Tata Motors and the Fiat Auto Companies: Joining Forces

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Table of Contents

Introduction
Business Opportunities in India
Fiat’s Benefits from the Venture
Whether TM and Fiat Auto can make Good Partnership
Possible Long-term Challenges of the Partnership
The Business Case for Joint Venture Strategy
Recommendations for the Alliance’s Success
References

Introduction

The partnership between Tata Motors (TM) and Fiat Auto drastically changed the passenger car market in India. The alliance took place at a time when both firms were beginning to revive their sales in the international market. For instance, due to internationalization, Fiat Auto made a quarterly trading profit for the first time in almost four years from its sales in Europe (Shalley & Satish, 2009). On the other hand, TM was implementing its expansion strategies and aggressively made forays in the international market. For instance, the firm signed a joint venture with the Brazilian firm Marco Polo with an aim of enhancing its distribution channels within the Brazilian market.

Business Opportunities in India

Generally, the automobile industry in India is one of the most growing in the developing economies and is projected to go up by over 1.9 trillion US dollars in the year 2015. The automobile industry is expected to continue growing because of increased number of middle-class, which provides sufficient market for the products. Further, the country’s huge population provides a large pool of skilled and cheap labor, which propels the industry to success (Shalley & Satish, 2009). The automobile industry in India is estimated to be worth over 120 billion US dollars with the small car market contributing around sixty percent of the country’s total car sales. Moreover, the industry is currently growing at an estimated annual rate of about nine percent. However, the industry is highly competitive.

Fiat’s Benefits from the Venture

Fiat Autos’ partnership with TM is critical in developing dealership network and increased customer base. The reason is that Fiat Auto has been experiencing decreased demand and market share. As such, the joint venture is expected to change the trend. In addition, the firm‘s image was dented due to poor customer services and failure to deliver sufficient spare parts to its clienteles. Intrinsically, the firm found difficulties in competing within the Indian automobile market. Therefore, the joint venture would redeem the firms lost image. Besides, the goodwill enjoyed by TM would be helpful in redeeming Fiat’s dented image without incurring additional costs (Netherland, 2008).

In addition, the partnership would assist Fiat Auto to cut on both manufacturing and production costs. Cost reductions would be facilitated by the presence of TM subsidiaries that supply auto components to Fiat Auto at fair prices. Moreover, the alliance would assist Fiat Auto to save costs of production through inclusion of spare parts from TM. Besides, the partnership would significantly cut manufacturing costs and improve efficiency. The agreement allowed Fiat to use cost-efficient production procedures applied by TM at its facilities.

Furthermore, the partnership would assist Fiat Auto acquire and develop new technological knowhow from TM’s pool of machinery. Fiat would utilize the opportunity to develop new designs while making improvements on the current models (Ellentuck, 2011). Equally, TM would benefit from highly developed Fiat Auto’s expertise gained through several years of manufacturing small cars.

Generally, the joint venture would help Fiat Auto compete aggressively and capture the growing compact cars market in India. Furthermore, both companies would make use of their presence in foreign markets to come up with a formidable force that would enable them to compete effectively in the global automobile markets (Ellentuck, 2011). The alliance would ensure rapid expansion of both firms across the globe.

Whether TM and Fiat Auto can make Good Partnership

Actually, these are two firms in the same industry making almost similar competing products. However, the partnership between the firms is construed to be complementary. For instance, Fiat Auto would supply TM with bodies while TM would provide Fiat Auto with spare Parts. The ability of the firms to manufacture complementary products make the partnership to be the best given the highly competitive environment in which they operate (Netherland, 2008).

The relationship between the two firms can best be described as symbiotic. Besides, the agreement between the firms establishes a platform where both companies would jointly manufacture passenger vehicles, engines and transmissions in an attempt to capture key markets. For instance, TM would benefit from Fiat Auto well distribution network in Europe and Latin America to penetrate and increase its market share within the regions.

Possible Long-term Challenges of the Partnership

The success of TM-Fiat Auto alliance can be hindered by various challenges. First, the partnership provoked other firms in the industry to form similar alliances, which provide stiff competition. The unexpected competition holds back the partnership from fulfilling its global expansion objectives. In fact, because of the partnership, most automobile manufactures have introduced similar or better cars models compared with those produced by the partnership between TM and Fiat Auto. Second, the possibility of brand dilution in the long-term exists. For instance, TM signed the agreement to strengthen its global automobile market while maintaining its domestic market in India. However, threats from Fiat Auto’s models could jeopardize the success of the partnership (Shalley & Satish, 2009).

The Business Case for Joint Venture Strategy

Joint ventures involve combination of firms to accomplish a couple of reasons. In the case of TM-Fiat Auto alliance, the reasons for the joint venture were inevitable. TM needed to expand their venture into the international market. On the other hand, Fiat Auto wanted to increase its presence across the country (Shalley & Satish, 2009). Nevertheless, Fiat Auto lacked the debut to enable its presence be felt within the domestic market. As such, the joint venture would enable the firms attain their expansion strategies in both local and international markets using diverse distribution networks.

Besides, the joint venture is expected to reduce the cost of operations and increase efficiency in production. The combined expertise and facilities are aimed at reducing operation costs and increase efficiency in production. Essentially, the combination of the firms’ operations ensured efficiency in resource utilization resulting from cost reductions and increased benefits in terms of economies of scale. Additionally, the partnership between the two firms is aimed at increasing their competitiveness both locally and internationally. In fact, the increased technological and distribution competencies gained through the partnership augments the firms’ competitive advantage particularly within the global market (Ellentuck, 2011).

Recommendations for the Alliance’s Success

The success of the Alliance greatly depends on how the two firms handle challenges confronting their partnership. The two firms should come up with a complete merger that transforms into a new outfit. Such mergers will eradicate the internal threat of competitions between the two partners. Besides, the firms should merge their production units to come up with multiple products targeting diverse market segments, which in effect facilitate market penetration. In addition, the alliance should deal with diverse cultural issues associated with differences formerly present in the firms. As such, the partnership should come up with a single uniting culture, which facilitates easier negotiations and decision-making processes.

References

Ellentuck, R. P. (2011). Fiat’s strategic alliance with Tata. Web.

Netherland, B. V. (2008). Tata-Fiat joint venture launch fiat 500 in India. Web.

Shalley, S. & Satish, J. (2009). Tata-Fiat joint venture to break even by 2011-2012. Web.

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