Strategic Analysis of Tata Motors
[pic] [pic] Management 3800 Group 6 Sean Politte Olivia Pollard Taylor Rothgeb Megan Tyrie Tim Wilson May 20, 2008 Table of Contents Introduction3 Current Situation3 Company Overview3 Corporate Governance5 Financial Position6 Core Competencies7 Research & Development7 Acquisitions, Mergers & Expansion9 Organization Location10 PEST11 Political11 Economic13 Social14 Technological15 SWOT Analysis16 Strengths16 Weaknesses17 Opportunities18 Threats19 Capitalizing on Tata Motor’s Success20 Conclusion21 Works cited22 appendix A, B, C, D, E24 Introduction
Established under the parent company, Tata Group, in 1945, Tata Motors Limited has become India’s largest automobile company. It was the first Indian automobile company to list on the New York Stock Exchange. Tata Motors began manufacturing commercial vehicles in 1954 with a 15-year collaboration agreement with Daimler Benz of Germany. This partnership has led Tata Motors to not only become India’s largest automobile company but also India’s largest commercial vehicle manufacturer; the world’s top five manufactures of medium and heavy trucks and the world’s second largest medium and heavy bus manufacturer.
Having just entered the passenger vehicles market segment in 1991, Tata Motors now ranks second in India’s passenger vehicle market. Tata has enjoyed the prestige of having developed Tata Ace, India’s first indigenous light commercial vehicle; Tata Safari, India’s first sports utility vehicle; Tata Indica, India’s first indigenously manufactured passenger car; and the Nano, the world’s least expensive car. A full timeline of Tata Motors Limited is supplied in Appendix A. Current Situation Company Overview The Tata Motors group is a passenger and commercial vehicle manufacturer based in India.
The motor group was established in 1945 as part of the larger Tata Group. They have long been known for their commercial vehicles and in the past ten years entered into the passenger car market. Currently, Tata Motors has a line of five passenger vehicles and a large line of commercial vehicles producing pickups, trucks, tractor trailers, tippers, and buses. Both product lines of the Tata Motors group have seen success, but much of this has been built upon the more deeply established commercial vehicle product line.
Tata Motors commercial line has been established for several years in many market segments such as Europe, Africa, The Middle East, Australia, Southeast Asia, and South Asia. Tata Motors has expanded their business and market share around the world through a series of acquisitions. In 2004, they acquired Daewoo commercial vehicle Company in South Korea which was South Korea’s second largest truck manufacturer. This acquisition gave Tata Motors a significant presence in the Korean market.
They have also entered into joint ventures with companies such as Thonburi Automotive in 2006, which allowed them to manufacture and market pickup trucks in Thailand. “We think it makes sense for Tata to expand through acquisition (as it did in tea and steel) than spend a decade to build the business” (Lehman Brothers). The commercial vehicle area of the business has certainly been how Tata Motors have built their reputation, with commercial vehicles accounting for 80-85% of company profits. They are beginning to employ a similar technique as they now expand into the passenger car business.
Tata Motors have been making global headlines in the auto industry lately; the largest news being their acquisition of Jaguar and Land Rover from Ford. “Tata paid 2. 3 billion dollars to Ford for the two brands that cost Ford 5. 3 billion” (Carty, USA Today). This is a major step for the company because it catapults them into the luxury car business which they are not known for at this time. Tata, like many new businesses it acquires, is allowing this new segment of the business to be run by previous management since they have more experience in the luxury automotive business. Tata will give us some space. They want us to run our business, be a premium British car company” (Mike O’Driscoll, managing director of Jaguar). This is yet another large acquisition for the Tata Motors group and could create great success for the company in the near future. Furthermore, Tata Motors made another large announcement regarding their progress in the passenger vehicle segment. In January they announced that they, “would release a $2,500 car that could replace the motor scooters commonly used in developing countries to cart around whole families” (Carty, USA Today).
This is a major break through in the automotive industry and shows how far reaching, diverse, and competitive the Tata Motors group is becoming. Soon they will be serving customers in the high-class luxury market while still catering to their older niches in developing countries. Corporate Governance Since Tata Motors is a part of a large conglomerate company it needs to have a strong corporate governance to ensure that its employees act ethically and the business continues to run smoothly especially during the ever changing and dynamic global economy. Tata Group’s corporate governance is founded upon a rich legacy of fair, ethical, and transparent governance practices” (tatacarsworldwide. com). One of the more important parts of this is the transparency of the company people have a right to know what the company is doing not only to ensure ethical practices, but for the insurance of their many shareholders whom have a right to know the inner workings of the company. A full list of top management is visible in Appendix B. Tata has created some models for employees to guide themselves through everyday business practices to ensure that the corporate governance is continuously being upheld.
The Tata business excellence model is upheld by Tata quality management services. Quality management is an in-house group dedicated to helping the various Tata companies achieve their business objectives through specific processes. The two main processes that the quality management services employees focus on are business excellence and business ethics. These two objectives have helped build Tata into the strong, dynamic company it is today. These models are entrenched in the company’s ethnical standards and Tata feels strongly about enforcing both throughout the company. Tata quality management services plays the role of supporter and facilitator in the journey that Tata enterprises undertake to reach the peaks of business eminence while, at the same time, adhering to the highest ethical standards” (Tata. com). To further prove their commitment to quality and ethical practices Tata has introduced annual quality awards for those companies conducting business with the utmost quality. These awards are called the JRD quality value awards named after the late chairmen JRD Tata. These awards are presented annually on July 29th, the birthday of JRD Tata.
Tata has committed to ensuring quality and ethical standards not only within Tata Motors, but throughout their many other branches and sectors of the Tata Group. They have done so by benchmarking quality standards through the Tata business excellence model as well as providing incentives for companies to strive to improve the quality of their service, by awarding JRD quality management awards. Financial Position Tata Motors have increased its earnings over the years through their various acquisitions and joint ventures with truck manufacturers in Southeast Asia. Gross profit in the year 2006 was 1,160. million and increased to 1,510. 1 million in the year 2007. Earnings after taxes also increased significantly between 2006 and 2007 increasing from 336. 6 million to 405. 5 million in 2007. After a large drop in revenues from 2004 to 2005 when the company first went public on the NYSE (stock prices from May 1-22, 2008 can be found in Appendix C), it has been increasing revenues greatly annually, from 4,422. 0 million in 2005 to 7,354. 0 in 2007. Tata Motors income statement, balance sheet and statement of cash flows along with other key statistics can be found in Appendix D.
Core Competencies Tata Motors is able to maintain, as well as increase, their market share by capitalizing on their core competencies. Tata Motors is active, competitive, and dynamic in all aspects of the automotive industry, which means that there must be many different activities going on in all areas of the company. As a result of the ever evolving automotive industry Tata Motors must always be changing and one way to stay at the forefront of the industry is to make continuous improvements in technology through research and development.
One way that Tata Motors has done this is by producing one of the most efficient and low cost vehicles on the market. Acquisitions, mergers, and expansion is another core competency that Tata Motors has is embedded in their company structure and philosophy. Another core competency that Tata Motors holds is being located in the India. This location has allowed them to understand not only the Indian market but also the dynamics of emerging and developing markets. This market understanding and knowledge llows Tata Motors to manufacture their products at lower costs, sell them to emerging markets while making profits as well as take advantage of the strong labor base in India. Research and Development One factor to Tata Motors success is their constant advances in automobile technology through research and development. There is a high emphasis on thorough research that provides the much-needed inspiration for the birth of new ideas, which in turn breathes new life into products. They employ approximately 1,400 scientists and development officers.
Tata Motors has several research and development centers in India. The Research Center at Jamshedpur and the Engineering Research Center in Pune are among the finest in the country (Tata. com). They possess forums to develop and test durability, engine performance, emission, safety, design and style, noise, hydraulics, tracks, and instrumentation. Both have won numerous national awards in research and development efforts since their inception in 1966. Through these advanced research centers Tata has created sophisticated emission measurement systems and digital prototyping laboratories.
Some other technologies that are part of Tata Motors’ arsenal are those that offer improved electronic controls for engine systems and other “vehicle drive-train and chassis systems” (Tata. com). The company is currently focused on equipping vehicles of the future with technologies for improving communication, navigation and entertainment. One example of these technological improvements is highlighted in the OneCAT (Appendix E). This concept car is a fiberglass vehicle that virtually powered by air and is emission free. The OneCAT weighs only a 350 kg and has a piston engine that runs on compressed air.
This car can run between 200 to 300 kilometers on one Euro of compressed air. A spokesman for Moteur Development International, a company that partnered in the development of this car said, “The engine is efficient, cost-effective, scalable, and capable of other applications like power generation,” (Autopartswarehouse. blog. com) This car is truly a representation of the next step in green automobiles. The car’s engine’s emission can be used as an air conditioner in the cabin. This car is very futuristic and is still in the development stages: “Nonetheless, Tata and Moteur Development
International are confident that OneCAT, which can accommodate three adult passengers, is competent enough to go against potential green car rivals and energy efficient autos such as the hybrid, bio-fuels, and electric vehicles. The ‘air car’ is targeted for release this year with a base price of around ? 2,500. ” (Autopartswarehouse. blog. com) Some of Tata Motors other technological advances can be seen in the new car the Nano nicknamed the People’s Car (Appendix E). This car, which is just emerging into the market, is the world’s cheapest car.
Tata Motors achieved this is through using new materials such as, re-engineered plastics and modern adhesives. It will revolutionize the auto industry in India and soon in other emerging markets when Tata starts exporting. The Nano was able to achieve its low price and gain the attention of the entire automotive industry through its advances in materials and adhesives technology. Acquisitions, Mergers & Expansion Like other companies, Tata Motors is always growing and expanding and the main way they do this is through acquisitions and mergers.
Since 2004, Tata Motors has merged or acquired all of or at least part of four different companies. In March 2004, Tata Motors acquired 100 percent of the Korean based Daewoo Commercial Vehicle Company, Korea’s second largest truck maker, for 102 million dollars. Rather than using de-culturation or assimilating Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s current models as well as introducing a few new models globally just as it had been done under Korean management.
In February 2005, they acquired 21 Percent of Hispano Carrocera, Spain-based company, for 12 million Euro. In April 2005, Tata Motors Limited merged with Tata Finance, and lastly in March 2008 Tata paid Ford Motor Company 2. 3 billion for Jaguar and Land Rover companies (Tata. com). These acquisitions and mergers allow Tata Motors to break into foreign markets and develop a much larger share of the automotive industry. It also helps them attain the knowledge, technology, and programs that allow them to succeed in that particular sector of the automotive industry or in a particular region or culture.
For instance, the purchase of Jaguar and Land Rover allows Tata to enter into the luxury car market without having to research the market, build the technology, among other important aspects of getting into a new market segment. It further helps them enter into the very competitive and highly desirable mature markets in Europe and in future hopes of securing market segments in the United States. Tata Motors is currently in a growth stage as stated on their website: “Tata Motors Ltd is in a mega expansion mode.
The investments would be in product development, capital expenditure in capacity enhancement, domestic and international acquisitions and mergers” (Tata. com). Organization Location Tata Motors is located in the developing country of India. This location has been and will continue to be vital to Tata’s success. In India, Tata can take advantage of the fact that manufacturing labor cost is only eight to nine percent of sales, compared to 30 to 35 percent of sales in developed countries. In addition, India is one of the world’s largest producers of automotive components which give Tata Motors direct access to many of these components.
Tata has higher bargaining power with suppliers because it is a local, not foreign, car manufacturer. Tata Motors is able to leverage Indian automotive market because the current increase in demand due to the improvements in infrastructure and growth of population and disposable incomes in India. The Society of Indian Automobile Manufacturers stated, “India, where some 1. 4 million new cars are sold each year, is also a hugely attractive market for dozens of car companies and most of them can’t risk ignoring what appears to now be a potent competitive advantage for Tata Motors.
India’s car market is expected to touch 2. 2 million units a year by 2010” (Livemint. com). Additionally, the India government has made protectionist polices and regulations that are extremely favorable to Tata. In December 1997, the Indian government put in place policies that require foreign carmakers to invest at least 50 million dollars in equity to set up manufacturing operations in India. This means that Tata Motors is able to take advantage of the low cost of labor, land assets, and overall investment practices without having to implement this 50 million dollar investment.
Finally, Tata Motors largest competitive advantage is that it has prospered and grown in only developing markets for over 70 years. Tata Motors has implemented programs that allow it to prosper while maintaining low costs and high profits. Lastly, Tata Motors has a competitive advantage simply because they are part of the larger Tata Group. Tata Group supplies Tata Motors with access to knowledge, resources, technology and companies operating in many different industries worldwide allowing innovation and easy availability to access other sources. PEST Analysis Political
Since Tata Motors operates in multiple countries across Europe, Africa, Asia, the Middle East, and Australia, it needs to pay close attention to the political climate but also laws and regulations in all the countries it operates in while also paying attention to regional governing bodies. Laws governing commerce, trade, growth, and investment are dependent on the local government as well as how successful local markets and economies will be due to regional, national and local influence. On March 26, 2008, Tata Motors reached an agreement with Ford to purchase Jaguar and Land Rover.
In order to be capable of this acquisition, Tata Motors must have a full comprehension of the governing bodies and laws regulating commerce in the home country, the United Kingdom, but also in countries Jaguar and Land Rover operate in. In accordance, Tata’s headquarters in Mumbai, India, strictly controls and regulates operations in all dealerships and subsidiaries, in addition to knowing and abiding by all labor laws in the multiple countries where they have manufacturing plants it has to watch political change. This will be especially vital in the future as Tata Motors continues to expand and grow into new markets. While currently about 18% of its revenues are from international business, the company’s objective is to expand its international business, both through organic and inorganic growth routes” (Tata. com). The foundation of the company’s growth internationally is a deep understand of economic stimulation, customer needs, and individual government regulations and laws. Although it is the headquarters ultimate responsibility to make sure each individual office and branch is operating and abiding by the local laws, it will become increasingly more important for that duty to be taken care of at the regional or even local level.
Economic Operating in numerous countries across the world, Tata Motors functions with a global economic perspective while focusing on each individual market. Because Tata is in a rapid growth period, expanding or forming a joint venture in over five countries world-wide since 2004, a global approach enables Tata Motors to adapt and learn from the many different regions within the whole automotive industry.
They have experience and resources from five continents across the globe, thus when any variable changes in the market they can gather information and resources from all over the world to address any issues. For instance, if the price of the aluminum required to make engine blocks goes up in Kenya, Tata has the option to get the aluminum from other suppliers in Europe or Asia who they would normally get from for production in Ukraine or Russia. Tata Motors also has to pay close attention to shifts in currency rates throughout the world.
Currency fluctuations can equate to higher or lower demands for Tata vehicles which in turn affect profitability. It can also mean a rise in costs or a drop in returns. But they also have to pay attention to not just the domestic currency, the rupee, but also to the dollar, euro, bhat, won, and pound, to just name a few. Just because the rupee is strong against the dollar does not mean it is strong against all the other currencies. Attention to currency is important because it influences where capital investment will develop and prosper. Social
Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a company will affect how well a company performs. This includes every stakeholder from the CEO and President, down to the line workers who screw the door panel into place, from the investor to the customer, the culture and attitude of all these people will ultimately determine the future of a company and whether they will be profitable or not. For this reason, Tata Motors tends to use an integration and rarely separation technique with foreign companies they acquire.
On the other hand, some economic issues that Tata Motors face must also be looked at from a more localized perspective. For instance, the market in India for cars is much different than the market for cars in Italy. For one, India has over one billion more people than Italy does, thus the market is much larger or not as limited. Second, you must also take into affect the demographics and the average income of each market. Italians have a higher average income per capita than Indians and Italian citizens tend to drive larger and fancier cars.
For this reason, the Tata Nano might not do so well in the Italian market. In summation, Tata Motors views the economy from a global perspective with operations across the entire globe; however, they must also maintain a local market understanding and knowledge when it comes to product positioning and placement throughout the different markets Tata conducts business in. In 2004, Tata Motors acquired Daewoo Commercial Vehicles Company, which was at the time Korea’s second largest truck maker.
Rather than using de-culturation or assimilating Daewoo, Tata took an integrated approach, and continued building and marketing Daewoo’s current models as well as introducing a few new models globally just as it had been done under Korean management. With the new acquisition of Jaguar and Land Rover, Tata will have to be careful with how they handle the acquisition. While Land Rover is thriving while under the helm of Ford, Jaguar was more of the trouble child. “Jaguar cost Ford some $10 billion during its 18-year stewardship and its sales were in headlong decline, especially in America, its most important market.
Industry analysts also struggled to see what value Tata could add that had eluded Ford, and what synergies there could be between a maker of trucks and basic cars… and two luxury marques. ” (Economist). Separation could be a good approach for the immediate future to keep the name of Jaguar and Land Rover distinguishable and associated with the luxury automobile market. Overall, Tata does a good job of integrating some aspects of their large multi-national conglomerate into new acquisitions; however, the company must also understand that separation from the name Tata can be valuable in some social areas.
Technology Tata Motors and its parent company, the Tata Group, are ahead of the game in the technology field. The Tata Group as a whole has over 20 publicly listed enterprises and operates in more than 80 countries world-wide. This equates to Tata Motors having lots of experience and resources to draw from for research and development purposes. “The foundation of the company’s growth is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R (Tata).
Employing 1,400 scientists and engineers, Tata Motors’ Research and Development team is ahead of the pack in India’s market and right with the rest of the field internationally. Among Tata’s firsts are “the first indigenously developed Light Commercial Vehicle, India’s first Sports Utility Vehicle and, in 1998, the Tata Indica, India’s first fully indigenous passenger car,” as well as the increasingly famous Tata Nano, which is projected to be the world’s cheapest production car (Tata).
In the automotive industry, it is becoming increasingly crucial for manufacturers to stay on top of the technology curve with new problems always rising such as escalating gas prices and pollution problems. Tata recognizes this and dedicates lots of resources and time into research and development to be even with or preferably ahead of other competitors, global trends, and changing economies. In all, an automobile manufacturer must change, adapt, and evolve to stay competitive in the automotive game, and this is exactly what Tata is doing with their rapid growth, and extensive research and development.
SWOT Analysis Strengths Tata Motors excels when it comes to innovation through intensive research and development. Their ability to make the least expensive car on the market, the Nano which will retail for $2,500, is far beyond what any other car dealership has created. This innovation gives Tata Motors their main competitive advantage. Tata Motors makes everything from tractor-trailers to the world’s least expensive car. This product diversity grants them a competitive advantage over their competitors because they can satisfy more markets and customer needs. Another strength that Tata Motors possesses is igh corporate responsibility. They donate a portion of their profits from stock increases towards a specific charity. This highlights Tata Motors overall desire for community improvement while also emphasizing Tata Motors’ high morals and values which is something money can not buy. Tata Motors is also a very eco-friendly company. One of their goals is to produce an emission friendly car, and in 2000 Tata Motors launched the first compressed natural air bus. This air bus requires the owner to plug the car into a standard electric plug for four hours to fill the air tanks.
This brought the concept of an “air-car” to reality and the name for this compressed natural air car is “OneCAT. ” OneCAT has no gas costs or fossil fuel emissions which makes it a very attractive car for the more mature markets but also the upper classes in developing countries at this point. It is also a great car to have in highly populated countries, such as China and India, because pollution with its adverse effects is a very large concern. OneCAT also is more efficient that any other present Hybrid car, so when inventors think they have the best product out on the market, they actually do not.
There will always be something else to invent or improve on and Tata Motors is a prime example of that. Tata Motors is unique in a way in which when it buys a company. Tata Motors keeps the original management of that company intact. The company that Tata Motors purchases will look exactly the same in terms of management and organizational structure as if it was never purchased by Tata Motors. Weaknesses There are strings attached with every new invention and improvement on products. These strings are Tata Motors weaknesses and what other groups perceive as their weaknesses.
One weakness that Tata Motors faces is its inability to meet safety standards. Although they have made the most inexpensive car out on the market, it has yet to pass all the safety standards which is a legal factor. Some consumers and pessimists inquire as to how Tata Motors can make such a cheap car and withstanding a car accident or not just falling apart after hitting something once. Pessimistic people also want to believe that car manufactures are already doing everything they can to keep costs low for the consumer, and if that is the case, then putting the cheapest car out on the market automatically questions if it is safe to drive.
Tata Motors only have been making passenger cars for the approximately last ten years. This can be viewed as a weakness from a customer standpoint since a decade does not seem like a lot to consumers and therefore they will think that Tata Motors is inexperienced car manufacturing. Consumers will wonder how a car manufacturer can be in the market for 10 years and produce the cheapest car out on the market. How can Tata Motors manufacture such a cheap car that meets emission and safety standards being so young? This causes consumers to be skeptical. Another weakness that Tata Motors faces is within its domestic market.
Car sales in India are less than 1 million annually. This draws a problem because Tata Motors may not get the sales that the company hopes for and how can they sell cars to people who are not buying cars? The new and innovative OneCAT still has some rough spots that need to be worked out and one of them is that it has pollutant emissions and greenhouse gas emissions from the generation of electricity used to compress the air. So although it is marketed as being emission free, it technically is not and this is another weakness. Also, OneCAT only goes 62 miles per hour for 56 miles in an urban cycle.
This is not very far and Tata Motors will have to improve on this weakness as well as the emission weakness in order to draw more comsumers to this new automobile. Opportunities Tata Motors has already opened the doors for many new and innovative ideas, but not only for their company, but their competitors as well which could turn into a threat. One of the major opportunities that Tata Motor faces is that as of right now 90 percent of China and India’s adult population do not own cars, partly because cars are costly and require more expenses after purchased.
So the market for a low-priced car is huge which benefits Tata Motors perfectly since they produce the lowest priced car on the market. This is a huge opportunity for Tata Motors because if they can get their feet into that market of people that do not have cars because they cannot afford them, then they will make large profits down the road. China’s total car sales are estimated at over 8 million dollars annually and they were the world’s second largest car market in 2006. China’s government forecasts that demand for cars will top 20 million by 2020.
With Tata Motors in the market with the cheapest car, China’s demand for cars will probably increase even more significantly which will in turn increase sales for Tata Motors. Japan, North America, and Europe automobile sales went up over the years because of demand for smaller cars increased. This demand for smaller cars is a great window of opportunity for Tata Motors because not only are their cars small, but they are cheap and environmentally friendly as well. Once people in these countries get Tata Motor automobiles then their automobile sales will continue to rise.
As of March 2008 Tata Motors finalized a deal with Ford Motor Company to acquire the British businesses, Jaguar Cars and Land Rover. This is a huge opportunity for Tata Motors since they will acquire the large knowledge base and technologies for producing and marketing luxury vehicles. This acquisition helps them dive into the more mature markets in Japan, Europe and the U. S. The knowledge transfer from these two companies will greatly improve Tata Motors ability to continue to grow and flourish in both developing and developed market segments.
Threats The obvious threat to Tata Motors is intellectual property rights. Tata invented the cheapest car on the market and every automobile manufacturer wants to know how Tata did it. Headhunters are soon going to find out this valuable information and make it available to their own company. This is a huge threat to Tata Motors because at first they had low competition, but once other car manufactures find out how they invented such a low cost car, and then these companies too will jump on board and design their own line of low cost automobiles.
On one hand this can be a threat, but on the other it may not affect Tata Motors at all because people will still want to purchase their product since they were the pioneers of all the excitement. Other companies are starting to compete for some of this market share. In fact, the Pakistan’s Transmission Motor company has built a basic four-wheeler for only $2,100. This car is considerably cheap and the Pakistan Transmission Motor company started exporting them to Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures that will be producing low priced cars.
Another obvious threat is that dealing with gas prices. Gas prices continue to rise and the Nano requires gas, but those who purchase the Nano probably do not have a lot of money and so if gas prices keep jumping up then that market of consumers will not be able to purchase the car. If OneCAT can be made as cheaply as the Nano then that will benefit the consumers even more because they will get a car that does not run on gas and it will be cheap to purchase. On the other hand, gas company will not want OneCAT to hit the market because there will be no profits to be made off the vehicle.
Gas companies have a lot of say over the automobile industry so this could be a big threat. Another main concern that Tata Motors faces is that cheap cars in India will have an adverse effect on pollution and global warming because most of the population will be able to afford the cars. With more people driving cars there will be more accidents and deaths, as well as higher fossil fuels leaked into the environment causing even more pollution then there already is. Tata Motors is family owned and this can potentially cause problems down the road because some family members can become greedy and money hungry.
Once they really start to rapidly grow then there may be family feuds and people not pulling their part. Another threat is the whole point of their cars being made with cheap plastic. Are these cars durable? Will they hold together in a head-on collision? As off August 2007 there was no further information on this topic though. Capitalizing on Tata Motors’ Success Arguably, one of the most significant aspects of a business’s strategy is constant environmental scanning, or looking for opportunities that will either help a business grow or salvage plummeting profit margins and stock values.
In the case of Tata Motors, and the creation of the Nano and OneCAT from a line of service and military vehicles provide a variety of different ways for other companies as well as other industries to capitalize on the success that Tata has realized. There are three main avenues that businesses can take to exploit the success that Tata Motors has generated. First, through acquisitions and mergers, like early discussed, Tata integrates the management, programs, and knowledge of the businesses it buys out. Secondly, Tata Motors places heavy investment into research and development.
These two points have been discussed extensively throughout this report so please refer to the previous sections: Core Competencies and the SWOT Analysis. Finally, Tata understands and has succeeded in growing, profiting, and reducing costs in developing markets for over half a century. Tata Motors, like its parent company Tata Group, has much knowledge and understanding in working in developing markets and countries. Companies considering expanding into developing markets should consider forming a joint venture or partnership with any of Tata Group’s numerous industries.
The knowledge transfer can save time and money and further ensure a more successful expansion. Conclusion Tata Motors is an overall strong company that has found strength and expansion through its parent company, Tata Group, but also through its numerous acquisitions and mergers. Although Tata Motors stock prices have fallen since the start of the 2008 year due to suggestions that Tata Motors is overreaching by adding luxury brands to pair with the Nano, the world’s cheapest car. Chairman of Tata Group, Ratan Tata, rejects suggestions that, “We’re not trying to be a global player,” he told reporters in New Delhi Jan. 0 after unveiling the Nano, which will be built in a new plant costing 10 billion rupees ($249 million). “We will grow internationally in select markets” (Krishnamoorthy). Works Cited Carty, Sharon. “Tata Motors to Buy Jaguar, Land Rover for $2. 3B. ” USA Today. 12 May 2008 . Chang, Richard S. “Can Detroit Be Relevant? ” The New York Times. 11 Jan. 2008. 22 May 2008 . “Corporate Governance. ” Tata Group. 13 May 2008 . David, Ruth. “Tata Motors: Ready to Take on the World? ” 13 May 2008 . Korzeniewski, Jeremy. “A New Agreement Between Tata Motors and MDI Bring the Air-Car Closer to Reality. AutoblogGreen. 21 Mar. 2007. 03 May 2008 . Krishnan, Ravi. “Tata Small Car Throws a Big Punch. ” Livemint. com. 11 Jan. 2008. 22 May 2008 . Krishnamoorthy, Anand. “Jaguar Purchase Drives Tata Motors Shareholders to End Holdings. ” Bloomberg. com. 20 Feb. 2008. 14 May 2008 . “Media Reports. ” Tata Motors. 13 Oct. 2003. 22 May 2008 . “Media Reports. ” Tata Motors. 24 June 2006. 23 May 2008 . “Mergers and Acquisitions. ” Tata Motors. 10 Apr. 2008. 23 May 2008 . “Morningstar Quicktake Report. ” 12 May 2008 . Murph, Darren. “Ndia’s Tata Motors Developing Uber-Cheap Plastic Automobile. Engadget. 20 Aug. 2007. 03 May 2008 . “OneCAT: Tata Motors Ultimate Green Car. ” Autopartswarehouse. 20 Feb. 2008. 22 May 2008 . “Tata Motors Limited. ” Google Finance. 20 May 2008. 20 May 2008 . Tata Motors Limited. “Profile. ” Tatamotors. com. 14 May. 2008. . “Tata Motors to Step Into Armoured Vehicles Production. ” INDIADEFENCE. 30 Apr. 2007. 22 May 2008 . The Economist. “A used-car bargain? ” Economist. com. 13 May. 2008. . Timmons, Heather. “Ford Sale of Jaguar to Tata Motors is Expected. ” International Herald Tribune. 17 Dec. 2007. 03 May 2008 . Appendix A
Tata Motors Timeline: 1945- Tata Engineering and Locomotive Co Ltd (TELCO) is set up as a locomotive maker at the end of World War II 1954- Company shift to making trucks in a joint venture with Germany’s Daimler-Benz 1961- Exports begin with the first truck begins being shipped to Ceylon (present-day Sri Lanka) 1977- First commercial vehicle manufactured in Pune 1983- Manufacture of heavy commercial vehicles commences 1986- Production of first light commercial vehicle 1991- Launch of the first passenger car, the Tata Sierra. One millionth vehicle rolled out. 994- Enters joint venture to make Mercedes Benz cars in India 1999-Beings production of India’s first fully indigenous passenger car, the Indica 2002-Ends joint venture with Daimler 2002-TELCO is renamed Tata Motors Ltd. 2003-Tata Motors Ltd. Announces plan to build world’s cheapest car for 100,000 rupees (1,250 pounds or 2,500 dollars) 2004- Acquires South Korea’s Daewoo Commercial Vehicle Company and is listed on the New York Stock Exchange 2005- Buys 21 percent stake in Spanish bus maker Hispano Carrocera SA, launches mini-truck, the Ace 006- Signs initial agreement with Fiat 2008- Unveils one-lakh (100,000 rupee) “People’s Car” also know as the Nano. Acquires Jaguar and Land Rover. Appendix B Top Management of Tata Motors Ltd. Name Age Since Current Position Sait, Zackria — 2007 Vice President – Technical Services Mani, Shyam — 2007 Vice President – Sales & Marketing, CVBU Rajarao, M. — 2007 Vice President – Manufacturing, Pune Girotra, K. — 2007 Vice President – Lucknow Works and FBV Tambe, S. — 2007 Vice President – Human Resources Thakur, R. — 2007 Vice President – Finance
Gurav, P. — 2007 Vice President – Corporate Finance – Accounts and Taxation Krishnan, S. — 2007 Vice President – Commercial, PCBU Dube, Rajiv — 2007 President – Passenger Cars Arya, A. — 2007 President – Heavy and Medium Commercial Vehicles Mehta, V. 73 1998 Non-Executive Independent Director Wadia, N. 63 1998 Non-Executive Independent Director Palia, Sam 69 1998 Non-Executive Independent Director Soonawala, N. 72 1989 Non-Executive Director Irani, Jamshed 71 1993 Non-Executive Director Gopalakrishnan, Ramabadran 62 1998 Non-Executive Director
Tata, Ratan 70 1996 Non-Executive Chairman of the Board Mashelkar, Raghunath 64 2007 Independent Director Mankad, A. — 2007 Head – Car Plant Telang, P. 59 2007 Executive Director – Commercial Vehicles Sethna, H. — 2007 Compliance Officer, Secretary Ramakrishnan, C. — 2007 Chief Financial Officer, Executive Director Kant, Ravi 63 2005 Chief Executive Officer, Managing Director, Director SWOT Analysis – Tata Motors Limited The company began in 1945 and has produced more than 4 million vehicles. Tata Motors Limited is the largest car producer in India.
It manufactures commercial and passenger vehicles, and employs in excess of 23,000 people. This SWOT analysis is about Tata Motors. [pic][pic]Strengths • The internationalisation strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The benefit is that Tata has been able to exchange expertise. For example after the Daewoo acquisition the Indian company leaned work discipline and how to get the final product ‘right first time. ‘ • The company has a strategy in place for the next stage of its expansion.
Not only is it focusing upon new products and acquisitions, but it also has a programme of intensive management development in place in order to establish its leaders for tomorrow. • The company has had a successful alliance with Italian mass producer Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of production and knowledge exchange. For example, the Fiat Palio Style was launched by Tata in 2007, and the companies have an agreement to build a pick-up targeted at Central and South America. Weaknesses The company’s passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers. • Despite buying the Jaguar and Land Rover brands (see opportunities below); Tat has not got a foothold in the luxury car segment in its domestic, Indian market. Is the brand associated with commercial vehicles and low-cost passenger cars to the extent that it has isolated itself from lucrative segments in a more aspiring India? • One weakness which is often not recognised is that in English the word ‘tat’ means rubbish.
Would the brand sensitive British consumer ever buy into such a brand? Maybe not, but they would buy into Fiat, Jaguar and Land Rover (see opportunities and strengths). [pic][pic]Opportunities • In the summer of 2008 Tata Motor’s announced that it had successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK ? 2. 3 million. Two of the World’s luxury car brand have been added to its portfolio of brands, and will undoubtedly off the company the chance to market vehicles in the luxury segments. • Tata Motors Limited acquired Daewoo Motor’s Commercial vehicle business in 2004 for around USD $16 million. Nano is the cheapest car in the World – retailing at little more than a motorbike. Whilst the World is getting ready for greener alternatives to gas-guzzlers, is the Nano the answer in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will cost up to 85 times more than a standard Nano! • The new global track platform is about to be launched from its Korean (previously Daewoo) plant. Again, at a time when the World is looking for environmentally friendly transport alternatives, is now the right time to move into this segment?
The answer to this question (and the one above) is that new and emerging industrial nations such as India, South Korea and China will have a thirst for low-cost passenger and commercial vehicles. These are the opportunities. However the company has put in place a very proactive Corporate Social Responsibility (CSR) committee to address potential strategies that will make is operations more sustainable. • The range of Super Milo fuel efficient buses are powered by super-efficient, eco-friendly engines. The bus has optional organic clutch with booster assist and better air intakes that will reduce fuel consumption by up to 10%.
Threats • Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Therefore Tata Motors Limited has to catch up in terms of quality and lean production. • Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem could be alleviated. • Since the company has focused upon the commercial and small vehicle segments, it has left itself open to competition from overseas companies for the emerging Indian luxury segments.
For example ICICI bank and DaimlerChrysler have invested in a new Pune-based plant which will build 5000 new Mercedes-Benz per annum. Other players developing luxury cars targeted at the Indian market include Ford, Honda and Toyota. In fact the entire Indian market has become a target for other global competitors including Maruti Udyog, General Motors, Ford and others. • Rising prices in the global economy could pose a threat to Tata Motors Limited on a couple of fronts. The price of steel and aluminium is increasing putting pressure on the costs of production.
Many of Tata’s products run on Diesel fuel which is becoming expensive globally and within its traditional home market. [pic][pic]TATA motors is the market leader in Indian Industry with high market share. TATA motors began in 1945 since then it produced more than 3 million vehicles. TATA motors employed around 23000 employees and it is expanding with pace. Strengths TATA motors is market leader in Automobile Industry with high market share. TATA Motors Company have huge employee base. TATA motors employee productivity percentage is higher. TATA motors produce low price car with low fuel consumption.
TATA motors is the reputable brand in Indian Industry. Tata Motors Limited is India’s largest automobile company, with revenues of Rs. 35651. 48 crores (USD 8. 8 billion) in 2007-08. The company’s dealership, sales, services and spare parts network comprises over 3500 touch points. Tata Motors has been aggressively acquiring foreign brands to increase its global presence. [pic][pic]The research and development department of TATA motors is very strong. TATA motors posses High corporate responsibility. Weakness Return on Investment on TATA motors shares in low.
TATA motors is not able to meet safety standards in their vehicles. The domestic sales of the company are not up to the mark. Tata has not got a foothold in the luxury car segment in its domestic market. Opportunities TATA motors can take the advantage of their low cost car by entering into third world countries where people have low purchasing power. TATA motors should focus in developing luxury cards. TATA motors can introduce more safety features in vehicles to gain more customer satisfaction. Joint ventures in other countries allow TATA motors to easily enter into new market.
Threats TATA motors have low cost advantage over its competitors, once the competitors find out the low cost production methodology then there will no competitive advantage. Other companies are starting to compete for some of this market share. In fact, the Pakistan’s Transmission Motor Company has built a basic four-wheeler for only $2,100. This car is considerably cheap and the Pakistan Transmission Motor company started exporting them to Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures that will be producing low priced cars.
The major challenge for TATA motors is the rising prices of steel, Aluminum and plastic which is heavily used in vehicle manufacturing. The low safety standards can impact the sales. Despite the global tendency for the significant fall of car sales there are certain car segments which experience dynamic growth. According to Datamonitor (2006b) the sales of commercial vehicles and port utility vehicles were very healthy. Windecker (2005) stresses the influence of socio-cultural forces which formed the increased preferences towards more fashionable, sport-type, SUV equipped cars.
The extremely high growth of SUVs was identified in US and UK. The focus of Tata’s market entry will be UK. There were several reasons for selecting UK as the target market. These favourable factors were the status of India as the favourable economic agent, UK Car market dynamics and potential, language similarity. The other countries which were considered as potentially attractive were: the USA – the largest market size in the world, Russia – emerging market with significant sales potential.
The option of the USA as target market was declined due to extremely high quality requirements and other non-tariff barriers which make it hard for a new entrant to enter this market. Besides, this market is highly mature and experiences extreme level of competitive pressure. With regards to Russia, there were several unfavourable factors which made it less attractive then the UK – the uncertainty of the further economic state, high entry barriers and no well—developed dealership network. Analysis of External Environment of the UK market There are numerous number of factors that might be included into P. E. S. T. analysis.
But due to various limitations (time, word limit), the factors will be outlined, whereas the major focus will be made on several sub-factors only (according to the Pareto Principle, it is likely that about 20% of the factors will represent 80% of the potential effect on the business (Wit & Meyer, 1998). Political factors Political and legal factors play the role on the development of the industry. These factors shape the rules of competition, operational costs and supply chain requirements. Oil prices resulting from international instability – The special attention shall be given to oil prices and its affect on the market requirement.
According to Mintel (2006) the increase of oil prices has created a strong tendency towards small engines, hybrid engines and diesel engines. Current high level of oil price increase the strain on the sales of luxury and premium cars, the majority of which are equipped with large-size engines (more then two litres). Administrative barriers (quality controls and operations requirements) (KPMG, 2004) – Administrative barriers need to be seriously concerned as various requirements for safety standards and emission level might increase the costs of production and reduce the operating profit margin.
Car park legislation – According to Mintel (2006) the UK experience the threat of high overcapacity with the excessive traffic load of road networks. The political relationships between countries of operations (regimes of favourability/protectionism) (Hill, 2002) – India cooperates with the UK within the regime of favourability which implies the certain benefits as reduced tariff and non-tariff barriers. The foreign ownership regulations (The market expansion mode (Hill, 2002) – At the present time the UK is considered as one of the most pro-FDI country in EU. The large number of industries, including automotive one, are deregulated.
It means that foreign regulation provides foreign companies with flexibility of choosing between all possible entry and expansion modes. Economic factors One of the major location choice determinants is the current and future demand conditions as they will affect the market growth potential, pricing strategy and operations margin and the potential of the return on investment. The target market size – According to Mintel (2006) since 2001 there has been a steady market growth by size and value. The current UK car parc is estimated to accommodate 31 million units.
The market value was contributed by the steady growth of average price level. The present market value is estimated to reach the level of ? 31 billion. The maturity of the target market – The UK market is viewed (Mintel, 2006) as highly mature. The current maturity causes overcapacity issue and significant sales fall of particular car segments. The growth potential of the target market – The overall UK market experiences negative growth due to the maturity issue. Nevertheless, certain the sales of certain car segments have significant growth potential due to the impact of socio-cultural and technological factors.
PDI – According to Mintel (2006) the strong growth of GDP (10% between 1998-2005), personal disposable income (PDI) (19%) and consumer expenditures (18%) reflect the high level of consumer confidence. Mintel (2006) claims that in terms of the purchase of new cars consumer confidence has significantly fallen. By the present moment UK consumers have been reluctant to take out new debt and instead are choosing to service their existing debt. Additionally the levels of mortgage equity withdrawal have declined, what indicates that UK consumers do not seek alternative funds to buy expensive items like cars.
Currency stability – The current strong state of British pound against other currencies have created various benefits for manufacturers consumers operating in pound zone such as predictability of operations and minimised currency fluctuation risk. Labour costs – As the outlook of the automotive industry highlighted, the cost factor and the capability of direct and indirect costs becomes one of the key issues in maintaining competitive advantage. According to the opinion of the industry specialists (KPMG, 2004), one of the key issues that will influence the operations location decision will be labour-specific costs.
According to survey (KPMG, 2004) industry specialists put a major emphasis on the labour-specific cost saving. Moreover, 85 % of the respondents agreed that during coming five years there will be a major increase of labour specific costs (cost of pensions, health care, and legal services) in US and EU. The expansion of existing political and economic blocs (EU) – The importance of the recent further expansion of EU is in the enlargement of the EU as single market. In case of successful expansion on the UK market, Tata might consider the further expansion in certain EU countries.
According to estimations of Nieuwenhuis & Wells (2003) the attractiveness of EU as the target market for a car manufacturer will remain high. They claim that the attractiveness of EU as a target market will be maintained by the increase of its market size and value as the outcome of the extension of EU zone. However the current maturity of the market, excessive completion and demand trend suggests that the share of Europe will drop. Social factors Demographic factors – Demographic factor is one of the key social factors. It affects lifestyle, consumer trends, the type of risk aversive behaviour, spending power and value per customer.
The state of demographic trends allows building projections for the use of particular type of products. The current UK demographics have undermined the sales of family cars Lifestyles – The change of lifestyles and habits have a direct impact on the consumer expenditures. For instance, Mintel (2006) points out the recent increase of preferences for second car ownership. Mintel (2006) adds that the impact of lifestyle factors such as fashionability and luxury preferences are so strong that it removes the negative effect of market maturity and oil prices in certain car segments.
Thus, against all odds, SUVs and luxury cars experience healthy growth, whereas the sales in other car segments have fallen dramatically. Technological factors The development of information technologies – The current development of Internet opens new transactional capabilities. Currimbhoy (2004) suggests that continuous development of technological solutions, especially in the area of digital and communication technologies create new operating opportunities such as new marketing mix channels, new purchase environment (e-commerce) and new market research tools.
According to Mintel (2006) the number of leading car distributors develop e-commerce to counter the problem of overcapacity. The impact of new technologies on supply chain architecture – The development of e-exchange channels between supply chain agents becomes the source of strategic advantage (Currimbhoy, 2004) as it creates the ability of fast market response and better value chain quality control. The review of micro factors affecting UK car business Competitors’ bargaining power The UK automotive market is highly consolidated. The major rivalry involves Ford, GM (Vauxhall), VW, Renault, Peugeot, Toyota, BMW, Citroen and Honda.
The presence of powerful competitors with established brands create a threat of intense price wars and poses s strong requirement for product differentiation. According to Mintel (2006) the tough competitive pressure require increasing promotional costs, overcapacity introduces a significant price pressure. The present market conditions are so tough, that certain manufacturers had to close certain plants to cut the costs and survive on the market. At the moment, the major competitive strategies are supply chain improvement, new product development and serving the needs of emerging market segments (Mintel, 2006).
The emerging opportunities requires the extremely high level of operational responsiveness and leaves little space till market opportunity will be leveraged by competitors. Buyers’ bargaining power Due to high intensity of competition on the global scale and increasing overcapacity issue UK buyers experience very strong bargaining power. According to Mintel (2006) buyers have indicated a high level of bargain-seeking behaviour. Suppliers’ bargaining power Though vehicle manufactures have consolidated forming large entities it did not make a significant shift of bargaining power in OEM-suppliers relations.
According to Veloso & Kumar (2002) the consolidation in the OEM sector has triggered the corresponding consolidation of different supplier groups. Demand chain partners, car dealers, especially the large ones do experience large bargaining power in the light of the overcapacity issue. The threat of Substitutes Apart from direct competitors (public transport) cars compete with other transport services: air, rail and sea. The increasing importance of door-to-door transportation and environmental concerns decrease the current threat of other transportation means as substitutes.
One of the major sources of substitute threat comes from the sales of second-hand cars. According to Mintel (2006) the steady accumulation of second-hand cars has become on of the major reasons of the dramatic fall of the sales of new cars. Threat of New entrants The high level of entry barriers (extremely consolidated industry, well-developed value-added chain, R capability, investment capability in promotions and new product development) minimises the threat of new entrants. Nevertheless, due to globalised nature of the industry the notion of new entrant is not that clear-cut, since existing players might enter new geographical markets.
Datamonitor (2006) stresses the future potential of Chinese manufacturers to flood EU markets in case protectionist measures are not introduced by EU countries. SWOT analysis Assessing the external and internal environmental factors, the following picture can be drawn: Strengths • Strong revenue growth – According to company’s annual report (Tata Motors, 2006) the company registered strong operational growth of 32,5%, whereas the revenues from the international operations grew by 149%. • Diversified product portfolio – Company operates in different market segments including assenger cars, trucks, medium and heavy commercial vehicles, light commercial vehicles, utility vehicles and buses. Weaknesses • High dependence on Indian market – over 80% of the company’s revenue stems from sales on Indian market. Opportunities • The further expansion on the EU market; • The increase of global presence in SUV segment; Threats • Further increase of competitive pressure on Indian market – At the moment the Indian market is already shared between such strong competitors as GM, Ford, Toyota, VW and Honda.
These companies are expected (Datamonitor, 2006a) to increase their presence through licensing agreements, wholly owned subsidiaries and joint ventures. Datamonitor (2006a) envisage additional threat stemming from local automotive firms provided that they gain access to debt and equity financing. • Overall problem of liquidity – As the case study highlighted, Tata Group allocates significant investment flows in IT sector. The failure of this capital to be returned might put financial pressure on all business areas, including Tata Motors. Slow pace of market entry – Due to the high competitive pressure of UK market, the market window for Tata Motors entry is narrow. The slow pace of entry and wrong timing decision might undermine the company’s success on this market. Key success factors In terms of the overall successful performance of the Tata Motors , the analysis of environmental and internal factors study identified the following integral elements: • Fast entry on UK market; • Implementation of strategies designed to protect company’s share on Indian market; Defensive measures on Indian market
To protect its market share against the aggressive expansion of competitors the company needs to implement defensive strategy. According to Veloso & Kumar (2002) one of the strongest available tools is the increase of the customer loyalty by offering value-added benefits such as affordable price, attractive credit conditions, post-purchase service. Veloso & Kumar (2002) note that car maintenance might account for up 70% of the overall car’s lifetime value. The company should develop its service centres network to maximise its geographical coverage and pre-empt the entry of competitors. Marketing strategy Market entry choice
To maximize the speed of entry and minimize the risk of failure, Tata Motors should choose the entry mode which provides the fast access to customers. At the same time, the entry mode shall secure certain long-term benefits like access to market knowledge and the development of firm’s presence on the new market. Given these requirements contractual joint venture was chosen as the optimal entry mode. Unlike, wholly owned subsidiary it requires much less investment in operational launch (Hill, 2002). Additionally, this mode of operations provides a fast access to the facilities and customer of contractual partner.
The other advantage of this mode of market entry is that it limits the possibility of technology or knowledge transfer. Marketing mix Product Product advantage is the “outcome of the new product development process comprising the degree of unique benefits not previously available, the extent to which customer needs are better satisfied, the product’s relative quality and innovativeness, and the extent to which the new product solves customer problems better” (Craig & Hart, 1992). The product advantage is a key differentiator between success and failure in the development of new products and services alike.
In order to hit the market the company have manufactured the model X1 which is environmentally friendly mini- sport utility vehicle with 5 speed automatic transmission and 140 HP 1,8L hybrid engine with relatively low fuel consumption. The company needs to emphasize the order-winning qualities of the product to potential customers. The decision of entering SUV segment was determined by the growth dynamics of this segment during 2003-2005 – 10%. The product will be designed to meet the quality preferences of the following customer segments: fashion oriented ndividuals, 25-45 years old, who look for affordable sport type utility vehicle. One of the essential aspects of Product mix will be the development of post-purchase service. The company will seek to develop contractual relationships with different car service networks like independent garages, specialist fast-fit chains, mobile servicing and tuning services and autocentres. The development of strong relationship with Kwik-Fit, Finelist and Halfords will increase product attractiveness in terms of availability and accessibility of service facilities. Price
The Mintel (2006) research indicates the relative importance of price issue, especially for customers who seek to own a second car. The chosen pricing strategy will seek to attract potential customers buy affordable price – ? 10 000. This price is 2,995 lower then the price of one of the best-selling cars – Daihatsu’s Terios. The aspect of pricing is related to the cost of service and car accessories. The major focus will be to minimize the servicing costs by concluding conditional