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Market Entry Strategy - Tata Xenon in Malaysia

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This report looks at the feasibility study and entry strategy for Tata Pick Up truck Xenon to enter in Malaysia. This study covers the basic principles of a management course such as PESTEL Analysis, …

This report looks at the feasibility study and entry strategy for Tata Pick Up truck Xenon to enter in Malaysia. This study covers the basic principles of a management course such as PESTEL Analysis, HOFSTEDE Culture, 5C Analysis, Value Chain Analysis, SWOT Analysis, 4P Analysis, and the Business Environment Analysis

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  • 1. TATA XENON COUNTRY ENTRY STARTEGY IN MALAYSIA GROUP 8 B [Shiv Methil, Sumedha Sharma, Siddharth Ravishankar, Vivek, Viswanath]
  • 2. 2 | P a g e TABLE OF CONTENTS EXECUTIVE SUMMARY..................................................................................................................3 BACKGROUND.................................................................................................................................. 4 MACROECONOMIC ANALYSIS......................................................................................................4 PESTEL........................................................................................................................................................ 5 HOFSTEDE CULTURE.............................................................................................................................. 6 BUSINESS ENVIORNMENT ANALYSIS........................................................................................7 GLOBAL MARKET OPPORTUNITY ANALYSIS:.................................................................................8 TATA MOTOR’S ORGANIZATIONAL READINESS.............................................................................8 TARGET MARKET – WHY MALAYSIA.................................................................................................9 INDUSTRY MARKET POTENTIAL:.................................................................................................... 12 COMPANY INTERNAL ANALYSIS:.............................................................................................12 5C’s ANALYSIS........................................................................................................................................ 12 VALUE CHAIN ANALYSIS:.................................................................................................................... 15 SWOT ANALYSIS.................................................................................................................................... 16 COUNTRY ENTRY STRATEGY:..................................................................................................17 4 Ps............................................................................................................................................................ 17 PARTNERSHIP STRATEGY: ............................................................................................................... 18 CONCLUSION.................................................................................................................................. 18
  • 3. 3 | P a g e EXECUTIVE SUMMARY The South Asia Market is witnessing a strong growth in the automobile sector. Malaysia is one of the most stable economies in the South East Asia. Although until now Malaysia was following strict government regulation to promote national brands but it has now opened up its market under National Automotive Policy 2006 to promote Malaysia as a manufacturing hub for automobiles and also to increase the presence of foreign automobile players in the market. As per the Malaysian Automotive Association (MAA), sales of commercial vehicles is expected to grow 4.6% to 68,000 units in 2012 from 65,010 units a year earlier. Moreover, Tata Motors has set up its Pick Up truck manufacturing in Thailand and is looking at expanding in Malaysia. This report looks at the feasibility study and entry strategy for Tata Pick Up truck Xenon to enter in Malaysia.
  • 4. 4 | P a g e BACKGROUND Traditionally, the pick up vehicle market in Malaysia was dominated by Toyota Hilux and the Ford Courier. These were just utility vehicles for people to carry heavy tools and machinery. The first company to add comforts and good looks in the pickup segment was Ford Malaysia with the Ranger in nineties. Mitsubishi launched Storm in the market which became Ranger’s top competition. Almost a decade after the introduction of the Ranger, Nissan launched the Frontier. Toyota made few changes in the Hilux to suit city drivers, and Mitsubishi launched Triton. Also Isuzu launched D-Max in the pickup truck category. As of now there are around eleven major players in the Pick Up category in Malaysia. The breakup of the pickup segment is given in the graph below in which Toyota leads with almost 50% market share of the market. MACROECONOMIC ANALYSIS Source: http://www.cbt.com.my/2012/04/03/sedans-are-out-lifestyle-cars-are-in/
  • 5. 5 | P a g e The macro economic analysis of any country can be done through a PESTEL analysis and the cultural analysis can be conducted using Hofstede Analysis. PESTEL Political Factors: Malaysia is a constitutional monarchy with a parliamentary system of government. Political system is dominated by native Malays and though there are tensions among the different races, a competitive but collaborative governance is prevailing in Malaysia. A political risk index of 8 on a scale of 10 (Higher the index, lesser the political risk) is given for Malaysia which shows that political conditions are stable and conducive for business in the country. Economical Factors: Malaysia is the third largest ASEAN automobile market. Automotive industry in Malaysia registered a marginal decrease of 7.5% in sales during 2011 and it is expected to increase to 615000 units in 2012. Domestic investments in automotive industry amounted to RM 1350.4 million contributing to 70% of the total investment. (The Malaysian Automotive and Supplier Industry, 2012) The real GDP growth rate is estimated to be 5 % in 2012 and the inflation will be 3.3 – 3.5% (est. 2012 IMF). Imports of Commercial MPVs from ASEAN countries will be subject to only 5% import duty as they are declared as ASEAN Free Trade Area (AFTA). Social Factors: Owing to its near-universal primary enrolment, Malaysia’s literacy rate stood at 92.8% in 2009. In spite of the slow economic growth, the unemployment rate is only 3% which
  • 6. 6 | P a g e indicates the availability of huge labour force. The average per capita disposable income income is $ 4552. Fig: % of income against age group A – Above 200%, B – 150%-200%, C- 100%-150%, D- 50%-100%, E- Less than 50% Technological Factors: Innovation and new technologies in manufacturing has improved the productivity by 44% between 2001 and 2006. Environmental Factors: Energy efficiency is given utmost importance and the Government encourages such cars. Excise and duty tax exemptions are granted for hybrid energy efficient cars. Legal Factors: According to National Automotive Policy (2012), the freeze on issuance of new manufacturing licenses will be lifted for pick-up trucks and commercial vehicles. Malaysia is ranked 23rd out of 183 countries in the World Bank’s Ease of Doing Business 2010 report. It takes just 11 days to start a business in Malaysia as against the 37 days it takes in China. It stands at 4th place in protection of its investors through effective investment and security laws. HOFSTEDE CULTURE
  • 7. 7 | P a g e Malaysia Culture is a very high context culture where lot of emphasis is given on relationships. Therefore, it is important for Tata to leverage on its brand image and build a relationship with the customers. BUSINESS ENVIORNMENT ANALYSIS
  • 8. 8 | P a g e The business environment analysis will be done by analyzing if there is a market for TATA Xenon in Malaysia. Given below is the framework of Global Market opportunity Analysis. GLOBAL MARKET OPPORTUNITY ANALYSIS: TATA MOTOR’S ORGANIZATIONAL READINESS Tata Motor’s is one of India’s largest car manufacturer With the Indian car
  • 9. 9 | P a g e market slowing down owing to the increasing costs of ownership and the ever- increasing cost of fuel, Tata is now looking for greener pastures abroad. Tata Motors currently has manufacturing facilities in the UK, South Korea, Thailand, Spain and South Africa. Sr. No Facility Acquired in Collaborator Manufacturers 1 UK 2008 Jaguar Land Rover LV & SUV 2 South Korea 2004 Daewoo Commercial Vehicles Company Trucks 3 Spain 2005 Hispano Carrocera Bus & Coach 4 Brazil 2006 Marcopolo Bus & Coach 5 Thailand 2006 Thonburi Automotive Assembly Plant Company Pickup vehicles 6 South Africa 2008 Tata Africa Holding (Pty) Ltd Medium and heavy commercial vehicles In 2006, Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the company's pickup vehicles in Thailand. The new plant of Tata Motors (Thailand) has begun production of the Xenon pickup truck, with the Xenon having been launched in Thailand in 2008. Tata Motors is an international motor manufacturer and has a global footprint with its commercial and passenger vehicles already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia, CIS, Russia and South America. Further, it has franchisee/joint venture assembly operations in Bangladesh, Ukraine, and Senegal. With a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D Tata Motors is definitely ready to enter into a new market. TARGET MARKET – WHY MALAYSIA
  • 10. 10 | P a g e Malaysia has traditionally been a middle-income country but now Malaysia has transformed itself into an emerging multi-sector economy spurred on by high technology, knowledge-based and capital- intensive economy. It is one of the 20 largest trading nations worldwide. After Singapore, Malaysia is EU‘s second largest trading partner inside ASEAN, with bilateral trade in goods reaching 31.9 billion Euros in 2010. The automobile customer market is the biggest in Malaysia in South-East Asia due to the recently increased spending power of the consumers. Traditionally Malaysia has protected its auto industry from foreign competition. They have introduced trade barriers and high import tariffs on foreign brands of vehicles, which have protected its two national carmakers, Proton and Perodua. Together, these two companies have dominated the auto industry commanding close to 59% of the local mid size car market. However, recently the government has taken certain measures to reduce trade barriers, due to its obligations in the World Trade Organization (WTO) and in the ASEAN Free Trade Agreement (AFTA) Although the mid car segment is still dominated by the likes of Proton, Perodua and Toyota, there has been relatively no major standout player in the pickup truck market. To add to it with Tata’s Xenon manufacturing facility in Thailand, this market seems a very good market to penetrate. With the Xenon already a success in Thailand, and with Thailand and Malaysia sharing similar economic and geographic backdrops, the Xenon seems a perfect fit. (Reference: “Market Watch 2012”
The Malaysian Automotive and Supplier Industry) The graph by Frost and Sullivan below shows that Malaysia is a steady market to enter into.
  • 11. 11 | P a g e
  • 12. 12 | P a g e INDUSTRY MARKET POTENTIAL: Malaysia has a growing potential for Pick Up trucks. The commercial vehicle break up is given in the figure. Pickup forms the biggest segment in Commercial vehicles. Also there is a big difference on the tax levied between SUV and pickup trucks which is giving a thrust to the growth of lifestyle pickup trucks as compared to SUV segment. COMPANY INTERNAL ANALYSIS: 5C’s ANALYSIS A. Company: Tata Motors is a subsidiary of Tata group. Tata Motor’s product line includes:  Passenger vehicles: Tata Indica, Indigo, Nano  Sport Utility vehicles: Tata safari  Commercial vehicles: Tata Sumo, Tata Xenon  Trucks & Buses Tata motors acquired Jaguar and Land Rover business from Ford Motors, this acquisition helped them to gain entry into European market, and also helped boosting the brand image of Tata Motors. Also, Tata Motors saw immense potential in the Land Rover as a premium Sports Utility Vehicle and have turned around the fortunes of the LR in three years. In Malaysia, Tata motors forsee growth potential in the commercial vehicle segment as this is a growing market in Malaysia and also because of lower competition from local players. Tata will introduce Tata Xenon as there is an assembly plant in Thailand and can be directly imported from Thailand. Also, Tata Motors can also leverage the ASEAN free trade agreement (FTA) as they have an assembly plant in Thailand.
  • 13. 13 | P a g e B. Collaborators: Tata can get into contract agreements with the local distributors in Malaysia. Tata can partner with Isuzu Hicom Malaysia Sdn. Bhd to gain entry. It can also get into agreement with component manufacturers for supplying spare parts and other critical components. C. Customers: The commercial vehicle market has increased by 12.1% YOY compared to June 2011 quarter (Malaysian Automotive Association, 2012). Source: Malaysian Automotive Association, 2012 As in the above graph pickup truck share is higher and is about 68%. This gives a good opportunity to get into pickup truck market. Most customers are small business
  • 14. 14 | P a g e owners who requires to transport goods locally i.e. inside the cities and sometime outside the city borders. As this truck will be imported from Thailand and this will be under the laws of FTA, the price can be made very competitive, this will attract more customers. The urban Malaysians are also driving Pickup. It has a become a fashion statement in the Malaysia automobile market. D. Competitors: The main competitors are: Mitsubishi Triton, Nissan Navara, Isuzu and Toyota Hilux. The market share is as as per the attached graph. Source: EU Delegation to Malaysia – Trade & Economic Section, Jan 2012 E. Climate: The climate or macro environment factors are as detailed in the PESTEL analysis.
  • 15. 15 | P a g e VALUE CHAIN ANALYSIS: The Analysis below summarises which activities are important for Tata and should be kept in house and which can be carried on in Thailand in the initial period or can be transferred to third party and dealers. Since its a established product therefore there is not much R&D needed, the component and manufacturing as of now is being done in Thailand plant. If the market size increases considerably a manufacturing plant can be started in Malaysia which is encouraging companies to set up its manufacturing facilities. Initially marketing and customer service can be kept in-house as it’s crucial to make an early impact in the market. The sales, distribution and logistics can be shifted to outside vendors. VALUE CHAIN ANALYSIS R & D Design Component Manufacturing Manufacturing or Assembly Importance of this activity to the firm as a strategic asset Low importance : Already proven product to be launched Low importance. Currently outsourced in Thailand. High importance since the cost and quality of manufacturing is essential
  • 16. 16 | P a g e Likelihood of Internalizing rather than outsourcing High importance for an already proven product with continuous innovation to customize to the local market Low importance as the process is already outsourced at Thailand Low importance since the product is manufactured at Thailand Geographic configuration: Home or abroad Concentrated at Thailand Produced at Thailand Concentrated at Thailand Marketing & Branding Sales, Distribution & Logistics Customer Service Importance of this activity to the firm as a strategic asset Very important for the launch of a new product Very important as the products are imported from Thailand Very important as this is a new product Likelihood of Internalizing rather than outsourcing High importance as it is for a product launch for a totally new market Medium importance since the product is distributed in Malaysia High importance as the product is new to the market Geographic configuration: Home or abroad Branding and Marketing concentrated in Malaysia Mainly concentrated in Malaysia and partially at Thailand in terms of exports Customized to suit the market with local call centres SWOT ANALYSIS
  • 17. 17 | P a g e COUNTRY ENTRY STRATEGY: 4 Ps Though the automotive policy of Malaysia is still not very open as compared to other ASEAN countries, but there is a growth potential for pickup trucks and increase in consumer base. The 4Ps have been given in the analysis below.
  • 18. 18 | P a g e PARTNERSHIP STRATEGY: Strategic partnership with Dealers and third party logistics to take advantage of the following skills  Existing customers in terms of loyal customers  Sales and service expertise  Reputation/brand equity  Market access/knowledge CONCLUSION Though the market in Malaysia has traditionally been a closed one to foreign carmakers, however recently the government has taken certain measures to reduce trade barriers, thanks to the World Trade Organization (WTO) and in the ASEAN Free Trade Agreement (AFTA). Also, owing to the robust nature and reputaions of Tata Motors and their cars in general Tata Motors seems a really strong player to be entering the Malaysian pick-up truck market. Add to this the detailed analysis done above, it clearly shows that Tata Motors will only stand to gain by entering the Malaysian market with its successful model; the Tata Xenon.