Tata Motors - Book Report/Review Example

Tata Motors 1.0 Introduction The automobile industry is considered as one of the most profitable industries of the world. The industry has experienced both highs and lows in its business cycle in its recent performance, wherein the economic downturn of 2009 is considered as the most crucial point in the history of automobile industry, initiating many changes that almost reshaped the entire structure of the sector (International Labor Organization, 2010). The industry is based on the concept of an oligopolistic market and therefore, competitive advantages are deemed as the key objectives of all the companies operating under this industry. Oligopolistic market refers to the market where there exists few sellers and the decision of one seller influences the decision of others, belonging to the same industry. Recent five-year trends of the industry reveals that majority of the companies are aimed to shift their operations in the regions where vertical integration is possible along with low operating costs (Economic Outlook no. 1210, 2014). This further contributes towards maximizing their profit. Moreover, companies functioning in this sector are also encouraging their suppliers to establish their shops in the emerging markets, as a result of which, companies become highly dependent on the suppliers who are benefited from outsourcing automobile parts to them (Global Economics, 2015; Lipschultz, 2008). However, in the year 2008 Tata Motors acquired the UK based car-manufacturing company, Jaguar Land Rover with the aim of expanding its premium car segments. Tata motors India is renowned for manufacturing passenger automobile and commercial vehicles. Therefore, in order to broaden its segment to high performance luxury cars, it acquired Jaguar Land Rover. This helped in increasing the demand and supply trend for the company. The objective of this paper is thus to analyze the automotive market in the past five years and the extent to which, the pricing strategies of Tata Motors are being affected by the changes in market situations indicating price elasticity of demand and supply. Moreover, the competitive strategies supporting the pricing strategies of Tata Motors will also be discussed in this paper. 2.0 Changes in Market Scenario 2.1 Change in Demand Significant changes have also been identified in relation to the needs and wants of the customers, with technology and safety being the first preference. High-rise in the cost of fuel since 2010 and the threats of Global warming have further encouraged the manufacturing of alternative energy vehicles. However, analyzing the macro-economic factors reveal that there is a huge scope of further potential growth of the industry in future (McKinsey & Company Inc., 2013). Nevertheless, the financial crisis that hit the economy in the year 2007 had negatively affected the global automobile market that took several years to revive. Since the year 2009-2010, revival of the market had already been instigated but at a slower rate. During the period of crisis, more than 12 manufacturing units of different automobile companies were shut down. However, as per the statistical report it is found that since 2009-2010, the production of automobiles has been increasing. The number of automobiles manufactured in 2011was 8 million units that rose to about 10 million units in the year 2012, which represents the increasing demand for automobiles (UNIDO, 2010). After the global crisis, the demand for automobiles was increasing gradually and thus, the manufacturers were also encouraged in satisfying the demand through the production of more vehicles (Statista, 2014). 2.2 Price Elasticity of Demand and Supply The demand for automobiles is highly price elastic owing to the prevalence of substitution effects and the luxurious nature of the goods produced. Being more inclined towards an oligopolistic structure, high degree of competition exist among the automobile manufacturers and thus, the companies have to face higher bargaining power of consumers and determine sales targets through competitive pricing strategies at most instances (Reuters, 2013). However, price elasticity of demand also depends on the fact whether the commodity is categorized as a luxury good or is it a necessity. This implies that if a manufacturer charges higher price for a car, the consumer has the scope to shift their choices to other manufacturers that offer similar featured cars at lower prices (Bordley, 2006). The relationship can be better understood with reference to the diagram below: Source: (Bordley, 2006). Asserting the notion within the Indian Automotive Industry it should be noted that the industry grew massively since the post-financial crisis years, contributing almost 62.2% to the global growth of automotive sector. The industry has grown substantially from 2012 to 2013, although not in every sphere. On the contrary, the industry is likely to witness decline in its performance during FY 2015 as projected. In accordance, automobile companies in the Indian market have been much concerned regarding price determination, wherein to uphold demand, prices have been marginal (Fitch Group, 2014; Pwc, 2013). The statistics obtained hereunder thus reveal that price elasticity of demand in the automotive industry is high. (Pwc, 2013) (Fitch Group, 2014) In accordance with the price elasticity of demand, price elasticity of supply is also attributed as high for the automobile industry, which increases risks for excess supply and non-utilization of resources. To be noted in this regard, price determination in the industry depends on various factors wherein a sudden change in price will lead to considerable changes in the demand aggregated within the market. This in turn is quite likely to result in either excess supply or in its deficit causing high risks of resource non-utilization as can be observed from the diagram below (Tsang, 2015). Source: (Tsang, 2015) 3.0 Tata Motors’ Pricing and Competitive Strategies Tata Motors is considered as one of the leading automobile companies of the world, which was established in the year 1945. The company produces vehicles in three different segments that include passenger cars, commercial vehicles and utility vehicles (1Tata Motors, 2013). There have been various strategies adopted by the company that helped it emerge as the market leader in automobile manufacturing (Business Standard Ltd, 2015). However, among the competitive strategies, the effective pricing strategies being adopted by the company is helping it in sustaining among its competitors and performing as the market leader in manufacturing automobiles (Tata Motors Q1 Business Review, 2014; 5Tata Motors, 2008). 3.1 Cost Leadership Tata Motors follows an efficient manufacturing process that concentrates on effective utilization of the available resources. This helps to price their automobiles at a comparatively lower price with respect to the competitors, even maintaining, the quality of their vehicles at a higher level. The company always intends to establish their manufacturing units in the regions offering the benefits of easy availability of raw materials and labors (2Tata Motors, 2015; Tata Sons Ltd, 2015). Moreover, the technical workforce is also hired based on their experiences and performances that help in maintaining the quality of vehicles (IIMB, 2014; Humad, 2005). All these factors correspondingly help to reduce the production costs of automobiles and therefore, provide vehicles at comparatively lower prices (GlobalData, 2015). The company, in its recent performances, has been much appraised for its strategy of manufacturing the cheapest car of the world with the aim that every middle class household can afford to purchase it in India, fostering the living standard of the population and also ensuring sustainable growth of the brand. The car was named as ‘Nano’ and was officially launched in the year 2008 in India with a price tag of around 1 lack (The Economic Times, 2014). The launch was a huge success for the company as there was a positive response from majority of the people. The company also launched the cheapest premium category of Sports Utility Vehicle (SUV) named ‘Safari’ with a price tag of 8 lacks INR, and received a positive response from its targeted population of India. The company always intended to provide a value for money car for the customers and therefore, the successful launch of the first hatchback car, ‘Indica’ is regarded as its benchmark performance (3Tata Motors, 2013; 4Tata Motors, 2010; Kadle, 2007). These innovative approaches taken by the company apparently indicates its cost leadership strategies to yield better growth rates and sustainability. 3.2 Differentiation Tata Motors have always followed the strategy of providing differentiated products to the customers in order to maintain brand uniqueness as compared to that of its competitors. The company always aims at creating value for its customers by manufacturing automobiles consisting of higher features but at a reasonable price (Research and Markets, 2012). With the help of better and more effective innovation and efficiency in the production process, the company ensures reliability and safety in its vehicles that it manufactures. Focusing on the safety issues of people, the company also provides many safety features in the selected model of its vehicles that also helps it differentiate from other available brands in the Indian automotive market (The Hindu, 2015; BMC, 2008). 4.0 Conclusion From the above discussion, it becomes apparent that industry structure and other driving forces prevailing within the same impose considerable influence on the performance of a company, especially when considering the automotive industry. Considering these factors, as prevalent in the current Indian automotive industry, Tata Motors have adopted several strategies that helped the company to sustain and compete in the market. Among those strategies, the cost leadership strategy adopted by the company can be regarded as the most effective one. The company always aims at providing value for money cars with innovative features that helps its product be differentiated from the competitors. It is through these strategies that the company intends to ensure demand and thereby, mitigate risks related to excess supply and excess demand, considering the high degree of price elasticity within the sector. However, it becomes possible for the company to provide cars at lower prices only because of the lower price rates charged by the company taking advantage of its lower production cost. Therefore, it can be asserted that the cost leadership strategy and the product differentiating strategy adopted by Tata Motors helped the company to attain competitive advantages and sustain among the leading automobile manufacturers. References BMC, 2008. Tata Motors Ltd. Scales Up IT Service Management to Support Globalization. Tata Motors Ltd. [Online] Available at: http://documents.bmc.com/products/documents/98/29/89829/89829.pdf [Accessed February 24, 2015]. Bordley, R. F., 2006. Estimating Automotive Elasticities from Segment Elasticities and First Choise/Second Choice Data. Article, pp. 1-15. Business Standard Ltd, 2015. Will Tata Motors Get Back In The Game Now?. Business Standard. [Online] Available at: http://www.business-standard.com/article/companies/will-tata-motors-get-back-in-the-game-now-114031101261_1.html [Accessed February 24, 2015]. Economic Outlook no. 1210, 2014. The Global Automotive Market Back On Four Wheels. Special Report, pp. 1-22. 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