Trailblazers

The basic meaning of this word is pioneers in any field of endeavor. In present era of rat race the initiators or pioneers gets an obvious advantage of leading a change. The companies that we have chosen to represent this topic have always been renowned for their continuous innovation and market leadership so we have chosen this name.

STRATEGIC ALLIANCE
A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth.

SUCCESS OF TATA-JLR ALLIANCE

TATA-JAGUAR-AND-LANDROVER DEAL

INTRODUCTION
In

2008, India-based Tata Motors Ltd. acquired two iconic British brandsJAGUAR and LAND ROVER for US $2.3 billion. sale of Jaguar and Land Rover was initiated by their former owner US FORD.

The

the tAtAs

TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco. India's largest passenger automobile and commercial vehicle. Tata Motors was established in 1945 Listed on the New York Stock Exchange in 2004. It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE.

The JaGuar
1922 - Founded in Blackpool as Swallow Sidecar company 1960 - Jaguar name first appeared 1975 - Nationalized in due to financial difficulties 1984 - Floated off as a separate co in the stock market 1990 - Taken over by Ford

The LandRover
1948: Land Rover is designed by the Rover Car co 1976: One millionth Land Rover leaves the production line 1994: Rover Group is taken over by BMW 2000: Sold to Ford for $2.75 billion

Why did Ford sell?

Ford made losses of $12.6billion in 2006 - the heaviest in its 103-year history Jaguar has been a Dog i.e it has not been able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom. The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007. Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.

Why did Tatas acquire JLR?

Long term strategic commitment to automotive sector.

Opportunity to participate in two fast growing auto segments.

Increased business diversity across markets and products. Land rover provides a natural fit for TMLs SUV segment. Jaguar offered a range of performance/luxury vehicles to broaden the brand portfolio.

Benefits from component sourcing, design services and low cost engineering
Help the company acquire a global footprint.

Two advance design studio and technology.

Strartegic view points

Considering that Jaguar and Land Rover are two of the most well-known automotive names in the world, and that Ford had acquired them for a collective cost of about $5 billion almost a decade earlier, Tata Motors seems to have got them at a steal at $2 billion. Over the years, Ford spent close to a total of $10 billion on the brand but failed to return a profit. After incurring heavy losses for two consecutive years in 2006 and 2007, Ford took this move. Tata Motors has assured the employee union that both these factories will continue to operate without any retrenchments after the takeover. The process which started in 00 and reached new heights in 07 was said to have reached a Zenith with this.

The Nanos plans were said to have been targeted towards the down markets but with this deal going through this has been contradicted as Tata was equally bullish in the upmarkets.
The biggest buy-out in the automobile space by an Indian company, Tata Motors, was completed on June 3,2008 as it bought the ownership of luxury brands Jaguar Land Rover, its manufacturing plants, design centers and worldwide sales network from US car maker Ford Motor Company (FMC). JLR was acquired on a cash free, debt-free basis. The purchase consideration includes perpetual royalty-free licenses of all necessary intellectual property rights, manufacturing plants, two advanced design centers in the UK, and worldwide network of National Sales Companies.

TATA MOTOR-JLR process

12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar. August 2007 - Major bidders are identified Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management Indias Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b) 03/01/2008 Ford announces Tatas as the preferred bidders 26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors. 02/06/2008 The acquisition is complete

The Real Picture

Consumer demand dropped Automotive sector in India suffered contraction in demand Launch of Nano delayed

Tata Motors reeling under a huge debt burden

Problems in the Domestic Market

LAunch of WorLds cheApest Car

The Nano was touted to be the least expensive car in the world Tata Motors spent approximately US $430 million on developing the Nano

The company had invested more than Rs 20 million on the Singur plant

ANALYSIS
Strategic

Logic

Long term strategic commitment to automotive sector. Opportunity to participate in two fast growing auto segments- Luxury cars and all-terrain vehicles. Increased business diversity across markets and products. Sharing of best practices in manufacturing and quality assurance systems and processes Benefits from component sourcing, design services and low cost engineering

 NEED FOR GROWTH

In the past few years, the Tata group had led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals. Tata Motors was India's largest automobile company, with revenues of $7.2 billion in 200607.With over 4 million Tata vehicles plying in India, it was the leader in commercial vehicles and the second largest in passenger vehicles.

 COMPETITIVE ADVANTAGE
Tata Motors was vulnerable to greater competition at home. Foreign vehicle makers including Daimler, Nissan Motor, Volvo and MAN AG had struck local alliances for a bigger presence. Tata Motors, which had a joint venture with Fiat for cars, engines and transmissions in India, was also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.

 COST SYNERGIES

Tata motors raised a bridge loan of US $ 3 billion through syndicate of banks. Additional amount of US $ 0.7 billion was for engine and component supply, contingencies and working capital. The amount was repaid in following manner
Rs 1.92 billion Underwriting agreement with JM financial consultants Rs 1.75 billion was raised through a deposit scheme from the public Additional subscriptions by promoter companies- Tata sons, Tata capital and Tata Investment Ltd.

POST ACQUISITION
Cost

Rationalization

Single shifts and down time at all three UK assembly plants.

Supplier payment terms extended from 45 to 60 days in line with industry standard.

Inventory reduced by 217m between June 2008 and March 2009 from 70 to 50 days.

Labor actions - Voluntary retirement to 600 employees. - Agency staff reduced by 800. -Offered leaves to 300 workers of Bromwhich and solihull plant. -Additional 450 job cuts including 300 managers.

Agreement with Unions to implement a longer working hours (equivalent to approximately 20% reduction in labor costs.)
Fixed marketing and selling costs reduced in line with sales volume.

Reduction in all other non-personnel related overhead costs.

 PROBLEMS

Fall in share price

Debt Burden
Strong Competition

Inexperience in Handling Luxury Brands

JAGUAR was a loss making unit and LANDROVER had Declining sales. Failure of right prices. Operational freedom slows pace of change

Depressed state of the global premium car market

Jaguar/Land Rover lost 306 million pounds ($504 million) for the fiscal year ending March 2009 Tata Motors reported a net loss of Rs3.29bn ($67 million) for the quarter to end-June Tatas core commercial vehicles market in India is also suffering from slower sales Extremely high manufacturing costs in Britain Eliminated more than 2,200 jobs

 BENEFITS

View of Ratan Tata that there would be further opportunities. Global footprint and to reduce dependence on Indian market.

Entry in European market

Broaden the brand portfolio.

Research & development facilities.

Recognition to own the cheapest car as well as most luxurious cars.

Opportunity to spread business across different customer segment. This acquisition also eases the entry of Tata in European market which it has been eyeing for long. A previous JV with FIAT took place, this would further help them penetrate EU market. Increase sales in emerging markets Publicity on an international scale Access to large distribution network Strong R & D culture and facilities Component sourcing, engineering and design benefits

Current status

Jaguar land rover sales continued their upward trend since launch in June 2009. During the quarter ended June 2010 JLR generated a profit of Rs 1613 crore. Tata motors had never ventured into luxury car segment before acquiring JLR, hence the inefficiency in handling such segment hampered Tata motors operational efficiency for quite some time. Jaguar Land Rover is now a strong, profitable and innovative competitor in the premium car industry.

26% Delivery Growth.

JAGUAR LANDROVER global sales in July 2010 were 19,386 vehicles, higher by 30%. Jaguar sales for the month were 5,676, higher by 26%, while Land Rover sales were 13,710, higher by 31%. Recently TATA MOTORS drove past Reliance Industries to top the 2010edition of Indias Most Valuable Brands survey with a valuation of $8.45billion. A major part of this success can be attributed to the JAGUAR

STRATEGIC ALLIANCE FAILURES

The Royal Bank of Scotland takeover of ABN AMRO.

Companies involved
ABN Amro (ALGAMENE BANK NEDER LAND (ABN) - AmsterdamRotterdam (AMRO))

Royal Bank of Scotland

RBS CONSORTIUM
Royal Bank of Scotland Banco Santender (Spanish bank) Fortis bank( Belgian bank)

PRE-DEAL POSITIONS

ABN AMRO
Founded

in 1824 Total operating income 22.658bn(2265,80,00,000 rupees) Ranked as the eighth largest bank in Europe Headquartered in Amsterdam, with more than 4,500 branches in 53 countries. Employed more than 105,000 people before the takeover.

Royal Bank of Scotland

one of the retail banking subsidiaries of the The Royal Bank of Scotland group plc. The Royal Bank of Scotland has around 700 branches In 1728, the Royal Bank of Scotland became the first bank in the world to offer an overdraft facility. The Group's logo takes the form of an abstract symbol of four inward-pointing arrows known as the "Daisy Wheel" and is based on an arrangement of 36 piles of coins in a 6 by 6 square, representing the accumulation and concentration of wealth by the Group.

THE DEAL
Abn received 66bn(6600,00,00,000 rupees) bid from Barclays bank. Two days later they received even bigger deal quoting 72bn(7200,00,00,000 rupees) from rbs Of which, 50bn(5000,00,00,000 rupees) in cash and remainder value by shares in rbs.

THE DEAL

it was agreed that With its Continental European and South American expertise, Santander would continue to operate the retail banking operation in Brazil and France; Fortis Bank was well placed to take over ABNs asset management and private banking arms; and finally RBS would be left to take over ABNs wholesale business, including its Asian operations.

Significance of the Deal

The takeover is unrivalled in terms of size and complexity it is interesting that the acquisition was for a perfectly solvent conglomerate. In the case of ABN, you have a bank with a significant presence in the European banking market and its performance certainly did not suggest that it was in any financial difficulties.

Significance of the Deal

Although takeovers are often triggered by the weakness of the target, ABN is a huge organization with offices in 53 countries and its reputation was never that of a desperate operation. As the eighth largest bank in Europe, a combined force of ABN and RBS, or even Barclays, would allow the new owners of ABN to move up into the league of some of their American counterparts.

The offers: RBS Consortium versus Barclays

The Offers

Neither of the deals was recommended by the board of abn amro. The share holders were the instrumentals for deciding between the deals. It was obvious that the share holders were going to choose the co. which could earn them greater gains. The dilemma was between the lower from Barclays which was decreasing daily due to decrease in its share prices but could keep abn amro united, and the cash rich offer from rbs which would split abn amro.

The Offers

ABN bosses preferred the Barclays offer because this would have kept the institution intact and the headquarters would have remained in the Netherlands. The plan was to split the bank into three parts, and each of the RBS Consortium members would take control of the parts of the banks they were best placed to deal with.

The Offers

On 8 October 2007, the RBS Consortium announced that it had secured the bid for ABN after eight months of negotiation.

Strategic Dimensions

Finding the right partners for a deal like this is difficult work. Unless you have the right combination it will be very difficult to agree on how to divide up the assets, and moreover there is massive risk inherent in restructuring and dismantling an organisation the size of ABN. In order to make a takeover successful, the acquirer needs to think of ways in which it can extract profits from its new business. both rival banks had planned to trim jobs in order to generate cost savings.

Strategic Dimensions

Individual organisations will not always complement each other entirely and an acquirer may need to assess which parts of a target it will keep. It may be that the acquisition is structured around the takeover of the targets main business but the acquirer is not interested in the targets other assets and wishes to sell these off. Other problems include difficulty in dealing with personnel and information technology, and the possibility of a decrease in share price, which may tumble if there is market apprehension due to the thought that the acquirer has overpaid for the target or that the businesses will be too difficult to integrate.

Strategic Dimensions

If investors are not confident about the prospects for the newly merged company, the resulting fall in share price could be disastrous. If investors are not confident about the prospects for the newly merged company, the resulting fall in share price could be disastrous.

PITFALLS

The board wasn't thinking in any meaningful sense. The directors relied for their due diligence on two lever arch folders and a CD. Extraordinary. One of the things that went wrong for RBS was that they bought NatWest as a hostile acquisition. They did no due diligence. they couldn't because it was hostile. RBS had lots of surprises, but almost all of them were pleasant and that lulled them into a sense of complacency around that.

PITFALLS

Fundamentals of banking such as a focus on risk, liquidity and capital became secondary. The monthly risk report at the beginning of 2007 recorded past and current risks rather than being forward-looking; nobody seems to have stopped to question the usefulness of a backward-looking risk report.

COMPARISON OF SHARE PRICE

SHARE PRICES OF RBS
25

20
20

POUNDS

15

10

6.56
5

before

after

RECOMMENDATIONS

The regulator should have the authority to block takeovers Directors of failed banks should face legal sanctions (fines or bans) or non-legal penalties (bans or the forfeit of pay) given the importance of banks the wider economy. A few individuals might be deterred from accepting directorships at banks.

Case Study of P&G and Godrej

Case facts

It was a joyous Christmas for both P&G and Godrej (P&GG) Soaps in Dec,1992. Procter & Gamble, the $34 billion multinational entered into the Indian market with Ariel Brand through the alliance with Godrej. For Adi Godrej, this was the second prestigious link up after GE. Some of the products of P&G are Clearsil, Pantene, Comfort, Surf excel, Rin and Fair & Lovely. Problems faced by Godrej was enormous:

(a) Excess manufacturing capacity due to manufacturing contracting.

(b) Lack in the penetration of growing rural market.

P&G lacked in adequate production & distribution facilities for soaps.

As per the agreement, the soaps should be manufactured under the Godrej plant only. In Dec, 1994, a general talk came that the Godrej products are not promoted properly. Marketing consultant says that, P&G is capturing reverse aspirations for its brands. Concept of P&G marketing is other companies may actively discriminate consumers but Godrej see it as one. In the year 1995, Godrej was in a position of dumped with high class competitors.

As David Thomas, CEO of P&G, puts it, We are heading for a relationship in perfecting. Godrej soaps was stuck with underutilized capacity that had forced it to manufacture soaps for other companies. P&G paid Godrej an estimated Rs.50 crore to acquire the detergent trademarks, goodwill and non-competition fees. Godrej invested Rs.9 crore in the Rs.20 crore capital of P&GG (Procter & Gamble & Godrej), transferring its sales force of 400 people to the joint venture. P&G Managers worked hands on to bring Godrej up to standards of P&Gs systems and procedures such as Good Manufacturing Practices and Material Requirement Planning. Godrej had sold 29,000 tonnes in 1992 which increased to 46,000 tonnes in 1994 but dropped to 38,000 tonnes subsequent to the tie-up. Thus sales tonnage created serious problem to Godrej. Mean while, other Godrej Soap brands like Key and Trilo started dropping out from stores shelves altogether.

The production cost of Godrej increased this is one of the reason that tend the companies to end up the venture. P&G changed the advertising strategy on brands like Cinthol and Ganga, removing all emotive and esoteric appeal while focusing on functional propositions. Conversed that the win-win aspect of their alliance had turned into a win-lose, P&G and Godrej sat down with their lawyer to discuss the best way to disentangle themselves from the relationship in perpetuity. Both sides emphasize that the parting is a win-win situation.

Questions & Answers

1. Define a joint venture and comment on the phrase relationship in perpetuity in relation to your definition.

A joint venture may be defined as an undertaking in which two or more independent companies combine their resources to achieve specified limited objectives.

The very definition of a Joint Venture makes it clear that the Joint Venture is formed with a specific objective in mind. Once the objective is achieved, there is no economic rationale for the continuation of the Joint Venture. Keeping this in mind, the phrase relationship in perpetuity is totally meaningless and impossible, because either the objective is achieved and the Joint Venture is through or the objective is not achieved, and the Joint Venture is going to break anyway because any one or both of the partners is not happy.

2. What was the rationale behind the joint venture for both the parties ?

The rationale for setting up the Joint Venture as can be seen from the facts of the case is as follows:

Godrej Spare capacity utilization Marketing expertise of P&G Upgradation of technology Greater strength to compete with HLL Beginning to internationalization.

P&G Springboard into India Take on Lever Saving in time and investment through a Joint Venture rather than setting up own faults Risk reduction because of the above Godrejs expertise in vegetable oil technology Instant access to a non-pharma distribution network Some good established Godrej brands etc. Common Objective To exploit business opportunities together in the wake of liberalization.

3. Why did the joint venture fail ?

Causes Failure :

Looks as though individual objectives overrode common objective. Fall in sales and subsequent unutilization of excess capacity. Cultural mismatch. Neglect of established Godrej brands. Failure of the marketing strategy. Lack of coordination between Godrej & P&G in Brand Building Exercise.

4. Why did P&G neglect Godrej brands? Discuss its implications.

P&G felt uncomfortable with Godrejs methodical and analytical approach as opposed to its own instinctive method of launching brands at breakneck speed.

5. Why was Godrej soaps not able to ensure proper promotion of its brands by P&G?

The reason behind is, P&G adopted marketing strategy that focus marketing globally. P&G focus market evenly. The soaps like, Trilo and Key are not upto the standard of international market.

6. Evaluate strategies pursued by P&G through P&GG.

Most companies might actively discriminate consumers in one country versus another, but P&G looked for simalarities and evenness. This concept gave a tough situation to Godrej because P&G never looked for the recovery of Godrej brands.

7. According to you, was the parting a win-win situation for both the parties ?

To decide on whether it was a win-win situation we have to look at whether the objectives of both the companies have been met.

P&G certainly has got a toe hold now in India through Godrej. Godrej has acquired vegetable oil technology. Godrej may have gained in the short run only because they did not have to pay the overheads. They also acquired some marketing expertise. So it appears that both the parties have made small gains from the venture and did not lose by parting.

8. Joint ventures, in general, have been rated to have poor track records. Could you suggest some guidelines to be borne in mind by both the parties to prevent this ?

Determine whether a Joint Venture is the best approach compared to say,

Expansion, Aquisition, etc. Choose the right partner. Set realistic objectives for the alliance. Check if the strategic plan is achievable. Ensure balanced pay-offs for all partners. But as Adi Godrej himself puts it, Joint Ventures are not necessarily permanent.

Conclusion

Strategic alliances have the potential to yield tremendous benefits for the partners involved. However, they have to be managed carefully, as various difficulties may arise.