India’s Largest Conglomerate Tata Group

Brief lntegrative Case 2 The Last Rajah: Ratan Tata and Tata’s Among Asia’s business titans, Ratan N. Tata stands out for his modesty. The chairman of the Tata Group-India’s biggest conglomerate, with businesses ranging fiom software, cars, and steel to phone service, tea bags, and wristwatchesusually drives himself to the office in his $12,500 Tata Indigo Marina wagon. He prefers to spend weekends in solitude with his two dogs at a beachfront home he designed himself. And disdainful of pretense, he travels alone even on long business trips, eschewing the retinues of aides who typically coddle corporate chieftains.

But the 69-year-old Tata also has a daredevil streak. An avid aviator, he often flies his own Falcon 2000 business jet around India. And in February he caused a sensation at the Aero India 2007 air show by co-piloting Lockheed F-16 and Boeing F-18 fighter jetS. Tata’s business dealings reflect the bolder side of his personality. In the past four years he has embarked on an investment binge that is building his group from a oncestodgy regional player into a global heavyweight.

Since 2003,Tata has bought the truck unit of South Korea’s Daewoo Motors, a stake in one of Indonesia’s biggest coal mines, and steel mills in Singapore, Thailand, and Vietnam. It has taken over a slew of tony hotels, including New York’s Pierre, the Ritz-Carlton in Boston, and San Francisco’s Camden Place. The 2004 purchase of Tyco Intemational’s undersea telecom cables for $130 million, a price that in hindsight looks like a steal, turned Tata into the world’s the group plans $28 billion in capital investments at home over the next f,rve years in steel, autos, telecom, power, chemicals, and more.

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‘We rescaled our thinking in telms of glowth,” Tata says over tea at Bombay House, the group’s headquartels since 7926, a tranquil oasis with well-worn marble floors, a vast collection of modern Indian art, and staffers who circulate with bowls of vanilla ice cream every day at 3 p. m. “We just forced and cajoled our businesses to make this happen. ” The forcing and cajoling have worked brilliantly.

The market value of the 18 listed Tata companies has swelled to $62 billion, from $12 billion, since 2003. Group sales and profits have doubled, to $29 billion and $2. billion, respectively. The three big companies that account for 75 percent of sales-Tata Steel, Tata Motors, and Tata Consultancy Services-are enjoying some of their best years ever. And in May, Tata Tea netted $523 million in prof,rt when Coca-Cola Co. (KO) paid $1. 2 billion fol its 30 percent stake in Energy Brands Inc. , the maker of Glaceau Vitamin’Water. Not bad for a purchase made just nine months earlier. “This is a transformed Tata,” says Rajeev Gupta, managing director of private equity shop Carlyle Advisory Partners. The global push began four years ago.

After a roc? biggest carrier of international phone calls. With its $91 million buyout of British engineering frm Incat International, Tiata Technologies now is a major supplier of outsourced industrial design for American auto and aerospace companies, with 3,300 engineers in India, the United States, and Europe. frst decade as chairman, Tata commissioned a sweeping The crowning deal to date has been Tata Steel’s review to plot strategy, including a study comparing India with China. He was struck by the sheer audacity of Chinese projects. Whether they built a port or ahighway, they did it big, the kind of scale that caused skepttcs is over the top,”‘ he saYs. “Bu[ o it. ” lndia, he concluded, should should Tata Group. By levercgin9 into rurb $13 billion takeover in April of Dutch-British steel giant Corus Group, a target that would have been unthinkable just a few years ago. In one swoop, the move greatly expands Tata Steel’s range of finished products, secures access to automakers across the United States and Europe, ocharg” and boosts its capacity fivefold, with mills added in

Pennsylvania and Ohio. leagues Now, a new gambit may catapult Tata into the big of global auto manufaCfu? ing: The company is said to be weighing a bid for Jagiar Cars and Land Rover, which Ford Motor Co. wants to sell. On top of all this, 372 Brief lntegratiwe Case 2 The Last Rajah: Ratan Tata and Tata,s Global Expansion 373 Building an oryanization with a coherent vision and major deals and pushed for acquisitions capable of succeeding in so many industries and so many such as Corus. The ventures lnto passenger markets, though, is a daunting cals and telecom are his task.

Asia has wrtnessed babies. And Tata is rnstrumental the rise of many soup-to_nuts in hatching new busi_ behemoths that thrived nesses, bouncing ideas gleaned when economic tides were from his travels to manag_ high, such as Korea’s Daewoo, ers for. follow_up Thailand’s Char. oen Pokphand, and Indonesia’s Salim Ratan Tata serves another Group. Most eventually fell vital function: While at ease apart. The leal test for Tata, with lawyers and inves tment too, is likely to come when bankers, he remains firmly India’s boom abates and bat_ planted in the developing tles for talent and market share world.

He is a passlonate pl-o_ invol ving both aggr. essive motel of corporate social responsibilitv. Indian r. ivals and deep-pocketed a mission that multinationals intensify dates to the group,s founding But unlike most other Asian groups, ,Tata in the 1SZos by Tata’s greatalready has grandfather, Jamsetji proved it can survrve turmoil Tata. The founder w as a proneering and constantly reinvent industrialist, philanthropist, itself,” says Harvard Business and fervent nationalist who School professor. Tar. n traveled to the United States with Khanna, who has closely studied a swaml, meeting the the group for a decade. tycoons of the day. He opened AI the center of the emptre is India, s hrst textile mill, in Tata himself. An ar. chi_ large part to wean Indians tecture graduate from Cornell from their industrial dependUniversity in 1 962, he ence on Britain, which until then serves as the gr. oup’s chief dealmaker had miIed much of the vrstonar. y, and spir_ subcontinent,s cotton and then itual cement. He joined the company, shipped the high-cost cloth after college, then back to the colonies.

Tata offered steadily rose thr. ough the ranks. worker. benefits such as He took over 16 years child care and pensions long before ago-after the death of his gregarious most companies in uncle, J R. D. the West, and later one of Jamsetji ‘s Tata-just as India began dismantling sons helpecl bankroil decades of socialista young Mahatma Gandhi while style business controls. Tata has he agitated in South overseen sharp downsizAfrica for the rIghts of immigrant ing, ris? plunges into auto Indians. manufacturing and telecom, To thjs day, the Tata Gloup and a transformation of the r. mains devoted to good conglomerate ‘s insular and works: Charitable trusts own lethargic management culture. 66 percent of the shares in Now he wants to prove parent Tata Sons, and many of its Tata companies can c ompete companies fund gr-assin the rich West as well roots antipoverty plojects that seem as in the unpredictable but far lemoved from hugely promiOing markets of their core businesses. Ask the developing world. What’s the chairman to name mole, Tata wants to set gloup’s the biggest challenges and he quickly the group solidly on a path to achieving all this befo? cires two: “Talent, and retaining he retires. our value system as we get bigger. and more diverse.

We have The barrel-chested tycoon to rncrease the management hasn,t named a successor. or bandwidth, and with the same said when he plans to step ethical standards. ,, down. He,ll t* iO in Decem_ He also concedes that the gr. oup be? , but he still has a vicelike is much less focused handshake, and associates than he envisioned back in are amazed at his command 1991, when he pledged to pare of nomb”. , and technical it from details of the various Tata scores of companies to companf”r. fr”i_”r. es his fail_ . just a dozen did dump marginal businesses-cosmetics or so. Tata ure to designate a successor all the more disconcerting. cement-but pants, and Some even quesrion entered letail, telecom, biotech, wherhe? hi. ,t;”;:tuiriigtrt and others spur the Today, Tata Group . ,V/ho compnses nearly 100 companies will U” tti” 4u”f,;’rorries one i:up’s breakup. with 300 subsidiaries in 40 businesses. veteran insider. ,,Will there even be u-. “noul leader? ,, Slimming the group down “is Tata to oversee the gr. oup. y at a company museum. rough gener. tions of parsi escended from persians. one ar. ea where set out to do,,,he admits. I have not succeeded in what I d childless_and his siblings.

It His r-eclusive half_brother, tail chain, but it,s unclear Succession ,,is a problem,,, volved in more issues than does step down, Ratan Tata hough he and other family of shares in Tata Sons, the h controlling stakes in its three half_sister. s aren,t s key units including Tata inrimarely inr4plved in all nesses His hope is that Tata ‘s unorthodox structurc will give individual companies the agility to respond to new opportunihes and ill. ats. “The organization is a lot lighter than a Wester. n conglomerate, says Alan Rosling, a Bliton who spearheads international expanston for Tata. “There is no central sftategy. We don ‘t even have consolidated finan_ cial statements, ” The group is bound together by the small staffs of Tata Sons and another holding company, Tata Industries. These two chaired , by Ratan, provide strategic vtslon, control the Tata brand, and lend a hand on big deals. And Tata Sons can raise cash to launch new busi_ or help fund purchases such as Corus.

In 2004 Part 3 lnternational Strategic Management in pulled in $1. 3 billion by floating a 10 percent share the companY’s home b time capsule of a more city of genteel coloni urld, hu”k”d from the $40 million a Year sup even though it emPloYs residents. And in its agreed I’esembles a I age, a leafY wide boulesPends some to early retirement got full pay until age 60 and lifelong health care. Tata Steel also spends mlllions annually on education’ nearby health, and agricultural development plojects in 800 a dusty outpost villages.

In Sidhma Kudhar, for instance, of whitewashed stone houses with thatched roofs’ the crop 32 families until two years ago subsisted on a single a nonintrusive manner. ” The chief steward, though, cleally is Ratan Tata’ He jatlopha bushes’ seedlings for future income, as well as now whose ieeds can be used for biofuel’ Most childlen village has attend classes in the reftrrbished school, and the tll’ee televisions, powered by Tata solar units that also supply clocks. strike at Tata Motors’ Pune plant, militant unionists of the assaulted Tata managers and occupied a section city. higher-cost operations u*”stion will the test now that Tata loads the Indian steeland absorbing Corus’ weaken malgins’ One key “If you Put a gun Tata is what to do with Cot’us mills such as the one at port Talbot in Wales, which employs 3,000 workers’ Tata says had better take the gun I’m not moving. ” uraman, But the u it,” says Muthpeople I’ve ever Tata Steel Talbot to have to cut jobs. and broke the strike aft and the militants. “While he doesn’t look “he’s one of the toughest A delegation of 20 Corus labol reps known.

” The transformation of Tata Steel illustrates his impact’ obal In the early ompetition, antiquated P entation . *itl or1- Leahy. “But how will own’ “We comichael they be able to translate those prin- calls Muthuraman. Over the yeats, Tata cut the workforce from 78,000 to 38,000 and spent $2. 5 billion on modernization’ A decade later, Tata Steel had become one of the world’s efficient and profitable producels and began to most acquire rivals. “Ratan was the chief architect” of the Coius deal, says Muthuraman. “I was worried about the conmagnitude and the amount of money’ But he instilled Because Tata is one of the few big fidence.

The strategy: ore steelmakers with its own abundant coal and iron produce raw steel at low cost in India and reserves, it can then ship it to Oorus’ first-rate mills in the Vy’est to make finished products. But Tata Steel highlights the challenges of balancing Old World ways with New Economy realities’ Jamshedpur’ TheY ciples into the British and European context? couldn’t answel that'” A bid fol Jaguar and L even more daunting challe give Tata a luxurY bland an would be an uPhill climb to r which was damaged bY sha Tata executives, who won’t c and Land Rover’, have dow United States, citing the hig mitments in emerging m mall cars under the Rover years amid comPlaints abou once made onlY trucks, sur cess of the Indica, an affor grief lntegratiwe Gase 2 The Last Rajah: Ratan Tata and Tata’s Global Expansion 375 from scratch and rolled out in the 1990s.

The Indica is now India’s number-two car and is selling well in South Africa, Spain, and Italy. Tata also will soon stafi exporting cars and trucks through a venture with Fiat (FIA) and is eyeing a similar project in South America. The company had another big hit in 2006 with the Ace, a bare-bones truck for less than $6,000.

Tata already is boosting its output from 75,000 minitrucks to 250,000. energy giant British Peffoleum (BP), supplies buildings in Germany with rooftop solar-electric systems. But in developing nations, the company sees a vast market in bringing affordable power to villages that are off the power grid. The company has introduced low-cost, solar-powered water pumps, refrigerators, and $30 lanterns that bum for two hours on a day’s charge. And it has fitted 50,000 homes with $300 systems that can power two lights, a hot plate, a fan, and a l4-inch TV. “But this is a drop in the ocean,” says Tata BP Solar CEO K.

Subramanya. “We ought to be touching millions. ” There is little question that the opportunities for Tata in India and abroad are staggering. But can the group succeed on all these fronts simultaneously? The interesting dilemmas will come when the Indian economy slows and some Tata affrliates inevitably stumble. Future managers could look at expensive burdens such as Jamshedpur and rural-development projects as tempting targets for cuts when times get tight. Tata companies could lose interest in low-cost goods for the masses without a passionate promoter as group chairman.

And the group could take a tougher look at businesses to spin off. For the foreseeable future, though, these are nonissues. Though Tata vows that he “won’t carry this on endlessly,” he says he will stay on at least two years beyond when he chooses a successor. So he seems likely to fulfrll the last big item on his agenda: building a network of companies capable of tluiving in 21st-century global competition while still adhering to traditional values long after the departure of Ratan Tata. Strrrnlrles Ratan’s big passion, though, is the “one lakh” car. (One lakh is 100,000 rupees.

And that many rupees equals about $2,500. ) Since the mid-1990s, he has wanted to develop reliable but supercheap vehicles, a project he believes could ultimately revolutionize the auto industry and make India a major economic power. Tata personally supervised the project and traveled frequently to Tata Motors’ development center in Pune to check on progress. Originally he envisioned a fundamentally new kind of vehicle-one made of plastics, for example, that didn’t even resemble what we think of today as a car. He concedes that the spartan, oval-shaped model to be launched n early 2008 doesn’t meet his lofty aims. It’s made of steel. And it looks like, well, a car. To get the price to $2,500, engineers shrunk the size and stlipped out frills such as reclining seats and a radio. “There is not a lot of innovation,” he says. “We didn’t reinvent the business. ” Tata has similar ambitions to reinvent solar energy. Tata BP Solar Ltd. , a $260 million venture with British Go-Go Tata Since beginning a global push four years ago, lndia’s once-plodding Tata Group has expanded aggressively at home and abroad in a wide range of industries.

Some of its major holdings: Building a new car plant and sharply boosting output of its small truck, the Ace. A new venture with Fiat will co-produce 1 50,000 cars and 250,000 trucks annually. The biggest gamble: a $2,500 people’s carto be launched in 2008. s7. 2 $490 Billion Million l+260/0l (+36%) TATA STEEL Bought mills in Singapore, Thailand, and Vietnam, and is now expanding in lndia. With its $13 billion purchase of Corus, Europe’s No. 2 steelmaker, capacity should reach 50 million tons by 2010, behind only Arcelor Mittal. $6. 6 $923 Billion Million (+ee%) +33%) Tata Co N SU Ttancy Servi CES Biding the software and tech services outsourcing boom, TCS has grown explosively in the past five years. Now it’s developing its own software for $4. 2 $930 = z Billion Million transportation, retail, finance, and other industries. All figures for fiscal year N4ar 31, l+41%l l+43%l 2007 ) ,,, 37lo 0uestions for Review Part 3 lnternational Strategic Management l. How do the Tata Gr. oup’s strategies in its home market differ from its international ventures? Do you think joint ventures are essential for Tata’s future success? 2.

What haye been Ratan Tata’s most important strate_ gic initiatives for the company? Should his succes_ sor follow in his footsteps or pursue new paths for growth? 3. V/hat risks might Tata face in its global expansion? How might it manage their risks? Source: Reprinted with special permission from pete Engardio,The Last Rajah: India’s Ratan Tata Aims to Transform His Once Stodgy Conglomerate Into a Global Powerhouse. But Can It Thrive After He Steps Down? .