In its drive to go global, Tata Motors has aggressively taken the inorganic route to growth. In two years, the fast-track auto major has added four companies to its fold, Daewoo Commercial Vehicles in South Korea, Hispano Carrocera in Spain, Tata Finance, and Incat International in the UK, the last through its subsidiary, Tata Technologies.

Tata Motors' plan for M&As is clear. Praveen Kadle, executive director — finance and corporate affairs, says, "We acquire a company only if it gives us a new technology, new markets, new products, new customer bases or a new product development capability. The deal must also make financial sense."

Wooing Daewoo
Daewoo, acquired in March 2004, fulfilled all these criteria. It had contemporary manufacturing facilities and products, and a market share of 30 per cent against rivals like Hyundai and Volvo. It  also offered access to markets where Tata Motors had no presence.

The fit was perfect but the difficulty of Tata Motors' first cross-border acquisition lay in the foreignness of Korea's language, culture and market and in the competition from nine other bidders. Mr Kadle explains, "The Koreans didn't know about Tata and saw India as a developing country. They wanted Daewoo to be taken over by a European or American company."

To woo Daewoo, Tata Motors initiated an information campaign. To begin with, all the literature was translated into Korean. Then, they explained the Tata culture and ethos, along with the employment policies. Finally, Tata Motors got the approval for its bid.

Winning over the Korean employees was next. Tata Motors worked on the philosophy of being a Korean company in Korea. The local management was retained, only few people were sent for integration and coordination. Tata Motors managing director, Ravi Kant says, "We are connected to the local society and want to add value to it. It's not a question of thrusting ourselves. That is one thing, which we are strictly avoiding, anywhere we are going."

The first few months were spent in observing and learning. Some members of the Indian team learnt Korean to understand the Koreans better. Now, some Koreans are learning English. The Indian team gained an understanding of Korean sensibilities and ways and they, in turn, learned to appreciate the Tata Group's philosophy. The concerted efforts have already borne fruit; both sides developed a healthy respect for each other.

The initial misgivings of the Koreans about the merger have been allayed. Ki Hee Won, MD, administration division, admits, "I was wrong in thinking an American or European company would have been better. With Tata Motors, we have retained our voice, the company has grown and the employees have benefited." Today, Tata Motors is successfully selling Daewoo vehicles in other markets, pushing profits up. Within two years, the company has recovered 30 per cent of its investment in the acquisition.

A harmononious relationship has been established and Tata Motors has been able to fast forward its plans. As part of the technology exchange programme, Tata Motors has been able to launch the Novus range of heavy commercial vehicles in India and, the Koreans and Indians are working together on the world truck. To be branded as Daewoo in Korea and Tata in India, the trucks will be launched in Korea first and introduced in India and other world markets later.

Spanish success

It was Spanish bus maker Hispano Carrocera's impressive product line which first caught Tata Motors' eye. Enquiries revealed that the company was in financial difficulties, and urgently needed working capital. Here was an opportunity for a win-win deal since Tata Motors had no bus division of its own and lacked the technology to manufacture top-end buses. Following successful negotiations, Tata Motors acquired a 21-per cent controlling stake in Hispano Carrocera and its Moroccan subsidiary. It has a call option on the remaining 79 per cent to take its shareholding to 100 per cent.

Announcing the agreement, Mr Kant said, "The partnership gives both the companies an opportunity to use their complementary strengths to create high-class transport solutions for intracity and intercity mass transportation in Spain, India and many other countries around the world."

The synergies are already evident. Tata Motors has strengthened its presence in European and Middle Eastern markets, where there is a huge demand for buses. The advantages accruing from Hispano's technology will yield big dividends once the ongoing government road infrastructure projects boost demand for public transportation in India.

Just a month after Hispano's induction, Group company Tata Finance was acquired by Tata Motors. The synergy gives a thrust to Tata Motors' vehicle financing business. Later in the same year, Tata Motors subsidiary Tata Technologies took over the UK-based engineering, design and product lifecycle management services major INCAT International.

The road ahead
The Daewoo acquisition and integration has changed the perception and attitude of Tata Motors around the globe. Mr Kant adds, "Today, we receive at least one offer to buy a company somewhere in the world. But we are not in any hurry." More than anything else, it must fit into the strategy. The markets Tata Motors is looking at currently are Russia and old CIS countries.

Tata Motors has learnt several lessons too. Mr Kadle is now focusing on integrating the new members into the parent company. "The most important thing in acquisitions," he says, "is human integration. Employees from shop floor workers to senior management must be comfortable about working with us." Tata Motors has already learnt this lesson by heart, having retained the workforce and the management in both companies.

Mr Kadle also stresses the importance of giving people stimulating challenges at work. "They need to be assured that the identity of their department or product will not be submerged," says Mr Kadle. The third lesson demands that the joint synergies be nurtured in order to get higher returns.

The wealth of knowledge gained from its recent acquisitions is going to stand Tata Motors in good stead the next time it spots an M&A opportunity on its race up the growth curve.

Uploaded on May 17, 2006