With this, comes your choice process associated the mode of access in international market. A company has an option of exporting, making contractual contracts, forming joint ventures or alliance, acquisitions and Greenfield purchases. Obviously, there has to be one function of entry and it should be chosen by considering all the internal and exterior factors that your company faces. An incorrect admittance decision can have disastrous implications.
In this job, we have tried to throw some light on the international admittance decision process. We have tried to investigate various factors which affect a company's decision to endeavor abroad. These factors are categorised as internal and external.
Later in the job, we have attempted to create a platform which will try to simplify the market accessibility decision process for a company. We assess all the factors and try to discover the combinations which suit different settings of entrance.
In the later sections, the truth of Tata Motor's acquisition of Jaguar-Land Rover is examined. We have attempted to identify the many factors which validate or do not confirm with the actual scenario. In the event if one factor fails based on the framework, we've also tried out to give a possible explanation for this.
Problem Statement
The all pervasive and ever growing factor of globalization has been a huge force which includes changed the way any business functions in today's day. Boundaries have shrunk making the whole world a potential market for a firm. This implies that a company may need to move beyond the safe realms of its domestic market and get into foreign markets. It will have to consider and take into account various factors, both interior and external, which will then decide the function of entrance in the overseas market.
Therefore, the two important questions which we want to answer through this research are:
How do inner factors affect firm's selection of international market admittance mode?
How do external factors effect firm's choice of international market entry mode?
Factors regulating a Company's Decision to Project Abroad
With our problem declaration defined, we now focus on a company's decision process to endeavor abroad.
The main issues which need to be addressed through the decision process are -
Should a business venture abroad
If it ventures, which are the markets it requires to target
The setting of entry it should adopt to gain a solid foothold in the international market
These various problems are discussed in detail in the areas pursuing below.
For any business, a choice on whether it should endeavor beyond the protection of its local market and go into foreign marketplaces is a significant one. This decision can't be taken until a good amount of analysis is performed. This analysis should cover the breadth of the various factors and each factor should subsequently be protected to the maximum depth possible. Four principal factors, that happen to be a mix of external and inside factors, are believed which help out with this process -
Demand: A declining demand for a company's goods or services within the local market can be considered for the business to decide on whether it needs to venture in foreign countries to fulfill this lack of demand. This will logically be followed by the analysis concerning if the demand for the products or services is accessible in foreign countries or not.
Cost: For every company an advantage prevails in the domestic market about the costs included to manufacture the merchandise due to the assistance distributed by the Govt. in conditions of favorable regulations. Also, the business appreciates about the various sources of procurement of cheap recycleables. However, if this advantages is recinded by an unfavorable legislation or fallout with any of the suppliers, the business might need to explore other markets where the price tag on production computes cheaper.
Product Life-Cycle: Certain goods or services come under a category that includes a very brief screen in which they can earn the utmost possible profits. Post this period, the product gets replicated by way of a competitor or a substitute is released which eats away into its earnings. Or the merchandise could be such that a more recent and better version maintains getting developed over time making the current one soon obsolete. Hence, to be able to realize maximum revenues the business can launch the merchandise simultaneously in a number of markets-domestic and foreign.
Strategy: An organization may wish to task itself as a worldwide player in order to gain a larger leverage for its products or services. In addition, it helps the company attain reliability as it could project a graphic of being respected in several countries and also make the stakeholders aware that they have the know-how to adjust to diverse situations.
Entry Moved Open to Venture Abroad
Once a corporation decides to endeavor abroad, it requires to devise a method of admittance which would ensure its success in the overseas market. The access modes would range based on the surroundings in the overseas market, core competencies of the business and the institutional create of the encouraging industries.
The various access modes available to be able of hierarchy of penetration of the overseas market are as stated below -
Exports from Domestic to Foreign Market segments: This purely includes producing goods within the domestic market and exporting those to the foreign market. This is one of the most basic forms of international business as it rarely exposes the firm to any of the risks. But this won't necessarily project the business as a worldwide player.
Contractual Contract: A corporation could enter into a contractual agreement with one of the local players in the foreign market wherein the local player would carry out certain aspects of the business on the company's behalf. This fundamentally works as a proxy for the business and helps it carry out procedures in the international market without actually getting a presence in that market. However the company could have no say in the procedures of the neighborhood player and would only have a nominal say.
Joint Project or Strategic Alliance with an area Player: A company may possibly also achieve a foreign presence by getting into a joint venture or any form of strategic alliance with one of the local players. This move could be completed at any stage of the merchandise value chain. The main intention of the company is always to choose a partner who would supply the necessary resources to smoothen the businesses in the international market. The JV or alliance could be produced with a distributor, dealer, or a primary competitor in the foreign market. This way the organization gets a simple access into the market and gets an area player to help it deal with any of the potential risks.
Acquisition: This is an increased step on the JV or strategic alliance. A firm can attain a significant occurrence in a foreign market by acquiring an area player in the same line of business. This would supply the company a good network of pre-existing stakeholders by means of suppliers and distributors. The organization would also be better put in terms of the labour power as it could continue with the existing employees and save itself the costs of fresh recruitments. However, the decision of the business to obtain and the procedure of acquisition should be done accurately in order to not face any backlash later.
Greenfield Investment: This is the most extreme form of venturing overseas wherein the company establishes creation facilities from scuff in a overseas country. The organization needs to proceed through all the processes from getting the authorization and acquiring ideal land to recruiting employees and making the ultimate product available to the market. The risks confronted by the firm employing this strategy are seamless and the complete process is long attracted stretches over years. Companies decide to venture in such a manner as it offers it benefits over the long run. The development of the firm's business is guaranteed for the reason that market as it is a highly self sustaining method of carrying out international business.
The benefits or hazards associated with each function of access are summarized in the stand shown below.
Figure : Methods of Entering Foreign Markets, Okoroafo, 1991
The methods could be grouped into an equity and non collateral mode of entrance with regards to the manner of penetration by the business into the foreign market. The admittance settings can be examined in depth as to the various varieties available under each and the hierarchy that they follow.
Figure : The model of the choice of entry settings, Gomes-Casseres, 1990
Internal Determinants of Foreign Market Admittance Strategy
There are a great deal of factors inner to companies which play a vital role in deciding the access strategy choice. Some of these factors are psychic or ethnic distance, centralization of decision-making, organizational culture, organization size, international experience and characteristics of the decision maker. Each one of these factors are critical in determining a firm's corporate and business strategy, and therefore it is expected that have a significant influence on entrance strategy selection.
Previous Research: Research on entry strategy has recognized a firm's degree of involvement or control over an procedure and resource dedication as critical proportions upon which admittance strategies can be categorised (Kogut and Singh, 1988; Treadgold, 1988). Treadgold (1988) recognized between three main access strategies. First, an admittance strategy that affords a higher amount of control is normally associated with high cost, such as acquisition, dominating shareholding or wholly possessed Greenfield investments. The second strategy includes medium cost and control, which is typically connected with 50:50 joint endeavors. Third, a low cost strategy is thought to imply a reduction in control, such as minority collateral interests, franchise arrangements and in-store concessions.
Since organizational culture is a critical factor in determining a firm's commercial strategy and path, we now examine how various interior factors influence the access decisions of a firm. Though these factors play an important role in your choice process, they have to be evaluated combined with the external factors as well.
Centralization of decision-making: It really is thought as "the amount of delegation of decision-making expert throughout a business and the level of participation by organizational customers in decision-making" (Jaworski and Kohli, 1993, p. 56). As centralization is mainly a control concern it can be argued that more centralized structures would prefer access strategies that manage a high level of control for head office based in the house market. In addition, decentralized or autonomous decision making structures may be more willing to adopt low control access strategies.
Culture Distance: Culture distance can be simply referred to as the difference between the cultures which a company faces when it determines to enter into a overseas market. It captures management's notion of both ethnic and business variations, which raises its explanatory electric power. It really is expected that better psychic or ethnic distance leads a firm to look at an entry strategy that is more unbiased. This is related to the problems encountered by 'double layered acculturation', which requires a firm to adapt to both another type of countrywide and organizational culture (Barkema et al. , 1996). Whenever a firm gets into a faraway market it is more likely to look at an entrance strategy that incorporates an indigenous firm (Luo and Chen, 1995). This argument is based partially on the idea that shared-equity ventures enable foreign companies to delegate certain culturally delicate management functions to the local firm.
Organizational Culture: Organizations can be categorized as one of four ethnicities (Deshpande, 1993). First, a hierarchical culture stresses established procedures, guidelines and uniformity. Second, the clan culture stresses loyalty, traditions and dedication to the organization. Third, the marketplace culture focuses on competitive activities and success. Fourth, an organization with an adhocracy culture is entrepreneurial, creative and adaptable. Classification of organizational cultures suggests an optimistic romantic relationship between organizational culture and entry strategy. For instance, a more entrepreneurial culture, such as adhocracy, is likely to take bigger business dangers and enter marketplaces through high cost/high control strategies, whereas a hierarchy or clan culture may become more likely to choose a minimal cost/low control strategy. As a result, organizational culture has a significant positive effect on entrance strategy.
International experience: In past research also, international experience is shown to have important implications for entry strategy selection (Agarwal, 1994; Anderson and Gatignon, 1986; Caves and Mehra, 1986). as organizations gain more international experience the level of uncertainty regarding operating in foreign market segments will certainly reduce, which, in turn, increases the probability that such organizations use high cost/high control entry strategies. Correspondingly, those firms with less international experience are more likely to enter a overseas market through a joint venture as a means of sharing the risks and responsibility. The market entry method decision is influenced by just how many times, how recently and in what circumstances the company or its rivals have used any particular entrance mode.
Firm Size: It is also suggested that larger firms, with better financial resources, will use acquisition as a mode of access, whereas small businesses will evaluate the relative benefits associated with franchising, concessions, distributors and agencies (White, 1995). Small companies may not have sufficient management probable and special skills to type in overseas market through building fully owned foreign-based subsidiaries or international joint projects. A company with limited resources is constrained to utilize entry methods that call for only a little resource dedication.
Management Risk Attitude: Relating to Koch (2001): the company's finances, its strategic options, the competitiveness of its competitive environment, its relevant experience etc. The less risk-averse the management, the more likely it is ideal for the company to select the countries that show greater prospects and offer to improve the firm's features.
Complexity and differentiation of the product: According to Hollensen (2001), the complexity and differentiation of the merchandise which a corporation is about to market in the new country, influences the expense of shipping, economies of level, technology transfer, and already existing know-how, including the author introduces the risk of licensee abuse of technological know-how and that it might render intolerable costs to deliver heavy or large goods because of the high shipping and delivery costs. Highly differentiated products with particular advantages over competitive products give vendors a significant amount of pricing discretion. In contrast weakly differentiated products must compete on a price basis in a target market.
Goals and motives: According to Bruno and Schildt (2001), motives and goals make an effort to answer questions like what motives were there in the business for internationalization, any kind of long-term and/or brief- term goals for the company. However, we feel that these factors should not be analyzed in isolation with other factors.
External Determinants of Foreign Market Admittance Strategy
Along with all these internal factors, deciding the perfect admittance strategy also takes into account several environmental conditions regarding the market into which the firm hopes to enter. Below, we identify some crucial external factors which can be taken into account while considering the setting of entry of an business into a new international market.
Industry feasibility/viability: Koch (2001), explained that some accessibility methods may be excluded in a few countries because of laws and regulations. Some entry modes, like fully possessed foreign subsidiary and international joint endeavors, may be excluded for legal reasons in some countries; a few of these exclusions may relate with selected industries regarded as of strategic value for the state. Other entry methods like licensing may entail increased know-how dissemination risk, particularly if the overseas country is not a signatory to the correct international conventions. Other hindrances (e. g. restrictive labor regulation and tactics, cost of labor, insufficient degree of skill) may discourage from creating a subsidiary, or a joint venture procedure in a foreign market.
Market Size: The present and projected size of the prospective country market can be an important impact on the entrance mode. Access into a small market might not be justified by heavy purchases via alliances etc. Exports, licensing etc could become ideal entry settings in an inferior market. Similarly, venturing into a huge market could typically involve joint alliances, acquisitions, major franchising etc. Thus, the market potential and its projected expansion can play an important part in deciding the method of entry.
Market growth rate: There is an interesting proposition about the impact of market growth rate on the admittance mode strategy given by Koch (2001). Based on the same, if a market is growing at a fast rate and this growth does not appear to be ecological for long-term duration, the entry should stop wasting time and intense to get maximum result. For a little by little growing market, the access strategy needs to be lasting, often associated with heavy investment just like a jv, alliances, acquisitions etc.
Target Country Development Factors: Matching to Root (1994), the quality, variety, and cost of raw materials, labor, energy and other profitable agents in the target country, as well as the product quality and cost of monetary infrastructure (vehicles, communications and port facilities) have bearing on entrance mode decisions. Low creation costs in the mark country encourage some for local creation as against exporting. High costs would be a factor against local production.
Characteristics of the overseas country business environment: Similarity and volatility of general business legislation/practices, business infrastructure and encouraging industries degrees of development, forms, opportunity and intensity of competition, customer style and customer safety legislation are among those characteristics which would normally catch the attention of the interest of potential entrants into a international market.
Competition in the prospective Market: The competitive composition of a foreign market plays a crucial role in determining the access strategy of a company (Root, 1994). According compared to that theory, an unknown market can have either multiple non-dominant market leaders, that can be an atomistic structure or it can have a few extremely dominating leaders or rivals, a monopolistic market. Thus, the intuitive debate tips an export established admittance into an atomistic market while an extremely monopolized market will demand cost cutting alternatives like production overseas. In case there is really strong competitive market, a firm can also opt for a milder admittance strategy like licensing or other contractual contracts.
Market obstacles: There are several market barriers following are of major barriers which will make market entrance difficult. A few of them are tariff barriers, governmental regulations, circulation access, natural obstacles (market success and customer allegiances), advanced versus producing countries and exit barriers. For instance, if the exit barriers are extremely high in a market, a company should keep its engagement to the export strategy only.
Home Country Factors: Market, development, and environmental factors in the home country also effect a company's choice of entry method to penetrate a target country. For instance, a big home market allows a firm to expand to a huge size before it converts to foreign marketplaces. High production costs in the home country relative to the foreign aim for country encourage entrance modes affecting local creation, such as licensing, deal developing and investment. The insurance policy of the home administration toward exporting and foreign investment by local firms also has significant impact.
Target Country SPEC Factors: Public, Economic and Political conditions likewise have dominant role in accessibility decision.
Political Conditions: The government polices regarding tariff, quotas etc. also help determine the accessibility strategy. For instance, a highly restrictive market with extremely high tariff rates and stringent quotas will never be favorable for accessibility via exports. In the same way, firms desperate to work with socialist countries may have to rule out certain accessibility strategies like production in another country, alliances and rely on licensing etc. Thus, the compatibility between your political characteristics of the firms' working and the web host countries environment must be taken into account while considering on the admittance strategies.
Economic Conditions: The major economical factors like market size and progress potential have been completely discussed above. Apart from it, some major macro-economic factors can even be put into the list. Some of these are country's GDP development, interest rate composition, the expansion of the mark consumer school. These factors are however the determinants of the market size and growth rate.
Social/Cultural Conditions: Certain traits of the Market are necessary in deciding the entrance strategies
Home/Host Conditions: The interpersonal conditions of the house as well as coordinator nations need to be considered while considering on the entrance strategy. For instance, a firm originating from an extremely developed nation attempting to expand into expanding region generally is buying a low cost environment or a market with high development potential. In such cases, entry via production abroad, equity opportunities or alliances could work in their favor.
Similarly, the coordinator countries production capacities are equally crucial. Their durability in procurement of raw materials predicated on their quality, number as well as cost, the expenses associated with labor, energy, the available infrastructure etc. will play an important role in identifying the entry setting for any company.
Geographical Distance: The geographical distance between the sponsor and home countries determines the possible travel costs that could be associated with a succeeding trade. If this distance is fantastic, high vehicles costs involved will discourage entry via exports. In such cases, franchising, licensing or even development abroad could be looked at as is possible options subject to other beneficial conditions.
Psychic Distance: The occurrence of 'Cultural Distance' described previously also functions as an external factor, also to be described as the 'psychic distance' (Bell, 1995). According to the research by Bell, 50-70% of organizations end up expanding into markets that are 'closer' in conditions of social similarities, physical proximities. Indian companies establishing their occurrence into UK can be related to the strong historical ties between the two countries.
Risks Connected with Foreign Ventures
When a company decides to venture into a particular market it is exposed to some of the risks fastened with the chosen market. These dangers could be diverse if not handled in the right way may really hamper the businesses of the organization. The firm must be proactive in assessing the potential threat of any hindrance and produce appropriate ways of offer with them even before they create the foreign businesses. The risks can be broadly categorized under the following categories -
Political Risk:
The political steadiness in a country is an important factor for a company to analyze before deciding to enter into that market. As governments change, the regulations they produce change too. This may easily result in a situation in which a market scenario that was favourable for the business turns out completely unfavourable by the new policy. Political stability is also important as any imbroglio within the country could put normal operations out of items and in most cases it's the company not local to a market which is targeted first.
Economic Risk:
A company could also face a good amount of economic risk which develops due to legislation and fluctuations completed in a country's economical policies. A number of the major threats are the forex valuation, progress rate of GDP per capita and local money source management. The inflation and unemployment rates too have an effect on a company's strategy. The company might need to adapt its prices according to the changes in the inflation.
Financial Risk:
Restrictions on Foreign Direct Investment may hamper the range to which an organization plans to endeavor abroad. It could even change the strategy it decides to enter a particular international market. The plans implemented by the central loan company would affect the administrative centre availability. The united states should also be checked if it has had any record of expropriation to guage whether it's fiscally safe to enter it or not.
Socio - Social Risk:
Though globalization has shrunk the physical boundaries, it has still not conquered the social boundaries which exist between countries. Every region has its culture which might be at the job or in their daily tactics. This culture identifies just how things are completed and therefore it becomes imperative for a country to understand the nuances to be able to maintain good relations with all the stakeholders. This risk would also cover the educational level of the local labor force which would subsequently influence their employability.
A Framework for Foreign Market Entry
With your choice process of accessibility, the modes of entry, the inner and exterior factors governing your choice process and the risks associated well described, we is now able to consolidate all of this information in a platform which may then be utilized to formulate the admittance decision process. We will attempt to match this construction to the case of Tata Motors and make an effort to prove its efficacy.
The framework is as shown below:
Table : Construction for Internal Factors
Internal Factors
Types of Entry Mode
Exports
Contractual Agreement
JV or Strategic Alliance
Acquisition
Greenfield Investment
Centralization of decision-making
High
Low
Culture Distance
Small Culture Distance
Large Culture Distance
Organizational Culture
Entrepreneurial culture
Hierarchy
Previous International experience
Large Organization Size
High Management Risk Attitude
High Product differentiation
Goals and motives
Short Term
Long Term
Table : Platform for External Factors
External Factors
Types of Entry Mode
Exports
Contractual Agreement
JV or Strategic Alliance
Acquisition
Greenfield Investment
Industry feasibility/viability
Favorable
Unfavorable
Potential Market Size
Large Market
Small Market
Market development rate
Low potential
High Potential
Target Country Creation Factors
Low Creation Cost
High Creation Cost
Overseas country business environment
Stable with beneficial Supporting Ind.
Unstable
Competition in the mark Market
Atomistic structure
Strong competitive market
Monopolistic
Market barriers
High
Low
Home Country Factors
Large Market
Small Market
Low Development Cost
High Development Cost
Restrictions on Abroad Investments
Target Country SPEC Factors
Political Conditions
Liberal Import Policies
Restrictive Transfer Policies
Economic Conditions
Dynamic Economy
Stagnant Economy
Social/Cultural Conditions
Favorable Home/Host Conditions
Great Geographical Distance
High Psychic Distance
Case Study of Tata-JLR
Overview of the Jaguar and Land Rover Businesses
Jaguar Cars Small which is situated in the UK is one of the world's top manufacturers of sports saloons and sports cars. It had been at first founded in 1922 by Sir William Lyon as Swallow Sidecar Company and was later merged with English Motor Company in 1968. Land Rover is currently a luxury type 4-wheeled drive, all landscape vehicle manufacturer centered out of Gayden, Warwickshire Great britain. Land Rover was received by Ford from BMW in 2000. After its acquisition of both Jaguar and Land Rover, Ford set up Jaguar Land Rover to control the functions of both Jaguar and Land Rover as a single entity.
Ford bought Jaguar for $2. 5bn in 1989 and Land Rover for $2. 7bn in 2000 but received only $1. 7bn from the sale of the two brands. The main reason in retailing off both brands was declining success. One of the key reasons for this is the increasing competition it experienced from luxury carmakers like BMW and Mercedes Benz which experienced wider product portfolios when compared with Jaguar. Due to this, while BMW and Mercedes Benz sold around 1. 6mn and 1. 3mn devices each year respectively, Jaguar's sales fallen from a top of 130, 334 in 2002 to 60485 in 2007. This averted it from achieving economies of size and put it at a severe cost drawback as compared its rivals. The high making costs in britain was also adding to its losses. Jaguar had been the main source of losses among the company's PAG brands. Ford restructured Jaguar in 2004 which consisted of concluding down a U. K. vegetable, firing 1, 150 employees, scrapping a target to make 200, 000 vehicles per year and exiting Solution One auto rushing. It also invested $2. 1bn in Jaguar in 2005 which was almost up to it paid for it in 1989.
Land Rover was far better off compared to Jaguar and is renowned as among the finest four-wheel drive vehicles on the globe. Its services like Range Rover sport got also achieved sizeable success. But the new and successful Range Rover Sport TVD8 emitted around 294g/kilometres of CO2 but European countries, by 2012, was moving towards stricter norms of 130 g/kilometres of CO2. Relating for some experts companies might have to spend as much as $3000 per vehicle to meet these emission targets. Apart from all this, Land Rover also needed substantial investment in its R&D attempts in spite of pumping in $400mn the entire year previous to the offer. Ford suffered losses worth $12. 6bn in 2006 and $2. 7bn in 2007 and did not have the money reserves necessary to revive both brands. Therefore, there is a dependence on cash investment in both Jaguar and Land Rover.
Ford's North American automotive procedures were the primary sources of the record 2006 deficits registered by the company. This was due to the declining sales and profitability of its pickup trucks and sports electricity vehicles which were the main way to obtain revenues for the company. Also the business's own Lincoln device which was No. 1 in luxury sales in the US in 1998 lowered to No. 7 in sales in 2006 since it purchased Volvo and Land Rover. Therefore to be able to target more on its center operations and focus its management resources on its primary activities, Ford decided to do away with its Jaguar and Land Rover brands. Ford may also have sold both brands since they are not at the central of the company's overall motor vehicle business and the cash that they received from the deal might have been used to restructure its UNITED STATES operations.
Tata Motors
Tata Motors belongs to the Tata Group, one of the leading business groups of India. It really is one of the leading car manufacturers of India and is also primarily into the production of light commercial vehicles, medium and heavy commercial vehicles, utility vehicles and passenger automobiles. Tata Motors has three main business segments: Jaguar and Land Rover, Tata vehicles, spares and financing and other businesses. Tata Motors obtained Jaguar Land Rover business from Ford in June 2008. Through its vehicles, spares and financing sections it designs, produces, assembles, offers and services traveler and commercial vehicles, energy vehicles, free parts and accessories.
The various countries where Tata Motors has its assemblage functions are India, South Korea, South Africa, Spain, UK, Thailand, Bangladesh and Singapore. The company's market share in the Indian four-wheeler vehicle market stood at 24. 4% and it is also the world's fourth major truck manufacturer and one of the major bus manufacturers in these 6 ton category. Because of its strong market position the business has strong bargaining power using its suppliers and achieves economies of level.
Tata Motors noted a rise in earnings of 95. 2% in FY2009 over its FY2008 profits. Its break-up of revenues from its three business sections were: JLR (54. 1%), Tata vehicles, spare parts and financing(41. 6%) while others(4. 3%). The vast majority of the upsurge in revenues can be attributed to the acquisition of JLR business.
Figure : SWOT Research of TATA Motors from the view of JLR Acquisition
Tata's Acquisition of JLR
TATA Motors completed the acquisition of JLR from Ford on 2nd June, 2008 for $2. 3bn in an all-cash package. Both Jaguar and Land Rover are now wholly owned or operated subsidiaries of Tata Motors Ltd. and are run within the Jaguar Land Rover business. Some information regarding the acquisition:
Ford decided to source Jaguar and Land Rover with vitality trains, stampings and other vehicle components plus a variety of other technologies.
Ford also decided to provide, as part of the deal, executive support, research and development it, accounting and other services
It was also decided that the Ford Engine Credit Company provides financing JLR traders and customers throughout a transitional period up to 12 months
Tata also decided never to make any changes to the terms of job of the prevailing employees in so doing guaranteeing them their jobs and pension strategies. Ford had obtained Jaguar and Land Rover for $2. 5bn and $2. 7bn respectively in addition to pumping in an additional $10bn into Jaguar during its 19 calendar year background while Tata was acquiring the deal for only $2. 3bn. Therefore the deal was specifically lucrative from Tata's perspective.
The main motives in back of Tata acquiring JLR are -
Tata Motors is mainly a mass player; its acquisition of JLR will sign its entry in to the group of luxury car designers and also give its access to the luxury Western and All of us car markets and customers.
This will also allow it to multiply to new market segments and geographies where in fact the Tata brand is till now mysterious.
The transfer of anatomist and R&D support and technology can provide Tata a strong border over its domestic opponents as it uses the technology to enhance the performance of its domestic line of vehicles.
Tata has great cost decrease skills as they have proven with the produce of Indica and Nano. If indeed they can apply their cost decrease techniques to Jaguar and Land Rover, even though it is in the luxury segment, they can perform significant cost savings.
One of the primary reasons for advertising Jaguar and Land Rover by Ford was that Ford didn't have the cash reserves essential to make the purchases in order to have the Jaguar brand out of its troubled times as well as making the R&D assets in Land Rover. Which means responsibility now is situated on Tata Motors to pump in huge assets in both brands. In order to revitalize Jaguar sales, Tata Motors should broaden its current product profile and also go into new geographies like Asia and the US where its sales are comparatively less when compared with Europe. In addition, it needs to comply with the new tighter emission norms and make its Land Rover model more environmental friendly. Tata being a well varied global conglomerate does not have any shortage of cash necessary to bring about the mandatory turnaround.
Efficacy of the Model v/s The Case Study of Tata Motors
We can now use our framework to show the connection between the interior and external factors and the actual choice of market entry mode by Tata Motors.
Internal Factors v/s Tata Motor's Acquisition of JLR
Confirming with the Framework
Not Confirming with the Framework
Centralization of decision-making
Previous International experience
Organizational Culture (Hierarchy)
High Risk Attitude of Management
High Product Differentiation
Long Term Goals and Motives
External Factors v/s Tata Motor's Acquisition of JLR
Confirming with the Framework
Not Confirming with the Framework
High Industry feasibility/viability
Potentially Large Market
Target Country Creation Factors
Low Market barriers
Strong Competition in Concentrate on Market
Large Home Country Market
Medium Psychic Distance
Low Production Cost in Home Country
Unstable Overseas Country Business Environment
Little Restrictions on Abroad Investments
Stable Political Environment
Recovering Economy
Great Geographical Distance
Favorable Home/Host Conditions
Out of the 23 factors analyzed within the framework, we see that 15 factors actually match with Tata Motor's acquisition of JLR, while 8 factors do not. A conclusion of the factors which are not confirming is currently warranted.
Culture Distance: Although we have put culture distance as a factor which is not corresponding with actual circumstance, we've only used a conservative strategy. The cultures of Great britain and India are in reality similar over a whole lot of factors when we consider the large Indian and South-Asian diaspora living in Britain.
Organizational Culture: According to the model, a hierarchical organizational culture does not support a divisional structure multiply across geographies. But the motives of Tatas behind the acquisition seem to be to own outweighed this factor.
High Risk Attitude of Management: Traditionally, Tatas are considered as a very tight run corporation. During a large part of the history, they may have remained local players and avoided risk. But this factor now seems to be reducing in weight.
Market Progress Rate: Although during acquisition and the immediate global downturn after it, the market for high-end luxury cars appears to be shrinking. But Tatas plan to present the Jaguar and Land Rover brands outside European countries and therefore this factor is nullified.
Target Country Creation Factors: With high development costs in European countries when compared with those in India, this factor surely seems to be not favouring the Tatas. But as said on the company website, this is one area in which Tata Motors will put an all-out work. So, over time, Tatas plan to leverage their expertise their durability in low cost production.
Strong Competition in MARKETPLACE: A highly competitive market, like this one, implies a milder accessibility strategy like contractual contracts or licensing. But Tatas intend to gain edge over competition through cost lowering actions and newer marketplaces in Asia and elsewhere.
Unstable Overseas Country Business Environment: This factor appears to be transitory in case of Tata-JLR as eventually, the financial scenario will improve and newer strategies of business will start.
Conclusion and Implications
This task has posted down various internal and external factors which impact the international market accessibility decision process for a business. After the analysis of all factors, we were able to think of a framework that can be applied during the foreign market admittance decision process. There are a sponsor of factors, on the basis of which a company should choose the setting of entrance - exporting, contractual agreements, joint projects or alliances, acquisition and Greenfield investment.
These factors, however, cannot be taken in isolation to choose the strategy. It'll always be wise for the company to consider them in collective and do a thorough evaluation of the expected advantages from the international market accessibility.
A company must do a proper examination of all the factors giving appropriate weightage to each factor. Even in our research study, we found some factors which were not favourable for Tata Motors for the acquisition of Jaguar-Land Rover business from Ford. But taking into consideration the talents and weaknesses of the Tatas, these factors seem to have obtained less weightage than those people which were favourable for acquisition.
Therefore, in conclusion, it will always be beneficial for the company if it takes the foreign access decision after doing a thorough cost-benefit research. Foreign entry decision is an extremely risky proposition and could have potentially disastrous effects when a company chooses an incorrect mode of entrance.
