to Research and development. It ability to design the Nano, the least expensive and fuel efficient vehicle that retails at only $2500 represents a better deal than what the other companies have developed.
This gives the company a competitive edge over its competition. In addition, the company has diversified its production because it production ranges from the most expensive tractor trailers to the cheapest Nano cars. Because of this the company can satisfy customer demands in various market segments.
Similarly the company enjoys a good public image because of its corporate responsibility initiatives, especially charity donations and its environmentally friendly initiatives. In 2000, the company produced the first compressed natural airbus OneCat that neither has gas costs nor carbon emissions (Corporate Governance 7).
This has made the car quite attractive for the developed markets. The way the company manages its acquisitions is a strength. As part of its global expansion strategy, whenever it acquires a foreign company, it keeps intact not only the companys structure but also the existing management team.
Weaknesses
A major weakness that the company faces is its inability to satisfy the safety standards. Even though the company has succeeded in making one of the cheapest cars in the market, the company has not met the legal factors that form part of the safety measures.
Some quotas have questioned Tata Nano; they argue that as a car manufacturer, Tata should ensure the safety of its consumers at all costs. They doubt if Tatas cheapest car is safe to drive. For the last one decade, the company specialized in passenger cars.
From the customers’ point of view, the period is not long enough and because of this, the company is not fully experienced in car manufacturing.
In 2011 December, the company had to recall approximately 1.4 million Nano cars to replace their faulty starter units. The replacement affected all cars that had been produced from 2009 when the new car brand was launched. This cost the company approximately $21.8 million.
Such recalls have a negative impact o the companys profitability because the replacement costs adverse effect on the operating results. In addition, product recalls affect public perception of the company because the products are viewed as possessing less quality and this could strain the sale of Tata Motors Company.
Opportunities
The creation of new products by Tata will most likely enhance consumer confidence and interest in the company. The company launched a number of new products in the 2011 financial year, including Tata Prima Construck in India, Tata Indica eV2 in India, XKR-S at the Geneva motor show Tata Venture in Rajasthan, Tata Magic IRIS, and Tata Ace Zip.
In august 2011, the company launched a modified version of its premium hatchback. Its new products development in various markets across the world will significantly improve the companys product portfolio resulting in increased sales and growth. This will also help in growing the companys brand image.
Second, the company is better positioned to benefit from the high-demand for diesel cars in India. In the last one year, India has seen a significant increase in the demand for diesel cars. The increase in demand is highly attributed to petrol prices deregulation in June 2010 that saw petrol prices rice by a margin of 30 %.
Compared to petrol, in India, diesel fuel is mostly used by manufacturers, and farmers. These groups enjoy subsidized rates. The increase in the prices of petrol in the previous two years has encouraged consumers to shift toward more fuel efficient cars. For the fiscal year 2011, diesel cars had a total market share of 40 % of all the cars sold in India.
The Indias Automobile Manufactures reports that from 2011 the sale of diesel cars increased by more than 24 % whereas the sales for petrol cars declined by 16 %. Currently in India the demand for diesel car models account for approximately 80 % of the total market. Tata has positioned itself t benefit from the increased demand for diesel cars in India.
Hybrid vehicles are equally another opportunity for Tata Company. As consumers become more environmentally conscious, they demand for eco-friendly cars. In addition, increasing oil prices and government regulations aimed at reducing global warming and pollution, are pushing people toward hybrid electric vehicles.
The main markets for electric vehicles are majorly the United States, Japan, and Western Europe. However, the rapid economic growth that China is experiencing, it is expected that the demand for hybrid electric vehicles will increase in the country.
In 2010, the world hybrid electric vehicle market recorded a sales turnover of $33 billion, and the market is expected to register yearly growth rate of 18 % between 2010 and 2015.
As a company, Tata has positioned itself to capture a significant share of the market for hybrid electric vehicles. In the UK Tata Motors is one of the leading green-technology automotive companies. In 2011, the company launched a land rover with an advanced plug-in hybrid diesel technology.
The launch was done at the Geneva motor show. The company’s focus toward hybrid vehicles will enable it to benefit from the positive market growth in this sector.
The India’s automotive industry is equally expected to deliver positive growth. The industry is growing at a faster rate and currently India takes the second position as the fastest growing car market.
Future growth of Indias automobile sector will benefit from increased economic growth, high disposable incomes, high population, and change in peoples lifestyles.
In the passenger cars segment, it is projected that growth will average 13 % annually from 2011 to 2015. By 2015, it is projected that India will be the seventh largest car market in the globe. By 2020, India will be the worlds third largest market after the United States and China.
Threats
Stiff competition is a threat the company faces. The world automotive industry is highly competitive and with increasing global consolidation and globalization the competition will increase even further. Competition will be more stiff in the in the premium vehicle categories as all market participants tighten their strategies to maintain their market share in established markets.
A number of factors affect competition and these include: product features and quality, development time, innovation, a companys ability to manage its costs, pricing strategy, safety, reliability, fuel economy, and customer service. With the Indian market Tata faces stiff competition from Hyundai, Suzuki, General Motors, Ford, Fiat, Honda Motors, Mitsubishi Motors, and Mahindra & Mahindra.
Its premium vehicle categories like Jaguar compete with established European brands for example: Audi, Lexus, Mercedes Benz, Volkswagen, Infiniti, and Porsche.
The Land Rover on the other hand competes with vehicles made by Nissan, Isuzu, and Toyota. The high competition is highly likely to increase price wars leading to pressure on the companys profits and loss of market share.
Environmental laws and regulations equally pose a significant threat. As a vehicle manufacturing company, Tata is expected to abide by government regulations pertaining to carbon emission levels, safety, noise, and pollution from its production facilities.
Given the current state of global warming, governments will be even stiffer in enforcing the regulations, and this may adversely affect the companys financial performance. In particular, Europe and the United States have very strict regulations relating to vehicle emissions.
Given that Tatas Land Rover and Jaguar brands have well established operations in Europe and UK. In addition, other markets where Tata has interest have begun defining their Greenhouse gas standards including Korea, China, Switzerland, Japan, South Africa, and Australia.
In order for Tata to comply with future and current environmental regulations, Tata will have to incur significant capital outlays and research and development expenditures. This will be necessary to upgrade not only its products but also the manufacturing facilities. If the company does this, its costs, and operational results will be affected (Chang 6).
The poor economic outlook for Europe and the United States is another potential threat. In 2008 the world suffered one of the worst financial crisis in history. The recession that followed negatively affected the economies of the United States and Europe.
According to a report by the International Monetary Fund (IMF), the output from the two regions will remain below their market potential. The United States is trying to regain its foothold; however, the economy still weak growth coupled with slow job recovery. Similarly, the weak household finances, housing market, and reduced consumer purchasing power have worsened the downside risks.
The U.S. economy is forecasted to grow at an average of between 1.5 % and 1.7 % in the 2011/2012 fiscal year. At the same time, Europe suffers high public deficits, increased market instability, and low potential output.
All these factors have come into play to reduce the rate of economic growth. Growth in real Gross domestic product (GDP) within the Euro area is forecasted to decline from two percent in the first half of 2011 to only one percent in 2012.
In addition, the ongoing financial challenges facing the region are likely to result in limited credit creation and lower confidence. Given that Tata Motors Company gets approximately 35 % of its revenues from Europe and the United States, such a weak economic environment can adversely affect the companys growth prospects and revenues (Korzeniewski 2).
Based on the strategic analysis, Tata is a strong company that has gained significant competitive edge from its global expansion efforts through mergers and acquisitions, and its parent company Tata Group. The company has the right foundation in pace and is well placed to advance its international growth strategy in the selected regions.
Works Cited
Carty, Sharon. Tata Motors to buy Jaguar, Land Rover for $2.3B. USA Today. 2009. Web.
Chang, Richard. Can Detroit be relevant? The New York Times. 2008. Web.
Corporate Governance. Tata group. Tata. 2012. Web.
David, Ruth. Tata Motors: ready to take on the world? Forbes. 2012. Web.
Korzeniewski, Jeremy. A new agreement between Tata Motors and MDI Bring the air-car closer to reality. AutoblogGreen. 2007. Web.
Krishnamoorthy, Anand. Jaguar purchase drives Tata Motors shareholders to end holdings. Bloomberg. 2008. Web.
Krishnan, Ravi. Tata small car throws a big punch. Livemint. 2008. Web.
Tata Motors Limited. Profile. 2012. Web.