The making of an Indian Multinational

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Wednesday, March 12, 2008 at 2345 hrs Ratan Naval Tata and his Rs 1-lakh car Nano managed to grab all the attention from the international media, at the recently concluded Geneva Motor Show. Not surprising though, since the car promises to be the cheapest ever produced, and if Tata decides to keep yet another of his promise, it would make its way to European markets, albeit in the garb of a high-end model. That would mark the entry of a 100% Indian product into the European market!

The world is also keenly watching the developments on the Ford front—where Tata is close to clinching marquee brands Jaguar and Land Rover.

Last year, Tata Steel walked away with UK’s steel major Corus Plc in a $12-billion deal, after a tough bidding war with Brazil’s CSN. Tata has been setting up ventures in Mozambique and other regions to feed Corus plants.

Group company INCAT, a global professional services firm bought by Tata Technologies in 2005, is another example. The US-headquartered company serves American and German customers, has big back offices in Pune and Thailand. Tata leather is another case in point. The design for it is in done in Florence, Italy. The leather is made at Indore in India, shoes from this leather are manufactured in Chennai, Madhya Pradesh and China and are sold to Europeans. The different functions across the value chain are done in different places.

For a group with estimated gross revenues of $50 billion this year, this ‘internationalisation’ is expected to result in half the revenues coming in from the overseas markets. This is a significant growth from 2005-06, when only 30% of the total group revenues of $22 billion came from global business. This is also a dramatic change from five years ago, when the company sold 80% of its products in India. Even the 20% it sold overseas, were just exports, be it in steel or automobiles or software.

According to Alan Rosling, executive director, Tata Sons, the term ‘internationalisation’ has two dimensions. The first is the percentage of revenues coming in from overseas, and in the case of the Tatas, it would depend on individual group companies.

For instance, Tata Power’s business is entirely domestic. TCS, on the other hand, would have a large share of revenues flowing in from overseas. Tata Motors may have to find a mix of both exports and domestic sales to keep its profitability going. “Just like US companies, Indian companies too will have a big chunk of their business coming from the home market. We are never going to be 90% international. That doesn’t make sense,” says Rosling.

But it is the second dimension to the internationalisation process that separates the group from its peers in India. It pertains to how and where a company adds value to its products, or ‘a disaggregation of the business system’. “The Tata Group has been able to take advantage of the way the globe is changing. You have got the opening up of the markets, including India, and the government is allowing you to try different things,” says Rosling. Technology has enabled group companies to service markets in many ways, be it physical movement of goods or freight rates coming down,” he adds.

What counts is not just an integrated model of managing raw materials and production lines, but also managing human resources. The group faces the gargantuan task of integrating nearly 40,000 employees of Corus, across their plants in the UK, with its Indian steel company. While it does so, it also needs to be sensitive to the demands of the British steel unions, who do not want job cuts. “The integration of Corus workers will be marked by tolerance of differences and localisation,” says Rosling, adding that the integration process is unprecedented, and that the group will make its own rules as it goes along.

What we see is the morphing of an inwardly focussed business giant into a multinational, but Rosling feels the group will have a long way to go before it can claim to be in the league of MNCs like General Motors or Siemens.

The group is now readying for a new game, involving China in many aspects of the supply chain. It will source, make and sell things in the dragon country. Revenues and sourcing from China are both expected to double. The Tata Group has been there since 1986, but now it is viewing the Asian giant as a priority country as part of its internationalisation efforts.

Having opened an office in Shanghai in August 2006, the group companies were better able to exploit the opportunities in that country. For instance, TCS, in tie up with the Chinese government and Microsoft, has signed a joint venture agreement to develop software business in China, employing 1,200 people. Tata Steel, with the takeover of NatSteel, had bought two rolling mills in China, which will be further expanded. Another group company TACO is setting up a factory in Nanjing to make plastic parts.

But selling things in China will not be so easy, Rosling says. For instance, in steel, Chinese companies have become more competitive, with the result that exports from Tata Steel have slowed down. China is also gaining strength in telecom hardware, heavy industry and power equipment. So over a period of time more Tata Group companies would be sourcing these from that country. “More Chinese companies are collaborating with companies in the developed world, which has made them technologically competitive,” explains Rosling.

Internationalisation is an underlying motif in most of Tata’s business ventures. Maybe it’s a wee bit easier to think about internationalisation in businesses that have traditionally been high on exports, say like TCS or Tata Motors. But even in businesses of recent focus, like the manufacturing of defence-related goods, the Tatas see the potential to internationalise in a big way in the future. For instance, international defence companies are looking to collaborate with Indian companies for sourcing inputs owing to advantages of cost, efficiency or productivity. Says Rosling, “There are components of the relationships we announced recently, where India is being used as part of the global supply chain.” The government’s move for greater participation of Indian private sector companies in defence will provide the Tatas more than a window of opportunity here.