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Tata Group – Expanding Global Platform By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory

02 Dec 15. tataDespite the fact that Tata Steel Europe, along with most other European based steelmaking activities others, is struggling Tata Group, the huge Mumbai, India based multinational conglomerate is continuing to invest in all of its many activities. Tata Group continues to be a fascinating company to observe and amongst the long list of subsidiary activities will be found energy, steel, technology, chemicals, communications, hotels, beverages and many other interesting areas. This is a true multinational conglomerate and one that works not only for its shareholders and employees but in the economies of the countries in which it invests.

However, whilst this is a company that is clearly continuing to expand it appears to me that Tata Steel Europe’s problems, caused primarily by the collapse in world steel prices on the back reduced demand combined with the sharp slowdown on China’s economic growth, may be obscuring the ongoing success of bulk of Tata Group’s other international based businesses and importantly, the huge ongoing investment that the company is continuing to make in countries such as Britain.

Tata Group’s international based expansion over the past fifteen years has almost all been in-country investment led. This is an essential part of the strategic culture and Ratan Tata is the visionary responsible for putting this already vast and expanding group into the position of strength that it is today. I use the word ‘visionary’ with good reason simply because Ratan Tata has long believed that real and lasting success in business can only come through investing in the companies that have been acquired.

Investment in subsidiary product, people and manufacturing is a recipe that has, in my view, been the making of Tata Group over the past 15 years. Here’s another way of looking at it. For many a large company such as Tata the past recession was a time when the investment tap needed to be turned off. Not for Tata, here it was the opposite meaning that recession was a time to turn the investment tap up even further.  The lesson from that is that investing on the way down was, to Ratan Tata at least, something that was just as important as investing on the way back up. Even so, I suppose that if there is one thing above all else that Tata has successfully demonstrated to me about how to go about strategic growth and it is this: seemingly mature companies also thrive on new investment as well.

Jaguar Land Rover (JLR) which Tata Group had acquired in 2008 is a near perfect and yet quite typical example of how the buying company chose investment in both research and development, product, people and facilities as a big part of the plan to rejuvenate the company and in the process to drive better performance, create growth, grow market share and enjoy better bottom line success. Three years later in 2001 having already announced large scale investment plans for some other JLR plants Tata sanctioned a massive £1bn investment in a new engine manufacturing facility in Wolverhampton. If you want to see advanced manufacturing really at its best then the Wolverhampton factory to which I refer is the place to visit. Today the huge and now fully completed facility employs over 700 highly and as part of another recently announced expansion JLR is to invest a further £450 million at the same engine manufacturing centre. This will all but double the existing size of the plant and also lead to a significant number of new jobs being created.

Tata Group has one of the most successful and sustained global expansion strategies that I have ever come across and it is one that all those countries in which Tata Group has invested should be proud. The company has been transformed in little more than a decade from the India-concentrated industrial and service based conglomerate into a large international group with vision. Ratan Tata, the eleventh chairman of the company retired in 2012 as was succeeded by Cyrus Pallonji Mistry. He has wasted little time in taking the group further forward and building on the vision laid out by Ratan Tata. Today the aim is simple – to not only take Tata into the world’s top 25 list of large companies by 2025 but also one that is , touching 25% of the world’s consumers.

A host of Tata companies – Jaguar Land Rover, TCS, Tata Global Beverages, Tata Communications, Tata Chemicals and Tata Technologies – all seem poised for further expansion and growth next year as the group drives towards the ‘Vision 2025’ objective. And 2016 will see the group grow markets that it has entered relatively recently such as in Aerospace and Defence, where the company has already forged alliances with leading global players.

An impressive company then and one that is well worth watching and supporting. The facts speak for themselves and it is worth noting that the result of Tata’s internationalisation means that the group market worth has increased from less than £5 billion in 2000 to £74 billion today.

To bet against Tata achieving the vision it has set out would be foolhardy in my view and while there can be no doubt that the European steel crisis has hurt the company they will I am sure eventually come out on the other on top when and if steel process begin to normalise, perhaps later next year. We will see.

A company that seeks to ignore its recent history is not one worth knowing and Tata Group is certainly not in that category. The investment led international growth based strategy developed by Ratan Tata is fascinating. Conceived in the mid-1990s, Ratan Tata only started to implement it only when he was confident that Tata’s industrial base in India was strong enough to compete with the overseas rivals who were beginning to enter the Indian market after India liberalised its economy.

In 1995 he instituted the Tata Business Excellence Model (TBEM), which was based on the Malcolm Baldridge Awards pioneered by the US, and which this year celebrated its 20th anniversary in the group. By 2000, the TBEM had helped Tata’s domestic operations achieve significant improvements in competitiveness and it was only then that Ratan Tata felt confident that he could launch the internationalisation drive.

Here are some other interesting figures that demonstrate what has occurred in the 15 years. In 2000, only 20% of Tata’s group revenues of £5.5 billion were from outside India. Last year, the figure was almost 68% out of group revenues of more than £67 billion. In deciding to internationalise, Ratan Tata was quick to see both opportunities and also significant threats.

For instance, while Tata companies could capture significant growth outside India and counter the increasing foreign competition entering the domestic market Ratan Tata reckoned that India would challenge their domestic predominance. India’s historic trade barriers were already falling like ninepins and it would have been imprudent to have ignored the threat that this presented. Such foresight proved to be accurate and was to be exemplified by what has happened in the Motor industry where a host of overseas vehicle makers flooded into India but where, through the JLR acquisition, Tata Motors was already an established global market player.

Initially, Ratan Tata was nothing if not cautious meaning that the very first Tata international acquisitions were relatively small albeit being strategically extremely important. Notable amongst the earlier acquisitions was the Tetley Tea purchase in the UK and two North American acquisitions by Tata Communications. Only when these acquisitions had paid off did Ratan Tata ready for the group to make bigger deals – Corus in 2007 and Jaguar Land Rover in 2008.

The Corus acquisition was initially profitable but has been a growing problem since the Eurozone slump in 2010 and now is being badly hit by the world steel industry crisis. JLR has been an outstanding success and more than quadrupled the market value of Tata Motors from £4 billion just before the acquisition to £13.5 billion.

Tata Motors, TCS, Tata Communications, Tata Global Beverages, Indian Hotels, Tata Chemicals and Tata Technologies have all been significantly strengthened by successful overseas acquisitions. More specifically, Tata Global Beverages was formed by the acquisitions of Tetley in the UK, Eight O’Clock Coffee in the USA and some others. Tata Communications now carries almost a quarter of the world’s internet traffic mainly because of the global network it acquired through US based acquisitions.

The various acquisitions made over the past 15 years have put Tata on the global corporate map. They have also opened up new overseas markets and brought with it access to new technology, products, processes and marketing capability. Arguably, Tata’s establishment as a worldwide group today has been instrumental in helping the company move into new industrial sectors such as Defence and Aerospace. The latter is one of four clusters identified by Mr Mistry as being new sectors for expansion. These are activities worthy of attention by Tata and they further reflect his predecessor’s internationalisation plan also be facilitated through formation of international partnerships with global giants such as Boeing, Airbus and Lockheed Martin.

Noticeably the Indian Government has recently signalled a welcome of joint ventures when it raised to 49% the limit on foreign shareholdings in aero and defence businesses. This bodes well for the future.

CHW (London – 2nd December 2015)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710-779785

 

 

 

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