International Management: Tata Case Study


Introduction

Tata is a multinational company that is run by Ratan Tata. The company has embarked in a concerted effort that has seen it gain control of different industries in takeovers and buyouts. Although the company’s revenue base has substantially grown and its profits have considerably increased, there are still a number of unresolved areas in the company that may cause problems as the business enters the 21st century. The problem in the company is that it has many conglomerates that are centrally run without any organisational structure. The unorthodox structure of the company could hurt its profitability in the long term.

Problem Statement

Tata group of companies has stakes in the chemical industry, the auto industry, tea, telecommunications, and consultancy among many others. The group has in the past embarked in the acquisition of others including hotel chains, motor companies and the crowning jewel that was the Corus Group that was a giant steel maker. The company now produces low cost steel in India and exports the steel to its mills in America. However, the company has not fully utilized the mills it acquired including the one in Port Talbot, Wales. The absorption of the Corus Group means that the margins of the group will reduce as it has inherited a $7.4 billion debt. The company presently takes advantage of the boom in the Indian economy and sceptics are keen to see how the company will cope once the growth in the market slows down.

Tata is currently involved in corporate social responsible initiatives. These burden the company as it struggles to ensure that the poor population in India has access to basic services. The major question for analysts is whether this manoeuvre is sustainable in the future or whether the costs will be cut once the current chief executive has retired and when the boom in the economy slows down. Another indicator of the problems that surround the company is the failure in some of its investments. For example, the production of a car that would have revolutionized the motor industry did not perform as anticipated and also the development of solar energy that would have assisted the various villages off the power grid did not reach its envisaged population size.

Short Term problems

  • There are a few problems that face the company in the short term. These include:
  • The underutilization of some of its assets including the steel mill in Port Talbot, Wales
  • The identification of a suitable successor
  • The underutilization of the vast resources including labour and raw materials in the country.
  • The lack of marketing initiatives for the marketable brands.
  • Reluctance to open up new markets in developing economies as well as the lucrative markets in the West.

Long Term problems

  • There are problems that have dogged the company for many years and need addressing. They include:
  • The reduction in the number of products that the company produces and which are not performing as to the envisaged standards.
  • The lack of an organisational structure that can aid the company in management in the future
  • The presence of business entities that are not profitable and add the least value to the Tata brand and range of products and services.

Analysis

Every successful business has a source of inspiration. For the Tata group of companies, the inspiration is the chief executive. Ratan Tata has driven the business from a modest one into one of the most reputable companies in and outside India. The decisions that he has taken in his 16 years at the helm of the company have had the most impact in the last five years. All the executives in the company despite having their own contributions to the success of the company concede that Mr. Tata has been the brainchild behind the success that the company now enjoys. Therefore, at 70 years of age, the fact that the chief executive has not named a successor is disheartening to some. Mr. Tata’s efforts have been on the production low cost products for the betterment of the poor. This is evidenced by the Indica project that was aimed at the production of motor vehicles that are inexpensive. The idea of a “one lakh” car and the production of low cost solar energy in conjunction with BP also show that he is committed to improving the livelihoods of the poor. The worry is that if he leaves, then his successor might abandon such projects and concentrate only on high-end brands in order to spin off during tougher times.

Some analysts concede that the company has largely underutilized the resources at its disposal. Although the company has its business located in Jamshedpur which has a population of 700,000 people, the company only employs 20,000 of them despite spending $40 million a year in the provision of civic services and schools. The worry is that such a large amount of spending is not sustainable as ultimately the company gains less than it spends on the people. The provision of services by a company to the population is part of its corporate social responsibility. However, the relationship is usually a give and take where the company supplies the community with the basic amenities and in turn employs members of that community to work for it.

Tata Company is reported to be on the verge of acquiring Ford’s Jaguar brand as well as Land Rover. Undoubtedly, these brands will improve the company’s portfolio in the market but could face an uphill task in the resurgence of the brands to global prominence. Perhaps, the hasty acquisition of brands that have been underperforming is not the best way for the company to go. In most cases, an acquisition is usually less risky that the development of an entirely new brand. However, acquisition of underperforming brands could further hurt the reputation of the company and could curtail the invention of better brands in the future. Today, companies are looking towards the development of brands that are less harmful to the environment. One of the ways to achieve this is to reduce reliance on carbon fuels. This is the direction that the company should take in order for it to compete with others in the global market.

The Indica has been a revelation for the company. It has received good reception in India, Italy, South Africa and Spain. Whereas this is an indicator that the brand has the potential for success, the company has been relatively reluctant to promote the brand in other markets which may be lucrative for the brand. Compared to other makers of affordable automobiles like Toyota and Nissan, the company is minimally involved in the marketing of its brands.

Rattan Tata concedes that his aim in 1991, when he took over the reins in the company, was the vision of paring the group to about a dozen or so companies. Although several have been dropped from the portfolio, he has added to the original number with acquisitions and buyouts. This means that there are companies that take up the group’s time and which are underperforming compared to others. This therefore becomes a problem since maximization of opportunities present in different markets is stagnated by concentration on industries that do not yield much in return. There is need to focus on the reduction of the number of companies in the group so as to increase revenue in those that yield more.

The company has an unorthodox structure and does not have a central strategy. It hence relies on a small number of companies to run it. The group also relies on the individual companies to capitalize on the opportunities and threats that occur in the distinct markets that they operate in. This strategy, or lack of it, has worked well so far for the group as it operates in a developing economy. However, the trend is not healthy as the economy could stagnate in the future hence the market will become saturated. The consequence will be that the company with the soundest strategy will be the market leader while those without a strategy for growth will be pushed out of the market. Korea’s Daewoo, Thailand’s Charoen Pokphand and Indonesia’s Salim Group are some of the companies that performed exemplarily during high economic tides but collapsed ones the conditions became rough due to the lack of a sound strategy.

Criteria of Evaluation

The goal of the Tata group is to be a global leader in the various markets that it operates in. There is thus a couple of recommendations that if implemented could propel the company to such heights. The companies that compose the Tata group should have precise standards that they uphold. This includes product qualities and specifications, the level of service that they accord their customers and the speed at which they penetrate the market and gain a substantial market share. The purpose of this analysis is to provide the different alternatives that can aid in the success of the company both in the short and long term. The company should command at least 20% of the global medium car market by 2014 and should grow to over 40% in the provision of trucks in the same period. Additionally, it should reduce its portfolio from the current 100 companies to about 90 by 2013.

Alternatives

The Tata group of companies should aim at more profitability. There are different alternatives that should be considered in order to achieve the goals set.

Short Term

  • In order to grow the medium car and the trucks market, the company should seek to open more market in both the risky developing economies as well as in the developed economies. This will require concerted marketing efforts so as to create awareness in the market.
  • Tata should ensure that its initiatives are sustainable before it embarks into them to avoid unnecessary usage of resources
  • The company should seek to develop a group of guidelines that will seek to control the activities of each company as well as spur them to grow.

Long Term

  • The company should roll out research in the environmentally friendly brands. This may include development electric or hybrid cars for the sake of the future.
  • Tata should develop a strategy that enables it to run the group in a manner that will give the group an edge in all markets it competes in.
  • The group should work towards the reduction in the number of companies in its portfolio.

Recommended Strategy

Short Term

In order to grow the medium car and the trucks market, the company should seek to open more market in both the risky developing economies as well as in the developed economies. Lean manufacturing and franchising should be adopted to reduce costs of operation and increase revenues.

The company should seek to develop a group of guidelines that will seek to control the activities of each company as well as spur them to grow

Long Term

Tata should develop a strategy that enables it to run the group in a manner that will give the group an edge in all markets it competes in.

Justification of Recommendations

There are a number of medium car manufacturers that have a stranglehold of the market. Toyota is the world’s largest manufacturer of the medium and small cars and it has done so using business models that reduce on labour costs and also on materials and enable the manufacturer to make a profit while supplying the motor vehicles to the consumers at low costs. Tata should increase its market share by competing with Toyota in the production of low cost vehicles since it produces steel relatively cheaper and is also in the same labour market as that of Toyota. Arguably, china and India being the largest two countries in the world are the source of the cheapest labour. Furthermore, Toyota practices lean manufacturing as well as franchising where it is not involved in the specific marketing in different markets.

Tata should seek to develop a set of guidelines that the component companies should adhere to in order to emulate the models of the most successful ones and attempting to spur growth in those that are less successful, instead of the current unorthodox method of operation where the companies are responsible for their own selves and only receive basic guidelines from the executive management. The cutting down on the resources that are used in other ventures was not as good an alternative since it meant that the company shun its long term policy of corporate social responsibility.

There is need for the development of a strategic plan that allows the company to have goals and ways of meeting these goals in given time lines. There are many examples of companies that entered the market without a sound strategy and did well at first only to deteriorate later. To ensure that this does not happen to Tata, a strategic plan should be put in place. To be competitive in the future, there was an alternative of venturing into the manufacture of hybrid and electric cars. However, this cannot be possible unless there is a plan in place first to dictate such an action.

Implementation, Control and Follow-up

The recommendations above should begin with the commitment from the management. All the marketing initiatives that will be required including franchising and lean manufacturing decisions can only be successful if the management supports them. Once the executive management has rendered its support, then specific policies and strategies should be formulated so that the middle management can have the specific tasks that they need to carry out to ensure that the recommendations are successful even at the lower levels.

The major deterrent to implementation of new ideas is usually the organisational structure as well as its culture. People are very resistant to radical change and a lot of training and retraining of employees will be required to ensure that they are receptive to change. Both top and middle management will require being on the lookout to ensure that developed medium and long term goals are achieved at all levels.

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