Discuss about the Internationalization Strategies for Organizational Boundaries.
Internationalization strategies aim to expand organizational boundaries to other foreign markets; such strategies help organizations in lending and capturing foreign market through cross border transactions. In last three decades there has been tremendous growth in global FDI expenditure as the figure grew from approx. 6 percent to 27 percent (unctad.org, 2014). There are different types of FDI strategies such as investment, exporting, join ventures, mergers, acquisitions that are adopted by firms for market entry. This paper aims to present analysis on FDI strategy of a MNC from Global 500 companies; selected firm for the analysis is Tata Motors and its expansion in Germany. This analysis shows the way a company from an emerging market expand its business in developed market. This paper include information on selected firm, analysis in European markets, its key contributing factors with the help of internationalization theories. Later part discusses foreign entry strategies such as entry strategies, advantages and its constraint. It also includes analysis on business impact and contribution make by the company in host country.
Selected MNC for the research is Tata Motors Limited, it is an India based leading automobile company that deals in wide range of products including trucks, coaches, military vehicles, construction equipment’s, vans, buses and passenger cars (www.tatamotors.com, 2015). In context to the volume of production it has the rank of being the second largest manufacturer of buses and the fourth biggest manufacturer of trucks (Tata Motors Limited, 2012). There are 76,500 employees, with $1684 million. It is the only Indian automobile company that made to global 500 lists.
According to theoretical definition of MNC it is affirm that sell products in different countries (Gupta, 2010). Tata Motors have made its strong presence in 170 countries with 6600 touch points with its research and development centres in India, UK, South Korea and Italy. Another key characteristic of MNC is to establish globalization of production in which the company try to establish production advantage of land labour and capital from different markets (Gupta, 2010). In terms of international busines
Tata Motors have strong presence in South Africa since 1992; it produces left-hand and right-hand drive versions of our cars, buses, SUVs and trucks. In this market the company adopted fragmented approach, it helped in improving cumulative exporting and sales reach to 15000 units (Roux, 2006). This brand is also present in Latin America since 1992; in this market it sells mid-sized sedans such as Indigo and the Manza, hatchback Vista, and the Tata Xenon. Apart from this, it is also present in Europe in Italy, Spain and Poland; in Middle-east countries and Asian countries (www.tatamotors.com, 2015). In UK it owned Jaguar Landrover, it created more than 36000 jobs; the company invested $1.1 billion for new product creation. In 1994 it entered Germany market through Joint venture mode.
Key factors
Key reason for expanding Germany includes its increasing market size and scope for business development. Germany is economically stable nation with surplus balance of trade; there is large number of export than import. With 81 million populations there was growth of 1.6 percent in GDP with low unemployment rate (straitstimes.com, 2015). There is strong presence of Tata Group in the market, attractive portfolio of Jaguar and Landover also helped in increasing its sales (www.tatamotors.com, 2015). The automobile industry of Germany is huge; it provides largest employment opportunity in the nation. This country is suitable for automobile industry due to its availability of skilled workforce; this country is also regarded as birth place of automobiles since 1970. It is the largest home of well-known automobile companies such as Volkswagen AG, Daimler AG, BMW AG, Porsche, Mercedes Benz, Adam Opel etc. Germany has strong image in worldwide market for automobile industry and has highest number of automobile manufactures in the world (Tata Motors, 2013).
This region has strong demand for energy efficient cars in Germany; therefore this demand can be fulfilled by Tata Motors with its eco-friendly products offerings such as Tata Nano CNG emax, which is a technology upgraded car with low carbon emission, high mileage, cutting edge CNG fittings; sensors, safety promoting interlock sensors with world class comfortable interiors. According to A.T Kearney Foreign Direct Investment Confidence Index, Germany is regarded as most attractive and beneficial destination for FDI investment, partnerships etc. as it offer efficient scope for research and development centres.
Further, there is rising demand for small and medium sized energy efficient cars in the market, which gives business development scope to Tata Motors. With rising awareness and concerns regarding environment protection, there is conscious shift in preference towards fuel efficient cars in the market, therefore Tata Motors can leverage this opportunity in Germany market.
For instance according to Porter diamond model there are six factors that can be evaluated to analyse competitiveness of a specific firm in given location, it include factor conditions, demand conditions, related and supporting industries, firm strategy, government and lastly chance (Porter, 1990). Therefore, scenario of Tata Motors in relation to market operation in Germany is analysed below;
Factor Conditions: Factor condition can be defined as three core elements of business capital resources, infrastructure for business operation and availability of physical resource. As Germany has a strong automobile industry, there is availability of all factor condition that will also help the brand in gaining economies of scale.
Demand Conditions: Analysis shows high demand for electric cars in global market as well as Germany market. Both India (home country) and Germany (Host country) aims to make their all cars electric by the year 2030. There is rising demand for electric cars in global market; in the year 2014 total demand was 740,000 (/cleantechnica.com, March).
Availability of supporting Industries: It includes presence of suppliers of raw materials, proper availability of parts and equipment’s requirements. Availability of skilled labour, presence of iron and steel industry, high technology supports industry development (Porter, 1990).
Firm Strategy, Rivalry and Structure : This country has shown excellence in automotive industry, there is presence of intense rivalry but the same it time it offers high sales, demand and strong brand image. It is the most developed industry with turnover of EUR 351 billion (GTI, 2013); it is number of market in Europe for automotive industry, both sales and production. It is also the most innovative sector with almost 33 percent of industry income dedicated to Rand D on technology and innovation.
Government support: There is rising regulatory strictness on decreasing emission of harmful gases, fuel consumption and co2 emission by all vehicles need to be reduced. Germany has a target of reducing 34 million-ton reduction in CO2 by the year 2020 (www.gtai.de, 2015).
Business expansion require proper planning and choice of correct market entry strategy depending on company objective, nature of business, external environment, industry scenario, internal business environment etc. (Andersson, 2004). There is wide range of international market entry strategies, such as FDI, export, franchisee, licencing, joint venture, merger, acquisition, business alliance etc. section below discuss the market entry strategy selected by Tata Motors to enter Germany market, its advantages and constraints.
It is easy for Tata Motors to enter Germany due to its access in European region, it can sign a strategic alliance with any automobile company is Germany or any other European market. However, Joint venture is the key strategy opted by Tata Motors in the market. Joint venture involve is when two or more companies agrees to share their resources, business expertise and work to achieve a common goal (Y., 1999). This is a joint strategy that helps in diving risk and rewards between companies. Initial business of Tata Motors started with Joint Venture with Daimler Benz of Germany that helped the brand in manufacturing of commercial vehicles since 1954.
Primary advantage for opt Joint venture is value maximization; it also facilitates in better task coordination. This strategy helps in expanding business through pooling of resources from different parties (Yan & Zeng, 1999). As if an international brand sign a joint venture with local brand it helps in subsidizing market risk as local partner have fair market knowledge, industry practices, legal information with in-depth customer understanding. Joint venture also facilitate in enhancing overall business capacity and technical expertise, with broader market for product distribution (Yan & Zeng, 1999).
However, major risk involve in joint venture is loss of information and knowledge to other party; therefore if there is any conflict in future it might impact resources adversely. It is crucial to ensure a strong internal approval process by conducting proper investigation on the partner (Ubrežiová & Bujňáková, 2009). It include analysis on the financial strength of the firm such as working capital, equity, cash flow; second is resource capability of the firm; third is cultural evaluation, there must not be wide cultural gap as it might lead to internal conflict and employee unrest; fourth is evaluating the history of legal claims on the company and their past JV experiences with other companies (Y., 1999).
Acquisition is a process of integration of two or more organizations by purchase of assets and liabilities of selling firm by buying firm, in this context one firm have higher power over other firm (Depamphilis, 2010). It is also linked through its subsidiary companies in European market, as Tata Technologies Ltd a wholly owned subsidiary of Tata Motors, acquired majority of stakes in INCAT International Limited, this company supply engineering and design, product life cycle management to durable goods industries. In the year 2006, CEDIS Mechanical GmbH, Germany was acquired by INCAR which is also a design service provider helped the brand in making its market presence strong in Germany and whole of Europe (www.ibef.org, 2011).
Tata Motors also adopted exporting strategy in Germany market; it is a process of selling goods manufactured in one country to another country. Tata Motors export Tata Safari Sports Utility Vehicle, Tata Indica range etc. This strategy helps in taking advantage of low cost manufacturing in different markets. Centralized production helps in giving proper control. However, there is problem in providing adequate customer support and hindrance caused by import regulations, quotas in different countries (Millington & Baylis, 1990). However, Tata Motors enjoy cost advantage in India that helps in selling its product at low price.
Product offered by Tata Motors help customers in meeting demand through quality design and cutting edge technology. It helps in supporting environmental friendly cause, reduction in carbon footprint, reduction in energy expenditure. Tata Motors also act as a responsible corporate citizen by developing CNG variants of their regular car models. Further this expansion also helped country in currency appreciation and tax benefit from the company. As Tata Motors also established its research and development unit in the new market, advancement gained from research also benefit other players in the market. FDI helps in brining capital inflow and growth in the market, it helps in strengthening local industry and also beneficial for the economy.
Organizations need to abide by certain global principles to ensure sustainability and abidance of their fundamental duties towards society. Four key areas of fundamental responsibilities’ include labour, environment, anti-corruption and human rights. Implementing these principles within strategic actions of the company helps in ensuring that company is fulfilling its responsibility towards planet, people and also help in its long term success.
There are three core principles that organizations need to implement for environmental development, it include supporting a precautionary approach towards environmental concerns; second is to promote environmental responsibility and third is to encourage development of environmental friendly technologies. All three principles are completely abided by Tata Motors. The company is a bearer of EMS 14001, environment protocol for conversion of environment.
Tata Motors is highly committed towards UN global impact principles, through its internationalization and business operation, it has achieved the target of reduction in carbon emission by 48,620 with the use of renewable energy; 2.47 percent of income is spend on research and development (/ycharts.com, 2014). Home country impact influence of internationalization, India is an emerging market; it gives cost, technology and labour advantage to the company. Emergence of Tata Motors helped host country in availability of eco-friendly cars at very low price; though there are other players also in the market but Tata Motors offers the cheapest cars. It also provides best engineering design. Its renewable energy protects helps in reducing carbon emission and support climate change cause in the region. .Company currently focuses on environmental issues, it aims to control emission, reduce wastage. In future in needs to enhance its focus on anti-corruption issues due to rising concerns for unethical practices in the market.
Four principles that must be included for labour development include right to collective bargaining, anti-discriminatory practices, no forced labour and no child labour at all. Tata Motors follows strict anti-discriminatory laws, it implement diversion and inclusive policy. It also prohibits child labour and forced labour in the organization, security personnel have been trained to put a strict vigilance on the same. It also helped in creating employment opportunities in the market; through expansion and export, acquisition Tata expanded its business which helps in creating new job opportunities in the market. Further, Tata Motors hire employees from local market as they have better understanding of market, customer, it also help in reducing inter organizational conflict.
Conclusion
Major findings from the paper shows the way business expansion facilitates in achieving competitiveness in market; company can also get cost advantage and competitive advantage over its competitors. Germany market offers political, economic and environmental support to the company; there is availability of technology which helps Tata Motors in strengthening its business operations. Different market entry strategies opted by Tata Motors include exporting, acquisition and joint venture. Tata Motors helped Germany automotive market in launching environmental friendly cars. Further, such internalization strategies are beneficial for both host and home countries as both regions gain benefit from FDI inflow, knowledge, technology, development, environmental growth. Globalization have strong impact on different business in the market, it has made the industry environment dynamic which makes organizational sustainability difficult and complex. Therefore companies need to reinvent their business strategies through internationalization, strategic alliance by enhancing scope of their business, market and customer segment. This paper shows the way Tata Motors made its strong presence in different global market, especially Europe and Germany. It also shows the way host country business opportunities impact organizational decisions. This internationalization strategy helped Tata Motors to grow their business, enhance their profitability, sustainability, market scope; it was also helpful for the host country as it bought emergence of new technology, cheap products availability and new business opportunities in the market.
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