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Tata Empire Too Good To Fail


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Tata's ambitious global strategy

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Tata Empire Too Good To Fail

  1. 1. strategy+business Too Good to Fail from strategy+business issue 58, Spring 2010 reprint number 10106 by Ann Graham Reprint
  2. 2. Good TOO India’s Tata, one of the world’s largest conglomerates, is basing an ambitious global strategy on 142 years of social entrepreneurship. 1 features s+b case study
  3. 3. features s+b case study 2 Fail by Ann Graham TO
  4. 4. Ann Graham Previous pages: The Taj Mahal Palace & is the editorial director of the Tower, built in 1903 by Tata Conscious Capitalism Institute Group founder J.N. Tata, at Bentley University in photographed on November Waltham, Mass., and 26, 2009, the first anniversary a cofounder of ANDVantage of militant attacks that killed LLC, a strategy consulting firm 166 people in India, including that focuses on the inter- 36 in the hotel. dependence of financial and social sustainability. She is a former deputy editor of When India’s Tata Tea Ltd. purchased Britain’s strategy+business. 3 Munnar. Tata still remains a major customer of KDHP, Tetley Tea Company for US$450 million in early 2000 which helps guarantee a stable supply of tea at compet- features s+b case study — at the time the largest sum ever paid by an Indian itive prices. company for a foreign acquisition — the rationale for Such gestures of largesse and long-term commit- the deal was clear. Tata Tea would not just gain one of ment are not unusual for Tata, the massive, mostly the world’s most iconic brands. It would also transform Indian group of companies to which Tata Tea belongs. itself from a sleepy farming operation with a core busi- Roughly 90 companies are part of this conglomerate, or ness of barely profitable tea plantations to a high-margin “family” (as many Tata executives prefer to call it). Each global distributor of specialty teas and other healthy bev- is led by its own executive team and governed by its own erages. Soon after the acquisition, Tata made another board of directors. But they are bound together by an logical move. It sold its vast plantations in Munnar, a interlocking governance structure and a set of corporate mile-high, economically underdeveloped community in values passed down over 142 years from the founder, the Western Ghat mountains of South India, where Tata Jamsetji Nusserwanji (J.N.) Tata. As of 2010, Tata is a had been the largest employer for a century. $70.8 billion commercial enterprise, employing about But the transaction was anything but routine. 350,000 people in 80 countries, across an eclectic array Instead of working out a lucrative deal with eager invest- of industries — including hotels, consumer goods, min- ment bankers, bribing local politicians to mollify them, ing, steel manufacturing, telecommunications, trucks laying off workers, and selling to the highest bidder, as and cars (including the much-publicized $2,500 Tata some other Indian companies shedding a moribund Nano), electric power, credit cards, chemicals, engineer- business might have done, Tata Tea sold 17 of the 25 ing, and IT services and business process outsourcing. plantations to its own former employees. Layoffs were Not even General Electric sells such a wide range of generally limited to one per household, and Tata gave a products and services. group of voluntary retirees enough cash to buy equity in Since its founding in 1868, Tata has operated on the new company that was formed. (That company, the premise that a company thrives on social capital (the Kanan Devan Hills Plantation Company [KDHP], still value created from investing in good community and operates as an employee-owned enterprise.) human relationships) in the same way that it relies on Although Tata Tea would henceforth maintain only hard assets for sustainable growth. With every generation, limited business interests in the area (including some Tata’s executives and managers say, they have nurtured equity in KDHP), the company continued its active and improved their capability for “stakeholder manage- strategy + business issue 58 social role there. It still subsidizes a range of social ser- ment”: basing investments and operating decisions on vices and KDHP employee benefits, including free the needs and interests of all who will be affected. For housing for plantation workers, a private school, an edu- Tata, this means shareholders, employees, customers, cation center for disabled children and young adults, and the people of the countries where Tata operates — and the newly renovated Tata General Hospital in historically India, but potentially anywhere.
  5. 5. The group’s leaders argue that their emphasis on “family” values holds Tata together as it diversifies and expands outside India. 4 “We may be among the few companies around the Steel acquired the Anglo-Dutch steel giant Corus Ltd. world who think and act first as a citizen,” says R. for $12.1 billion; that same year, Tata’s Indian Hotels features s+b case study Gopalakrishnan, an executive director of Tata Sons Ltd. company paid $134 million for the venerable Ritz- Ltd., the privately held holding company of Tata, and a Carlton hotel in Boston and startled the city’s elite director of several Tata companies. Indeed, the primacy “Brahmins” by renaming it the Taj Boston. In 2008, of citizenship — a philosophy associated historically Tata Motors’ $2.3 billion takeover of Jaguar Land Rover with J.N. Tata — continues to be used as a corporate (JLR) received much press and analyst attention. credo: “In a free enterprise, the community is not just At the same time, in part as a result of its overseas another stakeholder in business, but is in fact, the very spending spree, Tata’s strategy has been called into ques- purpose of its existence.” tion. In recent years, the group has had to borrow more If social benefits are one major goal of Tata’s strate- money, float more equity, and dip more deeply into gies, another is rapid and continuing growth, in as many internal funds than ever before in its history. The timing industries and venues as possible, on behalf of both phil- of its overseas purchases, especially the highly leveraged anthropic and fiduciary commitments. “We are hard- Corus and JLR deals, couldn’t have been worse in terms nosed business guys,” says Gopalakrishnan, “who like to of immediate financial returns; the worldwide recession earn an extra buck as much as the next guy, because we of 2008–09 slashed profits, hitting autos and steel hard- know that extra buck will go back to wipe away a tear est. In response, the Corus unit launched a major effi- somewhere.” ciency program that reduced operating expenses by Before the 1990s, when Indian businesses were pro- more than $1 billion. tected from outside competition but also limited by To many observers, Tata’s strategy contradicts the tight government controls, Tata’s domestic expansion conventional wisdom about conglomerates: that they Opening photograph: Reuters/Punit Paranjpe and diversification positioned the group as one of the are innately unfocused and sluggish. Indeed, a 2002 two or three largest companies in India. Since 1991, the Fortune magazine profile characterized the group’s group has grown dramatically, stimulated by an aggres- labyrinthine corporate structure, unwieldy mix of busi- sive $20 billion international acquisition campaign. nesses, and low profitability in every sector (at that time) Revenues and profits rose from $5.8 billion and $320 except computer services, referring to Tata as “one of million, respectively, in fiscal year 1992 to $62.5 billion India’s most beloved companies [and] a mess.” in revenues and $5.4 billion in profits in fiscal year Moreover, as Tata has outgrown Indian capital mar- 2008. Approximately 35 percent of sales in fiscal year kets, it has sought more financing from global investors, 2009, which were equal to roughly 2 percent of India’s who are generally less patient than those in India. In total GDP, were generated at home. today’s competitive world, the group’s community- Tata’s international acquisitions have transformed it oriented generosity can seem as outmoded and unrealis- from a company deeply grounded in India into one of tic as the “company town” paternalism of Andrew the world’s most visible conglomerates. In 2007, Tata Carnegie and Henry Ford.
  6. 6. A Tata Timeline 1907 The Tata Iron and Steel Company issues 1924 With Tata Steel on the 1868 1893 the first public offering on the Bombay verge of bankruptcy, Stock Exchange, with plans to build a Dorab pledges his entire 1903 J.N. Tata meets steel mill in the village of Sakchi. personal fortune, including 1912 George Westinghouse his wife’s jewels, for a loan and visits Niagara to pay salaries and debts. Falls to see firsthand how hydropower generation works. Jamsetji Nusserwanji 1887 1938 Tata, age 29, establishes J.N. Tata converts The Tatas open the J.R.D. Tata a private trading firm his trading firm into Taj Mahal Palace, India’s The first ingots of steel becomes chairman in Bombay. a company, taking first luxury hotel and one roll off the assembly of Tata Sons. his son Dorab as of the first buildings in lines of the Sakchi plant. a partner. Bombay with electricity. Tata Steel introduces an eight-hour workday. 1870 1880 1890 1900 1910 1920 1930 1 1892 1904 1919 Viceroy Lord Chelmsford renames the city of 1877 Sakchi as Jamshedpur in honor of J.N. Tata. 1911 1932 The J.N. Tata Endowment J.N. Tata dies. for Higher Education, one Dorab Tata of the world’s first charitable becomes trusts, is set up. chairman of Nowroji Saklatwala 1902 Queen Victoria is proclaimed Tata Sons. empress of India; J.N. Tata becomes chairman 5 opens his first textile mill on of Tata Sons. In a letter to his son Dorab, The Indian Institute of Tata Airlines, the first the same day, January 1. J.N. Tata lays out a vision for a Science, dedicated to higher Indian airline, is new city near the steel plant. education and scientific launched. Jehangir R.D. research in India, opens (J.R.D.) Tata pilots in Bangalore. the inaugural flight. features s+b case study Past as Prologue To justify their decisions, Tata’s group-level leaders give it a distinctive edge. argue that their emphasis on “family values” represents a In short, Tata’s leaders believe the group can survive critical aspect of their corporate culture. It is strong on the world stage only by being both too big to beat enough, they say, to hold Tata’s family of companies and too good to fail. together as it diversifies and expands outside India. It is “We had set ourselves certain goals,” noted Tata also essential to the group’s sustained financial success. Sons chairman Ratan N. Tata in a 2006 interview, “chief Moreover, Tata’s corporate image, as measured by inde- among which was to go global — not just to increase pendent groups such as the New York–based Reputation our turnover but also to go to places where we could cre- Institute, is viewed more favorably than that of Google, ate a meaningful presence [and] participate in the devel- Microsoft, GE, Toyota, Coca-Cola, Intel, and Unilever. opment of the country.” strategy + business issue 58 And, as billions of people move up from the bottom of the pyramid (as writer C.K. Prahalad calls the eco- nomic milieu of the poorest third of the world’s popula- Like that of many long-running family businesses — tion), the group’s combination of developing-country Sainsbury, Toyota, and S.C. Johnson come to mind — experience and socially progressive business values may Tata’s culture can best be understood as a reflection of
  7. 7. 1939 2007 2008 Tata Motors buys the luxury car 1954 brand Jaguar Land Rover for $2.3 billion. In November, terror- Tata Engineering and ists attack and take hostages at Locomotive Company several locations in Mumbai, 1991 (Tata Motors) forms including the Tata-owned Taj Tata Chemicals sets up a a partnership with With the acquisition of Mahal Palace hotel. 2010 soda ash factory in Mithapur, Mercedes-Benz AG Corus Ltd. for $12.1 bil- Gujarat (known in Hindi as to manufacture lion, Tata Steel becomes “the city of salt”) on the commercial vehicles the world’s sixth-largest Tata is a $70.8 billion 1947 Arabian Sea. in India. steel company and the enterprise with 90 first Indian company in the major operating India is granted Fortune Global 500. companies and independence from 350,000 employees British rule and becomes Ratan N. Tata becomes in 80 countries. a sovereign nation. chairman of Tata Sons. 1940 1950 1960 1970 1980 1990 2000 2010 1946 1968 2009 1998 Tata Airlines becomes a public company Tata Motors launches and is renamed the Indica, the first indigenously manufactured Tata Motors launches 1996 Air India Ltd. passenger car in India. the Nano, the world’s Tata Consultancy Services lowest-cost 1953 (TCS) is founded. automobile. 2000 Tata Tea acquires Tetley through India’s first cross-border 6 The Tata Council for Community leveraged buyout. Initiatives (TCCI) is founded to Air India is nationalized. promote sharing of best practices in community engagement and employee volunteering. features s+b case study Photographs courtesy of Tata Central Archives Collections; the founder’s beliefs and ingenuity, honed through gen- quite extraordinary for any company,” says Tarun erations. J.N. Tata studied to be a priest in the Parsi reli- Khanna, the Jorge Paulo Lemann Professor at Harvard gion (also known as Zoroastrianism), but pursued a Business School and an expert on the company. commercial career because he believed he could do more At age 29, J.N. Tata founded the Tata business as a 2009 timeline image © Reuters/Ho New for more people that way. As a fervent nationalist and small trading company. It prospered, and in 1877 he entrepreneur, he sought to amass enough wealth and converted an old oil mill in Bombay (now Mumbai) influence to elevate the Indian people and their com- into a textile factory and financed it with stock issued in munities, helping to prepare them for a struggle against India’s first private placement. After making a small for- British rule. Although he eschewed the priesthood, Tata tune in textiles, he developed a plan for his family’s long- remained loyal to the tenets of the sect. The bedrock of term role in India’s future. Starting with industrial infra- this tiny religion — there are only 23,000 Parsis in India structure, he designed and planned India’s first domestic and 100,000 worldwide — is the notion that a life well steel plant, to be located about 800 miles east of lived must dedicate itself to charity and justice. Mumbai. This meant taking on the racial prejudices and “The culture of the Tatas comes from decades of dismissive attitudes of the British colonial viceroys, leadership that espouses a set of corporate values that is whose approval was needed.
  8. 8. Tata Consultancy Services (TCS), established in 1968, became the first Indian provider of offshored information technology services. 7 Then he moved on to expanding and improving (later, Tata Sons) in his honor. They spun out other education opportunities for Indians. In 1892, he creat- industrial companies, making such products as tin plate, features s+b case study ed one of the world’s first charitable trusts, the J.N. Tata steel tubes, and vehicles. (The Tata Engineering and Endowment for Higher Education. This scholarship Locomotive Company later became Tata Motors.) program sent bright young Indians of limited means These and other new businesses were set up to supply overseas for training in science, engineering, law, gov- some commercial good or service that India didn’t yet ernment administration, and medicine. One early grant have. Tata made paper, cement, and soaps; sold insur- recipient, a woman named Freny K.R. Cama, would go ance; and printed and published books. India’s first air- on to become India’s first gynecologist. It was especially line was Tata Airlines, which took flight in 1932; by important to Tata that Indians be admitted to the civil 1953, it had been nationalized and renamed Air India. service, which was closed to them under the British Most of the managing directors (CEO equivalents) Empire; this would show that they were capable of gov- of these companies were not members of the Tata fam- erning themselves. By 1924, with some restrictions lift- ily. But the chairman of Tata Sons has always been a rel- ed by the British, one out of every five Indians in the ative by marriage or blood. Dorab and Ratan Tata (who civil service would be a J.N. Tata Scholar. (Today, the were both later knighted by the British Indian Empire) same scholarship is one of the most prestigious educa- carried out their father’s commitment to economic de- tion awards in the country.) velopment and community welfare. In 1912, they com- In his final years, in a series of letters to his son pleted the steel mill begun by J.N. Tata and built the Dorab, J.N. Tata laid out his vision for a new type of town he envisioned (later named Jamshedpur after their industrial community to be built near his steel factory father), and eventually powered it with India’s first (which was still under construction). He wanted widely hydroelectric plant. available electric power; wide, tree-lined avenues; beau- Also in 1912, they expanded J.N. Tata’s notion of tiful parks; and housing for workers that featured run- community philanthropy to include the workplace. ning water — then nearly unimaginable, and even today Dorab instituted an eight-hour workday, ahead of just uncommon in India. Meanwhile, back in Bombay, he about every other company in the world. In 1917, he planned and built the Taj Mahal Palace, a hotel as luxu- invited the famous British labor social scientists Beatrice rious as any of its European counterparts. A devotee of and Sidney Webb to recommend a medical-services pol- architecture and design, Tata chose the decor himself. icy for Tata employees. The company would be among On a trip to Paris, he picked out the wrought iron pil- the first worldwide to institute modern pension systems, strategy + business issue 58 lars that still stand in the hotel ballroom. workers’ compensation, maternity benefits, and profit- After J.N. Tata’s death in 1904, Dorab assumed the sharing plans. title of chairman. He and Ratan Tata (namesake of the Over the years, Tata’s complex, interwoven gover- current chairman) took over the leadership of their nance structure evolved to ensure that profits would father’s company, which they renamed Tata and Sons be reinvested on behalf of stakeholders, especially cus-
  9. 9. tomers and local communities. Each new Tata company nexus of the business. The trusts fund a variety of proj- was set up independently, with its own board of direc- ects (for example, in clean water delivery, literacy, and tors; some sold shares publicly, while others maintained prenatal care); they founded and still support such cher- private ownership. All paid fees to use the Tata name. ished institutions as the Indian Institute of Science (a Tata Sons, which remained privately held, kept equity premier research university), Tata Institute of 8 stakes in nearly all the group businesses; today, it pro- Fundamental Research, the National Centre for the vides investment capital and sets overall group strategy. Performing Arts, and the Tata Memorial Hospital, an In its history, there have been only five chairmen of Tata innovative cancer treatment center in Mumbai. Each Sons, all family members: J.N. Tata; his son Dorab; Tata company, in turn, channels more than 4 percent of J.N.’s nephew Nowroji Saklatwala (who also pursued its operating income to the trusts, and every generation a career as a professional cricket player, even during his of Tata family members has left the bulk of its wealth to features s+b case study tenure as chairman); J.N.’s second cousin, Jehangir them. This makes the Tatas noticeably less wealthy as Ratanjani Dadabhoy (J.R.D.) Tata; and current chair- individuals than their counterparts at other Indian Service without Sin man Ratan Tata, the founder’s great-grandson, who family-owned megacompanies. joined the group in 1962. All Tata businesses annually earmark part of their (There is no clearly acknowledged successor to operating expenditures for social, environmental, and Ratan, who turns 73 in 2010. One candidate may be the education programs. For example, Tata Steel sets its only other Tata family member working for the group: budget for social services in the community as a per- Ratan’s half-brother Noel, the managing director of centage of pretax operating income. In good years, it Trent Inc., a Tata retail company in India.) might be 4 percent, and in lean years, 18 percent, but J.R.D. Tata, who was chairman from 1938 to 1991, the absolute amount does not change. At Tata Steel, is generally credited with expanding the group’s success money goes to employ doctors, teachers, rural develop- in India after the country gained independence. He nur- ment experts, athletic coaches, geologists, social workers, tured its reputation for integrity and innovation, and and others — often known internally as members of continued exploring new technological domains. In corporate sustainability teams — in ongoing commu- 1968, for example, Tata established Tata Consultancy nity service activities in Jamshedpur and the surround- Services (TCS), which became the first Indian provider ing rural villages. of offshored IT services. TCS is now the second-largest The group’s social expenditures add up to millions company in the world in this business (after the other of dollars annually: $159 million in fiscal year 2009 for Indian global outsourcing leader, Infosys Technologies all the trusts and businesses. The Tatas regard this spend- Ltd.). Other individual businesses came and went over ing as an operating investment. “For us, [community the years (soaps and toiletries, for example, were sold to support] is a fixed cost of manufacturing,” says Partha Unilever), but the same “big five” industries represented Sengupta, vice president of corporate services at Tata the core sources of revenue through the 2000s: steel, Steel. In 2008, this unusual level of community involve- motor vehicles, power, telecom, and IT services. ment helped the steel company win Japan’s prestigious Deming Prize for quality — the first Indian company to do so. Perhaps the most unorthodox aspect of the overall Tata Even Tata’s innovations — its efforts to find new structure is the central role of the 11 charitable trusts markets through the launch of products and services — that together own 66 percent of Tata Sons and that are tend to have a social benefit component. The $2,500 intimately involved in its governance. (Family members Nano car, for instance, was conceived (with Ratan Tata own only 3 percent.) No other company of this size and taking part in many of the brainstorming sessions) as an visibility has placed its charitable arm at the controlling affordable and safe family car designed to wean Indians
  10. 10. Left to right: Tata Group chairman Ratan Tata; the Tata Works in Jamshedphur; a Tata Nano in Ahmedabad 9 features s+b case study off their dangerous motor scooters, and provide them drinking water in their homes. The Swach was inspired with a symbolic entry into the middle class. in part by the 2004 tsunami, which left thousands of “Ratan’s main objective with the Nano was to people without clean drinking water. demonstrate to the automotive industry that it is possi- TCS also designed and donates an innovative soft- Photograph (left): © Associated Press ble to cost-effectively make a vehicle that is so small,” ware package that teaches illiterate adults how to read in says Elias Luna, CEO of Luna & Goodman, an inter- 40 hours. “The children of the people who have been national corporate finance advisory firm. through our literacy program are all in school,” says Another Tata project brought together engineers Pankaj Baliga, vice president and global head of corpo- from TCS, Titan Industries (Tata’s watch manufacturing rate social responsibility for TCS. In these cases and oth- company), and Tata Chemicals to develop a compact, ers, Tata follows a philosophy of providing some of the in-home water-purification device. Launched in 2009, poorest people in the world with devices that improve the Tata Swach (the name means “clean” in Hindi) costs their prospects (and those of their children) at price less than 1,000 rupees ($21), with filters that last about points they can afford, often with enough profit margin a year for a family of five. This makes it affordable for to keep the company competitive. millions of Indians who have no other access to safe Tata’s culture of service was on display after the
  11. 11. “They said, ‘Everyone else is making money in [Bollywood], why shouldn’t we?’ The inner circle discussed it and decided that this was not acceptable.” 10 features s+b case study November 26, 2008, terrorist attack in Mumbai, which spend equally on the [people] who gave their lives?” Photographs: Time & Life Pictures/Getty Images badly damaged Tata’s flagship Taj Mahal Palace hotel. The founder’s Parsi beliefs continue to exert a The hotel was repaired and reopened less than a month strong influence on Tata’s culture. Historically, most of after the attack. Indian Hotels, Tata’s hospitality compa- the inner circle of Tata company leaders have been Parsi, ny, directly oversaw the medical treatment of injured and there are many lifelong employees whose modest (middle); AP Photo/Ajit Solanki (right) staff members and paid generous health and school backgrounds fit naturally with the company’s self- tuition benefits (including the assignment of a “coun- effacing style. “They are extremely modest,” says Ruth selor for life”) to the families of all slain individuals, Kattumuri, a codirector of the India Observatory at the including railway employees, police officers, and passers- London School of Economics. “They have sponsored by who had had no direct connection with the hotel several events for us in India, often without wanting any before the attack. “The organization would spend sever- publicity.” Tata is known for hosting lavish celebrations, al hundred crore [tens of millions of dollars] in rebuild- but in general it rewards employees less with giant ing the property,” noted Dileep Ranjekar, a manage- salaries and bonuses and more with a sense of belonging ment speaker who met with Tata Hotels senior executive to an elite organization with an impact on the world. vice president H.N. Srinivas after the attack. “Why not This blue-chip attitude is reinforced by strict stan-
  12. 12. Tata has sought two types of companies: prestigious consumer brands such as Jaguar and critical industrial enterprises such as Corus. 11 Global Stretch dards for integrity and ethical conduct. For example, faced the same pressure to globalize, but Tata moved Tata companies have always carefully avoided any activ- fastest and furthest. The new strategy kicked into high features s+b case study ities with even a tangential link to “sin” industries — a gear in 2004, when Ratan Tata hired Alan Rosling, term that for the Tatas encompasses not only tobacco, chairman of Hong Kong’s Jardine Matheson Group (an liquor, and gambling but also motion pictures, given the investment bank with large holdings in Tata Industries) association in India between Bollywood and organized and former director of a Jardine–Tata automotive joint crime. venture, as an executive director of Tata Sons. Rosling In the mid-2000s, the leaders of the group’s pub- later said that his personal admiration for Ratan Tata lishing company tested this stance, asking for funding to had compelled him to take the job. start a film division. “They said, ‘Everyone else is mak- In the acquisition strategy that Rosling designed, ing money in this, why shouldn’t we?’” recalls Jamshed Tata has sought two types of companies: prestigious con- J. Irani, vice chairman of Tata Sons. “The inner circle sumer brands like Jaguar, Eight O’Clock Coffee, and discussed it and decided that this was not acceptable.” Good Earth tea; and critical industrial enterprises. The The publishing company’s management team made latter include Corus; the soda ash mining companies plans to go ahead anyway with a movie production unit Brunner Mond and General Chemicals; and Tyco Global using outside investors. In response, Tata sold its shares Network, an undersea fiber-optics asset once held by the in the company and removed the Tata name. disgraced Tyco telecommunications company. “That gave them second thoughts,” relates Irani. One way that Tata hopes to quickly turn around its “They told us, ‘We don’t want to leave the family.’ But overly leveraged units is through equity offerings, once it was too late.” global investors are willing to participate. In mid-2009, for example, Tata Motors used about $1 billion in financing from fresh stock and asset sales to whittle The “expansion” era of Tata’s history (as it is called down its 10-to-one debt-to-equity ratio. It remains to be on the group’s website) began in 1992, one year after the seen how the broadening of Tata’s investment base will Indian government lifted foreign investment and ex- affect its magnanimous corporate culture. But global change controls and eliminated many restrictions on expansion increases the pressure on Tata to provide rapid outside companies. Suddenly, multinationals such as returns, and it could diminish the family’s ability to fund Sony, Philips, Ford, and Toyota entered India, exposing philanthropic projects in India or elsewhere. the quality problems of many local companies and using Ratan Tata himself, when asked in 2007 whether strategy + business issue 58 their marketing prowess to outpace popular domestic the company’s social spending levels could be main- players like Tata. tained on a global scale, answered, “I can’t ensure this Ratan Tata and other company executives conclud- will survive.... [We] could turn it into a more conven- ed that they would have to revitalize their businesses and tional company. But you would have great discontent.” move outside India’s borders. All Indian companies Another type of challenge has arisen with the suc-
  13. 13. other way.” + Reprint No. 10106 Resources cess of the Nano. Originally conceived only for emerg- In the end, Tata executives stick by the familiar ing markets like India, Latin America, Southeast Asia, argument that doing well by doing good is simply good and Africa, this car was being called a trendsetter for the business. And if the group’s unique business model global automotive market even before it went on sale in proves to be financially sustainable, it could provide a July 2009. Suddenly, company leaders were compelled lasting example for other companies that — like Tata — 12 to plan, finance, and develop a Nano line that would be seek to serve new markets, build a more solid reputation acceptable for the U.S. and European markets. “They as global citizens, maintain growth, and above all fulfill have the possibility here for a very important vehicle, their own sense of purpose. but they have to work hard convincing everybody in the “We do business the way we do,” says Gopala- U.S. and Europe they can produce a safe car in a timely krishnan, “not because we have clear evidence it has a manner. The longer it takes, the greater the financial better chance of success. We do it because we know no features s+b case study burden,” says Luna. Tata Motors also faces other types of labor and management issues as its percentage of non-Indian employees grows. Managers are learning by trial and error to become less hierarchical and more nimble, and to apply their labor relations expertise, which is sophis- ticated in India, to other parts of the world. When Tata closed a Jaguar Land Rover factory and laid off workers at a Corus steel mill in the U.K., the company reacted slowly and awkwardly to denunciations from union leaders and politicians. R. Gopalakrishnan, The Case of the Bonsai Manager: Lessons from Nature on Growing (Penguin Portfolio, 2007): “The leader needs to think about “Over the past decade,” says Nirmalya Kumar, co- issues at the edges of the spectrum of the obvious.” director of the Aditya V. Birla India Centre at the Ann Graham, “The Company That Anticipated History,” s+b, Summer London Business School, “Tata has thrown off some of 2006, How South African its sluggishness. But globalization is a learning game; it power utility Eskom Holdings Ltd. combined social leadership with busi- takes time to learn to manage a multinational organiza- ness strategy to prepare for the end of apartheid. tion, operate in diverse cultures, and integrate foreign Ronald Haddock and John Jullens, “The Best Years of the Auto Industry Are Still to Come,” s+b, Summer 2009, www.strategy-business acquisitions.” .com/article/09204: The Nano’s prospects in context. Many Tata executives profess to take all these chal- Tarun Khanna, Billions of Entrepreneurs: How China and India Are lenges in stride, and they are bolstered by the fact that Reshaping Their Futures and Yours (Harvard Business School Press, 2007): they seem to be coming out of the financial crisis rela- Macro view of today’s two great sources of emerging business creativity. tively unscathed in the stock market. They know they Nirmalya Kumar, India’s Global Powerhouses: How They Are Taking on the could appease some skeptics by scaling back their aggres- World (Harvard Business Press, 2009): Profiles of ArcelorMittal, Infosys, Hindalco, Mahindra & Mahindra, Tata Group, and more. sive growth ambitions. But they are adjusting instead by reducing costs, putting some acquisitions on hold, and C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006, Impossibly low-cost, high- investing heavily in breakthrough innovation in a wide quality products and services (including one from Tata’s hotel group) that variety of endeavors: supercomputers, carbon footprint start by cultivating constraints. reduction, and manufacturing of new materials (such as Tata Group website, Comprehensive information, original lightweight steel) among them. And they are trying to interviews and stories, public media reports, and links to other resources about the company. figure out how to bring their social innovation experi- ence and ideas to other parts of the world with emerg- For more thought leadership on this topic, see the s+b website at: ing economies, especially Africa and Latin America.
  14. 14. strategy+business magazine is published by Booz & Company. To subscribe, visit or call 1-877-829-9108. For more information about Booz & Company, visit Looking Booz & Company Inc. © 2010 for Booz Allen Hamilton? It can be found at at