The Tatas are once again focusing on China as a priority country in their drive to internationalise. With significant growth opportunities, the potential to leverage China as a low-cost manufacturing or sourcing hub is enormous, says Alan Rosling, executive director, Tata Sons and member, Group Corporate Centre (GCC)

No international business can ignore China. It is now the fourth largest economy in the world with a GDP of $2,690 billion (2006), and its high growth rate is anticipated to make it the second largest economy after the US in a few years. Chinese manufacturing competitiveness underpins the spectacular growth of Chinese exports, now close to $1 trillion, and the emergence of Chinese companies as world challengers in a growing number of sectors. China is a huge and growing market, a source of well-priced goods, a place to invest, and a growing competitive challenge in many sectors. More than 50 per cent of China’s export is from foreign invested enterprises.

As so often, our founder Jamsetji Tata anticipated our current priorities. Before founding his own trading company in 1868, the young Jamsetji Tata worked for nine years in his father’s business. In 1859, he was sent to Hong Kong to open a branch. After a few months, he relocated to Shanghai where he remained until 1863. Thus, Jamsetji Tata’s early business experience was in China.

Now, once more, the Tatas are focusing on China as a priority country in their drive to internationalise. While the Group currently has a much more modest presence in China than in the US and UK, our companies are now developing plans to expand their presence in the country dramatically.

Currently, our business in China is too small. In 2006-07, our sales figure in China stood at $300 million. In the same year, we purchased goods from China worth $422 million, and employed 1,500 people in the country. There is potential for high growth for existing businesses and opportunities for new ones.

Tata International was a pioneer in our return to China, opening an office in Shanghai in 1996 to develop trade in steel and other commodities. Since then, a number of our companies, such as Voltas, Indian Hotels and Tata Motors, looked at China for opportunities but found the going hard. It is only in the past couple of years that the Group has set about approaching China in a rigorous and determined way.

New ventures
China is a complex place for foreign businesses. Regulations are sometimes unclear, and often not helpful. Contract enforcement can be tricky. The business culture there differs from that of ours. And most importantly, language forms a critical barrier. But western MNCs have demonstrated that, with persistence and determination, large businesses can be developed in China.

In order to help Group companies navigate these difficulties, Tata Sons opened an office in Beijing in August 2006. Headed by James Zhan, the office is now staffed by Frank Li, Aaron Du and Carol Jin. With their help, a number of our operating companies have begun to exploit more fully the potential of China as a market, as a procurement source, and as a place to manufacture for export.

Tata Consultancy Services (TCS) recently achieved a breakthrough by winning a $100-million contract for a core banking system, for Bank of China. Earlier this year, TCS also signed a joint venture agreement to develop a software business in China in collaboration with the Chinese government and Microsoft. Our existing business will be merged into this new entity.

Tata Steel acquired two rolling mills in China along with the takeover of NatSteel. Wuxi Jinyang Metal Products Company manufactures PC bar, PC wire and PC strand and is one of the top five players in China. NatSteel (Xiamen) produces premium reinforcement bars and wire rods. The company has been involved in the construction of some major projects in China including the Xinglin Bridge and Zhangzhou Power Station. Plans are now being developed to expand these facilities, and to integrate Corus’s China team. Corus’s activity in China, represented by Corus International, is in supply chain management, providing its customers with a wide range of quality steel products from Corus and other manufacturers and suppliers. Tata Steel also does business in ferro alloys and minerals, and steel through NatSteel’s subsidiary TS Asia (HK) Pte, which is headquartered in Hong Kong with a representative office in Shanghai.

Tata Refractories opened a plant in Liaoning Province, the Group’s first greenfield project in China, in record time at the end of last year to supply refractory materials to India. The plant currently has a capacity of 30,000 MTPA and there are plans to expand this capacity in the next two years. TACO is constructing a factory in Nanjing to make plastic parts, initially for Shanghai GM and Ford. The plant is scheduled to commence operations in December 2007.

VSNL in China acts as a liaison between China and other global VSNL entities to further its business interests. It also sells VSNL’s telecom products. Its major customers include China Netcom and China Telecom.

In May 2007, Tata Tea signed a joint venture agreement with Zhejiang Tea Import & Export (ZTIE) Company, China, to manufacture and market green tea and other green tea extracts, soluble instant tea, liquid tea concentrates and other value-added tea products. ZTIE is based at Hangzhou in Zhejiang province, one of the largest tea growing areas in China. The company is the largest green tea exporter in China and has established a wide marketing network in China, Japan, Pakistan, Morocco and other African countries. A number of other Group companies, including Indian Hotels and Tata Chemicals have active business development plans for China.

Sourcing hub
In parallel with developing production and marketing operations, we see a huge, and possibly more immediate, opportunity to use China as a procurement hub. Buying in China has been pioneered by Tata Teleservices and VSNL, who are sourcing both handsets and telecom infrastructure equipment from Chinese manufacturers such as Huawei and ZTE, realising big savings and customer benefits. Tata Motors, working with Tata International, is rapidly ramping up sourcing of automotive components from China. We believe there is also an enormous potential in China for sourcing capital equipment for our greenfield plants at significant savings.

One of the more immediate requirements is to create awareness and build the Tata brand in the country. This exercise will be coordinated by Zhan and his team along with the Tata entities doing business in the country. As an initial initiative, the Tata Group website has been developed in Chinese. Through meetings, sponsorships of events and targeted newsletters at specific groups, we hope to create a positive perception of the Tatas that will lead to more business opportunities.

Our 148-year history in China has entered a new and exciting phase. China is a tough market for all foreign companies, but it is a market that cannot be ignored. Growth opportunities are significant there, and the potential to leverage China as a low-cost manufacturing or sourcing hub is enormous.

Uploaded in February 2008