BUS 323 INTERNATIONAL MANAGEMENT Case Analysis Report: The Last Rajah: Ratan Tata and Tata’s Global Expansion
Prepar Prepared ed By : Selver Selvermug mugam am s/o Tanggav Tanggavelu elu @ Angamut Angamuthu hu (aka (aka Cash) Cash) Stu Studen dents ID : 315340 34071 nd Due Date : 22 Feb 2012 Lecturer : Dr Jurgen Rudolph Program In-charge: Ms Lily Peng Modul Mod ulee Code Code : PT BUS32 BUS323C 3C No. of words : 2034 (word-count (word-count from report report writing writing only) No. of pages pages : 08 pages pages of report report (exclu (excludin ding g pages pages 1, 2, 11 and 12) Page 1 of 13
Table of Contents ..............................................................................................................................................1 .............................................................................................................................................2 Source Problems.................................................................................................................3 Secondary Problems..........................................................................................................3 Short Term.........................................................................................................................3 1.1 Integration processes..................................................................................................3 1.2 Conservation of resources .........................................................................................3 1.3 Economy slow-down.................................................................................................3 Long Term..........................................................................................................................4 1.4 Jaguar Cars and Land Rover bid from Ford Motor Co..............................................4 1.5 International M&A .....................................................................................................4 Analysis...............................................................................................................................4 Figure 1: M&A activity..................................................................................................5 Figure 2: Analysis of the Tata Group using the BCG Matrix.........................................6 Criteria of Evaluation........................................................................................................6 Figure 3: Adapted from Robert S. Kaplan and David P. Norton; “Using the Scorecard as a Strategic Management System, “Harvard Business Review”..................................7 Alternatives.........................................................................................................................7 Short Term:........................................................................................................................7 1.6 Customer.................................................... ................................................................ 7 1.7 Financial ......................................................................................................... ............8 1.8 Internal Business Process...........................................................................................8 1.9 Learning Growth ........................................................................................................8 Long Term..........................................................................................................................8 1.10 Customer.................................................................................................................. 8 1.11 Financial ....................................................................................................... ............8 1.12 Internal Business Process.........................................................................................8 1.13 Learning Growth ...................................................... ................................................8 Recommended Strategies..................................................................................................8 Justification of Recommendations..................................................................................10 Implementation, Control and Follow-up................................................ .......................10 References.........................................................................................................................12
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Source Problems It is observed that the fundamental core problems surrounding Tata Group are the continuum of recruiting talented individuals and retaining Tata Group’s traditional value system while in the process of building a network of companies capable of thriving in the 21st-century global competition as it gets bigger and more diversified. Others are, the manner of both old and new companies adhering to the code of conduct and ensuring uniformly high standards of quality and ethical business practices sustainability long after the departure of Ratan Tata, who has been inspirationally involved in all major deals and acquisitions up till to this present time. This primarily includes the promoting of corporate social responsibility, a mission that dates to the group’s founding in the 1870s by Ratan Tata’s great-grandfather, Jamsetji Tata.
Secondary Problems Short Term 1.1 Integration processes Integration issues are generally responsible for the relatively high failure rate of international M&As (Merger and Acquisitions). Integration of acquisitions, managing operations in diverse international locations and changes in the local regulations are critical risks to the success of a company’s plans. The Tata companies will face a problem in developing an ability to understand the culture of the country where the acquisition takes place, as well as the working environment in that country.
1.2
Conservation of resources
With the takeover of Dutch-British steel giant Corus Group, Tata Steel could face a problem in the area of manufacturing and mining technology capacity, especially in relation to issues such as conservation of resources and safeguarding the environment. Getting hold of adequate resources of iron ore and coal both in the immediate term is one factor that will have significant bearing on Tata Steel’s future position.
1.3
Economy slow-down
For the foreseeable future, the interesting dilemmas will come when the Indian economy slows and some Tata affiliates inevitably stumbles. Managers could look at expensive Page 3 of 13
burdens such as Jamshedpur and rural-development projects as tempting targets for cuts when times get tight. Tata companies could lose interest in low-cost goods for the masses and the group could take a tougher look at businesses to spin off.
Long Term 1.4 Jaguar Cars and Land Rover bid from Ford Motor Co. These acquisitions present an excellent opportunity for Tata Motors to establish their presence in the United Kingdom (UK) and European car markets, but could also potentially undermine the focus of Tata Motor’s core business. Ratan Tata did mention his dream of building a one-lakh (about $2,500) car, to be launched in early 2008. But with Tata Motors bidding for two of the world’s most luxurious brands, Jaguar and Land Rover, the question here is whether winning trophy brand’s is a correct strategy when the ultimate objective is to gain the appropriate production scale and technology to be the world’s lowest-cost car producer.
1.5
International M&A
The Corus’s acquisition creates challenges of balancing Old World ways with New Economy realities. Tata Steel will be put to test, now that it owns struggling Corus. The deal loads the Indian steel maker with $7.4 billion in debt, and absorbing Corus’ highercost operations will also weaken its profit margins. In addition, the union representing most Corus workers wants Tata Steel to invest an additional $600 million in Port Talbot to ensure it will remain competitive so it won’t have to cut jobs, which incidentally Tata executives declined to give guarantees.
Analysis Managing a portfolio of close to 100 companies is an extremely huge task for any company. This could be explained in the case of the Tatas accelerated inorganic growth, through leveraged buyouts and sometimes audacious deals, which brings about the challenge of integration and proper management of the portfolio of companies. The top management has to often answer the question mark over the business’s role in keeping all these companies under one roof. The group operates in seven broad sectors ranging from
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steel, automobiles, energy, chemicals, hotels and consumer goods to communication systems. Over the last ten years, the group’s strategy has revolved around building a very strong presence in international markets. Starting with the Tetley Acquisition in 2001 for USD 432 million, the group has made acquisitions in most of the sectors it operates in. The highlight of its international acquisition strategy was the USD 11.2 billion acquisition of Anglo-Dutch firm, Corus. Other significant acquisitions include the Tata Motors’ acquisition of Daewoo Chemical Vehicle Company and Ford’s Jaguar and Land Rover (JLR), Tata Power buying a 30% stake in PT Kaltim Prima Coal Prima and hotels acquisition of Ritz-Carlton Hotels. Please see Figure 1; Merger & Acquisition (M&A) growth strategy.
Figure 1: M&A activity The group however should be careful about integrating all these companies under one roof. Focusing on methods to facilitate easy integration of companies while preserving the Tata culture will be of paramount importance in future acquisitions. With accelerated inorganic growth comes the need to optimize the portfolio of companies held. This is explored using the Boston Consulting Group (BCG) Growth Share Matrix. The analysis reveals that Tata Steel, Tata Power, Tata Motors and Indian Hotels emerge as clear Stars (high market growth, high market share). Hence, they should be retained and the investment in these companies should be increased. Tata Chemicals and Tata Tea emerge as the Cash Cows (low market growth, high market share) and should be held on
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to for the time being. Some of the Question Marks (high market growth, low market share) are Tata Teleservices, Voltas and Tata Communications. Please see Figure 2.
Figure 2: Analysis of the Tata Group using the BCG Matrix
Criteria of Evaluation A key evaluation that would help Tata companies to further grow and establish themselves on the global stage is to have a strong business excellence movement in the group. This could potentially be achieved by applying the balanced scorecard strategy to assess the performance of businesses by virtue of their internal competencies measured
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through key performance indicators (KPIs). The balanced scorecard is presented in Figure 3.
Figure 3: Adapted from Robert S. Kaplan and David P. Norton; “Using the Scorecard as a Strategic Management System, “Harvard Business Review” The criteria on performance excellence shown by the Balanced Scorecard are built on four primary factors that balance each other in a strategic framework – Customer, Financial, Internal Business Process and Learning and Growth.
Alternatives Below is a comprehensive listing of all major feasible courses of action opens to the decision-maker which in this case would be Mr. Ratan Tata himself since his involvement in almost all the varied sectors of the economy, right from the Automobiles to InfoTech. The below short and long term courses of action is considerably viable, practical and realistic.
Short Term: 1.6 Customer To continue to provide high quality products to customers with localized customizations. At the same time, to develop Tata Nano to meet global standards. Page 7 of 13
1.7
Financial
To improve financial performance in terms of cash flow by ensuring positive present value of cash flow. This will eventually help to re-pay principal components of debts as fast as possible. In addition, to also relook into the payment of dividends to investors so that it is consistently paid out.
1.8
Internal Business Process
To improve the Supply Chain by using global suppliers and to enhance the customer delivery and support processes specifically to meet the commitments of Tata Nano.
1.9
Learning Growth
To be more effective in managing the systematic risks of the company by learning from the past, and developing an open and receptive culture of innovativeness.
Long Term 1.10 Customer To develop new small car markets in developed as well as developing countries more aggressively.
1.11
Financial
To improve market capitalization on NYSE and established as a powerful global player.
1.12 Internal Business Process To get the best out of Jaguar and Land Rover’s acquisition deal.
1.13
Learning Growth
To establish as many plants possible in quickest possible time to meet the delivery commitments of Tata Nano.
Recommended Strategies Based on all the problems mentioned and courses of action detailed herein, it would be great if Tata Group could: •
Refine its internal definition of sustainability,
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Create a separate subsidiary to coordinate, manage, communicate, and expand sustainability efforts across every business unit, and
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Establish a market-specific global strategy tailored to the unique challenges and opportunities of each country and business
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These changes will allow Tata to optimally position its economic, social, and environmental sustainability efforts while addressing the company’s growing global presence, and the increasing demand from stakeholders for measurement and transparency.
It is suggested that a ten year timeline, valuations, and specific
implementation strategies for Tata’s core lines of business is recommended. The ten year sustainability strategy is designed to complement the business growth of the organization. This global growth will focus on the following industries: hotels, automobile, steel, software consulting, energy, chemicals, tea, engineering, and communications. They include: •
Centralized Consulting Support for All Business Units – in the medium-to-long term, this consulting function could be used externally to provide the same services as consulting firm, effectively providing funding for future internal sustainable initiatives
•
Increased Transparency - utilize outside auditors and consultants to validate its numbers which would be the key to providing outside stakeholders with a transparent view of funding and returns for sustainability projects
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Financial Independence - Tata’s management to ensure that cash is infused into the subsidiary after certain profit and dividend / stock buyback criteria are met. This would continue the movement towards transparency in finances and satisfy all shareholder groups and would ensure funding reserves for sustainability in recessionary times
•
Management Development - management development would involve a significant rotation in this subsidiary, and training on relevant sustainability practices and measurements would be provided. This would not only ensure top managerial talent in the group but also continue to spread ideas and best practices throughout the organization after employee rotations are complete
•
Strategic Continuity - creating a separate business subsidiary and a document with shareholders/stakeholders that details the funding and reporting processes would ensure that the company’s sustainability initiatives themselves are clear
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throughout the organization and allow for quick implementation in the event of a CEO leadership transition. •
Consistency of Business Practices - Tata will need to maintain clear and consistent treatment of employees, business partners, and NGOs in all of its worldwide markets.
Justification of Recommendations Tata currently has four “pillars” of sustainability within the organization – Tata Trusts, Tata Relief Committee (TRC), Tata Council for Community Initiatives (TCCI), and Tata Quality Management Services (TQMS).
This organizational structure can be rightly
credited with maintaining Tata’s cultural core values with the creation of a company subsidiary devoted to social and environmental stewardship. With the aim to achieve the above recommended strategies, this subsidiary would function like any other Tata business unit (Tata Motors, Tata Chemical), except that it would operate at first as a cost center/support function rather than a profit center.
It would centralize a number of
company functions, including educational trusts, TRC, and TCCI. The subsidiary would have a number of key functions, including internal (and eventual external) consultation support for sustainable initiatives, an intra-company knowledge sharing and training functions, a cross-functional “innovation center”, a financial reporting & analysis and auditing unit, and an internal/external fundraising team.
Implementation, Control and Follow-up International managers can employ many different approaches to implementation, control and follow up. Here, the Tata Group will implement, control and follow up with a direct and indirect method of controls. Therefore it will: •
Implement the new Tata Sustainability through a multi-faceted corporate communication process including CEO and business unit communications/ training in town-hall meetings, allowing for employee engagement and input
•
Legally establish a separately capitalized corporate subsidiary.
Draft rules
governing the excess profit criteria from each business unit that will fund Page 10 of 13
expansion in future years. Collaborate closely with key shareholder blocks on these rules •
Form a cross-company task force, including senior executives, to validate that all internal sustainability opportunities have been identified and explored
•
In collaboration with senior management, establish rules for equitable employee treatment across all countries of operations, building on current TCCI initiatives Standards may not be equal across all countries, but should be favorable compared to local standards, especially in the case of less developed countries
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Expand program to reduce carbon footprint to additional steel plants beyond the Port Talbot plant site. Add five plants per year in order to achieve 20% carbon reduction goals by the year 2020. Conservation efforts can be rolled out in current and emerging markets
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References •
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Ashley, M., O’Brien, B., Reiter, R., Richards, Kevin (201 0) Tata Leadership with Trust: Tata Group Sustainability Strategy, 1-9 Blitterswijk, M.V., Karadzhov, R. (2009) Financial and Strategic Analysis of Ford Motor Company and Tata Motors: CBS - M.Sc. Finance and Strategic Management, 1-145 Business Monitor International. (2008) M&A Analysis - Tata's M&A Freeze: Bad News For West: Country Risk, Industry and Company Intelligence on Global Markets, 1-1
Firstpost, (2011) Ratan Tata Radical Chieftain: The Ratan Tata Legacy, 1-63
Freeman, K., Gopalan S., Bailey, S. (2008) Achieving Global Growth through Acquisition - Tata’s Takeover of Corus: Journal of Case Research in Business and Economics, 1-17
Goldstein, A. (2008) Emerging economies’ transnational corporations: the case of Tata: Research Notes, 93-111
Goldstein., A. (2008) THE INTERNATIONALIZATION OF INDIAN COMPANIES: THE CASE OF TATA: Organization for Economic Co-operation and Development (OECD), 1-49
Graham, A. (2010) Tata Too Good To Fail: Conscious Capitalism of Institute at Bentley University, 1-65
India Knowledge of Wharton. (2010) Tata Group, Infosys and Others: The 'Painful' but Necessary Succession: Wharton School of the University of Pennsylvania, 1-5
Jha. V.S., Joshi, H. (2009) Relevance of Total Quality Management (TQM) or Business Excellence Strategy Implementation for Enterprise Resource Planning (ERP) – A Conceptual Study: Practice-Oriented Paper - Research Paper 1-16 Page 12 of 13
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Kakani, R.K., Joshi, T. (2006) Cross Holding Strategy to Increase Control -Case of the Tata Group: XLRI Jamshedpur School of Management, 1-24 Kakani, R.K., Joshi, T. (2008) The Tata Group after the JRD Period: Management and Ownership Structure: XLRI Jamshedpur School of Management, 1-25 Mukherji, S. (2009) The Tata Group - Challenges in Managing a Large Portfolio: An IIMB MANAGEMENT REVIEW Initiative, 1- 3 Sen., S. (2009) Tata Group: Transforming the Sleeping Elephant: The Icfai University Press, 1-16
Tata Motors Ltd. (2008) Tata Motors Ltd. Corporate Sustainability Report 2008: CORPORATE SUSTAINABILITY REPORT, 1-174
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