Decisive step for Tata Motors, giant leap for India
Tata Motors has taken a decisive stride in its ambitions of becoming a world-class carmaker by purchasing Jaguar and Land Rover, reports NC Mohan.business Updated: Jul 06, 2011 12:14 IST
Tata Motors has taken a decisive stride in its ambitions of becoming a world-class carmaker by purchasing the two iconic brands, Jaguar and Land Rover, from Ford Motor Company for $2.3 billion. With this big-ticket acquisition, it becomes a more complete carmaker with a capability to manufacture models at both ends of the spectrum, the premium and economy – surely, an asset to participate in a big way in the booming Indian passenger car market in which virtually all the global majors fiercely compete.
To become truly world-class, it badly needed global brands to bolster its reputation. Although Tata Motors has set the entire auto world on fire in redefining the realms of possibility in producing the Nano at the lowest entry price of $2,500, this is not enough. Although the latter has been hailed as a bottom-of-the-pyramid initiative that is affordable to the vast Indian population, it only reinforces the popular stereotype of Indian products of typically being cheap labour-based commodities in the world market.
Partly for this reason, Jaguar dealers in the US initially expressed concern over an Indian buyer, arguing it could impact the value of the luxury brand, as Tata Motors’ Nano is one-twentieth of the cost of the least expensive Jaguar model. Why only the Tatas, most other domestic companies also run up against this stereotype initially in their drive to global. This is the much-vaunted “liability of Indianness” – to borrow an expression of the late management guru, Sumantra Ghoshal et al in Managing Radical Change.
India Inc continues to be associated with expectations of low cost, low price and low margins, especially in pharma, textiles, software and engineering industries like auto.
Thanks to such expectations, margins cannot be raised to enhance global competitiveness. Despite such constraints, however, more and more companies like Infosys and Ranbaxy Laboratories have responded by moving up the value curve. Tata Motors’ response to bag global brands like Jaguar and Rover makes sense in this light.
Ratan Tata, Tata Sons chairman, for his part sounded confident that it is not impossible for prestigious brands to coexist with the world's cheapest car despite an image disparity.
"How a company manages products in different sectors is the key. Toyota created Lexus, Nissan has Infiniti. No one is saying how can BMW handle the Mini? But they've made a huge success of it. So why is it impossible?" he said in an earlier interview to The Times.
That said, there are a number of questions as to what the Tatas will do with Jaguar and Rover. For starters, what can it do that Ford couldn’t do to turn these brands around for the last 10 years?
Moreover, the Indian car market is predominantly dominated by small car models. Global auto majors are aware of this reality and have fast-forwarded plans to make such cars. If domestic sales of Jaguar and Rover will not exceed 50-100 cars, how will this justify the huge price tag of the acquisition?