Posted: May 26th, 2015

India’s Tata Group

Introduction

Tata group is India’s largest company with an estimated value of $ 98bn and interests in motor vehicles, information technology, steel, power, telecoms and hotels (BBC News Business, 2011 pg 1). The Tata Group, an Indian based conglomerate, has both high success and reputation up its sleeve. The Tata group is among the leading buyers of foreign based businesses which include:  Britain’s Tetley Teas, Daewoo commercial vehicle company, Eight O’clock Coffee, and the Pierre Hotel in New York among others (Beerel, 2009, pg 236)  With the largest software company in Asia (Tata consultancy services) founded in 1968, Tata Global Beverage which is the second largest manufacturer of branded tea globally, Tata steel which started production in 1912 is the largest steelmaker in India and number ten worldwide, Tata power founded in 1910 is India’s largest privately owned electricity company and the Taj Hotels Resorts and palaces started in 1902 is India’s biggest luxury hotel group. The Tata group is a giant that has transformed since its foundation in 1868 (Johnson & Turner, 2009, pg 139).

The rate at which the Tata group has made foreign acquisitions is drastic, spending an estimated total of $20 billion on foreign companies. These foreign acquisitions are to be applauded, taking into account the journey that the group has taken in these acquisitions, with a gradual start in 1995-2003 where on average the Tata companies made one purchase annually with a purchase of 20 companies in the years 2005 and 2006. The takeover of Tetley’s group by Tata tea for $450m in 2000 was one of the most courageous buys that announced the group’s entry in to the global arena.  In 2007, Corus, the second largest steelmaker in Europe at the time was bought by Tata steel for the value of $ 12.1 billion. Tata motors purchased Jaguar Land Rover (JLR) at the value of $2.3 billion a year later (The Economist, 2011 pg 1).

The Group’s internal and external structure

The Tata group which has a workforce estimated to be made up of 425,000 people has more than 100 companies in 80 countries and a culture of 143 years (BBC News Business, 2011 pg 1). Tata group was founded by Jamsetji N. Tata in 1868 and has since grown to be a house sheltering diversified businesses (Imbach, 2009, pg 1). The Tata group’s internal structure consists of its strengths and weaknesses in the management, products, and its strategies. In most cases, Tata in cases of company acquisitions retains managers and with collaboration with senior managers from the group they work together with so as to minimize human resource management challenges (Shah 2006, pg 7).

In the Tata group, the decision making bodies state and direct the business endeavors of the Tata group and these decision-making bodies are made up of the group corporate center and the group executive office. The main aim of the group executive office is to strengthen the relationship between the group and its companies, thus making the group more synergistic. The Group Executive Office (GEO) states and monitors the business activities of the group and also participates in the implementation of programs in human resource, the environment and corporate governance. The GEO addresses strategic issues in the group and establishes an understanding of the company’s current interests, strengths and weaknesses (Tata Group, 2011 pg 1).

The group corporate center (GCC) is concerned with the issues that relate to the growth of Tata companies. It also creates a platform where the group’s entry into new regions is discussed.  The GCC also shoulders the responsibility of promoting and protecting the Tata brand globally and additionally offers advisory services in the areas of human resource, legal, finance among others to the Tata companies. Other duties of the GCC include the review of the Tata group’s portfolios in different business sectors from time to time (Tata Group, 2011 pg 1).

Programs tailored to improve management skills show the group’s interest in the development of management skills in the leaders. Tata’s visionary dealmaker, who is behind the transformation of Tata since 1991, Ratan Tata, says that his next focus will be directed at “talent and retaining our value system… We have to increase the management bandwidth, and with the same ethical standards” Griffin & Moorhead, 2009, pg 349).  The group is also keen on improving product portfolios through collaboration with other companies (Greer 2002).

The Tata group faces numerous challenges, among them that of developing a coherent vision while participating in various industries and sectors. Formulation of strategies for an approximated 100 companies in about 40 businesses is a challenge. The other challenge that the group faces is that of deciding which businesses to pursue and which ones to drop (Koontz 1990, pg 119).

The Tata group has elicited criticism as it strides into the global scenario. Westerners link Tata and other Indian conglomerates with messy family politics and unreconstructed traditions. A weakness in one of the companies- Tata Motors is that most of its passenger cars are produced on low generation platforms which do not offer it the edge to compete in highly competitive markets. Tata is in most instances associated with heavy vehicles and as such has not been able to create an impression of luxury cars. The impression it has created was not able to be changed even after the acquisition of Jaguar Land Rover (JLR) (Greer 2002). One of Tata’s products, Tata Nano, has witnessed problems in that some of the cars have had “thermal incidents”. Problems in the distribution of these cars has been encountered even though most of them have started o be observed on roads. This has called for measures to reinvent the Nano business model and its strategies (The Economist, 2011 pg 1).

The Tata companies have certain implications regarding corporate governance: Limited power- large holdings make it complex for outside investors (those not from the Tata family) to make major decisions in any of the Tata companies. There are also cases of conflicting interests between what is considered suitable for the investors in a particular company, for instance (Tata steels) and what is good for the Tata group. An example is when the Tata steel has realized profits in its operations, the factor of funding interests in other companies in the group may gain more priority than payment of dividends to the shareholders (Damodaran, 2010, pg 26). In most cases diversified businesses are always linked to conflict of interests between the powerful family shareholders and the minority (Imbach, 2009, pg 10).

The group in an attempt to counter the weaknesses is beginning to combine the strengths from its various parts. TCS and Tata Teleservices companies in the group collaborated after the Asian tsunami of 2004 to create a weather-alert system to be used by fishermen. The group is combining both low and high end technological innovations. The supercomputer worth an estimated $30m was to be constructed in pune within a tight deadline of six weeks. TCS created software that can enable adults learn how to read in approximately forty hours (The Economist, 2011 pg 1).

Tata charitable trust which owns two-thirds of Tata sons (which is the holding company) used an estimated $97m in 2010 in causes which ranged from clean water projects to literacy programs in the numerous Tata institutions (The Economist, 2011 pg 1) in Jamshedpur one of the most successful company town with an approximated 700,000 residents and home to Tata steel. The company (Tata steel) caters for all the city services including a huge stadium, a zoo, golf courses, local utility company and a 980-bed hospital. Prabhat Sharma, who is Tata steel’s head of corporate affairs, is quoted saying “they provide you with a house and a car”. He adds “all you need to bring is a wife” (The Economist, 2011 pg 1). The Tata steel company puts all these effort beside the fact that it employs only 20,000 (in the company’s mill) out of the 700,000 residents in the town. Questioning the worth of such extended social responsibility program the chairman Ratan Tata replied that “I would like to see ourselves serving the low end, the underprivileged, more than we are doing today” (Griffin and Moorhead, 2009, pg 349).   

Recent activities in Tata group

Cyrus Pallonji Mistry was employed recently as the successor to Ratan Tata as the chairman of the Tata group. Ending years of doubt and speculation over Ratan’s successor and breaking the company’s 150 year old tradition by employing a non- family member as chairman (Udas 2011, pg 1). The 43-year old Cyrus Pallonji Mistry is the son of Pallonji Mistry, the Indian construction tycoon who owns about 18% of the Tata group of companies (BBC News Business, 2011 pg 1) and also the father-in-law to Ratan Tata’s half brother Noel Tata (The Economist, 2011 pg 1). Cyrus Mistry is expected to spend a year as Ratan’s deputy, after which he will take over the full responsibility of the Tata’s group chairman in December 2012 (BBC News Business, 2011 pg 1).

Cyrus Pallonji Mistry was the director of Tata sons and the managing director of Shapoorji Pallonji group (Mehra, 2011, pg 1). Upon his appointment, Mistry said he will “undertake to legally dissociate myself from the management of the family business to avoid any issue of conflict of interest” (BBC News Business, 2011 pg 1