An Analysis of the International Strategic
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AN ANALYSIS OF THE INTERNATIONAL STRATEGIC MANAGEMENT PROCESS OF TATA MOTORS AND BMW - TERM PAPER - Hanno Botel & Christian W. Kretzmann Boston University - Metropolitan College International Business Management (MG 520) Professor Jung-Wan Lee 9 December 2009 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 Introduction to the Background of Research International Strategic Management is the planning taken by a company to compete effectively in international markets and achieve its international objectives.
Developing a strategy for global companies is far more complex than developing a domestic strategy. International companies must deal with multiple governments, multiple currencies, multiple accounting systems, multiple political and legal systems and a variety of cultures with different languages, different behaviour, and different values. International companies need to implement a strategic management which can be seen as a comprehensive framework for achieving the company’s fundamental goals in this complex environment.
Strategy means the theory about how to gain competitive advantage in markets. The strategic management process includes a company’s mission, an external and internal analysis, a strategic choice, strategic objectives and an implementation of the strategy. Every step of this process is aimed at one goal: competitive advantage. Competitive advantage can be defined as conditions which enable a company to operate in a more efficient or otherwise higher-quality manner –than its competitors and which result in benefits for the company because it can create more economic value than the competition.
This process is not undertaken a single time; instead it is a constant, comprehensive and repeating process of analyzing the environment, the company and adjusting the strategy to the conditions. The mission statement clarifies the purpose of doing business. Moreover, it defines the values and the direction of the business. According to Caravantes, Panno, & Kloeckner (2005) it should define three basis questions: Who are we? Why do we exist? Which is our reason of being? The mission statement is used as a way of communicating with internal and external stakeholders about the strategic direction of the company.
It may specify aspects such as the firm’s products, the target customers, the markets where to compete, the core technologies used, concerns for survival, plans for growth and profitability, philosophy of doing business and corporate social responsibility. Multinational corporations (MNCs) may have several mission statement, one for the holding company and one for each subsidiary or business unit. The next step of the strategic management process is a SWOT analysis. SWOT is an acronym for the internal strengths and weaknesses of a company and the environmental opportunities and threats facing that firm.
It is technique through which strategic managers can create a quick overview of a company’s strategic situation. In the external environment the company obtains data about economic, financial, political, legal, social, cultural and competitive changes in the various markets the company is engaged or might want to serve. In the firm’s internal analysis the strategic manager assess the organizational strengths and weaknesses of the company in comparison to major competitors. Potential strengths might include a strong financial position, a great competence in process engineering, a cutting-edge technology or an abundance of managerial talent.
Weaknesses reflect deficiencies in skills, resources or other factors that impede the firm’s competitiveness such as a lack of skilled employees, high capital costs or a negative public image. With the SWOT analysis and the mission statement as context, companies undertake strategic choices: how do we want to interact successfully in our business environment and generate competitive advantage? At the corporate level companies decide whether they want to pursue a singlebusiness strategy, a related diversification or an unrelated diversification.
Companies who are convinced that businesses forming the corporate entity are worth more than they would be under independent ownership and decide against a single-business strategy have the strategic choice between vertical integration, the acquisition of firms that are suppliers or customers, or diversification, a strategy which involves the acquisition of businesses because of promising investment opportunities. A corporate level strategy has the goal to create synergies, on the one hand through economies of scope (diversification) or through an improvement of value chain economies (vertical integration).
At the business level companies have to decide how they want to compete in each market. Companies who follow a differentiation strategy strive to create and market unique products and services for varied customers and to build customer loyalty. Another approach is the overall cost leadership: Low-cost leaders focus on achieving highly efficient processes and economies of scale so that it is able to use its cost advantage and charge lower 2 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 prices or enjoy high profit margins.
A focus strategy attempts to attend to the need of a particular market segment with specific types of products in a certain region. Doing so allows the company to match the specific needs of the customers better than competitors. Functional level strategies are developed to manage the different corporate functions (Marketing, Operations, Finance…) consistent with the international corporate and business strategy. The international strategic planning process is largely framed by defining strategic goals. Strategic goals are major objectives the firm wants to accomplish through pursuing a particular plan of action.
The senior management of the company defines strategic goals. The objectives should be measurable, feasible, and time-limited. The implementation of the strategic choice is accomplished by tactical goals and plans. They are detailed goals and statements of the means or activities that will be used by the firm to achieve the strategic goals. Tactics usually involve middle managers and focus on the details of implementing. They translate the strategy into action designed to accomplish specific short-term goals.
The final aspect of international strategy management is the development of a control framework, a set of managerial and organizational processes keeping the company moving towards its strategic goals. Milestones of the strategy are reviewed; assessment is undertaken if the overall strategy should be changed regarding recent results and the environment is monitored if events are happening that might affect the course of strategy. Research Questions and Goals In the following paper we will analyze BMW and Tata’s strategic actions step by step along this strategic management process. What are strategic differences and which common factors can be identified? ? How can Tata accelerate with strategic decisions the catching up process? ? Which cultural influences of the domestic market affecting the firms’ strategic alignment can be identified? ? We will give managerial recommendations and provide a brief outlook. Developing a Global Mission Statement Tata Motors’ customer market has clearly been and still is mainly the low- or mid-income sector, but with the purchase of Jaguar Land Rover (JLR) the company approaches to the higher-income / premium car sector.
Its main geographic focus is still India but Tata is engaging more and more in emerging markets worldwide that fit to the corporate culture of Tata (South Africa, Russia, and Mexico) as well as developed markets like Spain, Italy or Great Britain. In terms of technology Tata strives after R&D excellence. Research provides the much-needed inspiration for the birth of new products. Tata Motors has undertaken large investments in green technologies, is constantly working towards developing alternative fuel engine technologies and has introduced Euro norms for carbon dioxide pollution in several products.
Tata Motors is committed to attain leadership through business excellence in the car sector while upholding values and integrity to improve the quality of life of the communities Tata Motors serves. True to the tradition of the Tata Group, Tata Motors is committed in letter and spirit to Corporate Social Responsibility. It is engaged in several community and social initiatives on labor and environment standards in India. Moreover, it is a signatory of the UN Global Compact. Tata Motors plays an active role in serving rural communities and developing community projects.
Meeting the highest quality standards and customers’ needs worldwide, BMW offers high quality automobiles and motorcycles. Their aim in developing their products is to be world leaders in value and satisfaction. In short, BMW sees its position as the most successful premium manufacturer in the industry. Moreover, it is their mission to provide the clients with unparalleled individually tailored service. Their departments are: sales of new and used vehicles, spare parts, insurance and finance as well as service, lifestyle, and accessories.
By consistently providing innovative individual solutions and by being efficient, prompt, and diligent in all they do, BMW is dedicated to strive for best business practice. It is 3 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 their vision, as a successful, profitable, and sustainable business, to grow alongside its ability to delight a rising number of highly satisfied customers. BMW’s main focus is on strengthening their leadership position in the market, and on providing their employees with the best conditions for their professional and personal development.
The corporate philosophy in terms of responsible commitment takes a major part in BMW’s mission statement. Its intention is to maintain sustainability in three distinct field: Firstly, resource efficiency, secondly, risk minimization, and reputation. Not only employees and their needs have to be respected, as the process of market globalization has lead to many changes. The entire environment and society has to be taken into account. Thus, BMW ensures that their traditional focus is not only on corporate profits and shareholder value but also on the reasonable and responsible interaction with suppliers, associates, and environment.
This approach is based and conducted on the principle of sustainable development and the belief no generation should exploit the resources needed by following ones. Two examples of that are the group’s integrated approach to environmental protection and its leading traffic concepts. Furthermore, BMW is a member of the Dow Jones Sustainability Group Index, which highlights that companies can combine both: reaping financial benefits while maintaining an active involvement in environmental concerns. In general, BMW’s corporate philosophy can be characterized as value-oriented and long-term focused.
They regard themselves as a leader of industry not only in terms of product quality or operations but also in their effort to increase the company value continuously. In context with that, it is their aim to detect, maintain and develop both, local and global perspectives and meet all stakeholders’ expectations. BMW’s extensive funding of science and its maintained open dialogue with the government and the public sector extends this commitment. The role of BMW’s workforce is tremendous to its impact on the company’s success. The BMW Group is known for its huge investments in basic and further training of employees.
In addition, they regard the international knowhow transfer as vital business factors. BMW’s approach to sent specialists to various manufacturing sites when new plants are created or joint ventures are formed is a good example of that. Hence, a constant high level of quality within the entire production network is ensured. BMW’s efforts pay out, which can be pointed out by its high reputation as an employer. For the past 20 years BMW was amongst the most attractive employers not only in Germany. Especially young academics from engineering and business fields find BMW a great employer.
All these ideas are managed by the Excellence in Human Resources program, which continuously improved the efficiency of HR functions within the entire group. It ensures that competent advice and efficient services are available for all employees. When it comes to the question, what customers value to BMW, it is important to highlight that one of their major goals is not just to respond to inquiries but instead to seek the dialogue with its customers and other stakeholders actively. By means of that, they identify risks as well as potentials in advance and are able to correct mistakes early.
One should mention that dialogue takes place at different levels in different parts, to go a bit it more into detail, of the company. For instance local representatives are inquired about their opinion of new plants and the effect on the environment. Furthermore, BMW’s Munich headquarter is an active member of meetings with several NGOs. When looking at BMW’s mission statement in general, one can conclude that their concern is not only for survival, earnings or shareholder value but also for sustainability, a strong public image, protection of the environment, and customer focus.
In the subsequent parts of the international management process, we will find out that companies with global operations also have to work on maintaining compatibility of single sub mission statements in order to deliver a consistent image. Comparative Analysis of the Mission Statements Both BMW and Tata put a great stress on sustainability and aspects of corporate social responsibility (CSR). However, BMW mainly targets established markets such as the U. S. , Europe, and Japan. Tata, in contrast, emphasizes that its main geographic focus is still India and other emerging markets.
Another main difference exists among the perception and self-concept of the companies. BMW 4 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 sees itself as a technological leader, strongly committed to meet affluent customers’ expectations, Tata is focusing on the low and mid-income sector but also strives to implement the newest hyper efficient technology. SWOT Analysis Tata Motors’ primary strength is its low-cost structure in comparison to international competitors. The company can afford to market cars to a lower price and can appeal to the huge emerging markets.
Moreover, Tata Motors benefits from the large shareholder basis of the Tata Group with which it can easily finance its investment needs – compared to independent car suppliers. Another strength is its actual market share in India (2008 – 2009: 63. 8%), concerning that India has a population of 1. 2 billion people and a fast growing mid-income class. The company can further on benefit from the strong position of the Tata Group along the supply chain, e. g. the steel plants of the Tata Steel, Inc. ake the company more independent from prize or concentration developments in the steel industry, the biggest supplier of the car industry Tata Motors has successfully integrated sophisticated international HR management processes which contain keeping local managers in new acquisitions and transplanting only few senior managers from India. With this approach the car producer is easily able to exchange expertise and to adapt to local business environments. Last but not least, the strategic alliance with the Italian mass producer Fiat in 2006 led to an enhanced product portfolio of both companies in terms of production and knowledge exchange.
The brand experiences that affluent customers associate Tata to low-price, low quality cars. This lowprice, low-quality image leads to a weak position in the premium car segments, the segments with the highest margins. Despite purchasing the Jaguar Land Rover brand Tata has not got a good foothold in higher-income car segments, even in the domestic market other brands (Mercedes, Toyota) dominate. The company’s passenger car production is based upon several generation platforms.
In comparison to leading brands like Toyota or Volkswagen Tata Motors lags a standardized automobile platform in order to increase quality and innovation, lower development expenditures and enhance inventory management. Another weakness the company has to face is its inferior performance in terms of quality standards and lean production – compared to leading brands. In international rankings Tata Motors looses direct comparison of quality standards, breakdown statistics and lean statistics (overproduction, inventory, waiting, motion) with international leading brands.
Concerning quality standards Tata Motors has to run through a complex catching-up process. Albeit undertaking aggressive acquiring approaches to increase its global presence it plays a subordinate role in the actual large car markets like USA, Japan, and Germany and cannot achieve economies of scale like e. g. Toyota. Tata Motors faces huge unexploited emerging markets. Through a forecasted increase in income levels the middle income population of emerging markets like India will grow.
The rise of the current level of eight car owner per 1000 towards the level of 500+ per 1000 (level of developed countries) includes a great opportunity for Tata with its strong presence in India and Bangladesh and its strategy to conquer emerging markets. Moreover, Tata Motors offers with the Tata Nano the cheapest car in the world with the purpose to attract non-affluent customers in emerging or developing countries. This segment has a huge future potential. The purchase of the Jaguar Land Rover brand offers the opportunity to enter the luxury segments of developed countries.
The Tata brand can benefit from know-how transfer from the Jaguar Land Rover brand and this might help to go on entering the American or the European market successfully. The brand Jaguar Land Rover can benefit from reduced costs through several standardized products and a reduced overhead. A growing green car sector will arise in the nearer future because of rising gasoline expenditures in the long term and an increasing consciousness about global warming. Tata Motors can gain notable market share with its product portfolio of super-efficient and eco-friendly cars and commercial vehicles.
Furthermore, the large two wheeler market in India and other emerging 5 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 countries embodies a great opportunity for an affordable, safe, small car with an appealing design and a low price difference to two wheelers. The Tata Nano addresses this demand perfectly. Global rising prices of raw materials could endanger Tata Motors’ low cost businesses in emerging and developing countries. Price increases in crucial parts like steel or aluminum would put a tremendous pressure on production costs.
The company would have the problem that it could not transfer all these increasing in costs to its non-affluent customers. Following, an increase in fuel prices would have an adverse impact on automobile demand as customers think more and more about alternative solutions. Credit unavailability through tightening of liquidity position and reduction in exposure to vehicle financing by banks would have an enormous impact on the automotive industry. The financial crisis of 2007/2008 has shown that the credit crunch was felt not only by consumers, but by companies as well.
Next, new competition has increased in almost all segments of the Indian automotive market due to the entry of global player and expansion plans of existing companies. The rising competition could jeopardize the strong position of Tata Motors in India. Finally, in the overseas markets the company has to face stricter norms in terms of vehicle regulation related to emission, noise and technology. Tata Motors competes with global players, which have global brand image, larger financial capability, higher technology and multiple product platforms.
In the proceeding section we will complete our analysis by briefly examining BMW’s internal resources. This analysis will be used as a basic technique to reveal and understand the strategies the BMW Group is pursuing. Among all strengths, BMW possesses a highly valuable, well-known, popular brand name, which is associated with high quality and precision in manufacturing. Their name stands for both service quality and durability of materials, as customer surveys have revealed. BMW cars are mainly present in the premium segment of the car market.
Thus, they are seen as status symbol for which not only performance quality but also market perceived quality counts. Their outstanding image strength increases customers’ loyalty and increases their willingness to pay more. BMW runs a worldwide production and cooperation network. Hence, the risk of singular countries in terms of currencies, political and economic changes is decreased. By maintaining that international focus, BMW gains access to low cost labor (i. e. India, China) as well as to advanced production facilities (i. e. U. S. , Germany) and highly developed infrastructure.
Because of BMW’s long tradition in engineering, they have gained tremendous technical experience and expertise by combining passenger cars, aircraft, and motorcycles. Their high degree of diversification as to the product portfolio, reaching from €20,000 for the 1series to more than €100,000,000 for the 7series is another major strength of them. Thus, their total risk is lowered by diversification. Additionally, BMW seizes high economies of scale due to their high numbers of production. Thus, they have a strong position in negotiations with subcontractors and suppliers, and governments especially at the location for business in Germany.
BMW is a leader in passenger safety technology, warning systems and protection of the environment, as already mentioned in the mission statement. They manage to maintain and develop this strength with the help of their own think tank to create sophisticated systems. In the following, we want to move on and take a look at some weaknesses, which BMW has to face: BMW faces higher than average labor costs, compared to competitors in the automobile industry. Especially their German base is crucial because of its technological and development leadership but costly at the same time.
Moreover, the European production facilities are cost intensive because of demanding criteria in HR department. For instance the entry salary at BMW is up to 25% higher than industry average. BMW is confronted with high competition of other German premium brands such as Audi and, Mercedes Benz, and in some parts also Volkswagen. Up to now, BMW has built hardly any strategic alliances in operations or development. Furthermore, BMW has to catch up with environmental friendly brands like Toyota to remain competitive 6 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 n the field of green cars. Topics such as increasing costs of fuel, and environmental consciousness are not only important to affluent people, as taxes on air pollution and CO2 emission are arising. I would like to introduce the next step of the strategic management process, the analysis of the external environment, by examining BMW’s origin, the domestic German market. The following paragraph will contain an environmental scan, technological changes, cultural trend, economic and political climate assessments, and will culminate in a brief overview about BMW’s opportunities and threats.
Germany is Europe's largest economy and second most populous nation (after Russia). Furthermore, it is a key member of the continent's economic, political, and defense organizations. Germany and 10 other EU countries introduced a common European exchange currency in 1999, the euro. Germany is the world's fourth-largest economy and the largest in Europe. The economic growth of Germany has varied vastly during the past years. Before the beginning of the economic crisis, Germany had several good years with growth rates between 2 and 3 percent. Even in 2007, growth was at 2. % despite a 3 percentage point value added tax (VAT) hike at the beginning of the year. Germany's second-largest trading partner is the United States. Accounting for a total of two-way trade in goods of $152 billion in 2008. U. S. exports to Germany totaled $54. 5 billion. Meanwhile, U. S. imports from Germany were more than $97. 5 billion. As Germany is a strong exporter, the U. S. 's fifth-largest trade deficit is with Germany ($43 billion). Most of German export sales are concentrated in motor vehicles, machinery, chemicals, and heavy electrical equipment.
Automobile brands such as BMW, Volkswagen, Audi, Mercedes, and Porsche face an international demand. One of Germany’s greatest advantages is its high political and economic stability. Problematic in terms of exports is the strongly appreciating Euro that makes German cars more expensive for international customers. In the subsequent paragraph, we want to examine BMW’s external environment briefly. It comprises the following sections: remote environment, industry environment (mostly determined by Porter’s Five Forces), and operational environment.
Sales to wealthy customers in emerging markets will increase rapidly during the coming three to five years. A strong demand will come from Russia and China. Concerted with the ability and willingness to pay large amounts of money for prestigious high quality cars, this will support BMW’s competitive position. Furthermore, the rapidly changing technology in the car industry creates the necessity to buy cars more often, in order to stay up-to-date with cutting-edge innovations. Hence, customers have to buy new cars more regularly.
As already discussed at the beginning of this section, another great opportunity arises from the field of politics: The increasing numbers of member countries of the European Union transfer this region into the world largest trading bloc. Hence, supply is facilitated and cross border construction becomes easier and cheaper. Nevertheless, BMW also has to face several threats from different environments. To mention are the rising costs of fuel, what adversely affects powerful and fast cars. This also makes big vehicles less affordable in the long run, which is nowadays taken into account when making buying decisions.
BMW is facing arising competition from Japan with Nissan’s high-class brand Infinity and Toyota’s luxury brand Lexus. The fact that such companies quickly imitate design and technology from BMW allows them to spend less on R for single cars. Hence, they are enabled to offer same range cars at lower prices with advanced service. The results of the economic crisis are more price sensitive customers. As we already revealed above, the continuing decline of the U. S. Dollar compared to the EURO makes European exports costly and cuts margins. As one can easily see BMW has some crucial strengths and faces numerous opportunities.
But on the other hand threats have to been taken into consideration when deciding what resources BMW will commit. Comparison of the Results of the SWOT Analyses BMW’s main strengths result from its leading position and long tradition in the field of engineering excellence and the outstanding image of German manufacturing industry, whereas Tata’s primary strengths are its low cost manufacturing base in India as well as its financial advantages of its 7 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 conglomerate parent, Tata Group. Tata can benefit from know-how and expertise transfers between Tata Motors and JLR.
In contrast to that, weaknesses, which arise from the field of high labor costs, have to be faced at BMW. Tata lacks behind in terms of quality standards and product design and has to overcome its low-quality image in the western markets. More and more affluent customers from emerging markets offer a great opportunity to BMW to accelerate its sales growth, while on the contrary Tata faces great opportunities in the growing low and mid income sector of the emerging markets with its product Tata Nano. Strategic Choice and Goals At the Corporate level Tata follows an unrelated diversification.
The Tata Group is Indian’s largest multinational industrial conglomerate and has been recognized as a very successful example of diversification strategy. Tata has interests in the automobiles, steel, information technology, communication, power, chemicals and hospitality. It comprises 114 companies in seven business sectors. The Tata Group is able to raise capital more easily than any of its independent units can separately. Next, overall riskiness of doing business is successfully reduced in the Tata Group through a balanced portfolio in different industries and countries and the firm is less subject to business cycle fluctuations.
Moreover, Tata is less vulnerable to competitive threats because they are likely to affect only one portion of the conglomerate. Finally, Tata was successful in shedding unprofitable operations cause of their independence and in acquiring new operations that seem prosperous BMW is a good example of a strategy of related diversification. It allows them to operate in some different businesses, which are closely related to each other. In the case of BMW this is cars and motorcycles. This combination allows them to leverage their high engineering competencies from the one field to another creating substantial synergies.
Pursuing this strategy has several advantages: BMW depends not only on the car market, but can also rely on sales from motorcycles. Thus, the firm is less vulnerable to changes in both the economic climate and the prevalent competitive situation in the market. In addition, research and development activities can be conducted in concert, which allows for a broader scope and cuts cost because of synergic effects. Within BMW’s strategy of differentiation they can also make use of economies of scale as several suppliers provide them with both parts for automobiles and motorcycles. Furthermore, their bargaining power is strengthened.
On the other hand, there are some disadvantages to mention, too: The costs of administration and coordination are higher. Business Level - How to Position a Business in the Market? At the business level Tata pursues with Tata Motors clearly a low-cost leadership while the company pursues with the acquired JLR brand a differentiation strategy. The long-term strategy of Tata Motors is to position the brand as an affordable, reliable vehicle producer with a remarkable priceperformance ratio in combination with hyper-efficient engines to gain large market share in the recent emerging markets, especially in India.
In 2008 JLR was acquired in order to accelerate the catching up process of Tata to global leading brands like Toyota or BMW – in terms of quality, technology and product design. Moreover, the acquisition of JLR (and its distribution channel, technology and skilled workers) has the strategic long-term objective to get a foothold in the big, sophisticated western markets (USA, Germany, UK) Otherwise Tata will have an disadvantage regarding economies of scale in comparison to leading brands. With the differentiation strategy of JLR Tata tries to attract high-income customers while with Tata Motors it attracts low- and mid-income purchaser.
BMW are one of the best examples of a strategy of product differentiation, as far as Michael Porter’s generic strategies are concerned. They offer differentiated automobiles (and motorcycles as well). BMW succeeds in satisfying their customers’ needs and wants at a high level. By desensitizing the costumers of the vehicles prices, BMW creates a substantial competitive advantage. They give strong priority to the 8 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 product and service quality.
Thus, higher prices than competitive products are either less perceived by costumers or ignored, which allows for creating a higher margin. BMW’s products benefit from innovative engineering capabilities as well as from huge investments made in basic research. The long tradition of BMW in the automobile industry and their technological leadership strengthen their competitive advantage. In addition to that, BMW employs a strong supervision of quality in every kind of process. Corporate quality managers and internal auditors file frequent and detailed control reports and continuously improve quality standards.
BMW employs a strong coordination among functions in R. Results from their own think tank projects are used for various purposes. BMW offers myriad amenities such as high basic salaries, an attractive bonus system and non-monetary advantages, in order to attract highly skilled labor, especially scientists and engineers. BMW ensures very high quality standards and maintains a strong brand image and reputation as a high-class car manufacturer, by making these substantial investments in the production of cars and motorcycles.
BMW utilizes advanced marketing methods and makes use of numerous different channels as well as different approaches tailored for distinctive customer’s needs in different countries. For example: In the U. S. BMW especially promotes its big engines even in smaller series cars (such as the 3series), whereas in Europe BMW appeals to cost conscious people by offering smaller engines that are more economical and make more miles per gallon. Functional Level Tata’s international operations strategy is aligned with its corporate and business strategy.
The majority of the plants are located in India where Tata can benefit from its low-cost labor advantage. The design of the products for the emerging market (e. g. Tata Nano or Tata Indigo) is kept quite simple to allow an effective, cost-efficient production and to appeal the customers with an excellent price-quality ratio. Moreover, the joint venture with Fiat (2005) helps both companies to increase productivity in their production processes, get know-how transfers from the other mass producer and enhance the technology of their products.
Tata’s international human resource is clearly positioned to enable a fast catching up process regarding quality and design to leading standards. With more than 2,000 engineers and scientists – positioned globally in a worldwide network – the company’s Engineering Research Center has pioneered in researching new products and technologies. For BMW as a big global company, it is a demanding task to manage all the functions of marketing, finance, operations, human resources, and especially research and development in an efficient way.
As far as BMW’s international financial strategy is concerned, one can say that they attempt to diversify risk to a degree that still enables them to benefit from positive changes in the environment. Currency risks are hedged by different locations in Europe, the U. S, and Asia. The company is funded by via different bond types with a diversified maturity profile. BMW’s marketing strategy is regio-centric. Their way of promoting and advertising varies across Europe, the U. S. , and Asia. For instance in Europe, the ecoefficiency of the engines is highlighted.
Whereas in the U. S. the power and agility of cars is stressed. The human resource strategy can be described as well balanced and sustainable, because BMW offers several programs for employees that help them to prepare their international career and ensure their position in their home country even before they left it. The R strategy of BMW is global and characterized by a constant transfer and exchange of knowledge. For instance the development of its SUV cars takes place in the U. S to a high degree because this market segment is particularly big there.
Researchers are close the market and share their findings with European associates, which are focused on the efficient design of fuel economic cars. Comparison of Managerial Approaches and Strategies Derived In terms of both their general approach to management and their corporate, and business level strategies BMW and Tata can be described as vastly different. BMW pursues a clear strategy of product differentiation with sophisticated technology and service employed. Tata Motors follows a clear low-cost 9 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 eadership, whereas the company pursues with the JLR brand a strategy of differentiation. With JLR it tries to catch up in terms of quality and product design as well as enable global know-how transfers between the business units. Without any doubt, Tata’s corporate strategy of unrelated diversification has the advantages of easy access to capital, a balanced portfolio, synergy effects as well as the reduction of business cycle vulnerability. The BMW Group is diversified in related businesses, comprising different car brands and the own brand of motorcycles.
From the functional perspective one can say that BMW’s main focus lies on operations and research & development. Tata Motors’ functional strategies are aligned to seek for an overall low-cost position. Tactical Goals and Plans Tata Motors focus at the tactical level to develop strict goals, which the middle management has to accomplish. All tactics strive to foster the cost leadership while in the meantime catching up in terms of technology. Tata focus on the details of implementing these goals. The general administration is constraint to an intensified lean management process until December 2011.
Reduced levels of management shall cut corporate overhead costs and ease the managerial communication in terms of strategic management. Moreover, the implementation of a computerized, integrated information system will reduce administrative costs by 5%. The operations department has the tactical goal to open a new facility for the Tata Nano in Gujarat by the end of 2010. As this facility comes online, it will produce 50,000 – 60,000 cars per year. The R department has the tactical goal to develop a redesign of the several product platforms in order to reduce the number of components and improve economies of scale.
The implementation is planned in May 2010. On the contrary, the R department of JLR has the tactical goals to introduce a new developed hybrid power engine in the new models of 2010 as well as to equip the 2010 models with light weight aluminum bodies resulting in considerable savings in weight and reduction of C02 emissions. In the preceding sections we have figured out what resources BMW possesses and which opportunities and threats it has to face from the external environment. In the following we will develop short-term goals (targeted less than one year) and derive tactics from that.
These will focus on a detailed implementing process and involve middle managers. In the fiscal year 2008, deliveries to customers went down by 5. 8%. BMW has to stabilize its sales and ensure a growth of sales of at least 4% during the coming 12 months. Its net profit went down to €330 million. BMW has to aim for the target of more than €3,000 million during the coming five years, which will be broken down to an increase of the net profit during the coming 12 months of at least 50 percent.
As we figured out, the emerging markets do not only offer great growth potential but can also help to hedge the general volatility of sales. Thus, the markets of Russia and China have to be focused more by conducting extensive marketing campaigns. Particularly, the new X6 M and the 5GT have to be promoted to achieve double-digit growth rates there. Control Framework Tata has implemented several aspects of strategic control to oversee its strategic development and analyze the progresses of strategic implementation.
The company has implemented a corporate risk management, which has the objectives to check systematically whether the premises on which the strategy is based are still valid (environmental and industry factors) as well as managing a so-called special alert control. Management actions are undertaken to thoroughly reconsider Tata’s strategy and tactics if a sudden, unexpected event happen. Moreover, an implementation control was designed to assess whether strategic goals and tactics should be changed in light of the results associated with the incremental actions.
For this process, the senior management sets several milestones that will be reached during strategy implementation. These milestones are often critical events (e. g. test drive of Tata Nano due to 31st October 2005) or the passage of a certain amount of time. 10 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 Before we start to conclude what our competitive advantages are in essence, we will focus on the control framework of the process of strategy formulation. It poses a crucial element by ensuring that our company is moving toward the strategic goals developed before.
BMW has established an advanced integrated control system. It provides a systematic approach to addressing complex, intersecting requirements of compliance. BMW employs a Total Quality Management (TQM) approach for both the quality of the main production units (and the supply chain) as well as for the service quality, which is directly targeted at the customer. As they are pursuing a strategy of differentiation, constant monitoring of quality and continuous improvements are necessary in order to meet high customer expectations.
The quality of BMW’s end products highly depends on the quality, which is delivered by suppliers. Thus, the following control system is employed: Level 1 - Problem discussion, Level 2 - Problem Situation at the supplier location, Level 3 - Supplier Support. Escalation is used when target deviations in core or support processes cannot be resolved solely by those concerned. If the supplier is unable or unwilling to resolve target deviations, it will be re-classified in the BMW’s supplier portfolio and monitored more strictly.
Comparison of Monitoring and Control Framework As far as quality management approaches are concerned, BMW and Tata share their main goals: both companies have implemented a corporate risk management, which has the objectives to check systematically whether the premises on which strategies are based are still valid. Furthermore, managing the so-called special alert control is a key issue. Management actions are undertaken to solely reconsider the corporate strategies and tactics if a sudden unexpected action should occur.
Comparison of Competitive Advantages and Managerial Recommendations Tata has been able to gain competitive advantage through global efficiencies. It achieves location efficiencies by concentrating facilities in low-cost countries. By building factories to serve more and more foreign countries (especially emerging markets), it achieves economies of scale. BMW also achieves economies of scale by drawing its supply from relatively small numbers of big global companies. Thereby they achieve great bargaining power and can exert great influence.
As BMW’s product portfolio is broader than Tata’s, with nine different car series and several sub categories plus motorcycles, Tata (as a cost leader) benefits more from economies of scale. Through its corporate strategy of a broad portfolio it enjoys economies of scope. With this international strategic approach Tata has been very successful in emerging markets where its low-cost, low-price portfolio meets a high demand of a rising mid-income population. Similarities can be found in a different segment of this field: the high-income population of Asia and Eastern Europe.
Moreover, Tata has been recognized as a successful example of creating synergies and economies of scope through its diversification strategy. Albeit, regarding the corporate strategy we clearly recommend to spin-off marginal businesses like retail, telecom or hotels. The conglomerate should focus more on its heavy industry business units like engineering, steel, cars and energy. The synergy effects are greater and Tata would be able to allocate its resources to core competencies. As BMW pursues a strategy of related diversification, such spin-offs are not necessary.
Although they are involved in several joint-ventures (i. e. China together with Brilliance), BMW could have a stronger focus on strategic alliances in the German domestic market. We propose them to act in concert with Mercedes Benz in terms of their high-price, high-quality cars series in order to make use of technology transfer and bundle research and development activities, particularly in the fields of passenger safety and eco-efficiency. Concerning the business level, Tata Motors should follow its low-cost strategy in emerging markets where it faces great opportunities to compete with its portfolio.
It has great chances to gain huge market shares and use economies of scale. JLR should pursue its differentiation strategy for the premium sector. Tata should foster know-how transfers and reduce overhead costs by concentrating R and certain production processes between the business units. In the long-run we recommend Tata Motor to implement 11 TATA MOTORS & BMW INTERNATIONAL BUSINESS MANAGEMENT FALL 2009 the strategic goal of changing its brand’s image in western markets from a cheap brand to an innovative, affordable brand. BMW has to maintain its strong brand image.
As we could see from the past, the invention of the lower cost 1series did not interfere with the strategy of technology leadership and clear differentiation. Nonetheless, we recommend BMW to control prices more carefully, because Tata directly attacks them with its luxury brand Jaguar (offering comparable cars at prices, which are lower by up to 16%). By improving its economies of scale and catching up in terms of technology and design with the help of Jaguar Land Rover, Tata Motors can conquer saturated, sophisticated markets in the long term with innovative, high-efficient cars for the low- and mid-income customers.
As the world becomes more and more global, not only in terms of cross-border trade but also regarding people’s attitude and global cultural awareness, we recommend both companies to join there forces and work together hands in hands. By analyzing and comparing both companies’ strategic management process, we became aware of similarities and differences as well as of numerous strengths and weaknesses across BMW and Tata. In order to successfully compete in global markets and meet increasing customer expectations, BMW and Tata should work on seizing global opportunities (i. . growing demand from emerging markets) together and eliminate individual weaknesses. One suggestion is to set up production facilities in India, so that BWM can benefit from low-cost labor, while supporting Tata in terms of safety issues and efficient design of engines. Reference (APA style) Bayerische Motoren Werke Aktiengesellschaft (2008). Annual report 2008. Retrieved 2 December 2009, from http://www. bmwgroup. com/annualreport2008/_downloads/BMW_Group_2008. pdf Bennett, R. K. (2008).
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