Case 18 Teaching Note Tata Motors in 2014
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External Market Opportunities:
nUrbanization of the huge population may increase demand for passenger vehicles in the short and
intermediate term.
nTata can use their several joint ventures to penetrate foreign markets.
External Threats to Tata Motors’ Future Well-Being:
nUrbanization of the huge population may cause road congestion and force use of mass transit which will
reduce domestic demand for passenger cars.
nPopulation growth may contribute to an increase in fuel prices.
4. Would you describe Tata Motors’ international strategy as global, transnational, or
multidomestic strategy? Explain your answer. Does this appear to be the optimal
strategy?
nTata is using a global strategy in global markets. The vehicles exported or manufactured in other markets
nTata uses the “Think Global, Act Global” strategy in its international operations. The vehicle styles are
nThe “Think Global, Act Global” strategy appears to be optimal for Tata at this point. The company has
a broad product line, and gasoline, diesel, and CNG fueled vehicles. Producing a more differentiated
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product for different markets would be extremely expensive and likely make the vehicle non-competitive
5. What are the driving forces in the global motor vehicle industry?
Students should be able to recognize the following forces of change in the motor vehicle industry:
nThe almost certainty of increasing oil prices (as the world moves out of the recession, and population
growth and economic development increase the demand for oil).
6. How strong are the competitive forces confronting automobile manufacturers? Do a
five-forces analysis to support your answer.
Suppliers of
Materials and
Rivalry
Among
Competing Sellers
of Automobiles
Competitive pressures coming from the
Competitive pressures coming
Substitutes for
Automobiles
Potential New
Buyers of
Competitive
pressures
stemming
Competitive
pressures
stemming
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Substitutes:
nThe only reasonable substitutes for Tata’s passenger vehicles are bicycles, motorcycles, planes, boats,
trains, and busses (Tata is the largest bus manufacturer in India).
Power of substitutes—3
Suppliers:
nThe raw materials required for vehicle manufacture are readily available, and Tata has recently entered
into agreements with the Chinese for inexpensive vehicle parts and subassemblies. There is a large and
New Entrants:
nThere is small likelihood of new entrants in any of Tata’s divisions in the relevant future. The slow
Buyers:
nBuyers have enormous power in both the passenger car and commercial vehicle arenas. There is little
nThe rivalry among firms in the global motor vehicle industry is fierce.
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7. What is the financial condition of Tata Motors as indicated from case Exhibits 3 and 4?
What is its ability to meet short-term obligations? What advice can you offer to Tata’s
management based on the information in the financial statement?
Students who have calculated ratios similar to those shown in Table 1 should be impressed with the company’s
net profit margins and return on equity in 2011 and 2012, but express concern over the dip in 2013. Student
should be less complimentary of its return on assets, current ratio, and debt-to-equity ratio. There is however,
TABLE 1. Selected Financial Ratios for Tata Motors, 2011 and 2012
2014 2013 2012 2011
Net profit margin 6.0% 5.4% 7.9% 7.3%
Return on assets 6.4% 5.8% 9.3% 9.2%
Calculated from case Exhibits 3 and 4.
A common size income statement reveals that although various costs are rising (e.g., employee costs/
benefits increased from 7% in 2011 to 9% in 2014; and cost of materials consumed increased from 56%
8. What do you consider to be the most important problems and issues facing Tata Motors,
based on your analysis of company and the global motor vehicle industry? Prioritize
these problems and issues beginning with the most important.
nIncreasing competition from Mahindra, Ford, Hyundai, Honda, Nissan, Maruti, Chevrolet, and Toyota
in the India market is a problem. However, the more serious problem is that Tata’s automobile segment
is not increasing market share relative to the competitors. In 2012, Tata’s domestic passenger car sales
grew at about 4%—which was about the same as the industry. This growth rate indicates that Tata is not
gaining market share, and is in fact, losing share to the new entrants. The potential Indian automobile
market is the second largest on earth, and the Indian GDP is the fourth largest in the world, with a
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nThe company has invested heavily in development of the Tata Nano, and although it is the lowest priced
four-wheel automobile in the world, sales have been disappointing. Because of the low price of the
Nano, the profit margin is low. Sales in fiscal 2012 were 74,527 cars, which was about 1/3 the amount
estimated to achieve an acceptable return. Nano sales fell to 53,847 in 2013 and to 21,130 in 2014. The
Nano was launched in 2009, and is being sold in India and exported to China, Nigeria, Brazil, Malaysia,
Nepal, Bangladesh, Myanmar, Indonesia, South Africa, the Middle East and the African continent. This
nThe company manufactures passenger vehicles, trucks and busses. These vehicles are manufactured
in several different countries and sold in many different countries. Are the management skills and
expertise needed to maximize returns in the various segments highly correlated? Should Tata Motors,
nTata has a history of international alliances and joint ventures, primarily for their busses and commercial
vehicles. Should Tata pursue more strategic alliances and joint ventures as it attempts to expand, or
would wholly-owned subsidiaries be preferable? Should Tata slow its rate of international expansion?
Tata Motors had 13 joint ventures, subsidiaries, and associate companies in 2014 , including automotive
9. What actions would your suggest to Mr. Tata and his management team to help Tata
Motors improve its competitive position in its domestic Indian market, and in the global
market, and its long–term financial performance?
nStudents may suggest making the Nano the core product of the company passenger division of the
company. Although other competitors offer low-priced models, the Tata Nano is the global low price
leader for a four wheel automobile. The huge emerging markets in the world offers a tremendous
opportunity for the Nano, and Tata should focus on positioning the car in those markets to capture sales
Tata presented the Nano to the American market in the Detroit Auto Show in 2010. The Nano is unlikely
to have a significant appeal to the American market: only drivers in large congested cities would find the
Tata should concentrate on increasing sales in the several countries in which the Nano is presently being
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nStudents may also recommend that Tata management reevaluate the entire Tata Motors product line and
focus on high growth markets. Although the company offers a broad line of passenger cars, they are
nAlthough Tata is India’s largest automobile company, there are indications that it may be losing its
grip as the dominant company in India. Sales and profits from Indian operations continued to slide.
Total domestic market passenger vehicle sales were down 35 % in December of 2013. The inux of
competitors onto the Indian domestic market indicates that other manufacturers recognize potential
Epilogue
The Indian government has phased-out of the diesel subsidy. As the price differential between diesel and gasoline
was reduced, the lower purchase price of gasoline cars shifted demand away from the diesel cars to gasoline cars.
In the third quarter of 2014, there were waiting periods for some of the top-selling gasoline cars.
The Indian rupee has depreciated significantly against the US dollar. On 1 October, 2014, the rupee fell to 61.95
per dollar. In May, 2013, the rupee was at 53.65 per dollar.
Tata Motors’ first quarter 2015 financial statements were much improved. The company reported consolidated
revenues of Rs.64,683 crores for the quarter, a growth of 38.2% over Rs.46,796 crores for the corresponding
quarter of the previous year. This was especially impressive given a continuing weak operating and economic
environment in the stand alone business. The weak economy was more than offset by strong demand for new
products, growth in volume, richer product mix, and richer geographic mix at Jaguar Land Rover (JLR). The
Consolidated Profit before tax for the quarter was Rs.7,528 crores, as compared to Rs.2,934 crores for the
corresponding quarter of the previous year (an increase of 156%) and the Consolidated Profit after tax for the
quarter was Rs.5,398 crores compared to Rs.1,726 crores for the corresponding quarter of the previous year,
which was an increase of 213%.