House of Tata: Acquiring a Global Footprint


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The 134-year-old Tata Group with 95 operating companies (31 of them publicly traded) and 230,000 employees, it is India's largest private-sector employer, its biggest taxpayer, and its greatest foreign-exchange earner.

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House of Tata: Acquiring a Global Footprint

  1. 1. IILM Graduate School of Management Group Submission on a Case House of Tata: Acquiring a Global Footprint Submitted by: - Submitted to:- Abhigyan Prof. Vinay Chirania Dipandita Kar Himali Kulshrestha Mridul Tiwari Priyanka Aggarwal Subhashree Roy Vaibhav Singh
  2. 2. Summary ofHouse of Tata: Acquiring a Global Footprint The 134-year-old Tata Group with 95 operating companies (31 of them publicly traded) and 230,000 employees, it is India's largest privatesector employer, its biggest taxpayer, and its greatest foreign-exchange earner. It operates India's one of the largest private steel manufacturer, its largest chain of luxury hotels, and its largest private power utility” (Ellis, 2002). Tata Group is one of India's most prominent and esteemed business groups. Tata Group's cite is substitutable with India's industrialization. The Group dedicated The India her first steel plant, hydroelectric plant, inorganic chemistry plant and produced a reservoir of scientific and technological workforce for the nation. Today, Tata Group constitutes 96 functioning companies in seven business sectors such as, information systems and communications, engineering,materials, services, energy, consumer products, and chemicals. The Group has operations in more than 54 countries across six continents, and its companies export products and services to 120 nations. The Tata family of companies, shares a set of five core values: integrity, understanding, excellence, unity and responsibility Tata Group has played a pioneering role in a variety of areas after India's independence. Tata is trust, credibility, excellence in whatever they do, ethical business practice, fairness to all and respect, stated by Dr. Jamshed J Irani, Past President CII & Director Tata Sons Ltd. Tata group's strategy to enter overseas markets is mainly driven by "We want to expand into geographies where, as a group, we can have a meaningful presence". And further he added that “the group is looking at opportunity to invest in steel industries, because of Tata’s belief that owners of steel are going to rule the industry”. In addition; he assured that “we are making sure that, “we have secure access of raw material.” According to the case studies, articles and the history of the group; there is no doubt that the Tata Group is packed with both tangible and intangible resources and with the help of these resources they are able to
  3. 3. perform at the level required to survive. The strategic positioning of an organization admits the inventing the desired future position of the organization on the groundwork of present and predictable exploitations, and the constructing of programs to realize that positioning. In case of the Tata group, the strategy is to position them as a global brand. However, to achieve the position of global branding the question need to be asked such as, how the future looks like? How can the opportunities be ceased and threats can be met? In addition; Stacy (1993); Robson (1997); the other need also arise to analyze the business model and the macro environment in order to step forward to strategic positioning and achieve the visionary objectives and goals. Tata’s recent announcement, of launching the cheapest cars for the Indian market for the target market of two wheeler owners such as motorcycle and scooter. The group developed the effective distribution channels to reach customers to offer the value proposition and to establish the relationship with the customers. The group uses the core capacities needed to make the business model possible, and effectively configure the activities to implement the business model. An excellent business model should be able to generate the effective competitive advantage and the value chain of a company, in order to fit with the company’s strategies. In case of Tata automobile parts industry, the standardization of product will help the group to achieve the lowest cost of products and while adopting the cost focus strategy. Cost focus strategy will also help the group to sweep out the highest cost producer competitors from the market. In differentiation strategy the group will succeed only if they take a broad approach and differentiate its whole range of products; for example Tata’s Automobile; the launch of lowest cost car in Indian market. No frill strategy; “a low frill strategy combine a low price and low value added, low perceived product/services benefits and a focus on a price sensitive market segment.” The group is using the strategy in Oil industry. A Low price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or service benefit to those offered by competitors. The Group is trying to achieve the low price strategy in markets such as automobile industry in order to provide lowest price cars and achieve a high share in the
  4. 4. market. A hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of competitors. The hybrid strategy is used by the company in various industries, it involved a higher degree of organizational excellence and integration of all the departments. Here the strategy of the group is to maintain the cost of raw materials as lowest as possible and to achieve the lowest cost of final products. The group also invested a huge amount in research and development in order to achieve the highest degree of quality at the lowest price. Questions & Answer: Ques. What is your assessment of the globalization strategies of the Tata Group operating companies, particularly Indian Hotels, Tata Tea and Tata Steel? Ans. Indian Hotels is the earliest among the all other group companies to being globalizing its business. Overall the company’s preference was small equity positions with management contract for international properties. As they did not enjoy profit rather than they faced losses from their acquired properties outside the home country. So they divested and shifted to small equity with management contract, to gain profit and for globalization, in this hotel groups of Tata Globalization strategies of Tata group in Indian Hotels:  First the company purchased few properties in London, New York, Chicago and Washington DC. But when they faced loss few of these they sold their stakes and also divested them.  The strategy then they used is to focus on higher end properties.
  5. 5.  They shifted their preference and started concentrating on management contract with small equity positions in properties instead of outright ownership.  They build their presence in “gateway “cities in advanced markets with its management contract. Tata tea was facing slow growth of the tea industry in India so they move to international markets to pursue growth and profit. Tata tea wanted to globalize themselves by acquiring a well-known brand Tetley which is much more larger than Tata tea, as the market of India is slow, later it also acquired many other company to expand its market outside India like it acquired good Earth, when the demand for flavored and herbal tea was expanding to capture the market also. Globalization strategies of Tata Group in Tata Tea:  Acquire UK based Tetley in 2000, one of the largest overseas acquisition by any Indian company at that time.  Tata decided to transform itself into a branded company and to seek new growth and globalization selected M&A as the best route.  In 2004-05 it also acquired other companies like US based Czech tea, Good earth which sell herbal fruit flavored tea though out the us and also other companies. Tata Steel acquired many steel companies to globalized it not only help Tata to stand as a global competitor, it also made Tata to be the 6th largest steel maker from 56th. So the strategies of acquiring Corus and acquiring companies in more advanced market helped TATA to improve its research and development capabilities as well as its operating process.
  6. 6. TISCO faced problem when in 1990’s after the Indian’s government program of liberalization began. Then they have taken many strategies like: Acquired the steel business of Singapore based Mat Steel Asia in February 2005  To increase its market and globalization it also acquired millennium steel and thus they increased its presence in Australia, Malaysia, the Philippines, Vietnam and importantly China as their per capita income was more than six times greater than in India.  It also established a joint venture shipping company with MYK line of Japan in December 2006.  By acquiring Corus, Tata steel became the 6th largest steel maker in the world from 56th. Conclusion: The strategy of Tata group operating companies are more in terms of market extension merger. Ques. What is your assessment of the role of the Tata Group center in Globalization? Ans. Role of the Tata Group center in Globalization  They hired Mr. Alan and Mr. Arun Gandhi  Established offices in key market to coordinate government and media relation  Tata brand promotion and procurement  Bring together representatives of different operating companies working in the same country
  7. 7.  The group also helped Tata operating company as well as the acquired firm during the process  Internationalization of common business processes  Integration committee after acquisition.  Centralization of Tata Group  They need to acquire firms bigger than operating Tata companies Project Prune  Economies of scale  Cost saving initiatives Project Prune to look at procurement cost across group companies and negotiate with providers to supply the best deals to all Tata companies. Conclusion:The role of Tata Group center in Globalization helps to increase the visibility of Tata Group as a whole, to smoothen the Mergers and Acquisition and to provide the financial muscle power during acquisition of a larger firm. Ques. Should Tata Motors bid for Ford's Land Rover and Jaguar units as part of its Globalization efforts? What are the pros and cons? Ans. Pros: Easy entry into US market  The acquisition would bring in a global footprint for Tata Motors  Portfolio enhancement o 2 well known global brand o Advance technology o Better market distribution channels Cons:-
  8. 8.  Jaguar was the biggest contributor to losses  Difficult conditions for acquiring o Ford would maintain a minority stake after the sale o Common factory and business processes for both the brands  The primary objective for Globalization was mitigating the risk, which was not the case in this acquisition  Poor operating profitability might lead to long pay back periods  Tata’s expertise in passenger car is limited  High cost of maintaining existing infrastructure  Unlike Tata’s focus on medium they are premium brands. Conclusion: The acquisition would involve a lot of risk  No complete autonomy as Ford would still have a minor stake in the company  Acquisition might not be beneficial -*-Thank You-*-