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