In the last few decades, the world has witnessed increased integration of the global economy which has resulted in new opportunities for economic and income growth (OECD, 2007). For developed nations, it opens new markets for goods and services. For developing countries, it contains the promise of increasing the scope and rate of economic growth, and the improving of their industrial activities. One of the significant driving forces is globalization as it has been characterized by the production of manufactured goods and services, linked and synchronized on a global scale thus opening significant opportunities in all regions. At the same time, these effects have been experienced at various levels-individual, organizational, sectoral, national and regional. Because these losers involve the same participants in the process of global integration, there is a need to reconsider the mode of inclusion into the world economy in order to make sure that incomes are further polarized.
In that respect, the purpose of this paper is to focus on value chain as a tool that can be analyzed to provide important insights to the issue of globalization. The focus here is on the value chain analysis associated with the dynamics of inter-linkages in the productive sector, particularly the manner in which organizations are globally integrated. The rationale here is that value chain analysis surmounts many of the significant weaknesses of conventional sectoral analysis. That is, it goes beyond the firm-specific analysis found in the larger part of the innovation literature. The concentration on inter-linkages allows for the uncovering of the dynamic flow of organizational, economic and coercive functions between firm units, yet on a global scale.
The paper starts by explaining what value chain is and at the same time highlighting the importance of analyzing it. It further proceeds to investigate on how IKEA and Reebok have constructed their value chains to underpin and strengthen their business strategies. An evaluation of the aspects associated with these value chains using VRIN criteria is also important because it relates directly to the competitive advantages of the firms. In as much as the value chain corresponds to the issues of globalization, so do its analysis correspond to the identification of the organization’s strategic resources which should be managed and applied to achieve comparative or competitive advantage.
Defining the value chain
According to Antoniou, Levitt and Schreihans (2011), the value chain concept was first developed by Michael Porter in his work of implementing competitive advantage to attain superior business performance. His definition of value was the amount customers are willing to pay for the products offered by a firm. Therefore, he visualized the value chain as the amalgamation of several generic value added functions operating within a firm. Porter further connected the value chains between organizations to come up with a value system; although, at present environment of greater collaboration and outsourcing, the linkage between firms’ value creating activities is usually referred to as value chain. The principal focus of value chains revolves around the benefits that relate to customers, the mutually supporting activities that generate value and the ensuing demand and flow of funds that are created.
Respectively, value chain analysis describes the processes around and within a firm, and links them to an evaluation of the competitive strength (Popescu & Dascălu, 2011). Hence, it assesses which value each specific process adds to the firm’s products and services. The backbone of this notion was the fact that organization is beyond the accidental collection of people, money, machinery and equipment. Maitland and Sammartino (2012) assert that the capacity to undertake specific activities and to control the connection between them is the core source of a firm’s competitive strength.
Primary activities and support activities are distinguished in a value chain (Bititci & Carrie, 1998). Primary activities deal with the generation or distribution of a good or service. They comprise of five major categories: outbound logistics, inbound logistics, operations, marketing and sales, and services. There are links between primary activities and support activities which assist in enhancing efficiency. The secondary activities comprise of four categories: infrastructure, human resource management, technology development and procurement. The value chain is described by the model shown below:
The part reflected as the “margin” shows that firms attain profits that rely on their capacity to control the linkages between primary and secondary activities in their value chains. This means that the firms are capable of delivering a good or product for which the buyer is willing to pay a higher price than the total sum of all activities within a value chain. Indeed, effective value chains should generate profits as noted by Bhatnagar (n.d., p.27). Otherwise, the organization will be destroying the value perceived by customers in its goods or services.
Reebok value chain analysis
Reebok value chain revolves around the organization of four primary parts: supply of raw materials such as synthetic and natural fibers; provision of gears like fabrics and yarns by textile firms; production networks such as foreign contractors; export channels enabled through trade liaisons; and marketing arrangements at the retail level (Adidas Group, 2010).
Inbound logistics- Reebok has integrated an effective management of inventory. For example, the company ensures that it has sufficient raw materials in its warehouses. On a global perspective, inbound logistics in Reebok might also imply manufacturing units in Asia, America and other parts in Europe. Within these units, facilities are spread across 14 countries with own warehouses (Adidas Group, 2010, p.78). Most of the footwear sold by the company is produced in China while India leads in attire manufacturing. Approximately, half of the total apparel sold by the firm is manufactured in India.
Operations- According to Meiners (2004), Reebok has a well developed research and development department. The department is charged with the responsibility of new product development and improvement. Reebok also installed the current technologies in its manufacturing plants and laboratories. This has enabled the firm to be effective in producing high quality sports products. In addition, Reebok has developed an internal creative team that oversees the implementation of innovations originating from the research department.
Outbound logistics – In an effort to ensure that its products are effectively distributed, Reebok has developed an efficient distribution network by establishing a number of franchised stores, directly managed dispensation counters, and directly managed retail stores. By 2011, Reebok had established 1,300 franchised stores in India, 138 directly managed retail stores and 299 directly managed dispensation counters (Sportzpower, 2012). The company has also developed a comprehensive distribution and dispatch system that comprise of shipping and flying networks.
Marketing and sales- The firm’s management team has appreciated the fact that its success depends on the effectiveness with which it conducts marketing and sales activities. To be successful in its marketing and sales activities, Reebok Company has incorporated the concept of continuous market research. Furthermore, the company has also incorporated the concept of Integrated Marketing Communication. As Texier (2000) confirms, this is an effort to understand the needs of its diversified markets and different segments. Sports products are ultimately positioned according to those market needs as the company engages in various activities of the Integrated Marketing Communication.
Services- Reebok has managed to attract and maintain a large customer base. According to company’s annual reports, Reebok Company has attained this by integrating favorable after-sales services and ensuring that its products are of high quality (Adidas, 2010). The main goal is to make sure that its customers reach a high level of satisfaction. Mark, Philip and Adrian (2007), who are renowned marketing professors, assert that offering after sale services is an effective way of enhancing the customer experience.
Procurement- Reebok has developed an effective procurement system through effective management of its outbound activities. This has significantly contributed towards its effectiveness in undertaking its production activities. Reebok has also nurtured an effective relationship with its suppliers. These producers are mainly located in Asia where low materials and skilled labor are available at a cheaper cost.
Human resource management – Reebok’s management team considers its employees as one of its most vital asset. In addition to employees, the activities also involve the management of work councils, trade unions, acquisition risk and work stoppage (Adidas, 2010). As a result, the firm has incorporated efficient human resource management strategies such as effectual employee remuneration, employee training and development. This has contributed towards increased employee motivation.
Firm’s infrastructure-To attain efficiency in its operation, Reebok has designed an efficient organizational structure that is composed of different departments. The departments in the firm include Research and Development, Finance, Marketing and Sales, Human Resource management and Information Technology. These departments work jointly through the vital focus on achieving organizational goals.
Technology development- Reebok has appreciated the importance of continuous product innovation and development. As a result, the firm has established several laboratories which are used in the process of product development such as undertaking mechanical testing of the footwear products. To maximize its sales revenue, the firm has adopted e-commerce strategies through the integration of online shopping. Acquisition of Business intelligence (BI) applications such as SAP information management is part of technology improvement (Reebok, 2004, p.16).
Reebok analysis using VRIN framework
Valuable -In its operation, Reebok has been able to develop a number of internal strengths. One of the firm’s valuable strength relates to its ability to carry out complex inbound activities. Over the years it has been in operation, Reebok has been effective in controlling inventory. This has enabled the firm to maintain effective flow of raw materials necessary for the production of its sports equipments. The other value lies in the firm’s ability to outsource operations to regions where the input cost is low.
Rare– Since its establishment, Reebok products have achieved substantial recognition in the global market. One of the factors that have contributed to this achievement is the effectiveness with which they enhance the performance in different sports. Additionally, many sportsmen consider Reebok products as their brand. This has significantly contributed to the firm’s competitive advantage.
Inimitable– Reebok Company has developed a strong relationship with its customers. As a result, the firm has been able to develop a strong customer loyalty. Despite the large number of firms in the global sports equipment industry, many cannot be able to replicate the customer loyalty that Reebok Company enjoys.
Non-substitutable- Reebok Company has sufficiently developed its distribution network and supply chain management. Despite the fact that other firms can copy its strategy, they cannot perfectly substitute the firm’s strategy.
IKEA value chain analysis
Sekhar, a strategic management specialist asserts that an organization’s value chain illustrates a firm’s commitment towards delivering value to its customers (Sekhar, n.d, p. 115). IKEA has integrated an effective value chain that is composed of primary and support activities in an effort to satisfy its customers hence attaining its organizational goals.
Inbound logistics: IKEA has established a wide base of producers and supplies responsible for the manufacturing and supply of furniture parts. The extensive array of regional warehouses is integrated with an efficient management of inventory driven by the need to ensure that the right parts go to the right customer at the right time. Storing the furniture components as a single package is a cost saving approach as the stores need not to be as big as might be expected (Gillespie, Jeannet & Hennessey, 2010).
Operations: IKEA has continued to expand and increase its customers across all its market segments. Isaksson and Suljanovic (2006) observe that IKEA is the only firm in the furniture industry that has managed to attract customers across the world without changing the original concept of management. This has been achieved through the development of unique product designs with basis on an almost sacred dedication. Other operations include market and product research which add to the competitive strength of the business.
Outbound logistics: In an industry that is considered local by many, IKEA has become global as a result of its comprehensive distribution network. Presently, the firm delivers low cost quality furniture to major markets across the globe. Indeed, it is the only distributor in the industry to have established on a global scale. It has stores spread in Europe, North America, Asia and recently established operation in the Asian Pacific. Low cost distribution is enabled through the innovative way of dealing with logistic sourcing and retailing whereby the products are knocked down and shipped in flat boxes (Gillespie, Jeannet & Hennessey, 2010); involving consumers in value addition by transporting and assembling the furniture by themselves.
Marketing and sales: Marketing in IKEA is accomplished through the renowned IKEA catalogue which has existed for years. This marketing tool is the cornerstone in the firm’s concept and is distributed freely to the households within the stores’ principal market areas. The sales are driven by the numerous customers visiting the stores as a result of the catalogue. Every year, the company experiences an increased number of visitors due to the new products advertised though the catalogues. No other forces drive sales in IKEA much like the catalogue which is reinforced by the homely environment of the stores.
Services: The great success of IKEA has been enabled through the homely services offered in the stores. The stores have been likened to IKEA homes where a customer can get any household services including dining, children playing zones and instructions on how to assemble products on their own. This kind of high-level service maintains the attractiveness to and competitive advantage of the firm.
Procurement: To establish a long standing competitive advantage, IKEA has put an emphasis on the area of strategic sourcing. The firm has developed a durable partnership with furniture manufacturers and other suppliers. As Gillespie, Jeannet and Hennessey (2010) note, this relationship is founded on the capacity of these stakeholders to supply long runs of components. These producers are mainly located in regions where low materials are available, especially in Scandinavian forests which form the larger part of the material base.
Human resource management: In order to have an effective and motivated workforce, IKEA has adopted unique management style and practices. Managers are expected to share information with employees as well as their knowledge and skills. Employees at all levels are encouraged to make own decisions and making mistakes is appreciated as ‘learning by doing’. The management approach in IKEA is egalitarian which makes it easy for motivated staff to climb the ladder with little training (Nankervis, 2005). The IKEA-Way supports employee development through discussions rather than extensive, costly training programs. This is one of the activities that contribute to the success of the low-cost strategy pursued by the firm.
Firm’s infrastructure: IKEA’s organizational structure is vertical integration where hierarchy is not emphasized. In many stores, there are just three levels of responsibilities separating the manager and employees. In fact, employees are referred to as co-workers and problem solving as well as decision making is through consensus.
Technology development: IKEA uses modern technology such as RFID when shipping products as a way of managing inventory effectively. Producers have also been encouraged to use new technologies when manufacturing components to an extent of the firm providing them with technical assistance in order to increase productivity. The firm has also created a lasting relationship with technology firms in an effort to track new technologies.
IKEA VRIN framework analysis
Valuable: The strength of IKEA at present originates from its mastery of three major elements of the value chain: unique sourcing; tightly controlled logistics; and unique design capabilities. Therefore, the firm is able to offer products that are unique enough to give market recognition, reduce inventory, and secure sourcing for long-runs. This strength has ensured that the firm leads in the industry and steadily increases the market share.
Rare: Throughout history, IKEA has been able to produce new designs and offer products just next-door from the stores. Isaksson and Suljanovic note that IKEA is the only industry player that has been able to offer a variety of designs to a wide customer base (Isaksson & Suljanovic, 2006). Indeed, it is widely accepted that IKEA leads in those two aspects.
Inimitable: As the activities of the value chain suggest, IKEA has strong relationship with their customers starting from the products offered to the services given. Many of the competitors lag far much behind in terms of customer loyalty and the few that surface are only known to the locals. IKEA enjoys global recognition due to its ability to offer the typical Swedish furniture taste, yet with a sense of the differing consumer needs.
Non-Substitutable: The iconic aspect of self-assembly emphasized in IKEA is more of an imagination. The developments that have led to this achievement have taken years and whole commitment of the firm leaders. Even if the other competitors tried to imitate such an approach, they will not only invest costly in building trust with producers, but must do better than IKEA to dissolve the recognition the company has gained.
Globalization has been the force behind the integration of the global economy, yet it has led towards unequalization within and between economies, and an increasing occurrence in the absolute degrees of poverty. This has changed the norm of determining the basis of firms’ competitive strength and comparative advantage calling for more effective tools. Consequently, the value chain which refers to the amalgamation of several generic value added functions operating within a firm has proved to be an effective tool for analyzing the strategic position of a firm. It consists of primary and support activities that are interlinked in such a way that effective management of these linkages lead to profitable performance.
The analysis of Reebok and IKEA value chains suggests that the firms have strategically developed competencies and acquired resources that influence the attainment of strategic goals and objectives. The aspects that are critical to Reebok’s competitive advantage as identified through VRIN analysis include efficient control of inventory, substantial recognition in the global market, strong customer loyalty, and comprehensive distribution network and supply chain management. For IKEA, the critical aspects include unique sourcing, tightly controlled logistics, unique design capabilities, strong relationship with their customers and self-assembly service offered to consumers.
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Tata’s Case Study Analysis
The history of Tata is one that reveals the firm as to have embraced a unique culture and astonishing strategic moves which have left the corporate community with many questions and lessons to learn. According to Angwin and Smith (2011), the firm was started by Jamsetji Nusserwanji Tata in the late 1860s as a small trading company. As the firm progressed, Tata planned and developed a culture that focused on social welfare as an attempt to overcome racial prejudices and dismissive attitudes of the British. This led to the expansion of the company to other fields such as education and electric power production in an effort to offer opportunities to the Indians and serve them better than they had ever witnessed. His successors came to learn this culture as the norm of the company hence expanding from where the founder had left. Dorab concentrated on expanding the business in India while Ratan Tata was to take the firm global.
Tata’s international growth which began in early 90s was most unique and far-reaching in terms of spending. The company completed very many acquisitions within a very short time to an extent of becoming one of the most diversified corporations in the world. Some important acquisitions are the Tata-Corus and Tata- Jaguar and Land Rover acquisitions. Their significance lies in the amount spent on both acquisitions and the relative size of the respective business units which acquired them. Despite the criticism on these acquisitions, Tata executives insist that the move was the most strategic and forms the backbone of the future success of the company.
However, there is a general tendency for firm’s strategies to persist since they are organized within that which is presupposed in the firm-assumptions about the nature of the firm, its operative environment and the way things are approached in the firm. Even when a strategy is developed, perhaps grounded on sound coherent argument, firms often realize that attaining significant changes to present strategy is challenging (Fleisher & Bensoussan, 2007). This paper is built on this fact. It analyzes Tata’s corporate culture and how it influences the mission, objectives and goals using two tools-the cultural web and Ashridge diamond. There is also an analysis of Tata’s diversifications strategy and the motive behind the acquisition of Corus and Jaguar- Land Rover, as well as the challenges that the new CEO will face.
Tata’s culture and its influences
Tata’s organization culture plays a great role when it comes to the unique performance and it is indeed the core of the firm’s competitive advantage. In this case, corporate culture refer to “how Tata does things around its operative areas”-McKinsey organization reference (Raisiel, 1999). This culture is also responsible for the motivation and employee turnover in the firm. So, for all its indistinctness, Mohanty and Rath (2012) observe that organizational culture has a big impact on the work environment and the output of the firm. Therefore, analyzing Tata’s culture by use of the cultural web tool is important in managing change, while Ashridge Diamond will be a good tool to ‘see’ how this culture influences the mission, vision and objectives of the firm (Caltienne, 2003; Whitehead, 2012).
The cultural web for Tata
Stories: Stories in the cultural web are embedded on the belief that is held by the firm’s stakeholders (Elliot, Swartz & Herbane, 2009). One belief that has persisted and became appreciated by the Tata community is the good leadership of J. N. Tata and his line of sons and grandsons who have been the leaders of the firm. Their good character is evident to all those who have served and have been served by the company. Their belief on social consciousness is the norm that is communicated to all employees. The way things used to be done in past is transferred to the present. How the leaders of the past escaped difficult situations like threat from bankruptcy is known to the stakeholders.
Routines and rituals: Routines and rituals refer to the ways the members of Tata behave towards each other, and connect various parts of the organization (Cadle, Paul & Turner, 2010). Tata’s members are required to work together for the good of the company and the society at large. The company has endeavored to train its employees starting from the schools right up to their workplaces as a way of making them competent. There are organizational committees which oversee the conduct of the business units and the welfare of both the workers and society members.
Organizational structures: As expected from an Indian company, organizational structure is hierarchical. This means the organization is centralized and Tata executives have the upper roles in decision making (Siggelkow & Levinthal, 2003). The business is organized into units described according to the type of operations and which are headed by managers. Indeed, this organization is becoming a great challenge to the firm mainly because of its expansion to cultures which do not support autocratic leadership style.
Control systems: For a long time, Tata Corporation has been monitoring its profits and social developments which it has made contributions to. This has been in line with the core belief that good corporate citizenship is the force that drives sales and performance. Gopalakrishnan is quoted to say “we are hardnosed business guys who like to earn an extra buck as much as the next guy, because we know that extra buck will go back to wipe away a tear somewhere” (Angwin & Smith, 2011). However, the balance between social spending and organization growth initiatives is changing the monitoring towards budget. Tata must focus on an expenditure that can sustain growth and profitability.
Power structures: In organizations with centralized structure such as Tata, top executives are the most associated with core belief and assumptions about what is important in the firm (Portny, 2007). These members are mostly from the Tata family and maintain the fundamental values created by the founder. The executive is headed by a CEO who must hail from the family. His obligation is to ensure that the decisions made align with the beliefs held in the firm as well ensure that they make a contribution to the firm’s growth. The managers communicate and maintain these values at the business unit levels.
Symbols: In all symbolic aspects, the association of Tata with the city of Jamshedphur is most significant. This is the place where the founder instituted his first business and has been the iconic representation of Tata. Besides this, the company is symbolized by ethical conduct to the extent of disregarding any activity that might suggest immoral doings despite the economic gain. Involvement in social welfare and low cost goods are also aspects that Tata is associated with. Indeed, no other Indian company has contributed to the social and economic wellbeing of the country like Tata, and is one of the core purposes of doing business.
Paradigm: The success and growth of Tata is dependent on its unique culture-observing corporate citizenship to enhance business endeavors. This culture revolves around social consciousness, low cost goods and continuous growth through global expansion.
The Ashridge mission diamond for Tata
Tata’s growth and diversification strategy
Until the early 1990s, Tata was solely operating own-founded businesses and plants that were located in India. International sales even by the late 90s accounted only for 12 percent of the group turnover (Angwin & Smith, 2011). The first landmark in its growth strategy occurred in 2000 when Tata Tea made the largest acquisition ever in India of Tetley at a cost of $432 million. This acquisition was mainly triggered by the need to internationalize as foreign companies established in India and challenged the quality of home made products. Unlike other Indian firms, Tata was very swift in responding to this threat and global expansion became a major element of their strategy.
Since then, most of the Tata’s companies have grown through acquisitions. Tata chemicals acquired Brunner Mond and Magadi Kenya making the company one of the major manufacturers of soda ash in the world. Tata Power became a major stakeholder of two major Indonesian thermal coal producers. Tata Communication Services acquired TKS-Tecknosoft making it a major player in the industry. Tata Steel acquired Corus at a price of $12.1 billion, the largest deal in India up to date. Tata Motor acquired Jaguar and Range Rover car brands for $2.3 billion opening its doors to the luxury car market. In addition, there are other smaller acquisitions that the group has made for other business units that have increased their global presence significantly. For instance, Tata group ended VSNL’s monopoly on international long distance voice India by entering new domestic businesses like internet telephony and enterprise data. Evidently, Tata Group has grown to be among the most diversified firms in the word.
Despite the fact that diversification is seen as a high risk strategy, there are several reasons that prompted Tata Group to take up this risk (Tiwari & Verma, 2011). First, Ratan Tata embarked on a mission to reduce the autonomy left to individual operating subsidiaries by trimming lines of business and increasing the parent company stakes in the subsidiaries along with strengthening the corporate center with enough control to enforce discipline on the operating units. Through these initiatives, some old businesses exited, new ones entered and efficiency of traditions units improved. Second, there was progressive relaxation of foreign exchange regulations and political support from the Indian government. As a growing economy, India began to revise its economic regulation nearly 1990s which is also the time that Tata began to expand (Shand, 2003).
Third, the threats from foreign companies which targeted the glowing economies were challenging local competitors especially in terms of technology integration and quality control (Schaeffer, 2005, p.204). As a result, Tata has diversified and expanded their business to exploit the core strength which is described by their cost advantage, production efficiency, exposure to global competition and willingness to take risks. Fourth, Tata wanted to extend their social responsibility to all people across all realms. The most immediate solution was to pursue global citizenship and offer a wide range of products and services to a wider population.
The motive of Tata’s acquisitions
Tata Steel’s acquisition of Corus
The acquisition of Corus by Tata did not come about as a result of ambition, but calculated guesses about the future environment of the steel industry and the company’s competitive strength. Tata steel had performed well in the Indian market until foreign companies and consumers started to challenge the quality of home-based products. With Tata Steel being a core subsidiary of the group, the firm had to maintain its margin in order to sustain the business. One of the solutions was to respond to the production quality issue. Therefore, the best way to approach this issue was to acquire a firm like Corus which had good reputation on quality, resources and capacity to satisfy customers.
The fact that Tata had access to low-cost raw material was a great motivation to expand its production capability. Driven by the low command that steel producers had over the world market as compared to iron ore producers, the firm had to act fast and fill this gap. The firm had to strategically remain ahead of competition that was emerging from China and Russia. A quick response was to acquire a firm with global recognition despite the cost in order to cumber the competitive force from the new firms in glowing economies which had already saturated their local markets. In addition, the Indian market did not serve Tata Steel efficiently as compared to the way Chinese or Japanese markets served their home-grown companies.
As early as 1990, Tata group had already started to expand globally hence witnessing the benefits of the global market (Angwin & Smith, 2011). For the steel industry, success in developed markets depended on brand recognition. Players from developing economies like Tata Steel could make little impact on such markets. Therefore, penetration in these markets called for a strategic move that could position the firm better in the market. Acquiring a company like Corus was not only the strategic move, but also changed the global image of Tata.
Although the price of steel was declining in developed markets, the demand for steel was rising steadily in the glowing economies. Russia had started to develop its infrastructure and ultimately demanded more steel. Chinese steel firms could not satisfy the home market and the country had become an importer of steel. In order to exploit these opportunities, Tata Steel had to increase its production capacity. The situation was heightened by the threat from industry consolidation in the promising markets and Tata had to act fast. So, by acquiring Corus the firm saw a double edged benefit of meeting the rising demand and avoiding the threat from industry consolidation.
Tata Motors acquisition of Jaguar-Land Rover
The major motive behind the acquisition of Jaguar-Land Rover by Tata Motors was to increase its presence in the Indian market as well as have a share of the world luxury car market. The company manufacturing capacity could not have allowed for the inclusion of the luxury car line, yet foreign manufacturers were penetrating the Indian market with such products. Indeed, the company had begun to lose its Indian market share before the acquisition for which it had been a leader for a very long time (Angwin & Smith, 2011). Tata Motors was among the major business segments in the Tata Group that could have affected the overall revenue flow if its performance continued to decline. The best solution was to acquire a firm that could strengthen their competitive advantage through a wider product portfolio and satisfy a bigger market.
India was on the verge of economic growth and more people could afford luxury goods. However, none of Tata’s vehicles could fall into that category, yet the company was slow to respond until the market was on the move towards saturation. The luxury vehicle that were offered in the Indian market included products like Toyota Land Cruiser and Prado, Volkswagen Touareg, Audi, Mercedes Benz, Volvo XC90 and Mitsubishi Montero (Angwin & Smith, 2011). So, by acquiring Jaguar and Land Rover brands which were not offered in India, Tata could enjoy some penetration brands in this segment. Furthermore, the company was motivated by their innovation capability which could improve the failing brands that had once been the iconic vehicles in the world of luxury.
As it could be expected, the outcomes of Tata’s acquisitions could not have happened overnight. The company had spent significant sums of money in acquiring Corus and Jaguar-Land Rover. However, one impact is evident that the firm has gained footage into the international market arena in which it has acquired significant global recognition. The acquisition of Jaguar-Land Rover which came after Corus is a clear indication that the former deal was a success. The firm is however experiencing great debts due to these acquisitions with an extreme equity to debt ratio of 1:5. This can be explained by the fact that the acquisitions were followed by the 2009 global downturn which saw many companies experiencing losses (Das, 2012). Therefore, the progress and few developments seen are indications that the acquisitions are a success whose impacts will clearly surface in future.
The challenges faced by Cyrus Mistry
The present situation in Tata is surrounded by challenges that have stemmed from its growth initiatives. Cyrus Mistry as the new CEO is faced by the challenges posed by globalization since the firm has become an active global participant. The acquisitions made by the firm have exposed it to very different environments. As a result, the CEO has to find ways to create an organization culture that can fit in the new operating environment. It is clear that the new acquisitions cannot operate as own entities due to the inter-linkages required to realize the corporate goals and objectives. The situation is heightened by the fact that the organization culture instilled by the founder is the centre of all business strategies.
Additionally, Cyrus Mistry is challenged by ensuring that the firm is making profits in order to sustain most of the business units. The firm is already experiencing staggering debts that might affect its sources of capital. Any further drop in the share value might frustrate investors who are the major sources of capital. Already, the firm has experienced great losses which affect its research and development-the backbone of its competitive advantage. The CEO is facing the challenge of persuading the governments to give loans that can sustain its functions which Ratan Taja had already begun, but in vain.
The emerging competition from other economies such as Brazil and China is a great challenge to Tata and Cyrus Mistry. McNulty, Pettigrew, Jobome and Morris (2011) insist that the CEO has the role of spearheading decisions that can position the firm strongly in the market. This means that the firm might extend its reach to other markets such as those in Africa where competition is not stiff. Unfortunately, the firm is already operating on a constrained budget, yet the capacity to expand to the markets requires substantial investment. As a matter of fact, Cyrus Mistry will have to ‘see’ that the business succeeds in its growth strategy by overcoming the obstacles that the initiatives therein present.
Tata has a rich history in its growth which starts with a single steel factory and ending up with one of the most diversified firms in the world. The driving force behind this success is the corporate culture which focuses on integrity, responsibility and excellence. On the platform of ethical business conduct, this culture has led to achieving the core purpose of producing innovative products across the world and pursuing a diversification strategy considered risky by many. The focus on future competitive strength has motivated the firm to make significant acquisitions such as the Corus and Jaguar-Land Rover. However, these acquisitions have made the firm to borrow funds that the current flow of revenue seems not to quench. Therefore, Cyrus Mistry or the new CEO is faced with challenges associated with the high debts as well as ensuring that the firm remains profitable.
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