House of TATA: Acquiring a global footprint

Group F

Question 1
What is your assessment of the globalization strategies of the Tata group operating companies particularly Indian Hotels, Tata Tea and Tata Steel?

Indian Hotels
Tata Groups hospitality business Parent of the TAJ hotels. Strategy : Took an incremental approach to

international expansion STRATEGY IMPLEMENTATION Outright buying -> Properties posted significant losses - > Divested the properties Decided to focus higher end properties befitting the Taj. Company preferred management contracts with small equity positions. However IHC later acquired several properties outright.

Tata Steel
Domestic expansion: Expand production in India De-integrated strategy: Supply India sourced raw and semi- finished

materials to finishing facilities closer to consumer end Markets Mature market M & A : Acquire companies in advance markets to improve R & D operating practices Raw material security: vertical integration made it the worlds lowest cost steel producer Downstream products: Moved into value added product segments and sell branded steel products Logistics Control: Established the JV with shipping company. Acquisition of Corus was done for the following reasons
Consolidation of the global steel industry Global supply chain services business Major presence in European markets and in higher value added

products. Saving of $450 million in production, procurement, financing and other synergies over the first three years.

TATA TEA
Slow growth in Tea industry Commodity tea producer Looking for new growth opportunities and transform

itself into a branded company. Acquired a much larger company Tetley. Changed overseas acquisition. Funded by a mixture of Debt and equity. Ensured that creditors could not seek repayment from assets other than the project for which the money was loaned Management remained unchanged after the acquisition Lesser than expected synergy in operation

Conclusion
Tata Group was a large conglomerate with diverse

businesses The separate businesses pursued an ad-hoc internationalization and M&A strategy with mixed results
Acquisition of Tetley was not upto the shareholders

expectations and synergy of the acquisition was not realized Indian Hotels was not very successful in some acquisitions
There was a perception of leaving money on the

table i.e. paying more than you should Thus, there was a need for a more focused and

Question 2

What is your assessment of the role of the TATA group center in globalization?

Operational leadership to strategic leadership

Navigator (leverage opportunities)
Brought together representatives of different operating

companies in the same country to identify mutually beneficial initiatives

Strategist (Align with orgn. Vision)
Group center makes TATA group as unified corporate

entity
Entrepreneur (Exploits opportunities for new

services)
Provided a Venture Capitalist type of support system

for the group companies

Operational leadership to strategic leadership

Mobilizer (Aligns resources to achieve complex

objectives)
Provided financial support for acquisitions and

signaled deeper pool of capital

Talent advocate (Attracts & retains talent to meet

business needs)
GEO, GCC, Arun Gandhi, M&A specialist Alan Rosling, Consultant

Operational leadership to strategic leadership

Global thinker (Integrates information to optimize

organizational performance)
Established integration committees to help combine

entities and realize synergies

Entrepreneurial guardian (Ensure share holder

value through courageous decision making)

Paid 33.6% more for Corus acquisition

W Hotel Ritz carlton Camptn place

Tetley Good earth Jemca

Corus

Daewoo

IHC

TATA Tea

TATA Steel

TATA Motors

TATA Group Center

Financial might

M&A expertise

Creating boundary disruption

Transformation al change

Question 3
Tata motors currently target the passenger car

market and the commercial truck market. Jaguar and Land Rover(JLR) in the high end Luxury and high-end SUVs.
SHOULD TATA MOTORS ACQUIRE JLR ?

Internationalization strategy
Exports (2001) South Africa Middle East Korea Partnerships/Ag reements MG Rover (2003) Fiat Technical Center (2007)

Joint Ventures
Marcopolo Thornburi Automotive (2006)

M&A
Incremental
Daewoo (2004) speeding up the internationalization ; reducing lead times Hispano Carrocera (2005-21% stake)

Transformational
Jaguar and Land Rover

The Why- Global Footprint

Marginal presence in Europe. Limited presence in UK Lack of significant presence in China but plans to increase presence Present in SE Asia through exports and JV

Lack of presence in US Market. JLR offered entry into this market S.America Present in Brazil (Marcopolo) , Argentina (Fiat)

Exporter to Africa esp. South Africa

Pros
Strategic opportunity of becoming one of the

major players in the automobile industry. Diversification across markets and Product segment. Access to new technology and advanced distribution channels Ability to track competition and product development in advanced markets. JLR in a less-cyclical segment as compared to commercial truck business.

Cons
Customers of high-end luxury brands value image and

exclusivity factors which conflicts with the venture of inexpensive Nano Objective of internationalization Mitigate risks in its business . However acquiring JLR would carry its own potential risks:
Jaguar an unprofitable brand. This requires a financial

turnaround Poor operating profitability of the takeover targets could lead to a very long payback period.
Increasing leverage: Tata motors to raise Rs 120 billion

for capacity expansion and new product development over the next three four years. JLR was expected to be priced at around 2 billion dollars. Acquisition would increase the debt of the company.
Increase in the interest expenses will put the companys cash

flow situation at a higher risk.

Cons
Several constraints

1) Cannot close any of the three factories related

to jaguar and land rover and that ford maintain a minority stake in the companies after the sale 2) Resistance from Unions due to the fear of pay cuts and lay-offs. 3) Both brands share the same resources. This complicates the possibility of separate sales of the two brands.

Conclusion
Decision to compete in both high end and low

end economy markets is a big audacious task If proven successful the strategy would provide the company with high margin (JLR) as well as high volume revenues(Nano). mitigate each others risks. The revenue streams if proven compatible, could Automobile industry was going for a downturn. In that environment, it does not make good business. Tata motors should not acquire JLR at this point

Thank You

Q&A