International

Business

Challengers Vs.
Incumbents
 The BCG
Challenger 100

A list of 100 most rapidly expanding companies compiled by the Boston

Consulting Group. Salient Features 13
20
6
1) 30% per annum growth during 2004-2006 period, three times that of S&P
500 and fortune 500 41
2) 34% revenues from offshore during 7
2006

3) 17% operating profits Vs. 14% of S&P 500 and 7% of Germany’s DAX
 Challenger 100
Industry Sectors
 Brief look at Indian challengers

Taj Mahal Hotel in Bombay

was opened for business in Tata Chemicals (1939), Tata
1868 Jamsetji Nusserwanji 1903. The cost of Motors and Tata Industries
Tata established a trading construction was £250,000 (both 1945), Voltas (1954),
company Bombay (£127 million today) Tata Tea (1962)

19th century Seth Shiv
Narayan Birla started trading
in cotton in the town of
Pilani, Rajasthan
Brief look at Indian challengers
Today is the largest producer
of viscose staple fibre, the
largest refiner of palm oil,
the third largest producer of
1969, Aditya Birla, the then insulators and the sixth
Chairman of the Group, put largest producer of carbon
the group on the global map black
Challenger’s road to Globalization
Challenger’s road to Globalization
 Acquisitions by Indian challengers
TATA Steel – Corus - 2006-2007

Selected Financials Crude Steel Production

25000
(m ton)
20000 TATA Steel 20
Corus 18
16
15000
14
12
10000
10
8
5000
6
4
0
2
Sales ($m) EBIDTA ($m) Net Profit ($m) Market
Capitalization 0
($m) TATA Steel Corus
 Acquisitions by Indian challengers
Potential benefit & pitfalls

A highly ambitious, high leverage acquisition; Equity:Debt at $4.1b : $6.14b

 Acquisitions by Indian challengers

Sl.
No. Acquirer Acquired Value Leverage (D:E) & remarks

1 TATA Steel Corus $ 12.2b $ 8.1b : $ 4.1b

2 Hindalco Novellis $ 6b Novellis $ 7b in debt

Imperial Energy,
3 ONGC Russia $ 2.8b $ 1b bridge financed
$ 3b in bridge financed;
4 TATA Motors Jaguar Land Rover $ 2.3b currently rolled over

$ 2b debt on zain books

5 Bharti Zain $ 9b additional $3-4b to be raised
 Challenges for the challengers

• As of Nov. 2008, the challengers high debt to equity ratios 30% above the
incumbents or very low solvency ratios.
Tata Steel-owned Corus on Friday announced its decision to close its
biggest steel mill in Teeside in northeast England, which would result in a
loss of about 1,700 jobs.
Deccan Herald, Dec 05, 2009

• Commodity price rises during 2007-2008 impacted nearly all challengers

In a press note the company said Corus has decided to continue

operating South Bank Coke Ovens (a TCP mill) following the
improvement in market conditions for coke. As a result of this decision
about 120 additional jobs will be retained.
Commodityline.com, January 14, 2010
Turbulent times
 Future Directions
• Global Industry Leadership
• Segment Leadership
• Defined Geographic Focus
• Return to Domestic Markets
• Partnerships with incumbents to build
global powerhouses

Possible Measures
• Innovation & R&D (currently way behind incumbents)
• Cautious approach during turbulent times – Long
term view
• Protect core RDE Markets
• Productivity Improvements
• Develop globally recognized brands
 References

• 2009 BCG 100 Global Challengers Study

• From Crisis to Opportunity – BCG Report 2009

• Globality – Harold Sirkin, James W hemerling, Arindam Bhattacharya

• ICFAI Journal of Management

• TATA Steel Press Report 2007

• Economic Times – January 10-14, 2010

• TATA Corus Investor Presentation 2007