Ratan Tata, chairman of the Tata group speaks to Outlook, the magazine brought out by well known consulting firm, Andersen Consulting. Excerpts from the interview

Outlook: Economic reforms were introduced in 1991. From the point of view of Indian industry, what else needs to be done?

RNT: We have seen considerable reform in industrial licensing. Entry barriers and red tape have been eased. But fiscal reform and reforms in company law have not yet happened. The same holds for labor legislation.

Outlook : Have the reforms fundamentally altered the corporate culture in India?

RNT: I think the environment has become more competitive. That has made Indian industry more concerned with a) its customers, b) the quality of its products, and c) its brand image in the marketplace.

Outlook: Have Indian companies generally done well in this newly competitive environment?

RNT: In the last couple of years, companies have found themselves going through a very difficult period. They have had to cut costs and be more mindful of inventory levels. By and large, Indian industry did not worry about things of this nature earlier. Companies were in a seller’s market. They could maximize production and very often pass on the inefficiencies to the consumer through higher prices. That [mentality] is under pressure now, and I think that is a good thing.

Outlook : And individual companies?

RNT: Some have supported the reform process, while others have only paid lip service to it, seeking protection behind the scenes. Many new companies have come to the fore because they made a fresh start and didn’t carry any baggage. They have often come with new technology that is more advanced than what others have. That does not mean that all the others are falling by the wayside. Some have, while others have risen to the occasion.

Outlook: So how will many of these companies survive if they don’t have the necessary skills or resources?

RNT: What is the alternative, if they don’t open up? The easiest option is not to open up, to build walls—but that carries a cost to consumers. Another alternative is to open up selectively, but this is very subjective. One person’s raw material is another person’s finished product.

There is another way—perhaps the most painful way—and that is to open up fully: The strong live and the weak die. There is some bloodshed, and out of it emerges a much leaner industry, which tends to survive.

I often ask myself, what happened in a country like Spain? It had its own industry and now big brands operate there but local brands have found their own niches. They might not be big, but they are strong.

Outlook: Is there anything peculiarly Indian that could threaten survival?

RNT: One of the weaknesses of Indian industry is that in many areas—like consumer goods—it is very fragmented. Individually, the companies might not be able to survive. What is needed is a consortium of like companies in one industry, presenting a strong front to the multinationals. The Swiss watch industry did this.

At Tatas, we believe that if we are not among the top three in an industry, we should look seriously at what it would take to become one of the top three players—or think about exiting the industry.

Outlook: How would you rate the performance of your own group? Has the emerging business environment led to a new paradigm in terms of management thinking and practices?

RNT: New demands are being made on the group companies in a variety of areas. For the first time they are being confronted with a new set of performance criteria. The Tatas are rising to the occasion, but we have a long way to go.

There is awareness both within individual companies and in the group that we need to force the change. It would be pompous of me to say that there is a new paradigm. Changes are always slow and painful. And this has been happening at a time of great economic difficulty. I think that in the longer term, we will see a considerable change in the way Tata companies look at their operations.

Outlook: Tata Tea made a bid of around $400 million for Tetley, the world’s second-largest tea bag company. It is the first time an Indian company has made a bid of this size. Is this the beginning of a new way of thinking within the group?

RNT: The strategy is to acquire a brand with an international presence. Tetley has a strong position in tea bags, and we have a strong position in tea. So it enables us to promote our product through a brand that is known in the Western world. It would have taken much more effort and much more money to create the same level of awareness for the Tata Tea brand overseas.

Outlook: What kind of challenges does this present for your managers?

RNT: If you think globally, you have to look at global managers as well. It is conceivable that Tetley will be managed not by Indians but by managers in the country of operations, who know the market better.

In general, as a group, we have been very inward-looking, seeing only India as our market. We have not focused adequately on growing overseas. Part of [the reason] was due to foreign exchange restrictions. Now that these restrictions have been eased extensively, we should be looking at growing overseas in a serious manner. By growing overseas, I don’t mean just exporting our products but looking at acquisitions, alliances and things of this nature.

Outlook: Should Indian industry employ this as part of its growth strategy?

RNT: Not as a whole, but I would say that in selective industrieswe should. There are some industries in which India can play a significant global role. Indian companies should look seriously at having a presence in other countries—by acquisitions or by establishing their own manufacturing facilities or marketing presence. Software and information technology is one industry that comes to mind immediately.

Outlook: On the domestic front, your joint ventures and alliances with international companies have followed a seemingly curious pattern. You are in the process of parting, or have already parted ways, with Unisys, IBM, DaimlerBenz and Bell Canada. Ventures with Cummins, Lucent, BP and Honeywell continue to prosper. What is the logic that drives your joint ventures?

RNT: As you grow and want to enter a new business, you have to ask yourself if you have the time, the technology and the resources to build the business from scratch. In a high-tech business, you have to ask whether you have the capability to not only introduce new technology but to upgrade constantly. That often means you need [either] the necessary investment and scale to amortize the investment, or a partner in the industry that has the product and technology. That has been our driving logic in joining hands with IBM, Lucent or Honeywell. In most cases, I can say that the Tata companies are long term players in partnerships.

But, unfortunately, after they get established, many multinational companies want to become majority stakeholders or own the companies. Our policy has been that we won’t be passive investors; we always go for an equal partnership. And if the pressures [from the joint venture partners] are strong, then we have them buy us out or we buy them out.

Outlook: In your car venture, you decided to go it alone even though most people thought that you would be better off with a partner.

RNT: I said that we would collaborate only in areas where we don’t have a presence. We were already in the automotive industry, but not in cars. I was convinced that we had the basic capabilities to develop and manufacture a car. We didn’t have all the technology but we could obtain it. We would have taken a partner who was willing to jointly produce a car, but who didn’t want a stake in Telco [Tata Sons’ truckmaker, which produces the new car]. But every car company we spoke to wanted a joint venture in which they would have ownership. That would have meant two negatives for Telco. One, the joint venture would have been off Telco’s books. Two, history shows that after a product is established, the partner wants to increase its stake to a majority holding. For these reasons, we went alone.

Outlook: Many observers fear that India does not have a sufficiently large managerial pool to match the needs of the country’s rapid industrial growth. What has been your experience?

RNT: There are many competent professionals in the country who have not been given the chance to operate at CEO levels. If you look around, you see companies run professionally by people who 15 years ago were virtually unknown. Therefore, though there are a lot of managers around, the question is whether you are willing to take a chance with someone you don’t know well.

Outlook: Can you envision Indian companies employing foreign managers to run their operations?

RNT: At Indian Hotels [a Tata company], we have an English manager running the Delhi hotel. We should not be afraid of saying that we are not an Indian company if we are run by an English manager any more than an American company should be concerned about its identity if it chooses an Indian CEO.

Outlook: Indian companies feared that once the economy was opened up, the multinationals would take over—first, Indian markets; eventually, Indian companies. In hindsight, do you think this fear was justified?

RNT: I think some of that is true. The counter for Indian companies against the takeover threat is a high market capitalization, which makes the price of the takeover expensive. Or the existing shareholders could rally around and vote against the takeover. For many Indian companies, both seem difficult propositions.

Outlook: How should companies themselves be responding?

RNT: If an Indian company that was in the predominant position before the multinationals came in suddenly finds its market eroded, it says something about the way that company took the market for granted. But I think there certainly is a challenge from multinationals that have established brands, large budgets for promotions and mature products.

I have a view that is probably not very popular with many of my counterparts: They are not running the economy for themselves but rather for the consumers. They should not turn to the government for protection. I think there should be some soul-searching on how they should play in the new competitive environment.