Sector Overview
Automobile sector can be divided into four main segments:
- The automotive manufacturing industry comprises the production of commercial vehicles, passenger cars, three & two-wheelers.
- Two-wheelers are by far the most popular form of vehicle in India, taking an 80 per cent share in 2015-16.
- 25 million automobiles produced in FY17.
- Total production volume grew at a CAGR of 5.56 per cent between FY12-17.
- Two-wheelers and passenger vehicles dominate Indian auto market.
- Two-wheelers and passenger cars accounted for 78 per cent and 15 per cent of production volume in FY17 respectively.
- Domestic passenger car sales are dominated by small and mid-size cars.
- Over 67 per cent of export volumes comprised of two-wheelers, followed by 22 per cent for passenger cars.
Porter’s Five Force Analysis
Recent trends
Electric cars
- The Indian government has shifted its focus on electric cars in order to meet the emission reduction targets. It has aims to sell only electric cars by 2030 under the National Electric Mobility Mission Plan, which was launched in 2013.
- Mahindra has launched its new electric car and Tesla Motors are also set to enter the Indian market.
Luxury cars
- The luxury car segment has been seeing high growth rates and expanded at 37 percent CAGR between FY07-15. Sale of luxury cars stood at 33,279 units in 2016. The luxury car market in India is expected to grow at 25 percent CAGR till 2020.
- With the 12th largest population of high net worth individuals (HNIs), India still has huge room for this segment.
New financing options
- Carmakers such as BMW, Audi, Toyota, Skoda, Volkswagen & Mercedes-Benz have started providing customised finance to customers through NBFCs.
- Major MNC & Indian corporate houses are moving towards taking cars on operating lease instead of buying them.
Growth drivers and opportunities
Growth drivers
- Rising income and a large young population.
- Greater availability of credit and financing options.
- Demand for commercial vehicles increasing due to a high level of activity in the infrastructure sector.
- Clear vision of the Indian government to make India an auto manufacturing hub.
- Initiatives like ‘Make in India’, ‘Automotive Mission Plan 2026’, and NEMMP 2020 to give a huge boost to the sector.
- Improving road infrastructure.
- Established auto ancillary industry giving the required support to boost growth.
- 5 percent of total FDI inflows to India went into the automobiles sector.
Opportunities
- Strong support from the government; setting up of NATRIP centres.
- Private players, such as Hyundai, Suzuki, GM, keen to set up R&D base in India.
- Strong education base, large skilled English-speaking manpower.
- Comparative advantage in terms of cost.
- Firms both national and foreign are increasing their footprints with over 1,165 R&D centres.
- Mahindra & Mahindra targeting on implementing digital technology in the business.
- Bajaj Auto, Hero Honda & M&M plan to jointly develop a technology for 2-wheelers to run on natural gas.
- Tata Motors to launch MiniCAT, a car running on compressed air.
- By 2018, Hyundai is planning to enter the hybrid vehicles segment, to explore alternative fuel technology & to avail the government incentives.
- General Motors, Nissan & Toyota announced plans to make India their global hub for small cars.
- Passenger vehicle market is expected to touch 10 million units by 2020.
- Strong export potential in the ultra-low-cost cars segment (to developing & emerging markets).
- Maruti Suzuki launched facelift version of Alto 800, after the success of earlier model.
Investment scenario
Indian automobile sector has seen huge investments from both domestic and foreign manufacturers. FDI inflows to the sector were US$ 16.67 billion between April 2000 and March 2017.
Nissan
- Planning to double its current investment level of about US$ 2.5 billion over the next five years.
- Aims to raise its market share to 10 percent by FY19.
- To increase the Chennai Plant capacity to 400,000 units a year in a few years’ time.
- The company plans to launch 8 new car models in India by 2021.
Toyota
- Toyota is planning to invest US$ 165 million in its new engine plants and projects.
Hyundai
- Plans to invest US$ 552-737 million over the next two to three years to develop new products.
Key Players
Key Success Factors
Internal Factor Evaluation Matrix
An Internal Factor Evaluation (IFE) Matrix allows strategists to summarize and evaluate major strengths and weaknesses in functional areas of business.
Internal Factor Evaluation (IFE) Matrix
Strengths
| Key Internal Factors | Weight | Rating | Weighted Score |
|---|---|---|---|
| Global Presence | 0.06 | 3 | 0.18 |
| New Vision & Strategy | 0.07 | 3 | 0.21 |
| Largest Manufacturer in Indian Market | 0.08 | 4 | 0.32 |
| Strong Brand Management | 0.07 | 4 | 0.28 |
| Research and Development | 0.08 | 4 | 0.32 |
| Large Scale of Employees & Qualified Engineers | 0.07 | 3 | 0.21 |
| Wide Range of Automobiles | 0.07 | 3 | 0.21 |
| Flexible Price Range as per Vehicle Traits | 0.06 | 3 | 0.18 |
Weaknesses
| Key Internal Factors | Weight | Rating | Weighted Score |
|---|---|---|---|
| Sensitiveness to Fuel Prices | 0.07 | 3 | 0.21 |
| Customers Preference Change | 0.07 | 3 | 0.21 |
| Country Political Situation | 0.06 | 4 | 0.24 |
| Green Car Demands and Development | 0.07 | 4 | 0.28 |
| Technical Problems | 0.09 | 4 | 0.36 |
| Raw Material Price Increase & Inflation | 0.08 | 4 | 0.32 |
Total Weighted Score: 3.53
External Factor Evaluation Matrix
An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information.
External Factor Evaluation (EFE) Matrix
Opportunities
| Key External Factors | Weight | Rating | Weighted Score |
|---|---|---|---|
| Low Price but Profitable | 0.07 | 3 | 0.21 |
| Largest Market Share | 0.08 | 4 | 0.32 |
| Diversification in Vehicles | 0.08 | 3 | 0.24 |
| Could Penetrate in Rural Market | 0.07 | 3 | 0.21 |
| New Acquisition Can Boost in UK, China and Other Countries Sales | 0.09 | 4 | 0.36 |
| Vertical Integrated Integration for Better Control | 0.08 | 3 | 0.24 |
Threats
| Key External Factors | Weight | Rating | Weighted Score |
|---|---|---|---|
| Global Recession and Poor Economic Condition | 0.08 | 4 | 0.32 |
| Long Term Financing Problem | 0.07 | 3 | 0.21 |
| High Fuel Prices | 0.08 | 4 | 0.32 |
| New Entrants with Better Technology | 0.07 | 4 | 0.28 |
| Political Pressure | 0.08 | 4 | 0.32 |
| Government Policies | 0.08 | 3 | 0.24 |
| Failure of New Technology | 0.07 | 3 | 0.21 |
Total Weighted Score: 3.48
Introduction to Tata Motors
Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) headquartered in Mumbai, is an Indian multinational automotive manufacturing company and a member of the Tata Group. Its products include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment, and military vehicles. Tata Motors has auto manufacturing and assembly plants in India, Argentina, South Africa, Great Britain, and Thailand. It has research and development centers in Pune, Jamshedpur, Lucknow, and Dharwad in India, and in South Korea, Great Britain, and Spain. Tata Motors was founded in 1945 as the manufacturer of locomotives, and the company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-Benz AG, which ended in 1969. Tata Motors entered the passenger vehicle market in 1991 with the launch of the Tata Sierra, becoming the first Indian manufacturer to achieve the capability of developing a competitive indigenous automobile. In 1998, Tata launched the first fully indigenous Indian passenger car, Indica, and in 2008 launched Tata Nano, the world’s cheapest car. Tata Motors acquired the South Korean truck manufacturer Daewoo Commercial Vehicles Company in 2004 and purchased Jaguar Land Rover from Ford in 2008.
Customer Value Proposition at Tata Motors
Customer centricity is at the core of a few of Tata Motors’ innovation developments. For instance, the Zest, Bolt, and Tiago autos now offer clients the convenience of the multi-drive option, where the client can pick between three diverse drive modes depending on whether they require more power, higher fuel efficiency, or a mix of both. The new motors, Revotron and Revotorq, which have pushed the envelope for Indian diesel and petroleum autos, were produced in the organization’s R&D centers in India and the UK. Tata Motors’ business vehicles are designed to offer clients the perfect blend of energy, fuel efficiency, and the lowest cost of ownership. Technologically, they have advanced to offer fleet owners the fingertip convenience of nationwide organizing and telematics through the Tata Fleetman telematics systems.
Innovation at Tata Motors goes beyond product and technology to include various aspects of operations, such as marketing and customer service. The “Made of Great” campaign that enlisted football legend Lionel Messi as a brand ambassador for Tata Motors’ autos made waves worldwide. Another notable example is the groundbreaking T1 racing championship event that duplicates the excitement of Formula 1 racing with the raw power of truck motors. Our customers benefit from Tata Motors’ innovative approach at various touchpoints. For instance, the Tiago offers a virtual test drive application that uses motion and gesture recognition technology to give the client a virtual on-road driving experience while also showcasing the car’s important features. India’s first service application, Tata Motors Connect, provides our customers with a seamless driving experience by instantly connecting them to the dealer and workshop network through GPS navigation. VTabs is another new service-related application that tracks vehicles that come into our service centers through RFID readers; this reduces the time taken for servicing, thereby directly benefiting our customers. Innovative thinking permeates the organization in various ways. Our employees engage with each other through creative platforms such as the enterprise social networking tool Yammer, informal networking sessions, learning sessions, webinars, and more.
Marketing Mix of Tata Motors
Tata Motors is a leading automobile brand. It is most widely known for its commercial vehicles such as buses and trucks. However, Tata Motors has also started an excellent expansion in passenger cars, and it is rapidly gaining market share. The marketing mix of Tata Motors talks about the P’s of the brand, which have helped the brand to rise in the automobile industry.
Product
Tata Motors has a very wide range of products, including passenger cars (Indica, Indigo, Nano, Tiago), utility vehicles (Safari, Sumo, Xenon), trucks (Tata Novas, TL 4×4), commercial passenger carriers (Buses, Winger, Magic), and defense vehicles.
Price
The prices of Tata Motors are generally affordable and acceptable to the general public at large. Tata Motors has always had something for the lower class people, with Nano being their trump card. Offering discounts every month and special promotions for certain types of vehicles is also one of the strong strategies used by Tata Motors. Discounts can be made from the company’s profit or from the dealer’s profit within a certain range.
Place
Tata Motors has an extensive dealer network covering Indian and international markets. The channel of distribution, physical location, and dealership method of distribution and sales is generally adopted. The distribution of vehicles must be in a very systematic way, from the plant to the dealer and to the end user. This is not only in India itself but also to the worldwide dealership.
Promotion
Tata Motors promotes its products via advertising and after-sales services, as they have a very good reputation among customers.
People
Tata Motors owes its success to the highly motivated and talented staff. Their recruitment picks from premier universities, management, and engineering institutes in India, and then they put them through rigorous training programs to excel in their entrepreneurial skills and impart comprehensive product knowledge.
Process
Tata Motors follows the Balanced Scorecard Collaborative Inc. for achieving excellence in overall company performance.
Physical Evidence
The management of Tata Motors has managed to keep their hopes alive even during the recession and hopes that the worst is behind. Tata Motors launched the most awaited car of the year, Tata Nano, in 2008, and the company has already received 2 lakh bookings that are fully paid, with 70 percent of the applicants ready to wait until the end of 2010 for the car to be manufactured.
What Works for Tata Motors
- Most energy-efficient and safest automobile plants in India.
- Minimum outsourcing.
- Demand-driven production, cutting on plant costs, ‘produce on demand’.
- Strategically located manufacturing units in India, ‘supply on order’.
- Being suppliers, in case of low demand in-house, they could continue with their production.
- Backward integration helps keep very low inventories.
- Tata CV’s most trusted brand (Forbes) and easy maintenance and value-for-price vehicles.
- Most fuel-efficient commercial vehicles and passenger vehicles in their respective segments.
- Excellent spare parts and a service network with 6,700 touchpoints in India.
Value Chain Analysis
Value chain analysis is divided into five parts, which are as follows: inbound logistics, operations, outbound logistics, marketing, and service.
Inbound Logistics
Inbound logistics can be divided into various parts, depending upon the term of the contract, whether it is a long-term contract with service providers such as transporters and agents. Further, personnel at regional offices oversee the smooth and easy transit of goods. Transparency and monitoring can be achieved through the deployment of IT, with transactions conducted through SAP technology. DTL (daily transport logistics) supplies are used for critical high-value items. Efficient storage facilities, which allow easy storage and retrieval, are key.
The organization claims various licenses and has applied for new licenses that are pending approval in India and other nations. The organization has also filed numerous patent applications outside India under the Patent Cooperation Treaty, which will be effective in various countries going forward. The organization obtains new patents as part of its ongoing research and development activities.
The organization possesses registrations for various trademarks and has pending applications for the registration of these in India and other countries. The registrations generally include trademarks for its vehicle models and other promotional initiatives. The organization uses the “Tata” mark, which has been licensed to the organization by Tata Sons Limited. The organization believes that the establishment of the “Tata” word mark and logo mark, in India and internationally, is significant to its operations. As part of the organization’s acquisition of TDCV, it has the rights to the continuous and exclusive use of the “Daewoo” brand and trademarks in Korea and abroad markets for the product range of TDCV.
Operations
There are various steps in operations, including the capital equipment manufacturing division, which focuses on tooling development capabilities of global standards. Tata Motors has developed apprentice trainee courses that provide a stable source of skilled manpower, offering adequate real-time skills and attributes. To enhance employment engagement, a Total Productive Management (TPM) team continuously drives efficiency improvements. Many processes are automated, contributing to the company’s efficiency.
Distribution is supported by various assembly units established in South Africa, Thailand, Bangladesh, and Brazil. The maintenance department is equipped with various technical capabilities. Tata Motors has improved its capacity utilization by manufacturing Mercedes-Benz cars, utilizing Tata Motors’ paint shop facilities.
Outbound Logistics
Stockyards are established across the country. Tata Motors has established long-term contracts with transporters, ensuring a high volume of business and competitive pricing. Employment opportunities are available at regional sales offices and vehicle dispatch sections, all linked through SAP.
The organization has implemented efficient security systems to prevent pilferage. The sourcing office in India has been reorganized into four divisions: Procurement, Supplier Quality, Supply Chain, and Production Planning & Management (PPM). This reorganization aims to establish and define responsibility and accountability in the sourcing division. Procurement oversees the business aspects of product sourcing, Supplier Quality maintains the quality of supplies purchased, Supply Chain manages the logistics of supply and delivery, and PPM supervises the execution of new projects.
As part of the organization’s strategy to become a low-cost vehicle manufacturer, various initiatives have been undertaken to reduce fixed and variable costs. The organization uses an e-sourcing initiative to obtain supplies through reverse auctions and engages third-party logistics providers. These initiatives have resulted in space and cost savings. The organization’s efforts to leverage information technology in supply chain activities have improved efficiency through real-time information exchanges and training with suppliers.
Marketing & Sales
A structured approach is required to understand individual customer requirements, which can be addressed through QFDs conducted at regular intervals. Tata Motors has a clear identification of product requirements, leading to the development of innovative products like the Tata 207 DI and Tata Ace. The company has a pan-India presence and a global footprint.
Various teams address the additional requirements of institutional customers, such as defense and state transport units. Quick assessments of changing market dynamics and consumer preferences, such as the Tata 407 LCV, are conducted. Tata Motors has a large network of dealers that utilize technology, including CRM-DMS, to enhance customer relationships.
Service
Service is available to ensure the ease of availability of spare parts. Efficient data collection from the field and communication to manufacturing plants is key. Tata Motors has a pan-India presence and a global presence, with a large network of workshops that include dealer workshops and TASS. The company has established training facilities for dealer-end and TASS personnel.
Procurement
The e-procurement initiative enables transport to various global sourcing teams. Companies like tire, power, and steering unit suppliers are sourced from Belarus. Long-term relationships with a stable and loyal pool of suppliers are crucial for the business. Technology-driven procurement, such as SAP, is essential. Tata Motors provides different group resources, including Tata Steel and Tata International.
A localized supplier base is also situated at manufacturing locations with low inventory levels. The primary materials and components required for use in Jaguar Land Rover vehicles include steel and aluminum sheets (for in-house stamping) or externally pre-stamped panels, aluminum castings and extrusions, iron and steel castings and forgings, and items such as alloy wheels, tires, fuel injection systems, batteries, electrical wiring systems, electronic information systems and displays, leather-trimmed interior systems (such as seats, cockpits, and doors), plastic finishers and plastic functional parts, glass, and consumables (paints, oils, thinners, welding consumables, chemicals, adhesives, and sealants) and fuels.
The organization believes it is well-positioned to address the growing demands and changing preferences of customers in the intermediate and light commercial vehicle classes with its new range of vehicles in those categories. The evolving infrastructure in India will change the way the transportation industry grows, leading to increased demand for better quality and more comfortable vehicles.
India has emerged as a major hub for global manufacturing, with advantages such as lower input costs, the availability of a local supplier base, and high domestic demand. As an established domestic manufacturer, the organization believes it is ideally positioned to capitalize on lucrative international markets, either through fully built units or complete knock-down exports.
Furthermore, the organization believes it also benefits from strong in-house design and development facilities and expertise. Therefore, the organization believes its R&D group is capable of developing solutions for various regulatory and emission standards in response to market demands in minimal time.
The organization is focusing on increasing its global presence to hedge against domestic downturns and as a growth opportunity. While the organization is currently present in Africa and several parts of the Association of Southeast Asian Nations (ASEAN), it is focusing on increasing its presence in more key markets in ASEAN and Latin America. The organization is also actively considering expanding its global manufacturing footprint in key international markets to take advantage of import duty differentials and local sourcing benefits.
Business Model of Tata Motors
| Critical Success Factors | Weight | Tata Motors | Weighted Score | Toyota | Weighted Score | Honda | Weighted Score | Mahindra & Mahindra | Weighted Score | Nissan | Weighted Score |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Market Share | 0.20 | 4 | 0.8 | 4 | 0.8 | 3 | 0.6 | 4 | 0.8 | 1 | 0.20 |
| Inventory System | 0.10 | 3 | 0.30 | 4 | 0.4 | 3 | 0.3 | 4 | 0.4 | 3 | 0.3 |
| Financial Position | 0.10 | 3 | 0.30 | 3 | 0.30 | 4 | 0.40 | 3 | 0.30 | 4 | 0.40 |
| Product Quality | 0.10 | 4 | 0.40 | 4 | 0.40 | 4 | 0.40 | 3 | 0.30 | 2 | 0.20 |
| Consumer Loyalty | 0.10 | 2 | 0.20 | 4 | 0.40 | 4 | 0.40 | 4 | 0.40 | 2 | 0.20 |
| Sales Distribution | 0.05 | 3 | 0.15 | 3 | 0.15 | 2 | 0.10 | 4 | 0.20 | 3 | 0.15 |
| Organization Structure | 0.10 | 3 | 0.30 | 4 | 0.40 | 3 | 0.30 | 4 | 0.40 | 4 | 0.40 |
| Production Capacity | 0.10 | 3 | 0.30 | 3 | 0.30 | 2 | 0.20 | 3 | 0.30 | 4 | 0.40 |
| E-Commerce Website Presence | 0.05 | 3 | 0.15 | 3 | 0.15 | 2 | 0.10 | 3 | 0.15 | 2 | 0.10 |
| Price Competitive | 0.10 | 4 | 0.40 | 2 | 0.20 | 2 | 0.20 | 4 | 0.40 | 2 | 0.20 |
| Total | 1.00 | 3.3 | 3.5 | 2.85 | 3.45 | 2.55 |
Competitive Profile Matrix of Tata Motors
The Competitive Profile Matrix (CPM) is a key strategic management tool that examines a firm relative to its major competitors within the industry. This matrix provides a clear picture of the firm’s strengths and weaknesses relative to its rivals.
Rating
The rating in CPM represents the firm’s response to the critical success factors. The higher the rating, the better the response of the firm towards the critical success factors. The rating ranges from 1.0 to 4.0 and can be applied to any factor.
Important Points Related to Rating in CPM:
- Rating is applied to each factor:
- The response is poor, represented by 1.0
- The response is average, represented by 2.0
- The response is above average, represented by 3.0
- The response is superior, represented by 4.0
Total Weighted Score
The sum of all weighted scores equals the total weighted score. The final value of the total weighted score should be between the range of 1.0 (low) to 4.0 (high). The average weighted score for a CPM matrix is 2.5. Any company with a total weighted score below 2.5 is considered weak. A company with a total weighted score higher than 2.5 is considered strong in position. The firm with the highest total weighted score is considered the winner among the competitors.
Tata Nano (Re-inventing the Business Model)
Business Strategy
Tata Motors has established a strong position in the Indian automobile industry by launching new products, investing in research and development, and maintaining great financial strength. Tata Motors’ goal is to position itself as a major international automotive company by offering products across various markets and combining their engineering and other strengths through strategic acquisitions.
Tata Motors aims to emerge as a world-class automobile leader with a remarkable price-performance ratio, combined with hyper-efficient engines, to acquire a large market share internationally. Tata Motors’ mission is to create an organization that people enjoy working for, doing business with, and investing in. It focuses on customer needs to provide a range of innovative products and maintain long-term relationships by working closely with its workforce and business partners. The company’s purpose is to consistently create shareholder value by generating greater returns and fostering long-lasting ties with vendors and channel partners.
Tata Motors’ unmatched ability to manufacture low-cost vehicles provides the company with a greater scope for earning high profit margins and enjoying a greater market share. The economic slowdown has heightened competition to provide low-priced but high-quality vehicles. Understanding the rural Indian economy and the growing incomes of farmers, Tata Motors views increased opportunities for its commercial sector. Tata Motors has remarkable advantages in manufacturing in India compared to other MNC competitors. These advantages include low labor costs, extensively skilled labor, interwoven backward and forward linkages, strong IT engineering, a robust auxiliary industry, substantial market knowledge, improving infrastructure, and increasing domestic demand. Tata Motors aspires to be a world-class maker of quality vehicles by striking a balance between the needs of its customers, employees, suppliers, investors, and the community as a whole.
Tata’s Product & Brand Strategy
Tata Motors follows a sub-brand strategy. Although there is no separate brand for Tata Motors as such, the Tata brand is used as a mother brand. All products benefit from the association with the Tata brand, which in India stands for trust and reliability. Tata Motors’ products can be categorized into Passenger Cars, Utility Vehicles, Trucks, and Commercial Passenger Carriers. The product strategy at Tata Motors has been driven by two primary objectives: identifying market needs and creating new market segments. Success stories from the past two decades, such as Sumo, Ace, and Indica, have been able to fulfill these overall objectives.
The strategy behind these products also reflects Tata Motors’ commitment to customer needs and new product innovation. The company has also exported its vehicles after creating customized variants with higher payloads and engine capacities. It has also customized its domestic products by introducing passenger options, higher payloads, and bigger engines.
Pricing
Tata Motors has a pricing advantage due to its low-cost lean manufacturing abilities. The in-house steel company acts as a shock absorber against steel price fluctuations. The pricing methodology is that of perceived value pricing.
Promotion
Tata Motors uses extensive promotion for its passenger car segment. The Utility Vehicle and Commercial Passenger Carrier segments follow this based on Share of Voice.
Distribution
Tata Motors has a large network of dealers and stockyards across the globe and uses DMS technology for efficient cooperation between these dealers. Its distribution network includes operations in India, Nepal, Bhutan, Ghana, Italy, Poland, South Africa, Spain, Sri Lanka, and Turkey. The company’s dealership, sales, service, and spare parts network comprises over 3,500 touchpoints.
Tata Motors also has manufacturing and assembly units in South Africa, Thailand, Bangladesh, and Brazil, apart from India. The company’s manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), and Dharwad.
Competitive Advantage
- Acquisitions: TATA Motors acquired Daewoo Commercial Vehicle Company in 2004, giving Tata Motors a significant presence in the Korean market. The acquisition of Jaguar and Land Rover has positioned them in the luxury car business for the first time.
- Location: TATA Motors is located in India, where manufacturing labor costs are only eight to nine percent of sales, compared to 30 to 35 percent in developed countries. India is one of the world’s largest producers of automotive components, giving Tata Motors direct access to many of these components. Being a local car manufacturer, Tata has higher bargaining power with suppliers. Tata Motors has been able to leverage the Indian automotive market due to increased demand, improvements in infrastructure, and growth in population and disposable incomes in India. Additionally, in December 1997, the Indian government launched policies requiring foreign carmakers to invest at least 50 million dollars in equity to set up manufacturing operations in India. This allows Tata Motors to benefit from low labor costs, land assets, and overall investment practices without having to implement this 50 million dollar investment. Tata Motors has prospered and grown in developing markets for over 70 years, which is a significant competitive advantage. Tata Motors has implemented programs that allow it to prosper while maintaining low costs and high profits. Tata Motors also has a competitive advantage as part of the larger Tata Group, which supplies Tata Motors with access to knowledge, resources, technology, and companies operating in many different industries worldwide, allowing innovation and easy access to other sources.
PEST Analysis
Political Factors
- Effects of Government Policies on Tata Motors:
- The effect of Government Policy on TATA Motors’ CV Division has been significant. The Commercial Vehicles segment has been at the forefront of the automotive industry’s strong performance over the past few years. Key changes that have led to growth in sales include:
- Reducing excise duty, enabling manufacturers like TATA Motors to reduce prices.
- Attractive financing offers and freebies enabled by low-interest rate policies by the Government.
- The need to transport higher volumes of industrial goods.
- The Uttarakhand plant enjoys an exemption from excise duty (otherwise 16%) for the initial 10 years.
- The Singur plant enjoys an exemption from income tax for the initial 5 years.
- The effect of Government Policy on TATA Motors’ CV Division has been significant. The Commercial Vehicles segment has been at the forefront of the automotive industry’s strong performance over the past few years. Key changes that have led to growth in sales include:
Economic Factors
- Global Presence: TATA Motors has experience and resources from 5 continents across the globe, allowing it to gather information and resources from all over the world to address any issues that arise due to market variables.
- Technology Leadership: Tata Motors and its parent company, the Tata Group, are ahead in the technology field. The Tata Group as a whole has over 20 publicly listed enterprises and operates in more than 80 countries worldwide.
- Domestic Market Demand: There is huge demand in domestic markets due to infrastructure developments, and Tata Motors is able to leverage its knowledge of the Indian market.
- High Economic Growth: After the 1991 economic liberalization, India achieved 6-7% average GDP growth annually. In FY 2015 and 2017, India’s economy became the world’s fastest-growing major economy, surpassing China. This results in prosperity and creates demand for Tata Motors’ products.
- Reduction in Taxes: The cut in tariffs on petroleum and diesel will make commercial vehicles more economical.
- Labor Cost Advantage: Tata Motors benefits from labor costs being 8-9 percent of sales compared to 30-35 percent of sales in developed economies. This results in lower production costs and higher margins for Tata Motors’ products.
Social Factors
- Employment Generation: Tata Motors employed approximately 60,000 people as of March 31st, 2016, making it the largest automobile company in India.
- Social Image: Tata Motors has received numerous awards in various categories, reflecting a very favorable social image.
Technological Factors
- R&D Centre in the UK: TATA Motors has established its R&D centre in the UK, known as the Tata Motors European Technical Centre. This centre provides engine development and support services.
- Agreement with EngageNext iSourcing: Tata Motors has signed an agreement with EngageNext iSourcing, transitioning from a staff accumulation model to a delivery-based one. This will streamline activities, expedite the process of advancement and development, and help Tata Motors deliver against a set of standards and measures.
Comments, Suggestions, and Learnings
The study indicates a promising future for the automobile industry in India. However, the extensive potential for market development has attracted many players. The availability of numerous alternatives and substitutes has further heightened customer expectations. Additionally, the growing youth market, consisting of experimenters, desires upgrades and new innovations in their possessions. These analyses suggest that Tata Motors must become more sensitive to the needs of its buyers and ensure execution ahead of its rivals. The company must continually explore new markets and pursue innovations, as risk-takers are often the profit-makers. Furthermore, the company can segment the market and offer something for everyone to capture a larger share of the market.
In the context of intense competition where every automobile company is striving to be the best, Tata Motors needs to build additional competencies. The brand must stabilize its position as a leader in the commercial vehicle market and set new trends in the passenger vehicle segment. The recommended differentiation strategy will provide the company with a leading edge through careful implementation and execution.
Reference list
- EngageNext iSourcing (Year not provided) – Agreement with Tata Motors for delivery-based model.
- Tata Motors European Technical Centre (Year not provided) – Establishment of R&D Centre in the UK.
- Tata Motors (2016) – Employment statistics as of March 31st.
- Tata Motors (Year not provided) – Awards and recognition in various categories.
- Tata Motors (Year not provided) – Study on the future of the automobile industry in India.