Take some tea, add some salt, plug in the software, check out your customer on the phone, double check the time, load your stuff on a truck, then drive down to your favourite five-star hangout in your favourite passenger car built with the world’s finest steel. That’s what you call a deal. Whatsit? you may ask. We’ll give you a clue: OK TATA! Ratan Tata, if you please.
India’s economic reforms, now in its 15th year, have run almost synchronously with Ratan Tata’s tenure at the helm at Bombay House, ever since JRD Tata vacated his saddle in 1991. It’s been an eventful decade-and-a-half. Soon after taking over as chairman of Tata Sons, Ratan Tata said: “My goal is to attain market leadership or at least be one of the top three players. Otherwise, we must seriously consider getting out of a business.” By 2005, Mr Tata seems to have almost reached his goal, though he’s yet to run the entire course he set out for himself when he took over the mantle.
Tata Tea is the world’s largest tea company today. Tata Salt is the country’s No. 1 salt brand with a 37% market share and among India’s most trusted brands. Tata Consultancy Services is the country’s top software services exporter. Tata Telecom is among the country’s top private-sector telephone operators. Titan, the country’s top watchmaker. Tata Motors is the country’s biggest truck and bus manufacturer with a 70% market share and the third largest manufacturer of passenger cars. Taj of the Indian Hotels is among the country’s best-known hospitality brands. And Tata Steel is the country’s biggest private sector and the world’s lowest-cost producer of steel. The Tatas also operate one of the world’s largest undersea cable networks. And with 38 listed companies, the Tatas are India’s largest private sector corporate group by market capitalisation at Rs 1,38,855 crore against the Ambanis' Rs 1,22,270 crore (at the time of going to press).
As Mr Ratan Tata himself said once: “A successful brand has demonstrated a certain character over a period of time, which it does through its interaction with the consumer. Our tea, salt, trucks, buses, cars and watches help us develop customer intimacy, while companies like TCS and Indian Hotels provide customer interaction with specific stakeholders.” Could Mr Tata have asked for more? If one goes by the vision statement he carved out for the Tata Group way back in 1983 after taking over as chairman of Tata Industries in 1981, the world should have been his oyster. Yet, his achievement so far has been one of soaring ambition. And why not?
An architect by training from Cornell, the young Ratan Tata washed aeroplanes at the local flying club to gain flying hours as the government restricted foreign currency spending by individuals abroad in the socialist ’50s. That attitude of finding a way out to keep his dreams alive is what calls for one of post-liberalisation India’s truly great corporate legends in the making.
Flashback to 1962: “Most people don’t know that I have spent six years in Jamshedpur in Telco. Beginning in 1962, I spent two years on the shop floor, then in the engineering division with projects and finally as technical assistant to Mr Nanavati, director-in-charge in those managing agency days. That is what the chief executive used to be called then.” So said Ratan Tata on 25 April, 1993.
Life in the early years at Tata was never hunky-dory for Ratan. Not until he came into his own, after 20 years in the waiting. After the Telco stint, Ratan was sent on a short stint to Australia before being put in charge of the group’s sick companies. “I was given two sick companies supposedly to train me. First Nelco, and then I had also to take over the ailing Central India Textiles,” Mr Tata would recall later. The crown jewels were the preserve of professional managers. JRD ‘Jeh” Tata believed in corporate democracy. So, he carved out the Tata empire among his many powerful satraps. While the mercurial Russi H Mody ran Tata Steel, Darbari Seth controlled Tata Chemicals and Tata Tea, Homi Sethna Tata Electric, A H Tobaccowala Voltas, Freddie Mehta textiles, Nani Palkhiwala Tata Exports, Ajit Kerkar Indian Hotels, Simone Tata Lakme, Xerxes Desai Titan and J J Bhabha publishing. Ratan Tata took over as Telco chairman only when an ailing Sumant Moolgaokar called it a day in December ’88. So, as Darbari Seth would recall years later: “In law and theory, all Tata companies are autonomous and thus constitute a Commonwealth of nations.”
Soon after taking over as chairman of Tata Industries in 1981, Ratan Tata set his vision rolling for the group’s future. Those were the days of the 21st-century dream of Rajiv Gandhi, who was soon to take charge as India’s prime minister and initiate the first positive moves to unshackle Indian industry from the licence-permit raj, deeply entrenched during the reign of his mother Indira Gandhi. By the end of 1982, the assets of the Tata group stood at Rs 2,430 crore and those of the Birla group at Rs 2,005 crore. In 1983, Ratan Tata laid out his vision of the future in a bold policy document titled the Tata Strategic Plan. The plan implied rationalisation, focus, and cohesion. It questioned the entry of group companies into industries where they would directly compete with each other. But, it was also a period in Tata's history when the satraps held sway and Ratan Tata operated on the periphery. No wonder Ratan Tata’s plan found few takers.
Justifying the plan subsequently, Mr Tata said: “You must remember there was an explosion of technology in the West in the late seventies: the super mini-computer, parallel processing, artificial intelligence, the convergence of computing and communications into information technology and biotechnology. So I thought the Tatas should be in these areas. I argued why shouldn’t the Tatas enter those fields of recent technological advancement which have application potential in India, like supercomputing or artificial intelligence, both of which are software-driven, tissue culture for plants, new composite materials and telecommunications.” Tata Industries proposed to set up a new project for the manufacture of large supercomputers with the latest technology in the field. Artificial intelligence, a new field providing software applications for companies, was another area he wanted to enter.
But with little or no support from the satraps, Ratan Tata launched Tata Industries into oil drilling (Hitech Drilling), computer software (TCS, Tata Honeywell and Tata Unisys) and telecommunications (Tata Telcom).
Mr Tata found his big opportunity in telecommunications when Rajiv Gandhi opened the sector to private sector participation. Tata Industries applied to set up an electronic PABX project in technical collaboration with a Canadian company. In contract oil drilling, the group tied up technical and financial arrangements with Forex Neptune. The Tatas also planned to enter biotechnology to help improve plantation yields and introduce new crops.
In the years to come, Tata Consultancy Services was to emerge as India’s biggest software exporter. As Mr Tata said then, “We intend to build up the project with the small nucleus already created by the Tata Consultancy Services at Pune.”
By 1990, three or four areas were clearly emerging as centres of future focus. Ratan Tata believed the group must build on its newly-developed interests in telecommunications and electronics, and on its existing strengths as a sophisticated engineering group, to go into areas such as aerospace, defence and possibly, public switching systems.
A second area where he saw immense potential because of Tata's reputation with investors as financial services, while agriculture was identified as a third area of expansion with an explosion in farmers’ incomes.
However, plans for building a supercomputer never really took off. Also, the group remained a fringe player in oil drilling, biotechnology and financial services; an ambitious plan to launch an airline in partnership with Singapore International Airlines got enmeshed in bureaucratic red tape and had to be abandoned, and after soiling their hands in telecom equipment manufacturing, the Tatas actually took the profitable services route once telephone operations were thrown open to private investment.
Ratan Tata justified his plans as being in tune with the group’s founding vision. As he was to subsequently say, “Jamshetji Tata was looking at the new frontiers of Indian business when he launched the first ventures of the group. He set up the Empress Mills in Nagpur, the cotton growing centre — and remember, at that time simulated the necessary humidity by installing a moisture spraying system. He saw limestone and coal in the middle of what was then a jungle and set up a steel mill in Jamshedpur. Jamshetji Tata took a national view and so, inevitably, we were in basic industries and infrastructure.”
The ’90s, he felt, provided an opportunity to carry forward that dream. By his own admission, the Tatas had been unable to grow and modernise, sometimes because of pre-emptive lobbying, as in the case of manmade fibres. Their passenger car proposal in collaboration with Honda in the mid-80s was rejected. Tisco was not allowed to expand in the manner that was needed and its entry into special steels was thwarted.
As one of the group satraps Freddie Mehta said in August 1990: “In the 1970s, every single application by the Tatas (for industrial licence) went into the waste paper basket.”
Meanwhile, the weight of the satraps and the curbs of the licensing era had brought about an unhealthy rivalry between the group’s two biggest companies, Tisco and Telco. “In terms of synergy, an unfortunate distance has existed between the two (Tisco and Telco), rivalry almost.” It was time for Tata to remove these irritants and work towards having them operate as sister concerns, which is how they had operated once. Anyway, among them, Tisco and Telco contributed to almost half the group’s turnover.
The ’80s allowed Mr Tata to mould the group in his vision. But it was only the beginning. With the opening up of the economy in the early ’90s, the time had finally arrived for Ratan Tata to script his own tryst with destiny. This is why, Jerry Rao, then vice president and chief executive of Citibank in India would say: “The 1990s is the decade of the Tatas.”
The early years of the ’90s saw the government and investors place an unprecedented faith in the Tatas, who were looking at investing Rs 5,000 crore in fertilisers, a new petrochemical complex at Haldia in partnership with the state’s Marxist government, and an oil refinery. In November 1991, the industry ministry issued a fresh letter of approval for the Tata-IBM joint venture. In December of that year, Tata Timken’s equity offer of Rs 20 lakh worth of shares to the Indian public was oversubscribed 3,700 times and the cumulative issue of equity and debentures 71 times.
It was also time to add a new shine to the Tata crown jewels Telco and Tisco. Traditionally Telco had been in the medium to heavy vehicles space, and later, into LCVs. Telco needed to modernise and update its vehicle line, before getting into passenger cars. “I helped conceptualise the Sierra which along with the Estate, are the bridge, so to speak, between commercial vehicles and passenger cars,” Mr Tata would say. By the ’90s the Sierra and the Estate gave way to two workhorses from the Tata stable, the Sumo and the Safari — a 4-wheel drive SUV. Both proved highly successful in the market. But from then on, Telco had to also choose between two market segments for passenger cars — a low-priced, high-volume car or a larger low-volume car. Initially, Mr Tata opted for a large, upmarket car of international standards. It was the beginning of his “Asian car” dream.
Yet, by 1998 that dream gave way to a pathbreaking passenger vehicle, Indica, incorporating the power of a mid-size vehicle at an almost entry-level price, competing with the likes of Zen and Santro. Indica had its genesis in the phrase ‘India car’ and went on to become one of the best-selling models in the crowded passenger cars market. Eight years on, Telco, since renamed Tata Motors, is working on a model replacement for the Indica by 2007. The success of its passenger car venture saw Tata Motors listed on the New York Stock Exchange in September 2004 to become the first Indian engineering and motor entity to do so and the second Tata company after VSNL.
The year 2004 also saw Tata Motors take over Daewoo Commercial Vehicle Company (DWCV). The Korean company will be involved in Tata Motors’ efforts to make the “truck of the future”, the prototype of which is likely to be ready by 2005-06.
Ratan Tata’s other major initiative involved Tisco, since rechristened Tata Steel. For years, Tisco had been the largest money-spinner for Tatas. But it also reaped the dividends of a closed economy, with no real competition, and a massive and redundant workforce. For Tisco to be a meaningful player in the liberalised system when other private sector players started eating into its space, the company had to reinvent itself as a leaner organisation with efficient scales of operations.
Ratan Tata’s first priority was to bring in professional management at Tisco. This ultimately forced the departure of its maverick strongman Russi Mody in May 1993. Next, Mr Tata set about rationalising Tisco’s workforce. So, between 1996 and 2001, he got Tisco to shed 30,000 employees at its Jamshedpur plant from 78,000 to 48,000. There were murmurs of protest from sections of left-leaning unions, but not a day’s loss of work was reported. The employees were given a handsome retirement package and most of their social security entitlements were retained till their actual age of retirement. At a time, when fears of retrenchment raised fears of workers’ unrest across giant public sector enterprises, Tisco affected the country’s biggest and most successful voluntary retirement scheme. The results were for all to see. In the period between 31 March 1996 and 31 March 2001, Tisco’s topline grew from Rs 6,349.35 crore to Rs 8,490.78 crore, though its bottom line fluctuated between Rs 565.70 crore on 31 March 1996 and Rs 553.44 crore on 31 March 2001. Much of the fluctuation would have resulted from the massive retrenchment payoffs. But if you look at the full impact, then Tisco, with its much-depleted labour force, posted a topline of Rs 15,876 crore and a bottom line of Rs 3,474 crore on 31 March 2005. In the meantime, while Tisco’s capacity rose by only 500,000 tonnes between 1991 and 1995, it increased to 3 million tonnes from 2 million tonnes between 1996 and 2001. In 2002, Tisco also planned to set up a Rs 300 crore, 120,000-tonne ferro chrome plant in Richard’s Bay in South Africa and was closely looking at a titanium plant, billed to be the “metal of the future”. In 2004, Tisco acquired the Singapore-based NatSteel for Rs 1,313 crore. Today, Tata Steel has a capacity of 5 million tonnes and is planning to expand capacity to 7.4 million tonnes by 2008-09.
What is more, by 2007, Tisco is also billed to enter at least one major new business that would be comparable to the core business of steel. The company started working in collaboration with Nippon and Arcelor for car outer panels and coated galvanised bodies, pushing Tisco into the league of leading suppliers of advanced steel sheets for interior as well as exterior parts for most Indian car makers. By early 2005, Tata Steel was looking to buy coal mines in Australia, Indonesia, Mozambique and New Zealand as part of its plans to more than triple production to 15 million tonnes.
Meanwhile, by 2003, the Tatas were creating a new entity in Jamshedpur. Tata Main Hospital Ltd, employing 1,200 people, till then run by Tisco, was created as a new corporate entity. A separate utility company, Jusco (Jamshedpur Utilities and Services Co) was also created earlier in the year as a wholly-owned subsidiary of Tata Steel, employing 1,300 people to manage the steel city’s civic infrastructure.
Ratan Tata also initiated a major overhaul of the group’s tea business. Having earlier acquired the British tea brand Tetley, the world’s largest tea brand, Mr Tata set Tata Tea to reorganise Tetley’s global operations by 2003. Tetley is now one of the fastest-growing tea brands in Australia. In early 2003, Tata Tea moved the entire Tetley manufacturing operations at Yara, Australia, to its value-added business operations base in Kochi. Tata Tea is the largest integrated tea company in the world with 53 estates spread over 24,500 hectares in Assam, West Bengal, Tamil Nadu and Kerala, and accounting for 8% of India’s tea production. The company also operates a 100% EOU for instant tea, the largest facility outside the US. Tata Tea’s interest in coffee stems from its subsidiary, Consolidated Coffee, Asia’s largest coffee company.
Of his efforts to refocus the operations of his key companies, Ratan Tata said: “A true professional must realise that he is managing the company as a trustee of the shareholder and not for himself and his family.”
The ‘90s also threw open the challenge of retaining control over the family silver against possible takeover attempts. Traditionally, borne out of the trusteeship approach towards group companies under JRD’s charge, the Tatas maintained minority equity stakes in major group companies. By May 1992, Ratan Tata initiated serious discussions to expand the Rs 3.5 crore equity capital base of Tata Sons Ltd, the holding company of the Tata group. This would cement, financially and legally, the centralised group concept as sketched out by Mr Tata in his Strategic Plan of December 1983. But, Mr Tata had to wait a full decade for the abolition of the monopolies part of the MRTP Act in July 1991 to be able to execute his plan. Till then, Shapoorji Pallonji Mistry, a Mumbai-based real estate magnate had been the largest single shareholder of Tata Sons. He had acquired most of his holdings mainly by buying the shares from the late Dorab Tata — JRD’s brother who died a few years ago, and from Rodabeh Sawhney, JRD’s sister. One important reason why these shares went to Mr Mistry was that under the articles of association of Tata Sons, any shareholder who wished to sell his or her shares would have to first offer them to the existing shareholders. Since the several Tata trusts that accounted for most of the promoter holdings were forbidden to buy shares and JRD never had a large personal fortune, Mr Mistry was well placed over the years to take up these offerings. This had to change.
Ratan Tata hit upon a grand strategic plan to shore up Tata's equity control over group companies. In early 1996, Tata Sons proposed the Brand Equity Scheme to create a broad-based corporate governance cell that would play an advisory role for the 60-odd group companies, and set up various audit committees to ensure that the companies functioned transparently and ethically maintaining the dignity of the House of Tata. The plan implied group companies paying an annual brand loyalty fee to Tata Sons. To effect this, Ratan Tata worked out a three-tier structure to levy royalty fees. Starting 1996-97, all blue-chip companies under the Tata fold that had incorporated Tata in their name, were to pay the highest royalty of 0.25 per cent on their net turnover or five per cent of their net profit, whichever was lower. The companies in this category included Tisco, Telco, Tata Yodogawa, Tata Elxsi, Tata Investment Corporation, Tata Unisys, Tata Timken, Tata Chemicals, Tata Tea, Tata Power, Tata Exports and Tata Finance.
The second category of companies, including those that leveraged the Tata name to market their products, were asked to pay 0.15 per cent royalty or five per cent of the net profit, whichever was lower. These included Voltas, Indian Hotels, Rallis India, ACC, Timex Watches, Tinplate Co, Titan Industry, Merind, Special Steels, Andhra Valley and Tata Hydro.
A third category, deemed as group members, was to pay the lowest royalty of 0.10 per cent. These included Hi-Tech Drilling, Asian Coffee, Consolidated Coffee, Forbes, Gokak, FAL Industries and Goodlass Nerolac.
According to then Tisco vice chairman and MD, J J Irani: “The royalty collected by Tata Sons would be exclusively used for strengthening the Tata brand within India and in the international market. In the era of competition, positioning the company’s product is vital and that itself requires a large investment.”
By October 1996, it was clear that two recent moves at Bombay House — a 1:5 rights issue in September 1995, and the decision to charge group companies a fee for using the Tata brand name, would help the group’s holding company Tata Sons get closer to consolidating its control over the Tata group and warding off takeover threats. A stronger Tata Sons would drive Mr Ratan Tata’s vision, one which would see Tata Sons as a company providing definitive group direction and with a firm say as to where the group was headed in the future. Tata Sons would be the vehicle, the central entity, like Tata Industries, for promoting joint ventures strategic to the growth of the Tata group. And the fee for the use of the Tata brand name that was aimed at ensuring adherence to the Tata code of conduct would be a deterrent for predators. Quite clearly, the Tata name wouldn’t be available for use by any company that was not part of the Tata group.
The rights issue resulted in five major group companies along with their subsidiaries, collectively owning over 12 per cent of Tata Sons Ltd. This stake was created in 1995 by acquiring the rights renunciation of Tata Sons, largely from charitable trusts. These companies did not have any shareholding in Tata Sons before 1995. The shareholding pattern of Tata Sons as of March 1995, was public charitable trusts at 79 per cent, bodies corporate at 17 per cent, and directors and others at 4 per cent.
The Shapoorji Pallonji group was allowed to augment its stake from roughly 17.45 per cent to about 18.39 per cent, strengthening its position as the single largest independent shareholder in Tata Sons.
According to Mr Tata, “Tata Sons had to raise money for future activities, which is primarily for investing in group companies and strengthening our group in general. Second, we are creating strategic cross-holdings so that we do not become easy takeover targets.”
Mr Tata also clarified: “(Earlier), there wouldn’t have been anybody barring the government who could have endeavoured to displace us. And there was no Indian group at that time that would have had the funds to make an open offer, and probably no way a foreign company could have bought into any of our companies. That, in a manner of speaking, changed by 1991. There were Indian groups that had that kind of money and there were ways that foreign companies could invest in our various companies. We are vulnerable today and have to protect ourselves.”
By May 1997, Mr Tata also embarked on a move to create a common system within the group enabling the transfer of star managers from one company to another as part of its efforts to emerge as a unified corporate group rather than a loose band of companies. According to Mr Tata, the group was trying to “identify bright starts and shining stars in individual companies and try and create a mechanism whereby those individuals can see opportunities in other group companies, be identified, be moved around and see career growth in the group as a whole.”
By September 1997, Tata Management Training Centre (TMTC) was working to herald a change in the group, and forge a new identity of a single corporation and a uniform system of values. Mr Tata wanted to develop TMTC on the lines of General Electric’s Management Development Institute at Crotonville, as a centre hosting specialised benchmarking faculties for automobile engineers.
In 1997 Mr Tata also commissioned McKinsey and Co to help streamline operations and prepare a blueprint for the future. McKinsey saw the greatest potential for the group in automobiles, energy, telecom and infotech, leisure and hospitality, teas and processed commodities. Given Tisco’s pre-eminence in the group, the shocker was the absence of steel from the club class. But Mr Tata had his ideas: “As a refocused group we will have fewer companies in fewer businesses, perhaps having undergone some amalgamations and some divestments.” This is why, Mr Tata sold of toiletries manufacturing company, Tomco, to Hindustan Lever. As the group’s entry into petrochemicals in partnership with the West Bengal government at Haldia was draining the group’s resources, Mr Tata also decided to exit that joint venture.
Consolidation attained, by early 2004, Mr Tata started work on yet another blueprint to make the Tata brand a household name in global markets. The group corporate centre (GCC) identified specific geographic areas and a team of top Tata executives were tasked to work on identifying cost-effective media to promote the Tata brand in these markets, according to Tata Sons executive director R Gopalakrishnan. The targeted markets included the United Kingdom, South Africa and the ASEAN region. According to Mr Gopalakrishnan, “We have a strong business presence in the UK through TCS (Tata Consultancy Services), Tetley (the UK tea brand acquired by Tata Tea) and Tata Motors’ recent deal with Rover.” In South Africa, Tisco had a ferrochrome plant and Tata Motors was a key bidder for the government’s taxi replacement project. In southeast Asia, Tata Motors acquired the Daewoo truck facility in South Korea, while TCS and Tata Technologies had operations in Singapore. The group also had a significant presence in Thailand and Malaysia.
If the ’90s were the coming-of-age decade for Ratan Tata, the decade of the Y2K should see Mr Tata launch himself on a voyage of global conquest.
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