Proposal for tata motors in european markets

Tata Motors is the leader in commercial vehicles and among the top three in passenger vehicles in India. It is also the world’s fourth largest truck manufacturer and the second largest bus manufacturer. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. It also has a strategic alliance with Fiat.

In the UK, Tata Motors has set up the Tata Motors’ European Technical Centre in Warwick, engaged in the business of design engineering and product development for the automotive industry.

In January 2008, Tata Motors unveiled its People’s Car, the Tata Nano, to be launched later in the year in India. A development that signifies a first for the global automobile industry, the Nano brings the comfort and safety of a car within the reach of thousands of families. The high fuel efficiency also ensures that the car has low carbon dioxide emissions, thereby providing the twin benefits of an affordable transportation solution with a low carbon footprint.

The focus of Tata’s market entry was UK and European Market. Thus, Tata Motors acquired the UK based Jaguar Land Rover business from the Ford Motor Company on June 02, 2008 for a net of $2.3 billion.

PEST Analysis of UK

Political factors

Increasing Oil prices due to international instability which has caused due to the Economic Recession and different countries Political Factors.

Administrative barriers concerning various requirements for safety standards and emission level might increase the costs of production and reduce the operating profit margin.

India’s political relationship with UK is good which would help TATA motors.

Economic factors

UK market is viewed as highly mature. The current maturity causes overcapacity issue and significant sales fall of particular car segments.

The strong growth of GDP (10% between 1998-2005), personal disposable income (PDI) (19%) and consumer expenditures (18%) reflect the high level of consumer confidence. In terms of the purchase of new cars consumer confidence has significantly fallen. By the present moment UK consumers have been reluctant to take out new debt and instead are choosing to service their existing debt. Additionally the levels of mortgage equity withdrawal have declined, what indicates that UK consumers do not seek alternative funds to buy expensive items like cars.

The current strong state of British pound against other currencies have created various benefits for manufacturers consumers operating in pound zone such as predictability of operations and minimised currency fluctuation risk .

Social factors

Demographic factors – Demographic factor is one of the key social factors. It affects lifestyle, consumer trends, the type of risk aversive behaviour, spending power and value per customer. The state of demographic trends allows building projections for the use of particular type of products. The current UK demographics have undermined the sales of family cars

Lifestyles – The change of lifestyles and habits have a direct impact on the consumer expenditures. For instance, the recent increase of preferences for second car ownership. The impact of lifestyle factors such as fashionability and luxury preferences are so strong that it removes the negative effect of market maturity and oil prices in certain car segments. Thus, against all odds, SUVs and luxury cars experience healthy growth, whereas the sales in other car segments have fallen dramatically.

Technological factors

The current development of Internet opens new transactional capabilities. The continuous development of technological solutions, especially in the area of digital and communication technologies create new operating opportunities such as new marketing mix channels, new purchase environment (e-commerce) and new market research tools.

The development of e-exchange channels between supply chain agents becomes the source of strategic advantage as it creates the ability of fast market response and better value chain quality control.

Review of Micro factors affecting UK car business

Competitors’ bargaining power

The UK automotive market is highly consolidated. The major rivalry involves Ford, GM, VW, Renault, Peugeot, Toyota, BMW, Citroen and Honda. The presence of powerful competitors with established brands create a threat of intense price wars and poses s strong requirement for product differentiation. According to Mintel the tough competitive pressure require increasing promotional costs, overcapacity introduces a significant price pressure. The present market conditions are so tough, that certain manufacturers had to close certain plants to cut the costs and survive on the market.

At the moment, the major competitive strategies are supply chain improvement, new product development and serving the needs of emerging market segments. The emerging opportunities require the extremely high level of operational responsiveness and leave little space till market opportunity will be leveraged by competitors.

Buyers’ bargaining power

Due to high intensity of competition on the global scale and increasing overcapacity issue UK buyers experience very strong bargaining power. According to Mintel buyers have indicated a high level of bargain-seeking behavior.

Suppliers’ bargaining power

Though vehicle manufactures have consolidated forming large entities it did not make a significant shift of bargaining power in OEM-suppliers relations. According to Veloso & Kumar the consolidation in the OEM sector has triggered the corresponding consolidation of different supplier groups. Demand chain partners, car dealers, especially the large ones do experience large bargaining power in the light of the overcapacity issue.

The threat of Substitutes

Apart from direct competitors (public transport) cars compete with other transport services: air, rail and sea. The increasing importance of door-to-door transportation and environmental concerns decrease the current threat of other transportation means as substitutes. One of the major sources of substitute threat comes from the sales of second-hand cars. The steady accumulation of second-hand cars has become one of the major reasons of the dramatic fall of the sales of new cars.

Threat of New entrants

The high level of entry barriers (extremely consolidated industry, well-developed value-added chain, R&D capability, investment capability in promotions and new product development) minimizes the threat of new entrants. Nevertheless, due to globalised nature of the industry the notion of new entrant is not that clear-cut, since existing players might enter new geographical markets.

SWOT Analysis of TATA Motors

Strengths

TATA Motors Company have huge employee base.

TATA motors employee productivity percentage is higher.

TATA motors produce low price car with low fuel consumption.

TATA motors is the reputable brand in Indian Industry.

Tata Motors Limited is India’s largest automobile company, with revenues of Rs.35651.48 crores (USD 8.8 billion) in 2007-08.

The company’s dealership, sales, services and spare parts network comprises over 3500 touch points.

Tata Motors has been aggressively acquiring foreign brands to increase its global presence.

The research and development department of TATA motors is very strong.

TATA motors posses High corporate responsibility.

The company has a strategy in place for the next stage of its expansion. Not only is it focusing upon new products and acquisitions, but it also has a program of intensive management development in place in order to establish its leaders for tomorrow.

Weakness

TATA motors is not able to meet safety standards in their vehicles.

Tata has not got a foothold in the luxury car segment in its domestic market.

The company’s passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers.

Despite buying the Jaguar and Land Rover brands; Tata has not got a foothold in the luxury car segment in its Indian market. It is also not doing very well in UK and other European countries.

One weakness which is often not recognised is that in English the word ‘tat’ means rubbish. Would the brand sensitive British consumer ever buy into such a brand? Maybe not, but they would buy into Fiat, Jaguar and Land Rover

Opportunities

TATA motors can take the advantage of their low cost car by entering into third world countries where people have low purchasing power.

TATA motors should focus in developing luxury cars.

TATA motors can introduce more safety features in vehicles to gain more customer satisfaction.

Joint ventures in other countries allow TATA motors to easily enter into new market.

Threats

TATA motors have low cost advantage over its competitors, once the competitors find out the low cost production methodology then there will no competitive advantage.

The major challenge for TATA motors is the rising prices of steel, Aluminum and plastic which is heavily used in vehicle manufacturing.

The low safety standards can impact the sales.

Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean production.

Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem could be alleviated.

Marketing mix of TATA Motors

Product

One of the essential aspects of Product mix will be the development of post-purchase service. The company will seek to develop contractual relationships with different car service networks like independent garages, specialist fast-fit chains, mobile servicing and tuning services and autocentres. The development of strong relationship with Kwik-Fit, Finelist and Halfords will increase product attractiveness in terms of availability and accessibility of service facilities.

Price

The Mintel research indicates the relative importance of price issue, especially for customers who seek to own a second car. The chosen pricing strategy will seek to attract potential customers buy affordable price – £10 000. The aspect of pricing is related to the cost of service and car accessories. The major focus will be to minimize the servicing costs by concluding conditional agreements with service partners and providing them with low-cost quality accessories and spare parts.

Place

Distribution is crucial in the eventual acceptance and sales of a new product in the market as it governs the availability of the new product to customers. It goes without saying that the distribution channels chosen must reflect the target market’s buying behavior and allow for maximum availability to the target market. The distribution channels chosen may reinforce or dilute the intended message of the product’s positioning in the marketplace. To maximize the product availability Tata Motors will select the contractual partner with strong dealership network. Additionally, e-distribution strategy will be implemented to utilize the capacity of this distribution channel.

Promotion

Promotion decisions encompass the range of communication and motivation instruments needed to raise awareness and precipitate purchase of the new product. The following are used as major advertising technique by TATA motors:

TV;

Print advertising;

Internet Advertising

Proposal

Tata Motors has entered the UK market by acquiring Jaguar Land Rover. The company acquired them during recession. This country was chosen due to the presence of the number of favorable business and environmental factors such as economic stability, relatively medium entry barriers, positive growth of certain car market segments and the future growth potential within EU whereas the UK might be used as expansion base. The analysis of business factors indicated the importance of choosing fast mode of entry and the development of contractual relationships with UK operating market agents. As Tata Motors have Jaguar Land Rover they could acquire UK’s market with fast market penetration, access to market knowledge and reduced financial strain. The company has done pretty well as it already had name in UK but apart from a base in Warwick TATA’s own cars are not seen on roads. At the same time, possible negative aspects of this choice should be counterbalanced. The analysis of internal factors revealed that the company’s performance is strongly dependent on the success of operations in Indian market, which might be undermined with the further increase of competitive pressure. To strengthen its position against aggressive tactics of competitors Tata Motors is suggested to focus on building customer relationships and employ marketing tools designed to increase the level of customer loyalty.

On the basis of the analysis of current market dynamics Tata Motors is advised to enter the market with SUV model which have found good place and market in India, which are designed for sport type oriented individuals, who look for a relatively cheap, environmentally friendly, high quality car. The price will be one of the attractive factors, especially for price-sensitive individuals. The company should launch advertising campaign designed to create awareness about car, communicate its advantages and persuade customers to buy it. As for the Place Mix, the company will have to seek cooperation from various car dealers and should develop good e-commerce facilities to maximize the product availability.