FIAT AND TATA MOTORS JOINT VENTURE
• Understand various issues and challenges in strategic alliances, particularly in cross-border joint ventures. • Examine what went wrong with the alliance and how the problems could have been averted. • Discuss the strategies that Fiat could adopt to build its competitive position in India. Fiat Auto Fiat came into existence on July 11, 1899. The company was established by Giovanni Agnelli (Giovanni) together with a group of investors. The first Fiat car manufacturing facility was opened in 1900 in Corso Dante, Italy. Giovanni became the managing director of the company in 1902. In 1908, the company started exporting cars to USA, France, Australia, and the UK. By 1911, the Fiat Group had diversified into the production and marketing of commercial vehicles, marine engines, trucks, and trams and by 1925, it had entered the steel, railways, power, and public transportation businesses. The Fiat Group's auto division used mass production to keep production costs low. Tata Motors And Fiat Auto: Joining Forces On September 22, 2005, TM announced that it was signing a Memorandum of Understanding (MoU) with Fiat Auto to explore the possibility of cooperation across different areas in the passenger car market. The two auto makers were examining the possibility of joint product development, manufacturing, sourcing, and distribution of products, aggregates, and components. A 15-member joint team consisting of senior officials from both organizations was set up to study the viability and the specifics of the nature of cooperation, both in the short and the long term.
Advantages Even though Fiat India had been present in India for close to a decade, it had the lowest market share among the 11 players - including later entrants like Skoda India - in the growing car market. Though the
company's cars like the Palio were initially quite successful, Fiat's image suffered due to its dealers. Fiat customers were reported to have faced problems because of the non-availability of spare parts and lackadaisical customer service. Such problems had an adverse impact on the company's image, and it struggled to compete effectively in the Indian automobile market. The alliance with TM was expected to improve its dealership network and customer service without the company having to make significant investments. The goodwill enjoyed by TM, and the company's reach were expected to improve Fiat's image in India. Threats Even though both firms gained several advantages by co-operating, they also faced significant threats. The TM-Fiat Auto alliance was expected to face intense competition from other automobile manufacturers in India, some of who were in the midst of forming their own alliances. In February 2005, Renault SA formed a 49:51 joint venture with Mahindra & Mahindra Ltd. The alliance was to launch the Logan, a sedan, which would compete against TM's Indigo. Toyota Motor Corp. and its subsidiary Daihatsu Motor Co. Ltd., had plans to launch a new small car for the Indian market. More significantly, MUL was all set to challenge TM's diesel supremacy, by entering the diesel car market in a big way. TATA-FIAT Joint Venture Despite having been present in the country for more than a century, Fiat's products just did not have enough takers in India. In 2005, Paulo Castagna became the managing director of Fiat in India and he initiated a 12-month revival plan. The company infused Rs. 2 billion and made efforts to improve the dealer and service networks. Tata Motors, on the other hand, was riding high, acquiring companies and signing agreements with international players to manufacture and supply vehicles. Fiat, which had lost nearly all its dealerships due to its break up with Premier, was
looking for a new lease of life and wanted to establish a pan-India sales and service presence.
Teaming Up By coming together, Fiat and Tata Motors expected to compete effectively against strong rivals in India like Maruti Suzuki and Hyundai, and grab a larger share of the fast growing Indian automobile market. Fiat, avoiding the overlap of segments with Tata Motors, proposed to produce its premium cars for the Compact and C-plus segments. The JV also manufactured two of Tata Motors’ models, the Indica and the Manza (a sedan). Competition There were several foreign and Indian firms looking out for tie-ups to position themselves better in the fast growing Indian auto market. In 2005, India's Mahindra & Mahindra tied up with Renault of France to launch the Logan, a sedan. Japanese major Toyota was planning to launch a small car for the Indian market. These models were expected to directly compete with some of Tata Motors' models. Internal Issues Internally, within the alliance, there were issues that needed attention from both the companies. Tata Motors felt that some of the products offered by the Fiat stable (the Petra) would hinder the sales of its own product (the Indigo) and therefore omitted the Petra from display and sale through the joint dealerships.
INTERNATIONAL FINANCIAL MANAGEMENT
ASSIGNMENT- 1
SUBMITTED TO: PROF. SOMNATH
SUBMITTED BY: SAURAV CHANDRA PB1335
