Tata Motors and Fiat Auto: Joining Forces - Case Study Example

Another concern regarding the case is the unequal stake of Fiat and Tata Motors in the deal. The agreement has already been signed hence raising such questions might seem irrelevant for readers of this case. Brief Overview of the Deal In 2006, Italian automaker Fiat Auto S.p.A. (Fiat Auto) has signed Memorandum of Understanding (MoU) with Tata Motors (TM) in order to form a joint venture (JV). Key objective of the joint venture was manufacture automobiles, engines of automobiles and transmission in Indian market (ICMR India, 2007).

The deal will help Tata Motors to export car in overseas market whereas Fiat will get the opportunity to sell its car through selected dealers of Tata Motors. In the first month of 2006, both the Indian and Italian auto major have signed marketing agreement in order to sell selected brands of Fiat cars with the help of marketing team of Tata Motors. Problems It was an obvious fact that both the firms were going to benefit from the co-operation, but not without challenges. The Tata Fiat alliance was bound to confront intense competition from several other automobile manufacturers in India, which were also in midst of different alliances.

Companies like Renault SA also got into joint venture with Mahindra & Mahindra Ltd in order to launch Logan, which was a sedan and it could easily give a tough fight to Tata’s Indigo. Even companies like Toyota Motor Corp. And its subsidiary company Daihatshu Motor Co. Ltd planned to launch small cars for the Indian market. This scenario revealed that Tata already had many competitors in the market from every car segment, ranging from sedan class to small cars (ICMR India, 2007). As far as Fiat’s problems were concerned, they faced trouble during 1990s due to their failure to move on the larger car segment from smaller cars, and several other internal and external financial troubles.

By 2002, the company had already lost around $2.5 billion and its market shares have gone considerably in Italy by 28 percent and in Europe by 7 percent. Fiat also announced its intention to downsize for cutting cost. The company had to sell off its assets in order to pay off its debts, and a simultaneous change of 4 CEO. All these facts are enough to state the business performance of Fist, when it went for joint venture with Tata Motors. Tata Motors though a sustainable company, already had to face several threats due to intense market competition and along with that getting into strategic alliance with a company which is neither stable nor profitable was a matter of concern and a tough decision to make (The Hindu, 2013).

Solution The deal can be viewed as the synchronization of Indian and Italian culture. According to the deal, Fiat and TATA has restricted their operation by offering limited products to customers but it is recommended for both the company to improve their market penetration by offering more number of products to customers. Hence, the joint venture needs time to be profitable and it will not be right to expect that the deal will fetch profits for both the company in overnight manner due to extensive competition in Indian auto market.

In such context, both the company need to work together in order to cut down the cost in Ranjangaon facility in order to offer low priced car variants to middle and upper-middle class Indian customers. TATA Motors and Fiat need to consider both the option of selling cars to domestic market and exporting cars under the brand name of Fiat or Tata in order to penetrate in foreign shores (Ozcan et al, 2008). Fiat Group should establish a separate National Sales