Last month, at the India-Asia Investment Forum in Singapore, Alan Rosling, one of the key architects of the Tata group?s globalisation strategy, made the group?s ambitions pretty clear. Rosling said the time had now come for Indian businesses?long cocooned by archaic regulations?to spread their wings globally and also find niches to excel in. For the Tata group, whose globalisation strategy first found articulation in Tata Tea?s acquisition of the UK-based Tetley, the next stage was to gain leadership of chosen fields internationally. Having initiated the process by acquiring a global identity, and having done well thus far, scaling up and becoming significant players in sectors of strength was now the endeavour.
Rosling offered some numbers that put matters in perspective from a Tata?and India?point of view. Tata Steel, after its Corus acquisition, is No 6 in the world. And TCS is No 11 globally. But compare these companies with other global majors, and you get a rather different picture: ArcelorMittal is still five times bigger than Tata Steel, and IBM about 20 times larger than TCS. There were, thus, two choices before the Tata group: to make that transition to global leadership in as many businesses as it could, or find niches where it could survive and grow as local businesses.
The Tata group is now demonstrating that global scale and size is what it aims for, at least in the more significant businesses. So, if Tata Chemicals picked up a 100% stake in General Chemical Industrial Products of the US in a significant deal in January this year to become a major global player in soda ash, the acquisition of the $14-billion Jaguar Land Rover (JLR) by Tata Motors is ample evidence that in the automobile sector, too, its ambitions are of global scale.
Tata Motors signed an agreement to buy 100% of JLR, owner of the Jaguar and Land Rover marques, for $2.3 billion (though the price tag may eventually be higher). This adds lustre to the company?s brand portfolio and gives it unparalleled diversity?from small cars to luxury gleamers. Yes, there will be several challenges following this acquisition. Managing operations of the newly acquired entity will be a big ask, given the global market dynamics, and Tata?s managerial acumen will doubtless be tested to the hilt. There is also the issue of integrating the new brands seamlessly into Tata Motors? overall portfolio. Given the troubles faced by Jag in re-establishing itself in the premium, sporty niche, the Tata management will have to go back to the drawing board and work out a fresh new strategy for the brand.
But, as the company?s chief financial officer C Ramakrishnan pointed out, the combined entity is profitable. The key, therefore, will be to keep cashflows and profitability intact.
Not surprisingly, and in keeping with the Tata philosophy on acquisitions, Tata Motors? managing director Ravi Kant has made it clear that the management of JLR will be taking decisions on the two brands. It will not be a top-down approach, and the management will be given the freedom to run JLR. This autonomy will be critical in ensuring a smooth transition for JLR as it merges into the Tata fold.
The takeaways from the Tata-JLR deal and some others the group has undertaken are significant: there will be severe short-term challenges for Indian companies in their quest for global scale and leadership. But a combination of cultural due-diligence and operational independence for the newly acquired entities is a must. What?s needed is an overarching strategy by which the Indian company assesses the areas where it can make the transition to becoming a global player and then goes about ramping up scale in those segments, either organically or otherwise. Then, it depends on how boldly the global strategy is executed. The global marketplace is not for the weak-hearted. The Tatas apart, many large Indian companies are going to realise that soon enough.
