Analysis of the Tata Motors Limited company in India

Established under the parent company, Tata Group, in 1945, Tata Motors Limited has become India’s largest automobile company. It was the first Indian automobile company to list on the New York Stock Exchange. Tata Motors began manufacturing commercial vehicles in 1954 with a 15-year collaboration agreement with Daimler Benz of Germany. This partnership has led Tata Motors to not only become India’s largest automobile company but also India’s largest commercial vehicle manufacturer; the world’s top five manufactures of medium and heavy trucks and the world’s second largest medium and heavy bus manufacturer. Having just entered the passenger vehicles market segment in 1991, Tata Motors now ranks second in India’s passenger vehicle market.

Tata has enjoyed the prestige of having developed Tata Ace, India’s first indigenous light commercial vehicle; Tata Safari, India’s first sports utility vehicle; Tata Indica, India’s first indigenously manufactured passenger car; and the Nano, the world’s least expensive car. A full timeline of Tata Motors Limited is supplied in Appendix A.

Current Situation

Company Overview

The Tata Motors group is a passenger and commercial vehicle manufacturer based in India. The motor group was established in 1945 as part of the larger Tata Group. They have long been known for their commercial vehicles and in the past ten years entered into the passenger car market. Currently, Tata Motors has a line of five passenger vehicles and a large line of commercial vehicles producing pickups, trucks, tractor trailers, tippers, and buses. Both product lines of the Tata Motors group have seen success, but much of this has been built upon the more deeply established commercial vehicle product line.

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Tata Motors commercial line has been established for several years in many market segments such as Europe, Africa, The Middle East, Australia, Southeast Asia, and South Asia. Tata Motors has expanded their business and market share around the world through a series of acquisitions. In 2004, they acquired Daewoo commercial vehicle Company in South Korea which was South Korea’s second largest truck manufacturer. This acquisition gave Tata Motors a significant presence in the Korean market. They have also entered into joint ventures with companies such as Thonburi Automotive in 2006, which allowed them to manufacture and market pickup trucks in Thailand. “We think it makes sense for Tata to expand through acquisition (as it did in tea and steel) than spend a decade to build the business” (Lehman Brothers). The commercial vehicle area of the business has certainly been how Tata Motors have built their reputation, with commercial vehicles accounting for 80-85% of company profits. They are beginning to employ a similar technique as they now expand into the passenger car business.

Tata Motors have been making global headlines in the auto industry lately; the largest news being their acquisition of Jaguar and Land Rover from Ford. “Tata paid 2.3 billion dollars to Ford for the two brands that cost Ford 5.3 billion” (Carty, USA Today). This is a major step for the company because it catapults them into the luxury car business which they are not known for at this time. Tata, like many new businesses it acquires, is allowing this new segment of the business to be run by previous management since they have more experience in the luxury automotive business. “Tata will give us some space. They want us to run our business, be a premium British car company” (Mike O’Driscoll, managing director of Jaguar). This is yet another large acquisition for the Tata Motors group and could create great success for the company in the near future.

Furthermore, Tata Motors made another large announcement regarding their progress in the passenger vehicle segment. In January they announced that they, “would release a $2,500 car that could replace the motor scooters commonly used in developing countries to cart around whole families” (Carty, USA Today). This is a major break through in the automotive industry and shows how far reaching, diverse, and competitive the Tata Motors group is becoming. Soon they will be serving customers in the high-class luxury market while still catering to their older niches in developing countries.

Corporate Governance

Since Tata Motors is a part of a large conglomerate company it needs to have a strong corporate governance to ensure that its employees act ethically and the business continues to run smoothly especially during the ever changing and dynamic global economy. “Tata Group’s corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance practices” (tatacarsworldwide.com). One of the more important parts of this is the transparency of the company people have a right to know what the company is doing not only to ensure ethical practices, but for the insurance of their many shareholders whom have a right to know the inner workings of the company. A full list of top management is visible in Appendix B.

Tata has created some models for employees to guide themselves through everyday business practices to ensure that the corporate governance is continuously being upheld. The Tata business excellence model is upheld by Tata quality management services. Quality management is an in-house group dedicated to helping the various Tata companies achieve their business objectives through specific processes. The two main processes that the quality management services employees focus on are business excellence and business ethics. These two objectives have helped build Tata into the strong, dynamic company it is today. These models are entrenched in the company’s ethnical standards and Tata feels strongly about enforcing both throughout the company. “Tata quality management services plays the role of supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks of business eminence while, at the same time, adhering to the highest ethical standards” (Tata.com).

To further prove their commitment to quality and ethical practices Tata has introduced annual quality awards for those companies conducting business with the utmost quality. These awards are called the JRD quality value awards named after the late chairmen JRD Tata. These awards are presented annually on July 29th, the birthday of JRD Tata. Tata has committed to ensuring quality and ethical standards not only within Tata Motors, but throughout their many other branches and sectors of the Tata Group. They have done so by benchmarking quality standards through the Tata business excellence model as well as providing incentives for companies to strive to improve the quality of their service, by awarding JRD quality management awards.

Financial Position

Tata Motors have increased its earnings over the years through their various acquisitions and joint ventures with truck manufacturers in Southeast Asia. Gross profit in the year 2006 was 1,160.9 million and increased to 1,510.1 million in the year 2007. Earnings after taxes also increased significantly between 2006 and 2007 increasing from 336.6 million to 405.5 million in 2007. After a large drop in revenues from 2004 to 2005 when the company first went public on the NYSE (stock prices from May 1-22, 2008 can be found in Appendix C), it has been increasing revenues greatly annually, from 4,422.0 million in 2005 to 7,354.0 in 2007. Tata Motors income statement, balance sheet and statement of cash flows along with other key statistics can be found in Appendix D.

Core Competencies

Tata Motors is able to maintain, as well as increase, their market share by capitalizing on their core competencies. Tata Motors is active, competitive, and dynamic in all aspects of the automotive industry, which means that there must be many different activities going on in all areas of the company. As a result of the ever evolving automotive industry Tata Motors must always be changing and one way to stay at the forefront of the industry is to make continuous improvements in technology through research and development. One way that Tata Motors has done this is by producing one of the most efficient and low cost vehicles on the market. Acquisitions, mergers, and expansion is another core competency that Tata Motors has is embedded in their company structure and philosophy. Another core competency that Tata Motors holds is being located in the India. This location has allowed them to understand not only the Indian market but also the dynamics of emerging and developing markets. This market understanding and knowledge allows Tata Motors to manufacture their products at lower costs, sell them to emerging markets while making profits as well as take advantage of the strong labor base in India.

Research and Development

One factor to Tata Motors success is their constant advances in automobile technology through research and development. There is a high emphasis on thorough research that provides the much-needed inspiration for the birth of new ideas, which in turn breathes new life into products. They employ approximately 1,400 scientists and development officers. Tata Motors has several research and development centers in India. The Research Center at Jamshedpur and the Engineering Research Center in Pune are among the finest in the country (Tata.com). They possess forums to develop and test durability, engine performance, emission, safety, design and style, noise, hydraulics, tracks, and instrumentation. Both have won numerous national awards in research and development efforts since their inception in 1966.

Through these advanced research centers Tata has created sophisticated emission measurement systems and digital prototyping laboratories. Some other technologies that are part of Tata Motors’ arsenal are those that offer improved electronic controls for engine systems and other “vehicle drive-train and chassis systems” (Tata.com). The company is currently focused on equipping vehicles of the future with technologies for improving communication, navigation and entertainment. One example of these technological improvements is highlighted in the OneCAT (Appendix E). This concept car is a fiberglass vehicle that virtually powered by air and is emission free. The OneCAT weighs only a 350 kg and has a piston engine that runs on compressed air. This car can run between 200 to 300 kilometers on one Euro of compressed air. A spokesman for Moteur Development International, a company that partnered in the development of this car said, “The engine is efficient, cost-effective, scalable, and capable of other applications like power generation,” (Autopartswarehouse.blog.com) This car is truly a representation of the next step in green automobiles. The car’s engine’s emission can be used as an air conditioner in the cabin. This car is very futuristic and is still in the development stages:

“Nonetheless, Tata and Moteur Development International are confident that OneCAT, which can accommodate three adult passengers, is competent enough to go against potential green car rivals and energy efficient autos such as the hybrid, bio-fuels, and electric vehicles. The ‘air car’ is targeted for release this year with a base price of around £2,500.” (Autopartswarehouse.blog.com)

Some of Tata Motors other technological advances can be seen in the new car the Nano nicknamed the People’s Car (Appendix E). This car, which is just emerging into the market, is the world’s cheapest car. Tata Motors achieved this is through using new materials such as, re-engineered plastics and modern adhesives. It will revolutionize the auto industry in India and soon in other emerging markets when Tata starts exporting. The Nano was able to achieve its low price and gain the attention of the entire automotive industry through its advances in materials and adhesives technology.

Acquisitions, Mergers & Expansion

Like other companies, Tata Motors is always growing and expanding and the main way they do this is through acquisitions and mergers. Since 2004, Tata Motors has merged or acquired all of or at least part of four different companies. In March 2004, Tata Motors acquired 100 percent of the Korean based Daewoo Commercial Vehicle Company, Korea’s second largest truck maker, for 102 million dollars. Rather than using de-culturation or assimilating Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s current models as well as introducing a few new models globally just as it had been done under Korean management.

In February 2005, they acquired 21 Percent of Hispano Carrocera, Spain-based company, for 12 million Euro. In April 2005, Tata Motors Limited merged with Tata Finance, and lastly in March 2008 Tata paid Ford Motor Company 2.3 billion for Jaguar and Land Rover companies (Tata.com). These acquisitions and mergers allow Tata Motors to break into foreign markets and develop a much larger share of the automotive industry.

It also helps them attain the knowledge, technology, and programs that allow them to succeed in that particular sector of the automotive industry or in a particular region or culture. For instance, the purchase of Jaguar and Land Rover allows Tata to enter into the luxury car market without having to research the market, build the technology, among other important aspects of getting into a new market segment. It further helps them enter into the very competitive and highly desirable mature markets in Europe and in future hopes of securing market segments in the United States. Tata Motors is currently in a growth stage as stated on their website: “Tata Motors Ltd is in a mega expansion mode. The investments would be in product development, capital expenditure in capacity enhancement, domestic and international acquisitions and mergers” (Tata.com).

Organization Location

Tata Motors is located in the developing country of India. This location has been and will continue to be vital to Tata’s success. In India, Tata can take advantage of the fact that manufacturing labor cost is only eight to nine percent of sales, compared to 30 to 35 percent of sales in developed countries. In addition, India is one of the world’s largest producers of automotive components which give Tata Motors direct access to many of these components. Tata has higher bargaining power with suppliers because it is a local, not foreign, car manufacturer. Tata Motors is able to leverage Indian automotive market because the current increase in demand due to the improvements in infrastructure and growth of population and disposable incomes in India. The Society of Indian Automobile Manufacturers stated, “India, where some 1.4 million new cars are sold each year, is also a hugely attractive market for dozens of car companies and most of them can’t risk ignoring what appears to now be a potent competitive advantage for Tata Motors. India’s car market is expected to touch 2.2 million units a year by 2010” (Livemint.com). Additionally, the India government has made protectionist polices and regulations that are extremely favorable to Tata. In December 1997, the Indian government put in place policies that require foreign carmakers to invest at least 50 million dollars in equity to set up manufacturing operations in India. This means that Tata Motors is able to take advantage of the low cost of labor, land assets, and overall investment practices without having to implement this 50 million dollar investment. Finally, Tata Motors largest competitive advantage is that it has prospered and grown in only developing markets for over 70 years. Tata Motors has implemented programs that allow it to prosper while maintaining low costs and high profits.

Lastly, Tata Motors has a competitive advantage simply because they are part of the larger Tata Group. Tata Group supplies Tata Motors with access to knowledge, resources, technology and companies operating in many different industries worldwide allowing innovation and easy availability to access other sources.

PEST Analysis

Political

Since Tata Motors operates in multiple countries across Europe, Africa, Asia, the Middle East, and Australia, it needs to pay close attention to the political climate but also laws and regulations in all the countries it operates in while also paying attention to regional governing bodies. Laws governing commerce, trade, growth, and investment are dependent on the local government as well as how successful local markets and economies will be due to regional, national and local influence.

On March 26, 2008, Tata Motors reached an agreement with Ford to purchase Jaguar and Land Rover. In order to be capable of this acquisition, Tata Motors must have a full comprehension of the governing bodies and laws regulating commerce in the home country, the United Kingdom, but also in countries Jaguar and Land Rover operate in.

In accordance, Tata’s headquarters in Mumbai, India, strictly controls and regulates operations in all dealerships and subsidiaries, in addition to knowing and abiding by all labor laws in the multiple countries where they have manufacturing plants it has to watch political change. This will be especially vital in the future as Tata Motors continues to expand and grow into new markets. “While currently about 18% of its revenues are from international business, the company’s objective is to expand its international business, both through organic and inorganic growth routes” (Tata.com). The foundation of the company’s growth internationally is a deep understand of economic stimulation, customer needs, and individual government regulations and laws. Although it is the headquarters ultimate responsibility to make sure each individual office and branch is operating and abiding by the local laws, it will become increasingly more important for that duty to be taken care of at the regional or even local level.

Economic

Operating in numerous countries across the world, Tata Motors functions with a global economic perspective while focusing on each individual market. Because Tata is in a rapid growth period, expanding or forming a joint venture in over five countries world-wide since 2004, a global approach enables Tata Motors to adapt and learn from the many different regions within the whole automotive industry. They have experience and resources from five continents across the globe, thus when any variable changes in the market they can gather information and resources from all over the world to address any issues. For instance, if the price of the aluminum required to make engine blocks goes up in Kenya, Tata has the option to get the aluminum from other suppliers in Europe or Asia who they would normally get from for production in Ukraine or Russia.

Tata Motors also has to pay close attention to shifts in currency rates throughout the world. Currency fluctuations can equate to higher or lower demands for Tata vehicles which in turn affect profitability. It can also mean a rise in costs or a drop in returns. But they also have to pay attention to not just the domestic currency, the rupee, but also to the dollar, euro, bhat, won, and pound, to just name a few. Just because the rupee is strong against the dollar does not mean it is strong against all the other currencies. Attention to currency is important because it influences where capital investment will develop and prosper.

Social

Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a company will affect how well a company performs. This includes every stakeholder from the CEO and President, down to the line workers who screw the door panel into place, from the investor to the customer, the culture and attitude of all these people will ultimately determine the future of a company and whether they will be profitable or not. For this reason, Tata Motors tends to use an integration and rarely separation technique with foreign companies they acquire.

On the other hand, some economic issues that Tata Motors face must also be looked at from a more localized perspective. For instance, the market in India for cars is much different than the market for cars in Italy. For one, India has over one billion more people than Italy does, thus the market is much larger or not as limited. Second, you must also take into affect the demographics and the average income of each market. Italians have a higher average income per capita than Indians and Italian citizens tend to drive larger and fancier cars. For this reason, the Tata Nano might not do so well in the Italian market. In summation, Tata Motors views the economy from a global perspective with operations across the entire globe; however, they must also maintain a local market understanding and knowledge when it comes to product positioning and placement throughout the different markets Tata conducts business in.

In 2004, Tata Motors acquired Daewoo Commercial Vehicles Company, which was at the time Korea’s second largest truck maker. Rather than using de-culturation or assimilating Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s current models as well as introducing a few new models globally just as it had been done under Korean management.

With the new acquisition of Jaguar and Land Rover, Tata will have to be careful with how they handle the acquisition. While Land Rover is thriving while under the helm of Ford, Jaguar was more of the trouble child. “Jaguar cost Ford some $10 billion during its 18-year stewardship and its sales were in headlong decline, especially in America, its most important market. Industry analysts also struggled to see what value Tata could add that had eluded Ford, and what synergies there could be between a maker of trucks and basic cars… and two luxury marques.” (Economist). Separation could be a good approach for the immediate future to keep the name of Jaguar and Land Rover distinguishable and associated with the luxury automobile market. Overall, Tata does a good job of integrating some aspects of their large multi-national conglomerate into new acquisitions; however, the company must also understand that separation from the name Tata can be valuable in some social areas.

Technology

Tata Motors and its parent company, the Tata Group, are ahead of the game in the technology field. The Tata Group as a whole has over 20 publicly listed enterprises and operates in more than 80 countries world-wide. This equates to Tata Motors having lots of experience and resources to draw from for research and development purposes. “The foundation of the company’s growth is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D” (Tata). Employing 1,400 scientists and engineers, Tata Motors’ Research and Development team is ahead of the pack in India’s market and right with the rest of the field internationally. Among Tata’s firsts are “the first indigenously developed Light Commercial Vehicle, India’s first Sports Utility Vehicle and, in 1998, the Tata Indica, India’s first fully indigenous passenger car,” as well as the increasingly famous Tata Nano, which is projected to be the world’s cheapest production car (Tata). In the automotive industry, it is becoming increasingly crucial for manufacturers to stay on top of the technology curve with new problems always rising such as escalating gas prices and pollution problems. Tata recognizes this and dedicates lots of resources and time into research and development to be even with or preferably ahead of other competitors, global trends, and changing economies. In all, an automobile manufacturer must change, adapt, and evolve to stay competitive in the automotive game, and this is exactly what Tata is doing with their rapid growth, and extensive research and development.

SWOT Analysis

Strengths

Tata Motors excels when it comes to innovation through intensive research and development. Their ability to make the least expensive car on the market, the Nano which will retail for $2,500, is far beyond what any other car dealership has created. This innovation gives Tata Motors their main competitive advantage. Tata Motors makes everything from tractor-trailers to the world’s least expensive car. This product diversity grants them a competitive advantage over their competitors because they can satisfy more markets and customer needs. Another strength that Tata Motors possesses is high corporate responsibility. They donate a portion of their profits from stock increases towards a specific charity. This highlights Tata Motors overall desire for community improvement while also emphasizing Tata Motors’ high morals and values which is something money can not buy.

Tata Motors is also a very eco-friendly company. One of their goals is to produce an emission friendly car, and in 2000 Tata Motors launched the first compressed natural air bus. This air bus requires the owner to plug the car into a standard electric plug for four hours to fill the air tanks. This brought the concept of an “air-car” to reality and the name for this compressed natural air car is “OneCAT.” OneCAT has no gas costs or fossil fuel emissions which makes it a very attractive car for the more mature markets but also the upper classes in developing countries at this point. It is also a great car to have in highly populated countries, such as China and India, because pollution with its adverse effects is a very large concern. OneCAT also is more efficient that any other present Hybrid car, so when inventors think they have the best product out on the market, they actually do not. There will always be something else to invent or improve on and Tata Motors is a prime example of that.

Tata Motors is unique in a way in which when it buys a company. Tata Motors keeps the original management of that company intact. The company that Tata Motors purchases will look exactly the same in terms of management and organizational structure as if it was never purchased by Tata Motors.

Weaknesses

There are strings attached with every new invention and improvement on products. These strings are Tata Motors weaknesses and what other groups perceive as their weaknesses. One weakness that Tata Motors faces is its inability to meet safety standards. Although they have made the most inexpensive car out on the market, it has yet to pass all the safety standards which is a legal factor. Some consumers and pessimists inquire as to how Tata Motors can make such a cheap car and withstanding a car accident or not just falling apart after hitting something once. Pessimistic people also want to believe that car manufactures are already doing everything they can to keep costs low for the consumer, and if that is the case, then putting the cheapest car out on the market automatically questions if it is safe to drive.

Tata Motors only have been making passenger cars for the approximately last ten years. This can be viewed as a weakness from a customer standpoint since a decade does not seem like a lot to consumers and therefore they will think that Tata Motors is inexperienced car manufacturing. Consumers will wonder how a car manufacturer can be in the market for 10 years and produce the cheapest car out on the market. How can Tata Motors manufacture such a cheap car that meets emission and safety standards being so young? This causes consumers to be skeptical.

Another weakness that Tata Motors faces is within its domestic market. Car sales in India are less than 1 million annually. This draws a problem because Tata Motors may not get the sales that the company hopes for and how can they sell cars to people who are not buying cars?

The new and innovative OneCAT still has some rough spots that need to be worked out and one of them is that it has pollutant emissions and greenhouse gas emissions from the generation of electricity used to compress the air. So although it is marketed as being emission free, it technically is not and this is another weakness. Also, OneCAT only goes 62 miles per hour for 56 miles in an urban cycle. This is not very far and Tata Motors will have to improve on this weakness as well as the emission weakness in order to draw more comsumers to this new automobile.

Opportunities

Tata Motors has already opened the doors for many new and innovative ideas, but not only for their company, but their competitors as well which could turn into a threat. One of the major opportunities that Tata Motor faces is that as of right now 90 percent of China and India’s adult population do not own cars, partly because cars are costly and require more expenses after purchased. So the market for a low-priced car is huge which benefits Tata Motors perfectly since they produce the lowest priced car on the market. This is a huge opportunity for Tata Motors because if they can get their feet into that market of people that do not have cars because they cannot afford them, then they will make large profits down the road. China’s total car sales are estimated at over 8 million dollars annually and they were the world’s second largest car market in 2006. China’s government forecasts that demand for cars will top 20 million by 2020. With Tata Motors in the market with the cheapest car, China’s demand for cars will probably increase even more significantly which will in turn increase sales for Tata Motors.

Japan, North America, and Europe automobile sales went up over the years because of demand for smaller cars increased. This demand for smaller cars is a great window of opportunity for Tata Motors because not only are their cars small, but they are cheap and environmentally friendly as well. Once people in these countries get Tata Motor automobiles then their automobile sales will continue to rise.

As of March 2008 Tata Motors finalized a deal with Ford Motor Company to acquire the British businesses, Jaguar Cars and Land Rover. This is a huge opportunity for Tata Motors since they will acquire the large knowledge base and technologies for producing and marketing luxury vehicles. This acquisition helps them dive into the more mature markets in Japan, Europe and the U.S. The knowledge transfer from these two companies will greatly improve Tata Motors ability to continue to grow and flourish in both developing and developed market segments.

Threats

The obvious threat to Tata Motors is intellectual property rights. Tata invented the cheapest car on the market and every automobile manufacturer wants to know how Tata did it. Headhunters are soon going to find out this valuable information and make it available to their own company. This is a huge threat to Tata Motors because at first they had low competition, but once other car manufactures find out how they invented such a low cost car, and then these companies too will jump on board and design their own line of low cost automobiles. On one hand this can be a threat, but on the other it may not affect Tata Motors at all because people will still want to purchase their product since they were the pioneers of all the excitement.

Other companies are starting to compete for some of this market share. In fact, the Pakistan’s Transmission Motor company has built a basic four-wheeler for only $2,100. This car is considerably cheap and the Pakistan Transmission Motor company started exporting them to Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures that will be producing low priced cars.

Another obvious threat is that dealing with gas prices. Gas prices continue to rise and the Nano requires gas, but those who purchase the Nano probably do not have a lot of money and so if gas prices keep jumping up then that market of consumers will not be able to purchase the car. If OneCAT can be made as cheaply as th