Market opportunities for Tata in Russia

   The next step to exploiting new markets is sending absolutely new product of Tata Motors to Russian Federation . The Russian Federation is the largest of the 21 republics that make up the Commonwealth of Independent States. It occupies most of eastern Europe and north Asia, stretching from the Baltic Sea in the west to the Pacific Ocean in the east, and from the Arctic Ocean in the north to the Black Sea and the Caucasus in the south. It is bordered by Norway and Finland in the northwest; Estonia, Latvia, Belarus, Ukraine, Poland, and Lithuania in the west; Georgia and Azerbaijan in the southwest; and Kazakhstan, Mongolia, China, and North Korea along the southern border.

   At the start of 1992, Russia embarked on a series of dramatic economic reforms, including the freeing of prices on most goods, which led to an immediate downturn. A national referendum on confidence in first president Yeltsin and his economic program took place in April 1993. To the surprise of many, the president and his shock-therapy program won by a resounding margin. In September, Yeltsin dissolved the legislative bodies left over from the Soviet era.

   With the population of 142 mln people and unexplored opportunities Russia creates very attractive market for any businesses.  According to its slogan, Tata will focus on  the middle class which is 60mln people with average wages  900GBPounds a month (in big cities). In our case Tata motors is going to enter this market in spite of strong competitors such as Mercedes, BMW, Toyota, Nissan and others.

Macro-environment

Pest analysis

1.Political factors

 Russian Federation one of the largest countries on the map in the world consists of 21 republics, 48 regions. President is a chief of the government. The government is divided into 3 branches:1. executive 2. judicial 3. legislative

  The prime minister is a head of government and Cabinet of ministers (executive branch) which is composed of 12 ministers. The legislative branch comprise Council of Federation ( consists of 178 seats) and State  Duma (Russian parliament with 450 seats) . And the last one is Judicial branch which consists of Constitutional Court, Supreme Court and Arbitral Court.          The political and social environment of Russia is stable, and the government is sympathetic and have positive attitude towards business. Quite strong legal system, stringent guidelines on intellectual property, and competitive corporate tax rate shows the government's understanding of the needs of businesses.

2. Economical factors

          Russia ended 2005 with its seventh straight year of growth, averaging 6.4% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, since 2000 investment and consumer-driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than 10% over the last five years, and real personal incomes have realized average increases over 12%. During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis, with its foreign debt declining from 90% of GDP to around 31%. Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $180 billion at yearend 2005. These achievements, along with a renewed government effort to advance structural reforms, have raised business and investor confidence in Russia's economic prospects. The middle class’s life standards have increased recently. Russia posted gross domestic product growth of 8.3 % in 2000 and most of industrial sector posting double digit growth figures, the GDP grew about 5 % in 2001 and 4.3 % in 2002 It is expected to grow about 6.5 % in 2003. This is still higher than most of the other countries.

          The Russian GDP, however, has contracted an estimated 45% since 1991, despite the country's wealth of natural resources, its well-educated population, and its diverse - although increasingly dilapidated - industrial base.

By the end of 1997, Russia had achieved some progress. Inflation had been brought under control, the ruble (national currency unit) was stabilized, and an ambitious privatization program had transferred thousands of enterprises to private ownership. Some important market-oriented laws had also been passed, including a commercial code governing business relations and the establishment of an arbitration court for resolving economic disputes.

3.Socio-cultural factors

The population of Russia is 142.8 mln people. Nearly 100% of population can read and write. Age structure  of population is as follows:

 0-14 age – 14.2%

15-64 years – 71.3%

65 and  over – 14.4%

The average life expectancy is 67 years .Russian is a state language. The dominating religion is Christianity with Russian ortodox 15-20% , Muslims- 15 %, other Christians 2%, the rest are non-believers.

4.Technological factors

    Russia is an attractive market for both big  businesses seeking to penetrate post Soviet are markets. Russia has a strong transport and communications infrastructure that is connected to all the major economies in the world through sea, air and other telecommunication services.

Industry factors and competitive forces

Direct and indirect competitors

Graph1. Market shares of car manufacturers’ in Russian market (2001)

      As we can see from the above graph ,  market is dominated by German cars( BMW, Mercedes, Audi). But these cars are oriented for upper class of population, whose income is minimum $70-80000 a year. Tata’s direct competitor will be “Avtovaz” - local domestic company which has been manufacturing mostly light passenger cars since 1970s. Its prices  vary from $2900 to 6500$ which is more expensive than Tata offers . Furthermore “Avtovaz”’s cars do not meet  world standards, most of their cars are still  not equipped with  basic componets such as ABS braking system, Power-assisted steering , Airbags and others. Considering Russian climate, especially winter Tata’s X-1 models will be exclusively equipped with powerful ignition system which is resistant to low temperature up to -35*C (below zero).

Micro-environment

Swot analysis

SWOT ANALYSIS

“The overall evaluation of a company’s strength, weakness, opportunity and threat is called SWOT analysis.”(Kotler, 2000:p76). SWOT analysis includes both internal and external analysis. In SWOT analysis, a firm evaluates its internal factors like strength and weakness in relation to the external factors like opportunities and threats.

Strengths

-          Tata holds 59% of Indian market

-          One of the biggest growing car manufacturers in more than 20 countries across the world

-          Wide range of world standard design, which may suit to any customer

Weaknesses

-          Low brand value when compared to other international well established brands

-          Newcomer in the market compare to world brands

-          Low price may give low brand image

-          Difficulties in competition with world brands

-          Less experience in former soviet zone market

Opportunities

-          Tata is one of the largest  growing and well-known world car manufacturers

-          Availability and of Russian TV channels and newspapers to advertise and promote product

-          Most of the population familiar with brand

-          Access to Russian market is open

-          Stable political and social environment

Threats

-          Strong competition from well established international brands

-          Low quality may be attributed because of its origin

-          Competition from the low priced Chinese and domestic companies

Market entry mode

     In the opinion of Tata ‘s management  licensing would be the most appropriate entry mode for the company . Joint – venture will require large investments ,which is risky in a new market as we are not sure if new car will be adapted and accepted by the customers  in new market.  According to Russian law , government , trying to protect and support domestic car manufacturer from foreign competitors , adopted high import taxes . Thus export is not suitable for Tata either . Marketing department  elaborated strategic plan : at the moment due to high competition Russian car plant “Ij-Moskvich” is on the edge of bankruptcy . Tata is negotiating to license them , to send them first 200 car components  so they could assemble cars in “Moskvich” plant. The cars will be distributed through “Moskvich” dealer shops across the country. If  everything goes successfully, Tata will  restructure “Moskvich”  plant  and establish long-term business with them on licensing basis . It is considered that it will be cheaper to manufacture car components in India(regarding labour cost and materials ) and to send these components to Russia. Finally cars can be assembled in Russia in “Moskvich “plant.

Segmentation

In the Russian market, Tata will be using variables like gender, age, income and behaviour to segment the market. The targeting strategy would be differentiated global marketing where it offers its cars to five segments with multiple marketing mix offerings. The segmentation for the Tata Cars  in Russian Market will be as follows. 

·                     Segment 1       Young people

·                     Segment 2       Average income group

·                     Segment 3       Mature people (Formal, and casual)

·                     Segment 4       Low  income

·                      Segment 5      Working Women

As it was mentioned before Russian middle class with average income will consist of 62 mln people.

Marketing mix

   In marketing ,one such conceptual framework that is particular useful in helping practitioners structure their about marketing problems is “marketing mix”. Marketing mix includes factors like product, price, place and promotion, which is commonly known as the 4Ps of marketing. A proper evaluation of the marketing mix has to be done in order to understand how the marketing mix has to be adapted to meet the target market requirements( Baker M. J,2000)

Product ,Price, Place, Promotion

1. Product

     The basis of any business is product or offering( Kotler ,1999) A company aims to make the product different and better in some way  that will cause tha target market to favour it and even pay price premium.

       Let us return 15 years back to Russian history. After dissolution of USSR and lack of boundary, legislation control the fake and law quality products from India, China  Turkey and other 3^rd world countries bombarded Russian market. An important but unconventional service in Russia's economy was "shuttle trading"--the transport and sale of consumer goods by individual entrepreneurs, of whom 5 to 10 million were estimated to be active in 1996. Traders used to goods in foreign countries such as China, Turkey, and the United Arab Emirates  then sell them on the domestic market where demand is highest. Yevgeniy Yasin, minister of economics, estimated that in 1995 some US$11 billion worth of goods entered Russia in this way. Shuttle traders have been vital in maintaining the standard of living of Russians who cannot afford consumer goods on the conventional market . Copying international brands like Panasonic(Chinese versions :Panasoanic, Sany and Adidos), Sony Adidas and others spoilt business image of these countries .Nowadays anything that comes with labels “made in China ,India or Turkey” is considered as very low quality  products.  Therefore when entering Russian market, Tata’s department of marketing and management decided to cover brand and to change the name of model .

    According to Doyle, a positive or successful brand can be defined as follows :

 A successful brand is a name ,symbol, design, or some combination which identifies “product” of particular organization as having a sustainable differential advantage(cited in Baker J,M pp 295, 2001)

2. Price

  Price differs from other three marketing mix elements in that produces revenue, the other elements produce costs. Consequently companies try  to increase their price  as high as their level of differentiation will support. In our case we need to take into consideration that the market has been formed already, and Tata will be facing quite strong competition from international brands. However Tata cars are oriented on middle class customers with average incomes. Only 3% of Russian population can afford expensive cars such Mercedes, Bmw , Toyota and they will buy them anyway. High pricing  helps to create a brand image in the market(but not in our case). The penetration pricing policy will be used because of the tough competition in the low price segment from the  low priced Chinese and Russian cars.

3. Place

  Every seller must decide how to make its goods available to the target market. The two choices are to sell the goods directly or to sell them through middlemen. Traditionally automobile manufacturers have sold their cars through franchised dealers. But in our case it we will license  Russian company “Moskvich” to assemble and sell our cars  in Russia.

 4. Promotion           

X-1 Advertising Campaign

    The fourth, promotion, covers all communication tools that can deliver message to a target audience: Advertising, Sales promotion, Public relations, Sales force and direct marketing.(Kotler ,1999)

   Advertising is the most potent tool for building awareness of a company, product, service or idea.

      Regarding very strong competition in automobile market in Russia massive advertisement needs to be launched across the country. It will cost company approximately $40 mln. ( equal to 21.9 mln. GBPounds).

        This is one of the examples which may be released on TV, Newspapers and journals This is absolutely new model of Tata which was created by Tata ‘s professional engineers ,designers and technicians in 2006. The new Indica V2 Xeta.  In our case this car will be renamed to Euro X-1.Its  eXtra Efficiency Torque Advantage petrol engine delivers 12.4 kgm torque, for a smoother and more responsive drive. With instant pick up and fewer gear changes in stop-start city traffic. The technologically superior MPFI engine comes with a 32-bit microprocessor, and sports 12 sensors, including a knock control sensor to reduce damage from adulterated fuel. The result? Even more enjoyable long drives, with a frugal fuel consumption at 14 kmpl. Its spacious cabin - the biggest in its class, seats three people comfortably in the rear, with ample elbow room and generous leg room. The luxurious beige interiors come as a standard feature. Just a car to suit you. Only $2200  Car finance is available. First 15 customers will get 5% discount