Is Tata Motors Limited A Global Company?
The international competitiveness of a firm harboring ambitions to grow big across a wide geographical spread primarily hinges upon its ability and competence to leverage certain unique advantages which it enjoys in terms of two broad categories namely, Firm Specific Advantages ( FSA) and Country Specific Advantages (CSA). There has a been a large body of empirical studies doing extensive research in establishing a positive linkage between the growth of a firm beyond its national boundaries and its unique exploitation of the aforementioned advantages . The application of ‘Firm Specific Advantage’ (FSA) and ‘Country Specific Advantage’ matrix to some of big multinational or transnational firms’ success in penetrating very deep into the arena of global markets, has thrown significant light on their marketing strategies and consequent breakthroughs. The outward flow of investments on the part of firms is more of a strategic matter primarily guided by a host of variables encouraging them to seek places which would sufficiently compensate them in terms of risk-reward relationships. A firm intending to invest in overseas markets has to factor in the risks and adversities in the form of lack of familiarity with the local conditions, local regulatory system and hindrances arising out of these. Yet its superior competitive edge acts as spur to look to countries for making remunerative and rewarding investments outside the domestic domain .
Their being foreign on the soil of host countries and the disadvantages associated with it is to a great extent could be offset by possession of some proprietary assets and skills vis-à-vis local firms operating in the same segment. As it has already been mentioned afore that a firm enjoys ‘Firm Specific Advantage’ (FSA) which are nothing but firm specific unique advantages in terms of operational capabilities centering around products or processes, superior marketing or distribution capabilities or distinctively superior management skills. Likewise a decision to expand on a global scale may be driven out of its enjoyment of certain advantages which are known as ‘Country Specific Advantages’ (CSA). ‘Country Specific Advantages’ (CSA) obviously owe their origin to the country or countries in which Multinational companies or corporations (MNCs) set up their bases Access to natural resources which an MNC needs or availability of cheap labor or the general culture of the people of a country with its higher level of education, dynamic attitude of its people, the purchasing power of the people are the apt instances of such advantages which Multinational Companies or Corporations ( MNCs) strive to exploit to their advantages. Therefore, it is quite natural for some of the Multinational Companies or Corporations (MNCs) to strategize these unique advantages accruing from both these broad categories and make decisions in regard to moving their capital to overseas bases. In this brief essay Tata Motors Limited, one of the most successful Indian Multinational Corporations (MNCs) operating in different corners of the world, both developing and developed countries, has been taken up featuring the advantages arising out of being firm-specific and being country-specific as well and its exact position in FSA and CSA Matrix.
Is Tata Motors Limited A Multinational Enterprise?
Before any comment is made on the Multinational status of Tata Motors Limited, it would be appropriate and logical to have an analytical study of the history of the company. Tata Motors Limited was founded in 1945 under the stewardship of the great visionary J.R.D Tata in erstwhile Bombay which is now known as Mubai. The Tata group has been very active in the industrial landscape of India with its entrepreneurial spirit and enlightened philanthropic stance with business interests in diverse and core areas of iron and steel, cotton and energy and power. In the initial stage, Tata Motors mainly concentrated on manufacture of locomotives. Its steady progression into establishing itself as a pioneering leader in the manufacture of commercial vehicles could be obvious over the decades. The first car that the company rolled out its assembly line was in 1954. And since then it has been a remarkable success story for this Indian industrial giant. Either through its own research and development facilities or tapping into the critical facilities of others by forging meaningful and fruitful commercial relationships, It has greatly succeeded in maintaining its competitiveness at the national level and now looks poised to spread its wings across the globe. Tata Motors Limited had the signal achievement of entering into a commercial deal with another global leader Mercedes to engage in the production of commercial vehicles. And it was way back in 1960 and the deal which went down in the history as a shining example of combining the expertise in their respective areas to serve interests of both. The year 1986 heralded a new chapter in the history of Tata Motors as in that very year the company created a record of distinction by manufacturing and selling India’s first
‘Light Commercial Vehicle’ (LCV) in the form of ‘Tata 407’. The success of this class of Light Commercial Vehicle’ (LCV) can be seen in its appearance over all parts of India and in other parts of the globe. As it has already been stressed earlier that the visionary leadership under Tatas never seemed to have failed to take the right measures to grab opportunities which seemed non-existent to its nearest competitors. Evolving Through Joint Venture, Acquisition and Merger
In 1993 Tata Motors went for setting up a joint-venture with one of the leaders in the world in the manufacture of engines, Cummins Engine Inc,, which enjoyed specialized status in making more powerful engines consuming diesel but eco-friendly ones with lesser carbon emission meeting stricter norms of environmental regulations. Thus came a class of new vehicles in the late 1990s and early 2000s like buses operating on CNG (Compressed Natural Gas), 1109 model of vehicle meeting commercial purposes, Ex-series class of vehicles, 207 DI – an innovatively designed Light Commercial Vehicle’ (LCV). It is quite evident that Tata Motors limited’s phenomenal success in building its brand inside the national boundaries of India greatly influenced its decision to go for internationalization of its operations in subsequent decades leveraging its unique competitiveness and confidence earned over the years to meet the divergent and challenging needs of the vast Indian market. Its forays into markets as sophisticated as that of Europe, UK, Russia, South and South East Asia, South America and not Africa through formation of subsidiaries are a living testimony to its proven competitiveness and its readiness to stride across the global stage. It was not at all surprising when Tata Motors limited successfully bid for Jaguar and Land Rover from Ford it just showcased its ambition to take its due place in the global arena. Combining the domestic advantages as enjoyed by a leader with the world-class marketing distribution network, Tata Motors limited is name to reckon with in the commercial vehicle segment of the world.
Therefore, the historical entrepreneurial talents and business acumen which were evident in India before Independence but somewhat got stifled in the Post-Independent India, was rejuvenated in the liberalized regime in the early 1990s. A host of acquisitions and mergers took place involving not only Tata Motors limited or by Tatas. There had been such acquisitions by other leading Industrial groups like Birlas and others. The liberalization-cum-structural reforms undertaken in the early 90s in the form of relaxation of rigors of Foreign Direct Investment and deregulation of industries helped companies like Tata Motors Limited to engage in major restructuring to acquire further global competiveness leading to its acquiring an ‘International’ status.
A hard look at one of statements appearing in bold font and soothing colors in the latest Annual Report of the company would make amply clear the vision of Tata Motors: “Tata Motors began operations in 1945. Since that time, we have remained committed to our values and stakeholders. We have maintained a consistent focus on strengthening our organization, and expanding our presence. Today through our subsidiaries and associate companies, we already operate in the UK, South Korea, Thailand, Spain and South Africa. Our forays are spearheaded by consistent innovation to meet our customers’ needs. We are equally focused on green technologies to ensure sustainability. Despite economic crests and troughs, we have remained resilient. We identified customer aspirations, adapted to change and have delivered with purpose. Every day we are embracing better ways of working and smarter ways of our stakeholders.” It quintessentially sums up the global vision of a ‘multinational’ company. And going strictly by its presence in some of the important countries of the world through formation of a number of subsidiaries and associate companies, Tata Motors Limited seems to be a ‘Multinational’ company but looking at its total turnover of which export sale constitutes not so significantly, it is debatable if Tata Motors Limited has already achieved the status of a ‘Multinational’ company.
Ratio of Export Sales to Total Sales of Tata Motors Limited
Information that has been made available through the Annual Report of TATA Motors Limited the company reported a total turnover of Rupees 59795 crore of which export sale accounted for 6 percent. The trend does indicate its relatively greater importance and reliance on domestic sales and exploratory stage to consolidate its position in its overseas market operations.
Firm Specific Advantage (FSA) and Country Specific Advantage (CSA) Matrix and TATA MOTORS LIMITED
Analyzing the matrix of Firm Specific Advantage (FSA) and Country Specific Advantage (CSA) which basically consists of four sections to be known as quadrants to represent strengths and weaknesses of a firm operating internationally vis-à-vis Firm Specific Advantage (FSA) and Country Specific Advantage, Tata Motors Limited’s place in the matrix could be ascertained. It has already been elaborated upon earlier that there are certain advantages accrue to a specific firm for its overall superiority revolving upon product, process or technology. Similarly its cutting edge superiority in marketing and distribution can enable it to enjoy these advantages to be known as Firm Specific Advantage (FSA). On the other hand, some advantages accrue mainly due to their being country-specific which are known as Country Specific Advantage (CSA). For example, a country may be richly endowed with natural resources of a kind which a firm needs and may access at cheap prices or availability of cheap labor may attract it to invest productively. Liberalized regulatory environment and lower tariffs are apt instances of Country Specific Advantage (CSA). The rationale behind a firm’s decision to invest in overseas markets might be a combination of advantages categorized under these two broad heads. It is the capability of the persons running the affairs of these Multinational firms to leverage these advantages that largely determine the success or failure of their overseas operations. To put it more appropriately the foreign investments on the part of Multinational corporations is a critical function of these advantages.
Firms belonging to quadrant 1 represent ones which are resource-based and mature producing mainly commodities and their dependence FSAs in the form of intangible skills are less. In fact these rely more on CSAs in the form of lower energy costs and location. Quadrant 2 represents inefficient and floundering firms preparing to exit or restructure. The quadrant 4 firms are characterized by their greater reliance on FSAs. These Firm Specific advantages mainly consist of owning brand equities, leading skills in marketing and customization. Quadrant 3 firms may prefer to follow three generic strategies mentioned earlier.
In the light of the above Tata Motors Limited can be logically placed in quadrant 3 as the company using its Firm Specific Advantages as well as Country Specific Advantages. Its chequered success in building and management of brands over long years and decades in the domestic and development of appropriate marketing strategies through customization to cater to diverse groups of customers are all strong FSAs which could be leveraged in developed countries and CSAs could be more effectively exploited in combination with FSAs in developing countries like the ones in Africa with abundant natural resources, cheap labor etc.
Integration and Responsiveness Matrix and Tata Motors Limited
There are many models in organizational structures which the Multinational Enterprises (MNEs) adopt in their quest for optimization of results aiming at achieving greater levels of global integration and local responsiveness. Although the characteristics displayed by some MNEs do record a marked departure from the traditional or pure models but these do reflect adherence to traditional ones. A critical study of the traditional Global model would reveal the following features as follow: Matrix position; high global integration and low localization.
- Subsidiary role: Minimal, distribution and operations.
- Centre role: Global integration, corporate strategy, competitive strategy
- Management decisions: Top-down (from corporate head quarters to subsidiaries)
- Technology and Knowledge Transfer: Kept at the head quarters and minimal knowledge transfer across borders.
- Percentage of Foreign Sale: High.
Before putting Tata Motors Limited into its appropriate place in the above-mentioned integration and responsiveness matrix it would not be out of context to look briefly at features of International model which could be enumerated as follow:
- Matrix Position: Low global integration/low localization.
- Stage: Early and Exploratory.
- Subsidiary Role: Minimal.
- Center Role: Corporate and competitive strategies, tactical decisions.
- Management Decisions: Top-down (from corporate headquarters to subsidiaries).
- Technology and Knowledge Transfer: From corporate headquarters to subsidiaries.
- Percentage of Foreign Sale: Low
It is quite clear that Tata Motors Limited has made significant progress in making its presence felt in some of the important markets in the globe using its competitiveness but a look at its sources of revenue would reveal the stark truth that its overseas turnover still remains very low. Therefore, it would be more logical to put it in the international quadrant of the integration and responsiveness matrix. And in terms of organizational structure, the company is well poised to become a ‘Multinational’ company.
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