Posts Tagged ‘Tata’

Why buy? Indian firms seeking partner who…

June 2, 2009

International business researchers have always been interested in the motivations for foreign direct investments. Pre-eminent IB scholar John Dunning argued that there were four core drivers:
– the quest for more customers (market-seeking)
– gaining access to inputs unavailable, or less palatable, at home (resource-seeking)
– looking to build a more efficient chain of value adding activities (efficiency-seeking)
Gone Shopping Sign – building up the knowledge-based resources of the firm and portfolio of brands (strategic-asset-seeking).

This recent Economist article gives a nice catalogue of recent international acquisitions by Indian firms, and offers decent examples of several fronts.

The acquisitions mentioned by Avantha (in engineering), Tata Steel and Tata Motors all can be lumped under the strategic-asset-seeking banner, as the firms sought to tap into technologies and brands unavailable in their home market and which are crucial to further international growth. This is comparable to Lenovo’s purchase of IBM’s PC business a few years back (and pretty typical for emerging market multinationals).

What is less clear in terms of motivation is what is driving Bharti Airtel’s pursuit of South African mobile giant MTN.

Are they chasing MTN’s (admittedly outstanding) competencies in rolling out networks in very poor countries (in terms of household incomes and also physical infrastructure)? These may well mesh in very well with Bharti’s own experiences in India, and set the firm up for a huge play in markets across the developing world (i.e. a strategic-asset-seeking approach).

Or they simply chasing the almost billion possible customers in Africa (to throw on top of a similar top of comparable target market in India)? This would clearly be market-seeking FDI…

Volvo to head East?

March 9, 2009

A fascinating prospect has emerged from the drawn-out demise of Ford’s international network of operations (and perhaps the firm itself). It seems they may sell their Volvo business to a Chinese suitor.

In an auto world where consolidation is the buzz word for all, a major international play from the overpopulated Chinese manufacturing sector was only a matter of time. This would give Geely a huge boost in size. They will more than double in size immediately.

Picking up Volvo for a pittance is surely attractive, especially given the Swedish firm’s competencies in safety and design. It will allow Geely to learn very quickly about exporting vehicles into developed markets (something which is still pretty rare for Chinese auto manufacturers).

The huge challenge will be extracting the Volvo manaufacturing out of Sweden, untangling labour relations and trying to transplant what is surely a very advanced production facility into an unfamiliar environment.

This takeover is being compared with Tata’s acquisition of Rover. The big difference is that Geely is unlikely to be paying substantially over the money for the assets. This is yet more evidence of businesses going cheapin the current crisis.

Simply an issue of willingness to pay

December 24, 2008

A key issue for firms is ensuring they deliver a product consumers find attractive, i.e. something for which they are willing to pay. When we discuss the generic business strategy choices (i.e. differentiation, low-cost, focus), we are principally concerned with whether firms have the product features that best match with consumer preferences. To differentiate is to find those dimensions consumers will pay more for. To build a low cost advantage is to understand the minimum requirements consumers have and making sure you at least meet these.

wtp2Firms too often, in the face of lower sales growth and market maturity, try and add more bells and whistles in the hope of attracting upgrade purchases.

This feature inflation approach is fraught with danger, as any such adjustments are likely to be generating unnecessary costs, thus reducing margins or forcing a higher price. Indeed, with many goods, the new attributes may reducing the consumer experience.

This article argues that 2008 has seen the rise of the simpler product. It argues that consumers have chosen those goods that trimmed back a lot of the standard features and focused on what consumers most wanted. The two examples given are the Nintendo Wii (which I have discussed before) and the Flip video camera. The latter retails for around $130 in the US and is ludicrously simple to use (that’s it on the left).

This is a more subtle approach than some dichotomous low cost vs differentiated world. The firms involved here have calculated the willingness to pay along a variety of features and responded by removing the costly and underutilised. The streamlined products have become more attractive to a bigger audience. This is the approach being taken by netbook manufacturers (the nifty shrunk laptops) and Tata with their Nano car.

What’s next for simplification?