GLOBALIZATION OF TATA MOTORS: STRATEGIC PLAN FOR THE FUTURE Faculty Contributor: Murali Patibandla, Professor
Student Contributors: Arun A, Balasubramanian C, Indranil Guha, Gautham M N Tata Motors produces vehicles both in the Light Commercial Vehicles (LCV) and the Medium and Heavy Commercial Vehicles (M and HCV) segments. It faces higher competition in the LCV segment, where its Tata ACE has been a huge success. Internationalization forms a key component of Tata Motor's strategy and it has successfully entered countries having a demand similar to India like South Africa, Thailand and Argentina, mainly through acquisitions and joint ventures. It needs to improve its product reliability, service network and channel reach in order to maintain and replicate this success in other markets. Some of the recommendations for Tata Motors are exploring mass customization options in the Small Commercial Vehicle (SCV) segment, improving brand reputation and technology appropriation to bring out a world class ultra-HCV segment. Tata Motors is currently India's largest automobile company with revenues of $7.2 billion in 2006-07. It is by far the leader in commercial vehicles and the second largest player in the passenger vehicles market with winning products in the compact, midsize car and utility vehicle segments. Employing around 23000 people and headquartered in Mumbai, Tata Motors became the first company from India's engineering sector to be listed in the NYSE in September 20041. While currently about 18% of its revenues come from international business, the company's objective is to expand its international business, both through organic and inorganic growth routes. A brief examination of the truck industry in India using Porter's analysis helps us understand the threats that Tata Motors faces. Overview of the Truck Industry in India
The truck market in India comprises the light trucks (LCV) and the medium and heavy trucks segments (M and HCV), of which the M and HCV segment constitutes nearly 78% of the total Indian truck market. a) Light Commercial Vehicles (LCV) 2
The market for light trucks is composed of pickups, vans and coaches weighting up to 3.5 tonnes. This segment has exhibited a consistent growth rate of over 20% in the past 5 years. This growth is expected to continue with the launch of Tata Ace by Tata Motors and similar plans by other players like Mahindra & Mahindra, Eicher, etc. b) Medium and Heavy Commercial Vehicles (M and HCV) 3
The medium and heavy trucks include commercial vehicles, heavy buses and coaches weighing 3.51-16 tonnes. This segment has stabilized and is expected to grow at 10% over the next 5 years. The major players in this segment include Tata Motors and Ashok Leyland which account for more than 85% of the market. Competitive Threats in the Industry
The Porter's analysis for the LCV and the M and HCV segments show strikingly similar results except for the threat of new entrants. In the LCV market there exist a small number of large companies between whom there is a high degree of competition. To gain market share companies are focused on innovation and strong marketing strategies. The companies are usually not diversified beyond automotive manufacture. As a result, if the automotive sector is in a downturn, it could raise exit barriers. Hence the overall rivalry is strong in this market. In the face of such rivalry, let us consider the financial performance of Tata Motors. Financial Performance of Tata Motors
Over the years the conpany has performed exceptionally well financially inspite of the cyclical nature of the industry. A critical analysis of the financial statements provides us with the following insights. 1. The issue of Cyclicality is plaguing the automotive sector and the future outlook in India is not great considering the robust performance of the past 3 years. Tata Motors has countered this by increasing the share of exports in the sources of revenue. 2. Excess debt has led...
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