March 2006 | Cynthia Rodrigues

A perfect fit

Despite initial hiccups, the acquisition by Tata Motors of Daewoo Commercial Vehicles in South Korea has proved to be a just partnership, beneficial for both the parties to the deal

The Land of the Morning Calm is living in interesting times. The nation of South Korea has embarked on a flurry of activity in a determined attempt to strike back against the ravages of the economic crisis.

Tata Daewoo Commercial Vehicle Company (TDCV), located in the town of Gunsan, is noticeably upbeat about the future. The cold November winters and the biting winds do nothing to stifle the enthusiasm of the 800-odd employees that have begun to see the advantages of partnering with the Tatas.

It was in 2004 that Tata Motors achieved a coup with the acquisition of Daewoo, a behemoth brand in its own right. The wheels were set in motion when investment consultant KPMG approached Tata Motors with a proposal; an international company was up for sale. Intrigued, Tata Motors set out to learn more, and discovered that the company's work culture, products and processes were admirable. Ravi Kant, managing director, Tata Motors, says, "We were keen on the acquisition, as it would give us an opportunity to get into a fairly advanced market. There were also tremendous synergies between the two companies."

Equally enthused, RS Thakur, VP, finance, Tata Motors, says, "Daewoo had contemporary manufacturing facilities and products, which fitted into our portfolio for expansion". What was most inspiring was that the company had a market share of 30 per cent against rivals like Hyundai and Volvo, in spite of being under court receivership.

But the road was all uphill, and there were many hurdles to be crossed. There were nine other bidders in the fray, any of whom seemed far more attractive from Daewoo's standpoint. A Daewoo middle-level manager frankly told Mr  Kant that he didn't think an Indian company could help them with technological inputs or financial resources — two things they needed badly and which they believed, only an American or European company could supply.

Mr Kant quickly saw the significance of gaining the management's support, as they had a say in which bid to accept. This understanding marked a turning point in the due diligence process. Within 48 hours, communication material pertaining to the Tata group and Tata Motors was made available in Korean and shown to the Daewoo Commercial Vehicle people. Mr Thakur remembers, "We explained the Tata group philosophy of trusteeship, as opposed to ownership." Efforts were made to impress upon the Koreans the fact that Tata Motors had a good work culture, as well as the latest technology. 

Kwang Ok Chae
The goodwill was further cemented when Chairman Ratan Tata announced that he did not want Tata Motors to be seen as just another multinational company, and that Tata Daewoo would remain a Korean company, managed by Koreans. Daewoo old-timers felt reassured by Tata Motors' decision not to smother its identity.

Kwang-Ok Chae's continuation as president of TDCV helped to convince his compatriots of the truth contained in the Chairman's words. Seong-Kook Kim, director, personnel, says, "Our employees are proud of our Korean president."

SUK Menon
Credibility and trust, however, did not come on a platter. Testing times followed in which each party sized up the other, each being the object of the other's scrutiny. For TDCV vice presidents Chandra Vir Singh and SUK Menon, it meant adjusting to an environment with pre-set systems, putting aside egos and personal agendas in the cause of the integration. It also meant being open to new ideas and experiences, putting in long hours and going out of their way to prove their commitment to TDCV. Says Mr Singh, "Unless you can contribute and they perceive your contribution, they will not accept you."

Anuj Kathuria, director, strategic sourcing, endorses this sentiment. "Initially, it seemed as if they resisted our ideas. Then we learnt that they accept an idea only if it has merit." Armed with this knowledge, Tata Motors diligently set about earning the respect of its new partner and succeeded. Mr Chae observes, "Initially, most of our employees were disappointed about the takeover because India is a developing country. But when we learnt of Tata's management philosophy, we developed a respect for the group."

Mr Thakur reflects, "The feeling that we are a country of technological inferiority was effectively neutralised by the fact that we were stronger on corporate governance, and had better moral and ethical standards as a group and were willing and able to source the latest technology."

Both the Koreans and the Indians can now look back with satisfaction at the acquisition. For Ki-Hee Won, MD, administration division, it meant making the turnaround from wondering how an Indian company would manage a company in Korea to thinking of the partnership as a great asset. He says, "I was wrong in thinking that an American or European company would have been better. With Tata Motors, we have a just partnership. We have retained our voice; the company has grown and employees have benefited." 

Sang Joon
Seung-Won Lee, GM, production, says, "Initially, our people were afraid of joining the Tata group. Now, thanks to their international business, our export volumes have increased. Our members feel that if we had not joined the Tatas, our future would have been unclear." Sang-Joon Lee, deputy GM, business planning team, agrees. "This is the first time since 2002," he says, "that we have made a profit."

Fears of being short-changed regarding the latest technology also came to naught. Today, the Koreans willingly admit the fallacy of their belief that an American or European company would have been better. The increase in TDCV's exports, following the takeover, is also seen as a good sign. Woung-Jung Choi, manager, business planning team, says, "The Tatas have a good reputation among the people in India. In Korea, we have big companies, but the Korean people do not like them. I am also impressed with the family history of the Tatas and the fact that Jamsetji Tata is the father of India's economic development."

The parent company also gained from the transaction. Thanks to the merger, Tata Motors was able to fast-forward its plans. Says Mr Kant, "Tata Motors has been working on a large truck for global markets, to be launched in 2008-09. The merger has given us the opportunity to introduce the Daewoo truck by the end of this financial year. We also now have a base to build our own world truck, instead of building from ground zero."

The merger also meant "the opening up of markets that we had no presence in," says Mr Singh, adding, "we succeeded in reducing our development cycle time as well as widening our product base." The merger has also enhanced the image of Tata Motors worldwide, opening up new avenues for business.

Tata Motors reached this point after months of give and take in which the giving often outstripped the taking, and our way had to give way to theirs. But the company would not have had it in any other way. Says Mr Menon, "When the group Chairman told the Koreans, 'It is your company, run it the way you want,' it was a clear message to them and to us. Our brief was to maintain the face and touch of the Korean company," he explains. Mr Singh adds, "It had to be an integration between two equals."

The first six months were spent in observation and learning. Mr Singh and Mr Menon were determined not to tread on the sensitivities of their Korean colleagues. Mr Menon says, "We found that their processes, controls and documentation were good, and did not need to be disturbed. We made sure that whatever changes were introduced were initiated by them."

Successful integration meant gaining each other's confidence and looking into the face of an ally to find a friend. To achieve this, Tata Motors often retreated one step so as to advance two. Mr Menon says, "Sometimes we took decisions that cost us a lot of money but helped us to be seen as a company which is open to their ideas and willing to make investments in Korea. It helped integrate the thought processes of the two companies. We proved that we were in for the long haul."

The road to complete integration spelt a meeting ground between two companies that hailed from two diverse nations. Success would be a measure of how well the two cultures celebrated not only their synergies but also their differences.

Anurup Chatterjee

The expanse between the two sides was reduced considerably when the language barrier was removed. Mr Singh and Mr Menon attended Korean-speaking classes for six months, in order to understand their colleagues better. The Korean employees are now studying English, following company president Mr Chae's announcement that English would be the medium of communication in TDCV after three years. Anurup Chatterjee, GM, sales and marketing, is determined to speak fluent Korean within six months. His attitude, of doing in Korea what the Koreans do, has already won him appreciation.

Having won Round One of the unification game, the two sides are working on process integration, a crucial part of the integration process. This involves acquainting the new company with concepts such as the BEBP compliance plan, the balanced scorecard (BSC) and the Tata Business Excellence Model (TBEM). IT related processes such as the enterprise resource planning system SAP, computer-aided design (CAD) and product lifecycle management (PLM) are under implementation in TDCV.

Unused to multi-skilling and multi-tasking, the Koreans initially found it difficult to work on many initiatives simultaneously. Mr Menon says, "We have to keep their speed in mind — not push them, yet help them understand. We also need to appreciate that they are all under stress. The language in which we conduct our business is different. We have to give them time."

Fortunately, the Koreans do not lack enthusiasm. Seong-Kook Kim, business excellence champion, understands the importance of these concepts in the task of building TDCV. He says, "The Tata group introduced BSC in TDCV. This year, we will do the team-level BSC sheet. Next year, we will do the individual-level BSC sheet. We have already done the company-level BSC sheet."

Interestingly, Daewoo employees were quick to accept the Tata Code of Conduct. Tata Motors is now working on aligning certain clauses in the code with the Korean reality. Mr Menon clarifies, "The wording in the code refers to the Indian context and require employees to adhere to India's democratic processes. It has to be modified to suit the global context, so as not to interfere with the integration process."

Over the last few months, Tata Motors has introduced almost all its management practices in TDCV. On their part, the Koreans have worked hard to learn, even when the newer systems added to their workload.

Sarosh Amaria, deputy GM, finance-treasury, and Jung-Yong Kim, GM, finance and accounting department, testify to this. Says Mr  Amaria, "Post-integration, there have been a lot of changes. Since Tata Motors is listed on the NYSE, the finance team at TDCV now has to modify the accounts into the Indian and the American general accounting practices (GAP), apart from the Korean GAP. Accounts have to be closed every month and audited every quarter. People have to work much longer hours to accomplish this."

In spite of the hard work, Mr Kim describes this as a time of personal growth and rates the experience of working with his Indian colleagues very highly. The partnership with Tata Motors, he affirms, has widened the horizons of the team and offered them a cross-cultural experience.

The integration experience has enriched both sides evenly. While the Indians taught the Koreans to get over their inhibitions and become more assertive, thereby enhancing leadership skills, they could not help being impressed by the Korean tendency to work without any external prompting. No carrot or stick can create the sort of efficiency that is ingrained in the Korean psyche.

Mr Kathuria says, "Once a task is explained and understood well, we do not have to supervise or conduct cumbersome follow-ups. Besides, no one interferes in another's job. This trait comes from the discipline and the basic culture of the Korean people." Mr Chatterjee speaks of reverse pressure. "As soon as they finish a task, they return to hound me for more work. This keeps me on my toes. Such a situation is unheard of in India."

Clearly, India, as a nation, can take a leaf out of the Korean book. The Korean sense of punctuality, team spirit and focus on doing one thing at a time — and doing it well — are all worthy of emulation. Mr Menon says, "The focused approach implies discipline in completing the team objective, rather than promoting individual agendas. Their system of communication is swift and efficient. The discipline, too, is striking. Every little detail is planned. This brings in clarity of thought and unity of purpose."

But, for the same reason, they cannot manage chaos. Their discipline itself renders them unable to handle unpredictable situations. The protocol deters aggressive leadership qualities and individuality. There is also a reticence when it comes to making suggestions and offering ideas. Mr Menon says, "They respect authority, and will not question the opinion of their seniors. This is built into their psyche. For productive management systems to develop, this attitude is not healthy. But things are slowly changing."

Mr Kathuria, a witness to the change, has seen the positive effects of a greater initiative on the part of his Korean colleagues. He says, "We consult each other before taking any decision. Our intention is to build the capabilities of the teams involved."

Currently, the excitement is building as employees see the company assuming a more aggressive stance. The Koreans and Indians are busy working on the world truck, which will be branded as Daewoo in Korea and as Tata in India. The trucks will be launched in Korea first. Later, they will be introduced in India and other world markets.

The dual branding fulfils a temporary need, as Koreans are not aware of the Tata brand. However, customers like CH Lee and Jae-Yoon Ga are watching TDCV with interest. Mr Lee says, "It is a globalised world, and we have to accept the fact that Tata, an Indian company, is partnering Daewoo in its struggle to get ahead. If Tata Daewoo can produce high-quality vehicles and compete with European vehicles on an equal footing, it is a good thing."

Mr Ga says, "The acquisition of Daewoo by Tata has had some positive effects. The stability of employment in Tata Daewoo is a good sign, especially after the economic crisis that Korea has undergone. If both companies contribute to the best of their ability, productivity can be increased."

These two customers profess a positive view of TDCV's future that Mr Chatterjee and Rajeev Sharma, GM, service and parts department, are trying hard to promote. Mr Chatterjee interacts with the Daewoo Motor Sales Company, the distributor, in order to increase sales of TDCV's vehicles in Korea. Mr Chatterjee says, "We are slowly building dealer acceptance. It helps greatly when we tell them that we are here to create job opportunities, not take away jobs."

Mr Sharma, who looks after 49 service teams in Korea, adds, "Once they are sure that you are here to contribute, and not for personal reasons, their attitude changes. Generally, India is seen as an Asian friend, not an enemy."

Over the last few months, many doubts have disappeared, yielding way to certainties. KK Kim, MD, production and R&D, says, "No one in Tata Daewoo has any doubts about the future now. We share a cooperative relationship that has helped realise synergies that didn't exist before." The optimism is shared by President Chae who hopes that TDCV, born of the might of two titans, can gain from its inherent synergies. As the Land of the Morning Calm shakes itself free of the lethargy induced by the economic crisis, the sleeping giant TDCV gets ready to wake up to its full glory.