|Having an overseas presence is nothing new for the Tatas. Jamsetji Tata, the founder, began his business career trading in China and England, and travelled all over the world seeking technology to set up India's first steel plant. The first Tata office overseas, Tata Ltd, was established in 1907 in London, followed by Tata Inc in New York in 1956.
But the Group's present internationalisation initiative is entirely different, both in scope and scale. Poised to make the Group one of India's first true multinational enterprises, it has gained momentum in the last five years, starting with the Tetley acquisition in 2001.
In 2003, Chairman Ratan Tata made the internationalisation of select operating companies a key strategic imperative. As a GCC member, Alan Rosling, executive director, Tata Sons plays a key role in the Group's internationalisation efforts. He spoke to Sujata Agrawal about Tata's internationalisation initiatives.
What is the strategy behind the Group's internationalisation initiative?
Internationalisation is not a strategy; it is an imperative, a challenge or an objective. Each company has its own strategy for internationalisation —- or not — for some companies the domestic market is their priority. Other companies look at developing a regional footprint by moving into neighbouring markets. The big Group companies want to be truly international.
Mr Tata very seldom tells people what to do. He asks them questions: "Why can't you…?" "Have you thought of…?" and so on. He wants people to think for themselves.
Good organisations empower their people and support them. That's the sort of organisation we want to be in all our businesses. So there is no unified strategy for internationalisation but the challenge is 'can we do more?' In some ways, globalisation is a threat to existing businesses, but it's also a tremendous opportunity; for the first time we can go outside India, invest and build global businesses.
What role does your office play?
At the Group level, we look at macro-issues, work out resource allocations in certain markets, or ask our companies to work together in these places. Our role is adding value to a company's strategy for building businesses outside India.
We also identify markets or geographies of opportunity. Ideas are always being funnelled to me, from inside and outside the Group and I spend quite a lot of time talking to foreign companies. Assuming that an idea has some merit, I put it to the concerned company, which then decides whether to engage with it or not.
In recent years, we have set up a small network of representative offices in key geographies where we have an aggregation of interest or a Group presence. There's David Good in the US, Anwar Hasan at Tata Ltd in the UK, Raman Dhawan in Tata Africa Holdings in South Africa, Manzer Hussain in Bangladesh and James Zhan in China. We want to expand this network to the Gulf countries and SE Asia. Their function is to try and achieve some synergies, to manage the external perception of the Group in terms of public relations and brands, and to do business development.
We are also working with Group HR on various HR processes that can be adapted or extended for our international companies.
The Group has a strategy of concentrating on certain geographies where it can become a leading player. What geographies are on the radar for 2007?
The reality is that more than 50 per cent of our international sales are in just two countries, the US and the UK; we have 18 companies in the US and 16 in the UK. Three years ago, we identified 14 priority geographies. The first group is developed markets, including the US, the UK, Australia, Japan, Singapore and Korea.
The second target is neighbouring countries. It's natural for businesses to expand into countries that are close geographically and culturally, and India's neighbouring countries are large and growing. In terms of logistics, Dacca is closer to Jamshedpur than Pune, Lahore is closer to Ludhiana than New Delhi, and Colombo is closer to Chennai than Kolkata.
Pakistan would be a natural country to enter; it has 140 million people with needs like ours, but politics is an issue. We have a Tetley JV, and Tata Motors has a distributor of vehicles from Korea, because we can't import them from India. Bangladesh is growing at 6 per cent and has customer needs similar to ours. Sri Lanka is a smaller but much richer country (about twice India's per capita income). Our businesses there include three Taj hotels, trucks from Tata Motors, a Tata Steel wire mill, and a VSNL hub doing long distance international calls.
The third group is the big emerging markets — China, Malaysia, Thailand, Gulf countries like the UAE, Saudi Arabia and Iran, as well as southern Africa. There is a fourth or special category, which comprises emerging markets in which we are not present but should be, like Indonesia, Vietnam, Brazil and Egypt.
Emerging markets have higher rewards, but more volatility and risks than developed markets. It is essential to have a portfolio of investments to mitigate risks, so that in case there are issues in one country, it can be offset by another country.
Geography selection also depends on the company. Our service-based businesses like TCS, VSNL and Indian Hotels naturally prefer the US, the UK, western Europe and Australia. Our industrial companies — Steel and Motors in particular — go for large, fast growing markets with a demand for their products and, preferably, which are closer to home.
What has happened about Bangladesh?
We tabled what we thought was a mutually beneficial proposal. But owing to political concerns, there was no sign off. We are now waiting for elections and a new government. It is an interesting and very promising country, but a fairly complex one too.
What is the Group's plan for Africa?
South Africa is a model example of the Group's internationalisation policy using a unified approach. It's what we can and should be doing in other places too. Tata Africa Holdings coordinates the Group's activities there. Raman Dhawan has done a fantastic job; having someone like that, who has so much respect in the country, is a huge value.
Companies have full freedom to operate in line with their own strategies. Tata Tea has recently made an acquisition, Tata Steel has investments in a ferrochrome project, VNSL has invested in Neotel… At the same time, there is somebody who can coordinate and help in making representations to the government. Tata Africa is a partner, an advisor and a supporter to Tata companies.
That's the whole point of a Group presence. No doubt each place is different, but a local presence that represents the Group and makes investments can greatly assist our companies. By opening representative offices, we are trying to do the same thing in other countries.
In August 2006, Tata Sons and Tata Tea committed $677 million (over Rs 3,000 crore) — the biggest ever foreign investment by a private sector Indian company — for a 30 per cent stake in the US-based Energy Brands Inc, makers of Glaceau enhanced water. But it doesn't give the Tata Group control of the company. What's the thinking behind the investment?
Acquisition is not the only way that the Group is expanding overseas. Glaceau is a business that is growing consistently and very rapidly, and it is an exciting investment opportunity by itself. Water and health products are areas of great growth and RK Krishna Kumar is systematically building up a portfolio of non-alcoholic beverage (tea, coffee, water) brands in the US. Having a group of businesses in the same or contiguous spaces gives us huge synergies with buyers and distributors, to share costs.
Some years ago, the Group set out a strategic target; that one-third of its revenues should come from overseas operations. How far has this target been realised, and how much further do you have to go?
In 2003, 20 per cent of our revenues were from outside India — but these were largely exports. In terms of our businesses overseas, there was only Tetley.
In 2005-06, the Group has $22 billion in aggregate revenues, of which $6.7 billion (30 per cent) is from businesses outside India. This means that in three years, we have moved up from 20 per cent to 30 per cent; international revenues have grown at about 40 per cent annually, considerably faster than domestic revenues.
What is more significant is that an increasing proportion of that business is from value addition overseas rather than exports. In the last 12 months around 75 to 80 per cent of the increase has come from acquisitions so we have real operations overseas. That number will, of course, keep changing depending on the number and size of our acquisitions. But acquisition is only one aspect. When we get into greenfield projects overseas, it will open up another channel of organic revenues.
With the plethora of acquisitions in 2005 and 2006, the Tata name has entered new geographies and built its presence in existing markets. What is the plan to build the Tata brand overseas?
Managing the Tata brand overseas is an important area of focus. In some countries — South Africa, the UK, the US and China — we have a contact programme with key decision makers, as well as activities, sponsorships, and some advertising and traditional marketing to build the perception of the Tata brand.
The intent is to use the Tata name as a spearhead wherever we can overseas; to place the Tata name on the product as well as the enterprise if possible. At the end of the day, the most valuable thing we have is our name.
The Tata name is now very well received abroad for many reasons, not least because we received a lot of coverage for our acquisitions. The perception of the Tatas overseas is of a fast growing enterprise that is looking at doing acquisitions — the right way.
What about setting up manufacturing hubs overseas for a cost advantage?
Setting up manufacturing facilities and getting into local production yields an economic advantage only once you have a sales volume that can service your projected investment. For example, Tata Africa recently bought an old manufacturing site from Nissan, as they needed a larger bus assembly unit. It's natural when you build a market that is big enough, that you get to a stage where you need local assembly or manufacture.
We keep hearing about TCS, Tata Steel and Tata Motors. Could you tell us about other, smaller, Tata companies that have global plans?
Three big companies in the Group — TCS, Tata Motors and Tata Steel — do dominate most of the things we do. Between them, they account for 60 to 80 per cent of the parameters that my office monitors. They are potentially world leaders, and I think it's very natural for us to concentrate on them.
But we do have other companies with a large international presence. VSNL, for example, has been growing by acquisition. It did two big M&As (Tyco and Teleglobe), and is one of the largest voice and data carriers globally. Apart from the US and Europe, it is in South Africa and Sri Lanka.
We've already discussed Tata Tea. But Tata Chemicals acquired Brunner Mond last year and is now the world's number three soda ash company. Titan is dong well in the Gulf and SE Asia and is looking at other markets, and Tanishq is opening stores in the US. Tata Power is looking at South Africa and the Gulf countries.
Then we have a bunch of smaller companies, mainly in IT, that are very competitive. Tata Elxsi, Tata Interactive and Tata Technologies are doing very well internationally in their niche areas.