Political Factors
The future of car industry will also be dependent on the political environment of South Africa. The growth of car industry will be positively linked with following issues:
- Continuance of liberalized policies.
- Reduction in both Excise and import duties.
- Investment in improvement of road network.
Automotive Policy
Memorandum of Understanding Policy: Car (Completely Built-Up Units) imports are a restricted item. For the import of completely Knocked Down/Semi-Knocked Down kits the new manufacturers had to enter into individual agreements with the government of India. The government has recently announced a policy for granting import
The South African Government will separately enter into a MOU with the applicant specifying the following five parameters:-
- Inward equity investment by the foreign Joint Venture Partner (at least US$ 50 million of foreign equity)
- Production Planning
- Level of indigenization (50% in the 3rd year or earlier, 70% by 5th year or earlier)
- Projected outflow of foreign exchange on account of imports.
- Projected export earnings from the exports of intermediate and final products (Broad neutralization of forex required).
Fuel Policy
There is no clear cut fuel policy in India detailing out the basis for long term fuel pricing. The diesel prices are approximately 45% of the petrol prices.
Economic Factors
The growth of car industry will be related to growth in economy which can be reflected in increased per capita disposable income especially in Middle Income Group in South Africa, Lower Inflation, Easier availability of finance, lower rate of Interest. The elasticity of GDP to car demand is 2.67, i.e. for every 1% increase in GDP the car demand will increase by 2.67%.
South Africa is experiencing an economic boom and hopes to build on its new fiscal position in order to improve infrastructure to help further realise the economy’s latent potential. Stability of the political system is another important determinant for economic growth.
Social Factors
It was also highly oppressive in that the foremen, armed with powers of hiring, promotion, and dismissal, ruled the shop floor with grim determination. Black workers increasingly confronted these labour relations practices with collective industrial action that sometimes made enterprises ‘ungovernable’. Over the last few years, structures and agreements have risen that serve to eliminate confrontations and place profitability at the centre of everyone's concerns. This consensual approach to labour relations is informed by corporatism, and involves the participation of unions, employers, as well as other collective bodies, in state institutions
The factors that will have an impact on car industry are:
- Attitude towards owning consumer durable.
- Mobility needs of people which are on increase due to the fact that distance between workplace and place of living is constantly increasing and public transport is not keeping pace with the increased needs of the consumers.
Technological Factors
The growth of car Industry in India will be positively linked with the technological improvements which provide lower cost, increased mileage (Sub compact cars). The stage of technology in case of features like safety, emission standards etc. In case of South African automobile industry is still way behind compared to that in developed countries. It is expected that with the entry of multinationals the situation in this front will improve in future.
SWOT ANALYSIS
Strengths
- Strong brand equity.
- Efficient low cost vehicles which are reliable and are of high quality.
- They have a strong vendor base.
- Extensive network of showrooms, dealer workshops and authorised service stations.
- Strong financial positions.
- Highly motivated and satisfied team of employees.
- Smoothly functioning communication network between labour and management.
- Flat organisational structure to facilitate quicker decision making.
- Strong international presence with sales in over 100 countries worldwide.
- Economies of scale due to optimum capacity utilization.
- High indigenisation content giving Tata cost leadership.
Weakness
- Lack of in house R&D to develop new models of cars and moreover new models are being restricted to cosmetic changes and price cuts.
- Not many models to compete the new entrants.
- Dominance mainly in the entry level cars segment.
- Delivery system.
Opportunities
- A burgeoning work force and growing middle class population.
- Growing demand for fuel efficient low cost vehicles which were reliable and are of high quality.
- High growth potential for its exports as demand for Tata cars in Europe is increasing.
- South African customers are mainly value buyers demanding a better overall package. Tata is poised in a better position than other players in the market to capitalise on this opportunity.
Threats
- Over reliance on Suzuki for technology.
- Entry of new players (especially Maruti’s small cars, Sitara etc.) with newer and better technologies in the small car segment.
- Complacency due to market leadership and high market share.
- Lack of newer models, product range and technology to compete with new entrants.
Thus, building on its performance record and ties of trust it has forged over the years, Tata remains committed to its vision of being an internationally competitive company in terms of products and services and provides value and satisfaction to its customers worldwide. It is no wonder then that millions of people, while making one of the most important decisions of their lives go for Tata. It is precisely these strengths that Tata has to capitalise upon to gear up to face competition and retain its position of strength in India whereas capturing the foreign markets to emerge as a global leader in passenger car segment.
MARKETING PLAN
Market Entry: -
To ensure a more comprehensive and integrated approach to global markets, the international business operations for commercial vehicles and passenger vehicles will be done by joint venture. The importing, distribution and marketing of the Tata range in South Africa will be handled by Accordion Investments (Pty) Ltd, a joint venture between the Imperial Group, Ukhamba Holdings (Pty) Ltd and Tata Africa. A network of 23 Dealerships has been set-up in South Africa with even more Service outlets made available. Dealers in South Africa consist of Imperial, Independent, Associated Motor Holdings and other motoring groups.
Market Mix
Marketing planning helps you decide what products or services are required in your market, then how to sell them and what price to put on them (Kotler, 2005). So the focus is on the “7P’s of marketing” —product, positioning, pricing, place, promotion people and planning.
Product
Identifying the automobile sector as a growth area, Tata Group is confident of launching in less than three years, a proper 'inexpensive' people's car with a price tag of Rs.0.1 million or $2,300. It will be a 'gearless' vehicle, powered by a rear engine (Muralidhar, 2006). Considering 40% taxation, the actual production costs will come to Rs. 60,000 without subsidies it will be very difficult for Tata Motors to manufacture the car (X1) (Business and Economy, 15 Dec. 2006). Tata has already tasted the poor quality backlash during the disastrous export run of the Indica to UK under the MG Rover Brand.
Differentiation: It is differentiated from others in terms of cost savings, power and style. Tata products present a very crude package that needs more refinement.
(Design of People’s Car X1 in Appendices)
Positioning
Tata has strategically decided where their product will be positioned in the market. They consider ‘position’ held by their cars in the market will be how they want the products to be perceived in terms of factors such as brand image, value for money, price availability etc. This is done in relationship to the competitors.
Tata’s X1 are positioned against Maruti’s small cars. This is the segment where Maruti is facing stiff competition. The intention is that the car will be positioned between the 800 and the two-wheeler on price ().
Price
Methods Used in Pricing Tata’s Products
Tata uses two methods while pricing its products. These are as follows (Johnson and Scholes, 2005):
Cost–plus pricing: In using cost-plus pricing there is an assumption made that having established the total cost price the product manager need only add the desired mark-up. Similarly the customer may be unwilling to pay this price either because they can purchase the similar product from the competition. So Tata keeps in mind the total cost of the product they have incurred along with that they follow the market pricing.
Market Pricing: Tata cannot set its own prices in isolation from that what is happening in the rest of the industry. The competitors in the market will have cost and price structure which is investigated and analyzed thoroughly.
As perfect competition prevails in South African Automobile Sector, any price movement instigated by any of the competitors or any change in government policy will cause corresponding movements by the competition and this the most important point which Tata considers while playing around with product prices.
Place
Place is another key marketing mix tool, it includes various activities the company undertakes to make the product accessible and available to the target customer. (Kotler, 2005)
Tata makes its cars available to its customer through indirect distribution network with one-level of intermediary involved in the chain. The intermediaries are known as Dealers. Tata’s dealer network is the largest for any car manufacture in India. Tata believes that its relationship with the customer does not end with the purchase of a car. From its inception, Tata is committed in providing an excellent network, that would facilitate customers in purchasing vehicles, accessing spare parts, and getting their vehicles serviced.
Tata take physical distribution not as cost but as a way in which company can gain competitive advantage by offering the customer added benefits, better services or lowering prices through continuous improvements in the methods used.
Promotion
Promotion is the communicative element in the marketing mix and it comes into use only when the other three P’s, product, price and place, have been developed and coordinated and are ready to meet the needs of the identified target market.
Tata’s Promotional Campaign
Tata takes care of certain factors while planning a promotional campaign. These are as follows:
-
Promotion Objective: Tata decides the promotion objective i.e. what does the company want to achieve through the use of communication techniques; like, to create awareness of the new car models launched and existing models, to reinforce existing beliefs, to get customer to buy the car, etc.
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Promotion Strategies: What major methods will be used and why, to achieve these objectives. This stage will consist of choosing one or more of the promotional mix techniques. Tata selects the best promotional tools – advertising, sales promotion, publicity etc to promote its product.
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Target audience: Tata defines the target audience at which it is going to aim its messages. This also involves constructive detailed customer profile for the target segment.
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Message: The message content and the method of presentation are kept in line with the product positioning statement.
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Promotional Tactics: The promotional strategy is broken down into its constituent parts. For example: If above the line advertising strategy is used then the elements of the media mix are also selected in detail. If below the line sales promotion strategy is in place then various methods like free holiday, incentives, etc are studied in detail.
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Integration: Finally all the methods used are integrated in a cohesive, consistent, logical manner to meet the needs of the target audience.
The People behind Tata Motors
- Total manpower: 4629 (out of which 93 are female employees)
- The average age of all employees put together is 36.63 years
- Number of workers: 3029
- Number of supervisors/Executives: 1358
- Managers and above: 242
Planning
South Africa will be a stepping stone for southern Africa, and possibly for other countries in Africa. Also, they have a few trade agreements with Europe. So, if Tata could find a good manufacturing or assembly base, it would be their shipping point to Europe and it will free up some of Tata’s capacity in India (Tata, January 15, 2005).
Recommended Market Strategy
Marketing Strategy
Tata Motors has an aggressive marketing strategy which is very well understood when one goes through the in-depth study of 7 P’s of marketing and price strategies with respect to its products explained below. One comes to the conclusion that Tata has a well defined roadmap to success i.e to reach its ultimate objective of realizing Customer Satisfaction through value for price products.
Formulating the Marketing Strategy
Selecting the target market
- Segment-A Cars (catering to Middle Income group)
Tata is targeting the burgeoning middle-class, Tata Motors will roll out in the next three years its Rs0.1 million car ($2300) involving a low-cost assembly operation
Assembling the marketing mix
Marketing Strategies Fall Under Two Generic Categories: -
- Price Based Marketing Strategy
- Differentiation based Marketing Strategy
Price Based Marketing Strategy: -
Tata Basically plays the pricing game to cut down the competition in market. This is the real trump card which has worked for past many years in India. But now this strategy has failed for automobile sector. Now it can work only a new trump card which is technology and Tata has started using this along with price to win even in international markets.
Tata is continuously winning the price game for the past many years and to this habit to win Tata is planning to launch people’s cars in near future as the price is Rs. 0.1 million. This product differentiation will provide Tata a niche in the market to cater to different market segments of customers effectively. This product launch will be so fast that within a year, we will be familiar with at least five new models of Tata.
Differentiation based Marketing Strategy
Market Strategy based on Differentiation works on the principle that any aspect of the offer and any activity of the firm can be made a distinctive compared with the competing offer.
Tata’s time and gain have been successful in using this strategy in gaining a competitive edge over its own previously launched models (discussed in the Price section of the Marketing Mix) & in the market over its competitors.
The host of products that Tata encases within itself is unmatched till date by any Indian or Foreign car manufacturer. All this have been discussed in the Product section of the Marketing Mix.
What strategy has been adopted?
Differentiation
Hybrid To increase
Tata differentiation
Low price Increase price
Perceived Tata 1 Lakh
Value added Car
Low price / Low value / increase price/ Low Low added value std. Price low value
Low Price High n
(Johnson & Scholes, 2005)
Bowman’s Competitive Strategic Options
Going by Bowman’s competitive Tata’s strategy fells in the Hybrid Strategy Route i.e. Tata’s strategy is to provide enhanced value in terms of customer needs, while also having a cost base that permits low prices and is sufficient for investment to maintain and develop bases of differentiation.
Considering the South African Automobile intensively scenario and the price sensitive consumer this strategy seems appropriate.
Budgeting
Selling Price of X1 = Total Cost of X1 + Tax (38%) + VAT (14%)
= 3190 + 1212 + 447
Selling Price of X1 = 4849 USD $.
(Source for tax rates: - )
(Recommendations to Tackle the Competition in Appendices)
Findings and Conclusion
Asserting that Tata Motors is “close” to developing its ambitious Rs.0.1 million car (X1), Tata Group chairman Ratan Tata has expressed confidence that the “peoples’ car” could provide it help in becoming the number one car maker in India.
The future business strategy may also focus on making an entry into new and yet uncharted markets, such as South Africa and the CIS (Commonwealth of Independent States) countries. Tata Motors has been short-listed for South Africa’s "Taxi Project" in which the government will provide an entirely new transport system in that country. Tata have identified new segments in these regions. The business strategies will be country specific. The nature of their business will depend on the country they are working in.
In addition, inorganic growth through acquisitions could also quicken the process of internationalization. The implementation of the future business strategy may be done in three stages; product up gradation, sales and distribution processes and penetration into new markets. It is suggested that the three stages run concurrently, depending on the market and product needs.
There is a consensus on the fact that the markets are expanding, regulations are being liberalized and the possibility exists that Tata Motors would soon have to compete with a Toyota or a Volkswagen. The company should therefore, look for a global alliance.
Tata Motors will also need to make significant investments now if it is to safeguard its market position in India and to grow overseas. For further cost reduction Tata Motors have to resort to direct material cost reduction, quick appropriation of New Technology & Processes, innovative designs, vendor-related programmes. They have to also focus in the area of consistent quality, productivity, production flexibility, optimum plant utilization, out sourcing and shared services in order to achieve sustaining margins in an increasing cost environment.
References
Barnes, J., “Changing lanes: the political economy of the South African automotive value chain”, CSDS Working Paper No. 22 (Durban, University of Natal, School of Development Studies, October 2003).
Bhatnagar Mohini, Tata Motors readies its Rs1-lakh car
Buffalo City, Automotive industry, Available from: -
Campbell David, Stonehouse George & Houston Bill, 2003, Butter Worth, Heine Mann, 2nd edition, London
Doing Business, Paying Taxes, Available from: -
Douglas P. Susan, Craig C. Samuel, 1996, Global Marketing Strategy, McGraw – Hill Marketing and Advertising Series
Focus Report, August 2006
Ghosh P.K. (2004), Strategic Planning and Management, Sultan Chand and Sons, New Delhi
Ghosh R., Mookerji M., 7th December 2006. Maruti gears up for South African safari by 2007, Available from: -
Johnson Gerry and Scholes Kevan (2005), Exploring Corporate Strategy: Text and Cases, Sixth Edition, Pearson
Kazami Azhar, Business Policy and Strategic Management (2002), Tata McGraw Hill
Kotler Philip (2005), Marketing Management, Prentice Hall
Muralidhar S. Maruti 800, competitor for Tata Motors' Rs 1 lakh car
Ratan Tata's interview with Business World India Friday, May 27, 2005
Rathor B. S., A people's car for Rs 1 lakh - Can Ratan Tata's dream be realised?
Tata eyes No. 1 slot with Rs 1-lakh car; The Financial Express, March 3, 2005
Tata Motors (2006), Available from: -
Tata Motors launches Indica in Turkey; The Financial Express — February 27, 2005
Tata Motors to buy 21% in Spanish firm; The Financial Express — February 26, 2005
Tata Product Overview (2005). http//www.tatamotors.com/our_world/press_hepases.php?year=2005 action=from achieve
Tata Ratan, Peoples car' to take over three years Business Standard — January 15, 2005
The Tata Motors Rs. One Lakh car story
APPENDICES
International
In addition to the growth opportunities in the buoyant domestic market, the company is pursuing growth through acquisitions (it acquired Daewoo Commercial Vehicles, Korea, in 2003) and alliances (it has entered into a tie-up with MG Rover, UK, to supply 1, 00,000 Indicas to be badged as City Rover) in other geographies. (Bhatnagar, 2006)
Tata Motors has tried to expand its footprint in global markets by Business Standard — February 1, 2005):-
- Launching Indica, Indigo in South Africa
- Signed an MOU with Shanghai-based Brilliance China Automotive Holdings to conduct a feasibility study for launching its cars in China.
- Spent over Rs.8 billion in the current fiscal towards product development and capacity expansion.
- Launched a new version of its Sumo vehicle in order to maintain high volumes in the utility vehicles market.
- Working on the common rail direct injection engines with Delphi, the large US-based auto component producer.
- In the process of putting down an assembly unit at Senegal.
- Exploring the possibilities of building an auto component or vehicle assembly plant in Thailand as a bridge into the South-East Asian markets.
- Agreement with UK's MG Rover to export cars to Europe under the latter's brand.
- Unveiled its new ‘crossover’ car Tata Xover at the Geneva motor show.
- Launched Indica in Turkey.
- Launched Spacio Gold, a premium version of its best selling rural and semi-urban utility vehicle Spacio A1.
Value Chain of Tata Motors:-
()
Primary Activities
Inbound Logistics
Goods are received from Tata Motor's suppliers. They are inventoried until they are needed on the production/assembly line. In terms of relative impact on cost, bought-in materials are by far the most important input accounting for 60-65 % of cost.
Operations
Tata Motors owes its leading position in the Indian automobile industry to its strong focus on indigenization. This focus has driven the Company to set up world-class manufacturing units with state-of-the-art technology at Jamshedpur, Pune and Lucknow. Every stage of product evolution - design, development, manufacturing, assembly and quality control, is carried out carefully. Besides the assembly line operations of maintenance, reconditioning and modernization are part of continuous process at Tata Motors. Process developments include modern forge shop, a high output foundry line, paint shop and NC/CNC machining lines.
Outbound Logistics
The finished goods are sent to the network of dealers spread throughout the country. Transporters are normally used for delivering passenger cars to the dealers.
Marketing and Sales
In true customer orientated fashion, at this stage the Tata Motors prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix through its strong marketing team and extensive dealer network through out the length and breadth of the country.
Service
Tata Motors believes in going a step further than providing just customer satisfaction, it believes in ensuring customer delight. Its efforts in this direction are showcased by its expansive, efficient and customer friendly sales and service network. Tata Motors also has a wide array of value added services that one can choose from.
Technology Development
Tata Motors has leading to higher safety and emission norms and it already reached EURO-II norms. Tata Motors gives lot of stress in the areas of Direct Injection Common Rail (DICR), BS III & IV Emission standards, microelectronics – engine and electronic control devices, regulating fuel carburetion, exhaust emissions, speed controls, fuel economy – through turbo charging, after cooling, and improved combustion techniques, aerodynamics, material substitution – muse of higher strength steels, aluminium and plastics and lean production – JIT.
The People’s car (X1) will take care of the A segment. For now, it does not have any plans to venture into the top end or the D segment. Tata Motors has been a great example of successful product segmentation and price points. The company’s re-engineering strategies have paid off and its overseas forays will help it reach a global scale. (Bhatnagar, 2006)
A large contingent of dealers from South Africa was invited to visit the company’s facilities in Pune and experience the new face of the international business.
DESIGN OF PEOPLES CAR (X1)
It will be designed in such a way that it will have a rear engine, 4 to 5 seats and a four door car with about a 30 horsepower engine. The carmaker plans for the Rs.0.1million car (X1), to include a rear-mounted engine with a maximum power of 30 hp, which is similar to that of the old Beetle. Delphi for the engine management system as in India there is no electronic engine management system. Car would have the 'continuously variable transmission (CVT) technology, which means without gear changing ().
(Source: Ratan Tata's interview with Business World India Friday, May 27, 2005)
The company had taken help from the Italian design house, IDEA, which worked with Tata Motors on Indica for styling front. In order to keep the development cost under check, he had discouraged his 'people from reinventing the wheel constantly, because that is wasteful (Muralidhar, 2006).
RECOMMENDATIONS TO TACKLE COMPETITION
Tata's should respond to strategic manoeuvring and marketing tactics of the competitors by formulating a two pronged strategy to taken on the competition in coming years.
Tata's strategic plan will be including:
Rather than market share which unusually high virtually indefensible, Tata focus will be achieving higher profitability by cost leadership, achieving economies of scale and higher sales volume for the low margin entry level car: i.e. Tata X1 car
For this already consultancy help has been sought to further improve the efficiency sought to further improve the efficiency and effectiveness of customer service and are:
-
Improved inventory control:
Tata is heavily indulging in sales an demand forecasting, production control and inventory control. For this purpose, the software and human resource procurement is being done.
-
Indigenization quality and lost selling program:
Tata has already saved up to half a billion (Rupees) by its Kaizen programme.
Launch of new products and new models of X1: This is most likely to happen around 2008 till when phase I strategy's objective will be to minimize adverse impact of competitors on Tata's position. By this time Tata's competitors won't be able to come up with any new models further. This will help Tata seize the collective back by providing the latest & most modern car in country, backed by the best dealer network.
UNDERSTANDING GLOBAL MARKETS
Report
On
TATA MOTORS
Prepared for: -
Yasmin Sekhon
Eliana Senna
Prepared by: -
Ashvjeet Sodhi
f9061459
Bournemouth University 2nd February, 2007.
TABLE OF CONTENTS
- Introduction 1
- Company Background 1
- South African Automobile Industry 2
- Micro Environmental Analysis
Porters 5 forces 4
- Macro Environmental Analysis
PEST Analysis 5
- SWOT Analysis 8
- Marketing Plan
Market Entry 10
Marketing Mix 10
Recommended Marketing Strategy 14
Budgeting 17
8. Findings and Conclusion 18
9. References 19
10. Appendices 21