Professional Documents
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Strategic Management
10th August 2010
Submitted to:
Dr. S. Bajaj FORE School of Management
Submitted by:
Ashutosha Kumar Jha -91011 Mohd. Faraz Khan - 91033 Nishant Singh - 91039 Roshan Sonthalia - 91045 Smriti Gupta -91054 Stuti Gupta - 91056
INTRODUCTION
In June 2008, India-based Tata Motors Ltd. announced that it had completed the acquisition of the two iconic British brands - Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2.3 billion. Forming a part of the purchase consideration were JLR's manufacturing plants, two advanced design centers in the UK, national sales companies spanning across the world, and also licenses of all necessary intellectual property rights. There was widespread skepticism in market over an Indian company owning the luxury brands. According to industry analysts, some of the issues that could trouble Tata Motors were economic slowdown in European and American markets, funding risks, currency risks etc. Market conditions were extremely tough, especially in the key US market. Tatas needed to invest a lot in brand building to make JLR profitable. Onset of recession not only made investment look mistimed, but also started wiping out the JLR market.
2007, Ford sold the Aston Martin sports car unit for US$ 931 million. In June 2007, Ford announced that it was considering selling JLR. After failing to re-brand and integrate these luxury brands with its product portfolio, Ford Motors felt that acquisition was not the right way of penetrating into the upscale segment.
TAMO's flagship ancillary biz. Customers inc. Ford, Daimler, FIAT etc.
Leader in the automative grade steel. 16% of revenue fron auto steel division.
TACO
TATA Corus
TCS
Provides engineering design, manufacturing solutions and sourcing services. Major customer include Chrysler, Ford , GM etc.
INCAT
Provides services like supplier programs, consulting services and global outsourcing. Customers include Chrysler, Ford, GM etc.
Five, in the long run TATA Motors will surely diversify its present dependence on Indian markets (which contributed to 90% of TATAs revenue). Along with it due to TATAs footprints in South East Asia will help JLR do diversify its geographic dependence from US (30% of volumes) and Western Europe (55% of volumes). Analysts were of the view that the acquisition of JLR, which had a global presence and a repertoire of well established brands, would help Tata Motors become one of the major players in the global automobile industry.
The Chinese and Indian domestic markets for cars have been exceptions. While China has witnessed a significant reduction in its automotive-related exports and supplies to automobile companies, the Chinese domestic car market has grown by 7%. In India the passenger car market has remained more or less flat compared to the previous year. Since then, its fortunes have been unsure, as the slump in demand for automobiles has depressed its revenues at the same time Tata has invested nearly $400 million in the Nano launch and struggled to pay off the expensive $3 billion loans it racked up for the Jaguar/Land Rover shopping bill. Within the space of a year, Tata Motors has gone from being a developing-world success story to a cautionary tale of bad timing and overly ambitious expansion plans. Tata Motors' standalone Indian operations' profits declined by 51% in 2008-09 over the previous year.All through the fiscal year ended March 2009 the company bled money, losing a record $517 million on $14.7 billion in revenues, just on its India operations. Jaguar and Land Rover lost an additional $510 million in the 10 months Tata owned it until March 2009. In January 2009, Tata Motors announced that due to lack of funds it may be forced to roll over a part of the US$ 3 billion bridge loan after having repaid around US$ 1 billion. The financial burden on Tata Motors was expected to increase further with the pension liability of JLR coming up for evaluation in April 2009.
TOWS Matrix
Opportunities: Rising appetite for luxury automobiles in growing markets like India and China Established European brands available at affordable investment Support from Jaguar in Technology, Engine, IT, Accounting Complete product line with addition of luxury brands Access to European and American Market Strengths: Tatas strong management capability Strong monetary base to invest Synergy due to Corus, TACO and TCS Experience in growing market like India New product development and brand building experience Weaknesses: Inexperience in Handling luxury automobile brand Inexperience in turning around loss making company R & D and designing capabilities JLR would give TAMO an inhouse R&D and designing capabilities Better utilization of cash reserves available with TAMO Reduce production cost of JLR by synergizing better with other TATA cos like Corus Threats Volatility in market driven by new products Strong presence of competitors like Mercedes, BMW, Lexus and Infinity Receding sales and brand image Downturn making Investment riskier and costlier 90% of TAMO revenues comes from one market alone-India
Acquisitions like JLR will help TAMO in competing with brands like Merc. etc. Proven Management and brand building capabilities would facilitate faster JLR turnaround Strong financial muscle will help TAMO to invest in R&D and produce new better products Improve risk profile of TAMO with diversification in different markets Leverage experience gained with Tetley and Corus in allaying market apprehensions about acquisition Make Jaguar design center as their global design HQ Use Jaguar channel to distribute TAMO brands without merging the brands
JLR experience and designing capability would help TAMO in improving their existing products in Indian markets. JLRs strong brand image will ease acceptance of TAMO in international markets Keeping the existing management team of JLR make turning around easier
Questions
Will Jaguar and Land Rover drive Tata Motors off bumpy roads? Was TATA JLR deal a case of wrong timing/ price or wrong strategy or both or none? Understand the role of acquisition as a growth strategy. Examine Tata Motors' inorganic growth strategy. Examine the rationale behind Tata Motors' acquisition of Jaguar and Land Rover. Understand the advantages and disadvantages of cross-border acquisitions. Understand the need for growth through acquisitions in foreign countries