The Last Rajah - Ratan Tata and Tata’s Global Expansion

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31440645 Surname Seah Give Given n na name Meng Meng Hwe Hwee Emai Emaill seah seahmh mh@y @yah ahoo oo.c .com om

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BUS323 Intern Internati ationa onall Manage Managemen mentt Inte Intern rnal al / exte extern rnal al 16 Febr Februa uary ry 2012 2012 1 Written Case Analysis Report Report (15%) Mr Ong Ong Che Chee e Bin Bin

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BUS323 International Management Management Written Case Analysis Report (15%)

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Seah Meng Hwee, 31440645

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BACHELOR OF COMMERCE BUS323 INTERNATIONAL MANAGEMENT FIRST TRIMESTER 2012 WRITTEN CASE ANALYSIS REPORT (15%)

WRITTEN CASE ANALYSIS REPORT:

The Last Rajah: Ratan Tata and Tata’s Global Expansion

DUE DATE: 16 February 2012, 07:00 PM (Singapore time) NAME: Seah Meng Hwee STUDENT NUMBER: 31440645 UNIT COORDINATOR: Dr David Zhang LECTURER: Mr Ong Chee Bin SUBMISSION DATE: 16 February 2012 Declaration:

Except where I have indicated, the work I am submitting in this assignment is my own work and has not been submitted for assessment in another course.


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CONTENTS Page

Executive Summary

4

1. Introduction

5

2. Source Problems

6

3. Secondary Problems

6

3.1

Long term

6

3.1.1 Diversification of investments and businesses

6

3.1.2 The continuation of operation of Corus mills

6

3.1.3 3.1.3 Sustai Sustaina nabili bility ty of its busines business s versu versus s sustai sustainab nabilit ility y of its corpora corporate te social responsibility during economy slow-down 3.1.4 Management control in Tata Group 4. Analysis

7 7 7

4.1

Diversification of investments and businesses

7

4.2

The continuation of operation of Corus mills

8

4.3 4.3

Sust Sustai aina nabil bility ity of its busin busines ess s vers versus us susta sustaina inabi bilit lity y of its corpo corpora rate te socia sociall

4.4

responsibility during economy slow-down

8

Management control in Tata Group

9

5. Criteria of Evaluation

10

6. Alternative strategies

10

6.1

Short term (S)

10

6.2

Long term (L)

11

7. Recommended strategy(ies)

12

8. Ju J ustifications of recommendations

12

9. Implementation, Control and Follow-up

13

10. References

14

Appendix

17

Appendix 1: The seven business sectors of the Tata group group

17

Appendix 2: Kurt Lewin’s Force Field Field Analysis

17

Appendix 3: The Boston Consulting Consulting Group (BCG) Growth Share Matrix

18

Appendix 4: The Strategy Feasibility Feasibility Table

18


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Executive Summary

This written case analysis report is prepared for the analysis of the case study of the Tata Group – “The Last Rajah: Ratan Tata and Tata’s Global Expansion.” (Luthans and Doh 2009). It will first begin with a brief introduction on the Tata Group of India, with the source and the the secon condary dary (bo (both shortrt- and long long-t -te erm) rm) probl roble ems of this this bigge igges st conglomerate in India, to be identified and discussed next. An analysis of the problems is presented presented next, followed by the criteria of evaluation. evaluation. A comprehensive listing li sting of all major feasible courses of action are presented before the recommended strategy(ies) are discussed. The next section will cover the justifications of recommendations followed by the implementation, control and follow up.


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1. Intr Introd odu uctio ction n

The The Tata Tata Grou Group, p, Indi India’ a’s s bigg bigges estt cong conglo lome mera rate te (Lut (Lutha hans ns and and Doh Doh 2009 2009), ), was was founded by 29-years old Jamsetji Nusserwanji Tata in 1868. It was first established as a trading company in Bombay and started pioneering businesses in sectors such as steel, energy, textiles and hospitality (Tata Group 2012). In 1904, Sir Dorab Tata, the elder of Jamsetji’s two sons, succeeded Tata Group in Germany after Jamsetji passed on. Ratan Tata succeeded as the chairman, following the death of his uncle – J.R.D. Tata, in 1993 (Tata Group 2012). Today, the Tata group consists of more than 100 operating companies in seven business sectors (Refer to Appendix 1) with operations in more than 80 countries across six continents, exporting products and services to 85 countries. The latest financial figures reflected on its website showed that the total revenue of Tata Group was US$83.3 billion (around Rs 3,796.75 billion) in 2010-11, an increase of 18.8% from 2009-10 (Tata Group 2012). With its devotion to strong values and excellent business ethics, the Tata name has been respected in India for more than 140 years. Each Tata company or enterprise operates independently and is answerable to its own board of directors and shareholders. Moving forward, new technologies and innovation will be Tata Group’s focus, in order to develop its business in India and internationally. Anchored in India with its traditi traditiona onall value values s and strong strong ethics ethics,, Tata Tata compa companie nies s are buildi building ng multin multinati ationa onall busine businesse sses s that that will will achiev achieve e growth growth throug through h excell excellenc ence e and innova innovatio tion, n, while while balancing balancing the interests interests of sharehold shareholders, ers, employees employees and civil society (Tata Group 2012).


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2. Sou Source rce Prob Proble lems ms

With its wide diversification of business across six continents, Tata faces several challenges. The first problem is to build a consistent vision while being in many different markets and industries. Another challenge is to formulate strategies for over 100 companies in more than 80 countries. Besides this, another problem of Tata Group is the high involvement of Ratan Tata, who is the chief steward of the group of nine senior executives sitting on the boards of the Tata companies, in both the negotiations of major deals and the details of his auto-making, telecom or steel businesses (Luthans and Doh 2009). The next challenge for Tata is on how to absorb the struggling Corus mills. Other challenges for the future include deciding on whic which h busi busine ness sses es to spinpin-of offf and and whic which h to purs pursue ue,, what what will will happ happen en to the the conglomerate during an economy slow-down. The most challenge issue for Tata Group perhaps would be to fill the void left behind by the energetic and visionary Mr Ratan Ratan Tata Tata - Chairm Chairman an of the Tata Group, Group, when when he retire (Koon (Koontz tz and Weihric Weihrich h 2010). 3. Seco Second ndar ary y Pro Probl blem ems s

3.1 3.1 Long Long term term 3.1.1 Diversifica Diversification tion of investment investments s and and businesses businesses

From the case study, it is evident that a major problem for Tata Group is its diversifica diversification tion of its investmen investments ts and businesses businesses over over so many different different countries countries.. The group is subjected inevitably to the different market situations and the culture of each individual market.

3.1.2


Another long-term problem for Tata Group is whether they should continue operating the struggling struggling Corus mills. As mentioned mentioned in the article, article, the moment moment Tata Steel Steel took over Corus, it is loaded with a $7.4 billion debt and the high operational cost of Corus weakens the profit margins of Tata Steel (Luthans and Doh 2009).


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Sust Sustai aina nabi bili lity ty of its its

busi busine ness ss vers versus us sust sustai aina nabi bili lity ty of its its

corporate social responsibility during economy slow-down

Should there be an economy slow-down, the ability of Tat Group to sustain its businesses versus their ability to sustain the social responsible culture, which is developed by Ratan’s ancestors (Griffin and Moorhead 2010), remains a challenge for Tata Group. The Rata conglomerate will have to decide between sustaining its businesses and fulfilling this culture. This will be especially tough with a $7.4 billion debt already on its books. 3.1.4 3.1.4 Manage Managemen mentt contr control ol in Tata Tata Grou Group p

As mentioned in the article, Mr Ratan is the chief steward, of his team of nine senior executives in the Group Corporate Office, who negotiates major deals himself and immerse immerses s himse himself lf in the detai details ls of his business businesses. es. Ratan Ratan Tata Tata is also also the major major decision maker in most of Tata Group’s major deals. At the time when the article was written, Tata Group has not found a suitable successor. The fact that Mr Ratan Tata is single and childless (Luthans and Doh 2009) thus poses the toughest challenge of who is to fill the void for Tata Group, when Mr Ratan retires.

4.

Analysis

4.1 Diversifica Diversification tion of investments investments and business businesses es

This long term problem will prove to be an obstacle towards its global expansion and the development of the company to its full potential, as there is no one common group strategy with a common objective. The lack of a common corporate strategy may act as a restraining force (Singh 2012; refer to Appendix 2) against moving Tata Group to its desired position in the global market and also against achieving overall productivity of the organization.


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A first look at this problem of the Tata Group would obviously be to discontinue the operation of Corus mills. However, one of the strengths and competitive advantage that Tata Group has over its compet competito itors, rs, is backw backward ard integr integrati ation on (Hill (Hill and Jones Jones 2011) 2011) like like what what Hill and Jones (2011, 180) described – steel companies supplying its iron ore needs from company-owned iron ore mines. Having its own abundant coal and iron ore reserves enables Tata Group to produce raw steel at low cost in India, and ship it to Corus’ first-class mills overseas to produce steel products. Furthermore, by looking at the financial data provided in the case study, Tata Motors was the least profitability business in 2007 for Tata Group. With the acquisition of Corus mills and Tata’s competitive advantage of backward integration, Tata Group can make use of Tata Steel and Corus mills to produce low cost steel car parts in order to reduce the cost of sales for Tata Motors. The gross profit margins for Tata Motors can be increased with the cost of sales reduced (Needles, Powers, and Crosson. 2010). 4.3 Sustainab Sustainability ility of its business business versus sustainability sustainability of its corporate corporate social social responsibility during economy slow-down

When there is an economy slow-down, it will subject Tata Group’s decision on sustaining its business or still maintain its expensive corporate social responsibility, to a great test. A fast and immediate solution, during an economy down-turn will be to reduce the contributions for charitable causes, such as reducing or terminating the annual $40 mill millio ion n cont contrib ribut utio ion n for for char charit itab able le acts acts in Jams Jamshe hedp dpur ur,, in orde orderr to sust sustai ain n its its businesses. However, Tata Group will have to consider about the long-term implications of such drastic immediate reduction or termination of charitable funds. The reputation of Tata Group may receive a beating in the long run, due to negative press and media reportings reportings (Davies et al. 2003), 2003), should should such measures measures are implemented implemented drastical drastically ly and immediately, in order to sustain its businesses. Seah Meng Hwee, 31440645

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4.4 Managemen Managementt control control in Tata Grou Group p

From the description of the article, the management style of Tata Group seemed to follow follow an ethnoc ethnocent entric ric strate strategic gic predis predispos positio ition n and and an organi organizat zation ional al cultur culture e of “family culture”. A cultural strategic predisposition refers to the particular way which most multination national al compa companie nies s (MNCs) (MNCs) have have toward towards s doing doing things things (Lutha (Luthans ns and Doh 2009; 2009; Aswathappa 2010). A MNC with an ethnocentric predisposition will normally depend on the values, and interests of the parent company in formulating and implementing a strategic plan. Their primary emphasis is on profitability and the company will try to run its overseas operations in line with how they are run back at home (Loke 2008; Aswathappa 2010). Tata Group is likened to be run with an ethnocentric predisposition as Mr Ratan Tata is the chief dealmaker who is closely involved in all major deals negotiations and also details of his different businesses. This predisposition will inevitably result in parochialism in Mr Tata, which may affect his logical strategic thinking. Tata Group has adopted a “family” type of organizational culture. “Family culture” type of organizations besides focusing on hierarchy, orientation to persons, leader heads the company like a caring parent, the management also takes good care of employees, ensures employees are well treated and enjoy continued employment (Trompenaars and Hampden-Turner 1998). This is clearly reflected in their spending of $40 million million annual annually ly in the company’ company’s s home home base base of Jamsh Jamshedp edpur ur and their excellent employee remuneration policy of workers still getting paid fully till the age of 60 years old and lifelong health care, even if they retire early. This will result in additional expenses for Tata Group in order to fulfill this “corporate social responsibility”.


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According to the article, Tata Group has not found a suitable successor successor at the time when when the article article was written. written. The toughes toughestt challe challenge nge will be findin finding g a suitab suitable le candidate of who is able to fill the void for Tata Group, when Mr Ratan retires. 5. Crite Criteri ria a of Eva Evalu luat atio ion n

1.

To identify and differentia differentiate te between between the “Cash cows” cows” and “Stars” (Phadtare (Phadtare

2011; refer to Appendix 3) businesses and the “Question Mark (or Problem Child)” Child)” and “Dog” businesses businesses (Phadtare (Phadtare 2011; 2011; refer to Appendix Appendix 3) within the next 6 months. 2.

To reduce the $7.4 billion debt of Corus within the next 5 years.

3.

To reduce their annual “charitable spending” gradually within the next 5 years,

but yet not neglect or forgo their corporate social responsibility. 4.

To identify a successor within the next two to three years.

6.

Alternative strategies

A comprehensive listing of all feasible strategies will be presented for Tata Group before the recommended strategy(ies) will discussed.

6.1

Short term (S):

Targeted short-term objectives to achieve within the next few months to 1 year from the time of implementation. S1

To identify and group the businesse businesses s into “Cash cows”, “Stars”, “Question “Question Mark (or Problem Child)” or “Dog” businesses (Phadtare 2011; refer to Appendix 3) within the next 6 months. S2

To decide on which business(es) to keep and focus on and which business(es) to liquidate.


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Long term (L):

Targeted long-term objectives to achieve within the next 3 - 5 years and beyond. L1

To reduce the $7.4 billion debt of Corus mills within the next 5 years by perhaps relooking looking into refinancing refinancing the debt loan with a lower interest interest rate, rate, in order to strength strength their profit margins. This is to convert Corus mills into a profitable business unit which will enable Tata Group to continue building on its competitive advantage over its competitors, of integrating backward integration, with the collaboration of Tata Steel and Corus mills, for Tata Motors. L2

To reduce reduce their their annual annual “chari “charitab table le spendi spending” ng” of S$40 S$40 millio million n for Jamsh Jamshedp edpur ur gradually – 5% per year in the first four year and a final 10% in the fifth year, and also to reduce the employees’ benefits gradually. This will enable Tata Group to sustain its businesses better, but yet not neglect or forgo their corporate social responsibility. L3

To identify a successor within the next two to three years and also to gradually change their ethnocentric predisposition way of running the business and also their “family” type of organizational culture. Strategy statement as per Hofer and Schendel’s characteristics:

Tata Group’s strategy for the next 3 – 5 years is to “tidy up” it’s widely diversified investments and businesses and exploit on its competitive advantage of backward integr integratio ation n (of owning owning iron iron ore mines) mines) in order order to help help its automo automobil bile e busine business ss increase profit margin. By gradually reducing their annual “charitable spending”, Tata Group will be able to channel these capital to sustain and expand its business globally. By identifying a successor for its chairman, this will ensure the sustainability of the Tata businesses and also to bring Tata Group to the next frontier.


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7. Recomm Recommend ended ed strate strategy( gy(ies ies))

In order for this business plan for Tata Group to be successful, the strategies presented needs to be both achievable and sustainable with an accurate evaluation of its current resources, core competencies and capabilities. With both short term and long term strategies listed above and analyzed via the Strategy Feasibility Table listed in Appendix 4, the recommended strategies (best 3 out of 5) are as follows: S1: To identify and group the businesses. S2: To decide on which business(es) to keep, which business(es) to liquidate. L2: To reduce their annual “charitable spending”. 8. Justif Justifica icatio tions ns of recomm recommend endatio ations ns

After analyzing the alternatives strategies via the Strategy Feasibility Table (Refer to Appendix 4), it was decided that the most feasible strategies are S1, S2 and L2 to resolve the source and secondary problems above. Strategies S1 and S2 are chosen to best resolve the diversification of businesses that resulted in the absence of a common group strategy with a common objective for Tata Group. The next strategy for Tata Group to implement is the reduction of their annual “charitable spending”. This will free up more capital for Tata Group to redirect them to boast their “Stars” businesses. The remaining two long-term strategies of L1 and L3, with a slightly higher score of 15 and 14 respectively, in the feasibility test, may be considered to be implemented concurrently with lesser priorities. This is because it will not be easy for Tata Group to reduce the $7.4 billion debt within a short period of time and also not easy for any company to source for, identify and appoint a successor for its Chairman and to change the culture within a short period of time too. The most critical issue now is for Tata Group to conduct the most effective and efficient strategies.


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9. Implem Implement entatio ation, n, Contro Controll and Follow Follow-up -up

For any MNCs, e.g. Tata Group, it is not easy to implement business consolidation like S1 and S2. S1 and S2 described above will only be the “identification” stage to determine the type of business each belongs to. The physical implementation of the consolidation has to be executed with extreme caution as consolidation may result in employees redundancy. After the consolidation exercise is successfully, the Group Corporate Office (GCO) of Tata Group will have to ensure that they do not launch massive business diversification plans without careful considerations. The follow-up on the implementation of S1 and S2 will have to be monitor by the GCO closely with a clear timeline listed out as a guide to prevent any procrastination or delays. As for the implementation of strategy L2, Tata Group has to execute it i t with caution too. It is not be implemented too hastily to prevent any damage to the company’s image due to any to negative press and media reportings (Davies et al. 2003). Any other other future future “chari “charitab table le spendi spending” ng” will will have have to be discu discusse ssed d and decid decided ed more more string stringent ently. ly. As stated stated above above under under Sectio Section n 6.2, 6.2, L2, the reduct reduction ion will will be done done gradually over a timeline of 5 years and the GCO of Tata Group will have to adhere closely to this timeline.

(2,220 2,220 words words exclud excluding ing Execut Executive ive Summa Summary, ry, headin headings, gs, sub-he sub-headi adings ngs,, in-tex in-textt citatio citations, ns, and this sentence.)


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Need Needle les, s, Belv Belver erd, d, Maria Marian n Powe Powers rs,, and and Susa Susan n Cross Crosson on.. 2010 2010.. Financ Financial ial and Mason, OH, USA: USA: South South-We -Weste stern rn Cengag Cengage e Managerial Managerial Accounting Accounting . 9th ed. Mason, Learning.


id=xI8pEZIob9UC&pg=PA225&dq=reduce+cost+of+sa id=xI8pEZIob9UC&pg=PA225 &dq=reduce+cost+of+sales&hl=en&sa=X&ei=Dd43 les&hl=en&sa=X&ei=Dd43 T-P7CpG0rAfo24zWBQ&ved=0CFUQ6AEwBQ#v T-P7CpG0rAfo24zWBQ &ved=0CFUQ6AEwBQ#v=onepage&q=reduce% =onepage&q=reduce%20cost 20cost %20of%20sales&f=false. Phadtare, Milind T. 2011. Strategic Management: Concepts and Cases. 1st ed. New Delhi, India: PHI Learning Private Limited. http://books.google.com.sg/books? id=FdtGb2cZTRgC&pg=PA145&lpg=PA144&dq=B id=FdtGb2cZTRgC&pg=PA 145&lpg=PA144&dq=BCG+Model#v=onepage CG+Model#v=onepage&q=BC &q=BC G%20Model&f=false. QuickMBA.

2010.

QuickMBA:

Strategy

/

BCG

Matrix.

http://www.quickmba.com/strategy/matrix/bcg/. Singh, Kavita. 2012. Organizational Behavior . 1st ed. New Delhi, India: Pearson Education

India.


id=DbC0_McBPgIC&pg=PA337&dq=force+field+analysis+kurt+lewin&hl=en&sa= X&ei=KEA7T-jvPIjsrAeRnJmHAQ&ved=0CFQQ6AEwBQ X&ei=KEA7T-jvPIjsrAeRnJmHAQ &ved=0CFQQ6AEwBQ#v=onepage&q=force #v=onepage&q=force %20field%20analysis%20kurt%20lewin&f=false. Tata Group. 2012. Tata Group Worldwide. http://www.tata.com/. The Economic Times. 2011. The Economic Times, Topics, Ratan Tata . Mumbai, India:

Bennett,

Coleman

&

Co.

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http://economictimes.indiatimes.com/topic/Ratan-Tata. Trompenaars, Alfons, and Charles Hampden-Turner. 1998. Riding the Waves of Culture: Understanding Diversity in Global Business. 2nd ed. New York, USA:

McGraw-Hill.


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Appendix

Appendix 1: The seven business sectors of the Tata group

The seven business sectors of the Tata group: 1) Communicat Communications ions and informatio information n techno technology logy 2) Engi Engine neer erin ing g 3) Materia rials 4) Service ices 5) Energy 6) Cons Consum umer er prod produc ucts ts 7) Che Chemica icals (Tata Group 2012) Appendix 2: Kurt Lewin’s Force Field Analysis

Source:

http://www.change-management-coach.com/force-field-analysis.html (Change Management Coach 2012)


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Appendix 3: The Boston Consulting Group (BCG) Growth Share Matrix

Source Source::

http:/ http://ww /www.q w.quic uickmb kmba.c a.com/ om/str strate ategy/ gy/mat matrix rix/bc /bcg/ g/ (QuickMBA 2010)

Appendix 4: The Strategy Feasibility Table

Resolve Source Problem

Resolve Secondary Problem

Cost Risk Time

y g e t a r t S

*Total (25pts)

S1 2 2 2 2 4 12 S2 2 2 3 2 5 13 L1 2 2 4 3 4 15 L2 2 2 1 2 4 11 L3 1 1 5 3 4 14 *The lower the score (max 25points) = the more feasible is the strategy, based on the score chart below. Resolve Source Problem

Resolve Secondary Problem

Cost

Risk

Time

1 2 3 4

Excellent Good Average Poor

1 2 3 4

Excellent Good Average Poor

1 2 3 4

1 2 3 4

1 2 3 4

Little Some Acceptable Long

5

Bad

5

Bad

5

5

Very long


Low Some Affordable Expensive Very Expensive

5

Low Some Average High Very High

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The Last Rajah - Ratan Tata and Tata’s Global Expansion

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