Strategy/International Business: Analysis of TATA Nano’s global expansion plan and entry strategy in United Kingdom

1. 10/20/2011
TATA NANO
BANTAM
MARKET ENTRY STRATEGY FOR UNITED KINGDOM
Group Project - Industry Analysis | Group IV : Ashish, Ashok, Parimal, Piyush and Naveen;
S.P. Jain Institute of Management and Research, Mumbai

2. Table of Contents
Executive Summary ......................................................................................................................... 2
The Automotive Industry in the United Kingdom ........................................................................... 2
Target strategic group: Budget Segment (value conscious buyer, middle class, mass market) ..... 2
United Kingdom Budget Segment Forecast .................................................................................... 3
Porter's Five Forces analysis (Auto Industry in the United Kingdom)............................................. 4
Dynamic Analysis: Characteristics that will influence future market development in UK ............. 6
Conclusion and Recommendations................................................................................................. 6
1 | Business Policy and International Strategy

3. Executive Summary
As the world’s cheapest car Tata Nano saw the headlines in January 2008. It was first launched in
home country India at close to € 1,500. It is manufactured by Tata Motors, the largest automobile
company in India. The mini cars are a revolution as they are cost effective and require low
maintenance. The manufacturers are planning to launch the new, redefined, stylish models of these
cars with advanced technology and various other added features in the United Kingdom. These small
cars will also help prevent traffic congestion which is a growing problem in the UK.
While there are immense opportunities in terms of volume considering the lower number of existing
players, there are also some hurdles, the foremost being very low margins and development of an
alternate distribution channel compared to conventional ones. Pricing for the Nano Bantam will take
two forms: price penetration and low cost in order to be highly competitive in the market. Priced at
a nominal tentative price of £4,500 to £5,000, this car can be a revolution in the current global
slowdown. Additionally, we believe UK could become the Lead Country for future expansion into
Europe. Tata should adopt a polycentric orientation recognizing that UK is socio-culturally unique in
order to best exploit the advantage.
The Automotive Industry in the United Kingdom
The origins of the UK automotive industry date back to the final years of the 19th century. By the
1950s the UK was the second-largest manufacturer of cars in the world (after the United States) and
the largest exporter. However in subsequent decades the industry experienced considerably lower
growth than competitor nations such as France, Germany and Japan and by 2008 the UK was the
12th-largest producer of cars measured by volume. Since the late 1980s many British car marques
have become owned by foreign companies including BMW, SAIC, TATA and Volkswagen Group.
In 2008 the UK automotive manufacturing sector had a turnover of £52.5 billion, generated £26.6
billion of exports and produced around 1.45 million passenger vehicles and 203,000 commercial
vehicles. The UK is a major centre for engine manufacturing and in 2008 around 3.16 million engines
were produced in the country. However, owing to the current economic crisis and slowdown there is
a gradual decrease in demand for cars across the continent.
Target strategic group: Budget Segment (value conscious buyer, middle class, mass
market)
Kia Picanto Vauxhall Astra Jaguar XJ
Middle
Luxury
Budget
Renault Twingo Ford Focus Merc S-Class
Dacia Logan VW Golf BMW 7 Series
Chevrolet Matiz Nissan Qashqai Bentley Continental
Hyundai i10 Audi A3 Audi A8
Nano Bantam
Strategic Groups: In Increasing Price & Prestige
2 | Business Policy and International Strategy

4. The Key players (2010):
Kia Picanto (priced at around £6,278), Chevrolet Matiz (£6905), Renault Twingo (£6784), Dacia
Logan (around £6,250)
Tata Nano Bantam (meaning ‘little’): (£4,500 to £5,000) Powering it will be a 1.0-litre three-cylinder
engine, which will produce around 60bhp. Bantam will get a five-speed manual gearbox to allow for
longer gearing, improved fuel economy and reduced CO2 emissions. Also featuring will be an all-
steel body, with an overall length of 3300mm. This makes it about eight inches longer than the
original Mini, but still shorter than any contemporary European supermini. The car will ride on 14-
inch alloys. The Tata Nano is equipped with all-independent rear suspension features. Bantam
models will get ABS, traction control, electric power steering and twin airbags.
United Kingdom Budget Segment Forecast
The Budget Segment grew from 5% to almost 10% of new vehicle registrations in the period 2002 to
2010. Its compound annual growth rate was 4.7%. There is a surge of interest in budget brands in
the used car market too. With extensive warranties and trade prices in the £1,000 to £3,000 bracket,
they have become vehicles of choice for cash-strapped families who need to replace a second car for
the school run, local commuting and recreation. It is expected that the Budget segment will grow
from 9.7% to 11.0% of new car market volume by 2012.
3 | Business Policy and International Strategy

5. Porter's Five Forces analysis (Auto Industry in the United Kingdom)
THREAT OF NEW ENTRANTS
 Entry Barriers
 Government Policies
 Retaliatory Action
 Experience
 Capital Cost
 Scale
Rivalry among BUYERS BARGAINING POWER
SUPPLIERS BARGAINING POWER Competitors  Large Volume
 Few Suppliers  Easy Switching
 Concentration •Large Numbers
 Low Profits
 No Substitutes •Low Projects
Cc  Backward Integration
 Switching Costs •Low Growth
 Informed Buyer
 Industry Importance •Low
Differentiation  Low Importance
 Commodity Products
THREAT OF SUBSITUTES
 New Products
 Better Values
 Cross Subsidy
Threat of new entrants:
Factors Tata Nano Advantages Effect
Entry Deterring Price Very competitive pricing at around £4,500 Low
to £5,000
Government Policies In UK, the policies are not very strict for Low
automotive industry
Retaliation by TATA in case of Yes, because of the large resources Low
competition
Experience High on experience because of its parent Low
company (TATA Motors)
High Entry Costs Large initial investment, R&D expenditure; Medium
However, in UK the reverse engineering
process is prevalent and availability of
resources is also good
Overall Rating LOW
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6. Buyers Bargaining Power:
Factors Tata Nano Advantages Effect
Differentiation Price, Durability, Brand Equity Low
Concentration Large number of consumers Low
Profitability Easy availability of loans Low
Quality Will have to pass the stringent emission, Medium
noise tests of UK
Switching If switching to another product is simple High
and cheap the customers does not think
much before doing it. In case of NANO, the
switching cost from bike to car is high.
Overall Rating MEDIUM
Suppliers Bargaining Power:
Factors Tata Nano Advantages Effect
Switching Costs Low Low
Concentration Quite High Medium
Presence of cartel No Low
Diversification of supplier No Medium
products
Number and Size of suppliers Parts are specific; High
Few numbers of suppliers for low end
models.
Overall Rating MEDIUM - HIGH
Threat of Substitutes:
Factors Tata Nano Advantages Effect
Availability Same category and this price range no Low
other car is available
Other Category Substitutes Coach bus travel is common in UK; Low
Scooters/Bikes are sparsely used
Time Lag in availability of same It is high Low
category products
Quality of substitute Public transit within the cities is not very Medium
good
Overall Rating LOW
5 | Business Policy and International Strategy

7. Rivalry among competitors:
Factors Tata Nano Advantages Effect
Number of competitors Very few competitors in this category. Medium
However, most auto manufacturers have a
presence in UK
Size of pay off Depends on the volume Medium
Switching costs Customers can switch to other products Medium
Origin of competitors Diverse High
Overall Rating HIGH
Dynamic Analysis: Characteristics that will influence future market development in UK
 Overcapacity will be a dominant issue in the years to come
 Tier one suppliers will increasingly get in the role of contract manufacturers
 The role of car is changing: a shift from status symbol to commodity
 The future focus of automobile manufacturers will be on their positioning as a mobility
provider as well as their successful brand management
 Standard technology but unique applications will be the characteristics of the vehicle of the
future
 The climate change agenda will accelerate technological change at an unprecedented rate,
and the industry in the UK will embrace the CO2 challenge and invest heavily.
 OEMs and suppliers have to face massive investments that arise from variety of new
technologies
Conclusion and Recommendations
In wake of the current economic crisis and global slowdown the car making companies in the United
Kingdom are reducing their production levels drastically. The consumers are not ready to spend
huge amounts on buying new cars. Such situation paves path for the introduction of a high style, low
budget car like the Tata Nano Bantam. This will be the cheapest available car in UK and will be an
appeasement in the current economic scenario. We therefore give a YES for Tata Nano to enter in
the UK market. Tapping its experience in minicars, Tata Motors should launch this economical, fuel-
efficient vehicle and create a cost leadership in this segment. Additionally, we provide the following
recommendations:
 Launch Tata Nano Bantam as a highly redefined and high end version of the Nano.
 Launch two models of it: Bantam, the compact 4-seater car and Bantam 2X, which will be a
highly stylish 2-seater car.
 Develop a successor model which will be electrically driven, in the years to come.
 Promote it as a convenient commodity at affordable price and not as a status symbol.
 To distribute the Bantam, build Trial and Order centers where consumers can drive and
place an order for a Bantam
 Tie up with local banks and provide lucrative loan schemes to the buyers, as was done in
India with SB
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8. References
Global Strategy, Mike W. Peng
http://www.ukti.gov.uk/investintheuk/sectoropportunities/moresectors/item/157760.html
www.bis.gov.uk/files/file51139.pdf
http://news.bbc.co.uk/2/hi/business/6428943.stm
https://www.smmt.co.uk/industry-topics/uk-automotive-sector/#facts
http://www.topcarguide.com/
http://www.lga-consultants.com/blog/?p=978
http://www.economywatch.com/world-industries/automobile/uk-auto-industry.html
Entry Strategies for International Markets, Franklin R. Root
7 | Business Policy and International Strategy