The House of Tata - Term Paper Example

Sur Supervisor The House of Tata In 1991, the Government of India took decision to liberalize the economy and free the businesses from the shackles of licenses. In a sense, it was a major turn in the Indian history opening new vistas for domestic and foreign firms. Ratan Tata soon realized that the new policy measures would intensify the competition in the domestic turf manifold. A new environment would ask for new business skills and expertise with huge funds for investment in many new ventures such as retailing, financial services, engineering and construction and so on. Keeping this in mind, it was obvious for Tata to take certain new initiatives such as promoting Tata brand collectively for all group companies; find a strong partner for joint ventures; groom young leaders in-house and so on. Creating a unified brand by Tata Sons is certainly a strategic move with long-term ramifications. It is true that Tata name itself is a guarantee of quality among Indian consumers but in a free market regime, Tata group of companies will have to compete with formidable international brands in several segments of the businesses that include automobiles, chemicals, domestic appliance business, and many more. Promoting Tata brand will consolidate brand equity not only in the national but also international market too. It is true that certain companies in the Tata fold such as Indian Hotels does not use Tata name because ‘Taj Group of Hotels’ (the way it is known as) has itself become a name to reckon with in the hotel business in India; however, while raising money from abroad, the Indian Hotel did exploit Tata name while conveying to international community and that itself is a proof that Tata is a brand that each group company would always like to identify with at some point of time. The cost that each company will have to pay to Holding company, Tata Sons, is certainly a fraction of the benefits that they will derive nationally and internationally in the long run. This is a much required initiative on part of Tata Sons unifying all the companies with a common brand. Similarly, divesting a 20 percent stake in Tata Industries Limited to the Jardine Matheson of Hong Kong is another bold and strategic move. With the economic liberalization, Tata knew that retailing and distribution, financial services businesses in India would grow at a rapid pace and they would need a partner that possessed not only rich experience in such businesses but also ready to invest substantial sums in new ventures. Jardine group of Hong Kong was certainly a perfect choice as a partner for many new ventures that Tata Industries was contemplating to embark on with the long term view of strengthening the corporate portfolio. While India moved decisively to a free market economy, the bountiful of opportunities emerged for large houses. The house of Tata was no exception to it. Ratan Tata was quick to realize that they would need a plenty of young talents if they needed to grow at fast pace taking advantage of the numerous opportunities that were lurking ahead. Keeping this perspective in mind, Ratan Tata launched Tata Administrative Services (TAS). The sole purpose was to groom future leaders hiring them young rather than recruiting people tainted with ‘outside culture’, it was a much better foresight to train and nurture young talents in-house. TAS was designed such that young management graduate “would gain exposure to three different industries through planned job rotation within the Tata companies" (Khanna, Palepu and Wu, 8). The program was designed to "foster leadership, teamwork and group values" (Khanna, Palepu and Wu, 8). This way, not only young management recruits will be nurtured with required management skills but also be groomed with proper leadership qualities imbibing the spirit of 'Tata culture' at a fairly young age. After all, Tatas have been hugely popular in India because of their good quality products and ethical business practices for last several decades and that spirit must continue in the years to come. It is important to note here that Tata sons controlled many of the Tata group companies through meager shareholdings. For example, in year 1995, Tata Sons' holding in Tisco was 2.35 percent; in Telco only 1.78 percent; in Tata Power, 5.63 percent; in Tata chemicals, 7.91 percent; in Tata Tea, 7.56%; Indian Hotels, 13.34%. Further, a single largest shareholder of Tata Sons remained from outside the Tata family. Interlocking of the shares not only prevent the companies from easy takeover targets but also provide management stability and added confidence to each company that they are one united family and remind them that they are devoted to the original ‘Tata philosophy’ of ethical business practices. Interlocking also reminds them of their common roots from which they have all flourished and have become leading companies in their respective fields for Tatas have been also known for their dedication and commitment to the social cause. In the true sense, one can say that the Tata group is adding a lot of value to the managerial talent in labor market that is indeed not possible for any small individual firms. It is important to note that at least until 1991, businesses in India were largely dependent upon government's regulations. Most of the businesses were controlled through state licenses and permits. In those days, acquiring license to produce goods was considered a key to make money regardless of the ability or capacity of the company to produce and meet the customer needs. Being a controlled economy, there was not much marketing or a long-term corporate strategic angle in starting any business. A large corporate portfolio of Tatas during1995 should be seen in this light as any powerful and strong business group would like to harness available business opportunities whenever they arrived in their way. Many of the group companies such as Tata Elexsi, Oriental Floratech, Oriental Seritec, Tata Keltron, Hitech Drilling Services, Tata Petrodyne, Tata Telecom were floated during pre-liberalized era when larger business houses or groups believed in controlling a large corporate portfolio. It was a common feature across all large groups in India exploiting state licensing system to their benefit. Perhaps, that was the reason why Tata entered into several low-tech and commodity kind businesses during the time. For example, on one side, Tata’s flagship company Telco manufactures heavy trucks in collaboration with Mercedes (a high-tech venture) then on the other hand, Tata produces and markets iodized salt (a mass marketing commodity product through Tata Chemicals) that never needs any sophisticated technology. If Tata produces cement (ACC) then they also grow green tea and control tea gardens (Tata Tea). And Tata is also involved in energy generation (Tata Power) as well. The list is long but the point is that in a controlled economy, large groups can make money in any of the business activities they do. There is no need to be strategic or orient the business and products according to the real market needs. In a controlled and closed economy, large groups enjoy an oligopolistic status while controlling domestic markets. However, in a free-market era, such a portfolio does not make any sense. With more and more multinational companies entering into India and competing with several Tata group companies, its many businesses would start feeling pinch in due course of time. On resource side, Tatas are fairly a good brand name in India because whenever they offer a product or services to the consumers they are seen with awe and confidence; however, that cannot determine success in a free market regime. The company's resources such as its special assets, skills and capabilities decide about its corporate strategies. Tata's special assets are its brand value, managerial talent and skill to execute new ventures successfully. High-quality, strong market positions and efficient organization all are necessary for the success of the businesses. It is also necessary to identify competitive advantage in the businesses that the firm is involved with. It is equally important to know how the company's resources differentiate from competition across several businesses. Creating appropriate corporate portfolios is just not enough; it needs to be transformed into a competitive advantage through effective coordination between resources, businesses and organization. Organization needs to be configured to leverage resource advantages into its businesses. Moreover, it is important to ascertain effective coordination and control while deploying its resources for maximum gain. Tata’s available resources do not warrant its continuation into several low-tech commodity businesses such as soda ash manufacturing and salt businesses (Tata Chemicals); small ventures such as Tata Keltron; and cement production units (ACC). Tata needs to discard these businesses and enter high-tech, high-growth areas by forming joint ventures with leading international players. Tata’s need to move into fast growing areas such as information and technology (IT sector) in large scale because India is a country with abundant English-speaking young manpower and Tata can certainly spearhead its growth in this sector and emerge as a leader. India is an energy deficient country and spends huge amount on imports of crude oil. Oil and gas exploration, petroleum refining are the areas where huge investment is needed and the house of Tata is not only capable of garnering needed resources but can also execute them successfully in a given time frame. Of course, Tata needs to find a strong partner with rich experience in the oil exploration, refining and related technology. Certainly, if Tata wants to exploit its brand equity, resource availability and organizational capability then they need to select businesses in high-tech areas with strong technology inputs where high levels of execution skills are needed. This will spare them competing in commodity businesses and wasting their talent, energy and resources in managing low-growth and low-tech businesses. Works-Cited Khanna, Tarun; Palepu, Krishna and Wu, Denielle Melito. House of Tata, 1995: The Next Generation (A). Harvard Business School. Harvard Business School Publishing. Boston. Read More