Ratan Tata, India's Corporate Czar, Retires With a $500 Billion Vision
The house of Tata owns dozens of prominent Indian businesses and brands, from the Taj Group of luxury hotels to the super-inexpensive Tata Nano car. It is widely perceived to represent Indian capitalism at its best, enjoying the goodwill of millions of customers, the loyalty of more than 400,000 employees and the investments of 3.8 million shareholders, while also reinvesting a substantial part of its profits into philanthropic work overseen by a set of trusts.
Tata's tenure at the helm was notable for its longevity, ambition and stewardship of a venerable tradition. (The family-owned house of Tata was founded in 1868 and had only four chairmen before Ratan Tata, including the legendary J.R.D. Tata, Ratan's uncle and immediate predecessor, who ran the business from 1938 to 1991.) But Tata's leadership was especially meaningful because it ran exactly concurrent to a new phase of Indian capitalism itself, and mirrored India's rise as an economic superpower.
Tata's reign began in 1991, the same year that India's socialist government was forced to deregulate the economy after a balance-of-payments crisis, abruptly throwing the country into the currents of globalization. Suddenly, the biggest Indian business houses, which had long been inward-looking and protected by government controls, faced the prospect of having to compete with the best in the world. This move had a special resonance for Tata Industries, the managing agency that oversaw a network of dozens of companies manufacturing everything from steel to salt to tea, and involved in almost every sector of the economy from hotels to telecommunications.
In 1991, Ratan Tata was 54 years old and had already spent almost three decades at the Tata Group, beginning as an apprentice on the shop floor of Tata Steel in 1962 and working his way up. Nevertheless, many close observers of Indian business (including some leading executives at the Tata Group who had hoped to land the top job) were skeptical of his ability to advance the group's interests in a new financial and technological era.
But Tata gradually worked through the challenges, streamlined the house's odd mix of businesses, integrated them all under a common brand logo and took the group into emerging new sectors such as information technology and car manufacturing. Today, the group's most profitable business is not hotels or steel, but the information technology firm Tata Consultancy Services.
Crucially, starting around the turn of the century, Tata did a great deal to transform the company from a major Indian player to a significant global player. The group's major acquisitions since 2000 include the tea brand Tetley in 2000, the Ritz-Carlton Hotel in Boston in 2006, the steel company Corus Group Plc for $7.6 billion in 2006, and the Jaguar Land Rover car operations from the Ford Motor Co. in 2009. Tata Group is now one of India's few genuine multinational companies, with a presence in at least 56 countries. In 2011-2012, 58 percent of its total turnover of about $100 billion came from outside India, up from about 5 percent two decades ago.
Writing about Tata's retirement in the Financial Times, James Crabtree said:
Tata is a symbol of Indian capitalism, with a rare reputation for combining fast growth and ethical conduct in a nation still bedevilled by corruption. Its departing chairman is also his country’s most revered business patriarch – making this once-in-a-generation handover one of the most watched events in India’s business history. More than that, however, Tata has also come to embody its nation’s adventures with globalisation.
The business newspaper Mint ran some of the best coverage of the once-in-a-generation handover (including this timeline). Aveek Datta quantified the progress made both by the Tata Group and the Indian economy since 1991 in a story called "Ratan Tata: A Journey in four Stages":
The story of the Tata group and Ratan Tata over the past 20 years is one of growth and competition, productivity and efficiency gains, and globalization and innovation. The Tata story is replete with run-ins with the establishment and the political opposition, and failures and frustrations. And, in some ways, it is the story of India itself, only with a happier ending.
The group’s aggregate sales at the end of 2011-12, at Rs. 4.51 trillion, are 43 times the turnover in 1992-93, the first full fiscal after Tata took over as chairman. Net profit growth in the same period has been even more spectacular, rising 51 times. . . . The aggregate market capitalization of the group at Rs. 4.54 trillion in fiscal 2012 is 33 times higher than it was in 1992-93. In the same period, the Sensex, the benchmark equity index of BSE, grew nearly eight times.
Perhaps the secret of Ratan Tata’s success lies in his ability to think big—and small. While he guides the Tata group to pick up the luxurious Pierre Hotel in New York, he’s also driving the launch of the budget Ginger hotels in India. He has the ability to envisage an automotive business that encompasses diverse businesses such as the iconic Jaguar and Land Rover marques on the one hand, the world’s cheapest car the Nano, on the other, and hardy, rough-road trucks sandwiched in between.
Tata’s big deals are balanced by projects focusing on the lowest common denominator. In fact, Mr Tata has been among the very few to perfectly understand the pysche and the needs of the Indian consumer—and build successful businesses around those insights. That is, by recognising that the big market opportunity lies in making desirable products affordable for a larger audience and creating successful products to cater to a market need—be it the passenger-car foray with the Indica in the early 1990s, the promise to create a Rs 1 lakh car or for that matter, making water filters that don’t need electricity (for rural areas).
Tata pointed out the opportunities for expansion at the lower end of the Indian consumer market in an interview in 2006:
I think industries in India, by and large, have mostly been looking at the small section of the population at the top of the pyramid, the 200-250 million middle class that is the consuming public. That's an acceptable model because of its consonance with the scale and size of our companies. The 400 million and more just below them is what we have to target, because they are potential consumers. Can we go and cater to that marketplace? I think there is an opportunity there. But it should not be, cannot be, that low-cost products come to mean inferior or sub-standard products and services; definitely not. The aim is to create products for that larger segment – good and robust products that we are able to produce innovatively and get to the marketplace at lower costs.
Tata left with a flourish, announcing an ambitious vision for the company over the next decade at the annual meeting of the group's top executives last April. Revealing that the annual turnover had exceeded $100 billion in the previous fiscal year, he said he hoped for this figure to increase to $500 billion by 2020-2021. In a piece in the Business Standard called "Ratan Tata's Vision 2020," Surajeet Das Gupta noted:
Tata’s vision for the future assumes an annual compounded annual growth rate (CAGR) of over 20 per cent for the next nine years. This is in line with the growth he has achieved in his 20-year tenure as chairman. The group registered a 22 per cent CAGR between FY 1992 and FY 2011, the tenure in which he was chairman. . . . The scale of Tata’s ambition is evident from the fact that in the 2011 Fortune 500 global list, the largest company was Walmart, with a turnover of $421 billion.
Tata's closing remarks seem to be both a statement of fact and a challenge to his successor, Mistry -- a man who, like Tata himself in 1991, was something of a surprise choice from a field packed with managerial quality. The sixth chairman of the 144-year-old Tata Sons Ltd. has his work cut out for him. But at least he knows that the history of his organization tells him that, unlike many chief executive officers, he can plan for the really long term.
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Chandrahas Choudhury at email@example.com