Swot Analysis of Tata Motors Essay

Introduction The company that we have chosen to focus on for our analysis is Tata Motors, India’s largest automobile company. This report will take a look at the marketing environment by which Tata is surrounded; will attempt to identify key strengths and opportunities that Tata Motors may wish to capitalize on; and will find and warn against glaring weaknesses and hidden threats that Tata Motors needs to guard against. Owing to the fact that Tata Motors is an enormous international company and this is but a brief report, we have decided to focus our attention on the Indian market: this makes up the vast majority of Tata Motors’ sales and is fundamental to understanding the macro-environment that Tata Motors is situated in.

Consumer Profile Tata tends to position its brand for a fairly specific kind of consumer. The demographic they target are usually relatively new to the workforce, aged from their middle 20s to early 30s and with a low to middling income (Rahul).

These consumers are more impulsive to buy on a whim that the older generation. Further, they want their vehicle to reflect their young image whilst providing reliable and good value transport (Rapp). Their consumers research their product using the web, social media sites, family recommendations, and very often simple car dealerships. Buyers are more often male than female, which despite being hardly surprising given India’s gender power imbalance, is an important factor to take into consideration. Since their purchasing power is relatively low, they tend to care a lot about resale value and maintenance costs. The Indian automobile market is the sixth largest in the world, with over 3.9 million cars being sold in 2011 alone (Rapp). Of this, perhaps just over half would be potential consumers given that India is not a first world country.

Direct competitors would be automobile companies such as Toyota, Nissan, Ford, Chevrolet, Hyundai, Skoda, among many others. These are all companies selling substitute products. Indirect competitors include major moped manufacturers such as Honda as well as slightly more upmarket firms such as BMW or Audi. Of course the usual marketplace competitors exist: any form of transport you can think of could potentially replace Tata’s vehicles. However the only form I consider relevant is that of cheap public transport, which Tata’s consumers could very well choose to substitute given their income restraints.

Company and Corporate Partners Tata Motors Limited is India’s largest automobile company, with revenues of Rs. 170,678 crores (32 billion USD) in FY 2011-2012 (Tata Motors Annual Report, 2012). It was established in 1945 by the parent company Tata Sons, India’s largest conglomerate. Tata Motors is the largest commercial vehicle manufacturer, and the third largest passenger vehicle manufacturer in India (Tata Motors Annual Report, 2012). The company has manufacturing plants in throughout India, as well as various R&D facilities in Europe, Africa, and Asia. These separate spheres are relevant, but are beyond the scope of this report. Tata has a diverse product portfolio including more than 30 models of vehicle, ranging from basic passenger cars to commercial, defence and homeland vehicles (Tata Motors Annual Report, 2012). Tata Motors’ success is founded on an organisational culture of continuous innovation, a dedicated work-force with a strong customer focus, and a culture of accountability.

Jaguar Land Rover and Daewoo, the two businesses acquired by Tata Motors, have been extremely profitable (Tata Motors Annual Report, 2012), demonstrating the company’s effective strategic leadership. In taking these, then failing brands, Tata showed real long term marketing vision. Instead of having to create and forge in their consumer’s minds a Tata luxury brand, why not simply smoothly acquire one as prestigious as Jaguar Land Rover? In 2009, the company launched the Nano, a fuel-efficient and also extreme low cost automobile, billed as the cheapest production car in the world.

The product, along with Tata’s other winners such as the Range Rover Evoque and the Ace, attempts to address the common barriers to effective transportation in India, and thus stands as a strong testimony for the company’s commitment to innovation and its customer focus, with an underlying back bone of corporate responsibility and social awareness. The Nano is a brilliant idea since it smoothly aligns Tata’s business strategy with its social strategy: a profitable vehicle that provides transport to those who would be otherwise unable to afford a car. Moreover, Tata Motors has established a real and positive image in the local and global communities through developing and implementing environmentally friendly practices, and supporting

community development initiatives in areas of employability, education, health, and environment (Srivastava et al, 2012). In 2005, a strategic alliance with Fiat to gain access to Fiat’s diesel engine technology was made, and despite this falling through recently, the gains from that partnership were clear. In 2005, a partnership with University of Warwick’s Warwick Manufacturing Group on R&D focusing on Low Carbon Vehicle Technology (University of Warwick, 2011) was forged in order that Tata’s environmental footprint would be lighter as well as providing a more fuel efficient car. In 2011, a partnership with New Energy and Industrial Technology Development Organisation (NEDO), Government of India, and Government of Japan to set up an eco-friendly, dual- fuel power generation facility (TopNews.in, Jun 08, 2011). In 2011, Tata melded with world-renowned fashion designer Rajesh Pratap Singh for a limited edition of Manza range of sedans (The Indian Express, Oct 7, 2011). This partnership allows Tata Motors’ to achieve a luxury brand image, thus target a higher-end clientele.

And in 2012, Tata forged ties with the UK Institute of Mechanical engineers, Jammu & Kashmir Bank, and the EXCEED program in which Tata Motors helps ensure dealer profitability. In return, the dealers help collect customer feedback and enhance customers’ satisfaction. These partnerships are vital to Tata maintaining a competitive advantage in the Indian car market by consolidating its gains, improving its stakeholder image and furthering its endless quest for innovative solutions to transport. The company’s financial performance is strong, steady and improving over time. There has been a significant growth in annual net revenue, this can be attributed somewhat to the growth in the industry itself. In terms of demographics and disposable income more cars have been purchased in the country. In spite of the growth in sales, Tata motors expected to sell more passenger cars. Total expenditure increased even more relative to Revenue, which caused a reduction in operating profit. This might have been attributed to higher manufacturing costs.

Although Tata maintains its market share they will look in the future to improve it. The growth of automobile industry is always mirrored by the current economic situation in the country. The impact India’s economy will have on Tata’s financials is not always in their hands. (Tata Motors Annual Report, 2012) Worryingly, Tata has convoluted and restrictive covenants and procedures in its debt instruments, requiring prior lenders consents before any decisions can be made, making Tata slightly clunky and slow to react to opportunities and threats. But it is also possible that mandating that some debt ratios be maintained at certain levels is not an unwise strategy, given the unstable economic environment present. (Datamonitor, 2011) Competition Tata Motors’ predominance in commercial vehicles will be challenged by the entry of international brands like Mercedes –Benz, Volvo, and Navistar who deliver premium quality vehicles for middle class families (Tata Motors, 67th annual report, 2012).

These foreign auto manufacturers have either formed joint ventures with local partners or have established independently owned operations in India, intending to expand their presence in the country (Business Standard, July 4 2012) A serious issue Tata faces is that it has been perhaps too focused on the commercial and small vehicle segments, while it has ignored the emerging luxury car market open from overseas companies such as Daimler Chrysler, Ford, Honda and Toyota. On the home front, other Indian automobile manufacturers now have greater access to debt and equity financing in the international capital markets, as well as advanced automobile technologies through alliances. An example that springs to mind is Mahindra & Mahindra who are prepared to intensify competition in the mini truck segment to hometown rival Tata Motors, which is currently leading the market with its Ace model X (The Indian Express, July 29 2012).

In 2013, Mahindra & Mahindra was in fourth place, right after Tata Motors, in passenger vehicle sales in India, with 2,27,104 units during the period (The Economic Times, January 28 2013). As a matter of fact, ROI of Tata Motors share has been on a decline and pales in comparison to that of Mahindra (Tanver, 2012) in recent years. CDSTEP Analysis Culture Car ownership remains a matter of prestige for the average Indian consumer and this should not be underestimated as a positive factor in Tata’s arsenal: if young people need a car to maintain their social status but have a small income, the perfect car would be a Nano (A Little Car that Couldn’t, 2011). It is usual for Indians to take care of their children until they are 24 to 25 in the more wealthy families. Parents who can afford to, generally pay for their children’s university, pay their rent or buy them living quarters, and make sure they have a car. This results in a real coup de grace for Tata: parents are generally unwilling to spend excessive cash on their children’s first car and the Nano is once more a viable solution (Culture of India, 2009).

Finally, an important cultural meme is that Indians are adverse to high maintenance costs whilst fairly bullish in consuming new products. Quick and cheap fixes for existing owned goods are ideal and this works in Tata’s favor since their spare parts are cheap and ubiquitous in India. Tata’s organizational culture is very much aligned with this macro-environmental culture, placing a high emphasis on value and reliability. Demographics India’s population is growing at an average rate of 1.3%. India is expected to be the most populous country by 2030 with the population touching 1.5 Billion. This gives Tata an enormous market upon which to grow their sales as well as huge future gains from a rapidly rising population (India’s Demographic Outlook, 2011). 65 % of India’s population are of working age (15-64). India has a steadily growing working-age population will emerge as one of the youngest nations by 2020.

This will have a positive impact on the productivity and GDP of the country and consequently drive demand for all products (India’s Demographic Outlook, 2011). Urbanization is a definite trend in India: 30 % of India lives in centers and 70 % in rural areas. By 2030 40 % of population is expected to live in urban areas. Higher urbanization, longer distances between families is expected to increase the demand for commercial and passenger vehicles (India’s Demographic Outlook, 2011). Finally, while literacy rates remain low, the growth rates are promising and increasing all the time, this in turn will improve Tata’s customer base as literate people move towards the city and the promise of a better standard of living (India’s Population, 2012). India’s demographics are highly favorable for Tata. Social Trends With higher disposable incomes, Indians have been travelling and are exposed to lifestyles in more developed nations.

This has a strong influence on driving purchase of products that are common in those countries such as new automobiles. A real emerging social trend in India is that of the rise of the working woman. Many are now financially independent and are growing into a substantial consumer base to market services and products, as well as influencing marketing strategies: it has for example, been proven that women value safety in a vehicle more highly than men do. In fact, people across the board are generally more aware of safety, meaning that Indians are moving away from mopeds towards cars exactly like the Tata Nano, or would be if it were not for the unfortunate safety issues associated with the Tata Nano. Technology Tech is a significant part of Tata’s spending, with R&D amounting to just over 2% of inventory turnover, multiple engineering research centres, one of which holds India’s only certified crash test facility, and partnerships worldwide with reputable research labs.

As a result, Tata is the first Indian automobile firm to have European emission standard norms with regard to pollution. Online, Tata has a strong presence in some areas and a weak one in others. The Tata website is of a high standard, and Tata’s Nano marketing strategy included creative ideas such as online Nano racing games. But on the other hand, Tata’s social networking presence is tiny with just 2000 likes on their facebook page. Environment Tata has an ongoing commitment to the environment.

With the best fuel efficiency and lowest emissions of any Indian auto company, Tata consolidates a strong stakeholder approval base whilst attracting customers looking for efficiency and reliability. Tata also has numerous CSR programs that achieve real, quantifiable goals in India, a country rife with over pollution such as increased recycling of water and plastic, makes sizeable donations to non-profit NGOs and has strict standards regarding the environmental friendliness of their vehicles- each of their plants are approved and certified to the ISO 1400 EMS Standard, a high international standard.

Political-Legal In the recent decade, The Indian government permitted automatic approvals for foreign equity ownership of up to 100% in entities manufacturing vehicles and components in India (Department of Heavy Industry, 2002). This creates opportunities for foreign companies to penetrate India automobile market, threatening the dominant position of Tata Motors in the domestic market. But Tata has strong ties with the Indian government, and is seen as an Indian brand, meaning that the government has a vested interest in seeing Tata succeed. Overall the political-legal aspect of the spectrum is weighted heavily in Tata’s favor, at least in India. SWOT Table Positive Factors Internal Strengths – Strong market position and brand recognition in India – Diverse product portfolio – Manufacturing plants all over India and R&D facilities all over the world – Robust financial performance – Established and growing partnerships with local and international businesses and R&D agencies – Ability to leverage on network of parent company Tata Sons for access to different industries and economies of scale.

– Recently purchased higher quality brand names like Jaguar and Land Rover which consumers perceive to be higher quality vehicles can increase the valued quality in Tata’s lines of passenger vehicles – Leader in low-cost, fuel-efficient, and ecofriendly technologies – Positive Corporate Social Responsibility image, thus able to garner support from local community Opportunities – More consumers are seeking out environmentally friendly and fuel- efficient products, and since Tata is in the process of developing new passenger vehicles, they can target this aspect to add value to their products. – Increasing preference of diesel engines. Tata has introduced a product line of diesel- engine automobiles, and is conducting extensive research on diesel engine technologies, allowing it to sustain its competitive advantage.

– Thirst for low-cost passenger and commercial vehicles in growing India market – Recently extended partnership with R&D agency in Warwick, allowing Tata to develop more innovative technologies/products – Working Women: A couple of decades ago it was uncommon for women to work and try to build careers. It was acceptable for women to play the role of house maker while the husband would be the bread earner. This is changing rapidly and should be capitalized on. – Growing Population: India’s population is Negative Factors Weaknesses – Largest recall of any passenger vehicle in the Indian market was the Tata Nano to replace the starter motor–indicating to consumers that cheap price does not buy the quality they value. This also costs Tata enormous operational costs. – Low safety standards negatively affecting the consumers’ expectations of the brand name, as well as the company’s public image – Lack of presence in luxury car market: Tata Motors products are generally targeted towards the low and middle-income consumers.

– Low Return on Investment on Tata Motors Share will cause investors to invest elsewhere, affecting Tata’s ability to raise funds. – Lack of strong presence on popular social media sites (Only 2075 likes on company’s Facebook page). Tata has not sufficiently invested in online marketing and branding. – Restrictive Covenants limit Tata Motors’ flexibility in borrowing funds to grow Threats – Intense Competition:There are many competitors (i.e. Nissan) in the Indian passenger vehicle market. With a Tata Nano photographed on fire in recent years, competitors, both international and domestic, can use this to their advantage when marketing the safety of their passenger vehicles.

Domestic automobile manufacturing company Mahindra & Mahindra plans to intensify competition in the mini – truck product sector. – Brand Consciousness: Indians are increasingly brand conscious, thus demanding for more luxury brands.This is unfavorable for Tata Motors, as most of their products are not associated with a premium brand except for Jaguar and Range Rover. – Status Symbol – Car ownership remains a matter of prestige for the average Indian consumer. More expensive the car, higher the status symbol. This could go against the growth of the Nano.

External growing at an average rate of 1.3%. India is expected to be the most populous country by 2030 with the population reaching 1.5 Billion. This implies an enhanced consumer base and demand for all products. Tata should invest and expand in order to benefit from this demographic explosion.

– Environmental Regulation: A real threat to Tata is the possibility of consumers and stakeholders regarding Tata as environmentally uncaring and obsolete. Tata makes every effort to counteract this, but for any auto company, the environment is a sensitive subject: fossil fuels are fossil fuels. – Rising cost of manufacturing: With labour laws becoming increasingly strict in India, and the global recession causing purchasing power parity to decrease, manufacturing and logistical costs could become a burden and a drain on funds that has to be managed if Tata is to remain competitive. – Safety Standards Requirement: despite Tata claiming to have extremely high safety standards, debacles such as the Nano’s fire issue hurt Tata’s outside in image deeply. Other auto companies capitalize on this by emphasizing their safety standards as opposed to Tata’s. Tata needs to address this in a serious and concerted fashion.

Marketing Strategy In the light of this research, it seems clear that Tata should adopt a two pronged marketing strategy. One to focus on and highlight Tata’s strengths, and one to mitigate the damage caused by Tata’s current weaknesses. Both these strategies should bear in mind the direction that India is headed so as to capitalize on future opportunities and to avoid potential threats respectively.The various strengths and weaknesses are inter-connected, being two sides of the same coin, but they need to be tackled in their own distinct way. By running a bi-modal marketing strategy, Tata will maximize its marketing gains and minimize its down-side, perhaps swaying those unsure of whether Tata has anything to offer over other direct competitors. With regard to its strengths, Tata should emphasize its Indian roots, its history of bold innovation, its strong financial situation and dominant position in the Indian market.

If Tata could make it more known that it owned Jaguar Land Rover, its status symbol power would increase dramatically: there is a big difference between owning the cheapest car in the world and owning a car that is owned by the same company that made the Jaguar e-type, one of if not the most beautiful car ever made. On the reverse side of the coin, Tata needs some serious damage control. The Tata Nano’s marketing strategy needs a total reboot. Instead of advocating it as the cheapest car in the world—who wants to be the proud owner of that—it should be advertised as the ultimate in city practicality combined with extreme value, reliability and most importantly, safety.

The issue should not be swept under the carpet but should be addressed in a serious, mature and comprehensive way that leaves no room for doubt as to Tata’s reliability. Summary The SWOT analysis focusses on the Indian domestic market for automobiles, and has some interesting findings that shed light on some glaring issues in an otherwise strong and stable firm. The company is strong in that it is a known brand name in the Indian market with a great market share in commercial vehicles but falling behind competitors in terms of passenger vehicles, in particular with the Nano fiasco highlighted above. The macro environment that

Tata is surrounded by in India is dynamic, complex and very fertile. Growing populations, rising literacy rates, increasing gender equality and GDP per capita gains mean that Tata has some fantastic opportunities ahead—if Tata can play its cards right there is no question that it is in a very powerful and solid position in the Indian domestic market. It is by no means assured, however, that this will be the case. International competition is fierce, and Tata has some underlying structural and financial issues that need to be addressed before it can move forward.

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