Indian Business Empire Eyes Global Role


February 26, 2008

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A dozen years ago, many believed that India’s Tata Group – the country’s oldest and largest conglomerate – was a bloated behemoth that would eventually go under.

Instead, it has become a powerhouse in the 21st century, focusing on core businesses like steel and automobiles and seizing opportunities, including the hugely profitable outsourcing business, that came with India’s dramatic economic transformation.

A slew of recent acquisitions, including for Britain’s Tetley Tea and Boston’s Ritz Carlton Hotel, have thrust the Tata conglomerate – which comprises 98 companies and was largely unknown outside India until recently – into the global spotlight.

A year ago, Tata Steel Ltd. became the world’s sixth-biggest steelmaker when it bought Britain-based Corus Group for $13 billion. Then in January, Tata Motors Ltd. (nyse: TTM – news – people ) grabbed the world’s attention when it unveiled the planet’s cheapest car: a $2,500 four-seater that could change the global auto industry.

Surprising naysayers, the company has also been named the preferred bidder for Ford Motor (nyse: F – news – people )’s Jaguar and Land Rover businesses.

“We have been thinking bigger than we have done in the past,” said Chairman Ratan N. Tata, 70, in a rare interview at Bombay House, the group’s headquarters since 1926. “We have been bolder … and we have been more aggressive in the marketplace.”

In five years through March 2007, annual group sales more than doubled to $29 billion, while market capitalization of its 27 listed companies increased six-fold, to $78 billion. The numbers do not include Corus, whose sales totaled $19 billion in 2006.

While recent rapid earnings growth at Tata Steel and Tata Motors has slowed, net profit at Tata Consultancy, India’s biggest outsourcing company, continues to rise, climbing 21 percent in the October-December quarter.

The globalization strategy will only get bigger, said the barrel-chested Tata.

“We are at an early stage,” he said. “We are still feeling our way.”

The resurgence of the 140-year-old Tata brand is as much a story of the country’s economic rise as it is about the success of the chairman, whose ascent to the top job in 1991 coincided with the beginning of India’s shift from a socialist-style state to a market economy.

For decades after India’s independence from Britain in 1947, the government fixed prices, imposed curbs on foreign goods and capital, brought draconian tax laws and set limits to what a company could produce. The restrictive regime stifled growth and bred corruption.

The Tata Group was hit harder than others because it strove to create a business culture that emphasized transparency and integrity. Tata executives are known for refusing to pay bribes, a widespread Indian practice, and their lifestyles are mostly modest.

Ratan Tata, a bachelor, lives in a beachfront Mumbai apartment and is driven to work in an inexpensive Tata sedan.

When Ratan took over the company from his gregarious uncle, J.R.D. Tata, India’s economy was starting to open up, but the Tata group was almost falling apart. Sales were sluggish and government controls had limited new investments.

J.R.D.’s hands-off approach had led to inflated egos and squabbling among top executives at the group’s many companies. All of the 1980s was marred with speculation about who would succeed the ailing J.R.D.

Author Gita Piramal describes the conglomerate that Rata inherited “a tangled legacy.”

“India was changing, and changing rapidly, and outsiders had begun to describe the House of Tatas as a dinosaur,” Piramal wrote in her best-seller Business Maharajas.

The company was founded in 1868 when Jamsetji N. Tata, a young trader from India’s Parsi minority, set out to bring technology and money from around the world to establish India’s first textile mill. The company went on to build the first steel plant, overcoming resistance of British colonial rulers, and later built the airline that eventually became the nation’s flagship carrier – Air India – which is no longer part of the Tata group.

When Ratan became chairman, many heads of group companies had scant respect for him. He was a loner who had graduated from Cornell University with a bachelor’s degree in architecture and had led a variety of Tata businesses far from the limelight.

Unlike his uncle, Ratan took charge from the start. It took him years to clean up the mess from the power struggles, pushing out a generation of executives and jettisoning several peripheral businesses.

At Tata Steel, tens of thousands of jobs were cut. Tata Motors built the first fully Indian-designed car, the Indica – a roomy hatchback rolled out in 1998.

Tata Consultancy Services (other-otc: TACSF.PK – news – people ) meanwhile hired thousands to become a global power in outsourcing, doing back office work and software engineering for Western firms.

Just as the group’s fortunes were reviving the Indian economy hit a slump, a slowdown aggravated in 2002 by new tensions with Pakistan. That’s when it became compelling for Tata to look overseas.

The big change came five years ago at a company annual meeting, where the chairman “exhorted us to go treat the world as the market,” recalls R. Gopalakrishnan, an executive director at Tata Sons, the group’s holding company.

What followed was a massive push to acquire businesses abroad. Nearly 30 overseas buyouts have since helped the group’s international revenues grow fourfold to $11 billion and contributed more than a third to its total sales last year.

Takeovers include the truck unit of South Korea’s Daewoo Motors, Singapore’s Natsteel and Thailand’s Millennium Steel. The Indian giant is also snapping up mining rights in Africa and Asia.

For all that, Ratan Tata insists he hasn’t traded off the group’s long cherished values.

No Tata family members are among the country’s growing list of billionaires because the family business is owned mostly by Tata-funded charitable trusts.

A substantial portion of the group’s income is channeled into various philanthropies that have helped build some of the country’s finest institutions, including India’s first cancer hospital.

Tata companies are also known for offering worker benefits that are rare in India, including pension and child care allowances. Tata Steel hasn’t seen a strike in the past 50 years.

“The one thing I had always felt is that I wanted to go to bed at night saying I had not succumbed to the temptation of giving up the values and the ethics, that the group had been built on, just for short-term gains,” Tata said.

Some experts believe the group is still too bloated. Tata concedes that he has “not been very successful” at pruning the number of companies and downsizing staff, which currently totals about 290,000.

The big issue, however, is who will succeed Tata after he steps down.

“The Tatas have been producing many things successfully except children,” said Dwijendra Tripathy, a business historian who predicts Ratan Tata may stay on at least five more years.

“It is only in the past two years that he has come into global limelight. It is human for him to be wanting to stay on for some more time, achieve some more milestones,” he said.

Tata won’t say when he plans to retire, but insists he is looking for a successor.

That person “doesn’t have to be a Tata, doesn’t have to be from within the organization.”

Has he set his eyes on anyone?

“If that were so I assure you I would not be here today,” Tata said, clearly irritated at the question. “If I had a successor I would have been gone.”