Tata Case Study – International Business
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Question 1
Describe the various advantages that firms like Tata employ to become large industrial conglomerates. How can Tata use these same advantages to success in foreign markets?
A conglomerate company is a highly diversified field company. It is a combination of two or more different business lines or different corporations operated by a single corporate structure. In other words it is a multi-industry company. Tata Company was initially started as a textile company in 1868 but later grew in other various fields of business like hotels, steel production, chemical etc. Ratan Tata, the present chairman of the Tata group, is the fifth successor since 1868. Before the Government of India favored International Trade in the 1990s Tata had strongly set up its base. The advantages like firms Tata employ to become large industrial conglomerates are,
A) The Government support in financing the company
B) Passing of high quality contacts within the family successors.
C) Groups like Tata Steel, Tata Motors, Tata Chemicals, etc. of the corporate structure can aide its fellow group if its not doing well financially for a given year.
E) High Brand image
F) Superior market knowledge
H) Access to capital on favorable terms
I) High-quality business partners
J) Long standing relationship with national and state governments.
K) Competitive cost structure because of low-cost wages in India.
L) Market entry barriers to competitors by the government
Tata has operations in almost every continent in the world. It possesses a greater advantage than other MNCs because of its vast experience in India which transformed from developing country to emerging country in the last 50 years. The advantage of high revenue return of almost 5% of Indias GDP and finance support from the government makes it easy to acquire companies outside India and in return get access to the market through an already strong brand identity. For e.g. Tata in May 2008 took over two luxury automakers, Jaguar and Land Rover, from Ford and this very step changed the mindset of the company for going global. Due to its high diversification in various fields, Tata Motors which manufactures automobile relies on its sister group Tata Steel for getting steel for its cars and trucks, which gives a higher competitive advantage than other international rivals and also Tata makes its own tools, jigs, and dies, eliminating the need to outsource this costly and time-consuming operation and the pieces it stamps are so precise that Jaguar and Land Rover used Tata part before Tata bought those brands. Tata can also acquire company outside India to help it gain entrée in the particular countrys market. Tata because of its long standing relationship with national government can use political power to get contracts or set up manufacturing plants or assembly plants outside India. Tata can use the weak Indian currency to get higher revenues from the international market and as long as the currency is weak it will enjoy higher revenues from the international market and low cost wage in India.
Fig 1
Tata group has a lot of advantages to success in foreign markets.
Question 2
What makes emerging market attractive for international business? Discuss emerging markets as target markets, as platforms for manufacturing, and as sourcing destinations.
Emerging markets such as India, China, Brazil, Turkey, etc. are growing so rapidly that it has become a favorite destination for the Multi-National Companies (MNC) to do business. It is due to rapid improvement of living standards, growth in middle class with rise in economic aspirations . Emerging markets are very dynamic and they account for over 40 percent of the world GDP. It is because of these reasons why emerging markets are attractive for international business.
Emerging Markets as Target Markets
The growing middle class in emerging markets implies substantial demand for a variety of consumer products and electronic and automobile goods. Due to the development in these countries there are a lot of contract and projects coming up which are multimillion dollar value. Niche markets are also very popular in emerging markets. The growing rise for new variety of products, rise in spending money, low cost wages, etc. all contribute for making emerging market as a target market for the international companies. For e.g. textile market is huge in India and agriculture is a major sector in China. Since the emerging market countries are growing rapidly the need for equipments like power transmission, transportation and infrastructure-related products are more and more. Probably, at least for a decade the infrastructure might grow and grow which needs a lot of money and which attracts MNCs to invest in it.
Emerging Markets as Manufacturing Base
Emerging markets are no.1 destinations for MNCs to set up manufacturing or assembly plants. It is because that these markets offer lower wages and high quality human resources. Emerging market countries like India, China, South Africa, Brazil, etc. have huge deposit of natural resources. As example, Brazil has a large deposit of bauxite, the main ingredient in aluminum. As emerging markets are growing rapidly the needs for automobile and electronic goods are rising and its a cost effective way to set up manufacturing plant in these markets. MNCs can exploit the differences and market its products. Of all the emerging markets, China and India, account for almost 35% of the world population . That means these countries are a source of multibillion dollar market. Emerging markets also offer tax incentives for companies to move their manufacturing operations.
Emerging Markets as Sourcing Destination
Global sourcing, which is transferring or delegating non-core tasks or operations from in-house to foreign countries, is very popular in the present market. Global sourcing helps companies to concentrate more on their core competency which adds competitive advantage of others. Emerging markets