Tata Motors Limited (TML), owned by Tata Group, incorporated 1945, headquartered in Mumbai, is an Indian multinational automotive manufacturing company. Its products include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment and military vehicles. It started its operations into passenger cars in the year 1991.The roots of Jaguar can be tracked back to 1922 which later started building luxury saloons and sports cars and was purchased by Ford in 1989. Rover, inspired by the American Jeep developed a new all-terrain vehicle, and the Range Rover made its debut in 1970. Land Rover was bought by BMW in 1994, later joined Jaguar under Ford in 2000, with the two companies becoming closely linked, sharing engineering knowledge and facilities (“Heritage”, 2018).
TML wanted to expand its product portfolio and diversify its market base. The Automotive Industry is dominated by Oligopolies with high barriers to entry with input and infrastructure cost. This merger gave the company access to premium cars, a chance to add two iconic luxury brands to its stable and a global footprint. It gave struggling Ford, a chance to rid itself of two loss-making vehicle units (Sawardekar, 2011).
On March 26, 2008, TML announced that they had entered into a definitive agreement with the Ford Motor Company for the purchase of Jaguar Land Rover (JLR), comprising brands, plants and Intellectual Property Rights. The total amount to be paid in cash by Tata Motors for Jaguar Land Rover upon closing will be approximately US $2.3 billion (“Tata Motors – Media Centre”, 2008). The deal included all necessary intellectual property rights, manufacturing plants, two advanced design centres in the UK and a worldwide network of sales companies (Chandran, 2008). This paper focuses on the details of merger, effects of the merger on Tata Motors while analysing the risks/cost associated with the horizontal expansion and challenges/limitations to the scope of this expansion.
TML, India’s top bus and truck maker and No. 3 carmaker, sought to expand its presence in the global markets through alliances and acquisitions in recent years (Chandran, 2008). Several factors made TML to go ahead with this expansion – prior experience investing in the UK (Tetley Tea in 2000 & Corus Steel in 2007), brand value of JLR, Ford’s heavy investment to improve JLR product quality, JLR’s improving JD Power customer satisfaction rankings and the array of upcoming models in the pipeline (Sood, Seth & John, 2010). TML stood to gain on several fronts from the deal. The deal helped TML to enter in to the high-end premier segment of the global automobile market. TML also got two advance design studios and technology as part of the deal. This would provide TML access to latest technology, which would also allow it to improve their core products in India. The deal offered a cost competitive advantage, as Corus was the main supplier of automotive high-grade steel to JLR and other automobile industry in US and Europe. In the long run TML would diversify its present dependence on Indian markets (which contributed to 90% of TATA’s revenue). Along with it, due to TML footprints in South East Asia, will help JLR do diversify its geographic dependence from US (30% of volumes) and Western Europe (55% of volumes) (Laddha, 2016).
The strengths of JLR include iconic globally positioned brands, strong product portfolio of award winning luxury and high performance cars and premium all-terrain vehicles, global distribution network, strong product development and engineering capabilities, and a strong management team (Laddha, 2016). The operation was ‘transformational’ for TML in several respects: (i) the acquisition more than doubled TMLs overall revenues and almost quadrupled its revenues from passenger cars; (ii) apart from some more direct product relatedness to TML’s SUV segment with the Land Rover part of JLR the acquisition represents a diversification into the segment of larger premium class cars, an entirely new market for a vehicle manufacturer like TML which was predominantly specialised in low cost and small cars; (iii) While TML had some marginal exports of its passenger cars before the company went into a kind of ‘instant outward internationalisation’ in passenger cars. From a company with marginal assets overseas TML transformed into a global player with the majority of its assets abroad (Bruche, Dörrenbächer, Nagel & Ripsas, 2010). This horizontal expansion catapulted Tata Motors from a commercial vehicle and small-car manufacturer to a global player with marquee brands in its portfolio and gave JLR access to developing and potential market of BRIC nations (Patil, 2013).
Analysing the merger today, we shed light on major efficiency gains to TML’s capability creation and internationalisation process derived from its organisational affiliation to the Tata Group i.e. infusion of dynamic capability, improving project execution capabilities, leveraging corporate and group human resources, group reputation and relational contracting, access to complementary technology assets, supplies and expertise, capital back-up, leverage and risk (Bruche, Dörrenbächer, Nagel & Ripsas, 2010). Further, TM – JLR merger provided Cost & Revenue synergies. The TML has the competitive advantage from the overall International Market through the Tata Group of companies like Corus for steel; Corus was the main supplier of automotive high-grade steel to JLR, which would provide a synergy for Tata Group as a whole. With distinguish brand identity of Land Rover and Jaguar and an emerging Indian car market with opportunity to sell brands in India and a global presence. Due to all these reasons JLR was taken over by Tata group (Laddha, 2016).
However business environment are fast changing with controllable and some uncontrollable factors. What went wrong was TML timing of the deal. The acquisition coincided with the global financial crisis that plunged Jaguar Land Rover’s sales and put a huge strain on Tata Motors exposing it to severe financial crunch bringing it close to ruin. In the 10 months post-acquisition, sales volumes plunged 32% and the unit recorded a loss of 281 million pounds ($461 million). Tata Motors also was burdened with a bridge loan of $3 billion to finance the deal, an uncomfortable position for a company that had been virtually debt free, which was difficult to refinance given the turmoil in the global markets. Tata came out with a $937 million rights issue to reduce the bridge loan to $2 billion (Sawardekar, 2011). Banks were not giving any money, which had severally limited TML’s scope of expansion, but Tata Group came through for TML with the parent pumping in capital, driven by the belief that the JLR acquisition was right and would work. Cash remained “priority No. 1” as JLR was haemorrhaging money and the company sought outside help since JLR didn’t have a cash management system of its own, TML turned to consultants KPMG. Also, a Munich-based Roland Berger Strategy Consultants was brought in to keep a tab on costs (Sood, Seth & John, 2010). Tata’s management focused on reducing costs, improving efficiencies and managing cash flow – lessons that Tata Motors had learned during the downturn in 2001. Tata also infused $1 billion to fund operations and new product launches. When the market turned, the premier carmaker was well poised to reap the benefits and turned profitable during the quarter ended Dec. 31, 2009, with a net profit of 55 million pounds ($90.6 million) (Sawardekar, 2011).
While the acquisition itself was not expensive (Ford had acquired JLR separately for a total of $5.3 billion), the scale of the acquisition combined with bad timing could have easily derailed the deal (Sawardekar, 2011). However, due to backing of the parent company and excellent corporate management structure and framework, the horizontal expansion of TML – JLR would help the company to become the industry leader in future and dominate the Indian market making it the industry leader if not the global market.
Bruche, G., Dörrenbächer, C., Nagel, F., & Ripsas, S. (2010). Tata Motor’s Transformational Resource Acquisition Path. Berlin: IMB Institute of Management Berlin. Retrieved from https://www.mba-berlin.de/fileadmin/user_upload/…/1…/neu_WP55_online.pdf
Chandran, R. (2008). Tata Motors completes acquisition of Jag, Land Rover. Reuters. Retrieved 20 January 2018, from https://www.reuters.com/article/us-tata-jaguar/tata-motors-completes-acquisition-of-jag-land-rover-idUSBMA00084220080602
Heritage. (2018). Jaguar Land Rover. Retrieved 20 January 2018, from http://www.jaguarlandrover.com/2016/heritage
Jaguar Land Rover. (2018). Wikipedia.org. Retrieved 20 January 2018, from https://en.wikipedia.org/wiki/Jaguar_Land_Rover
Laddha, S. (2016). Acquisition Strategy: Analysis of Tata Motor’s Jaguar Land Roar (6th ed.). Retrieved from http://www.ijmbs.com/Vol6/1/3-dr-seema-laddha.pdf
Patil, A. (2013). What has changed at Jaguar and Land Rover Since TATA took over?. Quora. Retrieved 21 January 2018, from https://www.quora.com/What-has-changed-at-Jaguar-and-Land-Rover-Since-TATA-took-over
Sawardekar, S. (2011). Pass or Fail: Tata Steers Jaguar Land Rover to Profit. WSJ. Retrieved 21 January 2018, from https://www.wsj.com/articles/SB10001424052702304432304576368243041445416
Sood, V., Seth, S., & John, S. (2010). How Tata Motors turned JLR around – Livemint. Livemint. Retrieved 21 January 2018, from http://www.livemint.com/Companies/UhROXPttBWa40lVOgtS6wL/How-Tata-Motors-turned-JLR-around.html
Tata Motors. (2018). Wikipedia.org. Retrieved 20 January 2018, from https://en.wikipedia.org/wiki/Tata_Motors#Tata_Motors_Cars
Tata Motors – Media Centre. (2008). Tata Motors – Media Centre. Retrieved 20 January 2018, from https://web.archive.org/web/20101205235956/http://www.tatamotors.com/our_world/press_releases.php?ID=356&action=Pull