Ratan Tata took control of a moribund conglomerate at the moment India began its economic liberalization programme. He seized his opportunity – and the rest is history.
The foundations for India’s industrial revolution were laid almost 140 years ago when a man named Jamsetji Tata started a textile business.
In its early years, the firm’s diversification took the form of the country’s first steel mill and hydroelectric plant. Now the Tata Group is a vastly profitable, sprawling empire comprising 96 companies with revenues amassing $22 billion last year, an astonishing 2.8% of the country’s GDP. Ratan Tata’s stewardship of the group since 1991 has been crucial to the company’s success, but more fundamentally, it tells the story of modern India’s blistering economic progress and its graduation into a global market player.
Critical Moment
When Tata took up the reins of the company, it was widely viewed as an inefficient, unwieldy conglomerate that largely relied on state support. Its enterprises were run by powerful and conservative elites, who were unaccountable to the holding company (Tata Sons). But as a result of India’s economic liberalization programme launched in 1991, just months after Ratan Tata took control, he pre-emptively sought to restructure the group before domestic and foreign rivals eroded its historic nation-building role. To this end, he democratized the management architecture and improved transparency. He also streamlined his empire, selling off 250 companies in order to focus on core (though still diverse) product lines: information technology and services, engineering, materials, energy, consumer products and chemicals. Ajit Rangnekar, deputy dean of the Indian School of Business, believes this remodelling was of critical importance for the company. “Tata initiated a complete transformation: from a stodgy, slowly decaying company with diverse fiefdoms into a competitive global player. This outstanding job is the finest corporate case study in the management of change in India’s history,” he says.
Going global
With Tata tea, Tata cars, Tata phone networks, Tata computer systems and Tata air conditioners, the company’s diverse products form the backbone for the economic and social life of the ordinary Hindustani. The Harvard-educated executive, however, also has predatory global ambitions that have seen him negotiate some of the more perilous emerging markets to broaden the company’s presence outside India.
He is hoping to spend $2.5 billion to develop energy and steel industries in Bangladesh, although talks are currently on hold because of the ongoing political crisis there. In a similar vein, Tata has contributed to the Black Economic Empowerment programme in South Africa, building countless trade schools and launching the Tata brand, as a springboard to the rest of the continent. Rangnekar says these moves show the company is capitalizing on the concept of driving development in a profitable yet ethical guise. “He very often looks at those countries where he can make a good contribution to improving the life of the poor, and this becomes the basis of their business entry. His belief is that goodwill for the brand will translate into company profits.”
However, his efforts to elevate the group and indeed India’s corporate vision to a new level reached their climax not in other emerging markets, but in western Europe in January this year. At a single stroke, the bold takeover of the Anglo-Dutch steel and aluminium giant Corus Group demonstrated that corporate India is sufficiently capitalized and confident enough to prey on established western rivals. He paid $12 billion for the group, and many analysts warn the resulting leverage is overambitious in the short term, and fear the company could fall victim to any downturn in the steel cycle.
But Tata Steel’s success is more secure in the long term, according to Neelkanth Mishra, Mumbai-based equity analyst at Credit Suisse. “It is by far the best-governed steel company in India. What’s more, they have proven by their deeds, and not just words, their employee friendliness and corporate social responsibility.” Their ability to use this goodwill to secure faster approvals for mines and land acquisitions will enable them to expand capacity earlier than their peers, Mishra tells Emerging Markets.
Outsourcing revolution
In any case, the group has long since diversified beyond heavy industry under Ratan Tata’s leadership. It has been at the forefront of India’s outsourcing revolution, building Asia’s biggest software developer, Tata Consultancy Services (TCS). Through this vehicle, Tata has developed the country’s high-value services industry, providing software for Microsoft and American Express, among many others. Such aggressive expansion has provoked the fear of job losses in the West, as Rangnekar points out. “In the US presidential election campaign of 2004, there were calls for protectionism against the might of India. This global recognition and the global fear about India, made possible by Ratan Tata’s promotion of TCS, made Indian industry believe in itself.”
Proud to succeed
The rewards are clear, with revenues leaping 45% last year. TCS’s business strategy complements India’s vision as a global exporter of services, jobs and ideas. “We created the global IT offshoring industry, and we are launching around the world, with India obviously as the centre and main delivery base,” Arun Aggarwal, head of EMEA consulting at TCS tells Emerging Markets. “But we have also created offshore centres in China to service Asia-Pacific, and in Latin America to service the US,” he notes, underlining the company’s contribution to “south-south” investment and globalization.
The combination of revitalizing old-established industries to capitalize on India’s surging domestic demand, and identifying the potential of new services sectors to tap into globalization, has made Tata the country’s ultimate business patron and a champion for India’s confident embrace of modern-day capitalism. When he warns, in his capacity as chairman of India’s investment commission, that bureaucracy and protectionism are hindering the country’s young, enterprising private sector, the government has every reason to listen.