TATA Motors-International Business

INTERNATIONAL BUSINESS

ANALYSIS ON TATA MOTORS

PREPARED & SUBMITTED BY:

SAMEER (ROLL#7)
SOHAIL (ROLL#18)
SANKAR (ROLL#30)
HIMANSHU (ROLL#42)
ARUN V M (ROLL#54)

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Executive Summary

The report talks about the Indian automobile industry in general and Indian automobile giant
TATA Motors in particular. We have analyzed Indian automobile industry using Porter’s 5
forces model & its performance in the recent past.
Particularly we have tried to track the path of TATA Motor’s expansion of international business
in the recent past, at present as well as its future plans. We have also discussed the impact of
current financial meltdown on the recent international ventures of the company.
The company is rapidly increasing its global footprint and is aiming to match the standards of
international automobile manufacturers in next 3 to 5 years. 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. Currently international business contributes 18.4%
to company’s revenues. Company is aiming to increase it by 200% in near future to reduce its
dependence on one single economy and one single business cycle. This ambition of the company
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 company is listing on the NYSE.
With the recent acquisition of Jaguar Land Rover (JLR) from the Ford Motor company in early
2008, the company has entered into the world of high-end luxury brands. Customers of high-end
luxury brands value image and exclusivity factors, while image and exclusivity conflict with the
proposition of TML’s other recent venture, the inexpensive Nano. In this manner, the decision to
compete in both the high-end luxury and 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 (JLR) as well as high volume (Nano) revenues. These two revenue streams, if
proven compatible, could mitigate each other’s risks.

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Table of Contents

Executive Summary ........................................................................................................................ 2

Indian Automobile Industry ............................................................................................................ 4
Porter’s Five Forces Analysis of Indian Automobile Sector .................................................. 5
TATA GROUP ............................................................................................................................... 8
TATA MOTORS ............................................................................................................................ 9
SWOT Analysis ...................................................................................................................... 9
BCG Matrix for Tata Motors ................................................................................................ 11
TATA Motors- Making Waves Internationally ............................................................................ 12
Impact of Current Global Slowdown on TATA-JLR Deal ........................................................... 18
Recommendations ......................................................................................................................... 21
References ..................................................................................................................................... 22

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Indian Automobile Industry

Hailed as ‘the industry of industries’ by Peter Drucker, the founding father of the study of
management, in 1946, the automobile industry had evolved continuously with changing times
from craft production in 1890s to mass production in 1910s to lean production techniques in the
1970s.

The automotive industry in India grew at a computed annual growth rate (CAGR) of 11.5 percent
over the past five years, the Economic Survey 2008-09 tabled in parliament on 2nd July’09 said.

The industry has a strong multiplier effect on the economy due to its deep forward and backward
linkages with several key segments of the economy, a finance ministry statement said.

The automobile industry, which was plagued by the economic downturn amidst a credit crisis,
managed a growth of 0.7 percent in 2008-09 with passenger car sales registering 1.31 percent
growth while the commercial vehicles segment slumped 21.7 percent.

Indian automobile industry has come a long way to from the era of the Ambassador car to Maruti
800 to latest M&M Xylo. The industry is highly competitive with a number of global and Indian
companies present today. It is projected to be the third largest auto industry by 2030 and just
behind to US & China, according to a report. The industry is estimated to be a US$ 34 billion
industry.
Indian Automobile industry can be divided into three segments i.e. two wheeler, three wheeler &
four wheeler segment. The domestic two-wheeler market is dominated by Indian as well as
foreign players such as Hero Honda, Bajaj Auto, Honda Motors, TVS Motors, and Suzuki etc.
Maruti Udyog and Tata Motors are the leading passenger car manufacturers in the country. And
India is considered as strategic market by Suzuki, Yamaha, etc. Commercial Vehicle market is
catered by players like Tata Motors, Ashok Leyland, Volvo, Force Motors, Eicher Motors etc.

The major players have not left any stone unturned to be global. Major of the players have got
into the merger activities with their foreign counterparts. Like Maruti with Suzuki, Hero with
Honda, Tata with Fiat, Mahindra with Renault, Force Motors with Mann.

Key Facts:
• India ranks 12th in the list of the world's top 15 automakers
• Entry of more international players
• Contributes 5% to the GDP
• Production of four wheelers in India has increased from 9.3 lakh units in 2002-03 to 23
lakh units in 2007-08
• Targeted to be of $ 145 Billion by 2016
• Exports increased from 84,000 units in 2002-03 to 280,000 units in 2007-08

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Porter’s Five Forces Analysis of Indian Automobile Sector

Threat of New
Entrants

Bargaining Power Industry Bargaining Power

Rivalry of Customers
of Suppliers

Threat of
Substitutes

1. Industry Rivalry
• Industry Concentration:
The Concentration Ratio (CR) indicates the percent of market share held by a company.
A high concentration ratio indicates that a high concentration of market share is held by
the largest firms - the industry is concentrated. With only a few firms holding a large
market share, the market is less competitive (closer to a monopoly). A low concentration
ratio indicates that the industry is characterized by many rivals, none of which has a
significant market share. These fragmented markets are said to be competitive. If rivalry
among firms in an industry is low, the industry is considered to be disciplined
• High Fixed costs
When total costs are mostly fixed costs, the firm must produce capacity to attain the
lowest unit costs. Since the firm must sell this large quantity of product, high levels of
production lead to a fight for market share and results in increased rivalry. The industry is
typically capital intensive and thus involves high fixed costs
• Slow market growth
In growing market, firms can improve their economies. Though the market growth has
been impressive in the last few years (about 8 to 15%), it takes a beat in even slight
economic disturbances as it involves a luxury good. Aggressive pricing is needed to
sustain growth in such situations
• Diversity of rivals:
Industry becomes unstable as the diversification increases. In this case the diversity of
rivals is moderate as most offer products which are close to standard versions and the
competitors are also mostly similar in strength

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• Highly competitive industry:

The presence of many players of about the same size little differentiation between
competitors, and a very mature industry with very little growth were the features of a
highly competitive industry. Higher the competition in the industry lower would be the
profit margin. To remain ahead in competition, auto-makers were tempted to offer value
added services to the customers incurring more costs

2. Threat of New Entrants

These are the characteristics that inhibit the entrance of new rivals into the market and in
turn protect the profits of the existing firms. Based on the present profit levels in the
market, one can expect the entrance of new firms into the market or not. The entrance is
however also affected by the start-up costs

• Economies of scale:
The Minimum Efficient Scale (MES) is the point at which unit costs are minimized. The
greater the difference between the MES and the entry unit cost, greater is the barrier.
Economies of scale are becoming increasingly important as competition is driving the
profit margins to lower levels. Also being a capital intensive industry economies of scale
have important consequence

• Government policies:
o Automobile Industry was delicensed in July 1991 with the announcement of the
New Industrial Policy
o The passenger car industry was delicensed in 1993. No industrial licence is
required for setting up of any unit for manufacture of automobiles except in some
special cases
o The norms for Foreign Investment and import of technology have been
progressively liberalized over the years for manufacture of vehicles including
passenger cars in order to make this sector globally competitive
o At present 100% Foreign Direct Investment (FDI) is permissible under automatic
route in this sector including passenger car segment. The import of
technology/technological upgradation on the royalty payment of 5% without any
duration limit and lump sum payment of USD 2 million is allowed under
automatic route in this sector
o The automotive industry comprising of the automobile and the auto component
sectors has made rapid strides since delicensing and opening up of the sector to
FDI in 1991
o The industry had an investment of about Rs. 50,000 crore in 2002-03 which has
gone up to Rs. 80,000 crore by the year 2007. The automotive industry has already
attained a turnover of Rs. 1,65,000 crore (34 billion USD)
o The industry provides direct and indirect employment to 1.31 crore people. The
contribution of the automotive industry to GDP has risen from 2.77% in 1992-93
to 5% in 2006-07. The industry is making a contribution of 17% to the kitty of
indirect taxes of the Government

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With all the policies regarding the FDI and Tariff barriers as mentioned above, it has
become easier for the foreign players to enter the Indian automobile industry.

3. Threat of Substitutes
• The replacement market is characterized by the presence of several small-scale
suppliers who score over the organized players in terms of excise duty exemptions
and lower overheads.
• A product’s price elasticity is affected by the presence of substitutes as its demand is
affected by the change in the substitute’s prices
• The cost of the automobiles along with their operating costs was driving customers to
look for alternative transportation options
• The new technologies available also affect the demand of the product
e.g.: In case of Maruti’s products, the threat of substitutes is high. The competition is intense
as several players have products in the categories given by Maruti. However, in the 800cc
range it is the market leader and the threat of substitute products is low. Price performance
comparison favors heavily towards Maruti in most product categories. Also the high
availability and quality of services offered by Maruti gives the customer a better trade-off

4. Bargaining Power of Suppliers

• Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold. This is done in order to capture profits from the market.
• Steel is a major input in this industry and so steel prices have a sharp and immediate
impact on the product price
• The industry being capital intensive switching costs of suppliers is high, other than
steel as raw material which is highly price sensitive and the firm may easily move
towards a supplier with lower cost

5. Bargaining Power of Buyers

• It specifies the impact of customers on the product
• When buyer power is strong, the buyer is the one who sets the price in the market.
Here there is purchases of large volumes
• There is prevalence of alternative options
• Price sensitive customers were some of the factors that determined the extent of
influence of the buyers in this industry
e.g.: In the case of Maruti, the sales volumes have shown increasing trend over past so
many years. The customers are more or less concentrated in metros or other tier two
cities. The industry is also concentrated in these regions mostly. Most of them are have
good amount of knowledge about the product. Except the 800cc range in other categories
brand loyalty is only moderate. Also it is difficult to measure since repurchases are rare.
Product differentiation is high as there are many categories in the passenger vehicle
segment. Buyers get incentives in the form of cost discounts and better after sales
services

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TATA GROUP
TATA Group is more than 150 years old. In terms of market capitalization and revenues, Tata
Group is the largest private corporate group in India and has been recognized as one of the most
respected groups in the world. It has interests in steel, automobiles, information technology,
communication, power, tea and hospitality. The Tata Group has operations in more than 85
countries across six continents and its companies export products and services to 80 nations. In
the past few years, the TATA group has led the growing appetite among Indian companies to
acquire businesses overseas in Europe, the United States, Australia and Africa - some even
several times larger - in a bid to consolidate operations and emerge as the new age
multinationals.

The TATA group is 11th most reputable company in the world according to Forbes.

At home in the world

Anchored in India and committed to its traditional values of leadership with trust, the Tata group
is spreading its footprint globally through excellence and innovation

The Tata group’s revenues for 2007-08 from its international operations were $38.3 billion,
which constitutes 61 per cent of its total revenues.

Each operating company in the group develops its international business as an integral element in
an overall strategy, depending on the competitive dynamics of the industry in which it operates.
Exports from India remain the cornerstone of the Tata group’s international business, but
different Tata companies are increasingly investing in assets overseas through greenfield projects
(such as in South Africa, Bangladesh and Iran), joint ventures (in South Africa, Morocco and
China) and acquisitions.

Acquisitions are a crucial component of the global expansion of Tata enterprises. Over the past
eight years the group has made overseas acquisitions of $18 billion. Among the bigger deals on
this front have been Tetley, Brunner Mond, Corus, Jaguar and Land Rover in the UK, Daewoo
Commercial Vehicles in South Korea, NatSteel in Singapore, and Tyco Global Network and
General Chemical in the US.

Priority markets
While individual Tata companies have differing geographical imperatives, the Tata group is
focusing on a clutch of priority countries, which are expected to be of strategic importance in the
years ahead. The regions are North America, UK, China, the Netherlands, Germany, South
Africa, members of the Gulf Cooperation Council, Brazil, Vietnam, Thailand and Sri Lanka.

Ratan Tata, Chairman, Tata Sons, sums up the Tata group’s efforts to internationalize its
operations thus: “I hope that a hundred years from now we will spread our wings far beyond
India, that we become a global group, operating in many countries, an Indian business
conglomerate that is at home in the world, carrying the same sense of trust that we do today.”

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TATA MOTORS
TATA Motors is the flagship company of the TATA group & is India's largest automobile
player, with revenues of $7.2 billion in 2006-07. With over 4 million TATA vehicles plying in
India, it is the leader in commercial vehicles and the second largest in passenger vehicles.
Previously TATA Engineering and Locomotive Company (Telco), TATA Motors is listed on the
New York Stock Exchange in 2004.

Competition at Home

• TATA Motors is vulnerable to greater competition at home. Foreign vehicle makers

including Daimler, Nissan Motor, Volvo and MAN AG have struck local alliances for a
bigger presence.
• TATA Motors, which has a joint venture with Fiat for cars, engines and transmissions in
India, is also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor,
Renault and Volkswagen.

Making Waves Internationally

• NANO will mark the advent of India as a global centre for small-car production
• International praise came from Standard & Poor’s, which in December 2006 expressed
the view that the “policy to support its companies and the improved financial profile of
its entities also enhances the overall financial flexibility of TATA Motors.”

SWOT Analysis

STRENGTHS WEAKNESSES
Strong domestic player Decline in vehicle sales
Steady revenue growth Employee Productivity
R&D Activities Image of low quality makers

SWOT
OPPORTUNITIES THREATS
Competition from Global
International Growth
players
New Product Lines
Global Economic Factors
Acquisition of JLR brands
Environmental Regulations

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Strengths
Strong domestic player: Tata Motors is India’s largest automobile manufacturer by revenue.
The company’s market share in the Indian four-wheeler automotive vehicle market (i.e.
automobile vehicles other than two and three wheeler categories) stood at 26.1% in FY2008. The
company is also the leader in the Indian commercial vehicles with a market share of 62.7% and
is the second largest player in the Indian passenger vehicles market with a share of 14.2% in
FY2008.

Steady revenue growth: The company recorded strong revenue growth during 2004-08. During
this time, the revenues of the company grew at a CAGR of 27.1% to reach INR365,230.6 million
(approximately $9,072.3 million) in FY2008 from INR139,696 million (approximately $3,096
million) in 2004. The strong revenue growth of the company has contributed to its market
dominance.

Research and development activities: Tata Motor has strong research and development (R&D)
capability. The company incurred large expenditure for its R&D activities. The company’s R&D
activities focus on product development, environmental technologies and vehicle safety through
its Engineering Research Centre (ERC). The ERC is one of the few government recognized in-
house automotive R&D centers in India. In the recent period, the ERC developed the Tata Nano,
an affordable family car. The strong R&D capability enables the company to build a broad range
of vehicle portfolio and improves its competitive strength in the automotive industry.

Weaknesses
Decline in vehicle sales:
Tata Motors recorded decline or marginal growth in its vehicle sales in the last financial year.
The company recorded a sale of 585,649 vehicles, a growth of 0.9% over last year. During the
same time, the automotive industry in India recorded a growth of 10.4% to reach the total vehicle
sales to 2,309,324 units. The overall market share of the company stood at 25.4% in 2008 as
compared to a market share of 27.8% in 2007. The decline in sales would further affect the
company’s market share, and erode investors’ confidence.

Employee productivity:
Tata Motors posted weak revenues in proportion to the total number of its employees. The
revenue per employee of the group stood at INR10 million (approximately $0.24 million),
significantly lower when compared to its global competitors such as Toyota Motor ($.73
million), and Nissan Motor ($.53 million). The weak revenue per employee of the company
compared to the global auto majors indicates its weaker productivity and operational
inefficiency.

Opportunities
Product launches: Tata Motors has launched various new products during the last two year
period (2007–08). For instance in December 2007, Tata Motors introduced its new range of
Medium and Heavy Commercial Vehicles. In March 2008, Tata Motors (Thailand) launched the
Tata Xenon 1-ton pickup truck at the annual Bangkok International Motor Show. In FY2008, the

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company launched the Indigo sedan and Indica with the Direct Injection Common Rail (DICOR)
and Sumo Grande. Furthermore, the launch of its small car, ‘NANO’ in January 2008 would
further fuel its presence in the passenger vehicle market.

Acquisition of Jaguar and Land Rover brands: These brands had sales operations in more
than 100 countries with over 2,200 dealers. Acquisition of JLR provides the company with a
strategic opportunity to acquire iconic brands, and increase the company’s business diversity
across markets and product segments.

Threats
Increasing competition: Tata Motors face intense competition from its domestic as well as
foreign competitors including General Motors, Honda Motor, Maruti Udyog, Mitsubishi Motors,
Fiat, Ford and so on. Competition is expected to intensify further as Indian automotive
manufacturers obtain greater access to debt and equity financing in the international capital
markets or gain access to more advanced technology through alliances. Additionally, in recent
years, the government of India has permitted automatic approvals for foreign equity ownership
of up to 100% in entities manufacturing vehicles and components in India.

Environmental regulations: The company is subjected to extensive governmental regulations

regarding vehicle emission levels, noise, safety and levels of pollutants generated by its
production facilities. These regulations are likely to become more stringent in the near future.
In addition, Jaguar Land Rover has significant operations in the US and Europe which have
stringent regulations relating to vehicular emissions. The proposed tightening of vehicle
emissions regulations will require significant costs for the company.

BCG Matrix for Tata Motors

HIGH
Business Growth Rate

Nano
JLR
TML Passenger Vehicle Segment New Inventions
Light Commercial Vehicles (e.g.ACE)

TML Heavy & Light Commercial Vehicles

None
LOW

HIGH Relative Position (Market Share) LOW

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TATA Motors- Making Waves Internationally

Major international ventures of TATA Motors in recent past are discussed below:

1. TATA Daewoo Commercial Vehicle- In 2004, TATA Motors acquired the Daewoo
Commercial Vehicle Company of South Korea.
TATA remains India's largest heavy commercial
vehicle manufacturer and TATA Daewoo is the
2nd largest heavy commercial vehicle
manufacturer in South Korea.

The reasons behind the acquisition were:

a) Company's global plans to reduce domestic

exposure. The domestic commercial vehicle
market is highly cyclical in nature and prone to fluctuations in the domestic economy. TATA
Motors has a high domestic exposure of ~94% in the MHCV segment and ~84% in the light
commercial vehicle (LCV) segment. Since the domestic commercial vehicle sales of the
company are at the mercy of the structural econo mic factors, it is increasingly looking at the
international markets. The company plans to diversify into various markets across the world
in both MHCV as well as LCV segments.
b) To expand the product portfolio TATA Motors
introduced the 25MT GVW TATA Novus from
Daewoo’s (South Korea) (TDCV) platform. TATA
plans to leverage on the strong presence of TDCV in the
heavy-tonnage range and introduce products in India at
an appropriate time. This was mainly to cater to the
international market and also to cater to the domestic
market where a major improvement in the Road
infrastructure was done through the National Highway Development Project. TATA Motors
has jointly worked with TATA Daewoo to develop trucks such as Novus and World Truck.

2. Hispano Carrocera- In 2005, sensing the huge

opportunity in the fully built bus segment, TATA
Motors acquired 21% stake in Hispano Carrocera
SA, Aragonese bus manufacturing company with
an option to acquire 100% holding. Hispano
Carrocera is an established and reputed bus and
coach manufacturer in Spain enjoying excellent
reputation for developing high quality vehicles. It
operates in two manufacturing locations namely,
Zaragoza in Spain and Casablanca in Morocco,
North Africa. Hispano has proven competence in
development of buses and coaches. With this deal Tata Motors acquired the license for
technology and brand rights from Hispano. The total deal consisting of equity, debt and
technology licensing amounted to about Rs 70 crore to Tatas. This partnership gives both

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companies an opportunity to use their complementary strengths to create high-class transport

solutions for intra-city and intercity mass transportation in Spain, India and many other
countries around the world. Besides Tata Motors is also seeing this deal as a gateway into the
highly competitive and matured European markets considering the success Hispano's bus
range enjoys in these markets.

Hispano enjoys a market share of 25 per cent in the bus market in Spain and sells
considerable numbers in Europe in addition to other countries outside Europe as well.
Further, the Hispano deal will help the Indian commercial vehicle giant grow in the bus and
coach segment as the Daewoo acquisition helped it in trucks. This strategic alliance with
Hispano Carrocera gave TATA Motors access to its design and technological capabilities to
fully tap the growing potential of this segment in India and other export markets, besides
providing it with a foothold in developed European markets.

3. TATA Marcopolo (TMML) - TATA Motors has formed a 51:49 joint venture in bus body
building with Marcopolo of Brazil. This joint venture is to manufacture and assemble fully-
built buses and coaches targeted at developing mass r apid transportation systems. The joint
venture will absorb technology and expertise in
chassis and aggregates from TATA Motors, and
Marcopolo will provide know-how in processes
and systems for bodybuilding and bus body
design. TATA and Marcopolo have launched a
low-floor city bus which is widely used by Delhi,
Mumbai and Bangalore Transport Corporations.
TMML JV’s first assignment in India was to
supply 500 premium class low floor buses for
Delhi Transport Corporation. Joint venture has
started its operations at Dharwad, Karnataka &
Lucknow, U.P.

Future Plans:
TMML has plans to set up the world’s biggest bus plant at Dharwad. It is aiming to cater to
the fully built bus requirements of Indian mass as well as luxury markets. To compete in high
volume, low cost market a vendor park has been established in Dharwad itself. The company
plans to make 20,000 buses a year at its full capacity.

4. TATA Xenon- TATA Xenon was released in late 2007. It was first displayed at the 2006
Bologna Motor Show. The car is assembled in Thailand by Tata-Thonburi JV and in
Argentina by Tata-Fiat JV. The Xenon has been well received in Europe especially in Spain
and Italy.

SPRINT was the code name of the Project for development of Tata's World Pick-up (truck).
World Pick-up market (other than USA) is dominated by Japanese Auto majors like Toyota,
Isuzu, Mitsubishi, Nissan. As per the study conducted by Tata Motors, there is a big
opportunity for TML to grab substantial market share of world Pick-up market. Tata initiated

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an in-depth market study in various countries in Europe, Middle East, S Africa, Thailand,
Australia, Latin America etc to understand needs of target segments for a new Pick-up.

While a new product development timeline

takes between 36 to 50 months, it is said
that so far only Toyota has achieved the
Timeline of 18 months. Hence, the name
SPRINT which signifies and continuously
reminded project team about the Speed of
the project. The team worked round the
clock relentlessly, applied principles of
"Concurrent Engineering", distributed work
load in 9 different countries in order to
crash timeline by overlapping maximum possible key activities. The team delivered project
in 17 months—from styling freeze in Dec 05 to SOP ( Start of Production) in May 7.
Bologna Motor Show 2006 (Dec) was the occasion when Xenon was unveiled for public
display and later in March 2007, it was also displayed at Geneva Motor Show 2007. Till date
Xenon has been launched in 14 countries in Europe, Middle East, Africa and SE Asia.

Tata Motors signed a joint venture with Thonburi Automotive Assembly Plant Co.
(Thonburi), the Thailand-based independent assembler of automobiles to manufacture,
assemble and market pickup trucks in Dec’06. The joint venture, in which Tata Motors holds
70% of the equity and Thonburi 30%, gets vehicles manufactured in Thonburi’s
manufacturing facility.

The joint venture facilitated Tata Motors address the Thailand market, the second largest
pickup market in the world after the US. Both partners jointly manage the operations.

5. TATA Fiat- The TATAs and Italian car giant Fiat kicked off their
partnership with the former marketing Fiat cars since Mar’06. Fiat
branded cars are distributed by Tata through the Tata-Fiat dealer
network. The partnership took off to the next level in Dec’06 with
both the sides announcing the formation of a joint venture with
aggregate investments of over Rs 4000 crore (over euro 665
million) in a phased manner to manufacture vehicles for the Indian
and overseas markets. The 50:50 joint venture enabled Fiat plant at
Ranjangaon, Pune with capacities to produce in excess of 200,000
cars and 300,000 engines and transmissions yearly, at steady state.
The JV may be expanded to produce trucks as well.

This strategic alliance with Fiat enables the two companies jointly to present a wider range of
product offerings to the Indian market. It enables Tata Motors to access world-class
powertrains from Fiat for its next generation car offerings while enhancing the model line at
its dealerships. Fiat’s Ranjangaon manufacturing facility is benchmarked against the global
car manufacturer’s units in Turkey and Brazil. It compares well as the lowest-cost
manufacturer, and Fiat will eventually source right-hand drive Linea cars from here for the

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UK and Australia. Fiat has a cost advantage of 14-17% over Brazil and Turkey due to
localisation of parts and labour costs.

Fiat had almost decided to quit the Indian market but for Fiat chief executive officer Sergio
Marchionne and Tata group chairman Ratan Tata coming together in 2005. Such was the
level of confidence among both the partners that investments began at least two years before
even a formal agreement was
signed.

JV is already producing the Fiat

Palio, Stile and Linea models and
select Tata Indica models.

Future Plans:

The company is readying to launch

the Grande Punto, a compact car, in
the third quarter of the fiscal year-
2009-10. The second model will be
Tata Motors’ new three-box Fiat Linea- Distributed by TATA Motors in India
offering, code-named X1. Planned
launch of the Fiat Bravo is being delayed because of the economic slowdown. Fiat
manufactures Tata Motors’ 1-tonne pick-up truck at its plant in Argentina for Latin American
and overseas markets. The JV is expected to break even by 2011-12.

6. City Rover- The City Rover was a hatchback car model offered by MG Rover Group in the
UK market. Launched in the Autumn of 2003, the car was a rebadged version of the Tata
Indica. MG Rover group used to import TATA
Indica from India and sold as City Rover in UK
market. The City Rover's running costs were
rather high, and its asking price was high
compared with newer, better built and better
specified rivals such as the Fiat Panda. MG
Rover was reported to be paying Tata £3,000 for
each car and, despite each model featuring a
Rover corporate nose and revised suspension settings, the buying public was not impressed
by the £7,000 starting price. Along with the rest of the MG Rover range, production of the
City Rover ended in April 2005 when the company went into receivership, the last vehicles
brought into the UK being purchased and sold on by a non-franchised discount dealer group.
Although MG Rover was bought by Nanjing Automobile of China in July 2005, the
company's new owners did not include the City Rover or indeed any direct successor in their
plans for a new model range. This was one of the unsuccessful attempts of Tata Motors to go
global.

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7. Exports Market (CV)- TATAs export its commercial

vehicles to neighboring Asian countries like Nepal, Sri
Lanka, Bangladesh, Afghanistan apart from South
Africa and Middle East markets. It competes with the
likes of Mercedes, Volvo, Hyundai etc in Middle East
markets.

8. World Truck- TATA Motors unveiled its ‘World Truck’ range, developed jointly with
TATA Daewoo Commercial Vehicles of South Korea in May’09. The developing
infrastructure in India makes it possible for
transporters to reap the benefit of trucks with
higher power, speed and carrying capacity. The
new range from Tata Motors will meet those
needs. It will also help it penetrate international
markets more effectively and competitively.

Future Plans:

The commercial launch of these trucks in India

is scheduled during July-September’09. They
will debut in South Korea, South Africa, the
SAARC countries and the Middle-East by the end of the fiscal. The trucks will be made at
the Jamshedpur facility and at Gunsan in South Korea. The company expects international
volumes to be at par with numbers in India.

9. TATA Nano- Conceived in 2003, Tata Motors had

launched the much- hyped 'cheapest' car in India in
Mar’09. The car has cost over Rs 2,000 crore to the
company. The car is expected to boost the Indian
economy, create entrepreneurial-opportunities across
India, as well as expand the Indian car market by 65%.
The car was envisioned by Ratan Tata, Chairman of
the Tata Group and Tata Motors, who has described it
as an eco-friendly "people's car". For the first time,
thanks to Tata's Nano, India has been established as an
R&D leader, and not just a low-cost hub known for A Promise is a Promise
cheap labor. It has shown to the world that India can
be a technology leader. It is a great innovation, because innovation is all about thinking of the
next decade and not the next quarter.

The Tata Nano will certainly find big takers in India. However, it can have a market in the
US, as well. If the car is enriched with high technology functions to make it an intelligent car,
many in the US will look forward to own it. An intelligent car at $3000 would be a good

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bargain after all, for many Americans. Tata's Nano shows that there is a huge opportunity for
Indian companies to build profitable low-cost products and then take them to the US.

Future Plans:

Tata Motors will be launching it in Nigeria within the next year and a half. In Nigeria, the
Nano will cost 357,480 NGN (Rs 1.16 lakh), almost the same as its cost in India, making it
cheaper than even used cars in the country. According to TATA Motors officials, Nano will
greatly benefit Nigerians as there is no proper public transport system in the country.
Company is yet to decide whether the car would be assembled in Nigeria itself or if it would
be made available as a Completely Built Unit (CBU). The company is planning to market
Nano in other countries, but timelines, modes and countries are yet to be finalized. Earlier
this year, the Tata Nano Europa (the European version of the Nano) was unveiled at the
Geneva Auto Show. The Nano Europa will be launched in 2011.

10. TATA-JLR: TATA Motors bought the

iconic Jaguar and Land Rover operations
from Ford for 1.15 billion pounds in Mar-
Apr’08. Tata gained the rights to the
Daimler, Lanchester, and Rover brand
names. In addition to the brands, Tata
Motors also gained access to 2 design
centers and 3 plants in UK. The key
acquisition would be of the intellectual
property rights related to the technologies.
With the acquisition of Jaguar and Land Rover (JLR), Tata Motors killed several birds with
one stroke. The acquisition paves the way for the company’s entry into the European car
market and gives the company a comprehensive range of models ranging from the luxury
Jaguar to the $2,500 Nano. It provides an
entry point into India’s growing luxury car
market which gives new impetus to the
company’s development program as well and
provides a captive customer base for the
component companies of the Tatas. In the
long-run TATA Group and TATA Motors’
footprint in South-East Asia should help
Jaguar/Land Rover diversify their geographic
dependence from US (30% of volumes) and
Western Europe (55% of volume). Analysts
believe that TATAs’ ownership of JLR will open doors for outsourcing of parts from India,
particularly from the current pool of suppliers who service TATA Motors in India.

Present and Future Plans:

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A year after Tata group purchased Jaguar and Land Rover, it launched the British iconic
luxury brands in the Indian market. The India foray comes at a time when worldwide sales of
luxury cars are falling. The global meltdown dragged JLR into huge losses as consumers
halted purchases. Sales, after the $2.5 billion takeover by Tata Motors last June, dropped a
third to 1.67 lakh vehicles.

The bridge from the Nano to Jaguar XF is probably the biggest that exists in the industry. A
$2,500 car and a $100,000 car: no other company in the world has a portfolio that wide.

Why JLR?
• Long term strategic commitment to automotive sector
• Opportunity to participate in two fast growing auto segments
• Increased business diversity across markets and products
• Land rover provides a natural fit for TML’s SUV segment
• Jaguar offers a range of “performance/luxury” vehicles to broaden the brand portfolio
• Benefits from component sourcing, design services and low cost engineering

Impact of Current Global Slowdown on TATA-JLR Deal

“We went too far with JLR”: Ratan Tata

Tata Sons Chairman Ratan Tata recently said he may have overstretched himself in paying 1.15
billion pounds for Jaguar Land Rover just as a recession loomed.

A year after the Tata group took over the two of Britain’s most iconic automobile brands, Jaguar
and Land Rover, it is faced with newer and bigger challenges than it would have expected when
it paid $2.3 billion to Ford for the acquisitions on March 26, 2008.

In FY 2008-09, Tata Motors Ltd posted its first annual loss in at least eight years after sales at
the luxury units, Jaguar and Land Rover plunged amid the global recession. The consolidated net
loss was Rs 2,500 crore in the year ended 31 March, 2009 compared with a net income of Rs
2,200 crore billion a year ago. Ratan Tata is slashing investments by as much as 38% in the year
to March on slow economic growth.

At the time of acquisition of JLR by TATA Motors, there were some who called for caution.
They pointed out that buying into an automobile major when the market for automobiles was set
for a downturn might not reflect good business sense. Moreover, post acquisition, debt at the
level of both parent and the United Kingdom subsidiaries in the TATA group was slated to rise
sharply.

Unfortunately for Tatas, the worst fear of the skeptics has come to pass. Within months of the
acquisition, the world witnessed the onset of a financial crisis that triggered a credit crunch and
precipitated a real economy recession. Industries such as steel and automobiles were among the
worst affected. This had two implications. First, the sales and revenues of JLR were far short of

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expectations, making it difficult for Tatas to meet commitment on their debt and reduce the
degree of leverage. Second, with much of this debt being of a bridge loan kind, loans that mature
and cannot be repaid have to be refinanced and rolled over to prevent default. Given the current
circumstances, this is difficult, as Tatas discovered this May, when the $3 bn it had borrowed to
finance acquisition of JLR was due for refinancing.

After the Tatas acquired the company, business challenges were mostly a result of adverse
market conditions. In the first half of 2008, Jaguar’s sales volume was 11.2 % more than in the
same period in 2007 while Land Rover’s was 0.6 % ahead of 2007. At the end of 2008, Jaguar
was 8.2 % ahead of 2007 for the year, while Land Rover had felt the impact of the downturn and
its full-year sales were 17.6 % less than in 2007. In the first two months of 2009, Jaguar was 6.9
% ahead of 2008 and Land Rover 45 % down when compared with the same period last year.
There have been a series of non-production days at all three of its UK assembly plants — Castle
Bromwich and Solihull in the West Midlands and Halewood on Merseyside. Each plant lost an
average of 25 days’ production, which
equated to a volume reduction of
approximately 25 per cent month on
month. A worsening economic situation
could lead to further job losses and even
plant closures at Jaguar Land Rover
(JLR) in Britain. Tata’s bankers are
seeking to secure short-term finance of
between £500 million and £1 billion to
allow Jaguar Land Rover to pay off
supplier payments due by the end of the
summer and stop it running out of cash.
The Tatas are trying to persuade the
British government to stand guarantee
for loans that they plan to seek from the UK banks to bail out JLR. The British government has
been reluctant to provide these loan guarantees so far. If the UK government’s help does not
come soon, Tata Motors will have to cut down its investment plans for Jaguar Land Rover (JLR)
with possible job losses and plant closures.

While Tata looks to sustain JLR through the downturn, the UK government's support is crucial
as JLR wants it to guarantee a pound 340 million European Investment Bank loan sanctioned in
April. Although JLR has the option of getting guarantees from private banks, it may work out to
be an expensive proposition. To get the government's help, Tata may have part with some equity
interest in JLR, besides giving board representation. According to a recent report in The
Economic Times, the company is negotiating at the moment and if there was a large financial
package from the UK government to the company then there would be a commensurate level of
representation on the board.

Despite the challenges, there have been some good news, the company’s 14,000-odd workers
agreed to a two-year pay freeze on condition of no compulsory layoffs. This is expected to save
the company up to £68 million a year. The company also bagged a significant order from China
for supplying 13,000 cars worth £600 million over the next three years. More recently, the UK

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government approved a grant of £27 million (Rs 192 crore) to JLR for producing a new eco-
friendly car based on Land Rover’s LRX Concept. Luxembourg-based European Investment
Bank is also considering giving a loan of £275 million (Rs 2,100 crore) for research to reduce the
CO2 emissions from JLR’s future products.

What is remarkable is that the Tata group has been able to ride the waves and come ashore safely
this time as well. Tata Motors returned $1.11 bn of its original bridge loan by mobilizing funds
through a rights issue, launching a fixed deposit scheme and by selling the shares of Tata Steel it
held. Second, the Tata group has mobilized the support of the Indian government. Even when the
group embarked on its ambitious overseas acquisition strategy, there was evidence that it had the
backing of the Indian government, which too was seeking to build India itself as a global brand.
Tatas mobilized Rs 42 bn through bond markets with the help of government-owned State Bank
of India. Tatas are also in talks with defense establishment to obtain secure orders for the Land
Rover. Finally, the Tatas have used innovation to obtain support from the Indian public for its
UK operations. Tatas launched Nano in Apr’09 and received 203,000 advance orders & raised
Rs 25 bn from Indian public. This money was in essence a loan from public at large & Tatas will
pay interest rate on the same. This money is also crucial to the Tatas’ survival strategy.

In sum, despite its grievous errors in the form of the crisis-eve, debt-financed acquisition JLR,
the Tata group has escaped a group-wide crisis by leveraging its brand, the Indian government
and the Indian public. That is indeed remarkable, even if fortuitous to some degree.

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Recommendations
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 comparable - or better products. Company needs to focus on these 3 aspects to attract the
consumers of the high-end market products:

1. Brand Appeal and Endorsement

2. Performance Characteristics
3. Quality

TML can greatly enhance customers’ perceptions of these three criteria 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 company's strong balance sheet and overall financial health.

The two ways firms compete are by either a differentiation strategy or a low cost strategy.
However, as we've seen the route TML has taken involves competing on both strategies. While
the Nano targets the price conscious common man, the Jaguar 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.

TML’s vision is to be “best in the manner in which we operate, best in the products we deliver
and best in our value systems and ethics”. TML has come to be known as an innovator in the
passenger car segment not just in manufacturing but along multiple areas along the value chain.
The Tata Indica and Tata Nano are prime examples of the company’s innovation capabilities and
bear testimony to the strength of the company’s R&D efforts. This innovation fuelled growth
coupled with strategic acquisitions is expected to catapult the company to a preeminent position
internationally.

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References

• www.tata.com
• www.tatamotors.com
• http://en.wikipedia.org/wiki/Tata_motors
• http://en.wikipedia.org/wiki/Tata_group
• http://en.wikipedia.org/wiki/Indian_automobile_industry
• http://en.wikipedia.org/wiki/Tata_Xenon
• www.rediff.com
• www.ndtv.com
• Kelly School of Business Report on Tata Motors Limited Comprehensive Strategic
Analysis
• IHS Global Insight Report: India (Automotive)- July’09
• The Economic Times

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