Tata Motors Limited Comprehensive Strategic Analysis

Team Tata Motors pg.
1 of 70

Tata Motors Limited (TML)
Team Project

C562 Developing Strategic Capabilities
November 24
th
2008 February 29
th
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
Team Tata Motors pg. 2 of 70

TABLE OF CONTENTS

TATA MOTORS CORE IDEOLOGY ........................................................................................... 5
TMLs BIG, HAIRY, AUDACIOUS GOALS (BHAGs).............................................................. 7
TMLs PROMINENT STRATEGIC BUSINESS UNITS (SBUs)................................................ 8
PROJ ECT SBU............................................................................................................................. 10
TATA MOTORS LIMITED......................................................................................................... 11
FINANCIAL PERFORMANCE .................................................................................................. 11
COMPETITIVE ANALYSIS....................................................................................................... 15
A New Playing Field ................................................................................................................ 16
Marquee Brands....................................................................................................................... 17
Overall Competition................................................................................................................. 18
Other New Entrants ................................................................................................................. 19
Supplier Relationships ............................................................................................................. 20
Strategic Alliances.................................................................................................................... 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
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 Benefits and Consequences ............................................................................... 61

Recommendation III: Differentiated Marketing and Branding Efforts................................ 61
Rationale............................................................................................................................... 62

Recommendation IV: The Nano.............................................................................................. 65
Rationale............................................................................................................................... 65

APPENDIX................................................................................................................................... 70
Tatas Core Values and Purpose at the SBU-Level................................................................ 70

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 companys 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 peoples 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 TMLs operations is not mere coincidence; it is the result of
Tatas purpose to better peoples lives through its business operations. One example of how

1
One Source Report; Tata Motors Limited, 18 December, 2008.
2
Ibid.
3
http://www.tata.com/aboutus/articles/inside.aspx?artid=CKdRrD5ZDV4=
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 Peoples Car.
4
It has received this title because it
was created to be the worlds 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 companys stated social ideals.
Behind this driving purpose to improve quality of life are core values that are important
to TMLs culture and organization. These values align to TMLs 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
organizations 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 TMLs products
and services.

4
http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=view&id=36&Itemid=175
5
http://www.tatamotors.com/our_world/profile.php
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 success.
TMLs 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 timein about three to five yearswe 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 TMLs 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
7
http://www.tata.com/article.aspx?artid=q63wqXlx5rc=
8
One Source Report; Tata Motors Limited, 18 December, 2008.
9
Ibid.
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 companys listing on the NYSE.
10

Additional BHAGs arise in TMLs operations in the passenger car segment. With the
recent acquisition of J aguar Land Rover (J LR) 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 TMLs other recent venture, the inexpensive Nanoa 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 J aguar) as well as high
volume (Nano) revenues. These two revenue streams, if proven compatible, could mitigate each
others risks.
TMLs PROMINENT STRATEGIC BUSINESS UNITS (SBUs)

TMLs 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. TMLs 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 TMLs original economy car, the Indica;
todays Nano; and TMLs new luxury line, the recently acquired J aguar)

10
http://en.wikipedia.org/wiki/Tata_Motors
11
Ibid.
12
http://www.tata.com/company/profile.aspx?sectid=a4Nd8IHyrqI=
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 J aguar and Land Rover brands from the Ford Motor Company. At first
glance, the opportunity does not seem evident: J LR and TMLs 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
J LR are working to identify opportunities for synergies through TMLs 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 TMLs commercial and passenger SBUs. Tata
Technologies, in a similar light, offers synergies for all business units by providing outsourcing
opportunities for IT applications.
14

In addition to synergies, TMLs 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
14
http://documents.bmc.com/products/documents/98/29/89829/89829.pdf
Boston Consulting Group and referencing the TML Q2FY09 Review, we believe TMLs 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: J aguar, 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 TMLs
automotive business.

15
Tata Motors Q2FY09 Review: http://ir.tatamotors.com/pdf/2008/Q2FY09-Review.pdf
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 TMLs 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 J aguar Land Rover, and joint ventures, such as with the Italian
company Fiat Group and Koreas 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 2004/03 2005/03 2006/03 2007/03 2008/03
TML 23.8% 23.5% 18.5% 19.8% 13.5%
% ROE of TML compared to
industry
188.9% 297.5% 313.6% N/A N/A
Maruti Suzuki India Ltd.
19
15.2% 19.5% 21.8% 22.8% 20.6%

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
Ford Motor Company 6.5% 21.7% 17.6% 0.0% 0.0%
General Motors 15.1% 10.1% 0.0% 0.0% 0.0%

16
http://www.tata.com/company/profile.aspx?sectid=a4Nd8IHyrqI=
17
http://en.wikipedia.org/wiki/Tata_Motors#Joint_ventures
18
http://www.advfn.com
19
http://www.money.rediff.com
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:
20

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
TML (Average)
21
2.65 1.45 1.33 1.40 1.14
Ford Motor 0.5 0.6 0.6 0.6 0.6
General Motors 0.5 0.4 0.4 0.6 1.1

Net Profit Margin:
22

Year End Date 2004/03 2005/03 2006/03 2007/03 2008/03
TML 6.4% 6.7% 6.2% 5.5% 4.0%
% of net profit margin-to-
industry
213.3% 372.2% 516.7% -392.9% -571.4%

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
Ford Motor Company 0.5% 2.0% 1.3% -7.9% -1.6%
General Motors 2.1% 1.4% -5.4% -1.0% -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 2004/03 2005/03 2006/03 2007/03 2008/03
TML 7.8% 8.3% 7.4% 6.7% 3.8%
Maruti Suzuki India Ltd. N/A 19.9% 23.3% 24.0% 20.6%

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
Ford Motor Company 0.2% 1.2% 0.8% -4.5% -1.0%

20
21
http://www.money.rediff.com
22
23
Ibid.
General Motors 0.9% 0.6% -2.2% -1.1% -26.0%

TMLs debt to equity ratio compared to the leverage ratio of its competitors was less
than 52% until 2006 but it increased slightly to 65% in 2007.
Leverage Ratio:
24

Year End Date 2004/03 2005/03 2006/03 2007/03 2008/03
TML 3.0 2.8 2.5 3.0 3.5
% of Leverage to industry 45.5% 41.8% 41.0% 51.7% 64.8%

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
Ford Motor Company 27.1 18.2 20.8 0.0 49.6
General Motors 17.8 17.3 32.6 0.0 0.0

TML maintained healthy cash flows during the 2003 to 2007 periodmore than
sufficient to have covered its business obligations during this period.
Net Cash Flow:
25

Cash end of period 2004/03 2005/03 2006/03 2007/03 2008/03
TML (US $ in Millions) 150.0 111.7 142.0 177.5 284.7

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. TMLs revenues
per employee remained healthy while its competitors have become bloated.
Productivity (change in revenues per employee):
26

Year End Date 2004/03 2005/03 2006/03 2007/03 2008/03
TML (Income Per Employee
in US $Millions)
7087 10307 10061 12398 9765

24
25
Ibid.
26
Ibid.

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
Ford Motor Company 2317 10734 7583 -44569 -31049
General Motors 11724 8657 -31218 -7064 -145609

Based on its financial performance, TMLs 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 2004/03 2005/03 2006/03 2007/03 2008/03
TML (Close PE Ratio) 0.0 12.1 23.2 14.7 17.4
% P.E to industry 0.0 55.5% 61.4% N/A N/A

Year End Date 2003/12 2004/12 2005/12 2006/12 2007/12
Ford Motor Company 39.0 8.5 6.7 0.0 0.0
General Motors 7.5 8.1 0.0 0.0 0.0

TMLs production is well distributed geographically, and its current position in a
growing Indian automotive market should serve well for the companys 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 years values.

27
World Automobile Production Rates in 2004

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 strategiesas
demonstrated by its recent decision to offer the ultra-low cost Nano as well the high-end J aguar
and Land Rover brands. Where the Nano targets the common man who is extremely price
conscious, the J aguar 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. J ohn Wiley & Sons, Ltd,
Chichester, England, 2004.
A New Playing Field
The Nano is targeting a market that is still untouched by Tatas 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 Vietnamwith 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=DJ Hl+AUF0Ek=
a large market for the Nano. The key is the companys 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 J aguar 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
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 J aguar 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 J ewel 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 mans Nano and the luxury brands J aguar 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 J uly 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_Jaguar-
Land_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
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 J aguar-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
37
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 15
th
2008
networks will potentially allow it to develop models at a faster rate and shorten the product life
cycles.
40

The J aguar 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 Fords 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 Italys Fiat Group and Koreas Daewoo.
In J uly 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 companys passenger car segment.
43
Mr. Ratan Tata,
Chairman of the Tata Group, stated, While Tata Motors will get technology to develop

40
41
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
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 TMLs exposure throughout the entire
EU.
TML originally established an agreement with Koreas 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
worlds 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. TMLs intent to heavily promote the Nano internationally is very evident as the
automobiles 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-%20J oining%20Forces.htm#2]
45
http://www.indiacar.net/news/n17900.htm
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 J aguar Land Rover is further demonstration of the companys strong
desire to promote itself internationally.
48
By associating TML with such world renowned names
like J aguar 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 J aguar-Land Rover deal is meant to fuel Tata Motors global aspirations. This buy-
out 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, J aguar 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 J aguar

46
47
48
49
50
name. One example was the appearance of a J aguar limousine on the popular national television
program Chote Ustaad.
51

TML also faces the brutal fact of the current economic downturn. According to a J anuary
2
nd
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 J aguar 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 TMLs major competitors
have expressed interest in pursuing the Peoples 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 years
54
and the possibility that the Indian buyers may prefer the
M-800 for its good resale value
55
poses serious threats for TMLs prized new line of
automobiles as well as TMLs profitability over the next several years.

51
No reference required, actually seen on the show first hand.
52
53
http://en.wikipedia.org/wiki/Tata_Nano#Competitors
54
http://www.maruti800.com/whats_new.asp
55
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 Tatas
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 Indias 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 in-
house Tata group organization, helps different SBUs 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
57
http://www.tatamotors.com
58
http://www.ibef.org
way of building Tata into a strong and dynamic company.
59
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 companys 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 J amshedpur 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=
60
http://www.naukrihub.com/india/automobile/top-companies/tata-motors/employment/
61
http://www.myjamshedpur.com/tata_timeline
62
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 Tatas 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 Indicas
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 J amshedpur 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
Ibid.
64
http://www.supplyexcellence.com/blog/2008/08/25/tata-motors-leveraging-their-suppliers-for-innovation/
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
66
http://www.livemint.com/2008/07/18233746/Tata-Motors-may-outsource-dist.html
67
Ibid.
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 TMLs 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
69
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/

Image (edited): OneCat car with 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 TTLs 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. TMLs Oracle-based CRM

72
http://www.tata.com/company/profile.aspx?sectid=BYPQa0lysY8=
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 Indias 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, TMLs
advertising has been recognized by major media networks, such CNBCs 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
74
http://www.tata.com/aboutus/index.aspx?sectid=pihbI04W7W0=
75
http://ir.tatamotors.com/index.php?CardID=5
surveys.
76
Most recently, with global press surrounding the launch of the Nano and the
acquisition of J aguar 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 countrys 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 TMLs 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, TMLs 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
77
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
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 J im Collins in Good to
Great,
81
one could easily compare TMLs 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 J aguar Land Rover. For a market goal, TML has risen to be the best at
supplying transportation to the worlds low-income individuals with the Indica, and now the
Nano, and for an environmental goal they may be close to designing the worlds 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 J aguar Land Rover somewhat of an anomaly to TMLs

80
http://www.wsws.org/articles/2008/oct2008/beng-o11.shtml
81
J im Collins. Good to Great; 2001.
82
three circles. Their social conscious hedgehog became a little more of a fox despite TMLs
reasoning behind the acquisition. Not only does this new segment provide challenges in and of
themselvesJ aguar currently operating at a lossbut 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 TMLs 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 TMLs 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 TMLs 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 companys 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

Price

83
http://www.marketingteacher.com/SWOT/tata_motors_swot.htm
84
Mark C. Scott. Value Drivers The Managers Guide to Driving Corporate Value Creation; 1998.
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, weve concluded that TML now services both the low-
end, extremely price sensitive market (e.g. the Nano customers) and the high-end, luxury market
(e.g. J aguar, Land Rover customers). Weve evaluated the six purchase criteria listed above in
light of the two vastly different markets.
Low-end, Price Sensitive High-end, Luxury
Price Very importantthe primary
driver of the purchase decision.
Alternative purchases could
include two-wheeler vehicles as
well as other automobiles.
Not important.
Quality 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.
Performance
Characteristics
Not very important. 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.
Brand Appeal
and
Endorsement
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 markets preferences (in the chart below is it sorted by the low-end markets preferences),
the two charts are almost perfectly mirrors of each other.

The two very different market segments targeted by TMLs 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 J aguar customer may perceive the Nano
marketing as undermining or diminishing the exclusivity of the J aguar 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
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 TMLs passenger vehicle SBU from a customer
perspective we need to again look into the previously listed six purchase criteria which will
primarily influence a customers decision to buy a vehicle. Looking at vehicle sales figures over
the years we see that some of TMLs offerings, like the Tata Indica, have consistently remained
among the highest selling cars in TMLs primary market in India.
85
However, among TMLs 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-selling-
cars-in-india.html
86
http://economictimes.indiatimes.com/Hyundai_i10_is_JK_Tyre-
Indian_Car_of_the_Year_2008/articleshow/2928198.cms
87
http://www.marutisuzuki.com/cars-images/image/pdf/BUSINESS%20HIGHLIGHTS.pdf
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 Marutis models and all
of Hyundais, 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 performanceand 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. TMLs rank on this study has in previous years been very similar.
92
The only
consolation here is that some of TMLs key competitors like Maruti Suzuki and Hyundai have
also dropped considerably in the ranking. With increasing competition both in TMLs 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
89
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
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 Indias 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 Indias 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 TMLs 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
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 peoples car, TML is only pushing that socially
conscious image farther. In todays 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 TMLs 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 worlds attention back in early 2008 as the worlds 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
95
http://www.ibtimes.com/articles/20081007/tata-motors-to-build-nano-in-gujarat_all.htm
96
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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 buyers 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

TMLs location provides many benefits that are unique to Indias 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

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98
developed country (where the ratio would be much higher, around 35%).
99
India is also a large
producer of the worlds 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 TMLs
acquisition of J aguar Land Rover (J LR)? 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 J aguar 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 J im 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
100
Ibid.
101
Ibid.
102
J im Collins. Good to Great; 2001.
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 todays economy which
will only become more competitive and price conscious.
Opportunities:
International Growth

One of the main reasons behind the acquisition of J LR 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 J LR 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 models input costs (R&D, design,
etc.) much quicker than if they only operated in a few select markets. TML is hoping J LR can
also provide them with this ability. While it may seem contradictory to mention J LR 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

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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). TMLs 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 TMLs 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 Indias major cities where pollution is a major problem, would not
only fit well with TMLs 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/
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 J LR 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 J anuary
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 thanJ anuary last year.
106
Exports, on the
other hand, have been at a constant downfall with J anuary 2009 at a 70% decrease from J anuary
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
106
Ibid.
107
Ibid.
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 J aguar 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
Speed of Delivery
After-Sales Support

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 criteriaprice, quality and performance and brand appeal. TMLs 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
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 J LR 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 J LR 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 model
109
. 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 J aguar 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.
drivers for these two markets can be very different. Weve also indicated whether the measure is
a leading, lagging, operational, or financial metric.
Customer Perspective
Goal Measures for Low-End Measures for High-End
New vehicle sales 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.
Percentage of sales from new
vehicles (Leading
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 Vehicle availability survey
responses (Leading
Operational Metric). Low-
end vehicle buyers would
value vehicle availability. This
metric must be considered
separately from the high-end
vehicle availability metric
because acceptable time-
horizons may be significantly
differently.
Vehicle availability survey
responses (Leading
Operational Metric). The
high-end market values
availability but may be more
willing to wait for special-
order vehicles. This metric
must be considered separately
from the low-end vehicle
availability metric because
acceptable time-horizons may
be significantly differently.
Vehicle quality and
performance
Customer and industry
survey responses (Leading
low end market performance
characteristics are less
important. Minimum required
quality considerations must be
met.
Operational Metric).
Performance characteristics
and quality considerations are
extremely important for high
end vehicles. Customers view
this as a necessary extension
to the associated brand appeal.
After sales support excellence Customer and industry
Operational Metric). This
metric while important is less
of a purchase criterion in the
low-end market due to
metric applies more to the
high-end market due to
increased focus on quality and
reduced performance
characteristics and quality
considerations.
performance. Management
should expect this metric to
remain relatively stable with
little variation.

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

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

Financial Perspective
Goal Measures for Low-end and High-end
Survive Free Cash Flow (Lagging Financial Metric). Net income +
depreciation or amortization changes in net working capital
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 companys credit
rating from one or more agencies, such as Standard & Poors.
Succeed Compounded Annual Growth Rate (CAGR) (Lagging
Financial Metric). It represents the smoothed annualized gain
earned over the investment time horizon
110
. 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 high-
end 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

TMLs 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 J LR 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
Image source: http://theleadershipbook.com/
What is TML passionate about?
The Tata groups stated mission is to improve the quality of life of the communities [it]
serves.
111
In this mission, TML finds what it is passionate aboutmaking 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 andtranslate them into customer-desired offerings
through leading edge R&D.
112

To meet the personal transportation needs of Indias rising lower and middle classes, as
well as those in other developing and third world countries, TMLs new Nano aims to be the
lowest cost passenger car available. TMLs 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
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 TMLs 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 J aguar Land Rover and Fiat joint ventures, TML aims to
improve its quality and safety standards. By accessing J LRs and Fiats 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 J LR acquisition will help to establish TML as a trusted automotive company with
premium product linespreventing 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
segmentsfrom the small Indica on crowded Indian highways to the elegant J aguar on open
roads in the English countrysideand as a result, a performance metric which tries to umbrella
all of TMLs 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
segment in which TML competes. As a result, a measure of profit per product line is most
suitable.
Profit drivers for the J aguar 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
90s, 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 TMLs passion for improving quality of life for
its customers. The Indica, TMLs first passenger car offering, was an innovation for the Indian

114
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 worlds 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 businesseswhich are already leaders in engineering, materials, IT and financial
servicesto 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 worldthe 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-termas Mark Scott states, Low cost labor tends to be a fleeting source of

115
http://en.wikipedia.org/wiki/Tata_Indica
116
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
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 its not careful, TML may repeat the
history experienced by U.S. automakers, such as GM and Ford, and become bloated with long-
term compensation packages, which include lifetime employment and heavy pensions. In 2008,
TMLs 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
companys 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
119
http://www.equitymaster.com/5MinWrapUp/detail.asp?date=9/4/2008&story=4
120
Training & Development:
J ust 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
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 J aguar-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 TMLs 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 servesthrough

122
http://www.livemint.com/2008/07/18233746/Tata-Motors-may-outsource-dist.html
123
housing and infrastructure development, for examplebut 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 companys image after a regional Communist party protested
against the local governments removal of 13,000 Singur peasants from the factorys 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 TMLs 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
TMLs 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 circlespassion for
improving the lives of its customers through products designed for their needs and driving the
companys economic engine with the strength of its brands.

124
http://www.wsws.org/articles/2008/oct2008/beng-o11.shtml
As a low-cost (Nano) and high-end (J LR) producer, labor productivity is one of the
forces that will set TMLs flywheel in motion. The gains experienced will not be for the short-
term, but for developing a strong but flexible manufacturer, distributor and marketer of world-
class 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 flywheelin India, its 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 TMLs 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 (J aguar Land Rover). With the recent purchase of the J aguar Land
Rover (J LR) 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 segmentgaining market share and positioning. Many of the J aguar and
Land Rover competitors will be extremely weakenedif around at all. Industry analysts expect
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 comparableor better
products. Of the six purchase criteria
125
identified by Mark Scott, three are of particular interest
to consumers of the high-end market products:
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 companys strong balance
sheet and overall financial health.

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 J aguar and Land Rover brands by launching seminal new
vehiclesa real upgrade from the previous years models. This would have the additional effect

125
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 J LR
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 J LR 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 J LR 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.
Rationale

The two ways firms compete are by either a differentiation strategy or a low cost
strategy.
126
However, as weve seen the route TML has taken involves competing on both
strategies. While the Nano targets the price conscious common man, the J aguar 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 Indias 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 J LR and high end brands is at a minimum.

126
Scott, Mark C. Value Drivers: The Managers Guide to Driving Corporate Value. J ohn Wiley & Sons, Ltd,
Chichester, England, 2004.
127
http://blog.wired.com/cars/2008/02/2500-cars-in-in.html

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

Focusing on branding and marketing for the J LR 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 J LR brand. For the Nano this marketing will need to focus on
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 J LR brand. A coordinated branding
strategy both in India and abroad with TMLs 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 TMLs 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
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 segment
130
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 2002
131
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 800 (priced at $ 4,500)
133
and also
Maruti Alto. Maruti 800, designed in 1985 and currently marketed with no major changes, is
Suzukis 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
130
http://www.tata.com/company/Media/inside.aspx?artid=o4D7L3laZsU=
131
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
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 volume
136
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

Indias 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-low-
cost 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
136
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

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 Motors current BCG Matrix

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

138
http://www.marutisuzuki.com/Maruti-charts-plan-to-retain-its-50-market-share.aspx
139
http://cv.tatamotors.com
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
strengthening existing competencies
aiming to increase market share
Build Complementary new
competencies to fortify position in
existing markets
Exploit New Markets by Creating
products/services by leveraging
existing competencies
Build New Competencies to
create the future
TataNano
TML Ansoffs Matrix Modified
141

Passenger
Vehicle/J aguar//Land Rover

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

140
http://www.inrnews.com/realestateproperty/india/policy/rural_road_development_plan_vi.html
141
`http://tutor2u.net/business/strategy/ansoff_matrix.htm
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 LCVs.
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. Nanos 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 consumers from 2-wheeler segment.

142
http://www.techtickerblog.com/2009/02/26/tata-officially-sets-march-23-as-nano-launch-date/
APPENDIX
Tatas Core Values and Purpose at the SBU-Level

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

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