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Tata Motors and the Fiat Auto: Joining Forces Case Case Study

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Updated: Feb 22nd, 2021

Business Opportunities in India

In July 2006, Fiat and Tata Motors signed a joint venture strategy (Cullen, 2011). Fiat entered the alliance because of the business opportunities that existed in the Indian market. One such opportunity was the chance to increase its brand presence in the Indian market without much investment. Indeed, the alliance specified that Tata Motors would stock some of Fiat’s brands in its vast care dealerships, thereby increasing Fiat’s brand presence (Cullen, 2011). This opportunity further led to the creation of marketing and employment opportunities for Fiat India because the company would use joint marketing and advertising strategy with Tata Motors, thereby capitalizing on the benefits of economies of scale. A deeper analysis of the joint venture between Fiat and Tata Motors also reveals that Fiat India was going to benefit from the opportunity to reduce its costs through cheaper component sourcing (Cullen, 2011). Through these cost advantages, Fiat planned to increase its Indian investments in component parts sourcing to about $10 million (Cullen, 2011). Comprehensively, the Indian car market provided many opportunities for Fiat to expand its business.

Could Fiat Benefit from a Partner?

Based on my understanding of the Fiat-Tata joint venture, it is important to acknowledge that Fiat cannot thrive in the Indian car market alone. The Italian car giant would therefore benefit from a partner in the process. Particularly, it is important to emphasize this fact because, despite Fiat’s prolonged brand presence in the Indian car market, the company only commands less than 1% of the total car market (Cullen, 2011). Most of Fiat’s problems stem from the issues that attracted it to the Tata joint venture – poor distribution network and the lack of affordable spare parts. Collaborating with a local company was therefore a sound strategy that would have solved some of these problems. Particularly, Tata could help Fiat to improve its Indian brand presence because Tata enjoyed expansive sales, service networks, and distribution networks than many car dealers in the country (Cullen, 2011). Lastly, Fiat needed a partner to venture into the Indian car market because it had a poor financial position that could not support independent investments in India. Cullen (2011) says that the company’s financial troubles in Europe dented its prospects of financing global investments. Therefore, Fiat could not venture into the Indian car market without a partner. Overall, Fiat could benefit from a partner.

Can Fiat and Tata Make Good Partners?

Fiat and Tata do not make good partners. Although both companies could benefit from the joint venture, the cultural, structural, and managerial differences between the two companies make it difficult to merge different aspects of their operational strategies. Particularly, it is important to understand that Fiat is an Italian company and Tata Motors is an Indian company. Both organizations developed from different organizational cultures and business acumen. Stated differently, both companies have different organizational practices that make them structurally incompatible. Furthermore, the cultural differences between both firms are highly visible and difficult to ignore. An example of the failed merger between BMW and Rover group explains the seriousness of such differences because the failed merger showed that “small” cultural differences, like language, could significantly contribute to the failure of a merger (Grubb & Lamb, 2001). Details of this merger reveal that after conducting a feasibility study of merging with an established brand like Rover Group, BMW acquired the British carmaker, in 1994 (Grubb & Lamb, 2001).

Like the Tata and Fiat merger, both companies were optimistic about the prospects of increased economies of scale, increased brand presence (like Fiat), and other benefits associated with joint ventures and mergers (Grubb & Lamb, 2001). However, a post-merger analysis of the deal shows that the cultural and structural differences between both companies led to the failure of the merger. Here, it is important to highlight the cultural differences that led to the collapse of the merger because Grubb & Lamb (2001) say the inability of both companies to create organizational synergy through employee communication failed. This failure occurred because both groups of employees failed to understand one another (BMW employees spoke German, while Rover employees spoke English) (Grubb & Lamb, 2001). It is also pertinent to understand that most mergers involving companies that share the same geographic location (Europe – as for BMW and Rover) can fail. Mergers that involve companies from different continents are even “shakier.”

The failed joint venture between Fiat and a different Indian company, Premier Automobiles provides a second example that explains why Fiat and Tata are incompatible partners. In the agreement, Fiat contracted Premier Automobiles to manufacture some of its brands, like the Fiat 1100 (Saxena, 2009). However, after close to a decade of partnership, the joint venture failed because of structural and managerial differences between both companies (Saxena, 2009). Since Fiat failed to succeed in this joint venture, its alliance with Tata exposes the structural incompatibilities that exist between the company and some Indian companies. Overall, the above insights show that Fiat and Tata do not make good partners.

Possible Challenges that Could Affect the Partnership

Business partnerships could provide immense benefits to organizations if companies manage partnerships well. However, poor management leads to the failure of such agreements. This fact informs why the Chartered Institute of Management Accountants (2010) says 40% of joint ventures fail before their fifth anniversaries. However, joint venture agreements have unique challenges that could lead to the success, or failure, of the partnerships, if they are properly, or poorly, managed. One challenge that could affect the long-term viability of the Tata and Fiat alliance is insincerity in the partnership. Often, different companies participate in joint venture agreements for different reasons. This is especially true for Tata and Fiat. A closer analysis of this partnership shows that Tata has an upper hand in the alliance because it controls the distribution networks that Fiat (desperately) needs. Moreover, most of its vehicles are fast-moving. Grubb & Lamb (2001) say conventional business acumen suggests that most dealers prefer to focus on fast-moving vehicles because they provide them with high margins. Based on this fact, Tata may be insincere in the joint venture and continue to “push” its products more than Fiat’s. This possibility would affect the long-term viability of the partnership.

Business Case for a Joint Venture Strategy

The Chartered Institute of Management Accountants (2010) says that joint ventures are vital for businesses that want to expand their markets, develop new products, and expand their global presence. Through these needs, joint ventures can provide prospecting companies with greater access to established markets and distribution networks (Chartered Institute of Management Accountants, 2010). Fiat India suffered from a negative brand image that stemmed from poor customer services and the lack of spare parts among Fiat car dealers in India (Cullen, 2011). The joint venture provided a solution to this problem because, in the agreement, Fiat’s customers would get quality services at Tata dealerships (and receive car spare parts for their cars as well) (Cullen, 2011).

This agreement provided an opportunity for Fiat to increase its dealership network without investing many resources in the venture. Furthermore, the agreement provided an opportunity for Fiat to improve the quality of its customer service without making significant investments. Broadly, these opportunities provided a platform for Fiat to improve its brand image because poor customer service and the lack of spare parts dented the company’s image in India (Cullen, 2011). Tata Motors, therefore, provided a platform to correct these wrongs. Moreover, since Tata Motors enjoyed a positive brand image in India, its association with Fiat could improve Fiat’s brand image as well. Fiat’s business case appeals to its needs because it sought to have greater access to the Indian car market, which is among the fastest-growing car markets in the world. Moreover, through its joint venture strategy with Tata Motors, it stood to benefit from Tata’s vast distribution networks.

Recommendations for the Alliance to be Successful

Joint ventures are often delicate in business relationships. Their success depends on the proper management of the relationship. For Fiat and Tata, the success of their alliance depends on a few critical issues like establishing open lines of communication and looking for “win-win” situations (Grubb & Lamb, 2001). Since this paper suggests that both partners are incompatible, the possibility of disagreements is high. However, if both companies strive to achieve a “win-win” situation, as opposed to scoring points off each other, the chances of success will improve. Lastly, since this paper also establishes the possibility of structural conflicts between both partners, the parties should establish a flexible relationship to provide a mechanism where the partners could review their problems and solve them. Comprehensively, these strategies should make the alliance successful.

References

Chartered Institute of Management Accountants. (2010). Managing Joint Ventures and Alliances. Web.

Cullen, J. (2011). Multinational Management: A Strategic Approach (5th Ed). Mason, OH: Cengage Learning.

Grubb, T., & Lamb, R. (2001). Capitalize on Merger Chaos: Six Ways to Profit from Your Competitors’ Consolidation and Your Own. London, UK: Simon and Schuster.

Saxena, S. (2009). Automobile Engineering. New Delhi, IN: Pinnacle Technology.

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