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Ratan Tata: India's shining jewel
Pete Engardio, BusinessWeek | December 28, 2007
Tata Group chairman Ratan Tata turns 70 today (December 28, 2007).
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 from software, cars, and steel to phone service, tea bags, and wristwatches - usually 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 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 once-stodgy regional player into a global heavyweight. Since 2003, Tata has bought the truck unit of South Korea's Daewoo [Get Quote] 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 International's undersea telecom cables for $130 million, a price that in hindsight looks like a steal, turned Tata into the world's biggest carrier of international phone calls.
With its $91 million buyout of British engineering firm Incat International, Tata Technologies now is a major supplier of outsourced industrial design for American auto and aerospace companies, with 3,300 engineers in India, the US, and Europe.
"We rescaled our thinking in terms of growth," Tata says over tea at Bombay House, the group's headquarters since 1926, 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 has 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 $2.8 billion, respectively.
The three big companies that account for 75 per cent of sales - Tata Steel, Tata Motors [Get Quote], and Tata Consultancy Services [Get Quote] - are enjoying some of their best years ever. And in May, Tata Tea [Get Quote] netted $523 million in profit when Coca-Cola Co paid $1.2 billion for its 30 per cent 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 rocky first decade as chairman, Tata commissioned a sweeping 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 a highway, they did it big, the kind of scale that caused skeptics to say, My God, this is over the top,'" he says. "But China always grew into it." India, he concluded, should also think big - and so should Tata Group. By leveraging India's vast potential, he thought, the company could shift into turbocharged expansion to become a global heavyweight.
The real test for Tata, too, is likely to come when India's boom abates and battles for talent and market share involving both aggressive Indian rivals and deep-pocketed multinationals intensify. But unlike most other Asian groups, "Tata already has proved it can survive turmoil and constantly reinvent itself," says Harvard Business School professor Tarun Khanna, who has closely studied the group for a decade.
He took over 16 years ago - after the death of his gregarious uncle, J R D Tata - just as India began dismantling decades of socialist-style business controls. Tata has overseen sharp downsizing, risky plunges into auto manufacturing and telecom, and a transformation of the conglomerate's insular and lethargic management culture.
Now he wants to prove Tata companies can compete in the rich West as well as in the unpredictable but hugely promising markets of the developing world. What's more, Tata wants to set the group solidly on a path to achieving all this before he retires.
Some even question whether his departure might spur the group's breakup. "Who will be the glue?" worries one veteran insider. "Will there even be a central leader?"
Younger brother Jimmy and three half-sisters aren't involved in Tata businesses. His reclusive half-brother, Noel, runs a Tata-owned retail chain, but it's unclear whether he's tycoon timber. Succession "is a problem," Ratan acknowledges. "I am involved in more issues than I think I should be."
He is intimately involved in all major deals and pushed for acquisitions such as Corus. The ventures into passenger cars and telecom are his babies. And Tata is instrumental in hatching new businesses, bouncing ideas gleaned from his travels to managers for follow-up.
He is a passionate promoter of corporate social responsibility, a mission that dates to the group's founding in the 1870s by Tata's great-grandfather, Jamsetji Tata. The founder was a pioneering industrialist, philanthropist, and fervent nationalist who traveled to the U.S. with a swami, meeting the tycoons of the day. He opened India's first textile mill, in large part to wean Indians from their industrial dependence on Britain, which until then had
milled much of the subcontinent's cotton and then shipped the high-cost cloth back to the colonies. Tata offered worker benefits such as child care and pensions long before most companies in the West, and later one of Jamsetji's sons helped bankroll a young Mahatma Gandhi while he agitated in South Africa for the rights of immigrant Indians.
These two, chaired by Ratan, provide strategic vision, control the Tata brand, and lend a hand on big deals. And Tata Sons can raise cash to launch new businesses or help fund purchases such as Corus. In 2004 it pulled in $1.3 billion by floating a 10% share in Tata Consultancy Services.
For example, former Tata Tea and Indian Hotels chief R. K. Krishna Kumar helped incubate Ginger Hotels, a new chain of budget inns offering free Internet and cable TV for about $25 in India's most expensive business hubs -- one-tenth of what most business hotels charge. R.Gopalakrishnan, who retired from Unilever's Indian affiliate in 1998, is chairman of a new Tata drug-research company and has advised fertilizer maker Tata Chemicals [Get Quote] on an ambitious new strategy to market everything from seeds to low-cost insurance by setting up a network of stores and working with poor farmers to improve crop yields.
Bombay House "offers guidance and sets perspective," says Satish Pradhan, who heads the Tata Group's sprawling management training center in Pune. "We hand-hold the businesses in a nonintrusive manner."
"If you put a gun to my head," Tata declared, "you had better take the gun away or pull the trigger, because I'm not moving." Tata signed a deal with a rival union and broke the strike after a confrontation between police and the militants. "While he doesn't look it," says Muthuraman, "he's one of the toughest people I've ever known."
Over the years, 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 most efficient and profitable producers and began to acquire rivals. "Ratan was the chief architect" of the Corus deal, says Muthuraman. "I was worried about the magnitude and the amount of money.
But he instilled confidence." The strategy: Because Tata is one of the few big steelmakers with its own abundant coal and iron ore reserves, it can produce raw steel at low cost in India, then ship it to Corus' first-rate mills in the West to make finished products.
Tata spends some $40 million a year supplying all civic services and schools, even though it employs just 20,000 of Jamshedpur's 700,000 residents. And in its downsizing program, workers who agreed to early retirement got full pay until age 60 and lifelong health care.
Thanks to funds from Tata, they now have irrigation systems that allow them to grow rice crops and a variety of vegetables. The hillsides are now covered with thousands of mahogany and teak seedlings for future income, as well as jatropha bushes, whose seeds can be used for biofuel. Most children now attend classes in the refurbished school, and the village has three televisions, powered by Tata solar units that also supply enough juice for electric lights and clocks.
Tata says it will proceed with Corus' plans for the mill. But the union representing most Corus workers wants Tata Steel to invest an additional $600 million in Port Talbot to assure it will remain competitive so it won't have to cut jobs. A delegation of 20 Corus labor reps visited Jamshedpur in April to meet the mill's new owners, but Tata executives declined to give guarantees.
"We were extremely impressed by their workforce and commitment to social responsibility," says labor leader Michael Leahy. "But how will they be able to translate those principles into the British and European context? They couldn't answer that."
Tata executives, who won't confirm their interest in Jaguar and Land Rover, have downplayed auto ambitions in the U.S., citing the high cost of entry and their commitments in emerging markets. And an attempt to sell small cars under the Rover name in Britain lasted just two years amid complaints about quality. Tata Motors, which once made only trucks, surprised skeptics with the success of the Indica, an affordable passenger car developed from scratch and rolled out in the 1990s.
The Indica is now India's No. 2 car and is selling well in South Africa, Spain, and Italy. Tata also will soon start exporting cars and trucks through a venture with Fiat 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.
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 in 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 stripped out frills such as reclining seats and a radio. "There is not a lot of innovation," he says. "We didn't reinvent the business."
The company has introduced low-cost, solar-powered water pumps, refrigerators, and $30 lanterns that burn 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 14-inch TV. "But this is a drop in the ocean," says Tata BP Solar CEO K. Subramanya. "We ought to be touching millions."
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.