Corporate Strategy - Strategic Alliance

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Corporate Strategy Does a potential alliance between Tata and VW contribute to VW/s core competencies and improve its competitive position in emerging markets? (Here, you may argue that it does, explain how, and illustrate it with examples from the case, or you may argue that it does not, and explain why).

A potential alliance between Tata and VW will likely contribute to VW/s core competencies and improve its competitive position in emerging markets. In this case, each of the two companies has everything to bring to the table, and the chances are high that if the partnership is well leveraged and a few technicalities well defined such as the business model that will be beneficial on both players, the core competencies will be enhanced on either side (Dodgson, 2018). The alliance between Tata and VW is likely to contribute to VW's core competencies and improve its competitive position in emerging markets.

The strategic partnership is likely to lay a foundation in the group and the brands that will enable them to offer customer-oriented mobility solutions in the emerging, fast-growing automobile markets. This will enable them to offer appropriate products that will enable them to achieve sustainable and profitable growth in different parts of the world.

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The two groups are giants in their own right, and when they combine to explore an emerging market, the chances are high that they will form a very formidable competitive force and will be able to benefit from the economies of scale. Considering Tata Motors Ltd is India’s largest automobile company, with consolidated revenues of approximately INR 275,561 crores, translating to about USD 41.6 billion in the financial year ranging from 2015 to 2016. Tata Motors has operations in different places such as the UK, South Korea, Thailand, South Africa, and Indonesia through subsidiaries and associate companies (Dodgson, 2018). Among them is Jaguar Land Rover, the business comprising the two iconic British brands. It also has an industrial joint venture with other players such as Fiat in India. With over 9 million Tata vehicles plying in India, Tata Motors is the country's market leader in commercial vehicles and among the top in passenger vehicles. Tata cars, buses, and trucks are being marketed in the various countries in Europe, Africa, the Middle East, South Asia, South East Asia, South America, Australia, CIS, and Russia. With such a profile, being able to partner with Tata in entering the Indian market is something of a major impact and is likely to turn around the prospects of Volkswagens.

As for Volkswagen, the group operates about 120 production plants in 20 European countries and a further 11 countries in the Americas, Asia, and Africa. Averagely on every weekday, about 610,000 employees across the world are said to produce nearly 42,000 vehicles and work in vehicle-related services or other fields of business. The Volkswagen Group sells its vehicles in around 153 countries. The company an initiative called "TOGETHER – Strategy 2025" future program, which is making it possible for the Volkswagen Group to be paving the way for the biggest change process in its history: the realignment to become a globally leading provider of sustainable mobility (Højland & Rohrbeck, 2018). As part of its global strategy,

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bringing on board strategic partners such as Tata will be the way to go. The two players have many things in common, making them very compatible in pursuing market leadership and taking advantage of the emerging markets.

The case study shows that VW does not have what it takes to adequately enter and command the Indian market. The company has failed to make a mark in the market, despite being around for some time. It has not been able to make a return to the high volume small car segment, and this has been attributed to the high overall costs of manufacturing, poor service quality, the waning confidence of the customers, and the product portfolio, which has not been well aligned with the needs of the Indian consumers. On the other hand, Tata had been trying to turn around its loss-making domestic business by modernizing its products, improving efficiency, and streamlining its organization. Given that India is expected to become the world’s third-largest car market, it was high time the two companies relook at their strengths and shortcomings and found ways in which they were going to overcome them. This was the surest way of doing it.

Tata Motors has had ample experience in the Indian market. Working with Tata Motors was going to offer Volkswagen specific market knowledge and local development expertise.

From the case, it is apparent that these were some things that Volkswagen was falling short of.

One could anticipate a situation whereby the Indian market was going to be bigger than Germany's. This could be made possible when the two giants combined and revolutionized the market. However, there was the need to approach the market carefully, which is why Tata's expertise was to be brought on board (Højland & Rohrbeck, 2018). Furthermore, there was the need to consider that a different approach was needed in India to be successful long-term. For instance, Indian buyers preferred affordable budget cars.

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Considering the potential brought forth by the alliance, a good proportion of the issues that VW was facing were going to be tackled. For instance, the alliance was going to encompass the sharing of components and technologies. In addition, VW was increasingly going to be able to think local. As mentioned in the case, the development of engines was going to be directed by Tata Motors, and this was going to help overcome the high cost of VW power trains, which had a low level of localization.

There are currently more threats than opportunities in the marketplace, and they have taken root in the Indian market. This includes trends such as autonomous vehicles, connected cars, and alternative fuel vehicles. Therefore, it is a bit difficult for the players such as Volkswagen or Tata Motors to address the challenges on their own. Moreover, with the rise of players like Tesla and some Chinese brands, customer preferences have changed, and competition has also intensified. Such a trend implies that traditional automakers are supposed to work together to meet such challenges instead of competing as rivals.

Given the challenging conditions faced by both Tata and Volkswagen, there is a need that they should share what they are better at and learn from others what they are good at. Many developments that have not happened in the past 30 years will happen in the next five, and the trends are pointing towards a scenario whereby some of the trends will be happening in the emerging markets (Højland & Rohrbeck, 2018). This only calls for an alliance that will be more solid than in the past, and they should be able to supplement each other’s strengths more than ever.

The partnership is likely to benefit Volkswagen more than Tata Motors, considering the German company's presence in India since the year 2007. Tata Motors has a well-defined product roadmap, which involves pruning platforms and reducing it to just two on which all of

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its future products would be housed. On the other hand, Volkswagen has a concrete roadmap for India at the moment. Volkswagen has platforms developed in Europe, which is too expensive to compete in the cost-effective segments in India. Volkswagen's cheapest car in India is the Polo, priced at Rs 5.32 lakh (ex-Maharashtra). The company has a market share of just 1.64 percent in India (Breuer & Upadrasta, 2017). Skoda uses the same platforms for its range. In the Indian market, it is very difficult for Volkswagen to compete with such products favorably. As for Tata Motors, it would benefit from VW's advanced technology in electric drivetrains, hybrids, connected cars, and even driverless cars. While Tata Motors is independently pursuing each of these technologies, a successful partnership with VW would have helped it be in a better position to leap several years of the development cycle.

Through the partnership, the two players will be able to better focus on the research activities such as sustainable mobility materials as well as manufacturing methods across the world while at the same time appointing Tata Motors for the production phase in India, which can also guarantee VW cost advantages (Breuer & Upadrasta, 2017). There is also a good opportunity for the company to use Tata as a market test before mass-producing. There is also an aspect of culture that tends to be very important when a company is striving to be international.

In this regard, cultural differences can be minimized, given that there is a solid contract agreement in place. There is also the need to consider that the Tata brand is the most trusted brand among Indian customers. Such a partnership is also in tandem with the company's growth strategy in India. VW also stands a good chance to acquire the Tata platform in order to enter other emerging markets across the world. This is going to foster the company’s economies of scale. It is also important to point out that Tata has deep experience working with international players, implying that there is a likelihood of better prospects in the long run.

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The cooperation between the two companies will go a long way to boost sales and market share of both companies. In order to address a few challenges that they are facing, they will have to clarify their scope and intentions. For instance, the creation of a special international team would allow for more coordination, smoother communication and would shrink the cultural differences through better formal and informal relationships. Without getting into a strategic partnership, they are likely to lose growth opportunities, especially in the Indian market, which is going to see a boost in consumers’ purchasing power in the next years. In order to meet the financial goals, especially for VW in the short run, they may be required to introduce a premium car, along with Tata, with a higher average cost, but still affordable, where the main issue will be to educate the Indian consumers about the brand and the features of the car (Jiang, Keller, Qiu & Ridley, 2018). There is also the need for a marketing push strategy tailored towards exploiting the connections of the dealers.

There is even a bigger opportunity for global integration. Through an alliance with Tata Motors, VW will be able to ensure a global integration as the alliance will be tailored towards the creation of multiple entities in India and would produce multiple car models. Courtesy of the alliance, VW is likely to opt for vertical integration to enter the global market. Through allied global integration, VW will be able to gain market shares successfully and increase its market size in the automobile market in India and even across the globe (Breuer & Upadrasta, 2017).

Along with that, they can gain economy of scale as they will be able to indulge in mass production through shared capital and resources with Tata Motors.

Based on this case study, what are the key risks of alliances in the automotive industry? Do they outweigh the advantages? (Explain why/why not)

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Some risks were definitely going to be an impediment when it comes to successfully entering the Indian market. The issue of the model that ought to be adopted when making the market entry is an important one in this case. There is a dilemma regarding whether the two companies should adopt a joint venture, a licensing agreement, or a contract manufacturing arrangement. There is a lot at stake in making this decision. For instance, in the event that the alliance breaks up, Tata will be obliged to carry out the development process of the AMP. This is likely to affect its financial position negatively. In this regard, it initially led to a loss of about $394 billion in 2017 (Assaf, 2021). Some drawbacks are associated with each of these methods.

For instance, licensing is associated with drawbacks such as royalty fees, the need for training, especially on the AMP platform, high expenditure for the engines, little information of the market, and the slower increase of the market share. The joint venture may also be associated with some problems, even though it appears to be the best option in this case. For instance, the joint venture is hampered by the cultural differences, different working effort, and operational control, inferior quality of work that Tata Motors give, different target markets from the standpoint of VW and Tata, among other shortcomings (McNally, Durmusoglu, Calantone & Harmancioglu, 2009). However, the method is likely to be more feasible for the two companies because of similar goals and interest with respect to electric vehicles, the economies of scale that are yet to be enjoyed, tailored offers that are likely to be standing on a localization concept, and the use of Tata brand which is the most trusted brand among the Indian customers. It has also been mentioned that data has experience working with international players. This makes a joint venture the best option for the two companies, as lesser severe risks characterize it compared to other models.

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The existence of VW in the Indian market for over 10 years has been associated with many mistakes. This has led to a situation whereby the company launched products that were not popular in the Indian market; they could not be readily accepted in the market. This is a mistake that can easily be repeated even though it has the advantage of launching a product with a partner with more experience in the Indian market. Even as the two come together and strategize on the possibility of launching new products, they need to do thorough market research to avoid repeating the same mistake. The electric motor industry is highly dynamic, and customer tastes and preferences are constantly changing (Jiang, Keller, Qiu & Ridley, 2018). The fact that the customers in this market are driven by newness means that there should be constant innovation, creativity, and market research so that their products will always be in tandem with the customers.

Joint technical feasibility of the two companies and commercial evaluation of a potential collaboration may not yield positive outcomes, hence deeming the possibilities of a strong joint venture from the onset. It could become apparent that the envisioned areas of partnership may not yield the desired synergies as originally assessed, hence creating a perception that the strategic benefits are below the threshold levels (BALI, 2016). This will shut down the possibility of forming one of the most promising partnerships in the history of the industry's joint ventures.

Another threat is that cost benefits from a tie-up may not make it a good business proposition. This and the mentioned threats above may compel the stakeholders to think twice about the possible joint venture. However, the benefits unveiled above clearly supersede the identified challenge. As such, the two companies should carry on with forming a joint venture.

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References Assaf, M. (2021). TATA Motors. Enterprise Management Automobile Industry Business Cases: Renault Morocco, Tesla, Hyundai, TATA Motors, Daimler Mobility, Toyota, 61.

Bali, S. (2016). Comparative Analysis of TATA-JLR AND Volkswagen-Skoda Merger (Doctoral dissertation, CHRIST UNIVERSITY).

Breuer, H., & Upadrasta, V. (2017). Values-based product innovation–The case of Tata Nano. Breuer, H. & Upadrasta, 2017.

Dodgson, M. (2018). Technological collaboration in industry: strategy, policy and internationalization in innovation. Routledge.

Højland, J., & Rohrbeck, R. (2018). The role of corporate foresight in exploring new markets– evidence from 3 case studies in the BOP markets. Technology Analysis & Strategic Management, 30(6), 734-746.

Jiang, K., Keller, W., Qiu, L. D., & Ridley, W. (2018). International joint ventures and internal vs. external technology transfer: Evidence from China (No. w24455). National Bureau of Economic Research.

McNally, R. C., Durmusoglu, S. S., Calantone, R. J., & Harmancioglu, N. (2009). Exploring new product portfolio management decisions: The role of managers' dispositional traits. Industrial Marketing Management, 38(1), 127-143.