Tuesday, 25 September 2012

Essay - Strategic Analysis of Tata Group

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1. Introduction
Tata Group is one of the most renowned and prominent business groups in India. Tata Group is comprised of 96 functioning enterprises which fall under seven different business sectors. Undoubtedly, this group stands as a giant in the business community of India. Tata Group has now expanded its operations in more than 54 countries. This group has spread its network worldwide catering the needs of consumers everywhere. As a result, this group is gaining more popularity in specific countries where they have started their business, some of which include UK, Bangladesh, Vietnam and USA. After their successful operation in India, Tata group is making every effort to penetrate in the international market. It is imperative to analyze their business strategy which is not possible without conducting a thorough SWOT analysis, PESTEL, reviewing their business model and investigating their strategic position. However, it is important to conduct an in-depth analysis in order to get an idea why Tata group is adopting the trend of acquiring the status of internationalization for their business group.

Cultures and Values
According to Stacy (1993), successful companies emphasize on giving the best to their customers without violating their traditional beliefs and cultural values. Their decision making process revolves around putting the cultural values and beliefs ahead of their own advantages. Likewise, Tata Group has emphasized on giving the best to their customers. The group has always strived hard in ameliorating the standard and quality of life of their customers. Tata group has played an effective role in strengthening the economy, quality of life and improving the standard of living of people in India. Over the years, Tata Group has successfully gained the credibility among the masses both in India and at the international level. According to Porter, it is impossible for a business to grow or attain a successful stable position in the market without recognizing, adopting or implementing the set of core values and beliefs. However, recognition and adoption of the core values and beliefs are not solely the key factors while analyzing the success of a business entity. There are some other essential factors as well that play an important role in determining the success of a business group.


2. SWOT Analysis of the Tata Group
SWOT analysis helps in developing and implementing some of the most effective business strategies that enables the organization to understand its corporate needs. According to Johnson (2005), a SWOT analysis helps an organization to analyze and evaluate the key corporate issues as well as it also helps an organization to assess its strategic strength and how well it can make an impact on its strategic development. However, Doole and Lowe (2008) have defined SWOT analysis as strengths and weaknesses of an organization which are obtained after a thorough analysis of the resources and capabilities present in a firm. This analysis also highlights the opportunities and threats that a firm could encounter from its external environment. However, it is important for an organization to develop a strategic plan that should highlight its strengths and opportunities, eliminate the threats and help the organization to overcome weakness:

Strengths
• Specialized and experienced in seven major industries.
• Strong micro environment
• Clear company vision with a strong culture
• Availability of resources
Weaknesses
• Reliance on weak distribution network
• Lack of innovation in value chains
• Presence of unstable macro-environment
Opportunities
• Emergence of new markets with strong and stable economies
• Opportunity for inventing new products and meeting the customers’ demands
• Exports
• Increased global mergers and acquisitions can open unlimited opportunities for Tata Group
Threats
• Political uncertainty, corruption and crime is a real threat
• Fluctuation in currency rates
• Fuel price rise could impact on the transportation and operation cost
• Presence of free markets
• Price sensitive consumers are least loyal and could switch to low price products/ brands

3. Strategic Intent
Sutherland and Canwell (2004) describe strategic intent as a driving force that pushes the organization to meet its pre-defined and pre-determined set of goals and objectives. Currently, Tata Group has focused its strategic intent towards the acquisition and merger of different firms globally. Tata group has broadened its strategic intent towards acquiring the international status for their group which can make a deeper impact on other firms and businesses in the international market. Their focus is to expand the limit of their business group and to attain an international position in the global markets. Their main strength lies in their business of steel and they see it as an opportunity to invest in steel industry because of its high demand in the global market. Tata Group is well aware of the fact that they can penetrate the international market with the lowest possible prices as compared to their competitors. This would also help the Tata Group to overcome its weakness of poor distribution network for exporting its steel items and other raw material to foreign markets. Recently, using their key strength factor i.e. “experience”; Tata Group has successfully entered in the UK market through its acquisition of “Tetley Group” and “Corus Steel”. This acquisition helped the group to strengthen its business roots in UK market and to maximize its market share. However, Tata Group needs to focus on establishing a set of value drivers, ensure the availability of its resources and strategic capabilities that would help the firm to retain its market position globally. This can be further explained through a simple example of their strategic plan implemented effectively in UK market. For example, the strategic choice analysis of car segment of Tata Group of Industries reveals the strategic approach of one of the India’s biggest automobile manufacturers into the UK car market. According to 2006 data monitor, despite the fact the global demand of cars have fallen significantly, still sales of commercial and utility vehicle demand has risen satisfactory. Socio cultural forces exerts an influence which increases the demand of more fashionable SUV and sports type cars in US and UK car market (Windecker, 2005). Tata’s strategic decision to enter into the UK market is based on several factors. These factors include getting a favourable status of India from the UK trade ministry, being a part of a dynamic UK car market and reducing the language barrier with UK customers. Tata group has to face numerous factors externally and internally during its entry into UK car market and Tata had designed a strategy to address the broad competitive environment, direction of development and then adopted the method of development in such a compatible way which played a vital role in the success of Tata group in UK car market (Currimbhoy, 2004). Not only in car market segment, Tata Group is still working on paving its way in other segments as well in UK and other foreign markets.

4. PESTEL Analysis of Tata Group
PESTEL analysis stands for political, environmental, social, technological, economic, and legal analysis of any industry. It’ importance can be gauge by considering Pareto Principle, that indicates that 20% of the factors included in the PESTLE analysis has 80% impact on business activities (Wit & Meyer, 1998).

Political Factors
Political factors are most critical as a company has to revise its rules according to the political environment of the country they are going to operate in. Major activities that are directly affected by political environment include operational cost, supply chain management and competition policy. Political instability could result in slow economic growth. Therefore, it is important for the group to carefully determine the political stability of the country before entering it. It is evident that when there is a political agreement to operate in a certain country, then there will be certain benefits for both parties like (homeland of the company and the country where the company wants to extend its business) reduced tariff and non-tariff barriers. This would also benefit the Group in its cross-border operations.

Economic Factors
Economic factors play an important role in determining the economic growth of the country. It also tells about the consumers purchase behaviour. A country facing recession and economic meltdown would not be an ideal to penetrate for starting business operations for the Tata Group as compared to a country with a stable and has a sound market. After its recession in 2008, the UK economy is reviving speedily. One of the most favourable conditions from the investor’s point of view is the strong position of British pound against other currencies. It minimizes the risk factors and hence attracts investors to invest their money safely.

Social Factors
Social factors refer to lifestyle, social activities, customer trends, buying and spending habits of customer etc. Social factors are critical for an organization as they need to know that what kind of product will be appreciated by the customers, if appreciated, do they have purchasing power to purchase your product etc. Tata Group emphasized on these factors before penetrating in the car industry of the UK. In the UK, family cars are not in demand and hence this is the result of the lifestyle of the people living in the UK. They prefer to buy SUVs and luxury cars, so the growth trend can be observed towards the luxury car segment (Veloso & Kumar, 2002).

Technological Factors
Technological factor is also very critical from the organizational perspective as well as from the consumer’s perspective. Internet is one of the most important technological factors as it opens new transactional potentials, managing and operating prospects such as marketing mix, ecommerce, global market targeting, market research and targeting exact segments in low cost. Tata Group is also considering the importance of technological aspects (Currimbhoy, 2004).

5. Resource and Strategic Capabilities
Tata Group is effectively using its tangible and intangible resources to survive in the international markets. Their strategy is obvious from the Group’s recent acquisition of Daimler Chrysler. According to Ritcher (2007), Tata Group is determined to beat the other competitors out of the race. Tata Group has focused on providing quality products to their customers which is the company’s core value. The strategic capability of Tata Group lies in “Cost Efficiency.” There are several factors that contribute in building the cost efficiency of a company. These factors can be the product design, the experience of the company, supply network cost or the economies of scale (Robson, 1997). Furthermore, we cannot underestimate the profit pool segments of Tata group which helped the company to become a market leader today. Such profit pool segments include its automobile industry, technology sector, and pharmaceutical and chemical sector. Tata Group is striving hard to expand its profit pool segments and to use them as its strategic capability. This strategy would help the company to penetrate into the international market with their increased demand in Africa, Latin America and East Asia.

6. Tata’s Strategic Position
The future of an organization can be outlined by analyzing its strategic position in the market. The strategic position of an organization can be well analyzed by applying Porters SWOT analysis or BCG Matrix (Boston Consultant Group Matrix). In figure 1, the BCG matrix is representing the industries that yield a huge market share to the company but with a slow growth. These are known as “Cash Cows” for the Tata Group and this include the steel, power, oil and gas industries whereas on the other hand, the matrix also represents the industries with equally low growth and market share. Such industries are referred here as “Dogs” for the Tata Group and include Tata entertainment industry (Tata Sky and other Tata Tele Services). The BCG Matrix also represents the stars that indicate the industries with equally high market share and growth. Such industries include automobile industry, tea and chemical sector. However, each industry in the BCG Matrix is itself an opportunity for the company to get into a business opportunity with other firms (Moore, & Pareek, 2009). This can be further explained as the “Cash Cows” represent the Tata’s acquisition with the Corus which yielded a huge market share to the Group. Similarly, the “Stars” represent another Tata’s acquisition of the Korean automobile company, Daewoo. Through this acquisition, the Group has acquired a high market share.

Tata Group is focused on acquiring the position of a global brand in the international market. It is highly imperative for the Group to understand the future position of the firm in the international market along with how the Group can strategically avail the opportunities present in international market and how it can overcome threats.

7. Porter’s Five Forces Analysis
According to Porter (1980), there are five forces that drive a competition between the organizations in different industries. These forces determine the success of any organization.

1- Rivalry among existing competitors:
Tata Group is always faced by a strong competition both at domestic and international level. Domestically in India, Tata Group is faced by a tough competition from its old competitor - the Reliance Group. On the other hand, at international level, Tata Group encounters tough competitors like Ford and General Motors in automobile industry and by Brazilian steel company known as Companhia Siderurgica Nacional. This Brazilian steel company is well known for placing its bid on acquiring the Corus against the bid placed by Tata Group.
2-Threats of New Entrants:
Tata Group holds a strong market position in the international market. Therefore, the chances are rare that any new entrant in the international market can affect the existing position of Tata Group in the market. Tata Group holds a major market share in the most profitable international industries like steel and automobile in both UK and Korean markets that are known for their profitability and business feasibility in the world.
3- Bargaining Power of Buyers:
The bargaining power of buyers is lower because Tata Group has focused on giving the quality products to their customers at lower prices as compared to other businesses. Tata Nano is the example of Tata Group’s strategy in providing quality product to the customers at a lower cost.
4- Bargaining Power of Suppliers:
Tata Group needs to focus on improving its suppliers and distribution channel to allow more exports abroad. The bargaining power of suppliers is higher due to poor transport infrastructure and other uncertain conditions.
5- Threat of Substitute Products or Services:
Tata Group holds a strong market position in the international market. Tata Group focuses on the company’s core value that has emphasized on providing quality life to its customers through its products and services. Tata Group enjoys a strong relationship with its customers because of its strategy of providing the quality products to all its customers at an affordable price. Therefore, it is impossible for the loyal customers of Tata Group to switch to any other product or services with questionable quality at cheaper rates.

8. Tata’s Competitive advantage
According to Stacy (1993), Porter has described competitive advantage on two different bases:
• It can be gained on lowering the prices as compared to the rivals
• OR, it can be acquired by bringing changes to the product to make it look different from those of the rivals by adding superior and unique qualities to the product.
Tata Group has strategically used this competitive advantage in its steel industry where it has used “cost” as a tool of competitive advantage against its rivals. In automobile industry, the Tata Group has focused on acquiring the cost focused strategy. This strategy would enable the Tata Group to gain the competitive edge on its rivals who are high cost producers in the automobile industry. Tata Nano is the example of Tata Group’s cost focus strategy in the automobile industry.

9. Tata’s Value Chain Analysis
1- Inbound logistics:
Tata group focuses on building business relationships with the suppliers that have the same business value as that of the Tata Group i.e. they should focus on value and providing the high quality material to the company. This helps the group to build a life-long business relationship with its suppliers.
2- Outbound logistics:
Tata Group has chosen distribution channels which reflect the target market's buying behaviour and maximum availability of product to the target market. To maximize the product availability at market, Tata group selected contractual partner with strong dealership network. Furthermore, Tata Group has worked out on e-distribution strategy to broaden the capacity of its distribution channel (Nieuwenhuis & Wells, 2003).
3- Operations:
Tata Group has effectively used the IT systems in its operations. This has enabled the group to efficiently attain its position of low cost leadership in the market.
4- Marketing and Sales:
Tata Group focuses on targeting its customers through different promotional and marketing activities. Tata group offers low-cost high quality products; therefore they mainly focus on targeting all the segments of the society due to its cost focused strategy.
5- Service:
Tata Group provides post purchase services to its customers. They have after sales service centres which are focused on facilitating the customers with different services, customer care help and provide them assistance in getting the spare parts.

10. Conclusion
Tata group has focused on acquiring the position of international market leaders which is obvious from its international acquisitions and mergers. Tata group has implemented different strategies in different markets to gain its position as international market leaders. This group has wisely used “price” as its weapon to gain competitive advantage against its competitors and a tool for penetrating into the international markets. The company has used a “No Frill Strategy” in its oil industry which offers products at low prices, with low perceived benefits and low value additions. This strategy is specially focused to target the price sensitive segment. The group has also focused on acquiring the hybrid strategy which focuses on low prices as compared to the prices offered by the competitors while giving the same benefits on the products which are given by the competitors. Tata Group is effectively using its “low-cost” but “high-quality” strategy as its key success factor in all the international markets to gain its position as a market leader with a high market share.

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