House of Tata – Acquiring a Global Footprint Group 1 Bhuvan Bajaj Karan Bahl Raki Jain Trivikram Apte Vinayak Pareek Yan Yan Huang
House of Tata – Acquiring a Global Footprint
Executive Summary What and how did TATA emerge as a Multi Brand? Founded in 1868 by Jamshetji N. Tata as a trading firm Textiles in 1874 India’s first luxury hotel in 1903 First private steel company in 1907 First airline in 1932 First software firm in 1968 Liberalization of the Indian Economy and the changes that it brought to TATA’s way of doing business Ratan Tata becomes chairperson in 1991 •
First objective: Streamline group portfolio
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Some groups diversified and others organized around seven sectors
Major global expansions
In 2000, Tata groups started internationalized operations and 65% of collective revenues were expected to come from outside India 1. Tata Consultancy Services-
Why TCS, the group’s tech and consulting giant underwent its evolution at a much faster rate than the other Tata companies, in a sense became more global. And they perceived more growth in the foreign market and had to expand globally, TCS accounted for $27.8 billion of Tata’s $59.5 billion market capitalization as of August 2007 2. Titan-
Expanded globally but suffered high losses thus established itself as an NRI brand, especially in the Middle East.
3. Indian Hotels Company – TAJ Hotel Group
Began globalization in 1982, Tata purchased 51 Buckingham gate and St. James court hotel which was later branded as Crowne Plaza under a franchise agreement in 1999. But suffered losses and had to sell a share to external player.
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House of Tata – Acquiring a Global Footprint Thus they shifted to the strategy of management contracts with small equity positions rather than outright ownership
4. Tata Tea and TETLEY
Tata Tea had been a commodity tea producer, acquired Tetley at a staggering £271 million. But they won over the management when Tetley was virtually unchanged after the acquisition and Tata tea had to fully realize the synergy of this acquisition as to what it brought for them...
5. TISCO and Corus acquisition catapulted Tata Steel from the 56th to the 6th-largest steelmaker in the world and what where the 6 points focused strategy of TATA Steel 6. TATA motors acquisition of JAGUAR and LAND ROVER
Ford motors had acquired Jaguar, Land Rover, Aston Martin and Volvo and grouped them in Premier Automotive Group. Jaguar and Land rover where running in losses as they overbuilt capacity. THIS case study basically describes the global strategy of Internationalization and global foot print What were the reasons for them and how were they effective and what are the future challenges that will be faced by the company and how the company will manage and has managed in the past.
The beginning of a legacy The foundation of what would grow to become the Tata Group was laid in 1868 by Jamsetji Nusserwanji Tata — then a 29-year-old who had learned the ropes of business while working in his father’s banking firm — when he established a trading company in Bombay.
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House of Tata – Acquiring a Global Footprint 4
Tata ventured into textiles in the year 1874. The most dazzling of the Tata enterprises that came into being during Jamsetji Tata’s lifetime was the Taj Mahal Hotel in Bombay, which opened for business in 1903. Legend has it that Jamsetji Tata set his mind on building it after being denied entry into one of the city's fancy hotels for being an Indian.
Tata opened its first steel company in 1907.
On 15 October 1932, J. R. D. Tata himself flew a single-engined De Havilland Puss Moth carrying air mail (postal mail of Imperial Airways) from Karachi's Drigh Road Aerodrome to Bombay's Juhu Airstrip via Ahmedabad. The aircraft continued to Madras via Bellary piloted by former Royal Air Force pilot Nevill Vintcent.
House of Tata – Acquiring a Global Footprint In 1953 all airlines of India including Air India and Indian National Airways were nationalized to form Indian Airlines Corporation.
Tata opened its first software firm in 1968.
The Legacy Strengthens Tata had 13 groups functioning in 1938 which increased to 300 groups in 1991 . The group companies were independent and entrepreneurial in expansion however their functions often collided which each other. Following Ratan Tata’s appointment as the chairperson of Tata he streamlined the various group portfolios for smooth and efficient functioning. Some groups were diversified while the others were organized around seven sectors: information systems and communications, engineering, materials, chemicals, consumer products, energy and services. Many groups profited from the name Tata and they were later asked to pay to use the name. The six top companies namely Tata Motors, Tata Steel, Tata Consultancy Services, Tata Power, telecommunications provider VSNL and Tata Chemicals accounted for 77.6% of the groups collective revenue in 2006-07. Market value in 1995-96 was $8.2 billion which increased to just under $60 billion in 2007.
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The Legacy goes Global In 2000, Tata groups started internationalized operations. 65% of collective revenues were expected to come from outside India in that year. The strategy was to go for huge M & A’s. While most private equity’s viewed M & A as a short term objective, Tata was different as it had a long term view towards integrating acquisitions into their business operations. In 2007, Tata Steel acquired UK based Corus for $12.1 billion which is the largest overseas acquisition in Indian history. Later it bid to acquire Land Rover and Jaguar owned by Ford Motors which give it access to new technology and markets.
Acquistions and Major Learnings TCS Learning –
In a sector such as IT , it is not possible to look for growth and profits margins if a company remains local . In such cases companys have to go global so this is what exactly was followed by TCS by expanding the customer base in North America and Europe.This is particularly important in tough economic times for a company to maintain sustainability.Going global Is not easy and for a services and IT sector it means locating service delivery operations to reach to the customers globally.
Tata and Tetley – Learning –
1. Tata was unable to convey to its shareholders reasoning behind acquisition of Tetley and what is tata’s benefit from the deal and so there was unrest among the shareholders as if the tata tea management was unable to meet their expectations. 2. The basic reason behind the acquisition of Tetley was to increase the synergy between the operations between the two companies and thus increase their own domestic market.the key learning from the above two points is that your strategy of going global via M&A through over-stretch goals may prove to be more against you then in favour.example tata acquired a company thrice its size and having a huge debt just because it had a large customer base was not very thoughtful decision.
House of Tata – Acquiring a Global Footprint 7 Titan Learning –
1. Going global can be a tough challenge and you may end up in seeing significant losses if you do not understand the market trends and the customer taste example – what may work in india may not work in European markets and this is what exactly happened in case of Titan expansion and Titan ended up seeing significant losses. Jaquar and Lan-Rover Acquisition Key Learnings – 1. To diversify across markets and products the sharing of the technology , Logistsics , Retail , Manufacuring and R&D is important. Tata Steel and Corus – LEarnings – 1. Tata was one of the lowest cost steel producer of the world whereas the only problem with Corus was that it was fighting to keep its cost lower. 2. Technology transfer in cross functional R&D is possible as Corus has a number of Patents in the steel industry. 3. Acquitions like this are the best way to enter a saturated market like Europe. Indian Hotel Key Learning 1. To make a global presence and having a global consumer base which in turn increase the margins for the domestic market TATA followed a flexible strategy.
Growing Global Tata Group companies had been active in the international marketplace long before their international acquisitions made headlines. Group established offices in London in the year 1907 and in the US in 1945 and the growth was mostly organic Most of the companies in the group thought of exports as an international business
House of Tata – Acquiring a Global Footprint Some operating companies would remain only in india but most sought opportunities not just to enter new markets but also to disaggregate their value chains, connect their global operations and reap the benefits of being a MNC.
Tata Consultancy
TCS, the group’s tech and consulting giant underwent its evolution at a much faster rate than the other Tata companies, in a sense became more global. TCS could not have achieved its growth by merely focussing in the domestic market and hence looked towards building its business in North America and Europe TCS employees over 83000 people across different geographies India, Australia, China Hungary, Japan, Mexico and Uruguay. Fiscal 2006-07, 91% of $4.3 billion revenues was from outside India In 2001, TCS used M&A in India and overseas to make targeted additions to its tech capabilities and to accelerate the process of building its presence in new markets TCS accounted for $27.8 billion of Tata’s $59.5 billion market capitalization as of August 2007.
Titan
The efforts of other Tata companies establishing base in international markets brought mixed results Titan, one of India’s leading watch and jewellery brand incurred major losses by entering European market in 1990’s. Titan found more success when it targeted the NRI population in middle east
Indian Hotels Company
Parent of the group’s hospitality businesses including Taj hotels, was among the earlies t companies to begin globalising its business In the year 1982, Tata purchased 51 Buckingham gate and St. James court hotel which was later branded as Crowne Plaza under a franchise agreement in 1999. On turning loss making they sold a minority stake to two strategic partners in 2001. IHC also owned properties in New York, Chicago and Washington DC but divested them in late 1990’s to focus on higher end properties befitting the Taj brand. Taj hotels strategy shifted towards a preference for management contracts with small equity positions rather than outright ownership Taj hotels put renewed emphasis on building a presence in “gateway” cities in advanced markets beginning with its management contract for The Pierre hotel in New York in July 2005. Until they did believe in the small equity concept but later went ahead and acquired several hotels from Sydney’s W hotel in Dec, 2005 to Ritz Carlton Boston in Nov, 2006
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House of Tata – Acquiring a Global Footprint
Thus establishing a presence in the international markets and adding a seamless connectivity to the global customers who would be potential customers to properties in India
Tata Tea
Tata Tea had been a commodity tea producer, which later packaged its tea in packets for the Indian market The company saw M&A as the best route both to seek new growth opportunities and transform itself into a branded tea company In February 2000, Tata tea completed its acquisition of Tetley at a staggering £271 million. Tata tea contributed £70 million in equity, 45 was raised through global depository receipt (GDR) and balance was funded through non-recourse debt financing, meaning The senior management of Tetley was virtually unchanged after the acquisition and Tata tea had to fully realize the synergy of this acquisition as to what it brought for t hem Tata Group also injected money into Tata tea a few years after the acquisition to help it fund the growth In 2005-06 Tata tea acquired Good Earth, a specialty tea company in the US, Czech tea company Jemca, US based Eight O’clock Coffee and most importantly bought a 30% stake in US based US based Energy Brands Inc (EBI), which was the Glaceau- brand enhanced water $677 million. But also in May 2007, Tata tea agreed to sell its minority stake for approximately $1.2 billion to Coca- cola, which acquired EBI in its entirety.
Tata Motors
Tata used its international exposure to upgrade its products but continued to focus on the middle income customers
Introduced TATA Ace as a replacement for three wheel auto lorries
Developed TATA Nano o
Targeting bottom of the pyramid
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Worldwide attention to the product
Cautious approach in china, consider it a risky and expensive investment Only way to enter US market is through mergers and acquisitions Ford motors had acquired Jaguar, Land Rover, Aston Martin and Volvo and grouped them in Premier Automotive Group.
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House of Tata – Acquiring a Global Footprint
Jaguar and Land rover running in losses as they overbuilt capacity
Tata got the opportunity to bid for these two brands in 2007
These brands would bring new marketing channels, global brands, and new technology.
Tata decided to spend Rs. 120 billion in capital expenditures
Planned to produce “world Truck”
Acquisitions would lower capital expenditure budget by approximately 2 billion dollars, higher debt to equity ratio and long pay back periods due to low profitability of these brands.
Sales were down in 2007, Ace truck profitability also effected due to aggressive pricing strategy
Challenges of going Global
Carefully balance risks of leveraged transactions with expansion opportunities
Weigh domestic vs. International opportunities
Find ways to realize the full potential of their acquisitions
Change its corporate culture
The senior management is extremely risk averse
How to deal with change in respect to its origins and the character of the organization.
Trigger Questions
1. Critique the role of Tata’s Group Corporate Centre towards global expansions
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 AngloDutch 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) 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 oversea s 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
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House of Tata – Acquiring a Global Footprint reduced operating expenses by more than $1 billion. Also while expanding abroad the Group Corporate Centre faced other types of labor and management issues as its percentage of non Indian employees grows. Managers are learning by trial and error to become less hierarchical and more nimble, and to apply their labor relations expertise, which is sophisticated in India, to other parts of the world Due to this 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 As Tata outgrew the 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”. Hence Tata now needs to re assess its strategy in order to win the confidence of the international investor community and also go slow on expansion thereby improving its financial condition and get rid of the huge debts pending against the company today.
2. Important Considerations In TATA’s Global Expansions •
Take a long-term view toward integrating acquisitions into its existing business
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Initiated changes that made Tata Group a more unified corporate entity
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Institutionalize a stronger sense of the group
Developed a brand equity scheme
Two centralized management organizations
Develop more international profiles in terms of where they procured, produced, and sold goods and services.
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Carefully balance financial risks of leveraged transactions with expansion opportunities
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Weigh domestic versus international opportunities
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Strike a balance between maintaining the character of acquired companies and fully realizing synergies of the acquisitions.
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House of Tata – Acquiring a Global Footprint 3. Critical considerations in their acquisitions
12 4. Regarding acquiring Jaguar and Land Rover
a. Acquisitions would lower capital expenditure budget by approximately 2 billion dollars, b.
higher debt to equity ratio and long pay back periods due to low profitability of these brands.
c. Sales were down in 2007, Ace truck profitability also effected due to aggressive pricing strategy d. Find ways to realize the full potential of their acquisitions e. These brands would bring new marketing channels, global brands, and new technology. Other Acquisitions
Acquisitions should complement their current businesses. Acquisitions can give an instant market presence and larger worldwide market share. “Intermediate step” how to produce world class products, close the gap Bring R&D to full use in existing operations by acquiring technically better companies Retaining staff of the acquired company to maintain sovereignty yet utilizing their best practices Integration of different management functions
5. What are the important lessons to learn from this case about International expansions, with your analytical comments about each ? TCS expansion key learning
In a sector such as IT , it is not possible to look for growth and profits margins if a company remains local . In such cases companies have to go global so this is what exactly was followed by TCS by expanding the customer base in North America and Europe. This is particularly important in tough economic times for a company to maintain sustainability. Going
House of Tata – Acquiring a Global Footprint global Is not easy and for a services and IT sector it means locating service delivery operations to reach to the customers globally. •
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Tata and Tetley - key learning
Tata was unable to convey to its shareholders reasoning behind acquisition of Tetley and what is tata’s benefit from the deal and so there was unrest among the shareholders as if the tata tea management was unable to meet their expectations.
2. The basic reason behind the acquisition of Tetley was to increase the synergy between the operations between the two companies and thus increase their own domestic market. the key learning from the above two points is that your strategy of going global via M&A through over-stretch goals may prove to be more against you then in favour.For example tata acquired a company thrice its size and having a huge debt just because it had a large customer base was not very thoughtful decision.
Titan expansion key learning
Going global can be a tough challenge and you may end up in seeing significant losses if you do not understand the market trends and the customer taste example – what may work in india may not work in European markets and this is what exactly happened in case of Titan expansion and Titan ended up seeing significant losses.
Jaquar and Lan-Rover Acquisition Key Learnings
To diversify across markets and products the sharing of the technology , Logistics , Retail , Manufacturing and R&D is important. •
Tata Steel and Corus Key Learnings
1. Tata was one of the lowest cost steel producer of the world whereas the only problem with Corus was that it was fighting to keep its cost lower. 2. Technology transfer in cross functional R&D is possible as Corus has a number of Patents in the steel industry. 3. Acqusitions like this are the best way to enter a saturated market like Europe.
6. Why Titan did not succeed in expanding in Europe. How can it do so in the developed countries ?
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House of Tata – Acquiring a Global Footprint
Tata as a group did not understand the European market. They went with an ethnocentric approach of what worked in India should work in Europe as well. As a result of this they could not connect with the European market.
The group faced stiff competition from existing Swiss and European brands. These brands had strong foot holds in Europe and had an existing customer base.
The ‘Made in India’ tag did not play an advantage for the brand image in the mind of the customers.
Tata did not target a specific segment to establish itself in Europe. They diversified into all possible segments before understanding the market. This increased their promotion and advertising costs.
For developed countries, Tata should first isolate a segment where it wants to establish itself, understand the culture of the region, probably have a JV with an existing brand.
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