Tata Motors And Tata Steel

Business Policy & Competitive Strategy

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Business Policy & Competitive Strategy

TATA Established under the parent company, Tata Group, in 1945, Tata Group Motors Limited has become India’s largest automobile company. It was INTRODUCTION

the first Indian automobile company to list on the New York Stock Exchange. Tata Motors began manufacturing commercial vehicles in 1954 with a 15-year collaboration agreement with Daimler Benz of Germany. This partnership has led Tata Motors to not only become India’s largest automobile company but also India’s largest commercial vehicle manufacturer; the world’s top five manufactures of medium and heavy trucks and the world’s second largest medium and heavy bus manufacturer. Having just entered the passenger vehicles market segment in 1991, Tata Motors now ranks second in India’s passenger vehicle market. Tata has enjoyed the prestige of having developed Tata Ace, India’s first indigenous light commercial vehicle; Tata Safari, India’s first sports utility vehicle; Tata Indica, India’s first indigenously manufactured passenger car; and the Nano, the world’s least expensive car. CURRENT SITUATION The Tata Motors group is a passenger and commercial vehicle manufacturer based in India. The motor group was established in 1945 as part of the larger Tata Group. They have long been known for their commercial vehicles and in the past ten years entered into the passenger car market. Currently, Tata Motors has a line of five passenger vehicles and a large line of commercial vehicles producing pickups, trucks, tractor trailers, tippers, and buses. Both product lines of the Tata Motors group have seen success, but much of this has been built upon the more deeply established commercial vehicle product line. Tata Motors commercial line has been established for several years in many market segments such as Europe, Africa, The Middle East, Australia, Southeast Asia, and South Asia. Tata Motors has expanded their business and market share around the world through a series of acquisitions. In 2004, they acquired Daewoo commercial vehicle Company in South Korea which was South Korea’s second largest truck manufacturer. This acquisition gave Tata Motors a significant presence in the Korean market. They have also entered into joint ventures with Page | 2

Business Policy & Competitive Strategy companies such as Thonburi Automotive in 2006, which allowed them to manufacture and market pickup trucks in Thailand. Tata Motors have been making global headlines in the auto industry lately; the largest news being their acquisition of Jaguar and Land Rover from Ford. “Tata paid 2.3 billion dollars to Ford for the two brands that cost Ford 5.3 billion” (Carty, USA Today). This is a major step for the company because it catapults them into the luxury car business which they are not known for at this time. Tata, like many new businesses it acquires, is allowing this new segment of the business to be run by previous management since they have more experience in the luxury automotive business. “Tata will give us some space. They want us to run our business, be a premium British car company” (Mike O’Driscoll, managing director of Jaguar). This is yet another large acquisition for the Tata Motors group and could create great success for the company in the near future. CORPORATE GOVERNANCE Since Tata Motors is a part of a large conglomerate company it needs to have a strong corporate governance to ensure that its employees act ethically and the business continues to run smoothly especially during the ever changing and dynamic global economy. “Tata Group’s corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance practices” (tatacarsworldwide.com). One of the more important parts of this is the transparency of the company people have a right to know what the company is doing not only to ensure ethical practices, but for the insurance of their many shareholders whom have a right to know the inner workings of the company Tata has created some models for employees to guide themselves through everyday business practices to ensure that the corporate governance is continuously being upheld. The Tata business excellence model is upheld by Tata quality management services. Quality management is an in-house group dedicated to helping the various Tata companies achieve their business objectives through specific processes. The two main processes that the quality management services employees focus on are business excellence and business ethics. These two objectives have helped build Tata into the strong, Page | 3

Business Policy & Competitive Strategy dynamic company it is today. These models are entrenched in the company’s ethnical standards and Tata feels strongly about enforcing both throughout the company. “Tata quality management services plays the role of supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks of business eminence while, at the same time, adhering to the highest ethical standards” (Tata.com). To further prove their commitment to quality and ethical practices Tata has introduced annual quality awards for those companies conducting business with the utmost quality. These awards are called the JRD quality value awards named after the late chairmen JRD Tata. These awards are presented annually on July 29th, the birthday of JRD Tata. Tata has committed to ensuring quality and ethical standards not only within Tata Motors, but throughout their many other branches and sectors of the Tata Group. They have done so by benchmarking quality standards through the Tata business excellence model as well as providing incentives for companies to strive to improve the quality of their service, by awarding JRD quality management awards. FINANCIAL POSITION Tata Motors have increased its earnings over the years through their various acquisitions and joint ventures with truck manufacturers in Southeast Asia. Gross profit in the year 2006 was 1,160.9 million and increased to 1,510.1 million in the year 2007. Earnings after taxes also increased significantly between 2006 and 2007 increasing from 336.6 million to 405.5 million in 2007. After a large drop in revenues from 2004 to 2005 when the company first went public on the NYSE it has been increasing revenues greatly annually, from 4,422.0 million in 2005 to 7,354.0 in 2007. CORE COMPETENCIES Tata Motors is able to maintain, as well as increase, their market share by capitalizing on their core competencies. Tata Motors is active, competitive, and dynamic in all aspects of the automotive industry, which means that there must be many different activities going on in all areas of the company. As a result of the ever evolving automotive industry Tata Motors must always be changing and one way to stay at the forefront of the industry is to make continuous improvements in Page | 4

Business Policy & Competitive Strategy technology through research and development. One way that Tata Motors has done this is by producing one of the most efficient and low cost vehicles on the market. Acquisitions, mergers, and expansion is another core competency that Tata Motors has is embedded in their company structure and philosophy. Another core competency that Tata Motors holds is being located in the India. This location has allowed them to understand not only the Indian market but also the dynamics of emerging and developing markets. This market understanding and knowledge allows Tata Motors to manufacture their products at lower costs, sell them to emerging markets while making profits as well as take advantage of the strong labor base in India.

PEST ANALYSIS POLITICAL Since Tata Motors operates in multiple countries across Europe, Africa, Asia, the Middle East, and Australia, it needs to pay close attention to the political climate but also laws and regulations in all the countries it operates in while also paying attention to regional governing bodies. Laws governing commerce, trade, growth, and investment are dependent on the local government as well as how successful local markets and economies will be due to regional, national and local influence. In accordance, Tata’s headquarters in Mumbai, India, strictly controls and regulates operations in all dealerships and subsidiaries, in addition to knowing and abiding by all labor laws in the multiple countries where they have manufacturing plants it has to watch political change. ECONOMIC Operating in numerous countries across the world, Tata Motors functions with a global economic perspective while focusing on each individual market. Because Tata is in a rapid growth period, expanding Page | 5

Business Policy & Competitive Strategy or forming a joint venture in over five countries world-wide since 2004, a global approach enables Tata Motors to adapt and learn from the many different regions within the whole automotive industry. They have experience and resources from five continents across the globe, thus when any variable changes in the market they can gather information and resources from all over the world to address any issues. For instance, if the price of the aluminum required to make engine blocks goes up in Kenya, Tata has the option to get the aluminum from other suppliers in Europe or Asia who they would normally get from for production in Ukraine or Russia. Tata Motors also has to pay close attention to shifts in currency rates throughout the world. Currency fluctuations can equate to higher or lower demands for Tata vehicles which in turn affect profitability. It can also mean a rise in costs or a drop in returns. But they also have to pay attention to not just the domestic currency, the rupee, but also to the dollar, euro, bhat, won, and pound, to just name a few. Just because the rupee is strong against the dollar does not mean it is strong against all the other currencies. Attention to currency is important because it influences where capital investment will develop and prosper. SOCIAL Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a company will affect how well a company performs. This includes every stakeholder from the CEO and President, down to the line workers who screw the door panel into place,

from the investor to the customer, the culture and attitude of all these people will ultimately determine the future of a company and whether they will be profitable or not. For this reason, Tata Motors tends to use an integration and rarely separation technique with foreign companies they acquire. In 2004, Tata Motors acquired Daewoo Commercial Vehicles Company, which was at the time Korea’s second largest truck maker. Rather than using de-culturation or assimilating Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s current models as well as introducing a few new models globally just as it had been done under Korean management. TECHNOLOGY Tata Motors and its parent company, the Tata Group, are ahead of the game in the technology field. “The foundation of the company’s growth Page | 6

Business Policy & Competitive Strategy is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D” (Tata). Employing 1,400 scientists and engineers, Tata Motors’ Research and Development team is ahead of the pack in India’s market and right with the rest of the field internationally. Among Tata’s firsts are “the first indigenously developed Light Commercial Vehicle, India's first Sports Utility Vehicle and, in 1998, the Tata Indica, India's first fully indigenous passenger car,” as well as the increasingly famous Tata Nano, which is projected to be the world’s cheapest production car (Tata). In the automotive industry, it is becoming increasingly crucial for manufacturers to stay on top of the technology curve with new problems always rising such as escalating gas prices and pollution problems. Tata recognizes this and dedicates lots of resources and time into research and development to be even with or preferably ahead of other competitors, global trends, and changing economies. In all, an automobile manufacturer must change, adapt, and evolve to stay competitive in the automotive game, and this is exactly what Tata is doing with their rapid growth, and extensive research and development.

SWOT ANALYSIS STRENGTHS Tata Motors excels when it comes to innovation through intensive research and development. Their ability to make the least expensive car on the market, the Nano which will retail for $2,500, is far beyond what any other car dealership has created. This innovation gives Tata Motors their main competitive advantage. Tata Motors makes everything from tractor-trailers to the world’s least expensive car. This product diversity grants them a competitive advantage over their competitors because they can satisfy more markets and customer needs. Another strength that Tata Motors possesses is high corporate Page | 7

Business Policy & Competitive Strategy responsibility. They donate a portion of their profits from stock increases towards a specific charity. This highlights Tata Motors overall desire for community improvement while also emphasizing Tata Motors’ high morals and values which is something money can not buy. Tata Motors is unique in a way in which when it buys a company. Tata Motors keeps the original management of that company intact. The company that Tata Motors purchases will look exactly the same in terms of management and organizational structure as if it was never purchased by Tata Motors. WEAKNESSES There are strings attached with every new invention and improvement on products. These strings are Tata Motors weaknesses and what other groups perceive as their weaknesses. One weakness that Tata Motors faces is its inability to meet safety standards. Although they have made the most inexpensive car out on the market, it has yet to pass all the safety standards which is a legal factor. Some consumers and pessimists inquire as to how Tata Motors can make such a cheap car and withstanding a car accident or not just falling apart after hitting something once. Pessimistic people also want to believe that car manufactures are already doing everything they can to keep costs low for the consumer, and if that is the case, then putting the cheapest car out on the market automatically questions if it is safe to drive.Tata Motors only have been making passenger cars for the approximately last ten years. This can be viewed as a weakness from a customer standpoint since a decade does not seem like a lot to consumers and therefore they will think that Tata Motors is inexperienced car manufacturing. OPPORTUNITIES Tata Motors has already opened the doors for many new and innovative ideas, but not only for their company, but their competitors as well which could turn into a threat. One of the major opportunities that Tata Motor faces is that as of right now 90 percent

of China and India’s adult population do not own cars, partly because cars are costly and require more expenses after purchased. So the market for a low-priced car is huge which benefits Tata Motors perfectly since they produce the lowest priced car on the market. This is a huge opportunity for Tata Motors because if they can get their feet into that Page | 8

Business Policy & Competitive Strategy market of people that do not have cars because they cannot afford them, then they will make large profits down the road. China’s total car sales are estimated at over 8 million dollars annually and they were the world’s second largest car market in 2006. China’s government forecasts that demand for cars will top 20 million by 2020. With Tata Motors in the market with the cheapest car, China’s demand for cars will probably increase even more significantly which will in turn increase sales for Tata Motors. As of March 2008 Tata Motors finalized a deal with Ford Motor Company to acquire the British businesses, Jaguar Cars and Land Rover. This is a huge opportunity for Tata Motors since they will acquire the large knowledge base and technologies for producing and marketing luxury vehicles. This acquisition helps them dive into the more mature markets in Japan, Europe and the U.S. The knowledge transfer from these two companies will greatly improve Tata Motors ability to continue to grow and flourish in both developing and developed market segments. THREATS The obvious threat to Tata Motors is intellectual property rights. Tata invented the cheapest car on the market and every automobile manufacturer wants to know how Tata did it. Headhunters are soon going to find out this valuable information and make it available to their own company. This is a huge threat to Tata Motors because at first they had low competition, but once other car manufactures find out how they invented such a low cost car, and then these companies too will jump on board and design their own line of low cost automobiles. On one hand this can be a threat, but on the other it may not affect Tata Motors at all because people will still want to purchase their product since they were the pioneers of all the excitement. Another main concern that Tata Motors faces is that cheap cars in India will have an adverse effect on pollution and global warming because most of the population will be able to afford the cars.

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Business Policy & Competitive Strategy PRESENT STRATEGIC ISSUES  Global Leader/presence both in means of Quality and Quantity.  Security & procurement of raw materials  Entering the new markets  Eliminating the RED color from balance sheet  Struggle to digest the big ticket global acquisitions  Leadership crisis within the company

GLOBAL LEADER/PRESENCE/ INTERNATIONAL IMAGE Over last few years TATA have acquired lot of companies across the globe. They have presence in 8 different sectors with 118 different companies and are working in more than 85 countries. TATA make presence felt in every major market of the world. The future plans of the company must be the consolidation of its image and markets in which it works. To become the leader the company has either acquired new companies , increased the capacity of exiting companies or started green field projects. So as to maintain good international image the company has never compromised with the quality. TATA has big portfolio in the automobile sector from entry level passenger cars , to SUV to luxury brands , Light utility vehicles to trucks , buses , concept car , electric cars to military vehicles etc .. When the TATA acquire new companies it never scrapes off the exiting management instead it mixes a few people from its parent company so as to maintain its international image. Example : In 2004, Tata Motors acquired Daewoo Commercial Vehicles Company, which was at the time Korea’s second largest truck maker. Rather than using deculturation or assimilating Daewoo, Tata took an integrated approach, it did not removed its exiting management but just added two more people in the management from India. TATA motors has set a target move from mid-size player to big player on the world market to 1.8% market share from 0.81% by 2015. With the new acquisition of Jaguar and Land Rover, Tata will have to be careful with how they handle the acquisition. Industry analysts also struggled to see what value Tata could add that had eluded Ford, and what synergies there could be between a maker of trucks and basic cars… and two luxury marques.” Separation could be a good approach for the immediate future to keep the name of Jaguar and Land Rover

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Business Policy & Competitive Strategy distinguishable and associated with the luxury automobile market. Overall, Tata does a good job of integrating some aspects of their

large multi-national conglomerate into new acquisitions; however, the company must also understand that separation from the name Tata can be valuable in some social areas. RAW MATERIALS Security & procurement of raw materials is one of the major issue company faces in this competitive market. TATA steel can acquired of mines and smelting units across the global. TATA motors can go forward in acquiring technology. The TATA Motors have proper distribution channel across India , but its utilization was much below its capacity. Thus Tata Motors also formed a joint venture with Fiat and gained access to Fiat’s diesel engine technology So as to maintain its Security of raw material at different level , TATA have extensive backward and forward linkages and it is strongly interwoven with machine tools and metals sectors. • From mines to chemicals required for Steel production • From engines to complete body for car manufacturing • Relay on scales of economy It also helps them attain the knowledge, technology, and programs that allow them to succeed in that particular sector of the automotive industry or in a particular region or culture. For instance, the purchase of Jaguar and Land Rover allows Tata to enter into the luxury car market without having to research the market, build the technology, among other important aspects of getting into a new market segment. It further helps them enter into the very competitive and highly desirable mature markets in Europe and in future hopes of securing market segments in the United States. Tata Motors is currently in a growth stage as stated on their website: “Tata Motors Ltd is in a mega expansion mode. The investments would be in product development, capital expenditure in capacity enhancement, domestic and international acquisitions and mergers”. RED COLOR Total debt in the company crossed 1,00,000Cr for the financial year 2008-09. Credit rating was brought down from BB- to B+. Company has Page | 11

Business Policy & Competitive Strategy to pay loan/interest of about 20,000Cr by the end of August 2009. Debt ratio has slipped from 1:1 to about 3:1 Most of the companies were acquired when their valuation were at/near their peak level. Acquired companies already had lot of debt collected in their balance sheets example the purchase of Jaguar and Land Rover. Demand fell because of global melt

down. The demand of the steel and Jaguar and Land Rover in the US market have fallen drastically in the last 2 years. These areas were the major markets for the company. The year 2005-06 saw a woping increase in the price of steel due to sudden increase in the demand of steel in the world market. Government removed subsidy on steel import that the TATA were enjoying. But by the late 2007 the demand falled but the government didn’t called back the subsidy removed. When the companies were acquired the rupee was strong against the dollar but now rupee value has slipped from 40 to 50. Above all the loans taken by the TATA in US Dollar or Euro to buy the companies from the banks. Banks have recalled/unwilling to extend the loan was they themselves are face crisis and are not in a state to maintain their liquidity. To come out of this the TATA group will have to dilute its stakes in various companies across the globe. Will have to attract more international clients. Will have to generate funds from groups other companies to pay of the loan by Aug so as to improve its credit rating and thereby avail more loan. LEADERSHIP CRISIS When in early 90ties the Ratan Tata was battling for supremacy with powerful chieftains like Russi Mody of TATA Steel , Darbari Seth of TATA Chemicals and Ajit Kerkar of Indian hotels. A new retirement policy was cooked to goose out these chieftain which stated that executive chairman have to retire by 65 and non executive by 70. But when Ratan Tata turned 68 he avoided the succession question by behaving a bit like Pakistani military dictators who habitually postpone their retirement. Its expected that the Mr. Tata will end up adopting the Vladimir Putin governance model whereby he extents his regime through popular mandate. Page | 12

Business Policy & Competitive Strategy Most of the senior manager in the TATA group are about to retire in a coming year or so. There is much leaders available inside the company who can take the place of the exiting managers. All eyes and speculations are revolving around K N Tata who is supposed to take the place of Mr. Ratan Tata in years to come. He is right now looking after the retail division of the group and in the last few years has help the TATA group to consolidate in the retail sector. NEW MARKET The share of the foreign brands of TATA in Domestic market is less than 10%. Thus there is very large untapped market. Jaguar Cars and Land Rover are not being sold in the

Asian markets , so this new area can be utilized. Electric version of TATA Ace which are being sold in the Australian and European market can also be sold in the Indian and African markets. Many construction/Trucks/Bus which are quite successful in global market can also be sold in all the markets where TATA motors work. NANO which is expected to rolled out by July can also be sold is African and European countries as there is strong demand of small cars. NANO which has put TATA world automobile map should be used to trap the market in the developing countries. Tata OneCAT - the world's first prototype of a compressed air car. To begin production by 2010. Is being planned for European and Australian market only. Good potential in South Africa and Indian market also , TATA should try to capture this markets also. The share of the domestic brands in the international market is less than 18%. Domestic brand like Indica , Indigo and Ace have a good demand in the African market , TATA should try to get hold in this market Different version with international standards should be sold.

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