"We are moving Tata Tea from a commodity business to a truly consumer marketing business" R.K. Krishnakumar, Chairman, Tata Tea

But in a group where two of its biggest companies face an uncertain future, that's easier said than done. Tata Engineering is still deep into losses because the passenger car division is yet to generate profits, and the commercial vehicles business has been slammed hard by the downturn in economy. And Tata Steel, despite its recent gains in efficiency, operates in an industry with frightening overcapacity world wide.

Stockmarkets are only too aware of the problems the group faces. Since 1997, the stock price of Tata Steel has more than halved to Rs 104 (March 8, 2002) and that of Tata Engineering dropped from Rs 400 to Rs 133. In that period FMCG giant Hindustan Lever has more than doubled its stock price to Rs 250 and tech-major Wipro has rocketed from Rs 24 to Rs 2,000. Not surprisingly, then, in BT's study of India's 500 biggest wealth creators (Feb. 17, 2002), Tata Steel turned up at 496 and Tata Engineering at 469.

That reality is not lost on Tata. Beginning yesterday, there's a simple yardstick that drives the group's choice of new businesses: it must have the potential to be among the top three leaders in its market; its returns must be greater than the cost of capital employed; and there should be economies of scale. Besides, it must fit in with the group's way of doing business (read: ethically). ''Now what we are doing is not just looking at companies, but looking at businesses within a company,'' says Tata, an avid car enthusiast.

That scrutiny has made one thing clear to him: the group's future lies not in capital-intensive commodity industries like metals or chemicals, but less capital-intensive and more skill-based businesses like infotech, telecom, hospitality, and biotechnology. Over the next seven years, the group plans to invest upto Rs 11,000 crore in new businesses. Of that, more than two-thirds will go into telecom alone (See Funding The Future).

Across the group, though, there is an urgency to grow global. Tata Engineering, particularly its passenger car business, is scouting for a partner that can complement its small-car portfolio and ensure survival at least in a niche segment. But the global downturn in the auto industry is making that task harder.

Meanwhile, the company is exploring new markets in Latin America, Africa, even Europe. Recently, the car-maker tied up with Rover to market Indica in the UK. And at the Geneva Auto Show in early March, Tata unveiled a new concept car called Indiva, based on the Indica platform. No time-frame for its launch has been announced, but the car will likely be marketed in Europe. But the passenger car business' long-term future hinges on it finding a global partner-and quickly.

Information technology has always been the group's original global business, but even its hospitality arm, Indian Hotels is looking at expanding, first, in South Asia and America and, later, Europe. Taj Asia-a joint venture with the Chaudary Group of Nepal-already operates two hotels in Maldives and three in Sri Lanka. It is now looking at destinations such as Bali and Phuket, and in another four to five years, China. In the US, a newly-registered company is scouting to buy either single premier properties or small groups in two or three gateway cities.

In beverages, the 1999 acquisition of Tetley has given the Tatas a much-needed foothold in the international market. Tetley's vast marketing network can also be used to pump Tata's coffee and tea products (the Tatas already have a 34 per cent stake in the 72-store coffee chain, Barista). Here again, the plan is to focus on brands and enter new markets. Tetley, launched in India last month, will occupy the premium end of the market, and also be exported to neighbouring countries like Bangladesh and Pakistan. That apart, Krishnakumar, who also heads the beverages business, is looking at other related categories to enter. ''We are moving Tata Tea from a commodity business to a truly consumer marketing business,'' he says.

After Tata, Who?

If there's any regret that Tata-a man of frugal habits-has, it must be not having become the chairman any earlier. When he took over from J.R.D. Tata in 1991, he was already 54 years old. Now, according to a retirement plan that Tata himself introduced, the group executives must retire at the age of 65-an age Tata attains end of this year. Sure, he'll have another five years as the non-executive chairman of Tata Sons, and can continue to steer the group much the way he has so far. But what happens thereafter?

Succession issues, typically, are critical. But in the case of the Tatas, it is more so. The new heir to the empire must not only consolidate, but grow whatever Tata has achieved over the last 10 years. There are a few possible contenders, including Tata's half-brother Noel, and one of the two sons (Shapoor and Cyrus) of Pallonji Shapoorji Mistry-a significant shareholder in Tata Sons. Alternatively it could be an outsider like-going purely by the grapevine-Nusli Wadia of Bombay Dyeing or Keki Dadiseth of Unilever. Tata is mum, but no matter who the successor is, he will need to have the charisma to keep the group together and move it in a single, forward direction. Admits Tata: ''The challenge would be to find a person who embodies (the Tata) values and has that kind of objective.''

Such a dominant leadership would be all the more important when new businesses are to be funded. Should the performance of the group worsen, then sister companies may resist funding projects not core to their own activities. Deals like VSNL-bankrolled by Tata Power and Tata Steel, besides Tata Sons and Tata Industries-may then be harder to make.

Indeed, ask Tata what he would want to be most remembered for and he puts it simply: ''If I could leave behind a group where companies occupy leadership positions, imbibe the same value system, are manned by younger people and are more agile, I would, from wherever I am, consider that fine.'' His next five years will determine whether or not Ratan Naval Tata has a proud retirement.