Tata Nano: Developing International Markets - Essay Example

Tata Nano: Developing International Markets Contents Contents 2 Introduction 3 Screening Criteria 3 Final Screening Criteria 11 Market Selection and Market Entry Strategy 11 Automobile Industry in Brazil 13 Porter’s 5 Forces 13 Marketing Programme Outline 14 Objectives 14 Segmentation 14 Targeting 14 Positioning 14 Marketing Mix 15 Internationalization Strategy 16 BCG Matrix 16 Conclusion 17 Bibliography 20 Introduction “We will have a dealer price of one lakh only, because a promise is a promise” was the primary statement made by ex-chairman of Tata Group, Ratan Tata, during inaugural session of the company’s smallest and cheapest car model, Tata Nano (Tata Group, 2014). The project throws light on business of Tata Group, the largest multinational company of India. The company was founded in 1868 and its headquarters is located in Mumbai, Maharashtra. The company functions in more than 85 countries and generates employment opportunities for more than three hundred thousand individuals. The company has generated approximate revenue of US$ 96.79 billion in 2013 (Tata Group, 2014). The income of the company accounts to almost 3.2% of total GDP in India. In January 2008, vehicle manufacturing segment of the Tata group, Tata Motors has launched a new car model named Tata Nano. The chairman claimed at the launching ceremony that Tata Nano was “people’s car”. The company advocated that the car would benefit the middle and lower middle income classes of the nation, who were unable to afford expensive cars (Tata Group, 2014). In addition to that, the vehicle was said to be manufactured after considering all safety standards, generated less pollution and highly fuel efficient in nature. The car has gained high success in the Indian automobile market. However, it should be noted that the product has acquired a global recognition and is regarded as cheapest car in the world. This research paper aims to study ways through which Tata Nano can be launched in other international markets. The context of the paper will also present an appropriate outline of the marketing plan for introducing the car in a new international market (Abeles, 2001). Screening Criteria The potential and prospective new international markets of Tata Nano will be analyzed through the PESTLE model analysis. Figure 1: Unneutered Markets of Tata Motors (Source: Tata Motors, 2014) The non-blue zones in the above world map are markets where Tata Motors are yet to enter. Hence, it is evident that there are numerous new markets where Tata Motors can expand its business. Some markets from the above where Tata Nano is still not traded are: United States Canada Brazil Egypt Switzerland Pakistan Note: the above new markets are selected by way of random sampling method. The best market screening criteria will be determined on the basis of external market features. Political The political authorities of most world nations are actively promoting their domestic automobile industries. This is because progress of automobile industry of a nation helps in enhancing domestic income by generating higher employment opportunities (Alesina and Rodrik, 1994). It also helps in accumulating productive foreign direct investment and stimulates technology transfer within country borders. The government authorities in several countries have introduced new energy conservation policies for the automobile sector. In addition, the degree of restrictions imposed by political authorities concerning C02 and GHG emissions from vehicles has significantly increased (Patankar, 2014). So, fuel efficient and low emission cars manufacturing companies are championed by the government authorities. The political and legal authorities of all nations apply strict regulations for emissions from cars. So, Tata Motors needs to abide by all legal and political norms in any international market, where it expands. Automobile importing activities in U.S. are conducted on the basis of Motor Vehicle Information and Cost Savings Act of 1972 and Imported Vehicle Safety Compliance Act of 1988 (Duty Calculator, 2014). Any company that desires to export its car in Canada must register with the RIV program. The car must be less than 15 years old and should include all safety standards. However, the import duties are almost free for vehicle importing companies in Switzerland (Duty Calculator, 2014). In Egypt the government is removing the automobile import bans. The automobile import duties in Pakistan are settled on the basis of CIF method (Duty Calculator, 2014). This includes the cost, insurance and freight charges. In Brazil the import duty is placed according to the CIF method and its rates are subjected to the duties established by the state sales tax laws (Duty Calculator, 2014). Countries Automobile Import Duty Rates (Average) U.S. 5.63% Switzerland 1.3% Canada 8.56% Brazil 22.77% Egypt 25.6% Pakistan 22.4% (Source: Duty Calculator, 2014) Thus, from the above analysis it can be stated that the import related controls in Brazil and Pakistan are higher than in U.S. and Switzerland. However, the laws relating to pollution, safety and emissions are stricter in U.S., Switzerland and Canada. Thus, the best markets of Tata Nano on the basis of political aspect are Brazil, Egypt and Pakistan. Economical Over time, extent of economic prosperity has notably heightened in most nations around the world. This has helped to improve per capita income thresholds and living standards of individuals. With improvement in such factors, aggregate amount of discretionary spending of consumers worldwide on comfort products like, cars, have increased. The rate of urbanization has also improved in all nations, which has created higher demand for transportation means. However, since the global financial crisis in 2008, real income levels of individuals have fallen owing to recessionary trails. The aggregate employability and entrepreneurship of multiple rich nations have fallen. In the globalized era, recession in the western nations has generated similar consequences in many developing nations (CIA, 2013). The individuals across the globe have lowered their disposable income shares and have enhanced demand for less pricy products. Moreover, credit facilities available to consumers in the automobile industry have heightened market demand for cars. Figure 2: Increasing Demand for Cars (Source: Weiss and Weidman, 2012) The above graph shows growing demand for cars in the automobile market. It is found that economic growth prospects in developing nations like Brazil, China and Russia are much more than that of the developed economies like Switzerland and Canada. (Mushtaq and Sarwar, 2011). The best indicator of the purchasing powers of individuals in a country is GNI per capita (Gross National Income per capita). It is the value of income generated by an individual, living either within or outside the country. Figure 3: GNI per Capita Comparison (Source: World Bank, 2014) The above graph shows that per person income in highest in Switzerland, followed by U.S. On the other hand, the same in Pakistan is the lowest. Tata Nano is a type of economic car primarily targeted towards lower and middle income group of individuals. Hence, individuals in countries with moderate per person income level (in the sample), as that in Egypt and Brazil, can easily afford the car (Frumkin, 2006). On the basis of economic aspect the best markets for Tata Nano within the sample are Brazil and Egypt. Social The living standards of individuals in the contemporary world have substantially bettered. The developing nations like, China, Brazil and Russia, are experiencing growing demand from middle income classes. Furthermore, younger generations in most countries are inclined towards using trendy and fashionable products and services. Since the extent of competition among companies has increased, brand recognition and loyalty of consumers are low. The consumers are often found to be highly price sensitive in nature and their switching cost for any product is low. Certain studies state that the proportion of aged population in developed nations is larger than that in developing ones (Morgan, and Katsikeas, 2000). The U.S. and Canadian consumers are spendthrift in nature. However, in recent years, discretionary spending power of the middle class in developing nations appears to be is rising. Thus, it can be stated that social environment of countries will be pivotal for enhancing trade of Tata Nano. Figure 4: Population Comparison (Source: World Bank, 2014) The population base of a country determines strength of domestic demand. From the above graph, it can be stated that population in U.S. is highest among all nations, followed by Canada and Brazil. So, considering all other factors constant, it can be said that demand for Tata Nano will be maximum in U.S., Canada and Brazil. Figure 5: Workforce Comparison (Source: World Bank, 2014) The above graph shows that amount of labour force in U.S. is highest in the sample, followed by Brazil. So, if Tata Motors sets its manufacturing branch in Brazil and U.S., then productive labour source of these nations can be easily availed. Technological The state of technological knowhow has progressed in majority of the countries since emergence of globalization. The automobile companies often manufacture cars on basis of mutual technological agreements. However, it should be noted that quality and features of each car can be improved with the essence of modern technologies. The electric cars in China and U.S. automobile industries are proofs of modern technological innovation. Incorporating superior technologies in cars help to increase competencies of automobile companies and enhance customer’s utility. Advanced facilities such as, GPS, auto night vision, gas mileage monitor and Bluetooth devices, are found in nearly all modern cars. The state of technology in all countries of the sample has improved. Even so, nations like, U.S. and Switzerland, are more technically advanced than those such as, Egypt and Pakistan. Since Tata Nano is an economic car and comprises basic modern technologies, it can be analyzed that superior technological knowhow in a foreign market would not help business. Rather, Tata can face strong price and quality related threats from domestic automobile firms of these countries. The bargaining power of suppliers and buyers in these markets would be high, along with extensive rivalry in the industry (Peng, 2008). Thus, on the basis of technological aspect, the most suitable markets for Tata Nano in the sample are Brazil, Egypt and Pakistan. Since the car utilizes less modern technologies, its brand would face lower competition in these economies relative to the nations like U.S. where the state of technology in the automobile industry is highly complex. Environmental The extent of environmental related restrictions is very high for automobile companies. It is believed that C02 emissions from cars are greatly responsible for global warming in the current era. The environmentalists and health experts claims that several health hazards like, lung congestion and asthma, are caused due to pollution created by growing number of automobiles (Porter, 2000). Figure 6: Pollution Comparison (Source: World Bank, 2014) The extent of emission related regulations is generally higher in nations with low pollution level. The above graph shows that extent of C02 emissions in Egypt is highest and is lowest in Switzerland. This implies that Tata Motors has to comply with greater number of emission related regulations in Switzerland than in Egypt. Legal The multinational automobile companies are subjected to numerous legal regulations in different markets where they operate. Such regulations increase the cost of trading and are primarily related to environmental and technological matters. There are many quantitative restrictions on car imports in few African nations like, Nigeria. The government authorities of foreign nations try to take large freight and carriage charges from the foreign automobile countries. Hence, Tata Motors should launch the car in a market with minimum legal regulations. Final Screening Criteria The final screening criteria for the best international market should be economic in nature. This is because; commercial prosperity of a company depends on macro and micro economic aspects of a market. If currency value of a country is low, then it becomes easier for a foreign firm to conduct business in that market, owing to low cost of business resources (Hirsch, 2008). At the same time, if supply of money in an economy is high, then employment level and per person purchasing power are enhanced. In addition, social, environmental and cultural efficiency of a market is also based on its economic status. Thus, Tata Motors should select its final market on the basis of economical environments of each marketplace. Previously it was found that on grounds of economic aspect, the best markets for Tata Nano were Brazil and Egypt. However, within these two countries, the investment atmosphere and per capita income level in Brazil is better than Egypt. Thus, the best market for the product is Brazil. Market Selection and Market Entry Strategy The above context suggests that Tata Nano will select its best international market for business expansion, based on economic perspectives of nations. Brazil is the best international market, where the company should immediately launch the Nano car. The country has the second highest population in the sample (followed by U.S.), but is primarily a middle income country. So, the economic and affordable nature of Tata Nano is likely to generate considerable demand in Brazilian market. Domestic currency value of the country is quite lower than that of U.S. and Switzerland. Hence, cost of business operations of Tata Motors would be relatively less in Brazil compared to nations like, U.S. Brazil houses the second highest workforce in the sample; this proves that the company can avail cheap labour resources here. Currently, Brazil is considered to be an emerging economy in the world. The policy makers and government authorities of the country actively encourages inflow of foreign direct investment (FDI) in order to enhance its domestic productivity and technological knowhow. Figure 7: FDIs in Brazil (Source: Xu, 2013) The above chart shows that amount of FDI inflows in Brazil is second highest in the secondary sector, where Tata Motors would operate. Furthermore, the chart also reflects that level of FDI is the country is increasing with time. Brazil is rich with natural resources. Infrastructural facilities of the country have greatly improved in recent years. In addition, Brazil is also self-sufficient with adequate oil and energy reserves (CIA, 2013). All these factors would facilitate successful functioning of Tata in Brazilian economy. Thus, Brazil is the best international market for business expansion of Tata Motors. Tata Motors can choose to enter in the market of Brazil through the process of direct investment. For making a foreign direct investment, a company needs to establish manufacturing plant in the foreign country. This would require large financial resources. Moreover, the company require sufficient experience in order to conduct international business. Tata Motors of Tata Group experiences a long learning curve in international business (Peltonen, Sousa and Vansteenkiste, 2012). The company owns large financial reserves, which makes it the largest multinational company in India. Hence, it is most likely for Tata to expand business in Brazil through FDI. By following this mode of entry, the company would be able to directly gain practical knowledge about market of Brazil. The marketing and logistic related activities would be directly practiced by the company. The company would be able to communicate with new consumers of Tata Nano without any external intervention so as to modify product or process as per local demand patterns in Brazil (Janicki and Wunnava, 2004). Automobile Industry in Brazil The nature of automobile industry in Brazil can be analyzed through a Porter’s 5 Force analysis model. Porter’s 5 Forces Marketing strategies in the Brazil will be formulated on grounds of this analysis. Bargaining Power of the Buyers (moderate) In general, each consumer purchases a car only once; so, they tend to bargain over quality and price at the time of purchase. In addition, the high degree of competition among automobile companies in Brazil has helped buyers to make their choice from various alternatives. The automobile industry in the country is monopolistically competitive in nature, hence switching costs of common mass are low (Uzwyshyn, 2013). Nonetheless, since each car has unique feature, sellers also possesses certain amount of market power. The buyers’ bargaining power is, thus, moderate, in Brazil (Christopher, 2012). Bargaining Power of the Suppliers (low) The suppliers of automobile companies in Brazil provide raw tangible and non-tangible resources like, tires and electronics. The bargaining power of suppliers is inversely proportional to size of the automobile company. Tata Motors of the Tata Group is a reputed company, which enjoys a wide market base. So, bargaining powers of its suppliers in Brazil will be low. The company would make bulk purchases in from its suppliers (Fischer, 2011). Threat of New Entrants (low) The threat of new firm’s entry is low in Brazil’s automobile industry. A new automobile company needs to make bulk investment for establishing business within the industry. The new firm would require complying with numerous legal regulations on emissions as well as acquiring patented technological knowhow (Neiger, 2014). Threat of Substitutes (high) The threat of substitutes faced by an automobile company differs in terms of the vehicle model. For instance, number of substitutes for a common economic car like, Tata Nano, is more than those available for a luxury car (Uzwyshyn, 2013). Nevertheless, it should be noted that threat of substitute that will be faced by Tata Nano in Brazil is massive. The potential substitutes of the car in the country will be motorcycles, mopeds and scooters. It is estimated in a research study that global sales of such products will be approximately 75 million by 2015 (Jose, 2010). Consumers prefer to purchase these vehicles owing to their fuel efficiency and lower prices compared to cars. Threat of Existing Rivalry (high) The automobile companies in Brazil face cut-throat competition in business. Companies like General Motors and Ford Motors are some potential market players in the industry (Neiger, 2014). Thus Tata Motors need to would face high rivalry after entering the Brazilian market. The company needs to gain competencies in business to lead within such high competition. Marketing Programme Outline The following context of the paper will explain outline of the marketing plan for Tata Nano in Brazil. Objectives The marketing objectives of the company in Brazil should be SMART (Specific, Measurable, Achievable, Realistic and Time Bound). They should aim to specifically increase sales and profit of Tata Nano in Brazil. The company must increase its sales by 5% and profit by 2% at the end of first year of business operation in the country (Carroll and Buchholtz, 2008). Segmentation The company can target most potential buyers of Tata Nano on the basis of demographic market segmentation. Age and income should be two demographic factors used for the segmentation purpose (Kotler and Keller, 2006). Targeting The potential customers of Tata Nano should be middle and lower income group of individuals. At the same time, the car will also be preferred by youth in the country. Positioning High Quality Low Price High Price Low Quality (Source: Author’s Creation) The company should claim in the market of Brazil that its Nano car is a low priced high quality vehicle (Ibrahim, 2012). Marketing Mix Product The company should manufacture high quality Nano cars in Brazil. However, the product features can be extended by the firm according to the demands of the consumers in the market. Price The price of Nano car is set according to the penetrating pricing strategy. Even in the market of Brazil, this strategy should be maintained. Place The distribution channel of the company should be wide and diverse. The product would gather higher market recognition with the help of a wide distributional network. Promotion The company should introduce various promotional means to promote Tata Nano in Brazil. Online social networking sites can be used to ensure higher visibility of the product among a wide range of customers in the country (Weber, 2007). Moreover, the way of celebrity endorsement can also be introduced in Brazil. Any popular and suitable Brazilian personality can be appointed for endorsing the product (Coldwell and Herbst, 2004). Internationalization Strategy Tata Motors should develop new international markets for Tata Nano on grounds of adaptive internationalization strategies. The political, economic, social, technological, environmental and legal aspects are different in separate economies. At the same time, local taste and preference patterns of consumers are dissimilar across the globe. Hence, a multinational company must implement differentiated internationalization strategy across different markets (Groh and Wich, 2012). Standardized strategies are not appropriate for a multinational company. So, Tata Motors should operate in Brazil in a customized manner. The multinational companies should function based on cooperative intelligence, under the regime of which they should apply adaptive strategies in order to maximize utilities of its business stakeholders (Bernard, 2000). BCG Matrix Market Share (High) Market Share (Low) Market Growth Rate (High) Star Question Mark Market Growth Rate (Low) Cash Cow Dogs Star: Tata Motors, Tata Steel, Tata Consultancy Services and Tata Power Question Mark: Tata Teleservices and Communications, Voltas Cash Cow: Tata Tea, Tata Chemicals (Tata Motors, 2014) Dogs: Null From the above matrix, it can be declared that Tata Motors is one of the most prosperous business segments of the Tata Group. The market demand share and growth prospects of the products under this segment are high (Hill and Jones, 2009). Therefore, international markets for Tata Nano should be developed in order to upkeep performance of the segment. The product is already quite popular across several international markets; business in Brazil is likely to attain prosperity in immediate future (Bigler, 2001). Conclusion The state of commercial activities within the automobile industry has become highly complex in nature. The business proficiency of a particular company within this industry significantly depends of external business factors of markets. However, in the contemporary globalized era, companies can only succeed by increasing the scope of its business internationalization. This paper tries to focus on the internationalization strategy of Tata Motors for Tata Nano. 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