Tata Motors hypothetical entry on UK market

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Tata Motors hypothetical entry on UK market

The market of Tata’s entry

Despite the global tendency for the significant fall of car sales there are certain car segments which experience dynamic growth. According to Datamonitor (2006b) the sales of commercial vehicles and port utility vehicles were very healthy. Windecker (2005) stresses the influence of socio-cultural forces which formed the increased preferences towards more fashionable, sport-type, SUV equipped cars. The extremely high growth of SUVs was identified in US and UK.

The focus of Tata’s market entry will be UK. There were several reasons for selecting UK as the target market. These favourable factors were the status of India as the favourable economic agent, UK Car market dynamics and potential, language similarity. The other countries which were considered as potentially attractive were: the USA – the largest market size in the world, Russia – emerging market with significant sales potential. The option of the USA as target market was declined due to extremely high quality requirements and other non-tariff barriers which make it hard for a new entrant to enter this market.  Besides, this market is highly mature and experiences extreme level of competitive pressure. With regards to Russia, there were several unfavourable factors which made it less attractive then the UK – the uncertainty of the further economic state, high entry barriers and no well—developed dealership network.


Analysis of External Environment of the UK market

There are numerous number of factors that might be included into P.E.S.T. analysis. But due to various limitations (time, word limit), the factors will be outlined, whereas the major focus will be made on several sub-factors only (according to the Pareto Principle, it is likely that about 20% of the factors will represent 80% of the potential effect on the business (Wit & Meyer, 1998).

Political factors

Political and legal factors play the role on the development of the industry. These factors shape the rules of competition, operational costs and supply chain requirements.

  • Oil prices resulting from international instability - The special attention shall be given to oil prices and its affect on the market requirement. According to Mintel (2006) the increase of oil prices has created a strong tendency towards small engines, hybrid engines and diesel engines.  Current high level of oil price increase the strain on the sales of luxury and premium cars, the majority of which are equipped with large-size engines (more then two litres).
  • Administrative barriers (quality controls and operations requirements) (KPMG, 2004) - Administrative barriers need to be seriously concerned as various requirements for safety standards and emission level might increase the costs of production and reduce the operating profit margin.  
  • Car parc legislation  - According to Mintel (2006) the UK experience the threat of high overcapacity with the excessive traffic load of road networks.
  • The political relationships between countries of operations (regimes of favourability/protectionism) (Hill, 2002) – India cooperates with the UK within the regime of favourability which implies the certain benefits as reduced tariff and non-tariff barriers.
  • The foreign ownership regulations (The market expansion mode (Hill, 2002) – At the present time the UK is considered as one of the most pro-FDI country in EU. The large number of industries, including automotive one, are deregulated. It means that foreign regulation provides foreign companies with flexibility of choosing between all possible entry and expansion modes.

Economic factors

One of the major location choice determinants is the current and future demand conditions as they will affect the market growth potential, pricing strategy and operations margin and the potential of the return on investment.  

  • The target market size – According to Mintel (2006) since 2001 there has been a steady market growth by size and value. The current UK car parc is estimated to accommodate 31 million units. The market value was contributed by the steady growth of average price level. The present market value is estimated to reach the level of £31 billion
  •  The maturity of the target market  - The UK market is viewed (Mintel, 2006) as highly mature. The current maturity causes overcapacity issue and significant sales fall of particular car segments.
  • The growth potential of the target market – The overall UK market experiences negative growth due to the maturity issue. Nevertheless, certain the sales of certain car segments have significant growth potential due to the impact of socio-cultural and technological factors.
  • PDI  - According to Mintel (2006) 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. Mintel (2006) claims that 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.
  • Currency stability  - 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 .
  • Labour costs - As the outlook of the automotive industry highlighted, the cost factor and the capability of direct and indirect costs becomes one of the key issues in maintaining competitive advantage. According to the opinion of the industry specialists (KPMG, 2004), one of the key issues that will influence the operations location decision will be labour-specific costs.  According to survey (KPMG, 2004) industry specialists put a major emphasis on the labour-specific cost saving.   Moreover, 85 % of the respondents agreed that during coming five years there will be a major increase of labour specific costs (cost of pensions, health care, and legal services) in US and EU .
  • The expansion of existing political and economic blocs (EU) – The importance of the recent further expansion of EU is in the enlargement of the EU as single market. In case of successful expansion on the UK market, Tata might consider the further expansion in certain EU countries. According to estimations of Nieuwenhuis & Wells (2003) the attractiveness of EU as the target market for a car manufacturer will remain high. They  claim that the attractiveness of EU as a target market will be maintained by the increase of its market size and value as the outcome of the extension of EU zone. However the current maturity of the market, excessive completion and demand trend suggests that the share of Europe will drop.
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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, Mintel (2006) points out the recent increase of preferences for second car ownership. Mintel (2006) adds that the impact ...

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