Tata Motors Limited Comprehensive Strategic Analysis

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Tata Motors Limited (TML) Team Project C562 – Developing Strategic Capabilities November 24th 2008 – February 29th 2009 Indiana University – Kelley School of Business

Team Members: Krishna Tavvala Matthew Brinker Peter Eshelman Andrew Matuszak Rahul Shankar

C562 Developing Strategic Capabilities– Team Project: TATA MOTORS LIMITED Krishna Tavvala, Matthew Brinker, Peter Eshelman, Andrew Matuszak, Rahul Shankar

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TABLE OF CONTENTS TATA MOTORS CORE IDEOLOGY........................................................... ................................ 5 TML’s BIG, HAIRY, AUDACIOUS GOALS (BHAGs) ........................................................ ...... 7 TML’s PROMINENT STRATEGIC BUSINESS UNITS (SBUs) ................................................ 8 PROJECT SBU.................................................... ....................................................... .................. 10 TATA MOTORS LIMITED........................................................................ ................................. 11 FINANCIAL PERFORMANCE .................................................... .............................................. 11 COMPETITIVE ANALYSIS ....................................................................................................... 15 A New Playing Field ................................................................................................................ Marquee Brands....................................................................................................................... Overall Competition ................................................................................................................. Other New Entrants ................................................................................................................. Supplier Relationships ............................................................................................................. Strategic Alliances....................................................................................................................

16 17 18 19 20 20

BRUTAL FACTS ........................................................... ........................................................ ...... 21 CORE COMPETENCES ...................................................... ........................................................ 24 Corporate Governance, Management & Human Resources ................................................. 24 Research & Development......................................................................................................... 25 Purchasing & Supplier Relations............................................................................................ 26 Manufacturing ......................................................................................................................... 26 Distribution Process................................................................................................................. 27 Social & Environmental Initiatives ......................................................................................... 28 Information Technology .......................................................................................................... 29 Brand Image & Marketing ...................................................................................................... 30

DEFICIENCIES......................................... ........................................................ ........................... 31 Government & Public Relations Influence............................................................................. 31

FOX OR HEDGEHOG? ........................................................ ....................................................... 32 CUSTOMER PERSPECTIVE................................................................... ................................... 33 PERFORMANCE IN MEETING CUSTOMERS’ NEEDS ........................................................ 36 SWOT ANALYSIS ............................................................................................... ....................... 37 Strengths: ................................................................................................................................. 38 Domestic Stronghold ....................................................... ...................................................... 38


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Positive Brand Image ...................................................... ...................................................... 39 Atmosphere of Innovation ..................................................................................................... 39 Location ....................................................... ........................................................ ................. 40 Weaknesses: ............................................................................................................................. 41 Straddling Segments ........................................................ ...................................................... 41 Employee Productivity .................................................... ...................................................... 41 Opportunities:........................................................................................................................... 42 International Growth ...................................................... ...................................................... 42 New Product Lines ........................................................................................................ ........ 43 Threats:..................................................................................................................................... 44 Competition .......................................................................................................... ................. 44

ALIGNMENT with MARKET needs................................................................................... ........ 45 BALANCED SCORECARD..................................................................... ................................... 46 Customer Perspective ............................................................................................................... 47 Innovation and Learning Perspective....................................................................................... 48 Internal Business Perspective ................................................................................................... 48 Financial Perspective .................................................. ............................................................. 49

Three Circles of Tata Motors........................................................................................................ 50 What is TML passionate about?.............................................................................................. 51 What drives the economic engine at TML? ............................................................................ 52 What can TML be the best in the world at? ............................................................................ 53

RECOMMENDATIONS...................................................... ........................................................ 54 Recommendation I: Increase Labor Productivity................................................................... 54 Rationale ...................................................... ........................................................ ................. 54 Anticipated Resource Requirements ..................................................................................... 55 Implementation Issues ..................................................... ...................................................... 57 Anticipated Benefits and Consequences: .................................................... .......................... 58 Recommendation II: Increase Investment in High End Luxury Market............................. 59 Rationale ...................................................... ........................................................ ................. 59 Anticipated Resource Requirements ..................................................................................... 60 Anticipated Benefits and Consequences ..................................................... .......................... 61 Recommendation III: Differentiated Marketing and Branding Ef forts................................ 61 Rationale ...................................................... ........................................................ ................. 62 Anticipated Resource Requirements ..................................................................................... 63 Anticipated Benefits and Consequences ..................................................... .......................... 64


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Recommendation IV: The Nano.............................................................................................. 65 Rationale ...................................................... ........................................................ ................. 65 Anticipated Benefits and Consequences ..................................................... .......................... 66 Anticipated Resource Requirements ..................................................................................... 69

APPENDIX.................................................................. ......................................................... ........ 70 Tata’s Core Values and Purpose at the SBU-Level ................................................................ 70


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TATA MOTORS CORE IDEOLOGY

To define the Core Ideology of Tata Motors Limited (“TML”; traded on NYSE as TTM; a public subsidiary of Tata Sons Limited) we should begin with defining TML by what it is not: TML is not just an automotive manufacturing company. How is TML not just an automotive company? To better understand this we need to look at TML in two respects. The first thing you will notice when you read a description of TML is the breadth of its operations. While the company succinctly states that “the company’s operating segments consist of automotive operations and other operations,”1 the “other operations” include diverse businesses that range from financial investment companies to factory automation, from IT services to the production of construction equipment.2

While this may show how TML is not just an automotive

manufacturer, to really understand the rationale behind this diversity we need to consider the corporate values and purpose of TML. Undoubtedly TML has made a name for itself through its success in the automotive industry, but look closer and you will see a company with a strong social conscious looking to bring benefit to people’s lives. TML ascribes to the corporate values and purpose of its parent company, the Tata group. On its website, the Tata group clearly states the company purpose: “At the Tata group our purpose is to improve the quality of life of the communities we serve. We do this through leadership in sectors of economic significance, to which the group brings a unique set of capabilities. This requires us to grow aggressively in focused areas of business.”3 Thus, the diversified portfolio of TML’s operations is not mere coincidence; it is the result of Tata’s purpose to better people’s lives through its business operations. One example of how

1

One Source Report; Tata Motors Limited, 18 December, 2008. Ibid. 3 http://www.tata.com/aboutus/articles/inside.aspx?artid=CKdRrD5ZDV4= 2


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TML is currently achieving this purpose is the creation of the new line of automobiles named the “Nano,” deemed by Forbes Asia as the “Next People’s Car.”4 It has received this title because it was created to be the world’s cheapest car, with an estimated sale price of $2,500 USD. This will make automobiles accessible to vast sections of the population who could not previously afford them. Not only will this revolutionize the automobile industry, but it will transform the lives of many poorer individuals and families, first in India and then in the subsequent countries into which TML hopes to expand. The “Nano” will also exceed safety and environmental regulations, consistent with the company’s stated social ideals. Behind this driving purpose to improve quality of life are core values that are important to TML’s culture and organization. These values align to TML’s overarching vision of being the “best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics.” 5 The Tata group provides the following five main core values behind the organization’s culture which help to direct TML and its business units in day-to-day operations, as well as in multi-billion dollar investment ventures: 

Integrity: this includes honest business practice that can stand up to public

perceptions of ethical and moral conduct; Tata companies aim for “Leadership with Trust.” 

Understanding: this includes looking out for the well-being of others and

working for their benefit. 

Excellence: this includes achieving high standards of quality in TML’s products

and services.

4

http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=view&id=36&Itemid=175 http://www.tatamotors.com/our_world/profile.php

5


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Unity: this includes creating a strong, amiable relationship across all SBUs and

customer bases, as well as ascribing to Corporate Values all the way down to the SBU-level (see Appendix for examples within TML). 

Responsibility: this includes a strong social responsibility to ensure that “what

comes from the people goes back to the people many times over.”6 Briefly put, as part of the Tata group, TML finds value in being a company that can be trusted in all areas of business relationships, as well as by society as a whole. While it finds this value important to the general sense of the greater good, it also finds it important specifically for the good of the sustainability and success of the company itself. TML recognizes that in the long-run, this trust will provide the greatest platform for national and international succ ess.

TML’s BIG, HAIRY, AUDACIOUS GOALS (BHAGs)

In researching TML, several BHAGs are apparent. The first BHAG involves rapidly increasing its global footprint. Ravi Kant, TML Managing Director, has stated, “Over a period of time—in about three to five years—we will be able to match the standards of international automobile manufacturers.”7 This rise to the level of a world-class automotive manufacturer would involve a large quantifiable increase in revenues from outside India with a focus on certain foreign markets. The percentage of TML’s current international revenues is 18.4%.8 A stated goal of increasing international revenues by 200% is certainly audacious. However, this would be an appropriate strategic goal as it would “reduce its dependence on one single economy and one single business cycle,” according to Datamonitor.9

Over the last decade, this BHAG

6

http://www.tata.com/aboutus/articles/inside.aspx?artid=CKdRrD5ZDV4= http://www.tata.com/article.aspx?artid=q63wqXlx5rc= 8 One Source Report; Tata Motors Limited, 18 December, 2008. 9 Ibid. 7


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has led to numerous joint ventures and increased activity in countries like the U.K., South Africa, South Korea, Thailand, Brazil and Spain, as well as the company’s listing on the NYSE.10 Additional BHAGs arise in TML’s operations in the passenger car segment. With the recent acquisition of Jaguar Land Rover (JLR) from the Ford Motor Company in early 2008, the company has entered into the world of high-end luxury brands.11 Customers of high-end luxury brands value image and exclusivity factors, while image and exclusivity conflict with the proposition of TML’s other recent venture, the inexpensive Nano—a BHAG in and of itself. In this manner, the decision to compete in both the high-end luxury and the low-end economy markets certainly creates a big and audacious task ahead for TML. If proven successful, this strategy would provide the company with high margin (Land Rover and Jaguar) as well as high volume (Nano) revenues. These two revenue streams, if proven compatible, could mitigate each other’s risks.

TML’s PROMINENT STRATEGIC BUSINESS UNITS (SBUs)

TML’s current strategic business unit (SBU) structure has rapidly evolved through acquisitions, joint ventures, and partnerships over the half-century history of the company. While TML has operations in “other” categories as previously stated, its main focus has always been in the automotive industry. TML’s business in this sector is further segmented by demand criteria, into the following list of major business units: 12 

Commercial vehicles (from light-weight trucks to multi-axle 40-ton vehicles)



Passenger cars, economy and luxury (such as TML’s original economy car, the Indica; today’s Nano; and TML’s new luxury line, the recently acquired Jaguar)

10

http://en.wikipedia.org/wiki/Tata_Motors Ibid. 12 http://www.tata.com/company/profile.aspx?sectid=a4Nd8IHyrqI= 11


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Utility vehicles, standard and premium (such as the jeep-like Sumo and Safari, in the standard segment, and the recently acquired Land Rover line, in the premium segment)



Spare parts, components and accessories (from HV Transmissions and HV axles to high horse power engines via Tata Cummins)



Financing for customers and channel partners (via Tata Motors Finance) This wide range of operations in the automotive industry allows for several opportunities

for synergies. One prominent synergistic opportunity that has received much attention recently is the acquisition of the Jaguar and Land Rover brands from the Ford Motor Company. At first glance, the opportunity does not seem evident: JLR and TML’s other products compete at different ends of the spectrum, and materials, components and technologies do not at face value have any synergies. However, recent reports indicate that cross functional teams from TML and JLR are working to identify opportunities for synergies through TML’s operations in engineering, sourcing, IT and other areas.13 This acquisition also increases access for TML to the European markets, an important consideration for its primary BHAG. Other opportunities arise with Tata Technologies Limited and TML Distribution Company Limited, both wholly owned subsidiaries. TML Distribution focuses on providing logistical support and distribution of TML products in India, and consolidation of logistics under this subsidiary will add to efficiencies between TML’s commercial and passenger SBU’s. Tata Technologies, in a similar light, offers synergies for all business units by providing outsourcing opportunities for IT applications. 14 In addition to synergies, TML’s diverse portfolio of SBUs can be evaluated by their relative contributions to and changes in revenue. Using the well-known growth/share matrix of

13

Tata Motors Q2FY09 Review: http://ir.tatamotors.com/pdf/2008/Q2FY09-Review.pdf http://documents.bmc.com/products/documents/98/29/89829/89829.pdf

14


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Boston Consulting Group and referencing the TML Q2FY09 Review, we believe TML’s SBUs can be divided as follows:15 

Cash flow generator: As a world leading manufacturer, the commercial vehicle

segment of TML can be viewed as its staple source of cash flow, with a revenue growth of 4.2%. 

Potential top performer: Jaguar, with a revenue growth of 17.5%, shows potential

to be a potential future top performer if it manages to tackle other challenges. 

Top performer:

Two candidates for the top performer quadrant in the matrix

currently appear to be Tata Technologies and the light commercial vehicle segment with growth of 24.8% and 17.9% respectively.

PROJECT SBU

Due to its strategic significance in advancing the TML BHAGs we discussed, our team has chosen to focus our term project on the passenger vehicle business unit (PCBU) of TML’s automotive business.

15

Tata Motors Q2FY09 Review: http://ir.tatamotors.com/pdf/2008/Q2FY09-Review.pdf


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TATA MOTORS LIMITED

Tata Motors Limited (“TML” or “the company”) entered the passenger vehicle segment in 1991 with the production of the Indica, the first passenger car indigenously manufactured in India, and is now a top seller in the passenger car market segment in India. 16 Maruti Suzuki India Ltd. is TML’s biggest competitor in the Indian passenger car segment followed very closely by Hyundai, Ford and GM. TML has already expanded its commercial vehicle segment into worldwide markets, and recently it has been increasing its passenger car footprint globally through acquisitions, such as Jaguar Land Rover, and joint ventures, such as with the Italian company Fiat Group and Korea’s Daewoo.17

FINANCIAL PERFORMANCE

Over the past five years, the company has been able to achieve higher returns in comparison to the rest of the industry and about the same return on equity (ROE) as compared to that of Maruti Suzuki India Ltd, its main competitor. Return on Equity:

18

Year End Date TML % ROE of TML compared to industry Maruti Suzuki India Ltd. 19

2004/03 23.8%

2005/03 23.5%

2006/03 18.5%

2007/03 19.8%

2008/03 13.5%

188.9%

297.5%

313.6%

N/A

N/A

15.2%

19.5%

21.8%

22.8%

20.6%

Year End Date Ford Motor Company General Motors

2003/12 6.5% 15.1%

2004/12 21.7% 10.1%

2005/12 17.6% 0.0%

2006/12 0.0% 0.0%

2007/12 0.0% 0.0%

16

http://www.tata.com/company/profile.aspx?sectid=a4Nd8IHyrqI= http://en.wikipedia.org/wiki/Tata_Motors#Joint_ventures 18 http://www.advfn.com 19 http://www.money.rediff.com 17


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TML has been fairly efficient at converting sales into profits during the 2003-2007 time periods and achieved decent profit margins when compared to the rest of the industry. However, the margin did drop slightly to 4% in 2007 from 5.5% a year earlier.

Asset Turnover: Year End Date TML (Average) 21 Ford Motor General Motors

2003/12 2.65 0.5 0.5

20

2004/12 1.45 0.6 0.4

2005/12 1.33 0.6 0.4

Net Profit Margin: Year End Date TML % of net profit margin-toindustry Year End Date Ford Motor Company General Motors

2006/12 1.40 0.6 0.6

2007/12 1.14 0.6 1.1

22

2004/03 6.4%

2005/03 6.7%

2006/03 6.2%

2007/03 5.5%

2008/03 4.0%

213.3%

372.2%

516.7%

-392.9%

-571.4%

2003/12 0.5% 2.1%

2004/12 2.0% 1.4%

2005/12 1.3% -5.4%

2006/12 -7.9% -1.0%

2007/12 -1.6% -21.4%

TML has also been able to generate more sales per every dollar of asset employed when compared to its competitors. TML has been able to achieve higher profits for assets employed when compared to Ford and GM but lesser than its biggest Indian competitor, Maruti Suzuki India Ltd. Return on Assets:

23

Year End Date TML Maruti Suzuki India Ltd.

2004/03 7.8% N/A

2005/03 8.3% 19.9%

2006/03 7.4% 23.3%

2007/03 6.7% 24.0%

2008/03 3.8% 20.6%

Year End Date Ford Motor Company

2003/12 0.2%

2004/12 1.2%

2005/12 0.8%

2006/12 -4.5%

2007/12 -1.0%

20

http://www.advfn.com http://www.money.rediff.com 22 http://www.advfn.com 23 Ibid. 21


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General Motors

0.9%

0.6%

-2.2%

-1.1%

-26.0%

TML’s debt to equity ratio compared to the leverage ratio of its competitor’s was less than 52% until 2006 but it increased slightly to 65% in 2007. Leverage Ratio:

24

Year End Date TML % of Leverage to industry

2004/03 3.0 45.5%

2005/03 2.8 41.8%

2006/03 2.5 41.0%

2007/03 3.0 51.7%

2008/03 3.5 64.8%


2003/12 27.1 17.8

2004/12 18.2 17.3

2005/12 20.8 32.6

2006/12 0.0 0.0

2007/12 49.6 0.0

TML maintained healthy cash flows during the 2003 to 2007 period—more than sufficient to have covered its business obligations during this period. Net Cash Flow:

25

Cash end of period TML (US $ in Millions)

2004/03 150.0

2005/03 111.7

2006/03 142.0

2007/03 177.5

2008/03 284.7

Cash end of period

2003/12

2004/12

2005/12

2006/12

2007/12

Ford Motor Company

21,770.0

23,511.0

31,499.0

28,894.0

35,283.0

General Motors

32,554.0

35,993.0

30,726.0

24,123.0

24,817.0

In spite of increasing the number of employees (primarily due to acquisitions during the 2004-2008), TML was able to increase its revenue per employee until 2006. TML’s revenues per employee remained healthy while its competitors have become bloated. 26

Productivity (change in revenues per employee): Year End Date TML (Income Per Employee in US $Millions)

2004/03

2005/03

2006/03

2007/03

2008/03

7087

10307

10061

12398

9765

24

http://www.advfn.com Ibid. 26 Ibid. 25


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2003/12 2317 11724

2004/12 10734 8657

2005/12 7583 -31218

2006/12 -44569 -7064

2007/12 -31049 -145609

Based on its financial performance, TML’s share price to earnings ratio (PE) is much higher than its competitors. This indicates that the market perceives greater wealth generation potential in TML than in its competitors. PE (Price/Earnings Ratio):

27

Year End Date TML (Close PE Ratio) % P.E to industry

2004/03 0.0 0.0

2005/03 12.1 55.5%

2006/03 23.2 61.4%

2007/03 14.7 N/A

2008/03 17.4 N/A


2003/12 39.0 7.5

2004/12 8.5 8.1

2005/12 6.7 0.0

2006/12 0.0 0.0

2007/12 0.0 0.0

TML’s production is well distributed geographically, and its current position in a growing Indian automotive market should serve well for the company’s future financial performance as it expands worldwide. This geographical dispersion positions the company to minimize consumer demand from one particular market. Although certain regions currently dominate (the EU in 2004), this global footprint may position TML to weather storms (such as the current drop in demand) better than companies with highly concentrated exposures. The pie graph below shows the production rates of automobiles in different parts of world at the end of 2004, along with the previous year’s values.

27

http://www.advfn.com


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Source: VDA Statistics, 2005

COMPETITIVE ANALYSIS

Gaining a complete understanding of the market context of the TML passenger car SBU is an interesting challenge due to the various areas in which the SBU now competes. In general, competition is primarily either a differentiation strategy or a low cost strategy. 28 However, TML has taken the more challenging route and has chosen to compete on both strategies—as demonstrated by its recent decision to offer the ultra-low cost Nano as well the high-end Jaguar and Land Rover brands. Where the Nano targets the common man who is extremely price conscious, the Jaguar Land Rover deal shows us that TML is now targeting brand conscious, high-end consumers. This challenge of serving both ends of the market, together with increased competition from players like Maruti, Hyundai and Ford will make for a challenging period ahead for TML.

28

Scott, Mark C. Value Drivers: The Managers Guide to Driving Corporate Value. John Wiley & Sons, Ltd, Chichester, England, 2004.


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A New Playing Field

The Nano is targeting a market that is still untouched by Tata’s competition. This position presents TML with a number of first-mover advantages but there are challenges that TML will have to overcome to be successful in this endeavor. With most other automakers focusing on larger cars, the Nano may very well be a success not only among the less affluent in India but also in developing countries of the world in South Asia, Africa and Latin America.29 Images like the ones below (Exhibit 1) are a common sight in many cities and towns in countries like India and Vietnam—with the Nano, TML aims to upgrade these families from two-wheel motorbikes to four-wheel passenger cars. Exhibit 1:

Source: www.basia.blog-city.com

The current market share leader in motor vehicles is the two wheelers, at approximately 75%. TML is targeting the typical consumer of the two wheelers as a potential buyer of the Nano. The large percentage of consumers that currently purchase and use two wheelers presents

29

http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek=


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a large market for the Nano. The key is the company’s ability to produce a car that can compete with the two wheelers on price.

Source: http://www.siamindia.com/scripts/market-share.aspx

Of course, although the Nano is the first in this arena, it will face competition. Whenever a market opportunity is created, firms will undoubtedly rush to fill this need. In addition to Maruti, the company might also face competition from Renault, which plans to launch a car priced at around $3000 in the Indian market.30 This competition is evidence that the market segment is viable. Marquee Brands

The Jaguar Land Rover deal presents new challenges for TML. This acquisition, as is the case with the Nano project, presents TML with a number of opportunities. An important big hairy audacious goal (BHAG) for the Tata Group is broadening its global footprint and this acquisition is a step in the right direction. TML will benefit from new found access to the 30

http://www.forbes.com/markets/2007/07/10/tata-motor-capex-markets-equity-cx_rd_0710markets3.html


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European and US markets. This access does come with a challenge. Strict carbon emission laws in Europe, effective from 2012 will be a major challenge for the company as the current emissions levels of Jaguar and Land Rover are well above proposed regulations.31 Looking at the Indian markets this acquisition will potentially allow these vehicles to access the growing luxury segment and also the defense vehicles segment for the Land Rover.32 Analysts have argued and counter-argued about whether this sale is a pride purchase with these brands being a ‘Jewel in the Crown’ or whether TML can actually use their existing skill sets to gain from the acquisition. 33 A problem that potentially comes to mind is a clash of brands between the common man’s Nano and the luxury brands Jaguar and Land Rover. Will high end buyers want to associate themselves with a name that also produces the ever so affordable Nano? What is interesting to consider is that the Tata Group is a brand that has for a long time been synonymous with luxury through their iconic hotels like the Taj Mahal. The company may be able to successfully project this image to their benefit in their marketing of these new luxury brands. Additionally TML can bring benefits to these brands through some innovation and cost cutting measures it has used with Nano and brands like the Indica.34 Overall Competition

The past year has not been the best for Tata Motors in terms of their passenger vehicle segment. While Maruti remained the market leader with 44.86% as of 31 July 2008, Hyundai motors took the number two spot with an increase in market share from 13.96 to 16.91%. At the same time Tata Motors reported a slight fall in market share from 14.89 to 14.41%.35 Ford India

31

http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Tough_road_ahead_for_Tatas_JaguarLand_Rover_ride_in_Europe/articleshow/3078711.cms 32 http://www.thedeal.com/corporatedealmaker/2008/03/whats_in_it_for_tata_motors.php 33 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4226 34 http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2008/03/tata_buys_land.html 35 http://www.carazoo.com/autonews/3107200802/Hyundai-Motors-is-Ahead-of-Tata-Motors


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also had a decline in market share while competitors GM and Mahindra & Mahindra showed an increase in their market share. 36 While the Indigo and the Indica are established brands the lack of introduction of new models in the first half of the year seems to have hurt TML. Additionally company officials blamed the lack of available finance and increasing interest rates for the decline and said that the growth of the segment would be tough.37 Other New Entrants

Apart from the traditional competition, Tata Motors sees competition from China as a significant challenge in the years to come.38 China has five major auto firms that could potentially compete with global brands. While the Chinese market is still dominated by foreign automakers (to an extent that the domestic players control 30% of the market), industry insiders feel that the domestic companies will soon compete globally given the strong manufacturing base capable of great cost effectiveness.39 Competing with the Chinese on cost may be a challenge that Tata Motors might have to face quite soon. Potential Innovation

The product life cycle for Indian manufactured cars has historically been longer, owing to a smaller market that hinders investment recovery. Foreign manufactures have access to much larger markets, which has allowed these other companies to recover investments much faster and focus on newer brands with improved technology. TML has historically competed on price with vehicle development costs roughly half that of their foreign competitors. However the introduction of the Nano and Jaguar-Land Rover potentially change this scenario. If the Nano can successfully enter foreign markets then the increased volumes and increased distribution

36

http://economictimes.indiatimes.com/articleshow/2962640.cms http://www.business-standard.com/india/storypage.php?autono=327008 38 http://www.forbes.com/markets/2007/07/10/tata-motor-capex-markets-equity-cx_rd_0710markets3.html 39 The home team; The Economist November 15th 2008 37


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networks will potentially allow it to develop models at a faster rate and shorten the product life cycles. 40 The Jaguar Land Rover however might potentially be a challenge due to associated technology changes. With new emerging emissions standards, hybrid technology might soon be a necessity for these vehicles. Analysts predict that while Ford’s technology will help them in the short-run, a merger with hybrid power-plant manufacturing firm may be a move that the company will have to consider.14 Supplier Relationships

Tata have over the years shown that it have been successful at managing supplier relationships. This was evident when it entered the passenger car industry and showed that it could leverage existing suppliers innovatively to reduce costs and drive product innovations.41 TML allowed suppliers to follow their own process for the creation of parts including sourcing materials and setting prices. The innovative use of reverse auctions is an excellent example of the benefit of such relationships.42 Strategic Alliances

In an effort to expand its global footprint, TML has initiated several strategic alliances with automotive companies around the world, notably Italy’s Fiat Group and Korea’s Daewoo. In July 2006, TML signed a Memorandum of Understanding with Fiat Group to explore the possibilities of sharing “development, manufacturing, sourcing and distribution of products, aggregates and components” for each company’s passenger car segment.43 Mr. Ratan Tata, Chairman of the Tata Group, stated, “While Tata Motors will get technology to develop

40

http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek= http://www.supplyexcellence.com/blog/2008/08/25/tata-motors-leveraging-their-suppliers-for-innovation/ 42 http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2008/03/tata_buys_land.html 43 http://www.tatamotors.com/our_world/press_releases.php?ID=184&action=Pull 41


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economically priced small cars and entry-level sedans and an entry into untapped markets, Fiat India can continue to have a presence in the Indian market without much investment.”44 This alliance with Fiat will not only allow TML to improve the performance and quality of its low cost offerings in India, but it will provide TML with access to the technology necessary to produce a passenger acceptable to the European market. While the Indica is available in select European markets, high emissions standards have limited TML’s exposure throughout the entire EU. TML originally established an agreement with Korea’s Daewoo in 2004 to expand its commercial truck segment internationally. With the success of that alliance, TML was able to increase its passenger car segment as well. In 2005, through its alliance with Daewoo, TML was able to launch a line of passenger cars in Saudi Arabia.45 Gaining a favorable reputation in the Middle East could open up yet another international market for TML.

BRUTAL FACTS

The brutal facts that TML must confront are twofold: those stemming from their goal to push itself onto the international stage as an automotive leader, and those stemming from the current economic downturn. In relation to the international stage, the Nano (hailed as the world’s cheapest car) is filling a gap that many believe has been left open by the market for a long time. An extremely affordable car holds much possibility for sales/international growth which will help push TML into the spotlight along with the other major global auto manufacturers. TML’s intent to heavily promote the Nano internationally is very evident as the automobile’s actual design was crafted to be easily modifiable for use in different countries; for

44

http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/Tata%20Motors%20and%20Fiat%20Auto %20-%20Joining%20Forces.htm#2] 45 http://www.indiacar.net/news/n17900.htm


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example the instrument panel (odometer, speedometer, etc.) are located in the center of the dashboard to make it easier to reposition the steering column to meet the demands of countries where drivers drive either on the right or the left. 46 However, the Nano faces many brutal facts that hurt its marketability of lowest price, such as inflation on the prices of inputs (steel and rubber in particular) as well as possible stiffening governmental environmental regulations and political obstacles in setting up manufacturing locations.47 The purchase of Jaguar Land Rover is further demonstration of the company’s strong desire to promote itself internationally. 48 By associating TML with such world renowned names like Jaguar and Land Rover, this acquisition will help broaden the image of TML in terms of product and demographic, most importantly providing it with an immediate and positive global reach. “The Jaguar-Land Rover deal is meant to fuel Tata Motors’ global aspirations. This buyout will establish its global footprint as a company with premium brands,” 49 states the national industry director of a management consultancy firm. As discussed earlier, this venture comes with the risk of TML straddling too many segments of the marketplace; it is essentially competing on both sides of the market. While this acquisition may also be an attempt to mitigate risk through diversification of product segments, it presents additional challenges. While Land Rover has currently seen healthy profits, Jaguar is said to have realized $500 million in losses for the period prior to the acquisition.50 Not only will TML have to tackle the issues of working in new markets with new product segments, the company will also have to work to turn around one of the companies as well. In India the company seems to be working hard to promote the Jaguar

46

http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek= http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek= 48 http://www.tatamotors.com/our_world/press_releases.php?ID=370&action=Pull 49 http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek= 50 http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek= 47


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name. One example was the appearance of a Jaguar limousine on the popular national television program Chote Ustaad.51 TML also faces the brutal fact of the current economic downturn. According to a January 2nd press release, sales for passenger vehicles for the fiscal year were down 8% from last year and sales in last December alone were down an astonishing 31% from the previous December. 52 While the Nano may be in a better position than the luxury, high-cost automobiles such as Land Rover and Jaguar when the economy is headed south, an economic melt-down is never helpful when trying to promote a new product in the market. Sinking demand is not the only brutal fact that the Nano would be facing. While the Nano may have a head start as the first-mover, generating significant global press for its concept, the growing consumer demand for smaller cars will attract heavy competition in a short period of time. All of TML’s major competitors have expressed interest in pursuing the “People’s Car” segment, including Fiat, GM, Ford, Hyundai and Maruti Suzuki.53 At least in the domestic market a close price competitor to the Nano, the Maruti 800 (by Maruti Suzuki), may initiate a price war with the Nano if auto sales continue to decline. This, coupled with the fact that the Maruti was awarded as the most preferred automobile in recent years54 and the possibility that the “Indian buyers may prefer the M-800 for its good resale value” 55 poses serious threats for TML’s prized new line of automobiles as well as TML’s profitability over the next several years.

51

No reference required, actually seen on the show first hand. http://www.tatamotors.com/our_world/press_releases.php?ID=404&action=Pull 53 http://en.wikipedia.org/wiki/Tata_Nano#Competitors 54 http://www.maruti800.com/whats_new.asp 55 http://www.tata.com/company/Media/inside.aspx?artid=DJHl+AUF0Ek= 52


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CORE COMPETENCES Corporate Governance, Management & Human Resources

The most obvious strength of Tata Motors Limited (TML) is its excellent cadre of managers. As a member of the Tata group, TML has access to a deep and talented pool of managers from across the diversified company, with expertise in not only the automotive industry, but finance, IT, manufacturing and many other business sectors. It starts with Tata’s strength as a recruiter of the top talent throughout India, and increasingly the world.

Tata

Administrative Services (TAS), the recruitment arm of the Tata group, was recently ranked third among the top ten preferred recruiters at India’s premier business schools. 56 Listed just behind global leaders, such as McKinsey and Boston Consulting Group, Tata consistently attracts and holds the best talent available. With over 22,000 employees, the company has been deemed one of the most attractive employers in India. In 2003, TML won “India's Best Employer” award by the Employees’ Provident Fund Organization of India.57 Its recent international acquisitions have also enriched its management competences to meet international standards for quality and cost. 58 After managers join the Tata team, the company makes sure they have the career training and development they need for success. Tata Quality Management Services (TQMS), an inhouse Tata group organization, helps different SBU’s achieve their business objectives through processes defined by a framework known as the Tata Business Excellence Model (TBEM). TQMS emphasizes and imbibes business excellence and business ethics into its managers as a

56

http://www.articlearchives.com/labor-employment/human-resources-personnel/1725542-1.html http://www.tatamotors.com 58 http://www.ibef.org 57


Team Tata Motors way of building Tata into a strong and dynamic company.59

pg. 25 of 70 In addition, TQMS is not

exclusively for management. It runs training and development programs for all employees, and the results show that this enterprise-wide practice of assessment and excellence training is having a strong impact on the company’s productivity. Specifically, TML has nearly halved its turnover rate per employee since 2000.60 To further prove their commitment to quality and ethical practices, Tata instituted the J.R.D. Quality Value Award, named after late chairman J.R.D. Tata and modeled on the Malcolm Baldrige National Quality Value Award in the United States. 61

By benchmarking

quality standards through TBEM, as well as providing incentives for companies to strive to improve the quality of their service, Tata group has committed to ensuring quality and ethical standards within TML, as well as in all of its SBUs. Research & Development

TML has always shown a strong commitment to research and development, as the source of inspiration for new ideas and innovations, which bring new life to its products.

TML

established its first R&D center in Pune, India in 1966 and currently has additional research centers in Jamshedpur and Lucknow in India, and South Korea, Spain, and the UK internationally. As a leading innovator, TML was the first Indian company that indigenously developed, manufactured and launched light commercial vehicles, sports utility vehicles (SUVs), passenger cars, and mini-trucks.62 TML employs nearly 2,500 engineers and scientists, working with a deep understanding of the “economic stimuli and customer needs” which have enabled the company to pioneer cutting-edge technologies and products that meet customer expectations,

59

http://www.tata.com/company/profile.aspx?sectid=YEKKiewgmmY= http://www.naukrihub.com/india/automobile/top-companies/tata-motors/employment/ 61 http://www.myjamshedpur.com/tata_timeline 62 http://www.tatamotors.com 60


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such as engine performance, reducing emissions, and improving passenger safety.63 The Nano concept, inspired by the sight of a family of five riding together on a two-wheel moped, is just one testament to Tata’s commitment to developing products aimed at meeting the unique needs of its customers. Purchasing & Supplier Relations

Since 2001, TML has adopted a novel way of developing relationships with its suppliers. Instead of using the conventional approach of dictating the specifications of each of the individual components to be manufactured by the supplier, TML simply provided the expected output from the suppliers. This gave the suppliers room to be creative with their designs, materials and prices. 64 For example, instead of giving the technical specifications for Indica’s wind shield wipers, TML simply described the goal of cleaning the windshield and let the suppliers come up with ideas for meeting that goal themselves, by (1) using the most cost efficient manner and (2) without compromising quality. While using this approach for components and systems designed in-house, TML chose suppliers with strong design and process capabilities who could give valuable input and suggestions. By leveraging local design capabilities and avoiding reliance on high-end design systems, TML has been efficiently able to provide low cost solutions. Manufacturing

TML currently has state-of-the-art manufacturing facilities spread across India for its Indian operations. The Jamshedpur unit was its first manufacturing facility established in eastern India in 1945 and mainly serves the Tata Motors commercial vehicle segment; the other three manufacturing units are located in Pune (in the west), Lucknow, and Pantnagar (in the North).

63 64

Ibid. http://www.supplyexcellence.com/blog/2008/08/25/tata-motors-leveraging-their-suppliers-for-innovation/


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TML is also currently establishing a Nano manufacturing plant in the western Indian state of Gujurat. The Pune division, established in 1966, has expertise in the design and manufacture of automated dies, fixtures, and welding equipment. The design group at the facility is equipped with state-of-the-art CAD and manufacturing facilities, such as light and heavy CNC machine shops, a jigs boring room, a plastic template shop, wood pattern and model pattern shops, five axis precision machine tools, and laser control machines.65 The passenger car division located in the “K” block of the plant manufactures the entire car over five shop floors through a highly automated process which allows for minimum manufacturing process errors. The fully automated iron foundries located in Chinchwad and Maval are considered to be the best at producing cylinder blocks, cylinder heads, and gear box housing among other items. Distribution Process

TML previously had 19 distributors and more than 1,000 retail dealers spanning the entire breadth of India. However, as a part of keeping the distribution costs to a minimum, TML has outsourced the logistics and distribution part of its business to TML Distribution Company (TDCL), a wholly owned subsidiary of Tata Motors Limited. This arrangement would allow TML to reduce its logistical costs by at least 1% and will allow it to concentrate on its core business, while also allowing it greater flexibility in delivering the right product at the right time and right place.66 At the same time, TML instituted a comprehensive CRM program for its dealership networks, which has been recognized as the largest CRM initiative in India.67

65

http://www.tatamotors.com http://www.livemint.com/2008/07/18233746/Tata-Motors-may-outsource-dist.html 67 Ibid. 66


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Social & Environmental Initiatives

TML has shown its strength as a force of social and environmental change in many ways. As a signatory, TML is committed to the United Nations Global Compact, and is involved in developing environmental friendly technologies in emissions and alternative fuels.68

In

compliance with the Global Compact, TML “is engaged in community and social initiatives on labour and environment standards … [and] … plays an active role in community development, serving rural communities adjacent to its manufacturing locations.” 69 In addition to the Nano concept for improving the standard of living for low income families, an example of TML’s social and environmental commitment is the new “OneCat.” This 350kg (770 lbs) compact car which runs on compressed air is being developed by TML in collaboration with MDI (of France). The 5-seater car can runs at speeds of 62 MPH for 56 miles on a single fill up and needs engine oil changed only once every 30,000 miles.70 This futuristic “zero emission” car, scheduled to be produced in 2009, is definitely a next step in the manufacturing of “green” automobiles. Along with this cutting edge idea, TML is also working on the promotion of the completely electric versions of their top selling models.71

68

http://www.unglobalcompact.org http://www.tatamotors.com 70 http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article3399532.ece 71 http://www.autobloggreen.com/2008/09/06/tata-motors-unveiles-all-electric-versions-of-the-ace-and-indic/ 69


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Image (edited): OneCat car wit h compressed air engine (source: www.Dancewithshadows.com)

Information Technology

Across the entire Tata group, the company leverages its strength in IT to create a competitive advantage in each business sector. Notably for TML, it owns and operates Tata Technologies Limited (TTL), a world leader in engineering design, development, and information services. Through TTL’s subsidaries iKS and INCAT, TML is able to harness breakthroughs in engineering technologies and processes that it can then apply to the development of its own automotive products. For the last 15 years, iKS has been a global leader in engineering knowledge transformation with its “i get it” single delivery platform for design and development applications. Likewise, INCAT has been a leader in information lifecycle management and plant automation. The success of these businesses has allowed TML to extract synergies in its engineering design and manufacturing processes, which can be shared across the entire company.72

Furthermore, TML leverages its extensive IT systems to improve its

knowledge networks along its internal and external value chains. TML’s Oracle-based CRM

72

http://www.tata.com/company/profile.aspx?sectid=BYPQa0lysY8=


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allows it to share customer and vehicle data across the company and distribution channels.73 This not only supports internal sales, marketing, research and development divisions, but it allows suppliers to understand the end customer more completely when designing and developing their component parts and it allows distributors and dealerships to understand how they can add value to logistics and customer support networks. Brand Image & Marketing

As a member of Tata group, TML shares a long history of strong brand imaging. In the Indian market, Tata is known for its commitment to the advancement of Indian people by providing them with quality products that meet their needs and which they can depend on. As a company who aims for “Leadership with Trust,” Tata products share a brand name and logo in which India takes great pride.74

For TML specifically, the Tata Indica, the first passenger car made completely on Indian soil by an Indian company, has been ranked as one of India’s top 10 Power Brands, as well as the Best Small Diesel Car by the TNS Voice of the Customer Awards. In 2007, the passenger car SBU of TML received the “Golden Key Award” for the Best Value Engineering Organization by the Indian National Value Engineering Society.75

Additionally, TML’s

advertising has been recognized by major media networks, such CNBC’s Auto Awards, and TML continues to be recognized as the Most Trusted Car Company in India by Readers’ Digest

73

http://www.moneycontrol.com/stocks/company_info/directors_report.php?sc_did=TM03 http://www.tata.com/aboutus/index.aspx?sectid=pihbI04W7W0= 75 http://ir.tatamotors.com/index.php?CardID=5 74


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pg. 31 of 70

Most recently, with global press surrounding the launch of the Nano and the

acquisition of Jaguar Land Rover, TML has become a brand easily recognized around the world.

DEFICIENCIES

Government & Public Relations Influence

TML has experienced both positive and negative effects from the influence of the Indian government on their business practices and ventures. On the upside, the Indian government has been devoting a substantial portion of its budget to expand the country’s roadways and highway systems over the last decade.77

Along with the rising middle class and growing national

economy, this should boost consumer demand for its passenger vehicles. Additionally, the Indian government has established a ten-year Automotive Mission Plan (AMP) to continue investment in infrastructure and to promote growth in the automotive industry through 2016.78 However, on the down side, just as it will help TML expand its business, the AMP will also increase TML’s competition from national and international competitors. Indian automotive manufacturers have benefited from a foreign-direct investment hurdle of US$50 million imposed on foreign companies looking to set up shop in India; but with a change in Indian government policy with the AMP, this protective benefit will soon disappear and TML will be faced with many competitors, in not only the passenger car segment, but the commercial vehicle and automotive parts segments, as well. 79 Additionally on the downside, TML’s Nano project met a considerable setback when it was recently forced to relocate, after two years under construction, one of its new production assembly plants from Singur, West Bengal to the province of Gujurat. Singur had been selected 76

http://www.moneycontrol.com/stocks/company_info/directors_report.php?sc_did=TM03 http://www.indianembassy.org/enews/econews(january99).pdf 78 http://www.business-in-asia.com/countries/automotive_industry_india.html 79 http://en.wikipedia.org/wiki/Tata_Motors 77


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as a prime location for Nano assembly due to its vast industrial labor pool and its close proximity to Calcutta and several major highway systems. However, in order to obtain the land necessary to build the production facility, TML had to make arrangements with the local Bengali government to remove 13,000 Singur peasants from 1,000 acres of fertile agricultural land. This action by the local government incited protests and opposition from a small political Communist party in the region, which resulted in a two-week public protest in September 2008. Unable to quell the agitation, TML made the tough decision to abandon its facility in Singur “for the safety of its employees” and relocate to Gujurat. 80

FOX OR HEDGEHOG?

Examining the concept of the three circles, as developed by Jim Collins in “Good to Great,” 81 one could easily compare TML’s general business practices with the ideals presented therein. The stated company purpose “to improve the quality of life of the communities we serve” 82 is clearly reflected in many of the products they manufacture (Nano and OneCat, two of the most progressive projects in this regard). What does not fit this ideal, however, has been the recent acquisition of Jaguar Land Rover. For a market goal, TML has risen to be the best at supplying transportation to the world’s low-income individuals with the Indica, and now the Nano, and for an environmental goal they may be close to designing the world’s most environmentally friendly automobile with the OneCat, as well as shifting the Indica to an eletrica line. However, TML has not demonstrated a passion to be the best in the luxury high-end segment which makes the acquisition of Jaguar Land Rover somewhat of an anomaly to TML’s

80

http://www.wsws.org/articles/2008/oct2008/beng-o11.shtml Jim Collins. Good to Great; 2001. 82 http://www.tata.com/aboutus/articles/inside.aspx?artid=CKdRrD5ZDV4= 81


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three circles. Their social conscious hedgehog became a little more of a fox despite TML’s reasoning behind the acquisition. Not only does this new segment provide challenges in and of themselves—Jaguar currently operating at a loss—but the unforeseen challenges of driving their company over the learning curve into the high-end (as TML has no domestic experience with this, let alone international) is a major weakness to TML’s driving force behind their objectives and to their overall “three circle” focus. The major challenge they will face is not to siphon off too much energy, focus, and funding from what they are passionate about doing. While so far this venture has been described as a tool to increase TML’s global footprint, as well as provide another source of funding for TML projects and vehicle design turnaround, it seems like it will never fit into TML’s three circles and thus proves a weakness according to the Hedgehog concept. Even though TML may one day develop the passion to become the “best” in this luxury segment, it is still such a daunting task given the fierce competition from other top manufactures like BMW, Mercedes, and raising the bar in luxury even higher: companies like Aston Martin and Maserati. This would prove even more daunting, as well as sidetracking from the company’s main focus (as stated above in their company purpose statement), if they also plan to begin to launch luxury models under the Tata name; as Tata is currently recognized as “the brand associated with commercial vehicles and low-cost passenger cars to the extent that it has isolated itself from lucrative segments in a more aspiring India.” 83

CUSTOMER PERSPECTIVE

Consumers typically evaluate a product or service using the following six purchase criteria: 84 

83 84

Price

http://www.marketingteacher.com/SWOT/tata_motors_swot.htm Mark C. Scott. Value Drivers – The Manager’s Guide to Driving Corporate Value Creation; 1998.


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    

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Quality Performance Characteristics Speed of Delivery After-Sales Support Brand Appeal and Endorsement Each consumer segment, as well as each individual consumer, will weight each of criteria

differently. Based on our earlier analysis, we’ve concluded that TML now services both the lowend, extremely price sensitive market (e.g. the Nano customers) and the high-end, luxury market (e.g. Jaguar, Land Rover customers). We’ve evaluated the six purchase criteria listed above in light of the two vastly different markets.

Price

Quality

Low-end, Price Sensitive Very important—the primary driver of the purchase decision. Alternative purchases could include two-wheeler vehicles as well as other automobiles.

High-end, Luxury Not important.

A consideration in the purchasing decision, but not a primary driver.

Very important; however, not as important as performance or brand appeal. Higher quality vehicle is seen partially as extension to brand appeal.

Not very important. Performance Characteristics

Very important. May be primary driver for purchase decision. Closely tied to brand appeal as performance also contributes to brand appeal.

Speed of Delivery

Not very important

Somewhat important but customers are willing to wait for special-order vehicles. May be considered part of the price of the vehicle.

After-Sales Support

Not very important.

Somewhat important. May be considered part of the brand appeal as support caters to indulging owners with car ownership experience.


Team Tata Motors Brand Appeal and Endorsement

pg. 35 of 70 Not very important. May be the least important driver as functionality trumps fashion.

Very important. May be the primary driver for the majority of potential customers. Vehicles may be seen as status symbols.

Alternatively, the weighting can be charted for the two markets. When sorted by the one of the market’s preferences (in the chart below is it sorted by the low-end market’s preferences), the two charts are almost perfectly mirrors of each other.

The two very different market segments targeted by TML’s passenger car SBU pose a challenge. As is illustrated in the comparison above, the purchase criteria for the two markets are diatonically opposed. Quite often a marketing message for one market may be seen as offensive to the other market. For example, a potential Jaguar customer may perceive the Nano marketing as undermining or diminishing the exclusivity of the Jaguar brand.

Similarly, a

commercial for the new Range Rover HSE may be seen as ostentatious to a rural Indian farmer that sees such extravagance as excessive. The two markets may also be seen as representing either developing economies or the advanced economies.

For example, the purchase criteria weightings of the developing


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economies markets would be very similar to the weightings attributed to the low-end, price sensitive demographic above.

PERFORMANCE IN MEETING CUSTOMERS’ NEEDS

When evaluating the performance of TML’s passenger vehicle SBU from a customer perspective we need to again look into the previously listed six purchase criteria which will primarily influence a customer’s decision to buy a vehicle. Looking at vehicle sales figures over the years we see that some of TML’s offerings, like the Tata Indica, have consistently remained among the highest selling cars in TML’s primary market in India.85 However, among TML’s top competitors today are Maruti Suzuki and Hyundai Motors, which has greatly captured the attention of Indian consumers with cars like the Hyundai Santro and the 2008 Indian Car of the Year, the Hyundai i10.86 Maruti currently has a market share of 46% and leads the overall passenger automotive segment.87 TML currently holds the third largest market share in the segment, lagging behind Hyundai Motors as well. However, part of this may be blamed on TML not introducing any new vehicles during most of the previous fiscal year. With the introduction of new vehicles, like the Indica Vista and much awaited Nano, they might potentially turn this around. TML has been evolving the Indica line to maintain its strong performance among this competition in the passenger car segment. In response to the rise in gasoline prices, the new Indica Vista is offered with three engine options, all based on the Fiat engine model: (1) the traditional gasoline direct injection engine, (2) the diesel engine, which offers lower fuel costs

85

http://specials.rediff.com/money/2004/jun/14sld.htm, http://buyerbehaviour.blogspot.com/2007/11/top-sellingcars-in-india.html 86 http://economictimes.indiatimes.com/Hyundai_i10_is_JK_TyreIndian_Car_of_the_Year_2008/articleshow/2928198.cms 87 http://www.marutisuzuki.com/cars-images/image/pdf/BUSINESS%20HIGHLIGHTS.pdf


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with diesel, or (3) the indirect injection engine (IDI), which is more fuel efficient. 88 Focusing on fuel economy over performance, along with a price point below most of Maruti’s models and all of Hyundai’s, TML should keep the Indica line strong.89 In the same light, the price point of the Nano is less than the segment-leading Maruti 800, and targeting the household consumer, its interior is larger and its fuel efficiency is significantly better. 90 As fuel prices increase, Indian consumers in the low-end, super-compact segment will be looking for price and fuel efficiency over performance—and spaciousness is not necessarily an irrelevant factor for family consumers. Apart from the actual product features, customers focus largely on the sale and delivery process. A study conducted by J.D. Power Asia Pacific places TML second to last in this respect (see below). 91 The study focuses on identifying the degree of satisfaction of customers with the sales and delivery process after looking into delivery process and timing, dealer facility, and salespeople. TML’s rank on this study has in previous years been very similar.92 The only consolation here is that some of TML’s key competitors like Maruti Suzuki and Hyundai have also dropped considerably in the ranking. With increasing competition both in TML’s primary market as well as their entry into international markets this needs to be an area that TML management must pay adequate attention to.

SWOT ANALYSIS

We have performed a SWOT analysis for Tata Motors Limited (TML) to identify a list of critical strengths, weaknesses, opportunities, and threats. Our analysis is primarily consistent

88

http://www.infibeam.com/cars/make/tata.html#TataIndicaVistaHatchback http://en.wikipedia.org/wiki/Comparison_of_cars_(India) 90 http://speakindia.wordpress.com/2008/01/10/tata-nano-vs-maruti-800-head-on/ 91 http://www.jdpower.com/corporate/news/releases/pressrelease.aspx?ID=2008130 92 http://www.jdpower.co.jp/press/pdf2006/2006IndiaSSI_E.pdf 89


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with findings in previous reports with their innovative spirit and primary market advantage being major strengths, and conflicting segments being the major cause for concern.

Strengths:

Domestic stronghold Positive brand image Atmosphere of innovation Location

Weaknesses:

Straddling segments Employee productivity

Opportunities:

International growth New product lines

Threats:

Competition Global economic factors

Strengths:

Domestic Stronghold Tata Motors Limited (TML) is unquestionably not only one of India’s key automobile manufacturers but also relies on that same domestic market as the key revenue base for its operations. In 2008, in terms of revenue TML was India’s largest automotive manufacturer— over $9.07 billion in revenues.93 Product lines such as the Indica have steadily placed amongst the top selling vehicles over all of India, and while we are focusing on TML’s passenger vehicle SBU, it is also hard to ignore the great success and popularity TML has sustained in their commercial vehicle divisions in India, as well.

These high revenue generating strongholds

provide a strength that is hard to match for competition as it also allows for TML to realize larger economies of scale which in turn drive down expenses and lower costs subsequently increasing

93

www.datamonitor.com


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the stronghold. Finally, as TML is part of the larger Tata Group, they are able to take advantage of a vast resource of business networks, resources, and people that would not otherwise be available.

Positive Brand Image “Committed in letter and spirit to Corporate Social Responsibility,” 94 TML has consistently created for itself a positive public image over the years. Despite minor blemishes, such as the violent West Bengal protests against the establishment of the new Nano manufacturing plant (now relocated to Gujarat), 95 overall TML still retains its desired image. Now with the advent of the Nano, hailed as the people’s car, TML is only pushing that socially conscious image farther. In today’s world where corporations are becoming more and more expected to be a positive social and environmental force, this positive image will be a strong foothold for TML’s ambitions to make a real name for itself in the global marketplace. On a related note, this mindset of holding corporations socially responsible is also very prevalent in the United States and Western Europe, demographics with relatively high disposable incomes, and an international area for TML to expand into. If TML can market itself correctly according to individual country needs as they move international, it should prove very positive for them.

Atmosphere of Innovation Research and development costs for TML in 2008 reached Rs. 9,906 million (over $200 million USD). 96 Despite these high costs, TML is thriving on its R&D innovation with, most notably, the Nano which caught the world’s attention back in early 2008 as the world’s least expensive car. Innovation is hardly limited to the Nano though. TML, following its corporate 94

http://www.tatamotors.com/our_world/we_care.php http://www.ibtimes.com/articles/20081007/tata-motors-to-build-nano-in-gujarat_all.htm 96 www.datamonitor.com 95


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ideal, has put considerable focus into environmentally friendly projects. These easily insure that their automobiles meet tightening emissions standards, while some other companies have suffered in this regard having to raise prices to keep up with requirements. Also stemming from R&D is their focus on vehicle safety initiatives which has helped TML hold to that positive brand image, as mentioned above, that can be trusted in the buyer’s market. Most exciting in R&D innovations, however, may be their cutting edge projects looking into alternative fuel sources to common petroleum. Included among projects involving electric, CNG, and bio-diesel alternatives is the creation of a vehicle which runs solely on compressed air, the ‘OneCat.’ These kinds of projects have been very important for putting TML in the international media spotlight and will most likely prove to be a considerable factor in their sustained success. Overall, high investment in R&D has helped TML to create a broader vehicle portfolio which allows them to be more competitive in the market.97 While not stemming directly from R&D, TML also has been initiating innovative programs such as the 24-7 On-Road Assistance Program which will be automatically available on any vehicles purchased after February 1, 2009. This program will service such problems as tire changes, electrical problems, towing, etc. regardless of the time or place.98 This is just one more example of TML going beyond their proscribed duties and creating an even more enticing purchase for the customer.

Location TML’s location provides many benefits that are unique to India’s economy and government.

In terms of cost, as India is a developing country operating there makes

manufacturing costs to sales much lower (roughly 9% of sales) than if they would be located in a 97 98

www.datamonitor.com http://www.tatamotors.com/our_world/press_releases.php?ID=411&action=Pull


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developed country (where the ratio would be much higher, around 35%).99 India is also a large producer of the world’s automotive parts which provides TML with “higher bargaining power with suppliers because it is a local, not foreign, car manufacturer.” 100

As for the Indian

government, they have in place certain protectionist policies that strongly favor domestic companies, such as a $50 million equity start-up investment for foreign automotive manufacturers in India. 101

Weaknesses:

Straddling Segments It has been a question from the beginning of our project: what will come of TML’s acquisition of Jaguar Land Rover (JLR)? As it seemed such a left-field move compared to their regular course of business, will this acquisition prove injurious or beneficial in the long run? As a major potential weakness, not only has Jaguar currently been operating at a loss but TML runs the risk of losing the drive behind their primary company vision and focus and may inadvertently siphon off too much energy and funding from their main business function. This specifically touches upon the idea of the Three Circles by Jim Collins in his book “Good to Great” 102 which will be dealt with more in-depth later in this paper.

Employee Productivity Especially as TML is working to move onto the global stage as an automotive manufacturer, improving their poor employee productivity will prove to be a challenge that will have to be faced sooner or later. For 2008 TML realized approximately $0.24 million in revenue

99

http://www.managementparadise.com Ibid. 101 Ibid. 102 Jim Collins. Good to Great; 2001. 100


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per employee; in contrast, Nissan Motors realized $0.53 million in revenue per employee and Toyota Motors was even higher at $0.73 million.103

If TML is intent on competing with

international giants such as Nissan or Toyota, they will have to work hard at strengthening overall productivity and operating efficiencies. This is especially true in today’s economy which will only become more competitive and price conscious.

Opportunities:

International Growth One of the main reasons behind the acquisition of JLR was to help create a foothold in the international market. TML has long been concerned about their over dependence on the Indian market and has taken steps to branch out to other markets to create somewhat of an international market portfolio.

This diversification will alleviate some of the more drastic

economic swings they feel by relying almost solely on a single market, as well as providing the opportunity for even more expansion and higher profitability. Not only will the well respected name of JLR provide them with this avenue but will also help the turnover rate of new products. Giant automotive manufacturers, such as Toyota or Ford, are able to bring out new products and models at a much faster rate because they operate in many more markets than TML. This allows a higher inflow of revenue which is able to meet the current model’s input costs (R&D, design, etc.) much quicker than if they only operated in a few select markets. TML is hoping JLR can also provide them with this ability. While it may seem contradictory to mention JLR under the ‘weaknesses’ as well as the ‘opportunities’ sections of the SWOT analysis, in fact it is not. We are discussing the manner in which TML approaches the acquisitions as a potential weakness which could in fact be an excellent opportunity if handled effectively. Many situations which 103

www.datamonitor.com


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originally appear as threats can in fact prove to be a great opportunity in the end, i.e. the heads or tails of risk.

New Product Lines Alternative fuel research is currently believed by many to be very positive for the long term success of automotive companies due to increasing fuel costs and uneasy global relations with many oil producing nations, as well as environmental concern and increasing emission regulations (just to name a few). TML’s OneCat (the zero emission air-powered car) is one very good example of this. Originally created by MDI (a France-based company) back in 2002, there was talk of this zero emission car replacing all the current taxis in Mexico City for a much cleaner metropolitan area. However, nothing materialized out of the deal. Since then, MDI has partnered with TML who has subsequently invested almost $30 million in the company and has created the new OneCat automobile.104

Considering TML’s influence and positive position

domestically, they have a great opportunity to work with the Indian Government to try to recreate the former plan. Replacing current taxis, government vehicles, and other petroleum fueled vehicles in some of India’s major cities where pollution is a major problem, would not only fit well with TML’s socially conscious ideology but provide an extremely strong revenue generating situation as well. The other new product line opportunity that cannot go without a mention is the Nano. The possibility that the Nano holds could be tremendous not only for the low-income individuals in India but individuals abroad as well.

Not to belabor the point too greatly, as we have

discussed this product in detail in several previous reports, but the social and revenue impact of the Nano holds a very strong opportunity for TML which they are very aware of. 104

http://www.technologyreview.com/energy/20071/


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Threats:

Competition TML faces stiff competition both in its primary market in India and an even greater challenge awaits it abroad as it attempts to break into potential markets like Europe. As mentioned in prior reports their biggest competition in India is currently from rivals Maruti Suzuki and Hyundai Motors. A primary reason for TML lagging behind Hyundai this past fiscal year was their failure to introduce new models of vehicles. With new introductions like the Nano and the Indica Vista along with possible global scale efficiencies with the JLR acquisition TML might just turn this situation around. Global Economic Factors

While over the past year or so TML has seen a steady decline in overall sales, recently that trend has begun to reverse itself. According to a TML press release earlier this year, sales in the passenger vehicle segment were down 8% from the previous fiscal year and were down an alarming 31% in December alone.105 While cumulative passenger vehicle results from January began to look a little more promising as they were “the highest this fiscal since May 2008, 86% up over December 2008,” they were still “9% lower than…January last year.” 106 Exports, on the other hand, have been at a constant downfall with January 2009 at a 70% decrease from January 2008, and a 32% decrease for the fiscal year 2008.107 The slight increase in domestic sales may be attributed to a financial stimulus plan announced by the government but, as it is unable to affect the international market demand, TML has some new obstacles to their international aspirations. Like the case for many automotive companies, this economic downturn has

105

http://www.tatamotors.com/our_world/press_releases.php?ID=404&action=Pull Ibid. 107 Ibid. 106


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disastrous implications for business progress as well as sustainability, sometimes appearing that the only option is to lower prices and make budget cuts.

This next year will prove very

interesting to see how TML will react to the worsening economy especially looking at the two ends of their business spectrum: the Nano and Jaguar Land Rover. Will the affordability of the Nano prove helpful to TML during these times or will the segments who the vehicle targets simply be even less inclined to buy? Likewise, will the high-end consumers continue to provide demand or will they follow the similar path of the Nano ‘less-inclined-to-buy’ market?

ALIGNMENT with MARKET needs

Now that we have performed a SWOT analysis of TML a brief discussion of how these align with the needs of the customer is in order.

As we have discussed in the previous report

consumers typically evaluate a product or service based on the following six criteria: 108      

Price Quality Performance Characteristics Speed of Delivery After-Sales Support Brand Appeal and Endorsement

We have seen that our SWOT analysis is quite consistent with prior analysis performed with a major strength being their stronghold in their primary markets and the level of innovation that TML has constantly aspired for and achieved. These strengths will hold them in good stead while they attempt to wrest away market share from key competitors while concentrating on their key purchase criteria–price, quality and performance and brand appeal.

TML’s level of

innovation in terms of both technology as well as aspects like supplier relations and distribution have enabled them to get to a winning position with respect to low prices and acceptable quality

108

Mark C. Scott. Value Drivers – The Manager’s Guide to Driving Corporate Value Creation; 1998.


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standards in the low-end market. If they are able to extend similar strategies to the higher end of their product spectrum they could quite possibly turn the JLR acquisition to a successful venture and open up opportunities in European and other international markets. The brand appeal that TML possesses is another strength that cannot be overlooked. The Tata brand as a whole has always been highly respected, and TML has continued with this tradition. As we have mentioned earlier in the report this image that TML possesses is bound to be an important asset in their quest for international growth. A challenge however will be separating images of the Nano from their higher-end JLR products. If TML is successful in making this distinction clear to their target audience they should have some very interesting years of growth ahead of them.

BALANCED SCORECARD

We have developed the following balanced scorecard for Tata Motors Limited (TML). The goal of the balanced scorecard is to measure both operational and financial performance. The scorecard combines both leading and lagging indicators. In general, operational metrics are leading indicators whereas financial metrics tend to be lagging indicators. Leading indicators can be used to forecast financial and operational results in the future whereas lagging indicators are historical in nature. The balanced scorecard below is based on the Kaplan and Norton model109 . For the Customer Perspective, Innovation and Learning Perspective, and Internal Business Perspective the measures are listed for both the low-end market (e.g., Nano vehicles) and the high-end market (Land Rover and Jaguar vehicles). This is because the internal and external business

109

The Balanced Scorecard, Robert S. Kaplan and David P. Norton. Harvard Business Review, July-August 2005.


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drivers for these two markets can be very different. We’ve also indicated whether the measure is a leading, lagging, operational, or financial metric. Customer Perspective Goal New vehicle sales

Vehicle availability

Vehicle quality and performance

After sales support excellence

Measures for Low-End Percentage of sales from new vehicles (Leading Operational Metric). For the low-end market, management would expect this percentage to show considerable growth over the next few years as the customer numbers in this market grow and car ownership rates increase for developing economies.

Measures for High-End Percentage of sales from new vehicles (Leading Operational Metric). For the high-end market, management would expect this percentage to be steady, without significant deviation. Developed economies, the primary marketplace for these vehicles, would have steady growth and large variations in new car sales Vehicle availability survey Vehicle availability survey responses (Leading responses (Leading Operational Metric). LowOperational Metric). The end vehicle buyers would high-end market values value vehicle availability. This availability but may be more metric must be considered willing to wait for specialseparately from the high-end order vehicles. This metric vehicle availability metric must be considered separately because acceptable timefrom the low-end vehicle horizons may be significantly availability metric because differently. acceptable time-horizons may be significantly differently. Customer and industry Customer and industry survey responses (Leading survey responses (Leading Operational Metric). For the Operational Metric). low end market performance Performance characteristics characteristics are less and quality considerations are important. Minimum required extremely important for high quality considerations must be end vehicles. Customers view met. this as a necessary extension to the associated brand appeal. Customer and industry Customer and industry survey responses (Leading survey responses (Leading Operational Metric). This Operational Metric). The metric while important is less metric applies more to the of a purchase criterion in the high-end market due to low-end market due to increased focus on quality and


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performance. Management should expect this metric to remain relatively stable with little variation.

Innovation and Learning Perspective Goal Development Technology

Product Innovation

Measures for Low-End Measures for High-End Time to develop next Time to develop next generation of vehicles generation of vehicles (Leading Operational (Leading Operational Metric). Although the lowMetric). The high-end market end market may not place a places significant value on high value on cutting-edge improvements in vehicle technology, the underlying innovation and a high value on manufacturing process is the regularity of new vehicle dependent on developing and releases. For the high-end implementing technology that market, this metric should be lowers the unit cost of new based on the degree to which vehicles. This metric should the current year’s vehicles are capture the incremental improved. This may be improvement in measured by customer manufacturing technology, satisfaction surveys. and may be measured in how quickly and how cheaply new low-end vehicles can be brought to market. Customer Perception of Customer Perception of Vehicle Innovation (Leading Vehicle Innovation (Leading Operational Metric). Buyers Operational Metric). This in this market are less metric can be measured by concerned with product customer surveys. The highinnovation than with vehicle end market buyers place a lot cost and reliability. This of value on the vehicle’s metric may be less important innovation and use of for this market than for the technology. Customer surveys high-end market. and market research should be measured to determine the perception of the vehicle’s innovation and use of technology.

Internal Business Perspective Goal Manufacturing effectiveness

Measures for Low-End Manufacturing cycle time

Measures for High-End Manufacturing cycle time


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Worker utilization and effectiveness

Operational excellence

pg. 49 of 70 (Leading Operational (Leading Operational Metric). A primary driver of Metric). High-end market low-end vehicle viability is the participants expect new effectiveness of the vehicle models each year. In manufacturing cycle. conjunction with the metrics Management should monitor above, the technology shift the cycle time and the goal must be more than just should be maintaining or incremental. An important lowering the cycle time. consideration is the cycle time metric as product innovation can have the unintended effect of lengthening cycle times if additional complexity is introduced. Number of employees Number of employees required to produce the required to produce the vehicles (Leading vehicles (Leading Operational Metric). The Operational Metric). This number of employees required metric will be less significant to produce one vehicle will for the high-end market as have a direct effect on unit vehicle costs are less cost. Unit costs, in turn, drive significant to customers than the purchase price, which is other purchase criteria. the primary driver for Management should expect customers’ purchase this metric to remain relatively decisions. stable with little variation. Supplier relationship Supplier relationship surveys and logistical cost surveys and logistical cost reduction (Leading reduction (Leading Operational Metric). These Operational Metric). This metrics are especially metric will be less significant important in the low-end for the high-end market as market due to the importance vehicle costs are less of innovative and strong significant to customers. The supplier relationships and importance of supplier strong focus on reducing costs relationships though is with vehicles like the Nano. essential; however less flexibility may be possible to increased performance considerations.

Financial Perspective Goal Survive

Measures for Low-end and High-end Free Cash Flow (Lagging Financial Metric). Net income + depreciation or amortization – changes in net working capital –


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Succeed

pg. 50 of 70 capital expenditures. This metric provides a measure for not only company viability but also for future growth. Credit Rating (Lagging Financial Metric). The credit rating of the organization has a direct impact on the cost of borrowing and therefore affects capital investment decisions. This metric is measured by obtaining and monitoring the company’s credit rating from one or more agencies, such as Standard & Poor’s. Compounded Annual Growth Rate (CAGR) (Lagging Financial Metric). It represents the smoothed annualized gain earned over the investment time horizon110 . Management should monitor this metric to determine whether growth targets are being met and whether future growth trends are realistic. Market Share (Lagging Financial Metric). For both highend and low-end markets, a significant financial metric is the market share. Management should set and measure market share growth rates. Return on Investment (Lagging Financial Metric). Annualized rate of return on investments in capital. This metric can be used to measure the effectiveness of management in investing in the business operations. Return on Equity (Lagging Financial Metric). This metric can be used to measure the rate of return on shareholders' equity of the common stock owners.

Three Circles of Tata Motors

TML’s focus on its consumers has been reflected in their development of products like the Indica, Nano and the OneCat. Their endeavors in this regard have led us to believe that their ideology is more akin to a hedgehog. However as we have noted the JLR acquisition has compounded this picture with the focus now being shifted to the other end of the market. However as we have also noted in our study of the three circles for TML below, they may be able to use this acquisition positively to continue to adhere to their primary ideals and vision.

110

http://en.wikipedia.org/wiki/CAGR


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Image source: http://theleadershipbook.com/

What is TML passionate about? The Tata group’s stated mission is “to improve the quality of life of the communities [it] serves.” 111 In this mission, TML finds what it is passionate about—making the lives of its customers better through the products and services it offers. This takes the form of a variety of strategic business opportunities for TML due its desire to develop “a deep understanding of economic stimuli and customer needs and…translate them into customer-desired offerings through leading edge R&D.”112 To meet the personal transportation needs of India’s rising lower and middle classes, as well as those in other developing and third world countries, TML’s new Nano aims to be the lowest cost passenger car available. TML’s desire with the Nano is to improve the lives of a population currently dependent on bicycle or motorbike transportation by making automobile transportation an accessible and affordable option to almost everyone. In the same light, Tata Motors Finance desires to make financing the purchase of a vehicle even easier with direct 111 112

http://www.tata.com/aboutus/articles/inside.aspx?artid=CKdRrD5ZDV4= http://www.tatamotors.com/our_world/profile.php


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financing through its dealer network and with flexible payment schemes.113

In addition to

accessibility, TML aims to improve the lives of its customers by reducing its vehicles’ emissions and fuel economies. The OneCat concept car is a perfect example of TML’s desire in this respect, as it operates on compressed air, resulting in no gasoline costs or fossil fuel emissions. Lastly, with the recent addition of Jaguar Land Rover and Fiat joint ventures, TML aims to improve its quality and safety standards.

By accessing JLR’s and Fiat’s manufacturing

procedures and technologies designed for the strict requirements of European markets, TML will be able to incorporate these improvements in its offerings in India and other developing countries. These new standards will exceed the current requirements in such countries and push quality and safety standards higher there. Along with allowing TML to improve the safety of its customers, the JLR acquisition will help to establish TML as a trusted automotive company with premium product lines—preventing the image of being just a “cheap car” company. The Tata brand in most industries is associated with prestige, and even for a low-cost consumer of the Nano, purchasing a TML car should offer the same sense of pride.

What drives the economic engine at TML? The TML passenger car portfolio is diverse and crosses several geographic and market segments—from the small Indica on crowded Indian highways to the elegant Jaguar on open roads in the English countryside—and as a result, a performance metric which tries to umbrella all of TML’s product lines under one measure will not provide the focus TML needs to drive its economic engine.

Profits per car or profits per employee will miss the divergent strategic

demands of each segment. The metric needs to measure performance relative to each market

113

http://www.tatamotorfinance.com/offers_schemes.htm


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segment in which TML competes. As a result, a measure of profit per product line is most suitable. Profit drivers for the Jaguar line are much different than profit drivers for the Nano or Indica lines. In the high-end passenger car segment, TML will need to focus on differentiation, quality and performance in order to create high margin products that drive profits.

In the

economy car segment, TML will need to reduce costs across the entire value chain in order to deliver a product at the right price to increase sales volume and drive profits. However, at the top-level, TML can evaluate performance across the company by measuring the end result for each product, profits per line. No matter which segment, TML will need strong profits in all of its product lines to push into international markets, and looking at profits per line, TML will be able to determine which lines will be able to reach into new markets and which should be phased out.

What can TML be the best in the world at? TML states that its vision is to be “best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics.”114 While this vision may be too broad as a target, it can be refined into a more focused goal: to be the best innovator in the global automotive industry. TML is a young player in the passenger car segment, entering in the late 90’s, so gaining a reputation as a trusted brand with tried-and-true products will be a major feat. However, TML has found and can continue to find success as an innovator in the passenger car segment, not only in manufacturing but also in many areas along the value chain. Being the leading global automotive innovator aligns with TML’s passion for improving quality of life for its customers. The Indica, TML’s first passenger car offering, was an innovation for the Indian

114

http://www.tatamotors.com/our_world/profile.php


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market, as it was the first indigenously manufactured passenger car in India, creating a sense of national pride for its purchasers. 115

Subsequently, TML continues to lead the way as an

innovator with the world’s cheapest car, the Nano, and the first compressed air car, the OneCat, as well as electric versions of the Indica. These innovations have brought TML to the global stage by generating considerable media attention even before launch, and this ability to generate worldwide attention will serve TML as a global innovator. In addition, TML has significant opportunities with its research and development capabilities and partnerships with other Tata group businesses—which are already leaders in engineering, materials, IT and financial services—to incorporate improvements in all parts of the value chain, from design to sales and service. 116

RECOMMENDATIONS

Tata Motors Limited (TML) is a company with great possibility. We have broken our recommendations down into four parts.

Recommendation I: Increase Labor Productivity

Rationale

The Indian labor pool is one of the most lucrative in the world—the population of skilled and unskilled workers in India is abundant, and growing, and unit labor costs are nearly 20% less than in the U.S. 117 However, this current cost advantage for TML should not be relied upon in the long-term—as Mark Scott states, “Low cost labor tends to be a fleeting source of

115

http://en.wikipedia.org/wiki/Tata_Indica http://www.tata.com/businesses/sectors/index.aspx?sectid=aZ72PXPwpaI=#Engineering 117 http://www.hroaeurope.org/file/3557/conference-board-cautions-on-labor-cost-benefits-of-offshoring.html 116


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competitiveness.”118 This is evident as the Indian economy continues its rapid growth: the cost of skilled labor is pushing higher and higher, eroding profit margins.119 Coupled with a global economic crisis, labor productivity has decreased worldwide in the automotive industry— with TML experiencing a productivity decrease of almost 21% in 2008. Therefore, it is essential for the long-term strength of TML that the company focus on labor productivity as a means to drive growth in Indian and international markets.

Anticipated Resource Requirements Compensation Structure:

We recommend that TML reorganize its compensation structure, from one of worker entitlement to one of productivity-based compensation. If it’s not careful, TML may repeat the history experienced by U.S. automakers, such as GM and Ford, and become bloated with longterm compensation packages, which include lifetime employment and heavy pensions. In 2008, TML’s payroll was almost three times the size of the 2004 figure, while the number of employees remained roughly the same.120 In its effort to support the communities in which it operates, TML has utilized compensation structures which may promote employee loyalty but which are not likely to be sustainable in the long run. Consequently, it is crucial for the company’s future success that its compensation structure be redesigned. The result will likely lead to a comparative increase in wages in the short-term, as workers are rewarded for improvements in productivity with bonuses or investment options, but the long-term benefits of a results-oriented workforce without the burden of lifetime compensation packages outweigh the upfront expenses.

118

Mark C. Scott. Value Drivers – The Manager’s Guide to Driving Corporate Value Creation; 1998. http://www.equitymaster.com/5MinWrapUp/detail.asp?date=9/4/2008&story=4 120 http://www.advfn.com 119


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Training & Development:

Just as it does currently through the assistance of Tata Quality Management Services, TML should continue to devote significant resources to the training and development of its employees.

From managers to line workers, employees should regularly be provided the

opportunity to improve their skills and expose themselves to additional functional areas in order to broaden their perspective of the value creation spectrum. With the commitment of the Indian government to growing the Indian automotive industry through 2016, TML should seek out ways to enlist government resources in training and developing its workforce. Government resources, such as national automotive institutes and manufacturing centers of excellence, will be beneficial in defraying training costs, as well as providing a highly-skilled labor pool for recruitment. 121 Work Environment & Culture:

On top of training and development, TML should devote a portion of its human resources budget to providing a premier working environment for its employees. The Tata brand is held in high-regard in India, and to say you are a Tata employee should be a statement of pride for any worker. In this light, TML should be a leader in workplace satisfaction, by providing flexible work schedules, empowering job responsibilities, access to cutting-edge projects, regular feedback and promotion opportunities, community outreach for the areas near factories where employees live, and support for families. By devoting resources to growing its employees and supporting them in balancing their work and personal lives, TML will lay the foundation for a company culture of dedication and innovation, which will serve in increasing labor productivity in the long run.

121

http://www.siamindia.com/upload/AMP.pdf


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Process Innovations:

More than any other area, TML should continue and increase its investments in IT and manufacturing technologies to drive productivity. Due to the deep resources already accessible through the broad portfolio of businesses under the Tata group, TML should be able to develop improvements and innovations in its processes more quickly than its competitors.

TML is

already leading the way with process innovations, such as distribution networks that connect the engineering design office with the in-store customer via a real-time CRM system, and after the acquisition of Jaguar-Land Rover, TML now has access to high-quality manufacturing concepts which greatly surpass the current standards in the Indian market. 122

Innovations and

improvements like these will help TML improve its cycle time and unit labor costs, driving increases in productivity.

Implementation Issues

Having already shown strong progress in training and development, as well as process innovation, TML will mainly face implementation issues with changing its compensation structure and creating a premier working environment for its employees. At first, the idea of a productivity-based compensation structure may appear counter to TML’s stated goal of “improving the quality of life of the communities [it] serves.” 123 Employees have come to expect secure employment and lifetime compensation, and Tata has benefited from strong loyalty within the communities it has helped build as a result. However, this entitlement will need to be replaced with incentive if TML wishes to progress in the future. TML will need to overcome resistance by extending its outreach further into the communities it serves—through

122 123

http://www.livemint.com/2008/07/18233746/Tata-Motors-may-outsource-dist.html http://www.tata.com/aboutus/articles/inside.aspx?artid=CKdRrD5ZDV4=


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housing and infrastructure development, for example—but not in committing itself to long-term outlays of compensation. TML is already experiencing difficulty in creating a reputation of being the premier automotive employer in India. Political pressures in Singur, the previously planned sight of a new Nano factory, bruised the company’s image after a regional Communist party protested against the local government’s removal of 13,000 Singur peasants from the factory’s planned site. This caused TML to abandon its progress on the site “for the safety of its employees” and move to a new location in Gujurat.124 Political concerns like this, as well as environmental accountability concerns about fuel emissions, may serve as obstacles to TML’s goal of being a premier employer and should be met with preparation.

Anticipated Benefits and Consequences:

With the commitment of the above recommended resources, TML should be prepared to focus on increasing its labor productivity. The benefits of this focus can be seen in light of TML’s three circles of the hedgehog concept, as well as the flywheel effect. In the long view of the hedgehog concept, labor productivity increases will allow TML to push forward as a leading innovator in the automotive industry. Not only will it reduce costs to increase profit margins, but it will develop the necessary flexibility to increase research and development cycle times. With a dedication to labor productivity, TML can take its innovation to the global stage, aiming to be the best in innovation as set out by the third circle of its hedgehog concept. This result will also serve the purpose of the other two circles—passion for improving the lives of its customers through products designed for their needs and driving the company’s economic engine with the strength of its brands.

124

http://www.wsws.org/articles/2008/oct2008/beng-o11.shtml


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As a low-cost (Nano) and high-end (JLR) producer, labor productivity is one of the forces that will set TML’s flywheel in motion. The gains experienced will not be for the shortterm, but for developing a strong but flexible manufacturer, distributor and marketer of worldclass passenger cars over the long-term. As an innovator in both segments, TML will need to hold productivity central in its measurements of success. In an industry where revenue is driven by volume and in a country where labor is currently cheap, it is easy to lose sight of the power built up by the flywheel—in India, it’s easy to get cheap labor and compete on price, regardless of any other factors. However, cheap labor cannot carry the company through to the future alone, especially as wages increase.

Only the cost advantages gained through increased

productivity can be internalized into TML’s operations and provide lasting value.

Recommendation II: Increase Investment in High End Luxury Market Increase the investment in research and development, marketing, and servicing for the high end luxury markets (Jaguar Land Rover).

With the recent purchase of the Jaguar Land

Rover (JLR) brands, TML has moved into the high-end market. Competing in both the low-end (e.g., the Nano) and the high-end can difficult and the company may be tempted to invest less money in new products and expanding existing capabilities of the new brands until the current market conditions pass. We believe that this is the opportune time for an aggressive move in the high-end market.

Rationale

Although many industry analysts are expecting 2009 to continue to be a poor year in terms of car sales, an aggressive investment in product or after-market servicing capabilities may catapult TML in this segment—gaining market share and positioning. Many of the Jaguar and Land Rover competitors will be extremely weakened—if around at all. Industry analysts expect C562 Developing Strategic Capabilities– Team Project: TATA MOTORS LIMITED Krishna Tavvala, Matthew Brinker, Peter Eshelman, Andrew Matuszak, Rahul Shankar

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GM to sell the Hummer brand in 2009 and without a seller in sight, there is a real possibility that the brand will cease to exist. A push in developing cutting-edge products in the Land Rover brand could enable Tata to capture Hummer customers as they look for comparable—or better— products. Of the six purchase criteria125 identified by Mark Scott, three are of particular interest to consumers of the high-end market products: 

Brand Appeal and Endorsement



Performance Characteristics



Quality TML can greatly enhance customers perceptions of these three criteria (together with the

fourth, after sales support) with targeted increased investments. Brand appeal, performance, and quality are all functions of the investments made in product development and marketing. As competitors such as Volvo, Saab, Hummer, and others fail to maintain investments in either development or marketing, this leaves the door open for TML to capitalize and gain both market share and momentum. TML is in a unique position to invest given the company’s strong balance sheet and overall financial health.

Anticipated Resource Requirements

Additional investments in product development and marketing would be substantial. Product development investments should be focused on launching major product upgrades. At a time when many passenger vehicle companies are launching marginally different new models, TML could differentiate both the Jaguar and Land Rover brands by launching seminal new vehicles—a real upgrade from the previous year’s models. This would have the additional effect 125

Mark C. Scott. Value Drivers – The Manager’s Guide to Driving Corporate Value Creation; 1998.


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of showing the market that TML is committed to the new brands. In order to launch such innovative models, TML would need to invest substantially in engineering and production. After sales support investments would be needed at dealers and service centers. Such investments could include training, parts, and upgrades to the facilities themselves.

Anticipated Benefits and Consequences

Targeted, aggressive investments in product development and marketing for the JLR brands could result in significant market share gain. At a time when competitors (Volvo, Saab, Hummer, etc.) are facing down bankruptcy or decreased production, TML could offer customers the innovation they crave and position themselves for the broader recovery in the market. It is highly unlikely that the market from high-end luxury cars will not exist in the years ahead. What is uncertain is which company will dominate. A carefully time, aggressive investment in the three or four areas that matter to consumers may be the boost necessary to propel JLR to the top.

Recommendation III: Differentiated Marketing and Branding Efforts. A major challenge that TML faces currently faces is that of straddling brands in both ends of the market. This poses the potential problem of them confusing customers with multiple brands. Will a customer in the high end JLR market trust a firm that is now renowned for the Nano? Our previous recommendation focused on TML aggressively moving into the high end market. These factors heighten the importance of a coordinated branding effort that assures customers that TML is treating its different brands separately and is capable of catering to the needs of different markets effectively.


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Rationale

The two ways firms compete are by either a differentiation strategy or a low cost strategy. 126

However, as we’ve seen the route TML has taken involves competing on both

strategies. While the Nano targets the price conscious common man, the Jaguar Land Rover deal shows us that TML is now targeting brand conscious, high-end consumers. TML needs to have a similar differentiated strategies focusing separately on these brands. For the Nano, TML needs to step up its marketing efforts in smaller towns and rural areas in India. While they might target certain sections of the urban population they might have some quick wins in India’s smaller towns where a majority of traffic is restricted to two-wheeled motorbikes. As has been mentioned in our previous reports the current market share leaders in motor vehicles in India are two wheelers, at approximately 75%. This large percentage of consumers who currently purchase and use two wheelers presents a large market for the Nano. Additionally these individuals in smaller towns and rural areas will be less likely to be aware of TML having conflicting brands. As has been mentioned by the the Center for Science and Environment in New Delhi, India “the proliferation of cheap vehicles could prompt as much as 25 percent of the 50 million people who ride scooters to buy cars”.127 Hence, TML needs to aggressively pursue such locations where the focus on JLR and high end brands is at a minimum.

126

Scott, Mark C. Value Drivers: The Managers Guide to Driving Corporate Value. John Wiley & Sons, Ltd, Chichester, England, 2004. 127 http://blog.wired.com/cars/2008/02/2500-cars-in-in.html


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Source: http://www.siamindia.com/scripts/market-share.aspx

Focusing on branding and marketing for the JLR brand is what will be the greater of the two challenges. TML will need to convince potential buyers to associate themselves with a name that also produces the low cost Nano. An approach that TML might consider is to voice its association with the Taj Group which has been synonymous with luxury through their iconic hotels like the Taj Mahal. In addition Ratan Tata, Chairman of TML, has for years now been an iconic brand in his own right. These associations are ones that are respected and recognized by the affluent consumers in India and abroad. The company may be able to successfully project these images to their benefit in their marketing of their luxury brands.


TML will require significant investments in marketing and branding efforts for this recommendation to bear fruit. At the initial stages this focus will be on its home markets and also in the European markets for the JLR brand. For the Nano this marketing will need to focus on


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continuing the hype that the launch of the car has created both in the country and internationally. While the current focus has been primarily been on price TML needs to focus on other benefits of the Nano – safety and environmental concerns. While there is widespread concern on how mass production of the Nano will affect the environment, TML has stated that the Nano is more environment friendly than scooters prevalent in India. 128 After strengthening marketing efforts TML needs to ensure that the Nano does not disappear from the international lens. The next logical step after success in the Indian markets will be pushing the Nano to other developing international markets with similar requirements. Keeping these markets aware of the progress the Nano is making in India will be essential for it to be a success. Similar efforts will be needed to market the JLR brand. A coordinated branding strategy both in India and abroad with TML’s luxury brands like the Taj Group of Hotels can potentially benefit both brands. These widespread marketing efforts will need considerable investments in terms of advertising campaigns and training.


The primary benefit of these efforts will be TML’s standing in its primary markets. If TML manages to convert a large portion of the two-wheeler market it can greatly improve its market share in relation to Maruti Suzuki and easily eclipse Hyundai Motors. Success in Indian markets will give TML the confidence to move into international markets and have further economies of scale and scope. This will enable them to move closer to their BHAG of expanding their global footprint. In addition to this as mentioned in the previous recommendation TML can potentially capture market share in the high end luxury market if these efforts are successful.

128

Ibid


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Recommendation IV: The Nano TML should aggressively market Nano and other medium-priced cars to the middle class segment in India. With 1.1 billion population and more than 300 million middle income people, 129 TML is ideally poised to make this segment a future star of its product portfolio. With its increasing global footprint, the company also has a huge potential of selling these products to people in other developing nations.

Rationale

After dominating the commercial market segment in India for decades, TML entered the passenger car market only in 1998 with the launch of its hatch back car; Tata-Indica. Inspite of TML cornering more than 65% of the commercial vehicle segment130 it is still playing catch up in passenger vehicle segment with established players like Maruti Suzuki (which owns 52% of passenger car market), Mahindra (which holds 42% of utility vehicle market share) and Hyundai (second largest car producer in India). TML passenger market share increased from 10.7% in 2001 to 13.1% in 2002131 and currently stands a little above 17%.132 With the launch of Nano, price around $ 2500, TML can directly start challenging Maruti Suzuki in the compact car segment based on price and style. Maruti Suzuki is the only current player in the compact segment selling its most popular Maruti 8 00 (priced at $ 4,500)133 and also Maruti Alto. Maruti 800, designed in 1985 and currently marketed with no major changes, is Suzuki’s cash cow constituting major percent of its sales volume (42.5% as of 2002). 134 Nano will not only take a big bite of Maruti Suzuki in this segment, increasing TML overall car market 129

http://www.mckinsey.com/mgi/mginews/bigspenders.asp http://www.tata.com/company/Media/inside.aspx?artid=o4D7L3laZsU= 131 http://www.tatamotors.com/our_world/press_releases.php?ID=90&action=Pull 132 http://thestockmasters.com/tata-motors-01082008.html 133 http://www.financialexpress.com/news/maruti-800-market-share-slips-as-bsegment-cars-surge-ahead/51855/ 134 http://www.equitymaster.com/research-it/ipo/maruti.html 130


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share, but also will create a niche for itself attracting consumers from 2-wheeler and 3-wheeler motor vehicle segment.135 With 10 Million expected sales volume136 for 2010 with an average price of $1,000 to $1250, 2-wheeler consumers are an ideal target for Tata Nano.

Source: www.basia.blog-city.com


India’s burgeoning middle class and its impressive GDP growth rates over the last few years has attracted more foreign national companies to the Indian market directly or through joint ventures. Some of the car manufacturers like Renault are also planning to introduce ultra-lowcost cars in price range of $3,000 137 but are years away from doing it. Inspite of the increasing ccompetition, TML has the unique first mover advantage and can easily capitalize its local expertise, as a low-price manufacturer, to increase its market share. It will also easily be able to

135

http://business.mapsofindia.com/automobile/market/two-wheeler.html http://www.automobileindia.com/two-wheelers/statistics/sales.html 137 http://www.independent.co.uk/news/business/news/renault-plans-3000-car-for-indian-market-453225.html 136


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market these low-cost cars to other South and South-East Asian developing nations from its central manufacturing hub in India and keeping the logistic and other costs minimum due to the close proximity of India with other countries. TML has a unique chance of making Nano future cash cow and star, over the next 5 year time-frame while it develops new set of competencies to compete in the future.

Appendix:138 TML Passenger Vehicle Segment/ Light Commercial Vehicle (Ex:ACE)

Nano/new inventions

TML Heavy and Light Commercial Vehicles Fig: Tata Motor’s current BCG Matrix

While TML’s Nano can definitely be a future cash cow it does not necessarily have to leave its commercial vehicle segment to dogs. TML is India’s largest and one of the world’s top five medium and heavy commercial manufacturers.139 As India starts opening up its market for

138 139

http://www.marutisuzuki.com/Maruti-charts-plan-to-retain-its-50-market-share.aspx http://cv.tatamotors.com


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foreign companies it also intends to invest huge amounts in infrastructure and expects to construct 375,000 km of new roads and renew/upgrade 372,000 km of existing roads.140 Due to this and increased business opportunities the number of commercial vehicles sold will increase dramatically and TML as a market leader, in commercial segment, will be able to use this opportunity to expand the commercial vehicle volume sales while defending its distinctive competencies and market share.

TML Commercial Vehicle Segment Defend Existing Markets by Build Complementary new strengthening existing competencies competencies to fortify position in aiming to increase market share existing markets

Exploit New Markets by Creating products/services by leveraging existing competencies

Tata Nano TML Ansoff’s Matrix –Modified 141

Build New Competencies to create the future

` Passenger Vehicle/Jaguar//Land Rover

As part of this strategy: a) TML should increase its focus on multi-axle vehicles (buses and heavy-duty trucks).

140 141

http://www.inrnews.com/realestateproperty/india/policy/rural_road_development_plan_vi.html `http://tutor2u.net/business/strategy/ansoff_matrix.htm


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b) TML should develop more light commercial vehicles (LCV) like Tata Ace as lot of FMCG (Fast Moving Consumer Goods) companies adopting the hub and spoke model, as part of their logistics distribution, will require more LCV’s. In the process of limiting its exposure to cyclical nature of domestic commercial vehicle market in India, TML has already acquired Daewoo Commercial Vehicle company of South Korea in 2004 and entered joint ventures with Hispano Carrocera, Spain and Macrcopolo S.A, Brazil. TML should continue emphasizing its commercial vehicle business in other parts of the world.


TML should aggressively invest in its marketing and advertisement campaign for Nano to make it a huge success in India. Nano’s launch 142 will be closely observed by its competitors and its success will be a launching pad into other markets. Customer satisfaction is critical for attracting consumer’s from 2-wheeler segment.

142

http://www.techtickerblog.com/2009/02/26/tata-officially-sets-march-23-as-nano-launch-date/


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APPENDIX Tata’s Core Values and Purpose at the SBU-Level

Source: http://www.tatamotors.com/pdf/2008/GRI-report.pdf


Tata Motors Limited Comprehensive Strategic Analysis

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