NTT DoCoMo, Tata’s Japanese partner in Tata Teleservices Ltd, recently decided to exit the Indian telecom business, selling its 26.5 per cent equity stake in the company. In spite of its earlier aggressive pricing strategies, Tata Teleservices was unable to sustain growth and is at present not within the top-five telecom players in the country.
Why did DoCoMo, a strong global player controlling more than 50 per cent of the lucrative Japanese telecom market, take this extreme step of quitting the Indian telecom business, especially as India is one of the fastest-growing global markets? Has Tata Teleservices run out of options? Is it too late for it to ramp up its market position? What does the DoCoMo exit signal for the Tata group?
The question is whether Tatas are in a position to regain leadership of the market at its present state of maturity? Or can it lead a consolidation drive to break into the top-three league, pitted against Vodafone, Bharti and Reliance Communications, and the more recent entry of Mukesh Ambani’s Reliance Jio. From whichever angle one views this, it seems Tata Teleservices, after being an active player for close to two decades, may not have built adequate capabilities to pull off this kind of feat. DoCoMo’s exit more or less confirms this. To a certain extent, the timing of DoCoMo’s announcement couldn’t have been better, as it forces the Tata group to face this ground reality. This may be a good time for the Tata group to take concrete measures in some of its other businesses as well. Tata Motors, for example, is currently basking in the superior growth and profitability of Jaguar Land Rover (JLR); Tata Motors’ acquisition of JLR is turning out to be a gold-mine, six years after the buy.
JLR operations now account for around 85 per cent of Tata Motors revenue and almost the entire operating profits of the company. JLR is said to be well-positioned in the fast growing Chinese luxury car market. Then what is the concern?
Tata Motors’ choice of resource allocation over the last 10 years has yielded certain positive results, such as it penetrating the Chinese luxury car market. However, it would be pertinent to note the cost at which this has been achieved. In the Indian car market, the Tatas have lost competitiveness in all segments, with market share dropping close to 6 per cent; while competitors such as Maruti, Mahindra and Hyundai have steadily increased their capabilities. Until now, Tata Motors had failed to leverage synergies between JLR and its Indian operations.
Missed opportunities The poor launch of Tata Nano, described as letting go of a prized opportunity, has created a dent in Tata Motors capabilities. Large resources — financial and skill sets, both of which are scarce — are needed to redeem and re-brand the Nano.
Likewise, in the commercial vehicle segment, it seems to be clinging on to a reasonable market share of above 50 per cent, but is threatened by the entry of global giants such as Volvo, Mercedes-Benz, Scania and Navistar. Considerable investments will have to be made by the Tatas to increase their competitive position in this space.
However, seeing emerging economies as attractive markets for the luxury car segment, global majors such as Mercedes-Benz, BMW and niche players such as Bentley and Lamborghini are sharpening their positions, threatening JLR’s success run in emerging markets, especially China.
Then, where should Tata Motors allocate resources in the coming years? Should it invest more to reposition Nano, regain competitive advantage in the domestic passenger car market, in which it holds a meagre 6 per cent share? Should it aggressively invest in its commercial vehicle business to fend off international competition? Or, should it take on the global giants and aggressively strengthen JLR?
One can question why Tata Motors cannot become successful in all three segments. But, viewed realistically, synergies and overlap across the businesses are minimal. It is time for Tata Motors to make that trade-off decision, to focus on specific areas and build superior capabilities, especially as the competition in each of these segments is getting more focused. Capabilities cannot be built and superior competitive positions cannot be attained overnight. If it is clear that a perceived competitive edge isn’t strong enough: then it’s time issues are dealt with head-on to regain that position. . In the case of its telecom business, it definitely seems to have lost that opportunity, but in the auto business, it is still not too late to make some hard decisions.