By Amitesh Ranjan, Sagar Karmarkar, Dinesh Mahale, Sidharth Sarkar and Rahul Bibikar (Group 12)

TATA-DAEWOO « THE ROAD TO GUNSAN »

Contents Market Analysis of TATA motors prior to acquisition Factors Influencing for Larger Plant Size LRAC Influencing for Larger Plant Size Competitive Implications of LRAC Larger Plant Size: Single plant or Multi-plant Why Daewoo ? Economies of Scale and LRAC TATA-Daewoo Productivity and Learning Curve impact on

LRAC TATA-Daewoo Marketing Cost TATA-Daewoo Multi-Plant Benefit Key Strategic Points

Market Implications of Acquiring the Daewoo Plant by TATA Motors

Market Analysis of TATA motors prior to acquisition TATA motors’ commercial vehicle business was

minimal to Indian market, prior to acquisition. TATA motors was unsuccessful in its planned entry into

China, which is world’s fastest growing Commercial Vehicle market, through various merger and technology transfers.

TATA motors’ ambition of tapping the global market was still not fulfilled due to the limited product range which are not at par with the standards of fastest-growing segments of the market.

TATA motor was lagging behind with its global competitors due to sub-standard Indian trucking market.

Factors Influencing for Larger Plant Size TATA motors’ ambition for competing with the global

players in same sector and increasing product range to cater global market.

To cater the global market, TATA motors’ requires expertise and designing standards which creates the dependency to learn this from the existing global player in the industry.

To expand the outputs, per unit average cost needs to be minimized, which suggests that TATA motors should look for the Economies of Scale in production.

As TATA motors’ is planning to cater for the growing market, it needs to go for larger plant size.

LRAC Influencing for Larger Plant Size

As Q is increasing due to increase in the target market (global market), the company should operate in N2-M2 path for minimizing the long-run average cost. We can compare that, even though M1 is the min. AC point for the current production of TATA motors, for larger production, min AC point will shift to N1 from M1, considering the larger plant size in future.

Competitive Implications of LRAC

Also, at high Q, TATA motors’ can achieve higher economics of scale and large MES (optimum size) relative to market size, to limit the number of competitors, and gain the market share.

Larger Plant Size: Single plant or Multi-plant As we discussed, TATA motors needs to go for Large Plant

size for achieving its ambition as a global player. But, the optimal plant size was the other factor to be looked upon.

As TATA motors was India’s biggest auto-maker and eyeing on the global market, a new plant at some global site it required nearer to the market to reduce the transportation cost.

Also, the technology and equipments used for Indian market was sub-standard as compared to the global market, which implies that new plant with better infrastructure, machinery and equipment needs to be set-up by TATA motors, to inline themselves with prospective global competitors.

Why Daewoo ? TATA will get the ready-made base product, which

can be tweaked as per customer requirement. In Middle-East & Europe, TATA-Daewoo product can

be launched without much modification and exports are expected to rise up to 25% from current 8%.

Korean market for 1-tonne pick-ups is monopolized by Hyundai, which will open the opportunity of the new market for existing Indian product of Tata Motors in same category.

With better product portfolio, Tata-Daewoo can target Chinese market, which is fastest-growing CV market in the world. Also, as one segment of Daewoo is merged with GM in China, the brand value of Daewoo might help Tata’s to get some market share.

Daewoo has its well equipped R & D centre which will help Tata to develop better products.

New Market Technology and Policies Influencing TATA Motors Cost

Economies of Scale and LRAC Due to existing product base and expertise of Daewoo,

TATA-Daewoo is exhibiting economies of scale. Also, the demand is rising. Hence, Tata-Daewoo will be operating under excess capacity conditions and on the declining part of the SRACs of the scale (i.e. N2-M2).

TATA-Daewoo Productivity and Learning Curve impact on LRAC Daewoo have better product Design skills and technology.

It will help in reduction of the cost of production to the greater extent if utilized to fullest. The impact of this as the learning curve will reduce the AC to greater extent.

Also, Daewoo have internationally trained managers/ labors which helps TATA motors’ for global strategy planning/production.

TATA-Daewoo Marketing Cost Daewoo doesn’t have its services & marketing

team. TATA later setup its own sales team and service centers to cater their customers.

TATA-Daewoo also acquired a finance firm, and launched its own financing scheme to the customers. It can also extrapolate to economies of scope for TATA Daewoo.

TATA-Daewoo Multi-Plant Benefit Tata-Daewoo will get the benefit of Declining Cost

or Constant cost in multi-plant facility by producing more output at same or declining cost value.

TATA-Daewoo Transportation Cost As the markets are scattered and distant location.

TATA-Daewoo will be able to reduce the transportation cost by acquiring new plant nearer to the market, and having existing plant working at different locations.

Conclusion After acquisition in 2004-05, company

performance in 2008-09, is outstanding. MCV is also added in the product portfolio. Production volume increased by 100% to around

10000 units from 4600 units. Export is grown up by 400% from 900 units to

4300 units.

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