Joint Ventures with a German Automobile Company: case of TATA Motors- Solved

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Joint Ventures with a German Automobile Company: case of TATA Motors

(4015 words)

 

Introduction

As far as demand for automobile products is concerned, the saturation of the mature markets in the industrialized countries stands in contrast to the recent dynamism of the newly emerging countries. The stagnation of the automobile market in some countries is not simply a cyclical. It reflects a relative saturation of demand for cars with the rate of growth in these markets (Busser & Sadoi 2001). The success of the car becomes a threat for its industry in the sense that the car is criticized as a cause of the ills of modern society (Humphrey, Lecler & Salerno 2000). New actors are emerging in the industry. These actors may better be able to rethink, and thereby save, the principle of a self-propelled individualized vehicle that is diffused to the masses. Intense competitive rivalries among car producers tend to favor retention of their traditional paradigm. They are obliged to respond to the saturation of demand with an increased segmentation of markets, offering vehicles that are better adapted to new consumer attitudes such as the combination of comfort and practicality (Berger 2001). The changing situation in the automobile industry created the need for the use of better strategies to maintain the industry’s status and the income generating capabilities of automobile companies. The Automobile industry has contributed to the economy of a country. The automobile industry in India is known as the tenth largest in the world. There are many domestic automobile manufacturers in India one of which is TATA motors. This paper intends to discuss about the company’s plan to engage in Joint Ventures with a German Automobile company.

 

India’s TATA Motors

India is one-sixth of humanity, the fifth largest economy in the world, one-quarter of the earth’s urban humanity, one-third of the world’s populace living in democracy, the second largest among the developing economies, and the first massive, complex society to successfully transit from a socialist economy to a market economy. India’s transition has been bumpy but steady. Economic liberalism is deregulating the economy and stimulating local and foreign investments. India has emerged as the most promising and democratic mass market in Asia (Bullis 1997). India is one of the industrial giants of the developing world in spite of the absolute poverty that besets some two-fifths of its people. Their future depends on social reform, more enlightened government spending, a fairer international economic order, and grassroots initiatives but also on economic development, built on efficient industries. In countries where capital investment is hard to raise, the key to industrial progress is the workforce. Tata Engineering and Locomotive Company (Telco), makes three-quarters of the trucks on India’s roads and has exported to some sixty countries.  Each truck that leaves its plant in Jamshedpur is said to create after sales employment for thirteen people (Bullis 1997).

 

Telco ranks among India’s top five private-sector companies in terms of business volume. Telco belongs to the House of Tata, a vast industrial empire that includes Tata Steel (Tisco) and a wide range of other concerns from textiles to computers, chemicals to cosmetics, hydroelectric power to hotels (Lean 1995). The group was founded in the nineteenth century by a devout Parsi, Jamsetji. Tata, who believed that steel, hydroelectric power and training was the key to India’s industrial development. His successors built the city of Jamshedpur around the Tisco steelworks. It was the birthplace of the country’s industrial revolution. Tata companies still employ members of over half the families there. Tata has a tradition of concern for its workers, linked to the Parsi emphasis on doing good. Tisco pioneered the eight-hour work day, free medical care, works committees, insurance, training, and profit sharing long before they were legally required in European countries, let alone India (Lean1995). Tata Motors Limited is a multinational corporation that has headquarters in Mumbai, India. This automobile company is formerly known as TELCO (TATA Engineering and Locomotive Company). It is known as India’s largest passenger automobile and commercial vehicle manufacturing company. The company is part of the Tata Group of companies. Tata Motors has expanded its production and assembly operations to countries like South Korea, Thailand, South Africa and Argentina. There are some plans to set up plants in Turkey, Indonesia and Eastern Europe. One thing that helped Tata Motors is the strong expertise in the IT based engineering solution for products and process integration of Tata Group. India has a large auto component industry noted for its world class capabilities. Tata Motors is able to leverage its knowledge of Indian market because there is huge demand in domestic markets due to infrastructure developments. The government of India has favorable polices and regulations that help in boosting the auto industry.

 

Germany’s Volkswagen

The German car industry as a whole had followed the American model since the 1920s. Volkswagen pursued a similar strategy from its foundation in the late 1930s. After 1945 it maintained and even expanded its orientation towards the American example, regarding production technology, but also marketing, sales and advertising. Until the 1960s, the success of Volkswagen was based on mass production and marketing of the famous Beetle, which became a symbol for the emerging consumer society in West Germany and also sold well in various countries (Kipping, Kudo & Schröter 2001).  But the story of the Beetle also shows how too rigid a focus on a single automotive model and its market could prove counterproductive. In West Germany, Volkswagen struggled to change its one-product-strategy when sales of the Beetle started to decline from the late 1960s onwards. At the same time, the car was no longer competitive in its various markets, because a tightening of safety and exhaust emission standards significantly increased production costs. Next to technical know-how and production, the question of sales and marketing techniques was the other main issue in Volkswagen’s postwar recovery. The success of Beetle sales on most markets had been based on the idea of establishing a small car for the two-car household (Kipping, Kudo & Schröter 2001).

 

At the same time the Volkswagen’s extremely successful advertising and marketing strategy also had a vital part to play. The favorable exchange rates between its various markets provided another strong argument. Success was possible on the basis of a reorganized production process. Global developments in automation and assembly line production pioneered better opportunities for the company (Denison 2001). New methods of production and marketing were interlinked and guaranteed success on all of its market. The local subcontracting effects of Volkswagen are limited. Volkswagen directly supplies 85% of components. This supply system involves a daily delivery by a special train. The impact of Volkswagen’s presence on the local environment in some areas is impressive: the growth of investment, production, exports, and employment have all made Volkswagen the biggest and most successful Foreign Direct Investment Company (Denison 2001). Volkswagen is an automobile manufacturer based in Wolfsburg, Germany. This company is the original brand within the Volkswagen Group, as well as the largest brand by sales volume. Its tagline is Out of Love for the Car, or, For Love of the Automobile. Volkswagen has always had a close relationship with Porsche. In 2008 Porsche acquired a huge control over the company. Volkswagen prides itself as a company that makes use of clean diesel, and other fuel-efficient technologies. The company does this to increase sales to environmentally conscious consumers. Although there is a decline in sales, the company was able to maintain itself in most of its markets. Volkswagen is recognized as one of the leading small diesel engine manufacturers. The company has partnered with Mercedes and other companies to market Blue Tec clean diesel technology. The product is known as Blue Motion. Volkswagen has offered a number of its vehicles with Turbocharged Direct Injection engine, which lends class-leading fuel economy to several models.

 

Engaging in Joint Ventures

Globalization of business has been one of the dominant characteristics of the past two decades but will develop even faster in the future. Many companies from both developed and developing countries have become multinational players seeking market opportunities across nations. Globalization has become the cornerstone of firms’ overall business strategies (Dunning 2003). Globalization is no longer only a business option but also a part of effective corporate strategizing. In other words, present business strategy is increasingly global. Today’s global scope of business is markedly different from yesterday’s business pattern (Tabb 2004). Presently, numerous goods and services are available across borders even in those countries that were closed markets of command economies. World consumers have been exposed to a variety of products and services that had only been available to affluent consumers in industrialized countries. When customers across nations started demanding products and services for better living, companies strived to meet such demands by competing not only with local firms but also with other multinational firms (Culpan 2002).

 

Globalization for automobile companies and their production chains means that it has to align themselves with other companies. The need for strategic alliances in the auto industry is becoming more and more critical, with computers, electronics, and other high-tech innovations being increasingly integrated into the auto manufacturing process. Three or four decades ago, such alliances were practically nonexistent, because the world automobile industry was dominated by less than a dozen producers. These companies only assembled outside their national boundaries to enter foreign national markets. They limited their competition to third countries while retaining dominance in domestic markets (Porter 2002). Strategic alliances have become possible only when both sides have something to contribute, especially in the area of technology. In pursuit of competitiveness in technology, innovative and strong auto companies increasingly turn to strategic alliances with their counterparts of equal capabilities. This has led to techno globalism, resulting in a difficulty in identifying a product in this industry as having 100 % domestic content. As brand names have evolved, they no longer coincide with national identity. On the other hand, techno nationalism insists on promoting national competitiveness. It resents the growing separation of brand names from national identity (Morris Jr 1996).

 

Corporations would like to pursue economic rationality in the context of an increasingly global economy. They generally base their decisions to form strategic alliances and joint ventures on market considerations. In fact, corporations care more about freedom to invest and market their products than about the nature of the political system or the relationship of a particular government with its own citizens. The needs of the global economy, therefore, are always under some tension from the needs of national and foreign policy objectives (Shiomi & Wada 1995). Certainly, this tension has been a major force in promoting ambivalence in national policy, as well as contradictory statements and results. Automobile businesses try to configure their production chain to meet the demands of  Business systems are distinctive patterns of economic organization that vary in their degree and mode of authoritative coordination of economic activities, and in the organization of, and interconnections between, owners, managers, experts, and other employees (Bomann-Larsen & Wiggen 2004). The use of strategic alliances helps managers of Automobile business to have a comprehensive stand against globalization. The strategic alliances foster a better understanding of world standards. In engaging in a joint venture with Volkswagen, TATA motors will be able to establish itself in the German market through the use of Volkswagen’s brand name and identity.  TATA motors can use Volkswagen’s image to attract clients and be an upstart business in Germany. Both TATA motors and Volkswagen can make use of the joint venture to satisfy their goals which is to provide affordable car products. Both the companies are mass based thus they can make use of each other’s strategies to relate to the needs of the mass market. Both TATA motors and Volkswagen can make use of the joint venture to compare and share production, control and maintenance strategies. Volkswagen can share the manufacturing strategies it has to TATA motors so that it will achieve a relative success in the German market. Volkswagen can provide technological assistance to TATA motors as it enters a new market.  Through the planned joint venture with Volkswagen, the goal of internationalization will be an easier task for TATA motors. Joint Venture also speeds up the adjustment process of TATA motors.

Institutional and cultural differences

The main values of German business culture include conservatism and strength. Stability was of paramount importance, and for four decades Germany’s economy has thrived on it. A clearly regulated business environment and a stable political system have allowed long-term planning and have made Germany a reliable trading partner. In an economic climate of globalization and rapid technological development this stability may, however, hinder quick adaptation to changing circumstances. In Germany the workforce is expensive but well qualified, and the standard of work is high (James 1998). The system of labor relations may be felt to be a strait-jacket, but it has guaranteed social peace. Environmental protection adds cost, but is an investment in the future. High taxes and social contributions increase costs, but provide a high standard of living. Germany is still among the most competitive countries in the world. Its geographical position at the centre of Europe, reinforced by Unification, and its excellent infrastructure both remain stable positive Standort-factors, but there is rising unemployment, more frequent signs of social unrest and the possibility that Germany may not meet the criteria for European Monetary Union (James 1998).

 

All these indicate that the country has entered a new, more unsettled phase in which the economic miracle has lost its magic. The immense costs of unification, recession or slackening economic growth in many export countries and increasing globalization of economies have plunged the state into deficit. The economy which up to the late 1980s had gone from strength to strength now faces a serious crisis. Economic growth has remained below that predicted, unemployment has been rising, and public debt has increased to such an extent that Germany may be in danger of not meeting the criteria for the European Single Currency (Dixon & Sheurell 2002). While some experts warn of structural problems and others point to the ever-increasing involvement of the state in the economic process, both groups agree that far-reaching reforms in the public and the private sectors are the prerequisite for a successful way out of the crisis. Fears about Germany’s future as an attractive location for investment are caused partly by increasing economic globalization (Dixon & Sheurell 2002). Germany and India has various differences in culture and organization. Germany has a more organized institution and a culture based on analytical skills. Germans like to examine first a product before buying it. India on the other hand has religion and beliefs as the foundation for their culture. Indians would most of the time buy a product not only because of its good properties but because of features it has that meets their belief. TATA motors needs to make sure that the automobile products it will sell in the German market have been well tested for its properties so that clients will be encouraged to buy their products. The main cultural difference that may arise is the difference in how the personnel in India and Germany are managed. India and Germany differs on their concept of Human Resources. India and Germany has a different culture of human resource management. To make sure that TATA motors would be successful amidst the institutional and cultural differences; organizational structures and control strategies should be used.

Organizational structure and Control strategies

The auto industry is an especially important one in which to consider the development of occupational safety and health issues in countries for several reasons. First, by virtue of its size alone, the automotive industry plays an important role in labor-management relations in a countries’ economy. Second, developments in the area of occupational safety and health in this industry have reflected and, to a certain extent, foreshadowed trends in the wider economy. The tendency of other industries to follow precedents set in the auto industry is readily apparent to those who have observed developments in the areas of wage settlements and employee participation in decision making (Barrett 1998). The employee wage concessions negotiated in auto industry contracts during the depths of the last recession were followed by similar agreements in other industries. In the auto industry, employee participation in decision making in the realm of product quality, productivity improvement, and quality of work life have been widely publicized by the automotive firms themselves and by the news media. This publicity, no doubt, has influenced other industries to adopt similar practices (Kleiner & Roth 2000).

 

Not so widely reported has been the participation by labor in safety and health matters. However, the potential exists for automotive industry arrangements in these matters to serve as a model for other industries as well. The degree of labor-management cooperation on occupational safety and health that has developed in auto industries in recent years is indeed significant. Although the problem of injury under recording clouds the matter, the safety and health performance of the auto industry seems to have improved substantially under these cooperative agreements. An issue that was once seen as predominantly adversarial has developed into a model for cooperation in other areas. Nevertheless, both labor and management maintain their assertiveness along with their cooperative orientation in handling safety and health conflicts. There are certainly a great many safety and health issues on which the interests of management and workers are the same, but there remain others on which they presently diverge and probably always will. Potential health and safety hazards of accelerated work pace are an example (Jacoby 2004). Divergent interests also include the use of personal protective devices as opposed to more expensive engineering controls to eliminate hazards such as exposure to noise and dust. Regardless of their effectiveness compared with engineering controls, they may be uncomfortable, and, like seat belts, not worn by some, although the evidence of their life-protecting value is overwhelming (Wokutch 1990).

 

Management will, in almost every case, be concerned with the impact of safety and health measures on profits whereas this impact may be of little importance to workers concerned with their own safety and health or even their own convenience. Also, managers who are rewarded for short-run performance are not likely to recognize or be concerned with long-run cost savings of certain safety and health measures. Responsibility and concern for safety and health has, for the most part, been assumed by safety and health professionals in the firms. Efforts to make line managers more responsible for these functions are being undertaken within the industry but with mixed results so far. Also, workers are becoming more aware of the financial implications of safety and health. Workers have, in recent years, become more concerned with the possibility of job loss or smaller wage increases due to poor financial performance by the firm. This concern improves the prospects for cooperation between labor and management on a wide range of issues, including safety and health (Debrah & Smith 2002). High-involvement work practices are of particular significance to the auto industry because of its high labor requirements. Automobile assembly plants around the world produce quite similar products using comparable processes, thus making it a good industry to study location effects on the use of work practices. Despite the importance of high-involvement work practices for competitiveness and the general acceptance of the link between such practices and performance, we will see that the adoption of high-involvement work practices has been far from uniform across automobile assembly plants (Cappelli 1999).  The management of the human resources that would be placed by TATA motors in Germany should be the same as other industries wherein there are laws that make sure that the rights of the personnel are given attention and the welfare of all personnel involved would be taken care of.  The organizational structure for Germany should still be a top down structure wherein there would be administrators and members. The structure should be arranged according to position in the firm. The control strategies should focus on equal treatment on the personnel as well as the leaders of the joint venture.

 

Conclusion/Recommendation

TATA motors will be able to establish itself in the German market through the use of Volkswagen’s brand name and identity.  Both TATA motors and Volkswagen can make use of the joint venture to satisfy their goals which is to provide affordable car products. Both TATA motors and Volkswagen can make use of the joint venture to compare and share production, control and maintenance strategies. TATA motors will need to use technology transfers to make sure that only the important information will be acquired from Volkswagen. Technology transfers will ease any difficulty in acquiring the needed manufacturing strategies to conquer the German Market.  Volkswagen can share the manufacturing strategies it has to TATA motors so that it will achieve a relative success in the German market. Through the planned joint venture with Volkswagen, the goal of internationalization will be an easier task for TATA motors. Joint Venture also speeds up the adjustment process of TATA motors For TATA motors to achieve a good status in the German Market it need to maintain and improve its production chain so that it will not cause other problems.  TATA motors needs to make sure that it continue to interrelate with automotive companies that have been in Germany for a long time so that it can adjust to trends in that country and maintain its competitiveness in that market. TATA motors needs to maintain and continually improve its policies on personnel so that they will be motivated to create products that people will buy. Lastly TATA motors needs to make sure that the future products will be compatible to changing demands of the environment.

 

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