Online Extra: Tata Unbound
For the past four years, Ratan N. Tata has been racing to seize opportunities to establish the Tata Group, one of India's oldest and biggest conglomerates, as a major global player in everything from steel and cars to hotels and information technology services. Besides making big acquisitions such as the Anglo-Dutch steel giant Corus Group and the Ritz Carlton hotel in Boston, the Tata Group is plowing $28 billion over the next five years into capital investments in a range of industries at home.
But at 69, this also is a time for the visionary tycoon to start considering his legacy. In a surprisingly candid and introspective interview with BusinessWeek's Pete Engardio and Nandini Lakshman at Bombay House, the Tata Group's graceful, colonial-era headquarters in Mumbai, Tata discussed the formation of the group's global strategy and its major challenges. He also talked about his achievements, disappointments, and unfinished agendas. Excerpts follow:
What were the origins of your big global push?
Around eight years ago we asked our companies to benchmark themselves against the best in breed in India. We wanted to know what they need to be in the top three market position, and have a path to get there.
About four years ago we decided to look at ourselves and our goals in a much bigger and bolder way than we had in the past. The genesis of this came from a little comparative study we did of India and China. I realized the difference was the scale of each thing they undertook. When you go to the Far East, you get overwhelmed. Whether they build a port or some other infrastructure, skeptics around the world would say, "My God, this is just over the top." I realized that with almost everything China did big, they grew into it very quickly. Their growth rate momentum supported that.
It led me to mandate around 2003 that we rescale our thinking in terms of our growth, not just organic growth but also inorganic growth, and that we look at global scale rather than domestic scale. Then we just forced and cajoled this to happen in the business plans of the companies.
Why all the acquisitions now?
First, our companies are more prosperous than they were. Access to international funds certainly is a factor. There also is a strategic situation that sometimes makes it easier to grow internationally than domestically. The auto market may be booming now in India, for example, but we may be weak elsewhere.
Your acquisitions have been all over the map. Is there an overarching strategy?
We want to extend our footprint overseas wherever it makes sense to us. We want to be in a place in a meaningful way, not just as a red dot on a map to say that we are there.
Each acquisition had a strategic reason. Tetley [the British company bought in 2001 by Tata Tea] was to gain a brand. Daewoo Motors had heavy trucks, which we didn't have. [European steel giant] Corus was basically a very good fit. It has complimentary products and has 19 million tons of capacity we can acquire with a single company and has a footprint in Europe.
In hotels, we have a geographic plan. We are looking at iconic hotels in strategic places. We are not to acquire a chain. We looked at three or four locations in the U.S., one or two in Europe, at South Africa, and the Indian Ocean. You may well see another.
Why acquire hotels with names like Ritz or Pierre when you already have a strong name in Taj?
There are two ways to [expand]. One is to have the Taj brand everywhere. The other is to get iconic hotels with their own brands. People will realize that they are your hotels. We could retain those brands for awhile, and alter them at some time. The Ritz in Boston now is the Taj Boston, and we just signed a deal with Camdon Place in San Francisco, where we will retain that brand for awhile. We don't own the Pierre. It's a lease. But even when Four Seasons had it, it was still the Pierre.
At the same time you are buying luxury hotels, the Tata Group is going after the so-called bottom of the pyramid with everything from low-cost watches to cars. Why?
All of Indian industry is aiming for the tip of the pyramid (high-end consumers). But you have this huge base of the pyramid which is not addressed. We said that in India, maybe we should break tradition and go to a market that in future will be 600 million people. We asked whether we can raise standards for products at that level. Can we produce a $2,000 car? Can we produce a $25-a-night hotel? A very inexpensive watch?
Do you plan to bring products like the low-cost hotels to the U.S.?
It would be philosophically wrong for us to go into the U.S. with no-frills products. If we go for the bottom of the market, we would build an image of that nature. The Taj Group [of hotels] ought to carry through the high stature it has in India.
Are you satisfied with your progress in India at the bottom of the pyramid?
We have not been so successful. We have been trying to reinvent products. But we haven't reinvented the businesses, which is something we need to do. We should look at different ways of marketing these products. With the car, for example, we are looking at selling through stand-alone services guys who may act like insurance agents—operating on their own, using satellite service stations.
Nissan's Carlos Ghosn now also wants to make a low cost car in India. Is that a concern?
It's not a concern. At least he's talking about it because he believes in it. Mr. [Osamu] Suzuki [chairman of Suzuki Motors] says it can't be done. When we produced the Indica, it was to be a $4,000 car, but others felt it had to be a $7,000 car. Now why should the $2,000 car be the limit?
Are you happy with the design?
I had hoped in design it would be totally unconventional. But it is still a car. I was disappointed we used conventional materials like steel, not plastic. In fact, General Electric was also very keen that we develop a plastic car. But the cost of plastic was more than steel, so it became a conventional material car.
At first, I thought about something that was very different from a regular car, but I wasn't specific. When you get into that mode, you don't accept anything that exists today. In the early thinking, the car had no doors. We looked at it as a progression up from a basic motor transport to something that was motorized and would take a family. Then we realized that people weren't going to consider that to be a car but some other animal. We realized we need doors and a roll-up window.
How could you get the cost down so low?
First, it is small. It is innovative in that it is lighter and has less materials than other cars. It won't have a lot of frills. A trivial example is that it may not have air vents. There is very minimal trim. The dashboard can be rather stark. The base model may not have any reclining seats. But it is upgradable to have power windows and power steering.
When you took over the group in 1991, you wanted to radically reduce its size. Now there are more companies than before. Are you too big?
It's one area I have not succeeded in what I set out to do. We have about 80 to 90 companies and about 300 subsidiaries in 40 businesses. We said that we would bring it down to 15 or so. We've done a little bit through internal mergers, and have gone out of some businesses. But we also added some.
What we have done is to create clusters around the strong companies in each business. They are like mother companies. We have created a bunch of mini groups that are in less business than before. But if you look at them together, we are still too diverse and too big.
What happened to the downsizing?
We told companies they had to be among the top three in their markets. And many were. They met the challenge. So the question came up, "Why are you doing this to us and not to them?" We didn't have an answer for that.
Do you have enough management bandwidth for all these businesses? It is an issue. We have to increase the management bandwidth with the same ethical standards and values. This is something you cannot ensure until that person is with you. We need to empower more young people. We still have a years-of-experience syndrome in our group.
How about you personally? Aren't you overstretched?
I'm involved in more issues than I feel I should be. Some of my people probably would agree.
Do you think this can be a model for the global corporation of the future?
The shareholder in India does not see [funds spent on corporate responsibility] as money that belongs to him and that must be distributed to him. I think it is the kind of company you should see in Brazil, Kenya, or Central America. And it may rub off on some Southern states in the U.S.
What do you say to concerns that you have not designated a successor?
There is a problem. It is something that I am committed to do while I am here, and not to carry on endlessly as may have happened in the past. There are some contenders outside the group and inside, but no anointed individuals. I will have this defined 24 months before my exit. And that exit needn't be at 75, but much earlier. Whoever it might be, I hope I can pick the right person who will surprise everybody.
What are your big challenges now?
I think people. The other is retaining the value systems as we grow bigger, diverse, and go overseas. Before we make an acquisition, we spend a fair amount of time and effort becoming comfortable with the management and their ethics. If that isn't there, we will not go forward, as it's too difficult to change the culture from several thousand miles away.
With Corus, we really came to know the top three or four people well enough to conclude that even if we don't go forward, we at least saw a friendship. We interacted with them for eight or nine months, even before we thought that we would acquire the company. We thought we might just have an alliance.
While your corporate responsibility spending is laudable, some might say it is excessive for a global public company. Is there are risk it will diminish under future managers?
I can't ensure this will survive. The view I take is that there is no issue if I am in the ballpark in terms of dividend payments and the bottom line, and if we still remain competitive. If one went to Tata Steel, for example, you could take a broom and sweep out a lot of these costs [such as maintaining municipal services in Jamshedpur]. You could turn it into a more conventional company. But you would have great discontent. And I think it would change the environment and atmosphere. We certainly don't do all these things in other countries. But here, we have this responsibility. Remember that Tata Steel went from 78,000 employees [in 1994] to 38,000 today—with no labor unrest. You could never do that unless there was faith between the employer and employee.
What are some things you would like to leave as your legacy?
I would really like to see ourselves serving the low end, the underprivileged, more than we are doing today. I feel we can achieve breakthroughs in some areas, like helping provide water. The bare necessities. If our company could spearhead things like this, it would give me great happiness. It also would give me great pleasure if I could create awareness of the destruction of the environment around us.