Introduction
Tata Nano is a cheap, back-engined, small-sized car with a capacity to carry four passengers built by Indian based automotive company known as Tata Motors. Tata Nano was first introduced in January 2008 during the 9th annual Auto Expo in India (Tata Motors 2011). The exterior of Tata Nano is 8% smaller as compared to the second smallest car, Maruti 800. Currently, Tata Motors has managed to design three models of Tata Nano: Tata Nano STD, Tata Nano CX, and Tata Nano LX (Tata Motors 2011). At the time of its introduction in the Indian market, the car priced approximately US$2,100, hence making it the cheapest car in the world. However, due to increased cost of production, the car was going at approximately $2,900 by December 2010. Some of the features available in Tata Nano include one windscreen wiper instead of usual pair, three lug nuts on the wheels instead of usual four, one wing mirror (no wing mirror on the co-driver’s side), 623cc engine with two cylinders and four doors. The car lacks features such as radio, CD player, airbags, air conditioner, trunk’s door, and power steering. Presence and absence of the above-mentioned features was implemented in the design of Tata Nano with an aim of cutting production costs hence making it cheap (Tata Motors 2011).
According to Tata Motors, the idea to design Tata Nano was born out of the need to provide Indian families with affordable and safe mode of transport since many of the families used two-wheeled vehicles to fulfill their transport needs. In 2003, Tata Motors started to develop an affordable car for Indian families. Development of Tata Nano provided many Indians with an opportunity to own a new car. Tata Motors is the largest company in Indian’s automobile industry. It produced a wide array of vehicles which include heavy and light commercial vehicles (trucks, tractors and trailers), specialized defense carriers, luxury vehicles, compact city carriers among others (Tata Motors Limited:
Corporate Sustainability Report 2008). In reference to Tata Nano, its biggest competitor in India is Suzuki Alto, which is the manufacturer of Maruti 800s (world’s second smallest and cheapest car). In fact, when Tata Nano was introduced in the market in 2009, sales of Suzuki Alto-based Maruti 800 dropped by 20% for new ones and 30% for used ones (Maxabout Review 2007). However, this is no longer the case since Suzuki Alto is no longer producing Maruti 800 in the current decade. In the international market, (Australia in specific) Nano’s major competitor is Nissan Micra. Tata Motors’s market segment for Nano is families although individuals with small cars’ needs are also included in the segment.
Internationalization Decision
Initially, Nano was targeted to satisfy transport needs of Indians families. However, upon realizing the need for affordable and safe vehicles for domestic travel in developing countries, Tata Motors started making plans for exportation of Nano to these countries. In the 2009 Geneva Motor show, Tata Motors unveiled an export version of Nano branded Tata Nano Europa. Nano Europa is more improved as compared to the standard Nano. Its features include power steering, three-cylinder engine, an extended wheelbase, an improved interior and exterior, and an anti-lock braking system. These improvements are necessary for the Nano to be able to meet European Union’s safety and emission standards (Maxabout Review 2007). It is estimated that Nano Europa will be priced at US$6,000 since it is heavier and less fuel efficient as compared to standard Nano. Early this year, Tata Motors unveiled Tata Pixel during the 2011 Geneva Motor Show, which is based on Nano Europa platform. Tata Pixel is rear-engine, four-passenger city car that will start to be sold in the export market late this year (Tata Motors 2011).
The aim of this report is to provide Tata Motors Limited with an international marketing plan as it plans to start exporting its highly competitive Tata Nano to developing countries. Australia has been identified as one of the markets where Tata Nano will be exported. This report will therefore focus on analyzing the external/environmental marketing factors that Tata Motors will probably come across as it tries to penetrate the Australian’s automobile industry. These factors will include social/cultural environment, political, economic, and technological factors. After the analysis of the external marketing factors present in Australian market, a recommendation of how Tata Motors can maximize the opportunities and minimize the threats provided by external factors in Australian automobile market will be provided.
Mission Statement
The mission of Tata Motors Limited is to “be the most admired multi-national Indian car company producing vehicles that people love to buy, and to create an organization that people enjoy working for, doing business with and invest in” (Tata Motors Limited: Corporate Sustainability Report 2008).
Environmental and Internal Analysis
The environmental and internal analysis will focus on both the external and internal factors, which affect the operation of Tata Motors in the international market especially in marketing of Tata Nano in Australian automobile market. In order to be able to identify these factors, reference will be made to the available marketing reports for Tata Motors Limited, international marketing literature as well as to the marketing information provided by the management of the company during the discussion. Relevant data concerning environmental and internal marketing factors affecting internationalization of Tata Nano have been collected from the above-mentioned sources through case survey and discussion. In analyzing the environmental factors, which are likely to affect marketing of Tata Nano in Australia, PESTEL analysis has been used. PESTEL analysis is a “strategic planning technique that provides a useful framework for analyzing the environmental pressures on an organization” (Kotler & Keller 2009).
Political Environment
Australia is politically stable country with a relatively stable economy (Babette &English 2010). As Tata Motors ventures the Australian automobile market, it is not likely to face threats of political instability. However, Tata Motors should recognize that a lot of government control characterizes Australian economy. According to the 2005 Australian’s yearbook, the government had played important role in development of a viable automotive industry through formulating and implementing various policies aimed at assisting the industry to compete effectively both in the domestic and international market (Australian Automotive Industry 2005). In the 1980s, Australian government used to exercise protectionism policy in the automotive industry. However, from 1990s, the government realized that protectionism policies were counterproductive to the industry and hence were phased out. However, for a foreign automobile company to be allowed to export its vehicles to Australia, the Australia government requires it to be registered with ACIS Motor Vehicle Producer Researcher and Development Scheme (Australian Automotive Industry 2005). Multinational companies operating in Australia who are members of this scheme include Toyota, Ford, and Mitsubishi.
For Tata Motors to be able to export Tata Nano in Australia, it should ensure that it meets the requirement of Australian government such as being registered with the above-mentioned scheme, among other government requirements. On the other hand, Tata Motors may face a challenge of control by the government of the home country, India. This is because Tata Motors is one of the largest companies in India in terms of revenue. Control by Indian government may be necessary as a mean of ensuring stability of one of its greatest income earner is safeguarded in the international market. Tata Motors should ensure that home government controls do not conflict with trade regulations and policies of Australian government.
Economic Environment
According to a 2004 article by the Automotive Research and Trade Section in collaboration with Australian Government Department of Industry, the Australian home economy was reported to be growing (Australia Automotive Industry 2005). In specific reference to the automotive industry, Australian automotive industry has been contributing greatly to the economy in terms of value added activities, employment, innovation, and international trade. Value added activities from the Australian automotive industry constitute nearly 1% of the total economic activities of the country (Australia Motor Vehicle Industry 2006). In terms of employment, by 2001, the industry provided employment to 62, 966 people (Australia Motor Vehicle Industry 2006).
Since 2001, the employment rate has been growing with an average of 3% every year up to date (Robinson, Loughran, & Tranter 2000). In addition, Australian automotive industry has been driving the Australian economy through innovation. The industry engages in intensive research and development in motor vehicle parts and systems. It is therefore clear that the automotive industry is a key sector in the Australian economy since it is a great contributor to the country’s GDP (Robinson, Loughran, & Tranter 2000). As Tata Motors plan to market Tata Nano in the Australian automotive market, it should consider engaging in activities, which also contribute to the growth of Australian economy in order to gain easy acceptance in the market. For instance, Tata Motors can make use of local labor to assemble Tata Nano instead of exporting the car from India fully assembled. This would provide Australian’s with employment opportunities hence improve the living standards of Australians as well as contributing to the country’s economic growth.
Social Environment
According to Vitullo-Martin, the social environment includes all factors and trends related to groups of people, including their number, characteristics, behavior and growth projections (1997). Different consumer markets have different social environments and hence different needs and problems. Changes in the social environment surrounding a given group of consumers have great effects on marketers of various products and services. Trends in social environment such as demographic changes and change of characters among others may cause a decrease or an increase of a given market or even lead to creation of new markets (Vitullo-Martin 1997). To begin with, demographic patterns of a given market are very important in marketing. In most cases, increase in population results in increase of market size of many commodities while decrease in population causes a decline in the size of market of many commodities. In the case of automobile market, population increase characterized with positive economic growth may result in expansion of automobile market.
The population of Australia is relatively high although aging individuals characterize the biggest portion of Australian population (Robinson, Loughran &Tranter 2000). This is because both birth and death rates are very low. Low birth rate in Australia makes the size of Australian’s families to be relatively small (nuclear family). Small family size presents a good marketing opportunity for Tata Motors to market the Nano in Australia since it has a capacity of four passengers. Many Australian’s nucleus families have a maximum of four individuals. It is therefore clear that the family setting of Australians presents a good market for Tata Nano. In addition, many of the Australian’s families are middle-income earners working either in the formal or informal sector (Babette & English 2010). Since the price of the export model of Tata Nano to be marketed in Australia ranged between US$5,500 and 6,000, this is a relative cheap offer for a new car in Australia. Therefore, many of the urban working class of Australia will have an opportunity to own a new car as opposed to a used car at almost the same price.
In Australia, many of the individuals are educated since the government of Australia provided free primary education to all citizens as well as partially sponsoring secondary and high education (Robinson, Loughran & Tranter 2000). In highly educated societies, private means of transport are preferred as opposed to public means. Furthermore, since many educated individuals belong to the working class, they prefer to use private means of transport to and from work since they provide more comfort and convenience as opposed to public means. With a relatively big percentage of Australian’s population being educated, introducing an affordable car that provides comfort travel to the educated society has great chances of success.
Cultural environment
Cultural environment is made of beliefs, ideas, attitudes, values, and activities of various subgroups within the population (Nagel 2006). These factors greatly affect the purchasing power of consumers. It is therefore important for Tata Motors to understand the cultural dimensions of Australians as it ventures in the Australia’s automobile market. According to Hofstede’s cultural model, the above-mentioned cultural factors of a given society can be analyzed from individualism, collectivism, and achievement perspectives (Nagel 2006).
Individualism is the degree to which people prefer to act as individuals rather than members of groups, where collectivism is the degree to which people expect others to look after them and protect them (Nagel 2006). Hosfede views Australian’s culture to be characterized by low individualism and high collectivism. With low individualism and high collectivism, Australians holds high value in the family as an important group in the society. Since Tata Nano was developed to meet families travel needs, Australia families provide an ideal market for Tata Nano since they place high value in the institution of the family.
In terms of achievement, Hosfede views Australian’s culture to belong to the high category. “Achievement is the extent to which societal values are characterized by assertiveness, materialism, and competition” (Nagel 2006). It therefore means that Australian’s hold high societal values to materials things such as cars. An Australian owning a car tends to be placed in a high social class by the rest of the society. It is the desire of every Australian to owe a car to achieve high status in the society. Introducing an affordable car in Australia would therefore provide Australians with opportunities to achieve high social status as desired.
Technological Environment
The level of technological change in Australia is high (Derby 2011). Many of the motor vehicle producers in Australia have embraced use of robots in vehicle manufacture where pinpoint accuracy is paramount. Another form of technological advancement in the Australian automotive industry is the linking up of manufacturers and suppliers in communication through Australian Automotive Network Exchange. Use of fuel-cell technology in production of electric vehicles has also started to gain presence in the Australian automotive industry.
According to Derby, Australian automotive industry is planning to introduce electronic braking and steering systems as a means of achieving fuel-efficiency and improved safety (2011). It is also important to note that the automotive industry in Australia is capital intensive, less human labor is used in production. Based on technological advancement present in Australian automotive industry, Tata Motors should also prepare itself technologically as it plans to venture in this market. Apart from introducing an advanced model of Tata Nano with power steering and 3-cylinder engine, Tata Motors should also try to incorporate other features such as electronic brakes and steering systems in the car. This way, it will be able to stay ahead of technological advancement in the Australian market and hence avoid lugging back in the back due to technological changes.
Trading Infrastructures
The Australian trading infrastructure for motor vehicles is well developed. There are quite a number of players in this market. They include Toyota Motor Corporation Australia Ltd, which owes a 38.8% market share, GM Holden Ltd with 20.9% market share, and Ford Motors Company of Australia with 16.1% market share (Derby 2011). Small companies such as Volvo, Iveco Trucks Australia, and PCCAR Australia Pty own the remaining percentage of the market share. Presence of many players in the industry makes it a perfectly competitive market (Kotler & Keller 2009). This means that a new player such as Tata Motors can easily gain access to the market since there are no barriers of entry. It is therefore clear that Tata Motors will be able to gain easy entry into Australia to market Tata Nano. Among the mentioned key players in the Australian automotive industry, Toyota is likely to be the biggest competitor for Tata Motors. This is because Toyota is the largest producer and marketer of small cars for family and individual uses in Australia. However, Tata Nano may have a competitive edge over Toyota cars because it is relatively cheap. In addition, Tata Motors can utilize the 4ps of marketing to gain competitive edge over its major competitor. For instance, in promotion, Tata Motors can formulate adverts for Tata Nano targeting families as well as displaying the car in places where family members tend to hung-out. In addition, Tata Motors may be able to gain easy penetration to the non-urban population (families residing in rural areas in Australia) since most parts of the country have good roads. Therefore, as Tata Motors market Nano to Australian families; it should also try to reach out to rural families since Nano is well suited for use in rural areas.
Tata Nano’s Market in Australia
Since Tata Nano was designed to meet travel needs for families, the target market for this car in Australia will be families, specifically, small families with an average of four individuals (two parents and two children). Arguably, these families will be middle-income earning families living in the urban and semi-urban areas of Australia. Middle-income earners are ideal because they can easily afford to buy a new Nano given that it price is relatively cheap. However, it is important to note that the most likely age group of the targeted market will compromise those between the ages of 28 and 35. This is the childbearing group and they have larger travel needs as they make trips to and from hospitals, schools, and social places.
Competition
As earlier mentioned, the major competitor for Nano in Australian automotive market is Nissan Micra. The Nissan Micra, version K11 has been in Australian car market since 1995, and then re-introduced in 2007 after being dropped in Australian market in 1997. Even though the car is not as cheap as compared to Tata Nano, many Australian families have become fond of the car since it fulfills many families’ travel needs. In addition, it has more features as compared to Tata Nano and it is safer. Nevertheless, this should not make Tata Motors to go ahead and introduce Nano in Australian market. This is because Nano has a competitive edge over Nissan Micra in terms of price. Tata Motors can also make Nano to be more competitive by ensuring that more advanced features are included in the Nano’s model to be marketed in Australia. With perfect competition in Australian car market, Tata Motors should target to make sales of about 500 Nanos each priced at AU$3,000 (total sales of AU$1,500,000) within the first year of introduction. Sales of AU$1.5million will contribute sales of around 0.5% in the Australian Automotive industry. This will enable the company to acquire a reasonable market share to sustain its operations in Australia. In the consecutive years, Tata Motors should target to sales of more than 1000 Nanos every financial year.
Other competitors in Australia
Small cars are becoming a big trend in the Australian market with majority of passengers opting to go for the small or light cars. Competition in small and light cars is cut throat with price differences going as little as $50. Companies that dominate the light car category are Toyota and Hyundai. These companies manufacture the Toyota Yaris and Hyundai Getz respectively. Cars in the small car category include Ford fiesta, Ford fiesta LX, Hyundai i20, Hyundai i20 premium, Mazda2, Mazda2 Genki, and Volkswagen Polo. However, these cars are more expensive as compared to the Tata Nano and therefore, the Nano would be competitive in terms of price. Similarly, cars in the lesser category include the Holden Barina, Hyundai Getz, Kia Rio, Honda Jazz, Suzuki Alto, Mitsubishi Colt, Suzuki Swift, and Nissan Micra. These cars might be the greatest competitors for the Tata Nano in Australia.
Competition among distributors
Competition in the Australian car manufacturing industry can be said to be medium in that customers already have the preferred size, model, and price of vehicles they would like to buy (IBISWorld Industry Report C2811, 2011). Thusly, competition is between distributors supplying the same type of vehicles other than competition existing between different distributors. Additionally, there exists fierce competition between importers and distributors in their quest to defend their market shares. As such, car manufacturers have opened up car distribution outlets across the region in order to increase their market share. Other important factors that determine competition in the industry include customer service levels, quality of cars, and provision of technical support and training to dealerships (IBISWorld Industry Report C2811, 2011).
Characteristics of the Market
The Motor Vehicle Manufacturing industry in Australia is highly cyclical in growth with fixed costs and break-even profit levels. It also has formidable barriers to entry that include high cost of developing high-volume production facilities, high competition, medium capital intensity, high technological change, medium regulations and policies, and medium industry assistance (IBISWorld Industry Report C2811, 2011). Tata Motors must take note of these factors when it brings its production activities to Australia.
Internal Analysis (Company Analysis)
Tata Motors, which is the producer of Tata Nano, is one of the largest and leading automotive vehicle manufacturing companies in India. Its portfolio includes utility vehicles, passenger vehicles, and light, medium, and heavy commercial vehicles. As such, the company has a strong position in terms of market share and revenue. In fact, it is the fourth largest truck manufacturer and one of the largest bus manufacturers. Tata’s acquisition of Jaguar Land Rover Business from Ford Motor Company enabled it to expand its range of luxury performance cars and all-terrain vehicles. These factors would enable it to attain sustainability in the Australian market. The company can transfer its organizational culture to its manufacturing plants in Australia in case of cultural variability.
One of the strengths of Tata Motors is government support due to its role in economic development (Tata Motors Limited 2008). Economy of scale is yet another strength that Tata Motors rely on (Tata Motors Limited 2008). Tata Motors has been into operation in the automotive industry since 1945. It has therefore been able to gain economies of scale through large-scale production and investment in production infrastructures. Tata Motors’ internationalization decision to market Tata Nano in Australia presents a number of opportunities as well as threats. Gaining access to Australian automotive market and acquiring a market share in this market is one of the opportunities present to Tata Motors. If Tata Motors is able to acquire a reasonable market share in Australian car market, then it can utilize the market share to introduce more advance versions of Tata Nano in Australian market and eventually introduce other brands.
Facilities and Technology
On the other hand, gaining entry into Australian automotive market poses competition threat from other players in the market for Tata Nano. Tata Motors may face competition in form of production of similar product or close imitation of Tata Nano by other companies. However, Tata Motors can minimize this threat by staying ahead in technology, using the modern state-of-art technology in production, as well as including more technologically advanced features in Tata Nano. This way, Tata Nano would be able to gain competitive edge over other similar cars or its close imitations.
Financial Factors
While planning to market Tata Nano in Australian car market, it is important that Tata Motors conduct financial feasibility test. The 2011 industry estimates shows that revenue stands $9.7bn, with profits amounting to $193.6m and current annual growth rate stands at 4.4%. This would require that profit margin for every Tata Nano to be sold in Australia be set. In setting the profit margin for Australian market, the company should ensure that Nano remains competitive in the world’s car market in terms of price, cheapest car in the world. Measures to cut down on operations costs such as distribution costs should be taken. This may include engaging in collaborative marketing whereby Tata Motors may identify car dealers/distributors already established in Australia to help them in distribution.
Conclusion and Recommendation
In the current world’s automotive industry, Tata Nano is still the cheapest car and a great choice for many middle class families with dreams of owning a new car. Therefore, Tata Motors’s internationalization decision to market Nano in Australian automotive market is very viable and has great probability of gaining success. The Australian automotive market is perfectly competitive and Tata Motors can easily access market for Tata Nano by the end of year 2011. As a recommendation, Tata Motors should ensure that they meet all the government requirements concerning trade in the Australian automotive market, ensures that it contributes to development of Australian economy and stay ahead of competition through making use of advanced technology. Tata Motors should also ensure that the cultural values and beliefs of Australian families recognized and represented in Tata Nano’s features. In order for marketing of Tata Nano in Australian car market to be viable, we recommend the car to sold at AU$3,000. Finally, Tata Motors should utilize its first-mover advantage in the market by ensuring that it continues to be the sole producer of the cheapest four-wheeled car in the world.
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