Tata-Daewoo: Road to Gunsan

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Scenario of TATA motors prior to acquisition
• Tata Motors Commercial Vehicles (CV) business was focused and dependant on the domestic markets in India.

• Global sales were a meager 5% of total sales & it had plans to increase this to 20%.

• Tata Motor’s CV division wanted to reduce its domestic exposure, since the Indian markets were cyclical with regards to the volumes. This cyclicality is higher in India as compared to other countries, since the Indian Market is still evolving.

• Tata Motors, also had been quite unsuccessful, in trying to gain entry into China, which was a growing CV market as Tata CV’s were underpowered and what China and developed countries wanted was powerful and high tonnage carrying capacity vehicles. Also the Chinese market was flooded with low-end cheaper trucks, and profit margins were far too low for Tata Motors to make an entry.

Examine the market implications of acquiring the Daewoo plant by Tata Motors

Market Implications

• Tata Motors inked an investment agreement in February 2004 to acquire the South Korean truck-major Daewoo Commercial Vehicle for $102 million.  

• The acquisition marks the beginning of Tata Motors global expansion trail and is expected to help the company make headway in a number of other markets.

• Tata Motors is the largest company of the Tata Group of companies. Poised at a Global growth mission where it aspires that in long term basis major revenue of the organization will be achieved from overseas market. Tata Daewoo marks a significant milestone to achieve such ambitious mission.

The Global Tata Motors

The most important advantage is that Tata Motors top line and bottom line will go up. Daewoo is a profit-making company though Daewoo's manufacturing plant was operating at only a quarter of its capacity, yet it commanded a 30 per cent market domestic share in the 8-tonne-plus segment. Tata Motors have set a goal where overseas revenues will account for 25 per cent of turnover in three years.   After identification of four key markets, India, China, Latin America and Western Europe, which are at different stages of growth and maturity.

Cyclic Nature of Commercial Vehicle Business:

Commercial Vehicle (CV) business is cyclic in nature. The larger the market share of a company the more severe is the cyclical impact; also the more liberal the markets, the more pronounced is the cyclical impact. By the global operations of Tata Motors this cyclical phase is lagged across different geographies. So they could reduce cyclical impact on business.

With the Acquisition of Daewoo it could:

• Offer the Local (Indian) Markets with wider range of products. Tata Motors procrastinated that with the new Highway network coming up in place there would, eventually be a demand for high powered trucks. Moreover, the Government was becoming strict about overloading issues and the need for High powered and bigger CV’s would arise.

• Earlier, they were manufacturing high powered CV’s, but due to lack of demand from Indian Market, the economies of scale could not be achieved.

• The acquisition would be a competitive advantage for Tata Motors in the coming years.

• Offer International markets with low powered trucks. There was a huge market in Korea itself for 1 ton trucks and the market was dominated by Hyundai & Kia. Now Tata Motors could penetrate that market and improve it global sales.

• China, where Tata Motors had a failed attempt prior to acquisition, could be entered into, due to a fuller product portfolio.

• There were also newer markets like South Africa, Turkey and Middlle East , where Tata Motors were keen on penetrating and the acquisition gave them an edge to enter these markets.

Analyse, how new markets, technology and policies are influencing Tata Motors Cost.

By 2000-2001, Deli censing and Deregulation...
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