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The purpose of this report is to justify the major opportunities and challenges faced by
Fiat in India coming from its external and internal environments, as well as to generate concrete
solutions and implementations in order to come out with most suitable recommendations that
may facilitate Fiat to improve its business in the Indian market. In the report, there will be a
discussion on selective issues pertaining to the joint venture of Tata Motors (TM) and Fiat Auto.

It will start with a brief insight into the developments of the Indian market and global
automobile industry, and there will be an analysis of the turnaround strategies adopted by Fiat in
India ± the compulsion behind the formation of the alliance between Fiat and TM. It will then
address the opportunities and threats faced by Fiat coming from its external and internal
environments, besides several constructive solutions for issues related. Finally, this report will
provide recommendations to be implemented by Fiat assuming that it will continue to operate in
the Indian market. In the pursuit of this assignment, data-mining is researched from learned
journals, academic textbooks, and third-party consultants¶ analyses. The conclusion emphasizes
critical recommendations to prompt Fiat Auto to evaluate whether;

1)‘ Fiat Auto in India is to come out with new product development and marketing strategies
to ensure its products remain competitive in the Indian market.
2)‘ Fiat Auto in India is to learn, understand and adapt the cultural differences in India in
order to survive within its external and internal environments.
3)‘ Fiat Auto in India is to construct a political risk assessment and appoint its own
government officials in order to communicate efficiently with political authorities and
prepare itself with any unanticipated changes in India¶s political system.
4)‘ Fiat Auto in India is to hire more local workers to reduce the cost of productions and
achieve greater economies of scale ± they are cheap, highly skilled, and able to converse
well in English.
5)‘ Fiat Auto in India is to improve its management system in its office, manufacturing
plants and dealership network, as well as to share TM¶s experts in serving the customers.

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[ased on the case study, this report attempts to justify the major opportunities and
challenges faced by Fiat in India coming from its external and internal
environments, as well as to provide related solutions and select the best and most
suitable recommendations that may facilitate Fiat to improve its business in the
Indian market.

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Tata Motors (TM), an Indian automaker, and Fiat Auto, a major Italian
automaker, signed a Memorandum of Understanding (MoU) in July 2006 to form
a joint venture to produce passenger cars, engines, and transmissions in India. The
case describes the transformation of TM from a commercial vehicle
manufacturing company to a leading passenger car company in India, and its
forays into global market. It also explains into greater details about the growth of
Fiat, the problems faced by the company, and the strategies adopted to tackle
these issues. The case then talks about the alliance between the two companies,
and the benefits and costs from the alliance for each company. It finally ends with
a brief discussion on the future prospects of the alliance.

º % ‘ & 




The report starts with brief insights into the developments of the Indian market
and global automobile industry, and there will be an analysis of the turnaround
strategies adopted by Fiat in India ± the compulsion behind the formation of the
alliance between Fiat and TM. It will then highlight the opportunities and threats
faced by Fiat coming from the external and internal environments, as well as the
solutions for issues related. Finally, this report will provide recommendations to
be implemented by Fiat assuming that it will continue to operate in India.
º
º ' ‘ "(




It is assumed that Fiat Auto will continue its operation in India based on the
opportunities it has gained in the Indian market and from the joint venture with
Tata Motors.

º ) ‘ ·( 




This report does not use any primary data and only applies secondary data taken
from the case study and from other sources including learned journals, academic
textbooks, and accredited websites from the internet. Examples of primary data
are experiments, surveys and interviews.

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India is an emerging country which is ranked as the second most populous

country in the world and currently the second biggest market after China. It has a
dynamic economy with an increase number of middle class population over the
past few years. Multinational corporations (MNC) are attracted to invest in the
country due to great business opportunities there and one of them is Fiat Auto ±
an Italian automaker who intends to sell its cars especially small cars and sedans
in the Indian market. The opportunities that Fiat can get from Indian market
should be paired with the right solutions and implementations to turn
opportunities into a solid strength for Fiat.

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India¶s economy has started to increase since late 2009 due to its
strong capital inflow and growth in domestic demand caused by
government¶s economic incentives. It is estimated that its Gross
Domestic Product (GDP) will grow from 5.7% in 2009 to 8.8% in
2010 (Euromonitor, 2010). India¶s GDP growth has created an
opportunity to Fiat as it indicates a strong domestic consumption
and purchasing power ± may increase the market demand of car.
However, car is an expensive item therefore Fiat needs people with
high purchasing power to buy its cars (Prabhakar, 2010).

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As of 2009, India has total population of 1.2 million people that

reflects a huge market for Fiat to sell its cars. India experiences

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 growth in its middle-class with an expectation to increase by
12.6% in 2010. India¶s consumption of transportation including
expenditure on car was 15% of total consumer expenditure in 2009
and therefore, the increase of demand for cars has resulted in the
growth of automobile industry (Euromonitor, 2010). The industry
has grown at a good speed with estimation between US$ 120.09
billion to US$ 155.12 billion by 2016 (Singh & Chauduri, 2009).
Fiat is an established brand in India with 12% market share in the
automobile industry and majority of Indians know Fiat quite well.
Hence, this is an opportunity for Fiat to expand its market in India
by serving more market segments to generate sales and gain more
profit (Prabhakar, 2010).

   º

  


India has an abundance of skilled workers especially technical

personnel with ability to converse well in English. Even though the
Indian government regulates minimum wages through its National
Floor Level of Minimum Wage, their wages are still relatively
cheaper as compared to other developed nations such as Italy and
United Kingdom. Due to this comparative advantage, India
becomes a major destination of outsourcing for many MNC and
Fiat may use this opportunity to reduce the cost of productions ±
gain economies of scale (Prabhakar, 2010). Fiat has its
manufacturing plant in Ranjangaon, India, and cars that have been
produced there will be sold in India and exported to other countries
(Fiat, 2008).

º

 


 

India experiences economic reformation in 1991 by relaxing many

barriers on MNC. Indian government offers several incentives for
foreign investors by creating special economic zones and

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 development zones. Companies which operate in special economic
and development zones will enjoy 5 to 10 years of tax exemption.
India has also gradually removed tariff and other trade barriers
since it joins World Trade Organization (WTO) in 1995
(Euromonitor, 2010). Tax exemption makes Fiat¶s cars more
competitive as compared to competitors¶ cars especially local cars
because of the narrow price gap.

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Fiat has created a joint venture with TM in 2005 to strengthen its

position in India by looking at possibilities of collaboration in
many sectors especially in technology. Fiat is a well-known brand
for small cars (passenger cars) and possesses technology experts in
cars¶ engines, whereas TM is a market leader for commercial cars
(trucks) in India. The joint venture may accommodate both
companies to exchange technology for different type of cars and
expand their market segments (Cullen & Parboteeah, 2008). Fiat
and TM agree to cooperate in the production of passenger vehicles,
engines and transmissions. A manufacturing plant will be used to
produce vehicles for both Indian and foreign market ± jointly build
Fiat¶s sedans and engines for small diesel cars (Cullen &
Parboteeah, 2008).

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Fiat has experienced a significance decline in its market share in

recent years caused by mismanagement problem ± non-availability
of spare parts and lack of customer service support in dealership
network. This may create a bad reputation of Fiat in Indian market
(Cullen & Parboteeah, 2008). Through this joint venture, Fiat can
improve its management systems and in this case, Fiat and TM

 
 have agreed to share its dealership network in 11 Indian cities ±
TM will help Fiat to sell its cars through TM dealers starting from
March 2006.

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Since India is experiencing a rapid economic growth and has a

large consumer market, Fiat may employ new product and market
development strategies ± Fiat is to launch new cars with the latest
innovations and designs to capture bigger market in India. It also
needs to customise the features and specifications to match with
the needs of the new generation of Indians, as well as to focus on
the production of commercial vehicles together with TM
(Prabhakar, 2010).

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Next, Fiat should hire more local workers as they are cheaper and
highly skilled, and to add more manufacturing plants in India
especially in special economic zone. This may assist Fiat to gain
more privileges given by Indian government (Cullen &
Parboteeah, 2008). Fiat also needs to invest more in its research
and development area to remain competitive in the future.

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The joint technology and management systems between Fiat and

TM required a well-structured organisation system. In this case,
they have created a 15-member joint team consisting of senior
officials from both organisations to analyse the advantages and
disadvantages of the joint venture ± a good governing system is


 crucial in regulating the joint venture to ensure the viability in the
future (Cullen & Parboteeah, 2008).

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Challenges are inevitable in the world of business and often being foreseen by
corporations as problems. However, they may turn to become opportunities if
corporations take the right solutions to overcome related issues (Singh,
Srinivasan, Sista and Prashar, 2008). [elow are some of the challenges faced by
Fiat in India before and after the joint venture.

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After India launched the 10-year Automotive Mission Plan in year

2006, competition has increased within the industry. There were
several well-known car makers in the industry that have joined
forces and formed alliances to penetrate the market. For example,
strategic alliance formed by Renault SA±Mahindra & Mahindra
Ltd. and Nissan±Suzuki (Cullen, Parboteeah and Praveen, 2008).
  º
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India has quite high political uncertainties ± government changes

the regulation very frequent that makes it difficult for MNC to
create future plan for the business. [ribery is a common practice in
India and managers often perform this unethical practice with
government officials to get any job done. Even though this is
illegal in Italy, Fiat manager should understand this issue and come
out with the best method to overcome this challenge (Shah &
Kleiner, 1995).

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Product cannibalization is defined as a reduction in the sales

volume or market share of one product. According to Guide and
Daniel, 2010, product cannibalization happens as a result of
introduction of new products by the same producer. In this case,
Fiat has launched µPetra¶ which is similar to µIndigo¶ by TM. [oth
of them will compete in the market regardless by the facts that they
are having a joint venture agreement.

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Cultural distance is defined as the degree of two organizations that

is different due to their separate characteristics (Hofstede, 2009).
In this case, Fiat comes from Italy whilst TM is originally from
India. This may be viewed as a problem as there are two different
cultures trying to emerge. Moreover, this may also create some
issues in the terms of cultural adaption. For instance, Indian society
is highly associated with the caste system. Caste affects every
Indian¶s right to his or her occupation. In India, individual¶s
occupation is determined by birth, and not by interest or abilities.
Higher caste has more privileges and respect as compared to lower
caste (Shah & Kleiner, 1995).

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Fiat should have an in depth understanding of the Indian culture

including its caste system ± learn the way Indians treat people
differently due to difference in caste. In India, people in higher

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 caste such as µscholars¶ and µwarriors¶ has get more respect from
other compare to lower caste such as µmerchants¶ and µworkers¶
regardless of their capabilities ± this is totally different with Italian
culture (Shah & Kleiner, 1995). According to Paul, R. (2000),
cultural adaptation can be done by communicating effectively and
creating satisfying relationship in the foreign cultures. Moreover,
members in Fiat should try to understand the TM workers¶
cognitive style in order to communicate effectively. Ming, 2004,
asserts that understanding the cognitive style of foreign culture
may enhance the communication skill and avoid misunderstanding.

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Political risk assessment is undeniably an extremely useful tool in

assisting corporations to have a meticulous understanding on political
environment in one country, including the administrating structure, the
state of corporate governance, the implementation of law, as well as the
regulatory environment. In this case, Fiat can actually make use of it to
hedge business risks associated with inevitable political instability and
shock elements, therefore facilitates Fiat to survive and stay competitive
in the Indian market (Alon, Ilan, Mitchell, Gurumoorthy and Steen,
2006). Fiat is also suggested to engage in bribery practice in India
even though it is considered illegal in Italy. This is important to
remain competitive and able to operate successfully in the Indian
government.

     %



Initially, Fiat has tried to obtain larger market share in India with
TM¶s assistance. However, [ourrieres, 2010, emphasizes that
competition that comes from another automobile companies cannot
simply be avoided. It seems that MUL has a good quality in the
machine; hence, this may create an opportunity to compete with
Fiat in India. The solution towards this issue is that Fiat may try to

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make a product differentiation in order to compete with MUL.
According to James, 2003, when it comes to designs, cost and
economic problems, these will always lead to additional
differentiation in production in order to success in the market ±
spend more on innovations, research and development.

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Highlighting the various issues confronting case study, the proposed resolutions to Fiat¶s
problems can be summarized as a possible positive new direction for Fiat Auto in India,
assuming that it is still planning to operate in Indian market in the future;

6)‘ Fiat Auto in India is to come out with new product development and marketing strategies
to ensure its products remain competitive in the Indian market.
7)‘ Fiat Auto in India is to learn, understand and adapt the cultural differences in India in
order to survive within its external and internal environments.
8)‘ Fiat Auto in India is to construct a political risk assessment and appoint its own
government officials in order to communicate efficiently with political authorities and
prepare itself with any unanticipated changes in India¶s political system.
9)‘ Fiat Auto in India is to hire more local workers to reduce the cost of productions and
achieve greater economies of scale ± they are cheap, highly skilled, and able to converse
well in English.
10)‘Fiat Auto in India is to improve the management systems in its office, manufacturing
plants and dealership network, as well as to share TM¶s experts in serving the customers.

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