Globalization of Hyatt Place (pp. 199-209)

-.....:......:..- 188 InternationalBusinessStrategy CASE 18 Tata Motors in2014: ItsMultibrand Approach toCompeting inthe Global Automobile Industry David L.Turnipseed University ofSouth Alabama T ata Motors,Ltd.•was India's leading automo- bi Ie manufacturer byrevenue andthenumber- three passenger-vehicle brandinIndia in2012.

However, in2013 and2014, thecompany's name- sake brand slidinto adecline, hathdomestically and internationally, withthecompany eventually losing its number-three rankinautomobile salesinIndia to Honda. Also,thecompany's salesofcommercial vehicles declined in2013 and2014, causing the company todrop from fourth-largest sellerofcom- mercial vehicles tofifth.

Some ofthe company's poorperformance could be attributed topoor macro-economic conditions in India, increasing competition, andavariety of other external factorssuchasthe possible elimina- tion ofdiesel subsidies bythe Indian government.

However, muchofthe company's poorperformance was aresult ofaflawed strategy andpoor execution.

For example, itwas imperative thatthecompany's managers considerhowtoexpand themarket for its low-priced Nano,whichhadrequired substantial investment duringitsdevelopment andhad fallen far short ofsales expectations. Plus,thecompany's entire strategy foritsTara-branded vehiclesseemed to be indisarray.

However, thecompany's JaguarLandRover divi- sion wasachieving greatsuccess, witha23 percent year-over-year increaseinrevenues anda55 percent year-aver-year increaseinprofit aftertaxinfis- cal 2014. Infact, Jaguar LandRover accounted for 88 percent ofthe company's totalautomotive rev- enues infiscal 2014and89percent ofits income John E.Gamble Texas A&MUniversity-Corpus Christi before otherincome, financecost,tax,andexcep- tional itemsinfiscal 2014. TataMotors' manage- ment would beforced toevaluate itsstrategy forits Tata passenger cars,Tatacommercial vehicles,and Jaguar LandRover division ifitwas tocompete successfully withtheworld's leading automobile producers.

THE HISTORY OF TATA MOTORS Tata MOlars wasadivision ofthe Tata Group, which was India's largestcorporation, owningmorethan 90 companies spanningsevenbusiness sectors (chemicals, information technologyandcommuni- cations, consumer products,engineering, materials, services, andenergy). In2012, thecorporation had operations inover 80countries, andithad gross rev- enues of$83.5 billion in2011. Thecompany's gross revenues dippedto$96.8 million infiscal 2013, after having reached $100million in2012. Nearly 60 percent ofthe Tata Group's revenues weregener- ated outside India.TheTara Group wasapowerful symbol ofIndia's emergence asaworld economic power andwasIndia's largestprivate-sector emplo- yer, WIth over425,000 employees. Afinancial sum- mary forthe Tara Group forfiscal 20I0 through fiscal 2013 IS presented inExhibit I.

COhPYright e 2014 by David L.

Turnipseed andJohn EGamble All ng Isreserved. ..

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'1.l8=.9=:.......1 CASE 18Tata Motors in2014: ItsMultibrand ApproachtoCompeting inthe Global Automobile Industry C-27S EXHIBIT 1Financial Summary forthe Tata Group, Fiscal2010-Fiscal 2013 (in billions ofU.S. dollars) ,, Total revenue $96.79$100.09 $83.30$67.40 Sales 95.5999.1082.20 65.63 Total assets 10717108.55 68.9052.77 International revenues 60.7059.0948.30 38.36 Net forex earnings 3.051.595.80-0.16 Note: Financial yearis April 10 March.

Source; www.tata.ccm, Tata Motors' historybeganin1945 when the Tata Engineering andLocomotive Companybegan manufacturing locomotivesandengineering prod- ucts. In1948, Tatabegan production ofsteam road rollers, incollaboration withU.K. manufacturer Marshall Sons.In1954, thecompany enteredintoa IS-year collaborative agreementwithDaimler-Benz AG, ofGermany, tomanufacture medium-sized commercial vehicles.Thecompany beganproducing hydraulic excavators incollaboration withJapan's Hitachi in1985. Thefirstindependently designed light commercial vehicle,theTata 407"pickup," was produced in1986, followed bythe Tata 608light truck. TataEngineering beganmanufacturing pas- senger carsin1991 andentered intoajoint agree- ment withCummins EngineCo.tomanufacture high-horsepower andlow-emission dieselengines for cars andtrucks in1993.

In 1994, thecompany beganajoint venture with Daimler-Benz tomanufacture Mercedes-Benz passen- ger cars inJndia. Alsothatyear, Tatasigned ajoint venture agreement withTataHolset, aU.K. finn,to manufacture turbochargers forthe Cummins engines.

India's firstsports utilityvehicle, theTata Safari, was launched in1998, anditsindependently designed Indica V2became thenumber-one carinits segment in India in2oot. Alsoduring 2001,Tataexited itsjoint venture withDaimler-Benz, anditentered intoaprod- uct agreement withU.K.-based MGRover in2002.

Tam Engineering changeditsname toTata Motors Limited in2003, andinthat year thecom- pany produced itsthree-millionth vehicle.Tara's stock waslisted inthe New York Stock Exchange on September 27,2004, underthesymbol "TTM." Also in2004, TataMotors andSouth Korea's Daewoo Commercial VehicleCo.Ltd. entered intoajoint venture thatproduced andmarketed heavy-duty commercial trucksinSouth Korea. TataMotors acquired a21 percent interestinthe Spanish bus manufacturer HipoCarrocera SAin2005 andbegan production ofseveral newvehicles, including small trucks andSUVs.

Tata Motors produced itsfour-millionth vehicle in 2006. Inthe same year,itbegan ajoint venture with Brazil's Marcopolo tomanufacture busesfor India andforeign markets, expanded TataDaewoo's product linetoinclude tractor-trailer truckspow- ered byliquefied naturalgas(LNG), andestablished three joint ventures withFiat.Thecompany formed a joint venture withThonburi Automotive Assembly Plant Co.inThailand tomanufacture, assemble,and market pickup trucks.In2007, Tatasoldallitsinter- est inTata Holset toCummins, Inc.

In 2008, Tatapurchased theiconic British brands Land Rover andJaguar, beganselling passenger cars and pickup trucksinthe Democratic Republicofthe Congo, andannounced iLS "People's Car,"named the Nano. TheNano hitthe market in2009 atabase price ofabout $2,250 andwon India's Carofthe Year award. Tarabegan exporting theNano toSouth Africa, Kenya,anddeveloping countriesinAsia and Africa. Alsoin2009, Tarapurchased theremaining 79 percent ofHipo Carrocera anda50.3 percent interest inMilje Grenland/lnnovasjon, aNorwegian firm specializing inelectric vehicletechnology. Tata also entered intoanagreement withMotor Develop- ment International (MOl),ofLuxembourg, todevelop an air-powered car.In2010, theTata Nano Europa was setupfor sale indeveloped economies, espe- cially country markets inEurope. 190 InternationalBusinessStrategy C·276 PART 2Cases inCrafting andExecuting Strategy Tata celebrated its50th yearininternational business in2011. During thatyear, thecompany announced theopening ofacommercial-vehicle assembly plantinSouth Africa andaLand Rover assembly plantinIndia, Twolong-distance buses, the Tata Diva Luxury CoachandtheTata Starbus Ultra, wereintroduced, andtwo new SUVs-the Tata Sumo GoldandtheRange RoverEvoque- went onthe market. Alsoin2011, theupscale Tara Manza andthePrima heavytruckwerelaunched in South Africa, During 2011,Tatawontwoprestigious awards, which helped bringthecompany toglobal promi- nence. TheJaguar C-X75 wontheLouis Vuitton award inParis, andtheRange RoverEvoque won Car Design ofthe Year, Thenew Pixel, Tata's city- car concept forEurope, wasdisplayed atthe 81st Geneva MotorShow,andtheTata 407light truck celebrated itssilver anniversary in2011, account- ing for7out ofevery 10vehicles soldinthe light- commercial-vehicle (LCV)category. Thecompany began exporting theNano toSri Lanka, andit launched theTata Magic IRIS,afour- tofive-seat vehicle (topspeed of34 miles perhour) forpublic transportation. Alsoin2011, thecompany intro- duced theTata AceZip, asmall "micro truck"for deep-penetration goodstransport onthe poor roads of rural India, andthenew Tata Indica eV2,themost fuel-efficient carinIndia.

Continuing its innovative operations, Tatasigned an agreement ofcooperation in2012 withMalay- sia's DRB-HICOM's DefenseTechnologies. Tata also introduced itsAnti-Terrorist IndoorCombat Vehicle concept atDEFEXPO-India. Thecompany brought outthree newvehicles atthe 2012 Auto Expo: TaraSafari Storme, alarge SUV; TataUltra, a light commercial vehicle(truck); andTata LPT 3723, amedium-duty truckandIndia's firstfive- axle rigid truck. Theair-powered cardeveloped with Luxembourg's MDIwasshowing promise and would possibly servealarge market nichethat wanted ultra-economical transportation.

In fiscal 2014, thecompany launchedtwocom- pact carmodels: TheZest wasdesigned tocompete with theSuzuki DZire,Hyundai Xcent,andHonda Amaze. TheBolt, asmaller versionofthe Zest, was positioned againsttheSuzuki Swift,Honda Brio, and Hyundai Grandi10. Tala alsointroduced 10new products inits Prima truckseries andlaunched its new Ultra lineofintermediate lighttrucks, Tata Motors' jointventures, subsidiaries, and associated companies arepresented inExhibit 2, Consolidated incomestatements andbalance sheets for Tata Motors arepresented inExhibits 3and 4, respectively.

MACROECONOMIC CONDITIONS ININDIA India wastheseventh-largest nationinarea, with about one-third theland sizeofthe United States.As of 2013, itwas thesecond-mast-populous country on Earth, with1,2billion people (versus theUnited States with319million). Theaverage ageinIndia was 27years (39inthe United States), andthepopu- lation growth was1.3percent peryear (0.77 percent in the United States); however, 29.9percent were below thepoverty linein2013, TheIndian gross domestic product(GDP),adjusted forpurchasing power parity, in2014 ranked fourthinthe world, at about $4.99 trillion, andwas growing atabout 3.2 percent peryear (the108th-highest growthratein the world). Indianpercapita GDPwasabout $4,000 in 2013 (versus $48,000 inthe United States).

India's economy recovered wellfrom theglobal recession, primarilybecauseofstrong domestic demand, witheconomic growthover8percent.

However, in2011, thisgrowth slowedduetothe lack ofprogress oneconomic reforms,highinterest rates, andcontinuing highinflation, anditaveraged 5 percent in2012 and2013. Also,aslowdown in key sectors ofthe economy suchasmanufacturing and mining, aswell asgrowth indeveloped mar- kets, made Indialessattractive forforeign inves- tors. Theexchange rateforthe Indian rupeewas 53 per U.S. dollar in2012. Itthen dropped almost 25 percent againstthedollar, andalthough it recovered somewhat, therate was stilldown about 12 percent atthe beginning of2014.ByJune 2014, the rupee wastrading atapproximately 60rupees per U.S. dollar, The Indian government subsidizedseveralfuels (including diesel,whichisacomponent inits infla- tion index), andascrude prices remained high,the fuel subsidy expenditures causedanincreasing fis- cal deficit andcurrent account deficit.Between 20I0 and 2012, Indiasuffered fromnumerous seriouscor- ruption scandals thatsidetracked legislativework, and asaresult, littleeconomic reformoccurred. r -J __ ------------..:c.:.as::e-: T..::ataMotors in2014: ItsMultibrand Approach toCompeting Inthe Global Automobile Industry 191 CASE 18Tata Motors in 2014:

ItsMultibrand ApproachtoCompeting Inthe Global Automobile Industry EXHIBIT 2Tata t-'1otors' JointVentures andSubsidiaries, 2014 Tata Motors hasa51 percent shareinajont venture withMarcopolo (49percent), theBrazil-based makerof bus and coach bodies. TataMotors (SA)(Proprietary) Ltd.isTata Motors' Jointventure withTataAfrica Holding (Pty) Ltd;theJOint venture's assembiy plantatRosslyn, Pretoria, assembles light.medium, andheavy commercial vehicles rangingfrom4to 50 tons from semi-knocked-down kits.Other associates includethefollowing:

Tata Daewoo Commercial VehicleCompany isa 100 percent subsidiary otTataMotors inthe business ofheavy commercial vehicles(www.tata.daewoo.c;om).

Tata Motors European TechnicalCentre isaU.K.·based, 100percent subsidiary engagedindesign engineering and development ofproducts.

• Telco Construction EqUipmentCompany makesconstruction equipmentandprovides alliedservices (www.telcon.co.in/).

Tata Motors hasa60 percent holding; therest isheld byHitachi Construction MachineryCompany,ofJapan.

Tata Technologies providesspecialized engineering anddesign services, productlife-cycle management, and product-centric informationtechnologyservices (www.ti.tatec:hnologies.coml).

Tata Motors (Thailand) Ltd, isajoint venture between TataMotors (70percent) andThonburi Automotive Assembly Plant Co,(30percent) tomanufacture andmarket thecompany's pickupvehicles inThailand (www.tata",otors .'G.th!).

• Tata Cummins manufactures high-horsepower enginesusedinthe company's rangeofcommercial vehicles, HVTransmissions and HVAxles are100percent subsidiaries thatmake gearboxes andaxles forheavy andmedium commercial vehicles TAL Manufacturing Solutions isa100 percent SUbsidiary thatprovides factoryautomation solutionsanddesigns and manufactures awide range ofmachine tools (www.tal.co.in/).

Hispano Carrocera isaSpanish busmanufacturing companyinwhich TataMotors acquired a100 percent stakein 2009 (www.hispano-net.coml).

Concorde Motorsisa100 percent subsidiary retailingTataMotors' rangeofpassenger vehicles (www.concordemoton.com/).

Tata Motors Finance isa100 percent subsidiary inthe business offinancing customers andchannel partners of Tata Motors (www.tmf.co.in). C-277 :i' 111 Despite thescandals. poorinfrastructure, alack of nonagricultural employment,limitedaccessto education, andtherapid migration ofthe popula- tion tounprepared urbancenters, growthoverthe next three tofive years wasprojected toapproach 7 percent. TheReserve BankofIndia suggested that inflation, whichhadranged between 7and 10 percent since2009, dropped to6,6 percent in early 2012. However, theinflationary situationwors- ened in2013, withinflation reaching 11.2percent, due inlarge parttoenergy prices.Therewasthevery real probability thatspikes incrude oilprices could brine additional inflationtoIndia.

Education washighly valued inIndia, andthe Indian workforce waswell educated, whichallowed India tobecome amajor provider ofengineering, design, andinformation technologyservices.How- ever~ continuing problemssuchasslgniflcant ov~r- population, environmental degradatIOn,e~tenslve poverty, widespread corruption,an,dtheSl?~l1~~ eco- nomic development werehampenng India S lise on the world stageandputting downward pressureon its domestic automobile industry.

OVERVIEW OFTHE AUTOMOTIVE INDUSTRY IN INDIA The automobile industryinIndia hadevolved dur- ing three relatively uniqueperiods: protectionism (until theearly 1990s), economic liberalism (early 1990s-2007), andthen aperiod ofglobalization.

The protectionist yearswerecharacterized bya closed economy withhighduties andsales taxes.

The automobile industryatthat time wasaseller's market withlongwaits forautomobiles.

The period ofeconomic liberalism thatbegan in the early 1990s included thederegulation ofindus- tries, theprivatization ofstate-owned businesses,and reduced controls onforeign tradeandinvestment, which increased theentry offoreign businesses, This ,92 lnternationa~s ~ategy~ _ C-278 PART 2Cases inCrafting andExecuting Strategy EXHIBIT 3Tata Motors' Summarized ProfitandLoss Statement. Fiscal 2011- Fiscal 2014 (incore rupees, or 10 million rupees") Income 170,677.6126,414.2 Revenue fromoperations 234,469.9 193,584.0 Less: Excise duty 3,729.6 4,766.3 5,023.14,286.3 230,677.1 188,817.6 165,654.5 122,127.9 Other income 2,156.6 611.5661.8429.5 232,833.7 189,629.2 166,316.3 122,557.4 Expenditures 111,600.4100,797.4 70,453.7 Cost ofmaterials consumed 135,550.0 Purchase ofproducts forsale 10,876.9 11,752.1 11,205.910,390.8 Changes ininventories offinished goods, (2,840.6)(3,031.4) (2,535.7) (1,836.2) work-In-progress, andproduct forsale Employee cost/benefits expense 21,556.4 16,584.1 12,298.5 9,342.7 Finance cost 4,733.8 3,553.3 2,982.2 2,385.3 Depreciation andamortization expense 11,076.2 7,569.3 5,625.4 4,655.5 Product development expense/engineering 2,565.22,021.6 1,389.2 997.6 expenses Other expenses 43,625.8 35,535.6 28,454.021,703.1 Expenditure transferredtocapital andother (13,537.9)(10,192.0) (8,266.0) (5,741.3) accounts Total expenses 209,074.1 175,393.0 151,950.9 112,351.22 Profit before exceptional items,extraordinary 14,236.214,365.4 10,206.2 Items, andtax 19,854.4 Exchange loss(net) including onrevaluation of 515.1654.1(231.0) foreign currency, borrowings, deposits,andloan 707.7 Impairment ofintangibles andother costs 224.1 87.6 177.4 Profit before taxfrom continuing operations 18,868.9 13,633.5 13,533.9 10,437.2 Tax expense/(credit) 4,764.8 3,771.0 (40.0)1,261.4 Profit aftertaxfrom continuing operations 14,104.2 9,862.5 13,573.9 9,220.8 Share ofprofit ofassociates (net) (53.8) 113.8 24.9101.4 Minority interest (59.5) (83.7) (62.3) (48.5) Prolit lorthe year 13,991.0 9,892.613,516.5 9,273.6 -Exchange rate:US$1 :> Rs54.45 for2012-2013, 47.53lor 2011-2012, and47.41 for2010-2011.

Source:

TatsMotors annual reports, 2011,2012,2013,and2014.

period triggered economic growththataveraged over 7percent annually between1997and2011.

During theeconomic liberalization period,automo- bile financing greatlyexpanded, andtheautomobile market became morecompetitive.

Auto salesinIndia reached recordlevelsinthe first quarter of2012, asconsumers increasedtheir purchasing-primarily ofdiesel vehicles-due toconcerns thatthegovernment wouldraisetaxes on diesel vehicles inthe next fiscal year.Increased loan rates andhigher fuelprices in2011 reduced the demand forcars; however, theboom indiesel sales lifted overall salestoanew high of211,402 autosin April 2012. Thedemand fordiesel vehicles grewto45 percent oftotal demand, upfrom 30percent in20 I O.

Diesel wasmore fuel-efficient thangas,andtheIndian ._--------------- - Case:

Tata Motors in2014'It MIlb . s uti rand Approach toCompeting inthe Global Automobile Industry CASE 18Tata Motors in2014: ItsMultibrand ApproachtoCompeting inthe Global Automobile Industry EXHIBIT 4Tata Motors' Consolidated SummarizedBalanceSheets Fiscal 2011-FiscaI2014 (incore rupees, or10 million rupees") C·279 Assets Fixed assets 97,375.469,483.6 56,212.5 43,221.1 Goodwill 4,978.84,102.4 4,093.7 3,584.8 Noncurrent investments 1,114.41,222.4 1,391.5 1,336.8 Deferred taxassets (net) 2,34714,428.9 4,539.3 632.3 Long-term loansand advances 13,268.815,465.5 13,658.0 9,818.3 Other noncurrent assets 5,068.51,024.0 574.7332.3 Foreign currency monetary item translation difference account (net) 451.4 Current assets 95,845.374,006.7 64,461.5 42,088.8 Total assets 219,998.3170,026.5 145,382.6 101,014.2 Liabilities Long-term borrowings 45,258.632,110.1 27,962.5 17,256.0 Other long-term liabilities 2,596.93,284.I 2,458.6 2,292.7 Long-term provisions 12,190.38,319.2 6,071.4 4,825.6 Net worth Share capital 643.8 638.1 634.8 6377 Reserves andsurplus 64,959.7 36,999.2 32.515.1818,533.8 Minority interest 420.6 3075 3071 246.6 Deferred taxliabilities (net) 1,572.3 2,019.5 2,165.1 2,096.1 Current liabilities 92,356.1 86.285.90 73,268.1 55,125.6 Total liabilities 219,998.3 170,026.5 145,382.6 101,014.2 -Exchange rate:

US$1 ""Rs54.45 for2012-2013, 47.53for2011-2012, and47.41 for2010-2011, Source:

TataMotors annual reports, 2011,2012, 2013,and2014.

government institutedcontrolsonthe price ofdiesel because ofits impact oninflation. Inthe first quarter of 2012, diesel was40percent cheaper thangasoline.

In 2012, thetrend forthe industry turneddown, with domestic salesofautomohiles fallingby 6.7 percent-the firstdecline inadecade. In2013, sales weredown anadditional 4.6percent. Salesof commercial vehicleswerehiteven harder, declin- ing 20.2 percent fromtheprior year.Inhis inves- tor presentation in2013, Tara's managing director, Karl Slym, emphasized theimpact ofthe Indian government's banning mining inthe Karnataka region. Thisbanimpacted 200mines andresulted in idling about17,000 to20,000 heavytrucks, which severely reducedthereplacement demand for these trucks.

Ongoing nationalurbanandrural highway proj- ects through 2014hadbeen expected toincrease national andstate highways by110,000 kilometers (68,350 miles)andrural roads by411 ,000 kilometers (255,000 miles).Thislarge increase inroads was also expected toincrease thedemand forcars, espe- cially themore affordable modelstargeted atrural customers, However,manyofthe infrastructure projects wereputonhold duetoIndia's economic downturn, Thealmost certainty ofincreasing fuel 194 InternationalBusinessStrategy C·280 PART 2Cases inCrafting andExecuting Strategy prices would forcesuccessful automakers tofocus on increasing fuelefficiency andtosearch foralter- native fuels,which wasoneofTata's competencies.

TATA MOTORS' BUSINESS STRATEGY IN2014 Tata Motors' Strategy in Passenger Cars Tata Motors' management believedthatfuture growth for the company's subsidiaries wouldcomefrom both investments inIndia andopportunities ininter- national markets. Management alsobelieved that Ole Indian passenger-car industrywouldrecover and experience strong growth overthenext 10years and that itwould become thethird-largest passenger-ear market (aftertheUnited StatesandChina) by2021.

Tata Motors' strategy for itspassenger-car divi- sion waskeyed toleveraging itsbroad product line andconcentrating onall-around value,includ- ing Fuel efficiency. Thecompany offeredcompact- sized Indica andmidsized Indigopassenger cars for sales primarily inIndia, although thecompany also exported passenger carstoparts ofEurope and Africa. Tara'spassenger carswere powered by1.2- to lA-liter gasoline anddiesel engines, anditslineup also included theelectric-powered IndicaVista.The division alsoproduced thewidely publicized Nano microsized car.

The passenger-vehicle strategyfocusedon aggressive growthofnew vehicle sales,service loca- tions, andgrowth inthe used-car businessthrough Tata Motors Assured operations. Tatamanagement believed thatabetter salesandservice network would enhance customer careandincrease sales.

The Jaguar andLand Rover brands weretargeted for international growthindeveloped marketsand such keyemerging marketsasChina, Russia, and Brazil. Chinawasexpected toincrease itsshare of auto sales volume amongthefour BRIC coun- tries (Brazil, Russia,India,andChina) from53to 61 percent, andBrazil, whichwasthemost stable and mature ofthe four countries, wasexpected to remain insecond position. Equallyasimportant as the BRIe countries' economicresilience, their passenger-car penetrationwasextremely low:The number ofcars per1,000 persons inBrazil was259; Russia, 200;China, 44;and India, 13.Managing Director KarlSlym feltthat these countries had great futures asmarkets forTara's passenger ears.

However, thecompany's salesofautomobiles in India declined by37percent between 2013and 2014, anditsexports ofautomobiles failedto grow during 2014.According toSlym's analysis, the BRIC nations wereexpected toaccount for30per- cent ofglobal autosales in2014.

The "People's Car"-Tata Nano In 2009, eventhough India'spopulation wasthe second-largest onEarth anditseconomy wasrapidly growing, therewereonly12cars perthousand people (compared to56 per thousand inChina, 178perthou- sand inBrazil, and439 perthousand inthe United Slates). Incontrast, therewereover7million scoot- ers and motorcycles soldinIndia thatyear. Thetwo- wheel-vehicle salesweretheresult ofIndia's large population, highurban density, andlow income level. TataMotors recognized thehuge market for very low-cost motorized transportation thatwas being filledbyscooters andmotorcycles.

The middle-class householdincomeinIndia started atabout $4,500 in2007. Talabelieved that a car costing about$2,500 wouldbeable totake advantage ofthe very large market thatwasbeing served onlybytwo-wheel vehicles.In2007, about 7.75 million Indians ownedautomobiles; however, more than17million othershadthefinancial ability to purchase anautomobile. TaraMotors' manage- ment believed thatthepotential marketforauto- mobiles pricedunder$3,000 couldgrowtoabout 30 million consumers inIndia. TataMotors cre- ated theTata Nano tocapture suchdemand forlow- cost automobiles andswitch alarge portion ofthe demand fortwo-wheel vehiclestothe Nano.

Ratan Tata,thechairman ofTata Motors' board, viewed theNano asthe "People's Car."Mr.Tata once remarked aboutthemany families ridingon scooters: Thefather would drivewithachild stand- ing infront ofhim andthemother seatedbehind him, holding ababy. TheNano wasintended tobe the means tokeep Indian middle-class familiesfrom transporting theentire family onone scooter. The Nano waswidely anticipated inIndia, anditwas projected thattheNano might haveaneffect onthe used-car marketbecause ofits low price.

Tata Motors begantheNano design withacom- prehensive studyofthe potential customers andtheir .-...._------------ c Case:rataMotors in2014: ItsMultibrand ApproachtoCompeting Inthe Global Automobile Industry ---,lo- ..............

--01 1 CASE 18Tata Motors in2014: itsMultlbrand ApproachtoCompeting Inthe Global Automobile Industry C.281 needs, wants,andpurchasing ability.Inaunique pricing approach, thecompany setthe base price at $2,500, whichwastheprice Tatathought itscustom- ers could pay,andworked backward intothedesign.

The base price atintroduction wasabout $2,000; however, itquickly wentupto$2,300, andby2012, the price wasabout $2,600. Atypical 2014Nano model ispresented inExhibit 5.

The base Nano model hada625-cubic-centimeter, two-cylinder enginethatproduced atop speed of 65 miles perhour andoffered gasmileage ofnearly 50 miles pergallon. Thesmall engine waswell- matched to the driving conditions inurban mar- kets inIndia, whichwerecharacterized bycrowded streets withanaverage speedofless than 20miles per hour. Thebase Nano model didnotinclude air conditioning, aradio, oraCD player, andaccess to the trunk wasthrough theinterior-s-there wasno trunk dooronthe outside ofthe vehicle. Everypos- sible cost-saving measurewasimplemented: There EXHIBIT 5The 2014 TataNano were onlythree lugnuts onthe wheels, noairbags, and one windshield wiper,andthespeedometer was in the middle ofthe dash rather thanbehind thesteer- ing wheel, whichsavedonpans andreduced cost.A supplier ofsuspension partsusedahollow steeltube to replace thesolid steeltubenormally usedsoasto save onsteel costs.

The Nano wasmanufactured usingamodule design, whichallowed components tobe built sep- arately andshipped toalocation wheretheycould be assembled. TataMotors created ageographically dispersed networkofNano dealers indeveloping countries suchasBrazil, China,Malaysia, Nepal, Bangladesh, Nigeria,Myanmar, andIndonesia. Tata Motors' distribution networkalsoincluded dealers in the Middle East,South Africa, andtheAfrican continent.

Despite veryhigh expectations, Nanosales were lessthan expected afteritsintroduction. Sales for calendar year2010 were59,576. Unitshipments 196 InternationalBusinessStrategy C·282 PART 2Cases inCrafting andExecuting Strategy increased to70,432 in2011 and74,527 in2012 before fallingto53,847 in2013 and21,130 in2014.

Analysts estimated thatapproximately 200,000to 250,000 Nanosperyear would needtobe sold for Tata Motors toachieve anacceptable returnonits $400 million investment inthe Nano's development.

The potential ofalow-priced carinthe global automobile marketplace waswidely recognized, and several potential competitors hadplans toenter the market. Therewererumors inthe industry thatGen- eral Motors (GM)wasworking withWuling Auto- motive inChina todesign andproduce acar that would directly compet.e withtheNano. Fordopened its second plantinIndia in2011 andinvested over $2 billion inits manufacturing facilitiesinIndia.

Ford's newFigo offered features closetothose of American carsataprice ofslightly over$7,000 for the base model. Volkswagen alsoopened amanu- facturing plantinIndia andwas selling itsbase VW Polo for$8,495, whichwaswell equipped compared to the Nano andFord's Figo.France's Renaultalso offered aneconomical car,thePulse, which was very wellequipped, forabout $7,850. Inturn, Nis- san sold it.sMicra forabout $7,650, Marutioffered the Ritz for$7,500, andChevrolet putout theBeat, priced at$8,030.

These competitors, plusareported Nanodefect that could cause thevehicle tocatch fire,combined to depress sales.However, Tatawasdetermined to make theNano asuccess. Tarawasrumored tobe redesigning theNano forexport tothe United States.

The cost ofadjusting theNano tomeet American standards andthecosts ofemissions control,power steering, alarger engine, andmore options would drive theprice ofthe Nano toabout $8,000. How- ever, the$8,000 pricewould maket.heNano the least expensive newcarinthe United States-less than either theNissan Versa($11,800) orthe Hyun- dai Accent. ($13,205).

At the Auto Expo inDelhi in2014, Tatapre- sent.ed itsnew Nano Twist Active. ThisNano hada new front grillandamore st.ylish design. Itfeatured a tailgate, whichallowed accesstothe trunk from the outside, powersteering, keylessentry,Bluetooth connectivity, andsixnew bright colors. Thenew Nano Plushadalarger engine, frontdiscbrakes, improved airconditioning, anewly designed dash- board, foglights, LEDheadlights, bucketseats,and an operational tailgate.Tatawasexpected tooffer a diesel Nanointhe near future. Although itwas originally launchedasthe world's leaste~p~nsive car, theredesigned Nanowasnamed IndiasMost Trusted Automobile" byThe Brand TrustReport, India Study 2014, published bythe Comniscient Group Company.

Although theinitial launch ofthe Nano in2009 did notproduce thedesired levelofsales, Tarawas clearly notgiving upon the world's leastexpensive car, now repositioned asthe car ofthe stylish youth.

Safety, however, isapparcntly abig concern of lower-income buyersaswell asmore affluent cus- tomers. Thepoor safety ratings ofthe Nano andthe lack ofairbags continued tohold down sales.Tata appeared determined tosalvage theNano, andthe second launchofthe redesigned andimproved auto- mobile mayprove tobe the key tothe car's success.

Commercial Vehicles Tata's commercial-vehicle strategyfocusedonpro- viding awide range ofproducts thatoffered the lowest costofownership fortruck users indevel- oping countries. Tara'sstrategy wastocontinuously evaluate itsentire commercial productrangewith the intent ofoffering avery strong combination of existing products andnew commercial platforms and products. TaraMotors offeredsmallcommer- cial vehicles thatcould beused forlocal deliveries, light pickup trucks,andlight commercial vehicles capable ofcarrying largerpayloads. Thecompany also produced afull line oflarge buses andcoaches, as well asmedium andheavy commercial vehicles suitable forlong-haul trucking.

Growth ininternational marketswasastrategic priority, whichTataplanned toaddress bycombin- ing and expanding itsinternational manufacturing.

The company openedanassembly plantinSouth Africa in2011 andwas considering additional capacity expansion. Tala'Scommercial-vehicle strat- egy included planstorefurbish commercial vehicles, sell annual maintenance contracts,andprovide parts and services tothe defense department inIndia.

However, TataMOlars' exportsofcommercial vehi- cles declined by2percent from44109 in2013 to 43,083 in2014. ' The commercial divisionplanned toinvest upto 1,500 corerupees (US$325 million)infiscal 2015to develop newproducts andtechnologies foritscom- mercial segment. Thecompany hadsufficient manu- facturing capability forthe next fiveyears: Itfocused .-...---------------- - Case:

Tata Motors in2014: ItsMultibrand ApproachtoCompeting inthe Global Automobile Industry 197 ----.r-.------------~.:.:::::.:..=~.::::::~~:":'.:~~~~~~~~~~_1L!J!jL.J CASE18Tata Motors in2014: ItsMultibrand ApproachtoCompeting inthe Global Automobile Industry C.283 its capital ontechnology andnew products sothat its portfolio wouldbeready whenthemarket improved.

Tata launched anew low-priced truck,thePrima LX, in March 2014,andinthe first quarter of2014-2015, the company launchedtheMagic Iris,athree-seat automotive vehicledesigned asarickshaw replace- ment. Newbuses andnew models ofthe Tata light- commercial-vehicle Ultrawerealsoplanned for fiscal 2015. Tatawasworking withCummins diesel to develop anew series ofengines topower several of its commercial vehicles,including theUltra LCY.

Tata's strategy included acommitment toqual- ity and thelowest totalcostofownership. Thiswas to be achieved by drawing onthe company's in- depth knowledge ofthe Indian market andlever- aging itsdevelopment anddesign capabilities. The company plannedanincreased customer-centric operation, whichwastobe accomplished byafocus on customer servicesthroughout theentire product life cycle, theuse ofcustomer relationship technol- ogy, andanincrease inthe availability ofcustomer financing. However,thesestrategies andtactics were failing in2014, withthedivision's unitshipments declining by30percent from2013 volumes.

Jaguar andLand Rover The Jaguar andLand Rover (JLR)brands wereina separate divisionwithinTataMotors andhad asig- nificantly differenttargetmarket thanTata-branded passenger cars.TataMotors' strategyforJLR was to capitalize ongrowth opportunities inthe pre- mium market segments withthetwo globally rec- ognized brands.Thestrategy included achieving additional synergyandbenefits withthesupport of Tata Motors. Therewereplans forsubstantial invest- ment innew JLR technologies andproducts, more competitive powertraincombinations, andnew body styles. Revenues forthe JLR division hadincreased by 23percent from2013 to2014. Thedivision's EBITDA improved by41.6 percent between 2013 and 2014, anditsafter-tax profitimproved by37.3 percent between thoseyears. TheJaguar LandRover division contributed 88percent ofTataMotors' total automotive revenueinfiscal 2014and89percent of its income beforeotherincome, financecosts,tax, and exceptional itemsinfiscal 2014.

The division's unitsales increased from314,433 in 2012 to372,062 in2013 to429,861 in2014. The division's riseinsales andprofitability waslargely a result ofthe growing popularity ofits Land Rover brand, whichincluded theDefender, LR2,LR4, Range RoverEvoque, RangeRoverSport,andRange Rover models. LandRover salesaccounted for 82.8 percent ofthe luxury division's unitsales in 2013 and84.5 percent ofthe division's salesin 2014. While Jaguar's XFand XJsedans struggled to compete againstBMW,Mercedes, andother luxury performance sedans,itsXK and F-Type coupes and convertibles hadreceived stronginterest amongluxury sports carenthusiasts. Unitsales fortheJaguar brand increased by37percent between 2013and2014.

Land Rover's strongperformance ledtothe announcement ofanew $392 million factorytobe located inBrazil. Thenew plant would haveacapac- ity of24,000 carsperyear, andproduction was expected tobegin in2016. MuchofJaguar Land Rover's growthhadcome fromChina, whichbought 25 percent ofthe division's production. Chinahad become JaguarLandRover's largestmarket: Jaguar sales more thandoubled inChina infiscal 2014, and Land Rover salesincreased by23 percent. Thelarge demand forJaguars andLand Rovers hadrequired the company tooperate thethree factories inthe United Kingdom 24hours aday. ThenewJaguar Land Rover factories thatwere being builtinChina and Brazil would increase capacity byabout 50percent.

A plant wasalso scheduled forSaudi Arabia.

TATA MOTORS' SITUATION IN 2014 Tata Motors' management enjoyedarecord-setting year, withrevenues forthe fiscal year-end March 31,2014, increasing by21 percent compared tothe prior year.Theincrease wasdriven bythe grow- ing success ofits Jaguar andLand Rover acquisi- tions, withcombined salesofthe two luxury brands increasing bynearly 23percent duringthepast 12 months. However, thesales ofitsTara-branded automobile andcommercial vehiclesfellby31per- cent during theyear, withbothdomestic salesand exports suffering.

Problems atTata Motors continued intofis- cal 2015, withcommercial-vehicle salesdeclining 24.5 percent duringthefirst twomonths compared to the same period infiscal 2014. Inaddition, theNano, hailed by Businessweek in2008 asatale of "innova- tion andingenuity," hadnotlived uptoexpectations. 198 InternationalBusiness Str:at:e;:9Y':- _ C·284 PART 2Cases inCrafting andExecuting Strategy Even inthe domestic market,consumers werenot buying thetiny carwith apoor track record forreli- ability. Strongdemand forHonda's dieselsedans Amaze andCity pushed HondapastTata (and Ford India), making itthe number-three passenger-car manufacturer. Tara'scompact brandIndica hadpoor sales because itwas perceived asafleet car,and the Nano wasperceived asapoor man's car.

Also, thedeath ofManaging DirectorKarl Slym, headofTata's domestic operations, haddis- rupted thecompany's stability.Slym,aformer GM executive, hadbeen withTataonly twoyears but had been instrumental indeveloping abusiness plan to address thedeclining salesofitsTara-branded vehicles andexpand intonew international markets, especially theBRIC countries. Following thedeath ofSlym, Tara's manage- ment stated thatthecompany wouldcontinue tofol- low Slym's turnaround strategybyintroducing two new cars: theBolt hatchback andthesmall Zest.

There washope among management thatTata's new Bolt andZest compact cars,plusanother newcom- pact model withthecode name Kite,which were scheduled tobe introduced inlate 2015, would be better abletocompete againstthethree market lead- ers inthe compact market.AsTata's management looked further intothe2015 fiscal year,there was a promising domesticmarketformotor vehicles as well asattractive marketsaroundtheworld. The company's management teamwould beforced to make further stridestotruly become acontender in the global automobile industry.

-..::..-_--------------- __------------------------------ ~G~IO'.':ba~liz~a~ti.".on~of~HC1:y~a~tt~P:la~c:e:'_'_JL.-J11.x:!

ggL..J - - i'IVEy I PUblishing 9814M070 GLOBALIZA TIONOFHYATT PLACE 1 Gevor!< Papiryan wrotethis case solely toprovide material forclass discussion. Theauthor doesnotIntend toIllustrate either effective orIneffective handling ofa managerial situation.Theauthor mayhave disguised certainnames andother identifying information toprotect confidentiality, This publication maynotbetransmitted, photocopied, digitizedorotherwise reproduced inany form or by any means without the permission ofthe copyright holder.Reproduction ofthis material isnot covered underauthorization byany reproduction rights organization. Toorder copies or request permission toreproduce materials.contactIveyPublishing, IveyBusiness School,Western University, London,Ontario,Canada, N6GaN1; (t)519.661.3208; (e)[email protected];www.iveycases.com.

COpyright © 2014, Richard IveYSchool ofBusiness Foundation Version;2014-09-11 In August 2006, Global HyattCorporation openedtheworld's firstHyatt Placehoteljustoutside Chicago in Lombard, !IIinois.TheLombard locationwasthefirst Hyatt Place-branded hoteltoopen following Global HyattCorporation's recentacquisition ofAmeriSuites, anupscale chainofall-suite business-class hotels, fromaffiliates ofthe Blackstone Grouphotelchain. Thehotel corporation wasscheduled toopen more than 140 additional HyattPlacehotels thatyear andthenext inthe United Statesasmany AmeriSuites propertiescontinuedtoundergo renovation andrepositioning underHyatt's newestselect- service brand.

After acquiring AmeriSuites andrebranding it,the leadership ofGlobal HyattCorporation wasalso thinking abouttheinternationalization ofnew brands. "Growth potentialinthe upscale limitedservice category issignificant bothinthe U.S. andinternationally. Hyattwillanalyze opportunities forexpanding the new brand instrategic marketsaroundtheworld," announced SteveGoldman, Hyatt'sexecutive vice- president ofacquisitions anddevelopment.' In 2011, HyattHotels Corporation announcedthatitsselect-service brandswereexpanding internationally, Amongotherissues, theleadership ofthe corporation nowneeded tofind answers for several questions: Whatmodes ofentry should beused inbrand internationalization? Howshould new internationalization opportunitiesbepursued forHyatt Placewhile maintaining thecompany's premium brand?

HYATT HOTELS CORPORATION Hyatt's severalhundred properties wereowned through aweb ofprivate holdings controlled bythree generations ofChicago's Pritzkerfamily,whosehead,JayPritzker, hadpurchased HyattvonDehn's share ofHyatt House onSeptember 27,1957.' j This case hasbeen written onthe basis ofpublished sourcesonly..Consequently, theinterpretation andperspectives presented inthis case arenotnecessarily thoseofHya~t H,0tels Corporation o~ any ofIts employees.. ~ 2 "Hyatt Corporation AnnouncesAcquisitionofAmenSUltes Hotels;Formation ofGlobal HyattCorporatton Progresses, hospitalitvnet December 9, 2004, www.hospitalltynet.orglnewsl4021529.html.

accessed May16,2014.

j Michel Santoli, -Hyatt'sTravelin' Man,-Barron's July14,2012, http://onJine,barrons,comlnewsiarficleslSB5000142405311190418450457751 8974208186512,accessedMay16,2014. 200 InternationalBusinessStrategy 9B14M070 Page 2 Over thefollowing decade,Jay'syounger brotherDonald wasresponsible forthe day-to-day operations and Jayforthe financial strategyandacquisitions. Theymade Hyatt thefastest-growmg hotelcham mthe United States.AfterDonald's deathin1972, Jaycontinued thebusiness andshaped Hyattrntoamajor competitor inthe hospitality industry.

In 1969, Hyattopened itsfirst overseas hotel,theHyatt Regency HongKong. TheHyatt Regency M~ui, which thecompany openedin1980, wasthecompany's groundbreakmg resortwas·destmation concept.In 1980, Hyatt introduced itshigher-level servicebrandsGrandHyattandPark Hyatt.

In June 2004, allofthe hospitality assetsowned byPritzker familybusiness interests, including Hyatt Corporation andHyatt International Corporation,wereconsolidated underasingle entitycalled Global Hyatt Corporation. Thiscreated ahospitality companywithasingle balance sheet,asingle organization and asingle focus.OnJune 30,2009, Global HyattCorporation changeditsname toHyatt Hotels Corporation. Thecompany rankedamongtheworld's tophotel corporations withthehighest totalsales.' To help disentangle theseholdings, thefamily calledonMark Hoplamazian, aPritzker executive and honorary familymember. Navigating thefamily's fractious politics,Hoplamazian workedtoweave together themultiple strandsofthe hospitality businessnowknown asHyatt Hotels. Asthe CEO since 2006, healso shepherded thecompany throughitslate 2009 initial public offering andoversaw its subsequent growthintoamulti-brand lodgingfirm.' In 2006, Global HyattCorporation createdtwoselect-service brands,HyattPlaceandHyatt Summerfield Suites. In2007, Hyattintroduced itsAndaz brandandopened itsfirst hotel without theHyatt name-the Andaz Liverpool StreetinLondon, England. Despiteitsbrand awareness, thecompany was10th inthe list ofthe top worldwide hotelgroups withthegreatest numberofrooms (seeExhibit I).

As ofthe beginning of20II,Hyatt Hotels Corporation managed,franchised, ownedanddeveloped Hyatt- branded hotels,resorts andresidential andvacation ownership propertiesaroundtheworld. The company's worldwideportfolioconsisted of453 properties in45 countries, underbrand names that ranged fromtheultra-luxury ParkHyatt andupscale GrandHyattandHyatt Regency tothe lower- category HyattPlaceandHyatt House. Thecompany's netincome was$66million (seeExhibits 2.7).' China andIndia werethesecond- andthird-largest marketsforHyatt Hotels Corporation, aftertheUnited States. Hyattopened Itsfirst overseas hotel,theHyatt Regency HongKong, in1969. Before 20II Hyatt had 11hotels inChina infirst-tier citiessuchasBeijing, HongKong, Macau, Shanghai, Shenzhen and Taipei, In20 I0, Hyatt had22properties underdevelopment inChina across allofits full-service brands including Andaz..Of the 22properties underdevelopment, fourproperties -the Park Hyatt Ningbo, Hyatt Regency Jman, Hyatt Regency GuiyangandHyatt Regency Qingdao-were slated toopen in 20 II, with anadditional nineproperties expectedtoopen in2012' 4 Sonia Isotov, "HyattRegency MauiCompletes $15 Million Transformation· Mau; F b 1 2011, http://mauinow.coml2011 10211 O/hyatt-regency~maui..completes.15-million.transforma·tlon ac now.c~%e 16ruary 0, s G P' ON I tn GIbI H t ' cesse ay ,2014 . aplfyan, 0 e on e, 0 a 0al Industry, •{vey Business School .

8 https:l/wwvuveycases.comlProductVlew.aspx?id=10904, accessedMay 17 2014 case, # 9B08M028, 200, e Michal Santoli, op.

cit, '.

7 Annual ReportofHHC, 2010,http://investors,hyatt.comIPhoenix.zhtml?c=2289S9&p-irol _ 2014, .- -reoonsennust, accessed May17, a ~Hyatt Builds on 41 Year History inGreater ChinawithPlans forHotels in Emerging crd .. • Investor Relations October 13 2010 J las an Resort Destmatlons, Hyatt http://investors.hy~tt. comlEx te~nal.

File?t=2&item=g 7 rqBL VLuv81 UAmrh20Mp 1WshOli ZRIU mJTufa59NKgILWCr02Kg52uNxGjdg==. accessedMay17.2014. urqeVIOTERngYX3qlLLZyqYnPm ..

-...:.-_------------- - GlobalizationofHyatt Place .---- 201 Page 3 9814M070 Hyatt hadbeen managing hotelsinIndia since May1983andwas oneofthe oldest international hotel brands inthe country. Itsfirst hotel inIndia wastheHyatt Regency Delhi.Overthelast few years, the company hadintroduced thePark Hyatt, Grand Hyatt,HyattandHyatt Regency brandsinthe country.

In September 9,2011, Hyatt Hotels Corporation announcedthataHyatt affiliate hadentered into management agreementswiththeRussian state-owned company OlSe "Nash Dorn-Primorye'' fortwo new Hyatt botels inthe Russian cityofVladivostok, whichwasoneofthe main harbours andtrading gateways ofRussia's FarEast andserved asstart andend points onthe Trans-Siberian Railway.The Hyatt Regency Vladivostok GoldenHornandHyatt Vladivostok Burny,whichwould bethe third and fourth Hyatt-branded hotelsinRussia, wereunder construction andexpected toopen inadvance ofthe Asia-Pacific EconomicCooperation summitinthe fall of2012.

The other functioning Hyatt-branded hotelsinRussia in2011 included theupscale full-service hotels Ararat ParkHyatt Moscow (opened2002)andHyatt Regency Ekaterinburg (opened2009).Also,the Hyatt Regency Sochiwasunder development andslated toopen in2013 justbefore theWinter Olympic Games inthe famous BlackSearesort area.

The first Hyatt property inRussia, theArarat ParkHyatt Moscow, wasbuilt byMoscow-based restoration and construction firmLucine. Thehotel wasbuilt onthe site ofalegendary Soviet-era Armenian restaurant, anditrecalled itspredecessor notonly inname butalso with ethnic touches: artworkby contemporary Armenianartists,adepiction ofan Armenian fertilitygoddess inthe atrium, anArmenian chapel withapriest oncall and, ofcourse, CafeArarat, whichdished upsatisfying Armenian fare.' Other Hyatt-branded hotelswereoperating orunder development inthe Commonwealth ofIndependent States, whichwasestablishing itselfasboth aforce ininternational businessandanattractive tourist destination.

UPSCALE SELECT·SERVICE HOTELCATEGORY The upscale select-service hotelcategory experienced significantgrowthuntil20II. Hotel chains with that category serviceswereactively growing byincreasing theirhotel capacity andamong themwere Courtyard byMarriott, HiltonGarden Innand Wingate Inn.Forexample, Courtyard hadincreased its hotel capacity from99,669 roomsin2006 to131,069 roomsin2011 andwas 11thamong thetop worldwide hotelbrands withthegreatest numberofrooms (seeExhibit 8)." Courtyard byMarriott Marriott spent2billion inthe mid-1980s onbuilding upthe Courtyard byMarriott chaininorder to target Holiday Inn'sclientele." ThefirstCourtyard locationwasopened in1983, aft,;rth~ee years of research andplanning. Thetwo-story, 150-roomCourtyard hotelnearAtlanta, Georgia, didnotoffer bellmen, roomservice orlarge meeting andbanquet facilities, butdid offer thehigh-quality roomsfor which thechain wasknown.

9 -Ararat ParkHyatt Moscow,· concieroe.com. www.concierge.comltravelguidelmoscowl11otelsl2851. accessedMay17, 2014.

10 G.

Pap/ryan, op.cit. .

11 Leslie Smith, 'Marriott StakesOutHotel Territory, U The New YorkTImes, September 22,1985, F1. 202 InternationalBusinessStrategy 9B14M070 Page 4 Courtyard byMarriott, ahotel chain ofupscale mid-priced hotelsdesigned forboth business andleisure travelers, wasin2006 operating 692hotels in42 states inthe United Statesand m 22 countnes and territories worldwide andwas 13thamong thetopworldwide hotelbrands withthegreatest numberof rooms." At that time, thebrand offered morethan10,000 roomsoutside theUnited States.Forexample, there were 27Courtyard byMarriott properties operatingineight countries incontinental Europe,Itw~s Marriott's fastest-growing brand,andMarriott wasplanning tolocate two ofevery fivenew Courtyards 10 the next three years outside thecontinental UnitedStates.

In India, Courtyard byMarriott openeditsfirst hotel in Chennai in2006 andin20II was among Marriott's 15operational hotelsinIndia. TheCourtyard brandaccounted fornearly halfofthese. Another 18 Courtyard hotelsinsmaller townsandsatellite citieswereunder construction.

In 20 II, Marriott launched twonew hotels underitsCourtyard brandinRussia. Onewas in the historic city ofKazan andtheother wasinthe Siberian cityofIrkutsk. Also,atthe endofthe year, theopening of the second Moscow-based Courtyardhotel,which would bethe brand's sixthlocation inthe Russian market, wasplanned. "Weareexcited abouttheexpansion ofour Courtyard byMarriott brandinEastern Europe andseestrong opportunity togrow thebrand here.Lastyear weannounced ourgoal todouble our presence inEurope by2015," saidAmy McPherson, presidentandmanaging directorofMarriott International in Europe." On February 10,2009,Marriottopenedthe800th Courtyard byMarriott hotel,thisone inShanghai. This was thecompany's seventhCourtyard inChina. Bytheend of2010, Courtyard byMarriott's porrfolioin China consisted ofeight hotels totaling 2,474rooms.

Hilton Garden Inn The Hilton Garden Innbrand began inthe late 1980s underthename CrestHili byHilton infour hotels in different U.S.cities. In1996, Hilton Worldwide reintroduced thebrand asHilton Garden Innwhich at th~ time operated over500properties. Thebrand,like itscompetitor CourtyardbyMarriott, operated mid- priced hotelsthatwere designed forboth busmess and leisure travelers, Hilton opened itsfirst Hilton Garden Innhotels outside theUnited StatesinStuttgart, Germany, and Florence, Italy,onSeptember 19,2006,andOctober 21,2006, respectively.

This segment ofthe hotel industry washighly competitive butaccording to Adrian KthIb Ih d f H'I Gd I" h ' urre,egoaea 0H IIton .dar':Mndnn,. Rdeshearc i showsthereisincreased demandbytravelers forthis type ofproduct." e aso Sal, I-pnce otescurrently offerthegreatest development 0rt.

< hei fr h· rt ,,14 ppounity ror t err ancise pa ners, Ian Carter, executive vice-president ofHilton Hotels Corporation toldR.. I·"Th I..

f . .

,USSlanjourna rsts e peel! ranty 0 our strategy IS that wedonot invest inproperty Wecho rtn 'f ' asepa ers-the owners 0 12 G, Papiryan, op.cit.

fJ ~Courtyard by.Marriott Continues Expansion in Russia, n Marriott News Cent http://news.mamott.coml2011102Icourlyard-by-marrioft-.eonfinues..ex an' 'er;Fe~ruary 16, 2011, 14 Hilton Garden InnMedia Center, www.hgimediacentercomacceSPSedSJlon.m.rus2s/a.html. accessedMay17,2014.

" anuary 7, 2014.

&----------------- __------------------------------ -.:G:'I~oba~liza~ti~on':.':of'..'H:'.'Y~att~p~ia:::Ce~_1--'KiL.J ------..+- Page5 9814M070 building~ -tocont.inue workingwiththem asamanagement companyorwith franchise agreement. In fact, wemvest onlymhumans andarelooking forpartners thatinvest inthe buitding.''" In the future, thebrand's leadership plannedtouse ahub-and-spoke approach,asthis would expedite development In key target markets. Theplan wastobe completely reliantonfranchising togrow the brand, andthen encourage ownerstouse Hilton Worldwide's managementdivisiontooperate the properties." Looking atthe huge opportunities interms ofbusiness travelinthe Asia-Pacific region,especially in emerging economies suchasIndia andChina, theleadership ofHilton madeadecision tobring theHilton Garden Inntothese countries. InMay 2010, theHilton Garden InnNew Delhi became thefirst hotel from this brand launched inIndia.

In February 2011,tbeHilton Garden Innsigned amanagement agreementwithZhejiang Jiacheng Holding Grouptomanage thefirst Hilton Garden InninChina -a137-room conversion projectin Shaoxing.

By 2011, theHilton Garden Innbrand hadbecome oneofthe fastest-growing brandsinthe hospitality industry.

It operated morethan510properties aroundtheworld andhadmore than100properties planned or under development inthe United States,Canada, Chile,India,theUnited Kingdom, SaudiArabia and Poland.

Wingate Itttt The first Wingate Innfranchised hotelopened inJuly 1996. Since then,allWingate Innhotels hadbeen independently ownedandoperated underfranchise agreements withthehotel chain Wingate Inns International, Inc"asubsidiary ofCendant Corporation. Thebrand focused itsservice onthe upper-mid market andoffered consumer-based technologyandcomfortable, oversizedroomsthatwere created in response tobusiness travelers' needs.

When inthe summer of200 IWingate Innopened itsfirst non-U.S.-based propertyinCalgary, Canada, the president andCEO ofWingate InnsInternational, Keith 1.

Pierce, said,"This opening inCalgary just gets theball rolling onour international development. Weareplanning tobuild ninenewWingate Inn hotels inCanada overthenext nineyears. Wewould liketosee additional international development in places suchasSouth America, Europeandthe Philippines.v'" However,theseplans werenotrealized.

In 2007, theWingate Innbrand affiliated itselfwiththeWyndham HotelsandResorts brandandofficially changed itsname toWingate byWyndham.

Hyatt Place In December 2004,Global HyattCorporation, withitsexisting portfolio of214upperupscale andluxury hotels in43 countries aroundtheworld, announced thatitwould acquire AmeriSuites, anupscale chainof all-suite business-class hotels,fromaffiliates ofthe Blackstone Group."Theaddition ofthis leading, 1.5 E.

Shuvalova, NLoudNames: HiltonWayin Russia,· Vedomosti. October 22, 2007. N199, (inRussian).. .

1(1 "Hilton Garden InnExpands itsHorizons, R Hotel News Now.March 28, 2011, W'NW.hotelnewsnow.comiArtlcle/5246/f-lJlfon- Garden_Inn_expands~its_horizons#Sthash.GsAT066L.dPuf, Bcc.essedMay 17, 201~. .

17 'Wingate InnHoteis Go Intemational as Brand Opens Hotel In Calgary. Canada, WiredHoteller.com. August 8, 2001.

www.wiredhoteJier.cominewsl4008769.html. accessedMay17,2014. 204 InternationalBusinessStrategy Page 6 9B14M070 upscale limitedservice entitywillenable ustocreate anew brand extension thatwill benefit ~heHyatt brand andtheowners andcustomers ofour existing hotels,aswell asthe owners, franc~lse~: and customers ofAmeriSuites," saidThomas Pritzker, chairman andCEO ofGlobal HyattCorporalion.

To implement theAmeriSuites strategyforHyatt, industry veterans JimAbrahamson andMike Leven were appointed asthe company's seniormanagers. Beforejoining Hyatt,Abrahamson hadspent 13years with Hilton inits franchising, development andoperating groups.Among hiso~h~r respo~sJbllltJes at Hilton, Abrahamson hadledthe creation, development, implementation and franchising of Hilton Garden Inn. Leven previously servedaspresident andchief operating officerofHoliday InnWorldwide and.as president ofDays InnofAmerica. AtHyatt, Levenwould beresponsible forthe provision ofhigh-quality franchise servicestoAmeriSuites franchisees.

Following theacquisition ofthe AmeriSuites hotelchain inJanuary 2005,senior executives anddesign teams atHyatt Hotels Corporation, alongwithindustry-leading architects,interiordesigners andbrand consultants, setout torevitalize thechain andlaunch anew leading-edge hotelconcept inthe upscale select-service segment.Therenovation andrepositioning ofexisting AmeriSuites hotelsintoHyatt Place hotels beganinthe fourth quarter of2005, withtherebranding ofqualified corporate andfranchised hotels dueforcompletion inearly 2007.

In 20 II, Hyatt Hotels Corporation ledthe development effortfornewly builtHyatt Place properties and the new brand operated about170properties with20,434 roomsinthe United States(seeExhibit 8).

HYATT HOTELS CORPORATION'S MARKETEXPANSION STRATEGY Hyatt Hotels Corporation intendedtoexpand thepresence ofall itsbrands inattractive markets worldwide. First,thecompany wantedtofocus itsexpansion effortsonunder-penetrated marketswhereit already hadanestablished presenceandonlocations towhich itsguests weretraveling butwhere itdid not have apresence. HyattHotels Corporation wasplanning toexpand itspresence byincreasing the number ofhotels undertheHyatt brand affiliation, primarilybyentering intonew management and franchising agreements.

Hyatt Hotels Corporation madesignificant progressinexpanding itspresence in2010 through the development ofnew hotels andco~verslon .ofexistmg hotels.Forexample, inNew York City,the company op~nedtwoAndaz properties andsigned contracts fornew properties, whichwould expand its presence .to SIX hotels. Also,thecompany announced fiveconversions ofexisting hotelsinNorth America to four different Hyattbrands. In20 I0, Hyatt Hotels Corporation continuedtogrow itspresence inIndia and announced development planstoexpand into15new Indian markets overthenext fiveyears.

In 20 II, Hyatt Hotels Corporation intendedtoestablish andexpand itsselect-service HyattPlaceand Hyatt Summerfield SUitesbrands worldwide, Thecompany intendedtogrow it It' " 1S se ec -servrce presence through theconstruction ofnew franchised propertiesbythird-party develo h.d . f..

H' pers, t e conversion an renovation aexistmg non-yattproperties, andincertain casesparticipati .th d I f . h Idb d ',Ion 111 eeve opment 0 properties tat wou emanage byHyatt Hotels Corporation's brands.

18 -Hyatt Corporation AnnouncesAcquisitionofAmeriSuites Hotels·Formatio .

hospitalitynet December 9, 2004, www.hoSPltalitynet.orglneWsl4021529htlnOfGIObal HyattCorporation Progresses,- . m, accessed May 17, 2014.

----------------- -- _---------------------------------_..:G~IO~b~.~IIZ~.'."ti.".on~of~H~y~.tt~p~'.~ce=__I:...-'2~O!:5L...J --------t Page7 9B14M070 During theyear ended December 31,20I0, Hyatt Hotels Corporation opened16new Hyatt Placehotels and fo~r newHyatt Summerfield Suiteshotels inNorth America, mostofwhich werefranchised properties. Thecompany alsoannounced 15 Hyatt Placehotels underdevelopment inIndia andPanama.

Hyatt Hotels Corporation intendedtoincrease itsfranchised hotelpresence foritsHyatt andHyatt Regency brandstoo,primarily inNorth America. Thecompany's management declared, "By increasing our focus onfranchising, webelieve thatwe will gain access tocapital fromdevelopers andproperty owners thatspecifically targetfranchising businessopportunities. Topursue thisstrategy, wehave established aninternal teamdedicated tosupporting ourfranchise ownersandtodriving theexpansion of our franchised hotelpresence. Weplan toexpand existing relationships anddevelop newrelationships with franchisees whodemonstrate anability toprovide excellent customer servicewhilemaintaining our brand standards."!" In the hotel business, itwas widespread toreceive contracts formanagement, butmany well-known players, especially playersthatoperated low-category hotels,wereusing franchising agreements during their global expansion. Whileamanagement contractdoesnotinvolve ashigh riskandcanyield higher returns forthe company, afranchising agreementinvolveslowerlevelsofresource commitment, and levels ofcontrol areless, butreturns arelower, asasignificant partofincome isreturned tothe francbisee.

In the beginning of2011,HyattHotelCorporation had132franchised hotels,fourofwhich thecompany previously manageditself.Inthe same period theprevious year,thecompany's franchisedhotelstotalled 109.

In 2011, HyattHotels Corporation alsosought toacquire otherbrands orhospitality management or franchising companiesaspart ofits efforts toexpand itspresence. "Theseacquisitions mayinclude hotel real estate. Weexpect tofocus onacquisitions thatcomplement ourability toserve ourexisting customer base andenhance customer preference byproviding agreater selection oflocations, properties and services. Furthermore, wemay pursue theseopportunities inalliance withexisting orprospective owners of managed orfranchised propertiestostrengthen ourbrand presence," thecompany's management explained." Greenfield start-upsandjoint ventures mightalsostrengthen thecompany's presenceinmarkets. Aswell, joint ventures mighthavebenefits interms ofhigher returns forthe company thanfranchising.

In 20 II, Hyatt HotelCorporation startedtoexpand someofitsservice brandsinternationally andtoselect countries toenter (seeExhibit 9).The company's management announced,"Webelieve thatthe opportunity forproperties thatprovide aselect offering ofservices atalower pricepoint thanfullservice hotel alternatives isparticularly compellingincertain emerging markets,suchasBrazil, lndia,China and the Middle East,where thereisalarge andgrowing middleclassalong withameaningful numberoflocal business travelers.,,21 19 2010 AnnualReport, HyattHotels Corporation, http://investors.hyatt.comlphoenix.zhtmI7c=228969&p=irol-reportsannua/, accessed May17,2014.

20 Ibid.

21 Ibid. 206 InternationalBusine,~s~sS~tr~a~te~gy~ _ 9B14M070 PageS EXHIBIT1:TOP TENWORLDWIDE HOTELGROUPS WITHTHEGREATEST NUMBER OFROOMS ASOFJANUARY 1,2011 Rank Group HotelsGrowth Rooms Growth (2011) Hotels (2011 ) Rooms ('!o) 12010-2011\ 12010-2011') 1 IHG 4,4375647 161 0.5 2 Hilton Worldwide 3,689163 605,938 3.1 3 Wvndham Worldwide 7,15240 605,713 1.3 4 Marriott International 3,446117602,056 3.6 5 Accor 4,229 118507,306 3.0 6 Choice Hotels 6,142121 495,145 1.6 7 Starwood Hotels & Resorts 1,041 62308,700 5.9 S Best Western 4,015-33 307,155 -0.4 9 Carlson Comoanies 1,07819 165,061 3.3 10 Hvatt Hotels Coroeration 42324120,806 0.6 Source: Database MKGHospitality. March2011,www.hotel~online.comlNewslPR2011_2ndlApr11_HoteIRankings.htm/.

accessed May17,2014.

EXHIBIT2:ROOMS BYBRANDS OFHHC ('!o) Brands Hyatt Grand Hyatt Hyatt Park Hyatt HyattAndaz Regency HyattPlace HyattSummerfield Residence Suites Club Rooms 5317 164 4 4 2<1 Source: AnnualReportofHyatt HotelCorporation, 2010,http://investors.hyatt.comlphoenix.zhtm'?c=22B969&p=irol~ reportsannua, accessedMay17,2014.

EXHIBIT 3:HHC ROOMS BYREGION ('!o) Regions NorthAsiaPacific Europe, Southwest Other America MiddleEast Asia Americas and Africa Rooms 71 16 74 2 Source: AnnualReportofHyatt HotelCorporation, 2010,http://investors.hyatt.comiphoenix.zhtmf?c=22B969&p=iro/.

reportsannua, accessedMay17,2014.

EXHIBIT 4:HHC ROOMS BYTYPE ('!o) Types Managed Owned Franchised Unconsolidated Residential and Hospitality Vacation Leased VentureProperty Ownership Rooms 5321 16 8 11 Source. AnnualReportofHyatt Hotel Corporation, 2010,htt reportsannua, accessedMay17,2014. p:J/investors.hyatt,COmiphoenjx.zhtml?c=22B969&P=irol~ ." ....

---------------- Globalization of.:.:H::ya::.tt.:.:p.:.:la::.ce=---I_'" 20"7_..1 Page 9 9B14M070 EXHIBIT 5:SELECT FINANCIAL DATAOFHHC (IN$MILLIONS) Net Income 708 168-4366 628 687406476 AdlUsted EBITDA 2006 2007 2008 20092010 315 270 Management and Franchisinn Fees 278 315 290223255 Source: AnnualReportofHyatt HotelCorporation, 2010,http://invesfors.hyatt,comlphoenix.zhtml?c=228969&p=irol.

reportsannua, accessedMay17,2014, EXHIBIT 6:SUMMARY OFHHC MANAGED, FRANCHISED ANDOWNED ANDLEASED HOTELS AND RESIDENTIAL ANDVACATION OWNERSHIP PROPERTIES BY SEGMENT FOR2006 AND2010 Included inthe summary abovearethefollowing ownedandleased properties:

December 312010 December312006 PrOnerlies Rooms Prooerlles Rooms Owned andLeased Full-service OwnedandLeased North America 32 16840 3517,253 International 10 2,607 102,612 Select-service Ownedand 54 7,041 648,398 Leased Total Owned andLeased 96 26488 10928263 Source: AnnualReportofHyatt HotelCorporation, 2010,http://investors.hyatt.comlphoenix,zhtml?c=228969&p=irol- reporlsannua, accessedMay 17, 2014, 208 Internatio'."n~.I~B~u~sin~e=s~s S~t~r.~te~g~y -.---------------- Page 10 9814M070 EXHIBIT 7:DESCRIPTION OFHHC'S BRANDS Brand Segment Customer Base % of Total Roomsl Rooms!

Select KeyLocations Rooms!

UnitsUnits (Inter Competitors Units (Northnational) America) Park Full Service! Individual busines 4 1,279 3,770 Four Seasons, BuenosAires, Hyatt Luxury and leisure Ritz·Carlton, Paris, travelers; small Peninsula, St.Shanghai, meetings Regis, Sydney, Mandarin Washington, Oriental D.C.

Andaz FullService!

Individual busines <1 829 267 W, Mondrian, NewYork, Upper and leisure The Standard London,Los Upscale travelers; small Angeles, San meatlnqs Dieoo Grand FullServicel Individual business 17 8,237 13,331 Mandarin Beijing,Berlin, Hyatt Upper and leisure Oriental, Dubai,Hon9 Hotels Upscale travelers; large Shangri-La, Kong,New and small InterConti- York,Tokyo meetings, social nental, events Fairmont Hyatt FullService!

Conventions; 5348,976 18,139 Marriott, Baston, Delhi, Regency Upper businessand Sheraton,Landon, Los Hotels Upscale leisuretravelers; HiIlon,Angeles,San large andsmall Renaissance,Francisco meetings, social Westin events; associations Hyatt FullService!

Businessand 4 5,462 0 Marriott, Seattle, Upper leisuretravelers; HiIlon,Suburban Los Upscale smallmeetings InterConti-Angeles, San nental, Francisco, Key Westin, West independent and boutique Hyatt Select hotels Individual business 1620,434 0Courtyard by Place Service!

andleisure Atlanta, Dallas, Upscale travelers;small Marriott, Hilton Houston, meetinns Garden Inn Miami, Phoenix Hyatt Select Extendedstay 4 4,582 0 summer- Service!

guests;individual Residence InnAustin, Boston, field Extended businessand by Marriott, Dallas, Miami, Suites Stay leisuretravellers; Homewood San Francisco families, small Suites meetinos!traininns Hyatt Vacation Owners of 2962 Resi- Ownership!

vacationunits; 1,239 HiltonGrand Aspen,Beaver donee Branded repeatHyatt Ivacation Club,Creek, Cannel, Club Residential businessand Marriott Key West, leisure guests rvacation ClUb,Siesta Key, Starwood Dubai, Vacation Fukuoka, Note: ~of Total Rooms/Units, Ro~mslUnits (NorthAmen'ca Ownershin Mumbai Source. HyattHotelCorporatIOn AnnualReport, reponsannua, accessedMay17,2014 .

) and RoomslUn r (I t .

2010 htt 'j, IS nernat/onal) are asof December 31,2010, , p, 'linvestors.hyatt.comlphoenix,zhtml?c=228969&P=irol.

., ...

--------------- GlobalizationofHyatt Place :":"-"'=--+-I!

hotel-online. comlNewslPR2011_ 2ndlApr11_ Hote/Ranklngs. htm/, accessed May17,2014.

EXHIBIT 9:KEY INDICATORS INSELECT TARGET COUNTRIES India China Russia Armenia BrazilMexico CostaPanama Rica Population 1,1931,336 143 33196 114 4635 (millionsl GDP/Capita (US$)3,6007,800 16,100 5,30011,500 14,600 11,70013,100 Inflation Rate('!o) 96 5.5 8.4 76 6.63.44.9 5.9 2011 Index of 124 135 143 36 113 4849 59 Economic Freedom ratina Source: "TheWorld Factbook, N Central Intelligence Agency,https:llwww.cia.govAibrarylpub/icationslthe-world· factbook/index.htm/, accessedDecember 7, 2013; "Highlights ofthe 2011 Index ofEconomic Freedom," TheHeritage Foundation, vvww.herltage.orglindexlpdfl2011Iindex2011_highllghts.pdf. accessedDecember 7, 2013. --- _------------------------ __..:s:'.'TA~R~B~UC::K::S~' F:,:"ORAYINTOTEA-DRINKING INDIA 313-186-1 ICMR 16S Cenfer fOfMonogemonl Rtlearch ~oDrg IBS Center torManagement Research starbucks' ForayintoTea-Drinking India This case waswritten bySyed Abdul Samad, underthedirection ofDebaprotfm Purkayastho, IBS Hyderabad. It was compiled frompublished soirees,andisintended tobe used asabasis for class discussion ratherthantoillustrate eithereffective or ineffective handlJ'ngof a management situotion.

Ph: +91 9640901313 E-mail: [email protected] ecentre DIJtrlbuted byTh~ (aJ@(lnt ..

w",w,thu •..c.nt1li.orll All rig his reWNed NQrlhAmtrlca t +1 761 B9saM f +1 761 ,239566S t In/Q.USlIlt!hto:uecentrt.org Atll of tht world I +44 (011234 7509(13 f +4410)1234 751125 t Infolt!hK._tf\\!t.Org 212 pnv __ ------- International BusinessStrat~ 313-186-1 ICMR IBS Conlllllor Management aeeecn www lI;:mlrndlo org Starbucks' ForayintoTea-Drinking India "We have studied andevaluated themarket carefully toenSllre weare enfe.ri,ng India themost respectful way.Webelieve thesize ofthe economy '.the rtstng spending powerandthegrowth of cafe culture holdstrong. pOlentl~1 for Ollr growth andweare thrilled tobe here andextend our~lgh.qllahty coJ!ee, handcrafted beverages,locallyrelevant food,legendary se-wce, andtheumque , I "I Starbucks Experience tocustomers ere.

don't thinkwe're latetothe game. Weare very optimistic andve,y bullish on the opportunity thatexists inindia. ,,2 John Culver, President, StarbucksCoffeeChinaandAsia Pacific.

On October 19,2012 Starbucks Corporation (Starbucks)openeditsfirst store inIndia andsoon followed it up with 8'more stores. Starbucks Corporation andTats Global Beverages Limitedhad set upa50-50 jointventure company, TataStarbucks Limited,toestablish theStarbucks coff:e outlets. Though Indiawaspredominantly a tea drinking nation,Starbucks hadta~ted success.

10 China (alsoatea drinking nation)andthis hadencouraged thecompany to enter into the lndian cafe market.

Star bucks, basedinSeattle, Washington, US, was thelargest coffeehousecompany inthe world. It had expanded itspresence allovertheworld including N h America, SouthAmerica, Europe, Australia, and Asia. Since 2006, thecompany hadbeen trying toenter intotheIndian market.

However, with FOr restrictions" (thenlimited upto51%) preventing itfrom entering thecountry, it had topostpone itsentry. However, in201 1, the company signedan MoV withIndia's Tara Group (Tata) toexplore thepossibilities ofmaking itsentry intothecountry. InJanuary 2012,thecompany entered intoa50-50 jointventure withTata andinOctober 2012,itset upitsfirst outlet inIndia.

By March 2013,thestore numbers inthe country hadgrown tonine. While theinitial consumer response toits stores wasgood, Starbucks facedafew challenges inthe Indian market suchas competition fr?~organized and.u.norganiz~d coffee(an~t~)shops, finding theproper locations and talent pool, pricmg, a~d competitive branding and positioning fromitscompetitors, Inthe words of Howard Schultz,Chairman andCEO, Starbucks, "Thecoffee market hereisferocious interms of competition, Therearesomany players tryingtodo what wethink wecan dobetter ." J ABOUT STARBUCKS On March 30,1971, JerryBaldwin, ZevSiegl, andGordon Bowker startedStarbucks inSeattle, However, thecompany onlysoldhigh quality roasted coffeebeansthen,andnotbrewed coffee.

By 1982, thecompany hadsetupfive stores, asmall roasting facility,andawholesale business that sold coffee tolocal restaurants, Thesame year,Howard Schultz(Schultz) joined Sterbucks as Foreign DeirectInvestment (FOI)wasintroduced inIndia in 1991 und F'E h .. er -orergn xcange Management Act (FEMA).

However, pnor (0 January 24,2006 FDI wasnot 'U,Il0' d i 'I' '2006 " lid' h. ' nzetnrete, mgButsmce , FDI upto51/0 wasaowe Witprior approval ofForeign Investme tPr·· '1 trade of'Single Brand'products, subject(0Press N'3 (2006 Sertn1n Januar Board(FLPB) forretat raised theFDllimit insingle-brand retailto 100% andto 51o/r in lc1s~'brn danuw:y 2012, thegovernment o mu n- an retail.

2 _--------------------- STARBUCKS'FORAYINTOTEA-DRINKING INDIA 313-186-1 manager ofretail ~alesandmarketing. Duringoneofhis business trips,henoticed thecoffee bar culture prevalent mItaly. Afterreturning home,hetried tosell theidea ofanational chainof coffee barstothe Starbucks owners.However, theywere notinterested inthe restaurant business.

So, inApril 1985,Schultz openedacoffee barhimself andnamed IIGiornale. Heserved Star~ucks coffeethere.Withtheinstant success ofIIGiomale, Schultzbeganexpanding hischain and m1987, hebought Starbucks for$4million. Hethen renamed IIGiomale asStarbucks and expanded thechain despite incurring lossestill1990, In1991 J Srarbucks' salesimproved by 84% and thecompany turnedprofitable. In1992, itwent public andtheaggressive expansion continued. Starbucksgrewfrom17coffee shopsin1987 to20,891 storesin62 countries byMarch 2013, including 13,279inthe US and 1,324 inCanada' (RefertoExhibit Ifor Starbucks presence across the globe).

By April 2013, Starbucks hadbecome theworld's largestcoffeehousechain, serving hotand cold beverages, whole-bean coffee,microground instantcoffee, full-leaf teas,pastries, snacks, packaged fooditems, hotand cold sandwiches, anditems suchasmugs andtumblers. Someofthe Star bucks evening locations alsooffered beers,wines, andappetizers. Morethantheofferings, the company focusedonselling a'third place' experience, andthestores became placesforrelaxation, chatting withfriends, readingthenewspaper, holdingbusiness meetings, orbrowsing theWeb.

The 'experience' broughtspectacular successforthe store. Fortheyear endSeptember 30,2012, Starbucks hadearned revenue ofUS$13.29billion andanet income ofUS$ 1.38billion" (Refer to Exhibit IIfor Starbucks' financialdata).

STARBUCKS ANDGLOBALIZATION Since itwas setupin1971, Starbucks hadbeen expanding inSeattle andby1986, ithad opened 6 stores. However, afterSchultz tookoverthecompany in1987, theexpansion wasmore rapid and Starbucks openeditsfirst locations outsideSeattleatWaterfront StationinVancouver, British Columbia, andChicago, Illinois.

In March thesame year,Starbucks venturedoutsidetheUSand established itsfirst international storeatthe Seabus Skytrain StationinVancouver, Canada.By 1989, thestore numbers hadincreased to46, covering theNorthwest andMidwest regions.Bythe time thecompany wentpublic in1992, ithad grown to140 stores inNorth America.

As itsbusiness grewinternationally, Starbucksorganized itsbusiness intotwo operating segments:

North American andInternational. In1995, Starbucks setupawholly ownedsubsidiary called Starbucks CoffeeInternational tomanage itsbusinesses outsideNorthAmerica, including opening company-owned, licensed,andjoint-venture-based retailstores worldwide. Bythen, the company hadgrown toover 700stores inNorth America. Oncethesubsidiary wasestablished, Starbucks beganexploring foreignopportunities. Itsfirst store outside NorthAmerica wasopened in Tokyo, Japan,in1996.

It was setupasa50-50 jointventure partnership withalocal retailer, Sazaby Inc.The Starbucks formatwaslicensed tothe joint venture whichwasgiven the responsibility toexpand thestore network andtheStarbucks experience inJapan. Allthe store managers andemployees weretrained. SomeUSemployees weretransferred tothe Japanese operations tomake surethatitreplicated theStarbucks experience inits stores andby2009 there were around 850profitable Starbucks storesinJapan.

Apart [TOmjoint ventures, alliances, licensing, andfranchising agreements, Starbucksalsotook the inorganic routeforitsglobalization andmade someacquisitions toexpand itspresence invarious countries. Toestablish itselfinthe UK, itpurchased SeattleCoffeeCompany, aBritish coffee chain with60retail stores, for$84 million in1998. Italso experimented witheateries through Circadia, arestaurant chaininthe San Francisco Bayarea. Thelocations weresoonconverted into Starbucks cates.Later, itopened storesinTaiwan, China,Singapore, Thailand,NewZealand, South Korea andMalaysia, mostlybylicensing itsformat tothe local companies inreturn fora licensing fee'and royalty overthesales. Inth~ early 20.00s, itpu~sued a?.aggressive e~pans~on strategy inEurope. Asapart ofthe strategy, 10 2002, It entered IOtOaJOlOt venture (licensing 3 213 214 International BusinessStrategy 313-186-1 format) with BonAppetit Group, SWitzer,land'S largestfoodservice .comp~ny. tohopen Star?uc~ stores inSwitzerland. Thisventure wasfollowed by joint ventures 10 various atercountries In Europe.

In September 2002,Starbucks enteredintoLatin America by opening itsfirst store inMexico City.

In October 2002 it established acoffee trading company tocarry outpurchases ofgreen coffee , L SwitI d In April 2003 itacquired \50stores ofSeattle's Best 10 ausanne, WI zer an., .

h Coffee andTorrefazione ItaliafromAFC Enterprises for$72m. Laterthatyear, in August, t e company openeditsfirst South American storeinLima, Peru.InSeptember 2006,~larbu.cks bought theDiedrich CoffeeandCoffee Peoplestores.fromDiedrich Coffe~based In lrvine, California, US.

InSeptember 2007, itentered intoRUSSia.

Starbucks also.

acquired Teavana-an Atlanta, US-based specialtyteaand teaaccessory retailer-for $620 million onDecember 31, 20\2, Starbucks hadgrown itsglobal footprint notjust byselling coffee, butbyoffering anex~erience at its outlets characterized byastrong aromaofcoffee, a laid-back atmosphere, andthe rich taste of its coffee varieties.

It differentiated itsproduct andexperience fromthatofits competitors. Italso protected itselfthrough theuse ofintellectual propertylaws.Forinstance, whenStarbucks opened its first cafe inChina in 1999, itregistered itsmajor trademarks inChina, including itsChinese name, 'Xingbake', whichmeantandsounded like 'Starbucks' whenpronounced. Whenrival companies -Shanghai Xingbake CafeCorp, Ltd.andQingdao Xingbake CoffeeShopCompany Limited -began imitating Starbucks' businesspractices, products,names,andlogos, Starbucks filed suitsagainst bothcompanies claimingthatthey were infringing onitstrademarks. After hearing arguments onthe registered trademarks andtheir usage, theChinese courtfavored Starbucks. Thecompany alsotried toprotect itsintellectual propertyrightsinEthiopia, the birthplace ofcoffee. Thegovernment ofEthiopia wantedtotrademark thenames ofitsthree coffee-growing regions-Ylrgacheffe, Harrar,andSidamo -and sellitsbeans through licensing agreements tocompanies likeStarbucks andgain higher pricesforitsproduce. Starbucks had earlier registered andused theregion nameinits coffee brand'Shirkina Sun-Dried Sidamo'and objected toEthiopia's trademarking ofageographical region.Starbucks arguedthatEthiopia should usegeographic certification, whichallowed companies touse thename intheir branding.

However, Ethiopiaacquiredthetrademark andboth sides agreed tosign a licensing andmarketing deal. While globalization helpedStarbucks achievevolumes, intellectual propertylawshelped itin keeping itsvolumes steadyallthrough theseyears.

Starbucks achievedglobalsuccess byadapting itselftothe needs ofthe local customers. Whenit entered international markets,itadopted thesame business modelandstrategies thatithad inthe US.

However, itsoon learnt thatithad toadapt itselftothe cultural differences, retailpractices, and customer preferences ofthe country itentered. JimDonald, CEOofStarbucks from 2005- 2008, said''The peaktimeinChina isnot 7 to 10 inthe morning; itis 4 to 6 in the afternoon.

And t~er~ arealso food preferences w,ehad toadapt to.There isthe holiday Yorkshire puddingthatis big Inthe ~K butdoes not~ork In New York. Breakfast sandwiches inGermany, forexample, are made upWith ahard rollWith sausage andtomato andserved cold.Sowe listen hardtowhat our partners inaregion say.,,6 In China -despite risinglaborandrealestate costsandincreased competition fromlocaland western foodandbeverage brandssuchasDunkin' Donuts,Krispy Kreme, andBurger King_ St~bllcks managedtoearn m~re ~rofit p~routlet thaninthe US, though saleswere less.The critical suc~ess factorwas10cahz~tJon. Chlna~\lasatea-drinking nationandwould notgive upits ~ulture easily.Henc~, Starbucks did not.advertise orpromote itsproducts asthe Chinese perceived It as athreat toth,elr culture. Instead,Itselected high-visibility and high t ffi I ti for it . '. -ra IC oca IOns lor 1 s stores tocreate Itsbrand Image. AndInstead offorcing the Chin eseIt' oct a ry alit ItSpr ucts, Starbucks developed flavorssuchasgreen tea-flavored coffeedrinksthat Id II . . . appeaeto oca tastes.

Belinda Wong,president ofStarbucks China,said"We don't doone size fitsa11".7 Withthe 4 _------------------------- :sT~A~RBUCKS'FORAYINTOTEA-DRINKING INDIA 313-186-1 company following suchlocalization, thesales ofcoffee inChina increased by 20% in2011 over 2010, reaching 6.25billion yuan($995 million)' (RefertoExhibit 111value ofcoffee retailed in eh.ina). Sl~rb~cks broughtits best employees from established markets totrain its employees in China to give Its customers theStarbucks experience. Inplace oftake-out orders it promoted the dine-in service by providing acomfortable airconditioned environment -though thisdecreased the revenue persquare meter.However, thisrelative cutinrevenue wasoffset bythe company positioning itsproducts asaspirational purchasesandpricing themhigher thaninthe US, as Starbucks wasseen asastatus symbol. Apartfromthese, thecompany choseitspartners wiselyso as toreach thelocal customers, asChina wasnotahomogeneous marketanditsculture differed with every region.

It partnered withthree regional players-Beijing MeiDacoffee company (north), Taiwan-based Uni-President(east),HongKong-based Maxim'sCaterers(south)-where each brought intheir strengths andlocal expertise, therebyhelpingStarbucks toexpand quickly in the Chinese market.Starbucks furtherintended toopen 1500 stores by 2015 inChina.

Starbucks hadbeen regarded asaposter childofglobalization. Whilesomeconsidered itan example ofexcellence inglobalizing strategies,othersliketheanti-globalization movement considered itaposter childforthe problems posedbyitwhile globalizing. Severalonlineactivist groups criticized thecompany's fair-tradepolicies(purported monopolyonthe global coffee-bean market), laborrelations, andenvironmental impact,andheld itup asan example ofUS cultural and economic imperialism. Forinstance, itopened itsfirst outlet inIsrael inAugust 200 Iand by April 2003ithad toback outfrom thecountry.

It closed downits6outlets inIsrael duetothe anti- American sentimentprevailing inthat country. Thecompany alsofaced problems onthe Arab front asacampaign toboycott American goodswasunderway acrosstheregion due 10 the pro- Israel sentiments ofthe company's ChiefExecutive, HowardShultz.However, asof 2013, the company wasoperating successfully incountries likeSaudi Arabia, Kuwait, Bahrain, Oman, Qatar, andtheUnited ArabEmirates.

Starbucks didnot plan anyadvertising, promotions, ormarketing strategies(exceptsomeonline sponsoring) inany ofits markets, preferring insteadtochoose high-visibility andhigh-traffic cafe locations thatmarketed themselves. However,Starbucksbuiltupastrong community ofdie-hard supporters, whowere convinced thatthecoffee theywere buying wasspecial. Thecompany used social mediaplatforms likeTwitter tobuild thecommunity. Alongwithitsexpanding global footprint, Starbucks alsoembraced ethicalsourcing policiesandenvironmental responsibility.

Since 2000, thecompany startedpurchasing FairTrade Certified coffeetoempower small-scale farmers tocompete inthe global marketplace. By 2010, 75% ofthe coffee itpurchased wasFair Trade Certified, andthecompany plannedtoincrease thatto 100% by 2015.

INDIAN COFFEE MARKET India wasthesixth largest coffeeproducer inthe world witha4%9 share ofglobal coffee production. Theproduction wasmainly confined tothe southern statesofthe country -Karnataka, Kerala, andTamil Naduanditwas consumed mostlyinthe southern partsofthe country. But relatively speaking,Indiaconsumed avery tinyvolume forapopulation of1.2 billion. India represented only 1.4%10 ofglobal coffee demand withaper capita consumption ofcoffee ofjust 85 grams, compared to4.5 kilograms inFrance, 4.6kilograms inJapan, and6kilograms inthe us." However, coffeecultivation wasbeginning tobe promoted inthe rural areas ofAndhra Pradesh andtheNorth Eastern statesoft.he country. Theconsumption ofcoffee toowas increasing across thecountry.

India hadbeen atea-drinking societyforalong time. Itwas thesecond largestproducer oftea after China producing about 950 million kilograms (28% ofglobal production, anaverage of 1991- 20 I013) oftea each year.

It was also theworld's larges~consumer oftea, consuming nearly25~/o.of the global production. TheIndian teaindustry wasestimated to have aturnover ofRs.

330 billion by 2015, upfrom Rs.195billion in2012 withaCAGR of15%." 5 215 L.....:2::..:1.:6~--1I--.::lnternational BusinessStrategy 313-186-1 However, theturn ofthe 21 51 century sawasteady increase incoffee int~keasthe ~oung 8?d middle-class aspiredformore Western tastes.Thecoffee c~lture wassteadily onthe rise. Social gatherings andgroup networking embracedthenew pracuce ofmeeting overcoffee atcoffee shops todiscuss business andpleasure. TheIndian coffeeshop.m.ar~~t grewataC~GR o~25% over thepast fewyears andwas estimated toadd atleast 100million .newco~fee drinkers In t~e near future, Thesepredictions wouldresultinthe potential formore international anddomestic coffee chains toenter intothecountry. Threemajorfactors contributed tothe growth ofthe coffee market inIndia -rise indisposable incomesamongtheyouth, lackofalternative hang-outs,.and the increasing numberofnew office complexes andcolleges. Themarket growth couldbemainly attributed toIndia's growing youthsegment. The2011 estimates revealedthataround 50%of India's 1.2billion people were25oryounger. By2015, thiswas expected toincrease to 55%.lS Coffee shopsserved associal hubsfortheyouth segment, particularly thosewithsteady, disposable incomes.According toShripad Nadkarni, managingdirectorofMarket Gate Consulting, "Coffeechainsofferabasic emotional need-refuge. Theywerebrands between home andoffice.

,,16 It was notjust local coffee chains thatwere looking toenter theIndian coffee market. Foreign players wereexcited byIndia's increasing appetiteforoutside fooddespite risingprices andsigns of an economic slowdown. Sincegrowth andreturns wereharder tocome byindeveloped markets, Indiabecame ahot spot forcoffee retailers acrosstheglobe. Foreign retailers sawthe establishment ofthe cafe concept inIndia withthegrowth ofhomegrown brandslikeCafe Coffee Day andBarista. TheIndian market seemed attractive toglobal coffee retailers asthey didnot have tostart from scratch. By2013, theIndian market became hometomultiple coffeebrands including CafeCoffee Day,Barista Lavazza, JavaGreen, CostaCoffee, Starbucks Coffee,and Gloria Jean'sCoffee, butthemarket wasstillatanascent stage.Theorganized cafemarket in India which wasvalued ataround Rs b II billion witharound 1500 coffee cafesin 2013 was expected togrow toaround Rs.22,5 billion by2017," India wasthefourth largest exporter ofrobusta beans-after Vietnam,Brazil,andIndonesia.

However, industryexpertsopinedthattherising cafeculture andstrategies likelocal procurement were notonly affecting thecafe market butalso global demand andcoffee exports mighttakea downturn becauseofthe increased localdemand. "Asmore production isconsumed domestically, it leaves lessforeX~OrlS, supporting international prices."" saidKeith Flury, asoft-commodity an~lyst at Rabobank III London. RameshRajah,president ofIndia's CoffeeExporters Association, estimated thatthecosts forgrowers, including fertilizer, fuel,andlabor, hadrisen about 40% inthe past twoyears anditsefforts toincrease production hadfailed. Hesaid, "The likelihood of increased production meetingrisingdomestic demandandsustaining exportsisunlikely.t'P STARBUCKS' FORAYINTOINOlA INITIAL HICCUPS In 2006, Starbucks. announced itsdecision toenter Indiaandapproached thecountry's Foreign Investment PromotionBoard (PIPB) forthis. Thecompany proposedto " N H' R'I (i I' ,' ownequity Inew onzon etau, Itslcensee c lor rndl~), a JV between Starbucks' Indonesian franchisee VP Sharma (Sharma) andFU,ture Group CEOKishore Biyani(Biyani) However thea I" iected h dh hecomb! "pprcanon was rejecte on t e groun statte combined stakesofStarbucks andSharma (h' .r. .'.

W ose investment wasalso roreign Investment duetohIS NRI status) breached the51% FDIIl'm't in'1b d 'ich ' ,hat ti II stng eran retail whic was III operation attat time. In April 2007 thecompany submitted .d 1" , , arevise apprcauon steung b Rs.

Represents theIndian Rupee; US$\= Rs.

58,15 as 011 JlU1e 10,2013 Future Groupisan Indian privately heldcorporation thatruns chains ofla d' and warehouse stores.

It has anumber ofbusinesses acrosstheret 'I fi rg~ IISCOUIH ~ep~trnellt. stores au, mancia andservice Industries.

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