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Factors Affecting Growth in the Host Country

Question:

Discuss about the Report on Business Of Tata Motors.

Tata Motors, earlier known as TELCO (Tata Engineering and Locomotive Company) is one of the Businesses that the Tata group is into. Tata motors has it’s headquarter at Mumbai India and it manufactures passenger cars, military vehicles, trucks, vans etc (Spokesperson 2016). Tata Motors as said in the introduction paragraph owns manufacturing plants in Argentina, South Africa, Spain and Great Britain. Tata Motors was the first Indian automobile company that achieved the capability of developing a competitive indigenous automobile. Tata Motors has ranked 226th place in the list of 500 top global fortune lists of biggest corporations of the world. In 1998 Tata Motors launched its first ever fully indigenous vehicle Tata Indica, which created a revolution in the Indian Automobile market (WikiPedia 2017). Till date Tata Motors has more than 10 passenger vehicles in its squad. The Tata group was founded by Jamestji Tata and it was Rattan Tata who took the Tata group to other heights of success by his dedication towards the Tata Group in just a period of less than 20 years he made Tata a well established and a well recognized organization at an international level (Shekar 2016).

Tata Motors believes in equality and friendship among all the nations. The theory of liberalism suits and fits best to the development of the Tata Motors. The theory of liberalism states that international business organizations are the one that plays a key role in making the relationships better of different countries (Leonard 2016). The theory of liberalism states and believes that International business organization can develop cooperation among various states and they can solve any critical issues with non violent methods. Tata Motors believes in the same and works towards the welfare of the society.

In this part of the report we are going to discuss about the various factors that are affecting the firm’s growth or success in the host country. U.K is no doubt is the best foreign direct investment destination for the Indians but there are other several factors that hinder the growth of business in UK. We will discuss the Political factors first. There is political instability in UK as there is an issue of Britain leaving the European Union (Hunt 2016). Most of the revenue of Tata Motors comes from Jaguar Land Rover British luxury car, and if Britain exits from the European Union then there will a huge pressure on the revenue of the Tata Motors (Wolf 2016). Most of the Economists have even said that the exit of Britain from European Union will result in the fall of the shares of Tata Motors to 12%. There will be huge crisis of workforce, and the economy will surely fell apart, in addition to this there will be fiscal deficit all over (Markey 2017).

Political Instability

Another Major Factor that is affecting the Tata Motors in Britain is that, Recession is UK. In the year 2010 the economy of Great Britain was hit by a great depression that lead to the loss of millions of jobs in Europe. Since then UK has not recovered from that depression fully. Even now the UK government has put several restrictions on the Visa applicants; they make thousands of verifications and conditions if someone wants to visit Britain. This depression affected the Indian Businesses operating in UK (Coppala 2015).

Inflation would be another adding factor in this discussion; UK has the highest rate of inflation amongst the top world economies. The issue of exit from European union has pushed the rates to rise, the standard of living of the peoples are falling as the rates are going so high that it is becoming almost impossible for people to buy their daily needs products (Inflation. EU 2017).

Now if we talk about if it is actually profitable to operate or set up a Multinational firm in UK then economical the answer would be a no. The reason being the already set up businesses in UK earn profits but these profits never go to the home country, they remain in host country and the owner use this profit in increasing the business in UK only, this is done to show the UK government or general public a feeling of social welfare that is not at all good for the home country (Prajapati 2009).

The porter’s diamond theory is best suited here; the theory shows that how a government can make competitive advantage for itself by the factors available to them. This theory was created by Michael Porter. The porter theory is largely based upon the four factors and these are firm strategy, structure and rivalry, supporting industries and factor and demand conditions (Smith 2014). Firm strategy, structure and rivalry refer to the competition between the firms that leads to the innovation and new ideas of creating products that are totally new for the market. Supporting industries means that rise or fall with the rise or fall in the main industries that also leads to innovation of new technology. Demand conditions refer to the customer base of the country or a nation, the more the is the customer base the more will be the chances of new inventions and creativity. According to the porter diamond theory factor condition is the most important determinant in this theory. Factor conditions refers to the creation of those factors that the nation can built itself such as world class technology, skilled labor, infrastructure etc. The Great Britain has created the world class technology; they have skilled labor and the most powerful infrastructure (Scoth 2010).

Recession

Foreign entry strategies mean the medium through which the company entered the host country, market to sell its products. There are several entry strategies such as joint ventures, franchise, mergers, licensing etc (TradeStart 2017). Tata Motors used joint ventures entry strategy to touch the European market. For an automobile firm it is very easy to enter an international market if the organization joins its hand with the host organization. As the automobile market has so many entry barriers that a single new entrant just can’t even think about entering the market alone. Same was done by Tata Motors they slowly and steadily capture many companies by buying significant shares in many automobiles of Europe and when the Tata Motors entered Europe they bought the British luxurious car brand known as Jaguar Land Rover. UK was the most suitable market for Tata Motors. SUV concept of cars came into light and its demand increased many times in a small period, Tata Motors wanted to cover this market and for that it had 3 main countries in its list these countries are US and Russia was also considered by the Tata Motors for their business operations but US had high trade barriers it was not easy for Tata Motors to enter the US automobile market all alone, plus the requirements in the SUV concept was so high that Tata being new in that market was not able to produce such high tech cars. Whereas Russia had many other restrictions, that were coming in the way of Tata Motors. UK, US & Russia when compared together showed huge differences. UK was selected as it was the best destination for the Tata Motors to set up their manufacturing plant. This was the best way for Tata Motors to enter the Britain market (Leecooper 2013). As there are many advantages of this way entry, likewise there are many disadvantages too. The disadvantages are that the already created public image of the host companies, joint ventures sometimes ends up in huge losses that occur because of disputes in the partners, conflicts in ideas and thoughts etc. These could be some of the major disadvantages for the foreign entry strategies of a company.

The multinational corporations have to face a number of challenges before setting up their business operations in a host country. These challenges are sometimes so complex and hard to face that few organizations leaves the race of setting up the business in most prominent countries and they go for underdeveloped economies. The challenges that Tata Motors has faced while setting up their business are, as under (Tayab 2013):

  • Political Risk: One of the biggest issues that is faced by the Tata Motors is the issue of political risk into their business in UK. The Exit of Britain from European Union has become so important for Tata Motors that, if Britain exits from the European Union then it will result in the fall of the shares of Tata Motors by almost 12%. This fall will result in huge revenue losses and it might increase by the period of time as the political instability in Britain doesn’t seem to end in near future. Tata being the owner of Jaguar Land Rover a British Luxurious car brand wants to influence the international automobile market by its overseas operation but the political instability in Great Britain is not Co-operating with the Tata Motors, the most renowned economists of world has even said that the exit of Britain from the European union will put a severe pressure on Jaguar Land Rover and it might have to be closed(Rahman 2015).
  • Currency Fluctuations: Another biggest challenge for a multinational company is that of the currency fluctuations. The multinational corporations must prepare a strategy that will deal with such fluctuations. Sometimes the companies are spending in US dollars and earning in a currency which is comparatively low, hence such differences may occur loss on the accounts of the organization.

Inflation

United Nation has put the environmental issues at front and they want every multinational organization to take it into their consideration. Every organization that is thinking of expanding their business on an international level must consider the rules and regulation regarding environmental issues of that country. A business organization must follow all the environmental rules and regulations of the host company this will not only save the environment but will help them to connect with more and more customers which will ultimately increase the profitability of the organization. Tata Motor is a key global player that totally understand the problem of environmental issues and this the area where they need to further work upon, however they are already working and they put forefront all the environmental issues and have a dedicated team that works on bettering the environment for the coming generation (Berg 2008).        

Conclusion

At the end of this report a detailed and a concise conclusion is provided. Multinational corporations are no doubts the organizations that are capable of influencing large economies, however there are certain challenges that can easily affect the existence of the most renowned multinational corporation. These challenges are sometimes so complex and difficult that most of the so called Multinational Corporation winds up their business and go back to their country of origin. So in order to cope up with these challenges a multinational organization must have the resources that will provide them an unconditional support, in addition to this all the multinational corporations are required to do research and analysis on the country that they wish to operate their businesses in. This Analysis will not only give the organization a paper of stats but a true and an actual condition of the various factors of that country that might affect the working of the organization. All the Multinational organizations are bound to follow the guidelines setup by the United Nations in regard to the environmental issues. Tata being a giant business organization understands this fully and complies all its working with the guidelines set up by the United Nations, There is no doubt that a business organization whether large or small if is operating on an international level have to deal with various issues, same is in the case of Tata, However Tata Motor in UK is doing well in its operation and its expected revenue for this year is around 30,000 crores. Last year Jaguar Land Rover seen a tremendous growth, which has never been seen by BMW or AUDI. Hence Tata Motors is doing exceptionally well in International Market.

Berg, B 2008, 'Guidelines Set up By United Nations', UnitedNations Journals, vol 1, no. 7, p. 50.

Coppala, F 2015, 'Reason Why UK is going in Recession', Forbes, vol 1, no. 1, p. 1.

Florein Wettstein 2009, Multinational Corporations and There Cultures, 2nd edn, Global Printing Press, Germany.

Hunt, A 2016, 'Brexit', UK Top News, vol 1, no. 1000, p. 5.

Inflation. EU 2017, viewed 12 Septemeber 2017, <https://www.inflation.eu/inflation-rates/great-britain/historic-inflation/cpi-inflation-great-britain.aspx>.

Kapoor, R 2017, 'TATA MOTORS', Wall Streets Journals, vol 5, no. 10, p. 33, viewed 1 Jan 2016, <https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4712479/>.

Leecooper, M 2013, Selection of Market by TATA Motors, 5th edn, MB TV, London.

Leonard, W 2016, 'The Great Theory of Liberalism'.

Markey, A 2017, 'Global Affect of Britain Exit from EU', World Economies, vol 10, no. 2000, p. 35, viewed 2 july 2000, <https://www.beerkens.info/files/globalisation.pdf>.

Prajapati, M 2009, '45 ways of Doing Business', United Europe Journals , vol 5, no. 13, p. 2.

Rahman, A 2015, 'Challenges of MNC in International Market', London Times, vol 2, no. 50, viewed 15th March 2015, <https://www.slideshare.net/osamarizvi/6-audit-techniques>.

Rodrik, D 2010, 'Globalization and Paradox', Business Weekly, vol 1, no. 500, pp. 59-107.

Scoth, J 2010, Porter Diamond Theory, 2nd edn, Jolly Publishers, Massachusetts.

Shekar, DM 2016, 'Achievements of TATA', in M Gupta (ed.), Business Studies, 4th edn, Kalyani Publishers, Delhi.

Smith, AJ 2014, 'Competitve Review of Porter Diamond ', SmithJournals , vol 1, no. 1, p. 14.

Spokesperson, TC 2016, 'Capabilities of TATA', Quorom, pp. 12-23.

Tayab, MH 2013, 'Challenges faced by TATA Motors', in M Dutta (ed.), Commerce and Trade, 5th edn, Lucky Publishers, Delhi.

TradeStart 2017, TradeStart.CA, viewed 5 July 2017, <https://www.tradestart.ca/market-entry-strategies>.

WikiPedia 2017, viewed September 2017, <https://en.wikipedia.org/wiki/Tata_Motors>.

Wolf, M 2016, 'Affect of Brexit on Tata', GoldIn Journals, vol 3, no. 120, p. 15.  

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