Tata Motor's Acquisition of Daewoo Commercial Vehicle Company

Tata Motor's acquisition of Daewoo Commercial Vehicle Company

* What were motivations/goals of Tata's acquisition of Daewoo?

Tata Motors (TM) was founded as an engineering and locomotive firm in 1945 in India, offering mainly medium and heavy commercial vehicles. The firm's core competency was the ability to provide reliable though not so technologically advanced trucks at relatively low costs. In 2004, TM decided to expand its business internationally through the acquisition of Daewoo Commercial Vehicle Company (DCVC) of Daewoo Motors (DM), the second largest automobile and truck manufacturer in South Korea. When news spread that DM's DCVC, the truck subsidiary, was available for sale, TM was determined to acquire it for two main reasons.

TM's first goal of the acquisition was to enter into the global market to increase market share, which made DCVC a very attractive strategy to circumvent the entry barrier into emerging economies, particularly in Asia. The truck industry was often regarded as a local or regional industry because the manufacture of trucks was highly affected by regulations, customer preferences, and specialized uses. Hence, truck manufacturing required more customization and less mass production, which made global expansion rather difficult. Also, distribution availability and maintenance networks were very important factors as well. Though TM was the largest manufacturer in India (market share of 60%), its success was largely domestic, with foreign sales of only 5% of total revenue in 2003. It needed a way to expand to the global market to meet the increased demand (from economic growth and investments in physical infrastructure) for trucks worldwide. Hence, DCVC was the perfect target company for TM because Daewoo already had a well-established superior brand name as the second market leader with 26% market share in Korea. Also, it had a well-grounded operation abroad with 10% of output being exported. Moreover, its close proximity to China made it more attractive. Thus, TM believed that acquiring DCVC would help TM sell its trucks not only in Korea, but also in other markets, especially China that had a large and rapidly growing market in which TM was eager to dive into.

Another factor that motivated TM to acquire DCVC was to create synergy by achieving economies of scale through the combined resources and capabilities of both companies. TM's main advantage was its cost-effective products, but it lacked in research and development (R&D) in product development and technology upgrading. On the other hand, DCVC had a state-of-the-art plant with an installed capacity of 20,000 trucks a year with 800 plant workers that were well trained. TM was also impressed by the high quality of DCVC's assets such as its plants that were designed and equipped to high-quality standards. Moreover, it had good assembly