Tata Motors losses

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Can Tata Motors capture and increase its market share in India through the launch of Jaguar and Land Rover?

Introduction:

My commentary examines the recent acquisition of Tata Motors of two iconic brands- Jaguar and Land Rover from Ford Motors at a staggering amount of $2.3 billion. Despite being well known brands, they are suffering losses. After Tata Motors' take over, they were strategizing to launch these products in the Indian market which has huge growth prospects. The real challenge was in these brands attracting customers away from rivals in the Indian market. Simultaneously Tata Motors has launched Tata Nano to capture the Indian market for small cars. This will be reinforced by launching light- weighted aluminium and hybrid cars from Land Rover.

With help of SWOT, Ansoff Matrix and Asset led Marketing my commentary will examine how successful will be the launch of Jaguar and Land Rover cars in India.

SWOT Analysis:

SWOT analysis is a useful decision-making tool that is used to assess the current and future situation of a product, brand, company, proposal or decision. It considers both internal and external factors that are relevant to the issue under investigation.[1]

Strengths:

The acquisition of the two global brands- Jaguar and Land Rover acts in a crucial way to increase and develop the brand reputation and the quality of products for Tata Motors. It provides plenty of opportunity to the Indian consumer and the developing Indian automobile market can also help the launch of brands in the long-term. It can reap economies of scale through component sourcing and low cost engineering.

Weakness:

With different product portfolios for both brands it will be a challenging task ahead to market the same in the price sensitive Indian market. But this could be overcome through proper market research. Another concern is the diminishing image due to the continued losses and a de motivated work force due to the change in management. With right training and incentives and proper marketing strategies the company can convert these negatives to strengths.

Opportunities:

This launch is a great opportunity for the Indian customer and target the growing Indian market. Automobile market is developing in India and placed with launch of Nano, Tata Motors will be in a good position capture a larger share of the market.

Threats:

Increasing fuel prices combined with global meltdown will be a challenge for the company to stay afloat and over come the losses. In addition the strong competition can threaten the expected sales of the company. However the inherent financial and managerial strength of the conglomerate should be able to let the company withstand the challenges and move ahead. A danger that remains is that with the new ownership international brand loyalties may change and customers may move towards other models in the market.

Ansoff Matrix:

The Ansoff Matrix is an analytical tool that helps managers to devise their product and market growth strategies. It consists of four growth strategies namely- Market penetration, Market Development under new and existing and markets AND Product development, Diversification under new and existing products.[2]

Diversification

It refers to the high risk growth strategy that involves a business marketing new products in new markets. Parent companies can benefit from having a presence in a range of products and markets in different regions of the world.[6]

Market Penetration-

Tata could continue with the same strategy that it had adopted for the UK for the rest of world. The estate, coupe and open saloon models of Jaguar and the Freelander and Range Rover sport of Land Rover selling in the existing markets UK can help them to gain profits and increase in sales in other markets due to the reputation of the brands.
For the new models that are planned to launch, promoting and advertising can be a good choice for the firms to maintain their position in the market and to attract more consumers and build customer loyalty. Tata Indica and other commercial vehicles like Tata Ace are examples of Tata's market penetration strategy that exist in the existing markets and are still earning them great profits.

Product Development-

Tata Motors are launching the smallest car the famed Tata Nano in the Indian markets which is a new product by the firm and launched in existing markets of India and other countries where Tata Motors operate. This car can be useful for the firm as they can easily generate profits through this product as well as their brand name. Also, the firm can compete with other businesses in the same market with the help of these products. Tata Starbus and Tata Xover are other new products that have been launched by Tata Motors in India and other existing markets of Tata Motors.

Diversification-

The new products planned by Tata Motors through the Jaguar and Land Rover brands can be categorized in diversification. The company plans of manufacturing hybrid, electric and bio-fuels based and environmental friendly cars with the help of latest technology through both of these brands which can be useful in boosting the brand image of the firm. Also, there may be an increase in the profits of the firm as the hybrid cars are said to be the future of automobiles in order to save the earth from pollution. These new products launched in the new markets of India and others can be termed as diversified strategy of the firm. Tata Nano can also be included in this strategy as it is also a new product and is planned to be launched into new markets of African and Asian countries.

Asset led marketing:

Asset led marketing is a strategy that is adopted by the business for the sales of their products or services. Here, the firm uses its intangible assets for introducing a new product in the market. Tata Motors is a well-established and well-known firm and a part of the parent company Tata and Sons. Thus, in order to launch its products or services in the market and start off with immediate sales and profits, Tatas can use this which may even be applicable for launching the two automobile brands. Tata Motors have been in the news for past several months due to the launch of the world's cheapest car in India- Tata Nano manufactured by their own company. Simultaneously launching two brands can help Tatas in gaining a lot of customer attention and thus a larger customer base. The well established and elegant brands with the giant prestige of Tata Motors can help the firms in garnering huge amounts of profits and gaining control over their competitors.

Evaluation :

The biggest advantage of this acquisition is that the firm might see an increase in sales of the cars due to both firms' worldwide luxury brand reputation and also due to the services and quality provided by the cars.

But at the same time, the number of competitors in the booming automobile market of India has increased and finding their way out to satisfy the customers with different marketing strategies can be very costly for the firm.

Tata Motors can implement various strategies such as advertising and also, various schemes can be used which guarantee consumer satisfaction and can also prove to be a part of customer attraction. These strategies can prove to be useful in boosting the brand image and the sales of the company as well.

Short- term problems faced by the firm may be the recovering of the costs that has been put into the acquisition and the launch of Jaguar and Land Rover cars. The high manufacturing costs of Tata Motors, Jaguar and Land Rover might prove to be another reason for the losses in the accounts of the Tata Motors. The long-term problems can be an increase in competition as the Indian automobile market is developing at a rapid rate. If the company suffers losses, then there might be the need for job redundancies, thus leading to worker de-motivation.

Conclusion:

To conclude, the acquisition of Jaguar and Land Rover brands may be risky due to the global slowdown but Tata Motors with its brand name and established presence in India can succeed in the long run.

Tata Group, a huge multinational giant worldwide can capitalize through cross-subsidization. I think that by promoting the products and launching it along with Tata Nano will be useful as each can be a backup for the other in the future. The workforce can be motivated through good learning experience as they may have access to the technology used in manufacturing these premium cars but at the same time, if the products fail to create a mark on customers, the workers may feel insecure as job redundancies may be adopted by Tata Motors to struggle with their own financial portfolio.

Bibliography-

1. http://uk.reuters.com/article/idUKTRE55R0LK20090628?pageNumber=2&virtualBrandChannel=0

2. http://www.autoblogs.in/2009/06/tata-jaguar-land-rover-launch-india.html

3. http://free-sms-mms.blogspot.com/2009/06/tata-jaguar-land-rover-launched-in.html

4. http://www.zeenews.com/news542730.html

5. http://sify.com/finance/fullstory.php?id=14790692

6. http://www.businessworld.in/index.php/In-The-News/Rough-Roads-Ahead.html

7. http://business.outlookindia.com/inner.aspx?articleid=1225&subcatgid=611&editionid=36&catgid=44

8. http://www.tata.in/media/reports/inside.aspx?artid=r8CuZiHSZ2o=

9. http://money.rediff.com/companies/tata-motors-ltd/10510008/profit-and-loss

10. http://www.moneycontrol.com/financials/tatamotors/profit-loss/TM03

11. http://www.moneycontrol.com/financials/tatamotors/balance-sheet/TM03

12. http://www.moneycontrol.com/financials/tatamotors/ratios/TM03

13. http://en.wikipedia.org/wiki/Tata_Motors

Appendix-

SWOT:

Strengths-

· Jaguar and Land Rover have a respected brand image in the global markets for their luxurious cars.

· A good move for Tata Motors to enter the luxury market.

· A global visibility for the owner of the company as a sprawling conglomerate.

· Benefits from component sourcing, design services and low cost engineering.

· A good learning experience for the workers.

Weaknesses-

· Both brands have a vast and a different product portfolio.

· Unavailability of premium auto parts at the Indian auto parts suppliers and thus, the need to import.

· Diminished corporate image of the brands due to massive losses in the past few years.

· De-motivation of workers due to redundancies and job cuts

Opportunities-

· Opportunity for the Indian customers to have near access for driving premium cars.

· India is a developing automobile market and thus, a useful step for the long term.

· Simultaneous launch of the Tata Nano and other models can generate higher profits and develop their control on both the upper and the lower and middle class market.

· Range of products with different prices helps them to diversify.

· Reinforcement of globalization.

Threats-

· Negative impact on the car sales of the brands due to economic meltdown and global recession.

· Lead to value-destruction due to lack of synergies and high-cost operations.

· Prohibition of establishing a stronger market base and increasing sales due to the number of rivals such as Audi, Mercedes, Porsche, BMW, Lamborghini.

· Increase in fuel prices.

· Shifting brand loyalty due to change in ownership

Ansoff Matrix-

Existing product

New product

Existing market

Market penetration

This strategy mainly applies for those businesses that focus on selling existing products in the existing markets. It is a low- risk strategy and helps to increase the market share of its' current products.[7]

Product development

This strategy involves businesses aiming to sell new products in existing markets. This strategy is also a reason for acquiring another company as the costs of starting another company can be saved and different types of customers can be catered. This strategy is also useful for businesses using brand expansion strategies.[8]

New market

Market Development

This method serves for those businesses that apply the strategy of selling existing products into newer markets.[9] Such techniques are used by businesses that plan to expand their business and attain higher customer base.

Diversification

It refers to the high risk growth strategy that involves a business marketing new products in new markets. Parent companies can benefit from having a presence in a range of products and markets in different regions of the world.[10]

MUMBAI (Reuters) - Tata Motors (TAMO.BO), India's largest vehicles maker, on Sunday announced the launch in India of Jaguar and Land Rover vehicles, the marquee brands it bought from Ford Motors (F.N) last year.

Saying it was a momentous occasion for the company, chairman Ratan Tata said, "This is in keeping with our desire to extend the penetration of the brands in India."

The automobile firm, which controls about 60 percent of the world's fifth-biggest truck and bus market, will soon also be rolling out the Nano, billed as the world's cheapest car.

Jaguar is launching the XF amd XK range of luxury coupes and convertibles in India starting at a price tag of 6.3 million rupees (79,000 pounds) and going up to 9 million rupees.

Land Rover will initially be launching three vehicles including the Range Rover Sport and Land Rover Discovery 3, with prices also starting at 6.3 million rupees but going beyond 9 million.

"The luxury car market in India is very small, but there is a huge opportunity there. It is growing fast and we expect it to grow fast over the next 5 to 10 years," said David Smith, chief executive of Jaguar Land Rover.

"India is an important part of our plans for the future," said Mike Driscoll, managing director of Jaguar.

The luxury car segment in India is less than 1 percent of the total car market there.Continued...

On Friday Tata Motors posted its first loss in eight years at $520 million (315 million pounds) for the year to March 2009, with its Jaguar Land Rover unit reporting a loss of 306 million pounds in the 10 months of the fiscal year to March 2009, as a brutal global recession crippled car sales.

On the issue of loan guarantees for JLR, Tata said, "we are in discussions with the U.K. government on the loan guarantees and hopefully we will find a solution for it ... and our funding plan for JLR will progress."

The company is seeking guarantees for the 340 million pounds loan sanctioned by the European Investment Bank and other loans from U.K.-based commercial banks. It is seeking these funds to develop new and more fuel efficient cars for improving its competitive position.

"Sustaining the downturn is important for us ... and finding a solution (for the loan guarantees) is extremely important to us," Tata said.

He also said that if there was a large financial package from the U.K. government for Jaguar and Land Rover then, "there should be commensurate level of representation from them," which had to be negotiated and worked out.

An ill-fated, two decade-old strategy is about to end. When Ford hands over the keys to Jaguar and Land Rover (J-LR), it will end its troubled journey with the high-performance premium car brands, which have failed to pull in expected profits despite large investments.

Tata Motors is expected to finalise a deal for the two companies for just over $2 billion. However, recent reports indicate that the price might be higher than previously thought. Tata Motors is said to be looking for financing worth $3 billion to fund the deal. The Financial Times reports that Tata Motors's advisors on the J-LR deal, JP Morgan and Citigroup, have received instructions to arrange for funding from banks.

What worries investors is that Tata Motors may be stretching itself. This is a critical year for the company. In January, Tata Motors introduced its ultra-cheap car — Nano — to heavy national and global interest. It simultaneously launched a new platform for the Indica, its best selling passenger car. Later this year, it will also launch the World Truck, a project that has been under development with South Korean subsidiary, Tata Daewoo.

“Investors have not taken this deal positively as it will put a lot of pressure on Tata Motors' highly leveraged balance sheet,” says Aniket Mhatre, an analyst with financial services firm, Prabhudas Lilladher. “Also, the Nano won't be profitable for at least the first two-three years. The combined effect is expected to put pressure on Tata Motor's margins and profitability.”

In January, shortly after Tata Motors was made the preferred bidder for J-LR, credit rating firm Crisil downgraded the company's long-term debt ratings to a ‘negative watch'. It said that the deal would be challenging for Tata Motors as a significant portion of combined revenues would come from two newly acquired companies where Tata Motors had “yet to build and demonstrate capabilities”. The company's stock has dropped 7.9 per cent to Rs 702.65 per share on the year to date.

Future Strategy

What happens next depends on how well Tata Motors can handle the acquisition and service the considerable debt it will assume.

The group is known to retain the services of the current management team after taking over companies. This is exactly what happened when Tata acquired Spanish bus makers Hispano Carrocera and South Korean truck makers Daewoo Commercial Vehicles. Tata executives have likely already approached Jaguar's top management team to secure their services beyond the acquisition.

The Tata Group's reasoning is that it avoids the hassle of new managers having to learn the ropes. Employee morale also stays high as workers stick with bosses they trust. Still, some Tata Motors executives will definitely be sent to the UK to integrate the finance and business operations of the two companies.

Tata has also promised it will not tamper with Jaguar and Land Rovers' business plans, made by Ford up to 2011-12. This means that no employee will be fired and no plant shut down, even if these are a financial burden.

Scheduled roll-outs for Jaguar and Land Rover are also likely to carry on. “Ford has plans of launching a number of new models for the J-LR combine,” says Mhatre. “[These] are expected to do very well in their respective markets. It could provide the much needed boost to Jaguar's profitability in particular.”

Ford has also secured components from suppliers over the medium term. Tata Motors will enjoy this benefit as it will buy it time to integrate J-LR operations into its own extensive community of lower-cost suppliers, which include around 20 auto design studios, steel units and various component makers.

Chairman Ratan Tata also assures that Jaguar and Land Rover will not be re-badged as Tata vehicles. Jaguar dealers were disappointed when they realised that the once-legendary British brands would now be owned out of India. “For the European market, Tata Motors has a ‘truck-manufacturer' image,” says Mhatre. “Consumers may consider shifting their brand loyalty to competitors in such a scenario.”

That is why Tata's decision to not tamper with Jaguar and Land Rover's “character” will be important. It is also consistent with moves from past acquisitions. Trucks sold in Daewoo's native South Korea do not bear the Tata badge. That emblem only appears on vehicles where the Tata brand is more well-known than Daewoo, such as markets like South Asia or Africa.

BRAND POWER: Jaguar and Land Rover will not be re-badged as Tata vehicles

What Tata Gains...

The most obvious benefit for Tata Motors is the technology it will now have access to. Both Jaguar and Land Rover use advanced technology and design and production techniques to churn out their vehicles. These include the use of lighter materials such as aluminium as well as considerably more advanced engine and transmission technologies. “Land Rover's SUV technology [in particular] could be useful for the Tata's current products in the segment,” says Yezdi Nagporewalla, National Industry Director (industrial markets) at KPMG.

Then there's green tech. At the ongoing Geneva Motor Show, Tata Group Chairman Ratan Tata said that he was interested in producing green cars. “We are very keen and… are looking at working on vehicles that run on biofuels, electric vehicles and hybrid fuels,” he told journalists. Land Rover already has one hybrid concept — the LRX — and says it would invest £700 million in the development of sustainable technology over the next five years.

Finally, and perhaps most importantly, the two brands will give Tata Motors a foothold in the luxury space. This means that the company will have a readymade offering in every car segment from ultra-cheap (the Nano) to utilitarian (the Indica) to commercial vehicles (Ace, World Truck) to SUVs (Sumo, Safari and Land Rovers) and, finally, to premium, high-performance cars (Jaguar).

The fact that it can literally buy premium brands off the shelf means that it won't have to invest its own time and money to catch up with high-end technology. This is exactly what has put car makers such as Honda or Toyota at a disadvantage in the premium segment in markets such as the US.

For the moment, it is unclear whether Tata's gamble will work. $2 billion is a lot of money and, if the analysts are right, Tata Motors may not be in the best position to pay it all back. Still, the Tata group is arguably one of the most professionally managed corporate houses in the country, if anyone can pull it off, they can.

Bibliography- http://www.businessworld.in/index.php/In-The-News/Rough-Roads-Ahead.html

3. Tatas to launch Jaguar, Land Rover on June 28

Last updated on: June 18, 200910:23 IST

India's [ Images ] tryst with luxury brands takes a new turn on June 28,when Tata Motors [ Get Quote ] unfurls its marquee brands, the Jaguar and Land Rover [ Images ], in its home market.

The cars will be launched just weeks before India's first global brand, the ultra-cheap Nano [ Images ], hits the road in July.

Tata Motors acquired the luxury vehicles from Ford [ Images ] Motor Co for $2.3 billion in March last year. This is the first time globally that Jaguar and Land Rover will debut together.

After Mumbai [ Images ], the imported cars will drive to Ludhiana and Bengaluru [ Images ].

The Jaguar will roll out five models including the XJ, XX, and XF. Two models of the Land Rover will available. Tata Motors declined to reveal the first year sales targets for its new offerings. But a senior Tata manager said they will be number a few hundreds.

In the United Kingdom, the Jaguar largely sells four models: Estate, saloon, open-top and coupe. The hot selling Land Rover brands overseas are the Range Rover [ Images ], Defender, Discovery and Freelander.

JLR will be the first luxury cars from the $83 billion Tata conglomerate although they had a joint venture with Mercedes [ Images ] nearly a decade ago. While the Jaguar gives Tata Motors a toehold in India's premium car segment, the Land Rover completes its SUV range which includes the Sumo.

The JLR launch comes at a time when India's luxury car market has belied the downturn. Global brands like the Rolls Royce, BMW [ Images ], Audi, Porsche, Lamborghini, Maybach and the Bentley have made India their coveted destination in the last couple of years.

Last year, Mercedes announced that it will invest Rs 250 crore (Rs 2.5 billion) to set up its first fully-owned production facility in India. Its first plant in Pune was leased from Tata Motors.

Even as compact cars clog Indian roads and drive over two-thirds of the 1.5 million auto market, the high margin luxury cars are a status symbol amongst India's rich. Ludhiana, for instance, is the Mecca of luxury cars, auto makers say. India now has its very own luxury brands.

Tata's Takeover of Jaguar and Land Rover: Bumpy Road or Smooth Ride?

Published: April 03, 2008 in India Knowledge@Wharton

Will the acquisition of Land Rover and Jaguar be a smooth ride for Tata Motors? That is the question that many observers have been asking since the Tata Group and Ford announced their $2.3 billion deal at the end of March. The takeover has been greeted with jubilation, especially in India, because of the prestige of these marquee brands. On the other hand, skeptics have also been wondering how this acquisition fits in with the Tata Group's overall strategy. What can the Tatas do differently than Ford to ensure that the acquisition pays off? What major challenges will Tata Motors face in integration and marketing? To help make sense of these issues, India Knowledge@Wharton spoke withJohn Paul MacDuffie, Wharton management professor and co-director of theInternational Motor Vehicle Program, andHarbir Singh, Wharton management professor and co-director of theMack Center for Technology Innovation.

An edited transcript of the discussion follows:

Knowledge@Wharton:Let's start with the question that is on everyone's mind. Does this deal make economic sense?

MacDuffie: It's a very fascinating deal. It's clearly not a deal that is trying to build economies of scale in just one business and just reach into new markets. It's quite a differently motivated deal. For Tata it's not the first time that they've reached for a brand with some prestige value as part of expanding their global visibility. So I think viewed as an acquisition that they intend to learn a great deal from, it could very well make sense.

The exposure that the Tatas will have to the high end of the auto business, which they know very well at the domestic end, and to the managing of this very prestigious brand I think could offer a lot of learning opportunities.

Knowledge@Wharton:Harbir, just to follow up on the same issue, the Tatas have the Indica, and they also recently launched the Tata Nano, the famous one lakh rupee car, or the $2,500 car. Do brands like the Jaguar and Land Rover really fit in with that overall portfolio? What's your sense of the fit?

Singh: My sense is that the Tatas are trying to expand their portfolio in general and they are trying to offer [various brands]. I don't think it's a question of the customer viewing Nano, and Jaguar and Land Rover as all offerings of the same company. It's much more a question of like Louis Moet Hennessy having a set of brands and really doing the best you can for Land Rover and the best you can for Jaguar.

In terms of the economic sense of the transaction, I think another way of looking at it is: What's the replacement value of those brands, right? And clearly whatever price they pay is much lower than the replacement value. So the real challenge here for them is to make sure that they can enhance Jaguar in its own terms and enhance Land Rover in its own terms.

Knowledge@Wharton:John Paul, do you agree?

MacDuffie: Yes. Ford of course sold the companies because the company is in deep financial distress and really needed cash now. There can be a dispute, I guess, about whether the price is too high or too low, but the Tatas certainly paid substantially less than Ford did for those brands. And by all counts Land Rover is profitable and Jaguar has made a strong comeback based on building capabilities, improving quality, they have some interesting new products in the pipelines, so I do agree.

Knowledge@Wharton:Did the Tatas did get a bargain, or did they overpay because this was a higher price than the market expected?

MacDuffie: It's always very tough to know exactly and there's always this kind of speculation at the time. I think that Ford was certainly counting on increasing the volumes of these brands -- probably particularly Jaguar -- to a much higher level. And so at a certain point their efforts to greatly expand the volume, I think, probably hurt them somewhat. They were introducing lower priced Jaguars that a lot of people didn't feel represent that brand very well. They were trying to leverage their own Ford design parts from other models. I actually think managing it as a prestige brand from the base that Ford established should work well for the Tatas.

That appears to be their pattern with their acquisitions -- that they by and large allow the management to keep doing what it is doing and, as I said, look for opportunities to learn from these foreign acquisitions.

Knowledge@Wharton:Some critics have been saying that for the Tatas this was a deal motivated more by the desire to acquire marquee or iconic brands, almost like former colonials acquiring the trappings of the former empire. Does that criticism make sense?

MacDuffie: Who knows about that motivation? There's certainly a kind of interest, I think, in the whole deal that comes partly from such associations. One of the other Tata deals that's gotten some attention is the acquisition of Tetley Tea, another British brand, and also of British Steel, the remains of British Steel. And so clearly investing in Britain has worked well for Indian companies.

There were competing buyers, mostly private equity sometimes in partnership with other auto companies. And both the unions and the suppliers of Jaguar and Land Rover very much prefer Tata. I suspect not because they're an Indian company but because of their track record in the way they've managed acquisitions. They by and large have not done wide-scale layoffs, they have not done lots of consolidation; they've focused on leveraging the strengths and the capabilities they have acquired.

Singh: I agree with everything John Paul is saying. My comment is that it's important for the Tatas not to get distracted by the nationalism and those kinds of things, which are all inevitable and natural. And I think it's good, the pride is well-placed. You know the pride in Tatas by Indian investors and others is well placed. But fundamentally, this transaction has to perform because it's a large transaction. I think there is a very good chance of performing. But I think it important for them to not get wrapped in the overlay of national pride and British colonialism and all those things.

Knowledge@Wharton:Ford really had a tough time during the many years that it owned these brands. What could the Tatas do differently to make sure that the acquisitions pay off?

Singh: It's correct that Ford struggled quite a bit with these transactions. One of the issues that John Paul mentioned earlier was that Ford is in financial trouble. So if you were to think about Tatas' approach to all of this, they could get a good price because it's a distress sale.

I mentioned market replacement value and there is a good chance that the $2.3 billion is well below replacement value because Ford bought Jaguar for a similar reason. They wanted that luxury nameplate. And Land Rover also is a high-end nameplate. But we can also ask that based on these multiple bidders present, that what we will get is kind of almost an auction-like value, right? Except that it will, given that the bidders are all well-informed and they have had access to the books -- this is a private transaction, it's not a public transaction -- I would think that $2.3 billion is probably a fair market value. And I say that obviously without access to the books.

So looking ahead then, what can the Tatas do differently? I think what the Tatas can do differently is to manage the supply chain effectively and take advantage of their experience in managing manufacturing companies in England and in Europe, specifically with Corus, that they have had some experience with. And to preserve the sources of value where they are and enhance them where they are, they should try that and not integrate quite as much as Ford and Jaguar did with the Jaguar X type and the Ford Lincoln counterpart.

Knowledge@Wharton:You have looked at other mergers that the Tata Group has done. Is it your sense that Tata Motors will try to integrate Jaguar and Land Rover with their other automotive operations? And if so, what do you think will be the major challenges involved?

Singh: Just speaking of Tata's experience with M&A in general, they as a group have shown boldness in going beyond national boundaries and making rather visible transactions. I think each of the operating companies is very professionally run and I think there is some opportunity for learning across [organizations]. You know, what did the Tetley acquisition tell the Tata Group about cross-border acquisitions and what does the Corus experience more recently tell them about manufacturing-based acquisitions? I think they are going to try to transfer some of that learning to Tata Motors. That will be very effective.

Knowledge@Wharton:John Paul, what challenges might the Tatas face and how they should tackle them?

MacDuffie: When you think of other big mergers or M&A activity in the auto industry, this may bring to mind for some people something like DaimlerChrysler in the sense that you had a high-end brand combined with a set of more mass-market brands. At first people thought this meant that there was not going to be a great deal of conflict for the two companies because they would operate in those different parts of the market. That quickly turned to criticism that they weren't achieving synergies from the deal and toward the end of that somewhat ill-fated union -- they were trying in fact to leverage more Daimler engineering and parts into Chrysler vehicles. In the end, of course, it fell apart and Chrysler was sold.

To me there is such a huge range between the Tata domestic products and these luxury brands. There is also the complete physical location of the supply chains and the manufacturing facilities. I agree with Harbir that this is probably a case where rather less actual integration activity but more focus on where experiences in other acquisitions can be transferred is the way to go.

Singh: Just to add to that comment, I would say that value engineering may be very important. They will bring some value engineering skills, which I think the Tatas definitely have.

Beyond that, I think it's much more a question of [whether] the price was right in relation to the value that the Tatas would get down the road. That's going to be the key determining factor. Of course, there are many cultural issues we can also talk about.

Knowledge@Wharton:What cultural issues do you think will crop up between Tata Motors and the new acquisitions?

Singh: John Paul talked about Daimler and Chrysler, right? A lot of [the problems] seemed like national cultural differences in addition to differences just in terms of how you produce a very high-end automobile and a medium-priced automobile. Those cultural issues, organizationally, began to play a significant role and became significant challenges.

What Tata needs to do is to avoid some of those dynamics. They have to avoid nationalism from rearing its head, particularly in Jaguar/Land Rover, from their end because I don't think it is productive to have that.

Secondly, they have to ensure that Land Rover and Jaguar achieve their potential and manage them as if they were luxury manufacturers themselves -- do value engineering on the backend but give the resources necessary for maintaining and enhancing the brands. That really calls for the Tata executives to kind of transform their thinking and bring into the luxury end or the higher-end price point the value engineering and some of the frugality that they would have a better handle on. That's a challenge.

MacDuffie: Thinking back to the DaimlerChrysler situation, clearly a big factor from the very beginning was a sense that the Chrysler management had that essentially it was a takeover, and control coming from Stuttgart was really the dominant factor. A lot of executive talent left in the very early days. It already appears to be clear that a lot of the Jaguar and Land Rover management will stay in place. They seem to have already gotten those assurances, again [with] the care with which Ratan Tata himself and his staff spoke with the Union and suppliers to ensure them continuity. I think they have already approached some of those challenges associated with the transition very skillfully.

I also noted in just one press account of the approach that Tata has taken with some of the acquisitions, something that I have seen as being very effective in, for example the Renault/Nissan alliance, which is essentially allowing a lot of decentralization. But reaching into the organizations for talent, sometimes lower down in the ranks, assembling task forces to work on certain important strategic issues and then letting their recommendations come up to a senior-level and trying to enact them quickly and providing resources for them. So again, based on not a lot of information, my sense is that they are approaching this quite skillfully so far.

Singh: Sometimes we think about these companies as homogeneous entities. So Tata produces lower-priced or medium priced -- in developing countries -- automobiles. And Jaguar and Land Rover are luxury automobile manufacturers. I agree with John Paul's point that when you break it down to the operational level, and the automobile design groups and so on and so forth, the supply chain, there are a lot of commonalities in how you think about the engineering of these automobiles. And to try to develop task forces that can find the best of both practices and in fact transfer learning across organizational boundaries is entirely possible. And the Renault/Nissan example is an excellent one where they actually went in and turned around Nissan. Everybody thought that it was very, very difficult to do. So that was a concrete example that actually can be emulated in this setting. I think that's a great point.

Knowledge@Wharton:Apart from the operational and cultural issues, there is also a marketing challenge that Tata will face. How do you think that should be tackled?

MacDuffie: Our basic stance is that a lot of management of those brands should probably continue without a great deal of change. This is a new area for Tata to learn from. I noticed one quote from Shekhar Kapur, the director of two movies about Queen Elizabeth, who lives in London. He talked about a sense of pride that he felt at hearing about this acquisition. So there probably is an opportunity…I wouldn't say to play to nationalism per se, or to this colonial reversal kind of angle, but in fact to market to successful Indian expatriates around the world, and perhaps in India as well. But I think particularly in countries around the world that is a desirable market and there are some opportunities there.

Singh: I would agree with that. I think if you think about the target group as a whole, on one hand the challenges are that you don't want to dilute the nameplate of Jaguar and Land Rover with the lower-cost kind of imagery.

But Tata as a group has marketed luxury products as well. I mean, they have a jewelry division that's very successful. I'm not suggesting they use the jewelry kind of approach. But they certainly have the diversity of perspectives within the group to more than tolerate luxury products and other brands.

If you look at Tetley Tea, most people don't associate that with the Tata ownership outside of India. And Tetley has thrived as a brand. I can see them replicating that kind of approach, where they keep the brand intact and keep the management largely intact. And they may try to infuse knowledge where they think that is beneficial.

Knowledge@Wharton:Let me conclude by asking one final question to both of you. If Ratan Tata, head of Tata Sons and Tata Motors, were in the room with us right now, what advice might you give him?

MacDuffie: I think I would emphasize two things that have been themes here. One is focus and not being distracted. There is a need to extract value from this and that will largely depend on being highly focused at finding what it takes to make Jaguar and Land Rover succeed. Grander schemes that involve trying to leverage these brands across the rest of their portfolio I think probably don't make a lot of sense at this point.

But secondly, the theme of learning… that already appears to be a thrust of some of the emerging market multinationals, that when they acquire access to learning and the chance to develop new capabilities is really the motivation and not simply ways to get scale or take cost out.

If they can stay focused on that, the companies that I have followed for many years in the auto industry that have consistently been successful --Toyota most notably --have kept that focus on learning and improvement at the forefront consistently in good times and bad. I would urge that on Mr. Tata.

Singh: I would say three things. The first, of course, is I would be honored to be in his presence and compliment him on his statesmanship. He has led a group that already had a tremendous reputation but he has taken it to new heights.

The second thing is to say that he should trust the CEOs of his companies -- and he does -- and see how they can get the most value out of these transactions, not just Tata Motors but also Tata Steel and the other transactions that these companies are doing.

The third is to talk about sharing learning across the Tata Group. I think each of the companies is doing that. The question is how they can get the most out of transferring knowledge across the group. Related to that is the point of discovering a unique style that is appropriate for such business groups.
Here's what you think...

Total Comments: 1
#1Tata's Major Challenges

The major challenges for Tata are as follows:

1. Brand confidence. It is necessary to instill confidence in distributors worldwide that the brands are in safe hands. The Tatas are there to add value and not to ruin brand market value. It is necessary to do this to retain present customers and develop new customers.
2. Workers' confidence in management. Workers should feel that Tata is there to help them and not to cut their jobs.
3. Cost reduction. It is necessary to reduce costs so as to make the business profitable, especially with Jaguar. The focus should be on adding innovative processes and using cheaper materials. Tata can use its experience especially with the Daewoo commercial vehicle. Tata has many companies that can help in reducing material costs. For example, Corus can help in arranging for steel.
The integration of cultures is not a big issue, as Indians speak British English and know as well as practice the working style of the British.

By: Manish Godse, IIT Bombay
Sent: 09:54 AM Mon Apr.07.2008 - IN

Bibliography-

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4275

[1] Business and Management, Paul Hoang, page 98

[2] Ibid, page 131

[3] Ibid, page 131

[4] Ibid, page 132

[5] Ibid, page 132

[6] Ibid, page 132, 133

[7] Ibid, page 131

[8] Ibid, page 132

[9] Ibid, page 132

[10] Ibid, page 132, 133

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