Tata Motors' Acquisition of Daewoo Commercial Vehicles

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Case Details:

Case Code : BSTR158
Case Length : 16 Pages
Period : 2003 - 2005
Organization : Tata Motors
Pub Date : 2005
Teaching Note : Available
Countries : India
Industry : Heavy Commercial Vehicles

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"This is indeed a major step for Tata Motors and a milestone for the group in its quest for globalization. I am confident that both companies will derive considerable benefits from this agreement."¹

- Ratan Tata, Chairman, Tata Motors in 2003¹.

Introduction

In 2004, Tata Motors, a part of the Tata Group, completed its first-ever global acquisition - that of Daewoo Commercial Vehicle Company Limited (DWCV) in South Korea. This acquisition signified a major breakthrough on the globalization front for Tata Motors.

The company had chalked out a globalization strategy in early 2003, and had created a merger & acquisition (M&A) team to look out for acquisition targets. Tata Motors planned to increase exports from Rs. 10 billion in 2004 to Rs. 20 billion by 2005- 06. The company also wanted to enter the Chinese market² through joint ventures or technology transfers. But these efforts had not materialized.

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The DWCV offer came from the target firm itself, through KPMG, the official advisor to DWCV. The acquisition offer seemed to open up possibilities for strong synergies like expansion of the product line, good R&D capabilities and new markets.

It also gave Tata Motors the opportunity to de-risk its business by countering domestic market cyclicality³ through overseas expansion. However, there were initial apprehensions. The militant labor unions in Korea could prevent the deal or create labor problems after the acquisition. What's more, Tata Motors had virtually no global experience at that point, and this could make integration difficult. After careful deliberations, Tata Motors went ahead with the bidding and emerged successful.

The acquisition of DWCV helped Tata Motors to accelerate its entry into new markets in China, Western Europe, South Africa and Latin America.

Post-acquisition the partners started work on an ambitious project named the "truck of the future", which promised to deliver trucking solutions using the combined capabilities of both the companies.

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1] "Tata Motors inks pact to buy Daewoo Commercial,"Financial Express, February 19, 2004.

2] The Chinese market is the fastest growing commercial vehicle (CV) market. China Association of Automobile Manufacturers (CAAM) estimated that in 2002, over 2million CVs were sold in China.

3] The CVs market is cyclical. An upturn lasts about 3-4 years, and is followed by a downturn of 2-3 years. The current upturn began in January 2002. Structural changes in the economy can postpone downturns and extend upturns for more than 3-4 years.