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Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Too Good to Fail

If social benefits are one major goal of Tata’s strategies, another is rapid and continuing growth, in as many industries and venues as possible, on behalf of both philanthropic and fiduciary commitments. “We are hard-nosed business guys,” says Gopalakrishnan, “who like to earn an extra buck as much as the next guy, because we know that extra buck will go back to wipe away a tear somewhere.”

Before the 1990s, when Indian businesses were protected from outside competition but also limited by tight government controls, Tata’s domestic expansion and diversification positioned the group as one of the two or three largest companies in India. Since 1991, the group has grown dramatically, stimulated by an aggressive $20 billion international acquisition campaign. Revenues and profits rose from $5.8 billion and $320 million, respectively, in fiscal year 1992 to $62.5 billion in revenues and $5.4 billion in profits in fiscal year 2008. Approximately 35 percent of sales in fiscal year 2009, which were equal to roughly 2 percent of India’s total GDP, were generated at home.

Tata’s international acquisitions have transformed it from a company deeply grounded in India into one of the world’s most visible conglomerates. In 2007, Tata Steel acquired the Anglo-Dutch steel giant Corus Ltd. for $12.1 billion; that same year, Tata’s Indian Hotels Ltd. company paid $134 million for the venerable Ritz-Carlton hotel in Boston and startled the city’s elite “Brahmins” by renaming it the Taj Boston. In 2008, Tata Motors’ $2.3 billion takeover of Jaguar Land Rover (JLR) received much press and analyst attention.

At the same time, in part as a result of its overseas spending spree, Tata’s strategy has been called into question. In recent years, the group has had to borrow more money, float more equity, and dip more deeply into internal funds than ever before in its history. The timing of its overseas purchases, especially the highly leveraged Corus and JLR deals, couldn’t have been worse in terms of immediate financial returns; the worldwide recession of 2008–09 slashed profits, hitting autos and steel hardest. In response, the Corus unit launched a major efficiency program that reduced operating expenses by more than $1 billion.

To many observers, Tata’s strategy contradicts the conventional wisdom about conglomerates: that they are innately unfocused and sluggish. Indeed, a 2002 Fortune magazine profile characterized the group’s labyrinthine corporate structure, unwieldy mix of businesses, and low profitability in every sector (at that time) except computer services, referring to Tata as “one of India’s most beloved companies [and] a mess.”

Moreover, as Tata has outgrown Indian capital markets, it has sought more financing from global investors, who are generally less patient than those in India. In today’s competitive world, the group’s community-oriented generosity can seem as outmoded and unrealistic as the “company town” paternalism of Andrew Carnegie and Henry Ford.

To justify their decisions, Tata’s group-level leaders argue that their emphasis on “family values” represents a critical aspect of their corporate culture. It is strong enough, they say, to hold Tata’s family of companies together as it diversifies and expands outside India. It is also essential to the group’s sustained financial success. Moreover, Tata’s corporate image, as measured by independent groups such as the New York–based Reputation Institute, is viewed more favorably than that of Google, Microsoft, GE, Toyota, Coca-Cola, Intel, and Unilever. And, as billions of people move up from the bottom of the pyramid (as writer C.K. Prahalad calls the economic milieu of the poorest third of the world’s population), the group’s combination of developing-country experience and socially progressive business values may give it a distinctive edge.

In short, Tata’s leaders believe the group can survive on the world stage only by being both too big to beat and too good to fail.

 
 
 
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Resources

  1. R. Gopalakrishnan, The Case of the Bonsai Manager: Lessons from Nature on Growing (Penguin Portfolio, 2007): “The leader needs to think about issues at the edges of the spectrum of the obvious.”
  2. Ann Graham, “The Company That Anticipated History,” s+b, Summer 2006: How South African power utility Eskom Holdings Ltd. combined social leadership with business strategy to prepare for the end of apartheid.
  3. Ronald Haddock and John Jullens, “The Best Years of the Auto Industry Are Still to Come,” s+b, Summer 2009: The Nano’s prospects in context.
  4. Tarun Khanna, Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours (Harvard Business School Press, 2007): Macro view of today’s two great sources of emerging business creativity.
  5. Nirmalya Kumar, India’s Global Powerhouses: How They Are Taking on the World (Harvard Business Press, 2009): Profiles of ArcelorMittal, Infosys, Hindalco, Mahindra & Mahindra, Tata Group, and more.
  6. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: Impossibly low-cost, high-quality products and services (including one from Tata’s hotel group) that start by cultivating constraints.
  7. Tata Group website: Comprehensive information, original interviews and stories, public media reports, and links to other resources about the company.
  8. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/global_perspective.
 
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