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RATAN SPEAKS HIS MIND
On the Rs 1-lakh Car, Globalisation and Succession
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"It has always been my view that we
should go abroad, that we have not done enough"
Ratan Tata,
Chairman, Tata Group |
In
many ways, 2003 was a momentous year for the Tata group. Its it
services arm, Tata Consultancy Services, crossed the $1-billon (Rs
4,600 crore) mark in terms of revenues. Tata Motors put the first
batch of its small car, Indica, on European roads; the steel company,
Tata Steel, turned EVA positive-quite a feat for a steel company;
Tata Tea put to rest doubts over its ability to manage the global
tea bag brand Tetley by successfully integrating operations; even
Indian Hotels acquired a global face-American, actually-in Raymond
Bickson, its new CEO. Orchestrating the moves has been the group
Chairman Ratan Tata himself.
Ever since he succeeded uncle J.R.D. Tata as the group Chairman
in 1991, Tata has spent all his energies in trying to make the diversified
Rs 50,000-crore group think and move like one. Systematically, he
has ousted over-ambitious satraps, restructured the group into seven
key businesses, got rid of unviable and non-core businesses and
entered new economy industries like telecom, besides recently joining
hands with News Corp's Rupert Murdoch for a direct to home TV joint
venture. Tata's decade-long labour has paid off. In February 2002,
when BT last interviewed Tata, the stocks of his automotive and
steel companies were languishing at Rs 133 and Rs 104, respectively.
Today, Tata Steel is quoting at Rs 438 and Tata Motors at Rs 486-and
not just because of the stockmarket boom. Rather, it's because investors
now realise that the two companies aren't anymore the stodgy behemoths
of the past, but outward-looking global corporations in the making.
Tata, who intends to step down in another three years when he turns
70, has a bigger and far more tricky challenge coming up: that of
finding a capable successor. On a recent Thursday afternoon at his
Mumbai headquarters, Tata spent an hour-and-a-half with BT's
R. Sridharan to talk about his globalisation
plans, the dream small car, and succession, among other things.
Excerpts:
In the last two years, there has been a
very visible push to the group in terms of trying to take it global.
Is it a part of a larger plan that was already in play and this
is perhaps phase two or phase three of that?
The globalisation issue, or less pompously,
the international issue, is something that featured in the 1980s
plan (that Ratan Tata penned for the group), but was never done.
Strangely enough, when I was posted in Australia in 1970, I had
come forward saying that our hotel company should go abroad. At
that time we had only one hotel, the Taj Mahal in Mumbai. And I
remember the management saying that there was no point in having
a chain of hotels. So there's always been a view from my side that
we should go abroad, and that we have not done enough. We revived
it in the 90s when we started to restructure and said that we should
look at going abroad, but again we were overtaken by the downturn
in the economy and our preoccupations in India.
If that hadn't happened, would you have
started globalisation earlier?
Oh, yes. And what the downturn did was to accentuate
the need to have a market outside India, so that you didn't have
all your eggs in one basket.
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| "Tata's Take On..." |
Globalisation
Strategy
"We have to look at acquisitions and
JVs as the way to go"
The TCS IPO
"(We'll launch it) whenever we feel
the market is ripe"
Indica Becoming
No. 1
"It would depend on our really breaking
new ground"
Telecom Gameplan
"CDMA is where our investments will
go"
Risk-Taking
"The group must take risks, otherwise
it stands still in time"
Brand India
"Our sight should be ambitious,
not minuscule"
His frugal habits
"I don't crave for food, it doesn't
interest me"
Succession Planning
"There will be a successor. Don't
worry"
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A lot of people tend to define globalisation
pretty loosely. What is your definition of globalisation, or internationalisation
as you said? Is there a threshold that would mark the Tata group
having become global?
No, if you are looking for a quantified definition.
A qualitative definition would be when the Tata group as a whole
is an Indian company but doesn't have a definition of being in India,
in the sense when it has operations in different countries of the
world, some may be different from what they do in India, where manpower
and management has a Chinese face, an American face, an Indian face
that signifies that company, and we no longer are saying they are
expats. We would be truly global when we are an international company
operating in many geographies or several geographies, becoming an
entity of the world, if you like, rather than be an Indian company
located in different countries.
How easy is that going to be, considering
that two of your biggest companies are in the manufacturing sector?
For example, unless you start acquiring plants abroad, how do you
think Tata Steel can become global?
I think we have to look at acquisitions and
JVs as the two ways to go in steel and for that matter in automotive
and auto components. As far as companies like TCS are concerned,
again acquisitions and increasing entities in those countries that
have the face of that country will be needed. If we are going to
China, we should have a Chinese face, not necessarily an Indian
face in China; we should be like a Chinese company. If we are in
the US, we should be like a US company, but owned in India. That
in my view is the path we need to take.
Tata Motors is making some big moves. It
has signed an MoU to acquire Daewoo Heavy Commercial and it has
a tie up with Rover to export Indicas, besides an assembly line
in South Africa for commercial vehicles. When BT last interviewed
you, (in February 2002) you said you would be happy if Tata Motors
managed to get a niche for itself in the global market. Do you think
these are indications of that happening?
Yes, I do. I think we have a lot more to do,
but yes we have planted the seed of having that happen. Initially
when we went into the car business, I thought we would have products
in each of the segments-the low end to the high end. But the way
consolidation is taking place internationally and the kind of economies
of scale that exist, I realised that we could never match that.
That we could never be as fast in bringing out new products in all
those segments as I had visualised. So we have to confine ourselves
to being leaders in niche areas where we have the greatest edge
and that edge is the ability to design and develop products at the
low end and produce good value for money products at lower volumes.
Your dream has been to give India a one
lakh-rupee car. How close are you now to realising that dream?
We wouldn't like to say whether we are close
or not close. We have a team working on it. It's an exciting project
because it is a clean-sheet-of-paper project. It's going to be a
new car in terms of material and in terms of the structure of the
car. We are looking at things like, do we need to weld the body
or can we use adhesives? We cannot look at it as taking a conventional
car, stripping it down and getting it down to that level. It really
has to be "let's do it differently". I would imagine in
another six to eight months, we would have figured out which way
we are going and then it would be an issue of pro-ving the concept.
THE RS 1-LAKH CAR
If it can be done, rest assured, Tata Motors
will do it. |
| You certainly don't
want to be in the shoes of V. Sumantran, the man in charge of
passenger car business in Tata Motors. Sumantran, roped in from
General Motors in November 2001, and his team have the herculean
task of delivering on Tata Group Chairman Ratan Tata's dream
of giving India a car that costs a bare Rs 1 lakh-only marginally
more expensive than the costliest bike on the Indian road, Bajaj
Auto's Eliminator. The car is important not just because Tata
wants it, but-as he says in the interview-also because it represents
the kind of pioneering work the auto major needs to do to become
the No. 1 player in India. Already, Tata has made it clear that
he doesn't want the team to take a conventional car and strip
it down to something that costs Rs 1 lakh to make. If that were
the goal, Tata says, it could have been achieved much earlier.
"Here, we really need to be different," he says. Ergo,
Tata Motors is thinking out of the box to make it. Since the
project is still on the drawing board ("We are yet to get
to the point where we say it is do-able," says Sumantran),
there isn't much available in terms of its engineering details.
But here's an indication of just how radical the endeavour could
be: the team is even toying with the idea of using adhesives
instead of bolts to glue the car together. A driveable chassis
is expected to be in place in another few months. But Sumantran
& Co. don't have much time. The boss retires in three years. |
I read a news report today about Tata Motors
becoming the number two car company in terms of sales. Two questions:
What are your chances of becoming No.1 by replacing Maruti Suzuki,
and by 2008 where would you like Tata Motors to be?
Becoming No. 1 would depend on our really breaking
new ground. We'll have to grow in the segment. Today, we have 20-odd
per cent market share. So how much will we grow? It will have to
come out of our eating into somebody else's piece of cake. I think
the real possibility of becoming No. 1 is if we break new ground.
Are we able to do what I hope we can do and that is to introduce
a vehicle that is between the lowest-priced car and the motorcycle
and address that market, which I think is huge, and support it with
the right kind of credit, to enable the young Indian and the family
to migrate from the scooter or motorcycle to a four-to-five-seat
car, which will give him an all-weather transport with a certain
degree of safety and meet emission standards. If we can do that,
I think we can definitely be No. 1. I mean, you can coast up from
the goal of Rs 1 lakh and end up with Rs 2 lakh, but then you don't
achieve what you set out to do. We could have had a car at that
level much earlier. Then you are just below Maruti or something...you
are just another car company. Here we really need to push ourselves
to be different.
So does that mean if the small car does
not happen, then Tata Motors would remain No. 2 or No. 3 car company?
No. Much would depend on what happens to Maruti,
in terms of Maruti refreshing its small car portfolio.
Have you given Tata Motors a deadline by
which you'd like to see the small car on the road?
No. We first need to have something that meets
this requirement, then we'll set some deadline.
TAKING TATA GLOBAL
It's not about global beachheads, but being
globally local. |
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How does a group whose two largest
companies are manufacture-based globalise? Very carefully.
Because Ratan Tata's definition of globalisation is not equal
to exports, or even simply setting up beachheads overseas.
To get a sense of globalisation the Tata way, consider what
Tata Steel is doing. Instead of setting up steel plants from
scratch in key markets abroad, the steel giant wants to globally
cherry pick competencies across its long value chain. Put
simply, to make and market steel you need a whole lot of things,
including coal, iron ore, scrap metal, process technology,
and distribution, among others. The problem: No one country
is good at everything. For example, while China is the largest
manufacturer of steel, it is not as low cost as India, Russia
or Ukraine. And while South Korea, or rather it's steel behemoth
Posco, is a master of steel-making technology, the country
itself is a small market for steel. Tata Steel's plan, then,
is to make billets, or rough blocks of steel, in India (or
any other similar low-cost destination) and set up finishing
plants, either alone or through a joint venture, in the big
markets. In fact, one such may open in another five to six
months. Says B. Muthuraman, Managing Director, Tata Steel:
"Our style of globalisation is about developing a global
mindset to value creation."
The other companies aren't following a very different tack.
Tata Motors, for example, wants to find profitable niches
globally, both for its commercial vehicles and passenger cars.
In November last year, the company signed an MoU to acquire
Daewoo Commercial Vehicle Company for $118 million (Rs 542.8
crore). The company is the second-largest maker of commercial
vehicles in Korea, with a quarter of the market in Korea.
That apart, Tata Motors has joint ventures like in South Africa
for assembling trucks. According to Ravi Kant, Executive Director
of the commercial vehicles business at Tata Motors, the goal
is to have a large enough presence in major global markets
to beat the cyclicality of the commercial vehicles industry
in India and elsewhere. "In each of the key markets,
we have identified segments in which we want to be reasonably
big players," says Kant. He is also confident of launching
in another four years trucks comparable to Volvo and Mercedes-Benz
in terms of quality. As for passenger cars, Tata Motors has
a tie up with Rover of the UK to sell the Indica in Europe.
But the plan here is to focus mainly on small cars, and manufacture
mostly in India.
Similarly, Indian Hotels wants to grow globally through
management contracts, and not just by acquiring hotel properties
like it did in the past. Tata Tea already has the biggest
tea bag brand, Tetley, in its portfolio, but its challenge
is to increase tea consumption globally, and catch up with
Unilever, which leads it by a huge margin. For TCS, as its
CEO S. Ramadorai says, it boils down to creating a global
workforce (read country-specific talent) and delivery. What's
obvious, though, is that, be it Tata Tea or TCS, each group
company will have to devise a globalisation strategy that
maximises its available resources.
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What about Tata Steel?
Muthuraman (Tata Steel MD) has been pursuing
several directions. One is, can you have alliances with various
companies where we supply intermediates or semi-finished pro-ducts
for finishing in those countries? Can you look at investing in some
companies, and can you look at acquiring some companies? And I think
what Tata Steel is doing right now is priming themselves up. I know
that they are looking at opportunities in Korea, China, Thailand
and Ukraine.
Tata Steel seems very keen on tapping the
Chinese market. Probably one reason is that it is a huge consumer
of steel. But is there any strategic reason why Tata Steel has to
be in China?
I don't think Tata Steel has to be there. I
think what they did find was that there were two or three very well-equipped
steel companies and many old-fashioned steel companies that needed
to be upgraded, and I think they felt there was an opportunity for
them to invest in the modernisation of those companies. Other than
that, China is the largest consumer of steel in the world and has
the largest steel capacity in the world. So, I think anybody would
like to have a piece of that market.
Moving to Indian Hotels, you have brought
in an American CEO, which means you probably would like to make
the company more global.
In the past what Indian Hotels has done in its
urge to have entities abroad is to have focussed on what happened
to be good real estate deals, not necessarily the best hotel deals.
Where the strategy went wrong is by way of location or by way of
the quality of the property. The viability was in question as a
hotel. But in real estate terms, they could keep revaluing the property
upwards when there was a rise in real estate prices and everything
looked good because they could borrow. But they never got a black
ink on their bottomline. And none of those properties really tied
into our group in India. We were loath to put our name, they were
not called Taj Hotels, and what we want to do now is to have hotels
abroad that will be an extension of the Taj group of hotels and
that we could truly say that we have a Taj hotel in London or the
US. So we are looking for hotel properties or a group of hotels
that would be in consonance with the image we have abroad.
The TCS IPO has been hanging fire for a
long time now. Is there any hitch?
No, there is no hitch. Whenever we feel the
market is ripe...and the market looks good just now. But I won't
be drawn into saying anything else.
But are you looking at the Indian market
at all, because the kind of valuation and the size of float you
are looking at may not be possible in India.
Let me be frank. Very early in the process,
we had a tax issue that we have resolved. Subsequently we had an
issue that the threshold of 10 per cent that was demanded we put
on the Indian market may be a huge amount for the Indian market
to absorb. Our earlier view was that it would be a real Indian retail
offering. It's now clear that if we go for an IPO, the major buyers
will be the FIIs. Why would we go for an IPO? We would really go
for an IPO if we also wanted a foreign listing. But there's a concern
that we may be hammered between the two (domestic market and market
abroad). So we cogitated over that for sometime, and when we feel
the market is right both in terms of Indian appetite and our ability
to command the price, we will make that. We won't dissappoint investors.
Unlike Infosys or Wipro, TCS hadn't made
any recent acquisitions abroad...
TCS has made acquisitions but they've been very
small acquisitions, so they were not really visible. But even Wipro
and Infosys didn't make acquisitions for a long period of time.
I'd also like to say that in this particular business, it's all
very well to talk of acquisitions, but all these acquisitions are
knowledge-based acquisitions. And the success or failure of those
companies is in retaining people of target companies. When you buy
a company, you actually are buying the knowledge base that is there
in the three or four founders of that company. But when you buy
them, they cash out. If they retain a stake in the company, they
are part of a company that is 8,000 miles away. If you don't meet
their entrepreneurial needs of freedom and operating autonomy, they
will walk out. Therefore, these acquisitions are usually made because
of a particular business scale that they offer. But then it has
to be driven by continuously upgrading the technology, and I don't
know how this will work even for Infosys and Wipro. If you have
a strong enough base to bring your technology to that company or
make something happen, it's fine. Nobody's missing the founder of
Lotus Notes because IBM has enough power to distribute Lotus Notes
and to fund its further development. It may not be so in the case
of some of the Indian companies.
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| "If we go to China, we should be like
a Chinese company but owned in India" |
How do you think the move towards unified
licensing affects your own plans in telecom? For example, Tata Teleservices
now competes with Idea, where the Tatas are an investor.
In the case of Idea, we are a one-third partner,
we don't run the company. We brought our GSM operation into it because
I was of the view that having Andhra Pradesh alone (for GSM) made
little sense; we needed to consolidate geographically, not in terms
of services. In Tata Teleservices, or rather in CDMA, that's the
route we will grow. That's where our investments will go. The two
are not truly competing because unlike GSM, where you can move from
one service provider to another, here you need to change your handset,
move to a different regime.
But are you happy with the way the telecom
scenario is evolving, especially in view of what happened to VSNL?
I think we have had a couple of lessons to learn.
What we did not see is that the government cannot be truly fair
in its dealing with an ex-government company when it has another
of its own incumbent. And we find that there is great favouritism
towards BSNL and MTNL, to protect them at the cost of VSNL. So,
if I were to write a guideline for the group I would say that any
disinvestment where the government still has an incumbent in that
field, we should not touch it.
But would it be right to say that your larger
telecom plans remain unchanged despite the developments?
Yes, I would say that I am pleased with the
move towards unified licensing. I think for the first time the TRAI
(Telecom Regulatory Authority of India) has taken a pragmatic view
on how the industry should grow.
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| "We could have had a Rs 2-lakh car
much earlier, but we need to push ourselves to be different" |
Changing tack a bit, how would you define
Brand India?
Oddly enough, Brand India is what we do here.
What is Brand China or what is Brand Singapore? The attractiveness
of Singapore is the fact that the country works, it is investor
friendly, it is tourist friendly. I think Brand India is what India
is. I think it's wrong to think of Brand India as an aggregation
of brands that go abroad representing India. They can represent
India, but the most important thing that we must do in India is
to project India as an investment destination, as a tourist destination,
and as a place where things work. And the best way to do that is
to kill the phenomenon that is killing India today, and that is
vested interest.
You're a good friend of Amar Bose. Are you
an audiophile?
Amar and I are good friends not so much because
of music. We became friends because we share a lot of common interests.
He's an extraordinary individual in terms of his span of interest.
Amar and I share the same inquisitiveness as to why something should
happen, or why it is not possible for something to happen, can we
make it happen? And his quest is not confined to music. The last
time I met him he had developed virtually a revolutionary suspension
system for cars. And, as someone in the car business, I would say
it is truly revolutionary.
Oddly enough, he spoke to me about this in
1981 when I spent a weekend with him and he said, "You know,
I don't know why this couldn't happen. I worked all the algorithm."
And when I was at his home about a year ago, he said, "Remember
we talked about this some years ago? I have something now which
I am starting to talk to car companies about." And it would
truly revolutionise the suspension in cars. What I saw was you could
go over an unpaved road and you can sit in the car and write. There's
absolutely no transfer of that motion into the car. And after that
it will be something else (for Amar). Unfortunately, in the last
few years we've drifted apart because both of us are doing our own
things.
Is there an inventor in you?
Yeah, but I have nothing to show for it. I have
a similar bent of mind, but I don't have Amar's intensity in technology
and I don't have undergraduates of MIT I could work with on things.
The closest thing I have come to is in Telco, where we are doing
something that one had wanted to.
You are an architect by education. Do you
get time to design anything?
Yeah, I designed my beach house across the harbour,
a couple of other things...and I designed a house for my mother
that still stands. But that's about all.
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| "It's detrimental to identify a successor
and to have everybody shower their envy on him" |
What do you do to unwind?
For me possibly the greatest relaxation is flying,
because it's not relaxed but forces you to concentrate. It's a great
unwinder for me, totally absorbing.
You seem to be in good shape for a man of
your age (67). Do you work out?
No, unfortunately I don't. I swim on the weekends.
But I used to be a big scuba diver at one time.
I am told you are a frugal eater too...
I'm not one who craves for food. So food doesn't
interest me. But I have a lot of friends who live to eat.
As a leader, are you more like J.N. Tata
than J.R.D. Tata?
No. J.R.D. Tata was my greatest supporter. Without
his support, obviously, one could not have got participation of
all the companies and the acceptance of this (the 80s plan). The
plan was not supported by him, but when we went through the implementation,
he was very supportive and took a keen interest in how they performed.
How would you compare yourself with J.N.
Tata or J.R.D. Tata?
It is very difficult to make that comparison
or even comment on that. If you look at the risks J.N. Tata must
have taken when he formed Tata Steel or when he created a power
company, the risks must have been immense. When Tata Steel went
through a difficult deal, Dorab Tata (J.N. Tata was then no longer
alive) actually pledged all the family jewellery to keep Tata Steel
alive at that time. It was a tricky thing to do. Many years later
when we embarked on a car project in Telco, Rs 1,700 crore is what
we had to invest and it was viewed very critically by everybody,
as being a huge huge risk, endangering Telco, perhaps mortally so.
I am glad it has come out ok.
Now if you look at today, we are investing
Rs 20,000 crore in telecom, and the same criticism is taking place.
That you are endangering the whole group with tremendous risk by
investing money that can launch many Indica projects, etc. So again,
it's a risky project, but the magnitude is very different. And each
one of them in their own context has been risky. Maybe my successor
will have to face a situation where he is investing Rs 50,000 crore
in something that will supposedly endanger the group. Yet, these
are risks the group must take, otherwise it stands still in time.
Like buying Tetley?
Yeah...again a lot of people were concerned
that (Tata Tea) was trying to buy a brand much bigger than itself.
But look at Tetley now. Tata Tea and Tetley have been integrated,
they have entered newer geographies, and they are better placed
to tap opportunities.
One last question on succession. Are you
still determined to step down as Chairman when you are 70?
Yeah.
Does that mean you already have identified
someone to groom?
I won't be drawn into that. I have some views
on that and we will do it in a particular way. And you don't necessarily
have to groom somebody for a period of time. If there's somebody
you think as the person who fits in, be it from within or from outside,
and I think the judgement on whether the person has the capability
of doing something...frankly, when you make that decision is when
the grooming starts. If I look back in time in the Tatas, I think
there were many people who were seen to be potential successors
to JRD, and who didn't become one. Sometimes it's detrimental to
define a person and to have everybody shower their envy on him...
destroy that person. There will be a successor.
But you would want to spend six months or
a year helping that person make the transition...
Sure, but I am not leaving in another six months
or a year. Don't worry, that will happen.
For the unabridged interview
go to www.business-today.com
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