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Extract | When Tata finds a way

‘Tata Log’ is a fitting tribute to two decades of Ratan Tata’s leadership of the group
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First Published: Sun, Dec 02 2012. 07 10 PM IST
Ratan Tata at Tata Steel Ltd’s annual general meeting in Mumbai in August. Photo: Dhiraj Singh/Bloomberg
Ratan Tata at Tata Steel Ltd’s annual general meeting in Mumbai in August. Photo: Dhiraj Singh/Bloomberg
Updated: Sun, Dec 02 2012. 10 14 PM IST
Tata Log, the soon-to-be-released book by Harish Bhat, Tata Global Beverages managing director and CEO, charts a part-history of the Tata group from 1991, after Ratan Tata took over as chairman. With Tata now set to retire, the company is on the threshold of major change. R. Gopalakrishnan, director, Tata Sons Ltd, says that in Tata Log, Bhat has highlighted “a personal view of history” of this “timeless institution” under the leadership of Ratan Tata. “How do you assemble solid facts and incidents, often mundane when they occurred, into a narrative that interests the reader and leaves him or her with an overreaching message? That is that art of corporate storytelling. And Harish does it very well,” says Gopalakrishnan in his foreword to the book.
The companies whose stories are told in the book are Tata Motors, Tata Chemicals, Titan Industries, Tata Finance, Tetley, Tata Steel and Computational Research Laboratories (for the EKA—“most likely” the world’s first privately funded supercomputer), as well as the Tata Second Career Internship Programme for women. Mint readers can read parts of this book before anyone else—here are edited extracts from two chapters:
Patriotism, pride and courage
Blazing a path: The book describes how the first totally Indian car, Indica, was conceived. Photo: Santosh Verma/Bloomberg
In 1993, Ratan Tata, chairman of Tata Motors, addressed the Automotive Component Manufacturers’ Association of India in New Delhi, and suggested the possibility of component and car manufacturers in India getting together to produce an ‘Asian car’. His intent was to emulate the Japanese and deliver a project worthy of national pride.
Ratan Tata said, several years later:
Needless to say, there was considerable criticism and cynicism about my suggestion. In the absence of a positive reaction, I decided that if we were not going to do this as a collaborative national effort, Tata Motors would undertake the lead effort. In 1995, we formally undertook a programme to develop a new Indian car. Two types of reactions were forthcoming at that stage: one was that we were being very brave but, the other, which came more often, was that we were being very foolish.
In a classic example of history repeating itself, here is a relatively ancient anecdote that took place more than ninety years ago, as told in R.M. Lala’s book The Creation of Wealth. This was when Jamsetji Tata, then chairman of the Tata Group, was pursuing steel manufacturing for the first time. Till 1903, India had never made its own steel. Lala recounts: ‘[When he heard about the Tata Steel venture] the Chief Commissioner for the Indian Railways, Sir Frederick Upcott, said—Do you mean to say that the Tatas propose to make steel rails to British specifications? Why, I will undertake to eat every pound of steel rail they succeed in making.’
A few years later, when the Tata Group had made a big success of the steel venture, Mr Dorab Tata, who succeeded Jamsetji as chairman, commented dryly, ‘If Sir Frederick had carried out his undertaking, he would have had some slight indigestion.’
This time, while there was once again no dearth of naysayers who refused to believe in an Indian car, there are no reports of any of them offering to eat the car. Since the Indica weighs 995 kg and contains over 2,000 steel panels, it may have caused severe indigestion. On the other hand, many sceptics would have fit into this car with ease, because Ratan Tata was clear that the new car had to provide ample space for the typical Indian family. In his own words:
We started out to design an Indian car from scratch. We felt that the Ambassador, much as it is maligned, is the ideal size for the travelling Indian public. So we decided to design a car with the internal volume of an Ambassador, the size of a Maruti Zen, and ease of entering and exiting, particularly for the rear seats. We thought of pricing it close to the Maruti 800, which is a very successful car, and adding the economy of diesel. Finally, we packaged this into a contemporary design.
These famous words became a clarion call to everyone in Tata Motors, as the company commenced the exciting and arduous journey of building India’s first indigenous car, rising to the chairman’s challenge.
Where should the Indica be manufactured?
Tata Log—Eight Modern Stories From a Timeless Institution: By Harish Bhat, Portfolio, 224 pages, Rs599.
While components were being developed, thought was also being given to where the Indica would eventually be manufactured, bringing together thousands of these components and shaping them into a complete car. As the story goes, the team at Tata Motors Pune had initially concluded that Indica cars should be manufactured inside a building called the E-block. This is a set of buildings located within the existing commercial vehicles factory of the company, where trucks and LCVs had been manufactured for several years. The managers who came to this conclusion were also ready with all supporting details and charts, and felt their decision was the most efficient approach. Then, Ratan Tata visited the plant and discussed the subject. He is reported to have asked for a pair of binoculars, which were duly given to him. Clutching these binoculars, he walked up to the terrace of this block and surveyed the surrounding areas. Standing there, he saw the barren land, over six acres large, adjoining the existing factory.
‘That is where our cars will be manufactured,’ he said, pointing to this vast tract of land. The need for a large, independent manufacturing unit for cars was proven right by several events that followed: the huge launch orders received for the Indica, the manufacture of other new cars such as the Indigo and Vista that were launched by the company in the following years and, of course, the rapid growth of the Indian car market.
‘We thought of a unit for making Indica cars. He visualized a large, full-fledged car business that would transform the company. That was the difference,’ says a senior manager, recalling this incident.
The fall of the Berlin Wall
Tetley’s acquisition was audacious. Photo: Prashanth Vishwanathan/Bloomberg.
In 1987, President Ronald Reagan of the US had challenged his Soviet counterpart Mikhail Gorbachev to ‘tear down this wall’.
Watching this development keenly was a veteran of the Tata Group, R.K. Krishna Kumar. Managing director of Tata Tea at the time, called Krishna by his senior colleagues and KK by the rest of the group, he felt in his bones that this was a defining moment. He says:
The fall of the Berlin Wall signalled a new world structure, with no barriers. It laid open a flatter world where people would come together and dance without inhibition on a single great floor. For corporates like ourselves, country geographies would no longer be sacrosanct boundaries.
Tata Tea: From bush to cup
In the late 1980s, Tata Tea had begun taking steps to break some walls of its own, making forays beyond the boundaries of these plantations into branded tea.
Soon, the global giant Unilever, which had been an unchallenged market leader in India for several decades, was facing intense heat from Tata Tea, to the extent that it lost significant market share to Tata Tea. Within a decade, Tata Tea had captured 15% of the market, second only to Unilever.
Percy Siganporia, who worked with KK for several years and would eventually rise to head the company, recalls that his computer screensaver in those days was ‘Drink a pint of Unilever blood every day’. It bounced around on his screen endlessly, and many of his managers also adopted it as their mission.
The global search
In the midst of such energetic activity and success in India, KK continued to quietly contemplate the implications of the fall of the Berlin Wall, and the imperative of going global. He knew that success in India was not deep enough to sustain the company forever. His intense search for the next big breakthrough resulted in the formation of three major themes.
First, while Tata Tea had grown rapidly in India over the past decade, there was a natural limit to such growth. Thereafter, growth would be more gradual—India alone could not guarantee fast growth forever, making growth beyond the shores of India very important. It was also important because a flat world with disappearing boundaries meant that other big global players in tea, such as Twinings and Tetley, would soon attack Tata Tea’s Indian stronghold.
Second, to grow beyond India, the biggest challenges were in building strong brands and establishing good distribution networks. Here again, there were limits to what the Tata brand alone could achieve in countries outside India.
The third theme was the distant possibility of acquiring an international tea brand. If this could be done, the risk of establishing a new brand would vanish immediately. This needed a brave new vision and, equally important, it required huge amounts of capital.
KK says, ‘Vision often makes its first appearance disguised as a pipe dream. This has happened several times over in the history of the Tata Group. It is the true calling of leadership to seize such dreams, wake up quickly, and transform them into splendid reality.’
The first bid for Tetley
In 1994, Allied Lyons, owners of the Tetley brand, had merged with Pedro Domecq to create a huge liquor and retailing multinational, which was christened Allied Domecq. A year later in 1995, Allied Domecq decided to focus on its large liquor business, and to exit the non-core tea and coffee business. It announced its intention to divest the Tetley tea and coffee brands.
At Tata Tea, when KK heard this news, he was immediately interested in pursuing the purchase of Tetley. The global search had remained uppermost in his mind, and the Tetley brand could catapult the company into this space instantly. This was a rare opportunity; it had to be seized with both hands. Of course, Tetley was much larger than Tata Tea; the funds required for such an acquisition would be staggering.
Notwithstanding these issues, KK was supported in his enthusiasm by senior directors of the Tata Group, including Darbari Seth and Noshir Soonawala, who had been chairman and deputy chairman respectively of Tata Tea for several years, and by Ratan Tata. They saw the compelling logic of going global, and felt the opportunity deserved to be explored.
A Tata Tea team reached London in early 1995 to pursue the acquisition.
Meanwhile a management buy-in team, backed by some venture capitalist firms, was also keenly pursuing Tetley.
In June 1995, Allied Domecq announced the sale of the Tetley tea business to this venture capital funded team.
KK recalls that moment in London:
We felt sad. We could not achieve certainty on our financial plan, so our offer had been rejected. But I think we gained a great deal by participating in this bid. Very importantly, we realized that we had to get our act together on our funding arrangements well in advance, if we ever desired to make such a large global acquisition. It was a lesson well learnt.
Tetley is up for sale again
In February 1999, KK received a call from the global financial and management consulting firm, Arthur Andersen. ‘The owners of Tetley are willing to sell. They prefer a buyer who has long-term interests in tea. Would Tata Tea be interested?’
KK knew that this was a defining moment once again, a moment that required resolute and quick action.
He spoke to Ratan Tata and to Noshir Soonawala at the Tata Group headquarters. The essential logic for acquiring Tetley was clear to all of them.
1. This acquisition would provide Tata Tea a giant leap on to the global canvas.
2. This was a one-time opportunity to acquire a leading global brand of tea with a presence in thirty-five countries.
3. No other brand of this size was likely to be on sale in the near future. Building a new brand of such stature was expensive, very risky and virtually impossible.
4. Tetley also provided access to a well-established global distribution network.
5. Tata Tea and Tetley had complementary strengths. Tata Tea was strong in packet teas and developing countries such as India and the Middle East. On the other hand, Tetley had unrivalled expertise in teabags, in developed countries including the UK, USA, Canada and Europe.
Show me the money!
Tata Tea was much smaller than Tetley. At that time, the net worth of Tata Tea was around US$115 million, which was less than one-third the net worth of Tetley. Even in terms of sales revenues, Tata Tea was half the size of Tetley. How could Tata Tea then have the audacity to even consider purchasing a company that was several times its size? Would such a purchase create unbearable indigestion and risk for Tata Tea?
Then there was the hurdle that had tripped up Tata Tea in 1995. The funds required would be formidable, certainly in the range of hundreds of millions of dollars. Where would the money come from?
A third issue was that this acquisition essentially centred on acquiring the famous brand Tetley. Indian companies were comfortable acquiring brick-and-mortar assets abroad, such as factories and machines which could be seen and touched.
But buying an intangible asset that lived only in the minds of people created a zone of discomfort. Were there hidden or unknown risks lurking here?
The cultural factor was equally important. Tetley was a blueblooded British company and brand, with rich heritage. Tata Tea was a proud Indian company, with an equally rich but very different history of its own. Would integration between these two diverse cultures ever be possible?
KK says that all the answers were not yet at hand. But he knew that, with the unstinting support of Ratan Tata, Noshir Soonawala and the Tata Group, ‘we shall find a way’.
This is the first in a series of articles ahead of the retirement of Ratan Tata, chairman of the Tata group
Write to us at businessoflife@livemint.com
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First Published: Sun, Dec 02 2012. 07 10 PM IST
More Topics: Tata Log | Harish Bhat | Ratan Tata | Indica | Tetley |