Question (1):- Discuss the trends in the global and Indian automobile 

industry. Despite being

present in India for the past 10 years, VW's cars failed to become popular and accepted by
customers. Was the Group justified in continuing to give importance to the Indian market?

When we talk about the global automobile industry trends the total share holder return of an
average automaker were only 5.5 percent and in 2016 the return on invested capital of the top 10
players was only 4 per cent . The industry was also challenged by the increasing concern for safety
and environmental regulations.

The Indian auto mobile played a critical role in this economic growth , It was expected that by
2050 with roughly 611 million vehicles running on roads . In india the total production of auto
mobile, including the passenger , commercial , three wheeler and two wheeler vehicle multiplied
at a CAGR of 9.4 per cent during financial year 2006 to 2016.

V W had been in India for 10 years and was recognize as a brand, but top officials felt they were
still in the learning phase they were of the opinion that some of the assumption they had made in
the early years with respect to their cars , Vento and polo had not turned out to be 100 per cent
correct . The car had failed to become popular and accepted by customers and had not
contributed much to the company ‘s coffers . The group also realize that Indian consumers were
driven by newness and sought new features in products every year.

Question (2):-Is there a business case for VW and Tata Motors to look for a partner with which
to enter into a strategic alliance in India?

In March’17 VW signed the memorandum of understanding with Tata Motors to explore the
possibility of joint development of the products. The Alliance would encompass the sharing of the
components and the technologies. Tata Motors was eager to use the far superior and cost
effective electrical architecture owned by VW in its AMP products . The Alliance would create
value for the Tata Motors through large economics scale and provide a means for bearing the
huge expence of developing the AMP.

Tata Motors Was confident that the alliance would give both companies an opportunity to
leverage each other’s strengths to produce synergies and develop progressive solution for both
Indian and global markets.

Question (3):- VW and Tata Motors made the decision to work with each other as alliance
partners. Comment on the fit between the two partners.

India is the fourth largest exporter of automobiles and continuously growing. It is critical to
advance in the Indian automobile industry. India has dominance in the market and the companies
involved in this merger will have a great chance at grasp the market if they can make the meet the
demands of the Indian market.
VOLKSWAGEN

VW, with its corporate office in Wolfsburg, Germany, was the largest manufacturer of cars in
Europe and one of the major producers of automobiles and commercial vehicles in the world. VW,
with its prospective program “TOGETHER—Strategy 2025,” aspired to be the global leader of
sustainable mobility. The group offered customer and dealer financing, banking, leasing, fleet
management, and insurance activities.

TATA MOTORS

Tata Motors—part of the bigger Tata Group and one of the most trusted brands of cars, with sales
of more than 9 million vehicles including cars, utility vehicles, trucks, buses and defense vehicles—
had a turnover of $42 billion. The company was the first to develop a fully indigenous passenger
car in India, and it furthered its success by developing the world’s least expensive car, the NANO.
Its research and development, design, and manufacturing facilities were located in more than 20
locations across Asia, Europe, and Africa. By delivering stimulating innovations, the company
hoped to be a high-performance organization. It wanted to see itself among the top three global
commercial vehicle and passenger vehicle players

VW and Tata Motors made the decision to work with each other as alliance partners. The strategic
fit is quite compatible between the two partners as both the partners are operating in the same
automobile sector. Volkswagen Group and Tata Motors Limited decided to try and come together
strategically in March 2017, as a team to generate more sales and dominate the Indian market.
This merger will be a win-win for both companies. This could also help each company individually
in the car industry. They would keep the Tata Motors advanced modular platform (AMP), This
platform offered the most cost advantage. Both companies agreed this would be a great merger
but have had many differences on the platform to use. Volkswagen has the top-class counsel to add
to the success of this merger. The two companies would explore the possibilities of joint product
development which would hopefully be the key to cost effective options for the competitive
market in India.

Tata Motors was confident that the alliance would give both companies an opportunity to
leverage each other’s strengths to produce synergies and develop progressive solutions, for both
the Indian and the global market. Part of the company’s strategy was also to be ready for the
future by adopting new technologies that encouraged greater skilled use of its platform, and by
making available products that related to its customers’ dreams and ambitions.

VW, on the other hand, realized that to have an effect on the Indian market it was important for it
to “think local. “The company believed that the alliance would enable it to offer transportation
solutions
tailoredtotheneedsofcustomersinemerging,aggressivelygrowingautomobilemarketsandinother
markets. This would help VW achieve continuous and profitable growth worldwide. It was also in
line with the company’s regional growth strategy. However, the bigger issue that could pull the
alliance off track was the strong cultural difference between the two companies.

A strategic alliance is an agreement between two or more parties to pursue common objectives
whilst remaining independent companies. In this sense, it is different to a single company
engaging in normal competition with other companies.

Question (4):- What are the individual and joint values that can be created by the firms in the
alliance?

Value Creation in Strategic Alliances:-

Strategic alliances create value by:-

1. Improving current operations

2. Changing the competitive environment
3. Ease of entry and exit

Current operations are improved due to:-

 Economies of scale from successful strategic alliances

 The ability to learn from the other partner(s)
 Risk and cost being shared between partner(s)

Changing the competitive environment through:-

 Creating technology standards (for example, Sony and Panasonic announced to work

together to produce a new-generation TV). This would help set a new standard in the
competitive environment.
 Creating tacit collusion.

Easing entry and exit of companies through:

 A low-cost entry into new industries (A company can form a strategic partnership to easily
enter into a new industry).
 A Low-cost exit from industries (A new entrant can form a strategic alliance with a
company already in the industry and slowly take over that company, allowing the company
that is already in the industry to exit).
Question (5):- What probable risks do VW, Skoda, and Tata Motors face in terms of their
alliance? What can they do to safeguard against those risks?

VW and its economic arm Skoda were already present in India in a decent capacity when they
decided upon to form an alliance with the Tata motors. Tata has its own manufacturing
Assembly line set up. It could produce engines at a much cheaper cost as compared to VW's
own line setup. Tata proposed a 30-50% cheaper manufacturing of engines if done by Tata. VW
had further a proven poor after sales service attitude in Indian Markets.

The risks as faced by VW:-

1. The production if done by Tata Motors will prove to be more costly as the AMP model was
still under development.

2. The alliance if not successful might force VW to shut operations in India due to large amounts
of Cap Ex involved.

3. TATA might just use VW, Skoda to build a world class AMP model and spin off the alliance.

4. Customers may perceive the alliance of low worth.

The risks as faced by Skoda:-

1. The new alliance may eat up the existing share of Skoda in the Indian Automotive market.

2. The alliance if failed may destroy its image.

3. The alliance may create a long term competition fighting for same customer segment i.e.
economic mass produced cars.

The risks as faced by Tata:-

1. The alliance if failed will add to mounting $370 billion losses in 2017.

2. The alliance if failed may force Tata to invest solely in its AMP model even though losses are
high.

3. The alliance if failed may deprive Tata of the newer superior electrical architecture owned by
VW, as well the latest technology.

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To safe guard against those risks :-

1. All parties concerned must sign an agreement or MOU to not use any technology or process
in their existing companies.

2. To get into a non competing agreement in the after-alliance period.

3. To agree on mutual terms and involve top leadership in strategic decision making with a
distributed and dedicated control.

4. To invest based on returns.

Question (6):- In the event of the companies sorting out their differences, what do you
recommend with respect to the structure of the alliance, and the terms and conditions of the
alliance agreement that should be clearly laid down by the partners?

JV is a doable approach since their cooperation can boost sales and market share of both
companies. To do so, they should clarify their scope and intentions. Moreover, the creation of a
special international team would allow more coordination, a smoother communication and
would shrink the cultural differences through better formal and informal relationships. (CEO of
Tata is German and thus cultural barriers could be mitigated).

No CMA because VW branded cars lack of consumers' confidence.

No licensing agreement due to greater development costs (engine) and lack of consumers'
confidence

Without the JV they would lose growth opportunities in the Indian market, which is going to see
a boost in consumers' purchasing power in the next years.

In order to meet VW financial goal in the short term, they could introduce a premium car (along
with Tata) with a higher average cost but still affordable, where the main issue will be to
educate Indian consumers about the brand and the car's features. We advise a marketing push
strategy exploiting dealers' connections.

Question (7):- What should the companies do - call off the alliance or sort out their
differences?

The companies should consider financials of their firms and see if there is any strategic
advantage in the new entity formation. If the absolute committed return to the shareholders is
more than 30% of the Cap Ex, in next 5 years, the companies should go to resolve their issues.
This should be a win-win situation for both the ventures. The companies should try to form

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entities to bring a fusion of culture and modern technology that the end users might actually
like. This will push new customers or the first time customers enter the zone and shell out some
money to expand the already slowing down segment as per the global outlook. India is a
competitive but growing market. The penetration of vehicles per 1000 Indians is just 17. This
will grow in the near future and companies in such situations should capitalize on this.