Discuss about the Internationalization of Tata Motors in the UK.
Theories of Internationalization
The Uppsala model is developed on studies that established that Swedish firms developed their operations internationally in steps, as opposed to making large foreign direct investments all at once. This model is the basis upon which Tata motors has been able to internationalize its operations.
This theory suggests three factors that determine the international activities of transnationals. They are; ownership (O) Location (L) and Internationalization (I). The model suggests that these companies develop competitive O advantages in their local country and transfer them to other countries, through Foreign Direct Investments. L advantages refer to the special taxes or raw materials which a multinational company can leverage and use as competitive advantage. I advantages are those that accrue to the company from producing on its own in contrast to forming partnerships or joint ventures.
Porter’s Diamond Theory
The model describes the competitive advantage possessed by countries, as a consequence of being in control of certain resources or abilities. This model can be used to explain how governments of some countries have been able to spur economic growth for their nations while some have failed. There are six factors in the diamond model which are; demand conditions, factor conditions, government, firm strategy, chance and related industries.
- Franchising and Licensing Franchising is mainly applied as an entry strategy in the hotel industry. On the other hand, licensing is commonly applied in the technology industry.
- Greenfield project is a form of foreign direct investment where the multinational builds the business from the ground up, as opposed to acquiring it.
- Business alliance is an arrangement between businesses aimed at improving service to the customer while sharing costs
- Turnkey project a project that is carried out and handed out to another company after completion.
- Joint ventures are business arrangements where the parties involved pool their resources to achieve a specific task. The venture is not part of the two businesses and has a life of its own.
- Outsourcing it involves the reduction of costs by transferring work to other businesses rather than carrying it out internally.
What is the internationalization process of Tata Motors in the automotive industry in the United Kingdom?
Tata Motors is a vehicle manufacturing company that has its headquarters in Mumbai, India. It is the world’s fifth largest vehicle manufacturing company and according to Fortune.com, the company grossed Rs. 13,991.020 in revenues in the year 2015.
Analysis of the Tata Motors
A multinational corporation is an organization that is involved in business and is the basic form of an organization that entirely defines foreign direct investment (Lazarus, 2001, p.1) A multinational is distinguished from other corporations by the fact that while it is managed from one country, it has operations in other additional countries.
Ananad, Capron and Mitchell (2004, p.6) suggest that acquiring a company that already has an existing international reach is very beneficial to the acquiring firm. They explain that because the company that is buying the other will be able to profit from the target’s technological and market capabilities. We can clearly see this concept in the case where Tata acquired Jaguar Land Rover in June 2008. Tata Motors has received praise from industry watchers as it has been able to turn the fortunes of a Western company and successfully run it (Bajaj, 2012 par.4). Multinational firms leverage greater geographical diversity and are therefore able to redeploy resources from the acquired firm. Resources which can be redeployed include brand names, managerial experience, supplier relationships and technical skills. Shadbolt (2015, Par.19) cites Mukesh Rajanni of giant accounting firm PriceWaterhouseCoopers as reporting that Indian investors were keen on tapping in on British hi-tech expertise.
According to the World Investment Report (2007, p.44), Tata Motors has significantly increased its FDI toward developing and developed countries. Majority of the outflows from India have been dominated by private entities such as the Tata group. Tata Motors group has a presence in over 170 countries around the world and boasts of having a thorough understanding of customer expectations from diverse markets (Tatamotors.com). The major advantage of establishing operations worldwide is that a multinational corporation can leverage economies of scale. The company can buy its raw materials in bulk and also save on packaging and marketing material costs .Tata has a proprietary subsidiary in South Africa- Tata Holding Pty which assembles light, medium and heavy commercial vehicles from semi knocked down kits. This business enables Tata manufacture cheaper economic trucks that can operate efficiently in the tough terrain in Africa.
Tata Motors Limited owns the a technical centre in Europe (Tata Motors European Technical Centre) which designs and develops products for the automotive industry (Tiwari and Herstatt, 2014, p.157). The subsidiary works with the company’s home engineering research center in Pune, India. The transnational corporation is, therefore, able to harvest technological know-how from European countries to develop its vehicles further. This transfer of technology feature is a common aspect observable in many multinational corporations. Knowledge gained from automotive powerhouses in Europe such as the UK will be cascaded to all other locations in which Tata Motors has a presence leading to superior products.
Analysis of the Host Country- The UK
From my analysis, the key factor from the host country that influenced internationalization of Tata motors was the fact that England was the gateway to the European market. Tata wanted to join the high-end premier segment of the global automobile market. (Laddha, 2016 p.17) The European market had an appetite for luxury vehicles which Tata motors had observed and wanted to take advantage of. Jaguar was a relatively well established brand but was suffering financially and Ford had decided to cut its losses. Tata motors saw the opportunity and moved in, acknowledging the challenge that faced it in turning around the company successfully.
The European market is highly advanced compared to the South Americas and Africa. Tata Motors was keen to diversify its market and was presented with the perfect opportunity when Ford was looking for a buyer for its struggling business. Ford’s base in Europe was at Britain and it is from the country that Tata’s operations would have been most efficient. The Jaguar is a luxury car with a reputation the world over. By purchasing the company, Jaguar would be able to acquire new customers and also gain reputation as a serious competitor in the manufacture of luxury. In my view, Tata may also be able to streamline operations at Jaguar Land Rover and achieve low production costs. These savings would then be passed on to consumers.
Tata employed the Uppsala model as it chose to acquire an existing firm rather than establishing green field investments. The Uppsala model, according to Johanson and Vahlne (2009, p.24) explains how a company gradually intensifies its business activities in foreign countries. A firm using this model of internationalization would begin by selling their products to markets that are geographically close and slowly move toward geographically distant countries. The authors, however, note that the slow method of internationalization is not a phenomenon that is characteristic of Swedish firms alone. Appendix I depicts the Uppsala model. The model assumes that a company works hard to make more profit in the long run and also avoids taking too many risks. Further, the model assumes that internationalization has an effect on available opportunities and risks which ultimately influence the decision to commit (Johanson & Vahle 2009, p.27).
Foreign Entry Strategies
Tata motors used direct investments as a strategy of entering new cultural and geographical environments. Musso (2012 p.4) observes that a firm can establish a wholly owned presence in a foreign market by either acquiring an existing company or making a green field investment. The author proceeds to point out some benefits of using the acquisition strategy, some of these are that it enables rapid entry, and it may provide corporate reputation.
However, the acquisition comes with various difficulties that if not well tackled can lead to organizational failure. For instance, when Tata Motors was in the process of acquiring Daewoo Motors, staff from the target company had a very low opinion of Tata. To make the acquisition as smooth as possible, management at Tata had to win the acceptance of the Daewoo employees (Kadle, 2007 p.10). The company structured a program to educate employees of Daewoo about India and the Tata Group. Also, Tata’s management resorted to using the Korean language to communicate with unions and staff to assure the Koreans of Tata’s good reputation and that the company would respect their strong work ethic.
Tata motors in 2008 acquired the business of Jaguar and Land Rover (BusinessStandard, par.16). Immediately, questions were raised about how Tata, a manufacturer of the world’s cheapest car would fare in selling a renowned brand of luxury vehicles (Lenox, 2012 par.4). The acquisition was faced with a myriad of uncertainty as unions in Britain were concerned about whether Tata was up to the task and would keep production there. The author remarks that although Tata went on to turn around Jaguar Land rover’s business, an acquisition is not an easy decision to pursue. There are more failed acquisitions than successes, as Vijaywargia (2016, p.33) concurs; recent studies have shown that around 85% of consolidations have failed. The author attributes this failure to the challenges in managing employee’s problems.
During the year 2007, Tata Motors entered into business agreement with Thonburi Automotive Assembly Plant Co. to manufacture, assemble and sell pickup trucks. Corrie (2012, p.4) observes that a joint venture or partnership can help a company to get resources and skills that it would not otherwise acquire due to high costs involved. Moreover, joint ventures help both parties in accelerating market penetration. Corrie (2012, p.4) elaborates further that a local firm may look to the foreign company to provide knowledge regarding local tastes, advertising, and government relations. Some governments may make it mandatory for foreign companies operating in their jurisdictions to go into joint ventures with local companies. Joint ventures are also risky because the skills and resources of the any possible partner must match the ones of the party seeking the partner. Prospective partners should also have sufficient financial resources to support the joint venture.
International Business Impacts and Contributions
Tata Motors’ acquisition of Jaguar Land Rover brought with it many benefits to the people of Great Britain. In Wolverhampton, Tata Motors invested 1billion pounds in building an advanced manufacturing plant that makes low-emission Ingenium engine (CarandBike, 2016 par5). As a result, this investment has created a total of 10,000 manufacturing jobs over the last five years. The company has also made a commitment to Coventry to invest a further 600 million pounds which would go toward supporting product creation and advanced vehicle manufacturing. Cullinan Studio, an architectural firm is working to build an innovation centre at the University of Warwick. It is a project championed by Jaguar Land Rover, Tata Motors European Technical Centre and Warwick Manufacturing Group (WMG)
Tata Motors is also credited with turning around the business of Jaguar Land Rover since it bought it. It has risen above negative speculation about whether it would succeed in the luxury vehicles sector, which Jaguar belongs.
The UN Global Compact seeks to compel companies to enact a set of core values in their every day operations. These principles are classified into three broad areas namely; human rights, standards of labor, the environment and corruption. Tata Motors has in the past been accused of land grabbing in a remote Indian village. Tata Steel plans to establish a steel manufacturing plant in the Bastar region, against the wishes of the locals (Misra, 2009, par.4). Tata Motors group violated the principles of the UN Global Compact on human rights. The principle on human rights states that a business should work toward promoting human rights that have been internationally proclaimed. (UN Global Compact, 2011)
Conclusion and Recommendations
In future, Tata should enshrine in its operations, the value of respecting human rights. A good reputation is important to any multinational company, and Tata should be careful about its own. Foreign governments may adopt punitive measures to transnational companies that disregard human rights by imposing total bans on the firm’s products.
Tata Motors entered into a Tanzanian company to construct a soda ash extraction project on Lake Natron. The surrounding East African countries protested that the project would harm the surrounding environment For instance; the project is forecasted to have adverse effects on the breeding of flamingoes. Tata has, in this case, violated the UN Global Compact principle about the environment. Principle number 8 of the Compact outlines that businesses should work to promote greater environmental responsibility. Tata would do well to ensure that it carries out environmental impact assessments before it embarks on projects that are would have an impact on the environment. The company should also monitor the impact of its manufacturing process on the environment. Failure to do this, Tata may find itself with heavy penalties for engaging in activities that are detrimental to the environment. These would be unnecessary costs which are easily avoidable but would eat into the company’s profits.
List of References
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Bajaj, V., 2012. Tata Motors finds Success in Jaguar Land Rover. The New York Times, 30 August, p. par 4.
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