Tata Group Chairman Ratan Tata: Launching the Indica in Johannesburg

When Tata Group Chairman Ratan N. Tata landed in Cape Town in March this year, he was pleasantly surprised to learn that Tata Indica sales in the three months since its launch in October 2004 had exceeded that of any other car in South Africa, far ahead of incumbent market leaders Renault and Kia. Tata was doubly pleased that his vision for the country was unfolding according to plan.

Recalls Syamal Gupta, Chairman of Tata International (formerly Tata Exports): "(Ratan) Tata told me three decades back that the group must do some pioneering work in Africa." But Apartheid, and the African National Congress' call for economic sanctions against the country, prevented the Tatas from entering South Africa then. So, although Tata commercial vehicles were sold across Africa, and the group had sales outlets spanning the length and breadth of the continent, South Africa remained off the Tata map. But "when the opportunity came to do business there, we tried to make it happen", adds Gupta.

The Tatas have identified South Africa as the group's biggest overseas market. The thrust areas: telecom, power, mining, car distribution, hotels, information technology and tourism. "We will invest Rand 1.5 billion (Rs 1,065 crore) on new projects over the next two years," says Raman Dhawan, Managing Director of Tata Africa Holdings, the group's operational company in South Africa and the nerve centre of Tata operations in Africa.

Explaining the rationale behind his decision to move aggressively into South Africa, the 67-year-old Tata says: "There is clearly a business case for investing in the country, but right now I would say the driver is more the emotional bond that the Tatas have with South Africa."

His family's association with South Africa goes back a long time. In 1912, Sir Ratan Tata, the younger son of group founder Jamsetji Nusserwanji Tata, supported Mohandas Karamchand Gandhi's non-cooperation movement against Apartheid in South Africa by contributing a princely sum of Rs 1.25 lakh.

Tata Africa Holdings' Raman Dhawan: Driving Tata's Africa strategy

Eighty-seven years later, in 1999, the current group chairman was invited by Thabo Mbeki, President of South Africa, to join the International Investment Council (IIC), which is mandated to market that country to foreign investors. Tata apart, the 13-member IIC includes other global business leaders like Niall Fitzgerald, Chairman of Reuters and former Chairman of Unilever, Percy Barnevik of Astra Zeneca and Lakshmi Niwas Mittal of Mittal Steel Corporation.

Tata, who first met Mbeki (then Deputy President) when he visited South Africa six years ago as a trustee of Ford Foundation, was invited to join IIC when the latter became President in June 1999. This allowed him to get a first-hand feel of the country. While Tata the businessman saw a country with great potential, Tata the philanthropist was touched by the widespread poverty and the lopsided economic development that left large swatches of the country outside its realm.

But despite this, it has a readymade base for accelerated growth. Per capita income in 2004 was $10,400 (Rs 4.57 lakh), the economy is chugging along at 4 per cent per annum and it has excellent financial and industrial infrastructure and a well trained workforce. "South Africa is the engine for the rest of Africa," points out Dhawan.

The group had to enounter and overcome significant challenges when it entered the country. The first was to convince local consumers that its products and services were of international standards. So, when Tata Automobile Corporation SA, a part of Tata Africa, saw a market for Tata Motors' two- and four-tonne vehicles, it subjected them to 100,000 km of endurance and performance tests that were conducted by an agency in Pretoria. Needless to add, the vehicles cleared the tests and duly received approvals from the South African Bureau of Standards; and the first batch of Tata trucks and buses was launched in December 1998. Only nine vehicles were sold in the first four months. Since then, the business has grown, and the company sold 1,400 vehicles in 2004-05.

"The Tata LP 713 (a light commercial vehicle) is the largest selling model in South Africa," informs Ravi Kant, Executive Director, Tata Motors. In the medium commercial vehicles (MCV) segment, Tata Motors is in #2 position, behind Toyota, with a market share of 18 per cent. The Tata Novus range of heavy commercial vehicles (made by Tata Daeweoo Commercial Vehicles of South Korea) is also a big hit. Adds Kant: "South Africa is like one more region in India. We have simply replicated our Indian template for distribution, sales and service in South Africa." The total market for buses, pick-ups and cars in South Africa is about 90,000 units per annum. Jostling for space in this market are global biggies like Toyota, bmw (which assemble their vehicles locally) and Hyundai (which imports its vehicles from plants located elsewhere in the word). The Tata Group is leaving no stone unturned to gain a competitive edge over its rivals. Since South African bus operators prefer locally built bodies, Tata Africa is setting up a Rand 40-million (Rs 28.4 crore), 300 units per annum plant to build bus bodies in Johannesburg. This capacity will be ramped up to 1,000 units depending on market conditions. Tata Motors also made a big splash at the Auto Africa show in Johannesburg in October 2004; it launched the Indica and the Indigo at prices ranging from Rand 70,000-90,000 (Rs 4.97-6.39 lakh), a good 15-20 per cent lower than rival products. There are already more than 1,000 Indicas on South African roads today, and Tata Motors is hoping to push this number to 7,000 by the end of the year. "Our cars offer very good value for money," says Dhawan.

In telecom, VSNL bought a 26 per cent stake in South Africa's second fixed-line operator Second National Operator (SNO) for $250 million (Rs 1,078 crore). The company, which will be managed by the Tatas, is expected to soon win a licence for fixed-line national and international voice, data and other value-added services. VSNL's access to cable capacity across three continents will help SNO compete effectively with South Africa Telkom, the largest player in that country.

Global Footprint

Quo Vadis? The entire world, literally In 2000, Tata Tea surprised the world by acquiring the UK-based Tetley, the inventor of the tea bag, for £271 million (Rs 1,870 crore at the exchange rate prevailing then). The purveyors of doom had a field day. Tata Tea would sink under the mountain of debt it had had to incur to fund the purchase, they said wisely. Investors hammered down the stock. But the Tatas proved the naysayers wrong. Today, Tata Tea is once more considered a jewel in the Tata crown. The Tetley deal was the opening move of a long-term strategy by the Tata Group to acquire a global presence. The year 2004 was a particularly busy one for M&A managers in the group. Tata Steel bought the Singapore-based Nat Steel for $283 million (Rs 1,245 crore) and Tata Motors completed the buyout of Daewoo's heavy commercial vehicle unit in South Korea for $102 million (Rs 448 crore). Somewhere along the way, it also took over Spain's Hispano Carrocera SA, a maker of bus components, for $16 million (Rs 70.4 crore). And now comes the biggest of them all: VSNL is acquiring Tyco's undersea cable network for $130 million (Rs 572 crore). This submarine network will give VSNL control over a 60,000-km undersea cable network across three continents and was valued at about $3 billion (Rs 13,200 crore) at the height of the 2000 stock market bubble. The Tatas also plan to invest $2 billion (Rs 8,800 crore) in fertiliser, steel and power plants in Bangladesh. The Tatas as a multinational entity? Why not? Watch this space for more on this in the months to come.

Tata Power and Tata Steel are also joining the safari. The former is likely to bid for a 1,000-mw power plant that the South African government will soon be awarding as part of a plan to augment generation capacity by 3,000 mw. And Tata Steel, India's largest fully integrated chrome producer, is finalising a Rand 600-million (Rs 426 crore), 120,000 tonnes per annum ferro-chrome project in Richards Bay on the Indian Ocean coastline. Ferro-chrome production is prohibitively power intensive; hence cheap power is sine qua non for the long-term viability of any such project. And South Africa, which produces 55 per cent of the world's ferro-chrome, enjoys a decisive cost advantage on this count-power costs less than two cents (88 paise) per unit here compared to upward of six cents (Rs 2.64) in India. "We will take advantage of the cheap power available here," says Somdeb Banerjee, Chief of Overseas Projects at Tata Steel.

The plant at Richards Bay will use high-grade chrome ore sourced from India and Iran, convert it to ferro-chrome and re-export it to Europe and South-East Asia. Adds Banerjee: "The South Africa Ferro-Chrome Producers Cluster is the global price setter for the commodity. Being a part of it will benefit Tata Steel and provide a hedge against adverse currency movements." Tata Steel plans to produce a differentiated product with higher chrome content-64 per cent, compared to 51 per cent in the conventional product-which has a significantly larger customer base. The plant will go onstream by the first quarter of 2007.

In infotech, Consilience Technologies, a joint venture between Tata Africa and J&J, a local group, is engaged in it services and solutions. Besides, Tata Consultancy Services (TCS) has launched an e-learning programme to increase literacy levels in that country.

The Tatas' South African plans are part of a strategy to give the group a distinctly multinational profile (see Global Footprint). Says Amit Chandra, Joint Managing Director, DSP Merrill Lynch: "The Tatas seem to be ahead of the curve while evaluating international opportunities of size and significance."

Business compulsions-of reducing its dependence on the cyclical Indian market and partially derisking revenue and profit streams-may be driving the group's global strategies. But in Ratan Tata's mind, there is more to the South African strategy than pure business. The Tatas-who helped kick off the long struggle against Apartheid with a generous donation to Gandhiji-are now returning to help native South Africans emerge from the residual vestiges of that discredited system.