Shaking The Foundations
	How Ratan Tata turned the country's oldest conglomerate into a global force
	By Alex Perry

	MUNSHI AHMED FOR TIME  PRIME MOVER: Ratan Tata is overhauling Indian industry

Posted Monday, June 12, 2006; 20:00 HKT
You wouldn't expect the head of Tata group, India's largest conglomerate, to say the rich are boring. But Ratan Tata comes close. Acting rich doesn't interest him. "I've never had the desire to own a yacht, to flaunt," he says. "It's not really [the point]." Nor does the Prada-wearing class excite him as a marketing opportunity. China and India, with their growing ranks of tycoons, should attract multinational businesses not because of the spare million in a few fat wallets, he argues, but because of the spare change in a billion slim ones. "Everyone is catering to the top of the pyramid," says the 68-year-old at his office in Bombay House, Tata group's elegant Edwardian headquarters in India's business capital. "The challenge we've given to all our companies is to address a different market. Pare your margins. Create new markets."

The Tata group's global clout means its chairman's thoughts on the world economy are worth listening to. The group comprises 93 companies, including the world's second largest tea business (Tata Tea); Asia's largest software firm (Tata Consultancy Services); a steel giant (Tata Steel); a worldwide hotel chain (Indian Hotels); and a sprawling vehicle-manufacturing arm (Tata Motors) that includes a bicycle factory in Zambia and a project to make a car selling for $2,200. Since Ratan Tata became chairman in 1991, he has multiplied Tata group revenues seven times to an annual $21.7 billion. Since 2000, the group's market value has jumped 14 times to $39.9 billion. And over the past six years Tata has been on a $1.9 billion acquisition spree that has netted Britain's Tetley Tea, South Korea's Daewoo Commercial Vehicles, Singapore's NatSteel and New York's The Pierre hotel, among 14 others. "Nothing succeeds like success," says Sanjay Bhandarkar, managing director of N.M. Rothschild in India. "All credit goes to Ratan Tata. He clearly has a vision and knows what he's doing."

Tata is one of Asia's most influential businessmen. And perhaps more than any other company, Tata group exemplifies India's metamorphosis into a modern economy. For much of their 138-year history, the Tata family companies were the heart of India's insular business establishment—the last business group you'd have turned to for radical thinking, or owning anything abroad. The group's founder, J.N. Tata, was a nationalist driven by the idea of a strong, self-reliant India. He gave the country its first steel plant, first hydroelectric plant, first textile mill, first shipping line, first cement factory, first science university, even its first world-class hotel. His successors—among them J.R.D. Tata, India's first pilot—created the first airline, first motor company, first bank and first chemical plant.

But after independence in 1947, the group came to symbolize all that was bad about Indian business. It lost its airline and insurance arm to nationalization. To avoid giving up more to the Congress Party socialists who ruled India for half a century, J.R.D. Tata, a distant cousin of Ratan Tata, emphasized individual companies over the group, keeping the conglomerate's stakes small and demanding little coordination. Meanwhile, shielded from competition by the restrictive bureaucracy of the "license Raj," Tata's companies became bloated and calcified. "We weren't driving ourselves hard enough in a protected environment," says Ratan Tata.

Ratan took over from J.R.D. in 1991. India was beginning economic reforms, and, with state-sponsored monopolies on the way out, the new chairman saw the need to overhaul the firm's culture. He raised the conglomerate's stake in all its companies to a minimum 26%. And he ordered each to meet performance targets—to be first or second in its industry, and to meet quantified goals for leadership and innovation—or be sold. Most shaped up. Tata Steel, for example, shed half its 78,000 workers between 1994 and 2005 using retirement and voluntary redundancies to lower costs and boost productivity. "The Tata group's relationship with its employees changed from the patriarchal to the practical," reads the Tata Code of Honor, which sets group-wide standards of conduct. Subir Gokarn, chief economist at ratings agency Crisil, says Ratan Tata read the runes of change and largely avoided the rash of business failures in India that followed reform: "He survived the bloodbath. Those who made no changes became extinct."

After nine years of consolidation and streamlining, Tata signaled a new prominence for the emerging Asia conglomerate in 2000 when the most Indian of brands bought one of the most English, Tetley Tea. At $435 million, the deal was the biggest in Indian history, and it presaged a wave of international expansion by Indian and Chinese businesses like Mittal Steel and Lenovo. For Tata, entering the West was not an end in itself. Buying Tetley was simply a way to grow Tata Tea. "We look for the acquisition of companies that fill a product gap or have a strategic connection with what we do, wherever that company might be," says Tata. Says Rothschild's Bhandarkar: "Other Indian groups look at things opportunistically. Tata is the only one with an international strategy." If the group has a geographical tilt, it is towards the developing world. And that's based on a business approach that has not changed since its foundation.

Continued...

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