SWOT Analysis - Tata Motors Limited

The company began in 1945 and has produced more than 4 million vehicles. Tata Motors Limited is the largest car producer in India. It manufactures commercial and passenger vehicles, and employs in excess of 23,000 people. This SWOT analysis is about Tata Motors.

Strengths

The internationalisation strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The benefit is that Tata has been able to exchange expertise. For example after the Daewoo acquisition the Indian company leaned work discipline and how to get the final product 'right first time.'

The company has a strategy in place for the next stage of its expansion. Not only is it focusing upon new products and acquisitions, but it also has a programme of intensive management development in place in order to establish its leaders for tomorrow.

The company has had a successful alliance with Italian mass producer Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of production and knowledge exchange. For example, the Fiat Palio Style was launched by Tata in 2007, and the companies have an agreement to build a pick-up targeted at Central and South America.

Weaknesses

The company's passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers. Despite buying the Jaguar and Land Rover brands (see opportunities below); Tata has not got a foothold in the luxury car segment in its domestic, Indian market. Is 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?

One weakness which is often not recognised is that in English the word 'tat' means rubbish. Would the brand sensitive British consumer ever buy into such a brand? Maybe not, but they would buy into Fiat, Jaguar and Land Rover (see opportunities and strengths).

Opportunities

In the summer of 2008 Tata Motor's announced that it had successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK 2.3 million. Two of the World's luxury car brand have been added to its portfolio of brands, and will undoubtedly off the company the chance to market vehicles in the luxury segments.

Tata Motors Limited acquired Daewoo Motor's Commercial vehicle business in 2004 for around USD $16 million. Nano is the cheapest car in the World - retailing at little more than a motorbike. Whilst the World is getting ready for greener alternatives to gas-guzzlers, is the Nano the answer in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will cost up to 85 times more than a standard Nano!

The new global track platform is about to be launched from its Korean (previously Daewoo) plant. Again, at a time when the World is looking for environmentally friendly transport alternatives, is now the right time to move into this segment? The answer to this question (and the one above) is that new

and emerging industrial nations such as India, South Korea and China will have a thirst for low-cost passenger and commercial vehicles. These are the opportunities. However the company has put in place a very proactive Corporate Social Responsibility (CSR) committee to address potential strategies that will make is operations more sustainable.

The range of Super Milo fuel efficient buses are powered by super-efficient, eco-friendly engines. The bus has optional organic clutch with booster assist and better air intakes that will reduce fuel consumption by up to 10%.

Threats

Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean production. Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem could be alleviated.

Since the company has focused upon the commercial and small vehicle segments, it has left itself open to competition from overseas companies for the emerging Indian luxury segments. For example ICICI bank and DaimlerChrysler have invested in a new Pune-based plant which will build 5000 new Mercedes-Benz per annum. Other players developing luxury cars targeted at the Indian market include Ford, Honda and Toyota. In fact the entire Indian market has become a target for other global competitors including Maruti Udyog, General Motors, Ford and others.

Rising prices in the global economy could pose a threat to Tata Motors Limited on a couple of fronts. The price of steel and aluminium is increasing putting pressure on the costs of production. Many of Tata's products run on Diesel fuel which is becoming expensive globally and within its traditional home market.

Fiat wants to revive its sagging sales while Tata Motors eyes futuristic designs. Italian carmaker Fiat has roped in Indias Tata Motors to salvage its dipping sales in what is being considered as worlds fastest growing automobile market. The deal begins this March, when Tata Motors will start managing the marketing and distribution of Fiat cars in India. Fiat has been, of late, worried about its plunging sales in India. Sources say the move is only a fist step in wider collaboration aimed at making forays into product development, manufacturing and sourcing. At first Fiat will use Tata Motors significant dealer network presence, according to Sergio Marchionne, the chief executive of Fiat SpA. Tata Motors and Fiat dismissed speculation about future cooperation as premature, but stopped short of ruling it out. Tata group chairman Ratan Tata said the groups ties with Fiat was an evolving relationship with no barriers, no boundaries. Tata group has interests in steel, energy, software and hotels also. The announcement regarding the cooperation was made at the Auto Expo in New Delhi, the national capital, last Friday. The pact is the culmination of a joint exercise initiate last September to identify areas of cooperation between Tatas and Fiat. Fiat rolls out the Palio hatchback and mid-sized Petra at a factory near Bombay, Indias commercial hub. But it has failed to outsmart rivals including General Motors, Ford and Hyundai in the Indian market. The Palio is believed to be one of the bestbuilt small cars in India or even the world, but comparatively higher fuel efficiency figures as well as the bad reputation of Fiat'sa service network in India as well as prolonged labour breakdowns in their plant dented its sales in India. The deal also envisages after-sales service by Tata Motors as well as spare parts for the Italian carmakers brands in India. Fiat, it may be recalled, had identified bad service and lack of spare parts, as key reasons for its dismal performance in India. With Tata Motors entering the scene with a helping hand, that may change. Marchionne said Fiat would use Tata Motors to source spare parts from India. Indias high-skilled low-wage workforce is once of the prime reasons for the countrys emergence as a manufacturing hub. According to estimates, car sales in India have grown 20 per cent annually in the past five years. Tata Motors manufactured trucks and buses till 1998. In that year, it entered the passenger car market with Tata Indica, a hatchback,. One out of every five small cars sold in India is an Indica. Ratan Tata has also announced his intentions to roll out a Rs 1 lakh car. The Fiat alliance would come in handy for Tata Motors to design future models in the highly competitive market, according to sources close to the deal.

Advantages of the Alliance

Even though Fiat India had been present in India for close to a decade, it had the lowest market share among the 11 players including later entrants like Skoda India - in the growing car market. Though the company's cars like the Palio were initially quite successful, Fiat's image suffered due to its dealers. Fiat customers were reported to have faced problems because of the nonavailability of spare parts and lackadaisical customer service. Such problems had an adverse impact on the company's image, and it struggled to compete effectively in the Indian automobile market. The alliance with TM was expected to improve its dealership network and customer service without the company having to make significant investments. The goodwill enjoyed by TM, and the company's reach were expected to improve Fiat's image in India...

Threats
Even though both firms gained several advantages by co-operating, they also faced significant threats. The TM-Fiat Auto alliance was expected to face intense competition from other automobile manufacturers in India, some of who were in the midst of forming their own alliances. In February 2005, Renault SA formed a 49:51 joint venture with Mahindra & Mahindra Ltd. The alliance was to launch the Logan, a sedan, which would compete against TM's Indigo. Toyota Motor Corp. and its subsidiary Daihatsu Motor Co. Ltd., had plans to launch a new small car for the Indian market. More significantly, MUL was all set to challenge TM's diesel supremacy, by entering the diesel car market in a big way...

Outlook
India was one of the fastest growing automobile markets in the world, with passenger car sales forecast to reach two million units per annum by 2010. As of 2006, small cars made up more than twothirds of India's passenger car market. Even in the future, at least in the short to medium term, the small car segment was expected to remain the largest segment of the market. Therefore, in spite of the intense competition, the TM-Fiat Auto joint venture was aiming to make an impact in this high-volume segment. "Obviously Tata-Fiat [Auto] JV is entering an over-crowded and a price sensitive segment. But this [small car] segment which contributes to more than 60% of the total car sales will remain a key segment in the Indian car market for many years," said an auto analyst..

Introduction
In July 2006, major Italian automaker Fiat Auto S.p.A. (Fiat Auto), and the Indian auto major Tata Motors (TM), signed a Memorandum of Understanding (MoU) to form a joint venture to produce passenger cars, engines, and transmissions in India. These products were intended both for the Indian and the international market. Earlier, in January 2006, the two companies had signed a marketing and distribution agreement under which TM marketed select models of Fiat cars through a few of its dealers. The joint venture was seen as a major development in the Indian automobile industry. Both TM and Fiat Auto had a long history in automobile manufacturing. Until the 1990s, TM was mostly a manufacturer of commercial vehicles. It entered the passenger car market in the 1990s with the Indica, a 1400 cc small car44 with a diesel engine, which went on to become a success and placed TM among the top three passenger vehicle manufacturers in India. However, in 2002, because of a fall in the demand for commercial vehicles, TM reported a loss. As a part of its turnaround strategy, it improved its internal efficiencies and also decided to focus on overseas markets to reduce the impact of demand fluctuations in the domestic market. In 2003, TM returned to profitability. By 2005, it had a market presence in Thailand, Senegal, South Africa, Turkey, Europe, and West Asia. However, in spite of its impressive growth, TM was still a small player at the global level. Fiat Auto, which built its first car in 1899, also had an illustrious history in the automobile world. After World War II, it became a major manufacturer of small cars in Italy, and later on in Europe. Until the 1990s, Fiat Auto dominated the small car market in Europe and other parts of the world.5 In India, Fiat cars were imported even as far back as 1905. In the 1950s, the Fiat Group entered into a license agreement with India-based Premier Automobiles Ltd. (PAL)6 to manufacture its cars. Fiat Auto formally entered the Indian market in 1997 through a joint venture with PAL. In the early 2000s, Fiat Auto ran into losses as it was slow in adapting to the changed economic environment7 in Italy in particular and Europe in general.

ts market share in the Italian and European car markets declined. Around the same period, Fiat Auto's share in the Indian automobile market also fell drastically. In 2002, the company adopted a turnaround strategy which included several measures like cutting costs, restructuring debts, launching new models, increasing advertising spend, and focusing on markets where the demand for small cars was high. India being a major market for small cars, Fiat Auto decided to revive its operations in the Indian market. And the joint venture with TM was a step in that direction. Most analysts were of the opinion that the joint venture would benefit both parties; TM would gain in terms of better accessibility to technology, design, and global markets, while for Fiat Auto, it would mean a larger presence in India, one of the world's fastest growing auto markets, without heavy investments. However, there were others who felt that the joint venture would end in brand dilution and product cannibalization for both parties. Also, with Honda, Toyota, GM, Mitsubishi, M&M/Renault, Nissan, Skoda, etc., chalking out plans to enter the small car segment, especially the premium small car segment, it seemed likely that the TM-Fiat Auto joint venture would face intense competition in the coming years.

Tata Motors
TM had its origins in Tatanagar Shops,8 which was acquired by Tata Sons Ltd.9 on June 1, 1945, from the Government of India (GoI). Tata Sons renamed the company Tata Locomotive and Engineering Company Ltd.

Initially, the company produced steam locomotive boilers and later graduated to producing complete locomotives and other engineering products. From 1960 onward, it was referred to as Telco (Tata Engineering and Locomotive Company Ltd.). Telco began production of medium commercial vehicles in 1954. The company gradually grew under the leadership of J.R.D. Tata (Chairman between 1945 and 1973), and Sumant Moolgaokar (Moolgaokar) (Chairman between 1973 and 1988). Telco set up a second factory in Pune in the 1970s. The company started manufacturing heavy commercial vehicles in 1983 and light commercial vehicles in 1986. Telco also increased its exports over the years. In 1988, Ratan Tata replaced Moolgaokar as Telco's Chairman...

Excerpts Contd... Advantages of the Alliance

Even though Fiat India had been present in India for close to a decade, it had the lowest market share among the 11 players including later entrants like Skoda India - in the growing car market. Though the company's cars like the Palio were initially quite successful, Fiat's image suffered due to its dealers. Fiat customers were reported to have faced problems because of the nonavailability of spare parts and lackadaisical customer service. Such problems had an adverse impact on the company's image, and it struggled to compete effectively in the Indian automobile market. The alliance with TM was expected to improve its dealership network and customer service without the company having to make significant investments. The goodwill enjoyed by TM, and the company's reach were expected to improve Fiat's image in India...

Threats
Even though both firms gained several advantages by co-operating, they also faced significant threats. The TM-Fiat Auto alliance was expected to face intense competition from other automobile manufacturers in India, some of who were in the midst of forming their own alliances. In February 2005, Renault SA formed a 49:51 joint venture with Mahindra & Mahindra Ltd. The alliance was to launch the Logan, a sedan, which would compete against TM's Indigo. Toyota Motor Corp. and its subsidiary Daihatsu Motor Co. Ltd., had plans to launch a new small car for the Indian market. More significantly, MUL was all set to challenge TM's diesel supremacy, by entering the diesel car market in a big way...

Outlook
India was one of the fastest growing automobile markets in the world, with passenger car sales forecast to reach two million units per annum by 2010. As of 2006, small cars made up more than twothirds of India's passenger car market. Even in the future, at least in the short to medium term, the small car segment was expected to remain the largest segment of the market. Therefore, in spite of the intense competition, the TM-Fiat Auto joint venture was aiming to make an impact in this high-volume segment. "Obviously Tata-Fiat [Auto] JV is entering an over-crowded and a price sensitive segment. But this [small car] segment which contributes to more than 60% of the total car sales will remain a key segment in the Indian car market for many years," said an auto analyst...