Ratan Tata and Tata's Global Expansion - Case Study Example

Case Analysis: The Last Rajah: Ratan Tata and Tatas Global Expansion Source Problem It has been observed that the core issues, surrounding Tata Group& Sons, are the trend of retaining the traditional value and system as well as recruiting talented employees in the process of building a strong network of companies, which is capable of thriving in this turbulent business scenario (Ashley, O’Brien, Reiter and Richards 2010, 1-3). With the passage of time, the company is increasing in size and also, becoming more diverse. Thus, managing a talented pool of employees is a fundamental task and a challenge for the firm as well (Blitterswijk and Karadzhov 2009, 1-2). Apart from that, the way through which both old and newly established firms adhere to the code of conduct, so as to ensure ethical business practices and quality standards, is a cause of concern. Moreover, after the demise of Jamsetji Tata, a gap has been created and this is expected to further increase, after the retirement of Ratan Tata (Business Monitor International 2008, 1-2). Secondary Problems Short Term 1. Conservation of Resources With acquisition of the steel giant, Corus Group, Tata group might have to deal with issues in fields, such as, mining and manufacturing technology capacity. Particularly, issues related to preservation of environment sustainability and conservation of resources (Firstpost 2011, 1-63). 2. Integration Process Studies have shown that integration issues are highly responsible for high failure rates of mergers and acquisitions. Integration of managing operations in a different and diverse cultural setting and different law suits often act as a hindrance to the company’s success (Freeman, Gopalan and Bailey 2008, 1-6). 3. Sluggish Economy If the Indian economy slows down, some of the Tata affiliates are obvious to stumble. In addition to that, the CSR activities already undertaken by the group, such as, rural electrification or development, could prove as a burden for the firm (Goldstein 2008, 93-95). Long Term 4. International Merger and Acquisition The acquisition of Corus can create various challenges for the firm in the future and one of the most obvious ones would be to balance traditional systems with new economic realities. The deal was worth $7.4 billion and amalgamation of its high cost operation might also weaken Tata’s profitability (Goldstein 2008a, 1-4). The union at Corus wants Tata to invest a hefty sum of $600 million, in order to ensure that no job cuts are taking place (Swiatkowski 2005, 284-285). 5. Land Rover and Jaguar Bid from Ford The international acquisition has presented Tata groups with the opportunity to strengthen its position in the UK market, but could also destabilize the core business line. In the process of international acquisition, the company had also proposed to buy Land Rover and Jaguar, but the question remains whether ‘winning brand strategy’ is consistent with Tata Group’s ultimate objective of gaining appropriate technology and production scale (Graham 2010, 1-2). Analysis Managing a diverse business portfolio is actually a difficult task for any business. In case of Tata, the company is currently managing a portfolio of more than 100 companies (India Knowledge of Wharton 2010, 1-2). The situation of the company can be best explained by Tata’s accelerated growth by undertaking leveraged buyouts and at times, audacious deals. These factors bring about issues of proper portfolio management and integration (Kakani and Joshi 2006, 1-2). The upper management of the firm often needs to explain their undertaken moves in order to manage all the subsidiaries and strategic business units (SBUs) under one roof. It has been identified that currently, Tata functions in seven different industries, which ranges from chemicals, energy, automobiles, steel and communication systems to even consumer goods (Jha and Joshi 2009, 12). Over last few decades, the strategy of the firm has revolved around building a strong market presence in the international arena. The history of merger and acquisition of Tata can be traced back to 2001, when the company had first taken over Tetley with a whooping $432 million (Kakani and Joshi 2008, 1-2). Some of the other key acquisitions of the firm are that of Daewoo Chemical Vehicle Company, Corus, Jaguar and Land Rover and Ritz-Carlton Hotels. Hence, it is obvious that the company does not focus on a single business sector; rather, it aims at making acquisitions from every industry, in which it currently operates (Mukherji 2009, 1-2). However, Tata should stay careful about the integration of all these companies under the umbrella of Tata brand. On future acquisitions, focusing on the methods that facilitate easy integration of the companies, coupled with preservation of Tata’s tradition, culture and belief, will be of paramount importance to the firm (Sen 2009, 53). Moreover, with accelerated growth, the importance of optimizing portfolio of companies increases. The same can be explored with the help of a BCG analysis, which is presented below. Stars Question Marks Tata Steel Voltas Electronics Tata Motors Tata communications Tata Power Tata Consultancy Services Indian Hotels Cash Cow Dogs Tata Chemicals Tata Teleservices Tata Tea (Source: Author’s Creation) The analysis clearly reveals that Tata Steel, Tata Motors and Indian Hotels, had emerged as stars for the company, i.e. these SBUs are characterized by high market share as well as high market growth. Hence, these companies should be retained and investment needs to be increased (Tata Motors Ltd 2008, 1-2). On the other hand, Tata Tea and Tata Chemicals are the Cash Cows and are characterized by high market share, but low market growth. So, the company needs to make efforts to convert them into Stars. In the similar way, the analysis revealed that Voltas Electronics and Tata Communications are on the Question mark stage i.e. these SBUs have low market share, but high growth opportunities. In the subsequent sections, evaluation criteria and possible courses of action will be recommended to the firm. Criteria of Evaluation One of the key evaluation criteria that would enable Tata group to grow, embrace development and establish itself as a global player is to maintain business excellence. This can be potentially achieved by the application of balanced scorecard (Swiatkowski 2005). The balanced scorecard technique principally emphasizes on key four factors, such as, financial, customers, learning and growth and internal business process. The factors are detailed below. Alternatives Below is the listing of all possible as well as feasible courses of action available to the company. The alternative courses of action are grouped in terms of short-term and long-term actions. Short-Term 1. Customers: - The company should continue providing high quality products to customers and at the same time, seek ways to innovate the design and quality of the product. 2. Financial: - To improve the financial performance of the firm, pertaining to cash flow of the company. This will also help in repaying debts early. 3. Internal Business Process: - The company must develop the existing supply chain and enhance infrastructure in order to support process and customer delivery. Long-Term 1. Customers: - The company should develop small cars and distribute the same in both developing and developed nations. 2. Financial: - Enhancing market capitalization on renowned stock exchanges and also, establishing itself as a global power house. Recommended Strategies On the basis of the problems identified, following are the recommended course of actions, which can be utilized by the group. The internal definition of sustainability needs to be changed, so as to generate awareness within internal environment of the company. The company is recommended to establish a separate subsidiary that will look into matters such as, managing, expanding and communicating the sustainability efforts of the firm. The company is also recommended to incorporate a market-driven global strategy, which is tailored as per the unique opportunities and challenges of the market place in the host country (Peterson 1988, 571-572). The aforementioned changes will certainly allow the firm to optimally position its environmental, social and economic suitability efforts, while addressing and remaining consistent with enlargement of the company (ONeil and McMahon 2007). It is recommended for the company to implement the strategies within a time frame of 10 years. The 10 year sustainable development strategy would foster comprehensive growth for the organization. Some of the other key benefits that can be achieved by the firm, after implementing the aforementioned strategies, are: - Increased level of transparency – The utilization of external consultants and auditors, to validate the activities undertaken by the firm, would increase transparency levels. Financial Autonomy - The Tata management would be able to ensure that liquid money is infused into the newly formed SBU, after dividends and buyout criteria are fulfilled. This would act as further steps towards transparency. Centralized Support and Control: - The company would be able to centralize its sustainability efforts with establishment of the new SBU. Justification of Recommendations Tata Group, currently, operates on four pillars of sustainable businesses, namely Tata Council for Community Initiatives (TCCI), Tata Relief Committee (TRC), and Tata Trusts Tata Quality Management Services (TQMS) (Bellace 2013, 1-5). This organizational structure has the ability to manage core values of Tata, but demands creation of a separate entity, which will be devoted towards environmental and social stewardship. In order to achieve and fulfil the aforementioned objectives, the subsidiary is expected to function like other SBUs of Tata group, but it should rather operate with support function more than a profit centre. Furthermore, this will allow the company to centralize a number of functions of establishments, such as, TCCI, TRC and education trusts. In addition to that, sustainability initiatives of the firm would be benefitted through training functions and knowledge sharing. Lastly and most importantly, reputation of the firm, both in India as well as in international arena, would increase greatly (Samuelsen 2012). Implementation Control and Follow Up The international managers of Tata can pursue assorted strategies and can take various approaches to implement, control and follow up with the vital activities. Here, the firm is suggested to employ both indirect and direct controlling methods. Implementation of Tata sustainability, through corporate communication process, will foster employee engagement and input. The company is strongly recommended to establish a capitalized corporate subsidiary, which will be aimed at administering excess profit criteria of strategic business units. The formation of a cross company task force, including the senior executives and management personnel, to validate sustainability opportunities, has been explored. Lastly, the company is suggested to reduce carbon footprint in steel plants beyond Port Talbot. The aim of achieving 25% reduction in carbon footprint by 2020 is, therefore, justified and can guide the firm towards sustainable operation. Reference List Ashley, Michaels, B. O’Brien, R. Reiter and K. Richards. 2010. Tata Leadership with Trust. Tata Group Sustainability Strategy, 1-9. Bellace, Janice R. 2013. The ILO and the right to strike. International Labour Review: 1-56. Blitterswijk, Miel V., and R. Karadzhov. 2009. Financial and Strategic Analysis of Ford Motor Company and Tata Motors. CBS - M.Sc. Finance and Strategic Management, 1-145. Business Monitor International. 2008. M&A Analysis - Tatas M&A Freeze: Bad News For West. Country Risk, Industry and Company Intelligence on Global Markets, 1-10. Firstpost. 2011. Ratan Tata Radical Chieftain. The Ratan Tata Legacy, 1-63. Freeman, Kimberley, S. Gopalan and S. Bailey. 2008. Achieving Global Growth through Acquisition - Tata’s Takeover of Corus. Journal of Case Research in Business and Economics, 1-17. Goldstein, Andrea. 2008. 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Tata Motors Ltd. Corporate Sustainability Report 2008. Corporate Sustainability Report, 1-174. Read More