International Environmental Analysis a Case of Tata Group

International Environmental Analysis a Case of Tata Group Tata is one of the Indian business giants that have been seen to expand drastically, acquiring different businesses abroad. These range from manufacturing businesses to consultancy services. For instance, Tata Motors (2006) acquired the truck division of the beaten Daewoo of Korea in 2003.Advertising We will write a custom essay sample on International Environmental Analysis: a Case of Tata Group specifically for you for only $16.05 $11/page Learn More Tata steel has acquired steel mills in many places including Europe. Tata Tea bought Tetley Tea in 2000 while Tata consultancy has spread its tentacles all over. In UK for instance, Tata employs at least 45,000 workers; Tata consultancy employs over 5000 staff while Tata UK is the country’s biggest manufacturer and employs over 40,000 workers. The steelworks at Stockbridge are currently under the ownership of Tata. In a recent business move, Land Rover which had earlier been taken by Tata launched the E voque, which is a mini sports utility vehicle. This is a vehicle that drew the admiration of many leading to placement of up to 20,000 orders prior to opening of its sale. This is just a glimpse of Tata’s spread of its tentacles. Tata’s Environment The internal environment includes its strengths and weaknesses in management, strategy, and products. In their internalization strategy, TATA envisages to always retain managers that were already in place in the acquired company and combine them with some senior managers from the Indian constituent. By retaining management staff of the acquired companies, Tata will be able to face the possible management challenges that would especially relate to human resources. Some of these challenges are developing HR initiatives to manage employee morale in a new environment and managing their productivity and insecurity (Shah 2006). The company also is keen on management development of the leaders. They have programs intended to improv e the skills of the managers. In its alliances, the company enhances product portfolios for the two companies (Greer 2002). For instance, it made an agreement with Fiat to build a pickup together that was designed for its Central and South American market in 2007. One of their weaknesses is that the passenger cars that offer Tata Motors are often produced on lower generation platforms which would not allow it compete strongly in a market where competition is strong. Tata has also not been able to enter luxury car segment even after acquiring Jaguar and Land Rover. This is perhaps because people associate it with heavy commercial vehicles. The external environment too consists of strengths and weaknesses.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The increase in oil products for instance can be considered to be a blessing in disguise, especially in America. As Tata corporatio n intends to introduce the low consumption Tata Nano. The economic challenges facing America calls for more jobs and the entry of Tata could not be such timely as now (Green 2002). In globalizing, Tata is a fast learner and takes its lessons from among others, Daewoo. It is able to diversify from metal to tea, from chemicals to hotels and several other lines of investments. One of the big threats is the shift from big cars to smaller compact cars that is becoming the trend of many manufacturers. The emergence of new technology electrical engine by Chevrolet is a looming threat. Since it is a home car, Americans might favor the Chevrolet over the Indian Tata even though they have the same specifications. The electric engine might also receive more attention with greater environmental awareness today. The company also faces serious problems in parochialism where the top management is dominated by Indians. The diversification could also be counted as a disadvantage; Tata seems to be dr agging both performing and non-performing sectors along. Some examples are Tata Teleservices and Tata Financial services (Windecker 2011). On the side of human resources, the challenge comes in developing equitable pay plans for individuals working in different countries. There would also need some extra knowledge in identifying and training expatriate managers to do overseas assignments and developing some human resource initiatives that will be directed towards workforce diversity, which means there would be need for diversity training programmes (Green 2002). There is a threat in TATA being a family business. It would seem also that its chairman, Ratan Tata, is one of a major investment himself. Replacing him would not be easy considering that he has led the company through major transformations right from its restructuring to innovations. Being a family business, it would mean that the other one in line is also a family member which raises the question whether this concept would continue working wonders in it internalization and its survival in the developed world markets. Rattan Tata retires in the end of 2012. There is no obvious heir of the business as Ratan has no children. If it becomes the end of a trend of inheritance, it is not yet the end of the company strategy and it will depend much on the direction in which the company is driven (Shah 2006). PESTLE Analysis of TATA In terms of entry barriers there may not be much lobbying to do to enter the American market even though they will have to have their cars approved by the appropriate agencies before they are allowed to enter. This may include some modifications as specified by the agencies. A company that is trying to keep a competitive advantage may not succeed well especially if they are also trying to be among the cheapest (Chaudhuri Muthukumar 2004).Advertising We will write a custom essay sample on International Environmental Analysis: a Case of Tata Group specifically for you for o nly $16.05 $11/page Learn More Even though the economic crisis can be used to market cheaper cars, Tata may have to adapt its strategy keeping in mind that this will also affect their business in other ways. For instance, the exchange rates, inflation, and GDP trends. This is a crisis in itself because the company might be considering the job creation it will bring through entering the market (Biswas 2005). Tata will have to look into the environmental footprint since there are current trends of higher environmental requirements. If their car is not environmentally friendly, it may receive a cold reception from an environmentally aware clientele. The company may therefore have much to do with corporate social responsibility (Nieuwenhuis Wells 2003). The company might need to do something about its image as compared to the home brands so as to counter the sour attitude or comparison of home versus Indian product (Encarnation 1982). Due to the presence of the electric Chevrolet Spark, more research and development will be required to bring such a product into the market if it will have to be competitive in the long run. Engine technologies are also changing fast and they need to adapt to this so that they do not become obsolete in the fast changing arena (Chaudhuri Muthukumar 2004). Indian policy towards investments abroad had always been a dilemma for the government. It was highly restrictive but in the recent times, investments abroad have been seen as India’s way of promoting its exports. The general guidelines that governed Indian company participation in joint investments abroad by 1995 had the following specifications: Only industrial ventures; the Indian participation could only be minority; there should be no cash remittances to start up the companies; There should be Indian participation in terms of machines, equipment and technical know-how; and the reserve bank of India should be the single window clearance agency and many oth er regulations (Encarnation 1982). All these guidelines were restrictive, reflecting that effort was to conserve foreign exchange. These policies were to ensure that the investments abroad would lead to increased export of Indian-made machinery. After 1995, the government policies were liberalized and it saw a wave of increased investments abroad. However, an annual ceiling of $500 million was introduced as a precaution. April 2003 saw the ceiling abolished and the companies were now free to invest abroad (Biswas 2005). In contrast to earlier waves of investments abroad, the current wave seems to be focused on developed nations like U.S and U.K. some investment projects are still directed towards other developing countries of the world (Agmon Kindieberger 1977). India is now in joint ventures in such areas like light engineering, oil and seed crushing, chemicals and pharmaceuticals, glass and glass products, commercial vehicles, cement and other manufacturing, consultancy and many other fields (Dunning 1981). Statistical evidence shows that most of these investments have taken the form of acquisitions.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Dunning’s theory Dunning’s theory of investment development path shows that outward investments and also inward investments create more structural development in the home economy as compared to the countries of destination. According to the theory, as a country develops it may be able to expand its industries further to neighboring countries or to other countries that are behind it in terms of development. As development becomes advanced, it becomes possible to invest even in countries that are more developed than that investing country (Dunning, Hoesel Narula 1998). It would be expected that after India liberalizing its policy, there would be more concentration on its domestic market instead of concentrating on other markets where percentage growth is lower than in India. The explanation could be that India seems to follow the theory of investment development path (Ruta 2005). These investments eventually culminate to India’s development. With India’s p reoccupation with foreign currency reserves, it would be expected therefore that the outward flow of investments will fluctuate with the level of foreign currency reserves (Bhat 1973). TATA’s UK Environment The UK market is highly influenced by the bargaining power of competitors. The presence of powerful competitors in the UK like Ford, GM, Toyota, Peugeot and others makes it a highly consolidated market. Intense price wars would therefore arise and necessitate differentiation of products (Windecker 2011). The bargaining power of the buyers in the UK market also characterizes TATA’s UK environment. Due to the high competition of the several companies in UK, buyers also have immense bargaining power. They have also in the recent times exhibited high level of bargain seeking behavior. One cannot also fail to recognize the bargaining power of the suppliers. Even with the consolidation of the vehicle manufacturers, suppliers groups have also consolidated and so car dealer s experience a lot of bargaining power due to the overcapacity problem. TATA’s UK environment is also determined by threat of new entrants into the market. There is future potential of Chinese manufacturers flooding the EU markets if there is no protection measures implemented in the near future. Even when the threat is minimized by the entry barriers of value, investment capability and product development, the globalized nature of the industry makes entry of new competitors not clear cut (Aggarwal Johann 1998). The UK market is characterized by slow pace of market entry. The high competition in the UK market means that the market window for Tata Motors is narrow. This may undermine that company’s success on this market (Shah 2006). Despite the threat posed by these challenges Tata could position itself strategically and not only concentrate on low cost cars but also SUVs since after market recovery, there would be high demand for them. They could also take advantage of the expansion of the EU market. Why UK? TATA chose UK due to presence of several favorable business and environmental factors like economic stability, medium entry barriers, growth of the car market segments and the future market expansion prospects into the EU, using UK as the base. Fast entry mode was chosen where there was establishment of contractual relationships with UK operating market agents through joint ventures (Windecker 2011). This would guarantee Tata fast market penetration and market knowledge. There was a negative aspect that had to be counterbalanced. The fact that Tata heavily relied on its Indian success undermined its competitive pressure. In order to counter this, Tata proposed to focus on building customer relations and enhance customer loyalty. A consideration is being given by Tata to come up with a SUV model to suit customers who are looking for sports type, environmentally friendly high quality but cheap cars. This is a large market that Tata could focu s on. It would use price as one of the attractive factors and this would work wonders for price sensitive individuals. In its strategy, the company will launch advertising campaigns to create awareness about the car. The company also intends to cooperate with different car dealers and develop e-commerce to ensure the products are available. In a very recent research study of Tata by a branch of its UK consultancy segment, some sustainability strategy tailored to the UK segment was proposed. The ten year sustainability strategy is designed to complement its growth and expansion. The areas addressed were steel, automobile, software consulting, chemicals, tea and other major interests it invests in. First, creation of a Tata Sustainability Solutions (TSS) was proposed. While much of its operational details will not be discussed here, TSS will ensure centralized consulting support for all business units, increased transparency, financial independence, and management development, ease of raising funds, strategic continuity and consistency of business practices. In this research it was suggested that when the support structures are in place alongside TSS, the initiatives that reflect each unit’s target market needs, business expertise needed and such variables can start being looked at. The initiatives should be tracked in aggregate by TSS perhaps with an exception of the Corporate Social Responsibility. All details should be addressed using a specific timeline to avoid jumping the gun. If Tata was to adopt such strategy, several current strategies could be affected right from human resource practices to operations (Windecker 2011). What does internalization mean to UK stakeholders? Even if capital gains are not channeled to the UK, accommodation of such investments as those coming from the East is crucial for its economy too. The advantages could be counted especially on job creation. Counting Tata only, it has been confirmed that there are 40,000 jobs in UK only coming from such an investment. This would mean that if the acquired companies were still under previous management, there would perhaps be downsizing owing to the poor performance of these companies. Allowing such foreign investments also brings in new ideas into already existing knowledge base (Shah 2006). Such investments also make UK the hub of activity in the EU and bring market not only for the foreign company products but also for home products. It brings business to such other industries like the flight industry, freight, outsourcing and others (Windecker 2011). The presence of competition also can be considered an advantage in that it brings product improvement, differentiation and makes prices affordable for the customers. Company standards also rise due to the competition bringing aspects like HR practices and services to a new level. All these combined are a plus to the local economy. The competition it brings can however be considered a negative in the sense that it takes business away from local producers. This compared to other advantages that foreign investments bring, can be considered as healthy competition (Green 2002). The stockholders are above all better positioned to benefit from the diversified investments. The internalization of companies especially from the developing countries of the East and their entry into the UK can therefore be regarded as important for the UK. List of References Aggarwal, R., and Johann, K., 1982. Foreign operations of third world multinationals: A literature review and analysis of Indian companies. Journal of Developing Areas, 17(1), 13-29. Agmon, T., Kindieberger, C. P., 1977. Multinationals from small countries. Cambridge: The MIT Press. Bhat, V. M., 1973. â€Å"Indian investment and collaboration in foreign countries.† In C. N. Vakil (ed.), Industrial development of India: policy and problems. New Delhi: Orient Longman. Biswas, S., 2005. Knowledge services sector to generate $ 200-b economy by 20. The Economic Times, New Delhi, 12 April, p. 16. Chaudhuri, A.R., and K. Muthukumar, 2004. The Worlds Ageing, and its an Old hand at Work All around You, The Economic Times, New Delhi, 15 June, p. 9. Dunning, J. H., 1981. Explaining the international direct investment position of countries: towards a dynamic or developmental approach. Weltwirtschaftliches Archiv., 117(1), 30-64. Dunning, J. H., Hoesel, V., Narula, R., 1998. Third world multinationals revisited: New developments and theoretical implications, in J. H. Dunning (Ed.). Globalization: Trade and foreign direct investment. Amsterdam: Elsevier Encarnation, D., 1982. The political economy of Indian joint industrial ventures abroad. International Organization, 36(1), 31-59. Greer, C. R., 2002. Strategic human resource management: A general managerial approach, 2nd edition. Singapore: Pearson Education. Nieuwenhuis, P., Wells, P. E., 2003. The automotive industry and the environment: A technical, business and social futur e. Cambridge: Woodhead Publishing Ruta, C. D., 2005. The application of change management theory to HR portal implementation in subsidiaries of Multinational Corporation. Human Resource Management, 44(1), 35-53. Shah, K., 2006. â€Å"The Dream Nightmare. The Economic Times. New Delhi, 10 June, p.7 Tata Motors, 2006. Annual report. Tata Motors. [online] Web. Windecker, R., 2011. Upsize and upscale lead the way. Automotive Industries, 184(6), 18