Tata Motors Limited: Ratan’s Next Step

...

There are two main reasons for acquisition:

[pic 2][pic 3]

increasing capabilities

integration into new markets

It may come from expanded research and development opportunities or more robust manufacturing operations. Capability may not just be a particular department; the capability may come from acquiring a unique technology platform rather than trying to build it. JLR is known for their state of the art technology. The expertise of JLR would have benefited Tata Motors' car division. At least it would give sense that Tata Motors' vehicles have technological access to world class engineering.

Tata's cars and commercial vehicles once dominated Indian markets but started facing threatening competition from domestic as well as foreign vehicle manufacturing since early 2000s. Having a strong name of JLR under its umbrella only increases the credibility of Tata vehicles. Since Tata is such a big deal in India, owning JLR automatically opens huge market for JLR vehicles. The rapidly increasing rich class of India needs brands like JLR. Tata Motors already have their sales and distribution infrastructure set in India. All they needed was kick-ass cars to sell to new rich strata of Indian society. LR is premium car manufactures. Tata Motors' car division produces economy cars. In future, Tata's presence in Europe would help them expand in that market.

7

Acquisition strategies can increase strategic competitiveness and help firms earn above-average returns. However, it’s clear that even when pursued on value-creating reasons, acquisition strategies are not problem-free. Greater acquisition success is achieved when firms able to overcome the following problems: integration difficulties, inadequate evaluation of target, large or extraordinary debt, inability to achieve synergy, too much diversification or focusing totally and overly on acquisitions.

Successful acquisitions result from the firms’ ability to do the following:

1) Select the “right” target. That involves careful selection of target firms and an evaluation of the relative health of those firms.

2) Avoid paying too high a premium (doing appropriate due diligence).

3) Effectively integrate the operations of the acquiring and target firms. Key factors are flexibility and adaptability. Managers of both firms should have experience in managing change and learning from acquisitions.

Acquisition is more successful when the target firm assets are complementary to the acquired firm’s assets. In this case the probability of creating synergy is much higher. Another attribute to successful acquisition is emphasis on innovation, a characteristic that is increasingly important to overall competitiveness in the global economy as well as acquisition success.