Particularly in terms of the quantity of subsidiaries and market value, the Tata Group is unquestionably one of the most prosperous companies in the entire world. The business has evolved over the past century from a single location in Bombay to a global corporation. Jamsetji Nusserwanji founded a commercial enterprise in Bombay, India, in 1868 when he was 29 years old and the son of a banker (Bruche, 2010). The main objectives of the pioneers were to produce iron and steel, produce hydroelectric power, and encourage Indians to pursue higher education, particularly in the math and sciences. The founder and his successors teamed up with like-minded individuals over time to create the contemporary Tata Group. Today, business analysts consider Tata Group a multinational organization since it incorporates over 100 independently operating subsidiaries spread across over 100 countries on six continents. The world-wide conglomerate holding company employs over 695,000 individuals from around the globe. Tata Motors, one of the subsidiaries, is India’s largest automobile manufacturer. Given the global expansion, the directors moved the parent company from Bombay to Mumbai, Maharashtra, India. In tandem with its mission of enhancing quality of lives and creating value for stakeholders, Tata Group is highly conscious of its financial position and greatly monitors its income and spending patterns.
Tata Group’s Reasons for Overseas Expansion
Since its commencement, multiple factors prompted Tata Group to expand not only internally but also globally. The first notable international expansion move was in 1907 following the establishment of Tata Limited (Cappelli et al., 2010). At that time, the directors reasoned that establishing a branch in London would ease Tata’s entry into the emerging European Market. Tata Company greatly benefited from Europe’s industrialization era since it has specialized in steel and iron production. In 1949, after the Second World War, Tata started a branch in New York to leverage on the fast-growing American market (Govindarajan & Trimble, 2012). Apart from enhancing its market share, Tata expanded internationally to help improve communities’ and individual’s lives. For instance, in the 1950s, the organization partnered with the World Bank and Daimler Benz to improve livelihoods in Africa and West India. The company initiated engineering and customer service training programs to help the people in these regions. Additionally, Tata grew globally to strengthen its financial position and increase profitability (Bhaumik, Driffield, & Pal, 2010). By cutting the costs of production, Tata group has enhanced its financial strength and profit margins. Overall, by expanding internationally, Tata Group aims to enhance market share, implement philanthropy, improve its financial position, and increase profits.
Tata Group’s Financial Analysis
In the past five years, the financial position for Tata Group has considerably improved. As of March 2017, the company recorded revenue of $130.39 billion up from $96.8 billion in 2013. For only half a decade, the firm’s asset value increased from $54 billion to $126 billion. Tata Motor Group, one of the most successful subsidiaries of the conglomerate, has recorded impressive results both in India and abroad. As Crainer (2010) notes, Tata Motor Group’s shares have been a top performer in India’s and New York’s stock exchange for a consecutive three years. In five years, income increased from 54, 880.64 to 264, 05772 Crores. From 2012 to 2017, Tata’s profits after tax soared from 1,242.23 to 13, 986.29 Crores. Overall, Tata Motors Group’s financial statements have significantly improved in the last five years. Analysts project that this trend may continue due to the increased global demands for automobiles.
Sources of Funds
Tata Motors Group has multiple reliable sources of funds that have significantly contributed to its growth. Apart from enjoying financial support from over 4.0 million shareholders of its parent company, Tata Motors has diverse channels of receiving money. For instance, as of March 2017, equity share capital generated 679.22 Crores while reserves and supply contributed 20, 129.93 Crores. Further, Tata Motor Group received 39, 870. 76 Crores from secured and unsecured loans (Schuster & Holtbrügge, 2011). Based on their consolidated balance sheet Tata Motor Group’s composition of equity finance has been increasing within the years. Notably, the company has the permit to issue equity of up to 638. 07 Crores. In the Financial Year 2003/4, the company’s share capital was 353 Crores. In the next financial year, the shares increased to 361. 79. Since then, Tata Motor Group’s equity shares have been rising every year. The trend shows that the company’s net worth is also increasing with time.
Foreign Exchange Rate Risks
As an international exporter of automobiles, Tata Motor Group is exposed to numerous foreign exchange rate risks. For example, the company faces transaction risks since it deals with multiple currencies. The organization risks financial loss with every transaction. Also, given the global currency volatility, Tata faces forecast or economic risk (Becker-Ritterspach & Bruche, 2012). Each currency rate fluctuation has either positive or negative impacts on Tata’s position compared to its competitors. Further, the company faces translation risk exposure since it needs to convert from local to international currencies when reporting to international partners. The translation may affect reports thus cause low stock price in certain countries. Naturally, Tata Motor Group uses diverse strategies to hedge various foreign exchange rate risks (Dutta, Bandopadhyay, & Sengupta, 2015; Ciner, Gurdgiev, & Lucey, 2013). Mostly, the firm uses money market hedge technique where it trades short-term assets such as commercial papers, bankers, and treasury bills.
Business, Political, and Country Risks
The most obvious business challenge that Tata faces is that it fears fierce competition from well-established competitors. Compared to the others, Tata faces risks of high costs of production since it has not perfected lean techniques of manufacturing. Tata faces business competition locally and internationally (Srivastava, (2011). Given its strong presence in multiple countries, Tata is very susceptible to consequences of political instability in these nations (Jha, 2013). The country risk faced by Tata in India is that most people have low socioeconomic statuses thus cannot afford Tata’s automobiles. Also, through its trade policies, India has allowed other competitors to do business in the country thus increase competition.
Conclusion
Tata Group focused on overseas expansion and acquisition as a strategy to enhance market share and increase profits. As a result, the firm expanded to encompass different countries across multiple continents. Although the enterprise improved its financial position, it faced the risks caused by foreign exchange rate risks. To date, the company has effective strategies to cope with local and international challenges.
References
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Schuster, T., & Holtbrügge, D. (2011). Tata Nano: The car for the bottom-of-the-pyramid. In Fallstudien zum Internationalen Management (pp. 83-102). Gabler Verlag.
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