Tata Motors, Can It Become A Global Contender In The Automobile Industry

Introduction

Tata Motors, a global automobile industry leader, has implemented a strategic growth plan that has seen it develop from a department within Tata Group to a leading subsidiary. Through strategic leadership spanning over five decades, the company has had a strong trajectory of growth overcoming several tumultuous economic periods.

As stated in the case study, Tata Motors was India’s leading automobile company by revenue, was the number on commercial vehicle manufacturer and the number three passenger vehicle manufacturer in India as at 2012. (Turnipseed & Gamble, 2012). Tata Motors began as a department of the Tata Group in 1945 when Tata Engineering and Locomotive Company began manufacturing locomotives and engineering products. From 1945 to date, Tata Motors continues to be a key player in the automobile sector particularly in India.

Literature Review

History of the Automobile Industry

The automobile industry as we know it today first emerged in the 1800s in Germany and France. Initially, motor vehicles were designed, and purpose built for the affluent in society. Due to the vast size and nature of the land, the United States was at the forefront of the development of the sector. Henry Ford had the vision that literally changed the face of the plant – production of large volumes of cars in order to reduce the cost per unit and make the car available for the masses (Holweg, 2008). According to Holweg (2008), Henry Ford was able to reduce the labour hours for assembly of the vehicle from 750 hours in 1913 to 93 hours in 1914 for the Model T. This led to a reduction in price from USD 1,200 to USD 690 over the same period. The Model T produced for the masses and affordable to even floor workers changed the automotive sector despite the fact that it only came in one colour. The assembly line was therefore a revolutionary aspect for the automotive industry and led to development of concepts such as division of labour and specialization in production. However according to Hounshell (1984), this type of work was not well received by the work force leading to high staff turnovers and low motivation.

The demise of the pure mass production logic came suddenly when in 1927, more buyers bought their second cars then customers bought their first. (Holweg, 2008) It was soon obvious that the level of customization offered by the Model T was outdated and insufficient for the now discerning second car purchaser. General Motors took on Ford by offering the consumer mass brands such as Chevrolet to prestige brand such as Cadillac all within the realms of the GM brand portfolio (Holweg, 2008). General Motors basically improved on Ford’s mass production dominance and tailored it to offer customers more choice in the car preferences. Hounshel (1984) refers to this stage as “flexible mass production” though unlike its predecessor increase in production did not lead to reduction in labour costs. The industry has changed significantly and with the entrance of Toyota and other Japanese manufacturers in the 1980s, a new mode of operations taking into consideration productivity as well a consumer preference is the new global norm.

Automotive Industry in India

While origins of the automotive industry in India date back to colonial periods, distinct growth rates started only in the 1970s. (Sumantran, Ramchand, & Andrea, 1993) According to Sumantran, et al (1993) the significant and increasingly urban population in India has created and sustained large demand for the Indian auto industry. This demand is growling rapidly for both public and private transportation. According to Singh (2014) numerous studies have concluded that protection and other regulatory measures facilitated the growth of an indigenous automobile industry with corresponding production capability. Siting authors such as Hamaguchi (1985), Agarwal (1987), Narayana (1989) and Ranawat (2009), it has been argued that the phased manufacturing programme and restriction on import of final goods and components of automobiles did not provide any option to the manufacturers that to use local inputs. Therefore, firms developed vertically integrated production systems which led to a holistic development of the automotive industry (Singh, 2014).

The mid 1990s in India were characterized by the entry of global automotive manufacturers through joint ventures in India. (Bendigiri, 2011) The largest Indian passenger car manufactures developed through these joint ventures and include Tata Motors, Maruti Suzuki, Mahindra & Mahindra and Hindustan Motors. As stated by Bendigiri (2011) India is a source of high value and advanced quality engineering products and services while at the same time having a large domestic market to consume these products. As at 2017/2018 according to the Society of Indian Automobile Manufacturers, the industry produced at total of 29,075,605 vehicles in April 2018 including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycle registering a growth of 14.78% from the previous year. The sale of passenger vehicles grew by 7.89% in April for passenger vehicles. Based on these statistics, it is evident that the sector continues to grow despite a global slow down in the automotive sector.

Tata Motors is therefore one of the flagship organizations that has emerged in India as a global automobile industry giant and its resilience continues to be demonstrated today. Notable strategic management practices are discussed based on the case study in the subsequent sectors.

Tata Motors Strategic Management

Collaboration to Foster Technology Transfer

In the case study, it is evident that Tata Motors did not set out to become the automotive industry leader that it is today. The firm worked through a series of collaborations, manufacturing contracts and assembly agreements to develop the necessary capability. Moving from providing locomotive and engineering products, the firm through a series of early collaborations in the early 1940s and 1950s that aid it in developing the necessary technological capability required to manufacture motor vehicles.

This strategic move has been used across the world as a means by developing organizations in often underdeveloped nations to acquire the requisite skills and technical capability required. Evidenced in other sectors such as upstream oil and gas, notable examples being the emergence of the Aberdeen as an international oil and gas manufacturing hub through strategic collaborations between UK companies and Houston based companies.

Leveraging on Broad Product Offerings

As discussed in the case, Tata Motors for it passenger car division was depended on offering consumers with a product line with specific focus on the providing quality while maintaining fuel efficiency. It has pursued this model till 2008 when it acquired the Jaguar and Land Rover models which were higher end products.

The Case study also discusses that the passenger vehicle strategy focused on aggressive growth of new vehicle sales, service location and growth in the used car business. This strategy was particularly focused on the growing Indian domestic market which continues to grow with a burgeoning middle class and increased infrastructural development.

Independence of Divisions May Foster Innovation

As Tata Motors was experiencing backlash over the failed Tata Nano, the Jaguar Land Rover brands experienced tremendous growth in international markets. The reason postulated is the autonomous nature with which the Jaguar and Land Rover Brands were operated. While the Tata Nano was developed under strict monitoring by the Headquarters, the development of brands such as the Range Rover Evoque and more recently the Range Rover Velar have been done with limited interference. The limited bureaucracy and freedom to innovate without close scrutiny and monitoring have left Range Rover and Jaguar moving from strength to strength with both cars winning international awards.

This autonomy may be the reason that the two premium brands continue to be the largest income earners for the company while the Tata Nano has seemingly been abandoned. Many reasons many be postulated for the failure of the Nano. The most commonly cited reason is while the Nano purposed to be the cheapest car, its scalability was limited to the Indian and other developing markets where owning a car is an aspirational target as opposed to a functional target. The large data that was used to develop and innovate focused mostly on the product without clearly understanding the core consumers and what their aspirations and goals of ownership were.

Joint Venture and Acquisitions

While Joint ventures and acquisitions are similar to collaborations, there were more formalized arrangements where investments were made through strict joint ventures and acquisitions. Notably, Tata Motors acquisition of leading brands Jaguar and Land Rover in 2008 were bold strategic move previously not thought of by other leading manufacturers. The acquisition remains profitable as it is largely autonomous in its operations and has not been affected by the negative perceptions of being owned by an Indian company in international markets.

Joint Ventures have been the main engine through which Tata Motors has grown. With notable joint ventures with Daewoo, Daimler Benz and Cummins, it can be deduced that through these joint ventures Tata developed the necessary capacity to manufacture quality engines and bodies at a fraction of the price. For companies seeking to expand outside of domestic markets and to acquire technology to improve operations, joint ventures and acquisitions provide the best avenue to achieve this objective rapidly.

Challenges

Fluctuating Economic Conditions in India

The key challenge that Tata experienced are related to policies that were seemingly protectionist till the early 2000s. With subsidies on several fuels, the fiscal and current account deficit increased and led to economic turbulence in the country. Coupled with numerous corruption scandals that side tracked legislative work, there was limited economic reform in the period 2010 to early 2012.

Failure of the Tata Nano

The Tata Nano was expected to be the new flagship of the Tata Motors product stable. Billed as the cheapest vehicle in the world, it was expected to capitalize on the growth of the middle-class income per household. The key challenge in the design and production of the Nano was primarily resultant from the inception and design phase. Tata leadership designed the car with a pre-determined consumer in mind rather than looking at the target consumer and understanding a current pain point. The Nano’s failure lies in marketing that betrayed a fundamental misunderstanding of the Indian car market, where cars in India are aspirational and the Nano was positioned as a cheap product (Mundy, 2018). This fundamental lack of research and the continued hanging on to a product line that was seemingly not as profitable as the rest of Tata motors leads to the conclusion that top leadership was not well in tuned with external factors within the market.

Overdependence of Domestic Market

While India provided a key and large market for Tata Motors, it continued pursuit of offering broad product offerings for the Indian market and then subsequently rolling them out in other regions may have a limiting factor on the continued growth of Tata Motors. The Indian automobile market is unique, and the key determinant is cost and reliability. In other developing markets, while cost and reliability is a key factor competition with other established brands requires more nuanced approaches to market entry. For example, Tata Motors commercial vehicles are acknowledged as providing the lowest cost of ownership. This cost leadership approach may not be the most appropriate in entering more advanced developing economies such as South Africa or Brazil as cost may not be the key consideration for primary consumers of commercial vehicles. Safety, after sales support, capital financing and other non-cost related factors play a key role in the purchase of commercial vehicles.

Dependence on Jaguar and Land Rover Brands

While the Jaguar and Land Rover Brands have been the key to the success of Tata Motors in recent years, there is need to be cautious on over depending on these two brands to deliver long term growth. Turnipseed and Gamble (2012) note that the two brands shall maintain premium status across the world. This Niche Focus strategy while seemingly lucrative in the short to mid-term may prove unsustainable with changing high consumer tastes and preferences which shift periodically. In addition, Tata will be competing with larger more advanced companies such as Daimler and Volkswagen in this market segment which is quickly becoming over populated with consumers having multiple options at their disposal. It is therefore critical to begin a culture of innovation concerning the two premium brands and evaluate the sustainability of the current premium positioning.

Recommendations

Innovation

Tata Motors is not an especially innovative company and has acquired most of its technical knowledge through working with partners. In the automotive industry of the future, Tata Motors needs to plan for innovation. The company should plan to acquire innovative elements as was previously done or look to develop internal innovative capabilities. The second wave of disruption in the automotive industry is here and the company must not look at cost as was done with the Model T but look further into the changing wants and needs of the future driver.

Reduction of Bureaucracy

According to Mundy (2018) Tata Motors has a very centralized structure with the Chief Executive Officer providing the necessary guidance and tools for the whole group. While the Jaguar and Land Rover Brands have been left to work autonomously, other products within the Tata Motors portfolio are under strict control by the head office. This culture of centralization is not ideal in the modern world of disruption. It is necessary to reduce centralization therefore easing bureaucracy for each autonomous business unit. Autonomous Business Units have had success across multiple industries particularly in the automotive sector. In some organization such as Volkswagen, the business units are not only divided by product offering by the geography thus ensuring a tailormade product for the target consumer.

Diversification

As mentioned above, innovation would be a key aspect to the future growth of Tata. Leveraging on its existing engineering capability, the firm may seek to get in partnerships and or acquire organizations that are complementary in nature. For example, as electric cars become a reality, Tata Motors may be at the fore front in developing Battery solutions for other car manufacturers in strategic contracts. As it is the focus on motor vehicles manufacture purely may be detrimental to the future of Tata Motors in the coming decades.

Conclusion

Tata Motors has a rich heritage and has done extremely well to emerge as market leader globally and specifically in India. However, it is important that the company looks to the future of the automotive market and begins to carve out its niche globally while leveraging on the relative stability it has in the Indian market. Emergent strategic thinking will be crucial in this process and requires a top leadership that is skilled and courageous to single minded purse Tata Motors global success.