January 2003 | Amitava Sanyal
Thinking global, acting global
Tata International is still at the head of the country’s international trading community. It underlines the global presence of the Tata group
Until a few years ago, the export houses of India were just that — export houses. Everyone was happy scraping the remains of the license raj bounty. Suddenly, the World Trade Organization (WTO) movement struck.
By dissolving trade barriers and expanding trading opportunities, WTO precipitated policy changes. In India, it coincided with the end of government export incentives like tax benefits and special licenses. In this environment, Sudhir Deoras took charge at Tata Exports, the trading house of the Tata group, as its managing director. He had the unenviable job of fending off the WTO wave.
That company, now christened Tata International, is still at the head of the country’s international trading community. Today, it underlines the global presence of the Tata group. From being an export house, it has become the international business arm of the group. How did this remarkable transformation come about?
The shake-up led to the business plan being revisited. A new strategy was planned, debated in the business review committee, discussed by the board and then finalised. The company reduced its large trading basket to five product groups — engineering (including automobiles), leather, steel, minerals and bulk commodities.
The leaner look soon borne fruit. In 2001-02 Tata International raked in over Rs2,300 crore. Of this, over Rs420 crore came from the leather business, about Rs600 crore came from steel, Rs160 crore from minerals, and Rs145 crore from engineering. Trading by group companies, outbound and inward, accounted for only Rs995 crore.
"Whatever is happening in terms of the World Trade Organization as a movement is happening for the good," says Mr Deoras.
Local problems, global solutions
Four-fifths of the footwear worn in the United States is exported from China. Worried that the volumes generated by Chinese manufacturers would crowd out the company’s Indian exports, the company decided to forge alliances with manufacturers in China.
Thanks to dissolving trade boundaries, the company has found ways to beat the competition. It sources raw hide from Saudi Arabia, moves it to cost-effective tanneries in Bangladesh, passes the finished leather to China for making shoes, and then sells them in the United States. "It worked because we stopped thinking of ourselves as just exporters from India," says Mr Deoras.
The company imports various commodities for India and its neighbours. Care is taken to avoid stepping on to the turf of group companies. Tata International imports low-cost steel from the CIS countries through its Ukraine office and sells it in Sri Lanka, Nepal and India. "But none of these products are made by Tata Steel," points out Mr Deoras.
China syndrome, downside up
For the company, the effect has been more direct. "We’re importing a lot of met-coke into India for Tata Chemicals, and we’re taking a lot of chrome ore into China, converting it into ferro-chrome and then selling it all over the world," says Mr Deoras. "We see a lot of import opportunities for Westside too; there’s a lot of potential in garments. We’re identifying items that Westside may be interested in."
Tata International has identified items to import for Tata Engineering’s cars and trucks. "Now we’ve taken Tata Steel people into China, looking for MRO items." The company has recently buttressed its Hong Kong office with another in Shanghai. Today it employs 14 people in the country.
WTO, upside down
Integrated steel makers in the US, who are fighting price competition from the more efficient mini mills, have had to resort to Chapter 11 protection under the United States Bankruptcy Code to reorganise themselves and get waivers from the government for rebuilding. These people blamed imports and initiated a Section 201 (safeguard duties) investigation.
As a result, Indian exports to America were hit. Now the final decision in the investigation has exempted Indian steel exports to the United States, as well as some other developing countries. Subsequent efforts to impose anti-dumping duties on cold-rolled steel exports from India were also struck down by the International Trading Commission of the United States. However, the anti-dumping duty on hot-rolled coils, imposed in 2000, remains in place.
The second instance, in leather, hit the only manufacturing unit of the company and its lone brand, Stryde. The manufacturing facility, the third largest in the world for goatskin leather and the first among its Indian peers to earn the ISO 14001 certification, was set up with processes imported from the venerable Ledermann of Germany. It was also the first of its kind in Asia to pass the ISO 9001 test.
But there are those who have queered the pitch for leather exports by raising the bogey of unhealthy abattoir practices. "The Tatas have taken certain measures to show customers what we’re doing. Our sales are going up, but profitability is under pressure," says Mr Deoras.
Tata Steel manufactures ferro-chrome, the material that gives steel its stainless quality. Power consumes as much as 40 per cent of the manufacturing cost of this material. Unfortunately, high power costs due to transmission and distribution inefficiencies have rendered the company’s ferro-chrome production globally uncompetitive.
The Tata group plans to export chrome ore to South Africa, where Tata Steel will set up a Rs250-crore plant, for conversion into ferro-chrome. The ferro-chrome will be sold in the Far East and the Near East. Even the huge depreciation, interest and transportation costs are not going to make the end product dearer than that made in India. While this would be akin to doing a Japan on Japan (the Japanese bought iron ore from Goa and then sold the value-added product back in India), the contrast speaks badly of our infrastructure.
The learning lies in the solution. Tata International has managed to walk the paths opened up by the WTO. It’s up to India Inc to follow in its wake.