Monday, May 28, 2012

The Result of Tata Motors' Acquisition of Jaguar Land Rover

"Can an aspiring global competitor from a developing economy use the acquisition of an established Western business to grow its earnings and diversify?"
Tata Motors, the Indian motor company that launched the "Nano," the world's cheapest car, acquired the Jaguar Land Rover in 2008. In this weekend's edition of the Washington Post's Sunday paper (the specific article I am citing from the Post not yet available online, I have the hard company of anyone is interested), it was reported that as of 2011, Jaguar Land Rover accounted for 2/3rds of Tata Motors net income.*

A number of factors made fellow automobile competitors question Tata Motors' entry into the luxury automotive segment. These factors included: 1) Tata Motors had always been a truck manufacturer 2) Could the automobile company that makes the world's cheapest car perform in the luxury vehicle market? 3) Could Tata Motors beat out its private competitors for the acquisition of Jaguar Land Rover? 4) Could Tata Motors turn around Jaguar Land Rover which posted losses at $10 billion in 2007? and 5) Would future sales of the automobiles ever justify the purchase price?
The acquisition of Jaguar Land Rover by Tata Motors, a former Ford Brand, came as a great surprise to the industry (official Tata Motors' press release). It seemed to defy Tata Motors identity and direction. However, if Tata Motors was looking to become more of a global competitor in the automobile industry with a presence in Europe and the US, this acquisition, if successful, would be a smart strategy.

As we read in our readings and discussed in class, for an organization to move into or expand into a new market successfully, a "trade-off" of some sort is almost always required. But what strikes me as "follow-up" worthy, is the fact that not only did Tata Motors successfully outbid its competitors for the luxury auto, but it turned around the brand which was previously underperforming and successfully entered the luxury automotive segment.

With respect to this acquisition, Michael Lenox, a professor of business administration at the Darden School of Business at University of Virgina, said,

"Acquisitions are an important tool in a business leader's tool kit. They can help increase earnings and alter a company's strategic direction. However, the decision to pursue an acquisition is often not simple. There are more failed acquisitions the successes, and numerous factors influence whether an acquisition succeeds of fails. A broad set of strategic factors must be considered to make reasonable judgements on whether to move forward."

* Nota bene: The Washington Post's coverage of this topic presented a more skeptical view of Tata Motors' ability to acquire the brand and a more "surprised" reaction to their current success. The article I site from usatoday is less critical of Tata Motors' ability to succeed in turning around the Jaguar Land Rover brand and manage the acquisition.

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