FOUNDATION CONSOLIDATION EXPANSION 1868-1931 1932-89 1990 onwards The Tata group ventured into The liberalization of theThe seeds of what would new areas and built on the Indian economy unleashed amature and become todays foundations, in spite of the period of remarkable growthTata group were laid long restraints imposed by a for the Tata group, in Indiayears before India became controlled economy. and worldwide. Tataindependent. ventured in to numerous 1932- TATA Airlines mergers and acquisitions in1874- Central India Spinning, 1939- TATA Chemicals the late 1990s.Weaving & Mfng Company1902– TAJ MAHAL PALACE 1945- TELCO 1952- LAKME 1995- TQM Services- JRD QV Award1907- TESCO 1954- Voltas 1996- TATA Teleservices1910– TATA Electricals 1962- TATA Finlay 1997- TATA Indica1911–Indian Institute Of 1962- TATA Exports 2000- TATA TeaScience 1968- TCS 2001- TATA AIG1912- 8 hour working days 1977- TATA Electric 2006- TATA SKY1917- TATA Oil Mills
1. “THE TATA BRAND”: Tata Sons to undertake the responsibility of centrally promoting a unified Tata Brand which could be used by all the companies that subscribed to the Tata Brand Equity scheme. Implication: Companies can operate synergistically with each other. Participating companies would ensure uniformly high standards of quality and ethical business practices. Companies can take advantages of the opportunities and ward off the competitive threats that have emerged with the liberalization of Indian economy. It would help them rectify lack of coordination among Tata companies. Tata is perceived as a producer of cheap products for the general welfare of the people and asking self- established brands like Taj, FastTrack, Wills to shred off their premium brand image and accept Tata’s brand image may hamper their market.
2. RESTRUCTURING: He wanted to focus their scope of businesses by chopping off businesses in the unattractive sectors. He sold the loss making Tata Oil Mills Company Ltd (Tomco) to HUL and also favored merger of Tatas three electrical companies. Implication: It helped in converting the Tata group into a tighter and leaner organization. The objectives were to make profits, to be among the top three in whatever businesses they were in and produce world class businesses. Side by side he looked for entering into sectors of high growth potential like auto, retail, telecom, power and insurance. It was helpful in avoiding capital and other resources from being used inefficiently in unproductive businesses and concentrating them to those sectors which could benefit both the society and the group.
3. THE JARDINE MATHESON DEAL AND INCREASING TATA SONS INVESTMENTCAPABILITIES: Tata Sons determined that they would need to raise a total of Rs. 7 billion in FY95 and FY96 to realize 1% stake increase in each of the major Tata companies. They offloaded the stake of various charitable trusts at a premium to the Tata Group affiliates. He also sold 20% stake in TIL to Hong Kong based JM group for Rs. 1.26 billion. Implication: They can use the proceedings to fund venture startups promoted through TIL and can use the expertise of JM in retailing and distribution, real estate, hotels, engineering, construction and financial services. But excessive cross holdings could reduce the autonomy that was earlier enjoyed of the chairmen of the affiliates.
IN 1970: Semblance of unity was maintained by network of inter-corporateholding, weekly cross-company directors meeting, and J.R.Ds dynamicpersonality and moral force.The chairman of larger Tata companies had grown accustomed to ruling theirempires without interference from the Tata’s for decades.It will be easier for Ratan Tata to develop the group brand if the companiesare more closely held but it will defeat the vision of JRD Tata to foster theentrepreneurial spirit with the belief that it was main ingredient in theoutstanding success of the Tata companies.
Some of the critics of the idea of developing “The Tata Brand” were: a) Some resented Tata Sons attempt to assert itself beyond the limits of an ordinary shareholder. b) Some were doubtful of the link between the brand subscription and an immediate benefit to their individual companies. c) Few claim that the Tata name had not necessarily been the reason for the success of their companies.The main purposes to encourage companies to develop Tata brand was tomaintain the entrepreneurships along with the Tata brand.
Equity interlock is the phenomenon where firms are frequently linked toeach other both directly and indirectly through equity holdings. In case ofTata group, the ownership was of both pyramid and cross-holdingstructures.
Some of the positive interpretations of the equity interlock in the Tata Groupand its affiliates are1. It made the affiliated Tata group companies to work in a cohesive and controlled manner and thereby eliminating the pre existing competition between them in the same business lines. It also increased the debt bearing capacity of the affiliates.2. Cross holdings among group affiliates was used to sponsor new ventures and to expand in the existing projects.3. It brought a wide scope of knowledge into the table as the board of directors of Tata Group came from diversified businesses.
4. An indirect control exercised by Tata group through the pyramidal structure helped them to take major decisions over the affiliates without having a significant equity investment in them.5. The increased complexity in the cross holdings among the group companies is a classic counter strategy against hostile takeover bids.6. It could help the affiliates to gain dividends from an out performing stock of another affiliate.
The negative interpretations of equity interlocks are as follows:1. When at first the shares were made available to Tata group affiliates they were priced at a premium and were made out of dilution of the stakes of the charitable trusts. The valuation was not fair and it was meant to serve the purpose of the Tata group as a whole without much consideration for the group companies.2. From exhibit 8a, it is seen that Tata Group instead of investing the raised capital into ways of multiplying them, has used it to increase its share in the group companies.3. If a affiliate would perform badly, its stock prices will suffer and this may lead to capital losses of affiliates investing in it.
4. It can lead to decreased competition between the two companies of the same group which is sometimes essential to keep them on their toes; the raw materials may be sourced at a cheaper rate thereby causing losses to the producer of the raw materials and instead of purchasing those through cash there may be illegal exchange of group’s shares.5. As the group directly or indirectly can control the decisions of its affiliates, this would decrease the autonomy of the heads of these affiliate companies.