'Five years down the line, we see ourselves ahead of market changes'
Daily News & Analysis — June 7, 2006

Tata Motors seems to have its task clearly cut out - it must consolidate its position and grow its share in a market that has been getting increasingly competitive. Add to this the many worries, ranging from rising input costs and shrinking margins to global issues like stock market volatility and rising oil prices, and growth is easier talked about than achieved. Ironically, it is in the midst of all this adversity that opportunities will break, and the company must be ready to grab what comes its way, its managing director, Ravi Kant, tells Satish John.

How do you see the opportunities amidst all these challenges?
Let's put it this way. Hope for the best and prepare for the worst. You need to therefore offset risks and go into less cyclical segments and newer segments. You need to go into newer geographies and offset those risks.

How are you offsetting risks?
That in any case we are doing because we are in a cyclical industry. We have been doing this in a methodical and institutionalised manner for the last five to six years. I can say for sure that Tata Motors today is exposed to less risks than Tata Motors of four years ago. We did acquire in South Korea (Daewoo Commercial Vehicles), we did acquire Hispano in Spain, we announced a joint venture with Marco Polo and we are discussing with Fiat a very wide-ranging alliance. We are doing this all the time, though we don't talk much about it. It's performance and delivery that should speak for itself.

On the probable Fiat alliance.
Actually, this is a wide-ranging alliance. And a number of propositions are being evaluated, which would mean sharing of geographies and platforms or aggregates and working on a more cooperative and collaborative manner. At this stage, only one thing has been announced — that we will be distributing Fiat branded products in India. I'm sure that as we go forward we'll be doing other things. As and when things get frozen we can share more.

Is the small car a part of that strategy? Will West Bengal be one of the many locations where the pioneering concept will work?
In West Bengal, what Mr Tata spoke earlier and which I am only reiterating now, is that the manufacturing model which we have seen will be multi-location assembly plants. There will be couple of places from where we'll supply aggregates. West Bengal has been chosen as the first of the locations. The other locations are yet to be decided. Eventually, it will be fairly big, a lot will depend upon the market and distribution and manufacturing strength. Certainly, we are looking at large numbers as a small car at that attractive price is to open up the market.

On moves to remove cyclicality in the sector...
We are looking at bus segments, which are less cyclical. We are looking at light commercial vehicle, where Tata Ace is a living example. From an annual capacity of 30,000 Aces, we are more than doubling it this year. These are segments, which are less cyclical. Thus, we are moving forward in these segments and entering newer geographies.

On forays into tractors and motorcycles...
We have so much of opportunities and it may not be appropriate to get into those segments. You can understand that if we have to maintain our leadership in commercial vehicles, hell of a lot of work in product creation, manufacturing and distribution will be required. Diverting our attention to other things is inappropriate. The pressure on us is to maintain leadership. I'd better do that than put my fingers into many pies.

On strategies to cut costs further. Tata Motors has shaved costs aggregating over Rs 1,000 crore in the past...
There are many aspects to cost reduction. Variable material costs that's designed by reducing complexities. We are one of the topmost companies in India in e-sourcing. We have reduced our requirements for working capital. We have negative working capital and the weighted average of the cost of capital has been progressively coming down. But, in interest costs, the trend is in reverse. A part of whatever we did has already been offset and that's more dangerous. Therefore, we have to consider other cost-cutting options.

What are those options?
Sourcing components from low-cost countries may play an important part. Parts or materials can be sourced from other countries because we have analysed that different countries have different advantages. China may have advantages in manufacturing one type of component, while Thailand and Malaysia will have advantages in something else. One has to be careful, taking material from very far-off countries has to be tread cautiously and slowly.

We have to go and see the place, whether their processes are right, can we rely on them, whether they have discipline, and find out whether the quality and systems are right. It takes a long time, but we are moving in that direction. In two years' time, outsourcing components from other countries will attain a sizeable chunk. At the moment, it's very low. The fact is that one is not doing it for the sake of doing it or because it's the latest fashion.

It's because we have to continue to reduce the costs, and second important reason is we have to compete with well-known brand names. Also, we have to maintain our cost advantage. I have to find something and I have to take some risks and maintain the cost advantage, and try to reduce the performance and quality disadvantage.

On your subsidiaries HVTL and HVAL, are you looking at alliances? And on TACO?
Tata Motors has to make sure that technology is absolutely top of the line. As this'll be input in my vehicles, it should be contemporary. We'll be taking more action to enhance it. We'll look at partners for the two companies is a secondary purpose. The primary purpose is to create a competitive edge. If it comes from taking partners, we'll look at it. We have four-five options before us. TACO is an independent organisation. We are a silent equity investor in that company. We don't influence them in taking decisions. Of course, as an important customer for their products, we play our part.

On green vehicles from Tata Motors...
Right now, we are testing only with commercial vehicles with 10% of Jatropha. We are going through the entire process and mechanism and there's lots to be done. The whole system does not exist right now. Questions such as the cultivation of Jatropha, distribution of cultivation and extraction of oil from it are issues to be dealt with. Tata Motors will not get into those aspects. Possibly, some other company in the group may show interest.

Five years from now, where do you see Tata Motors?
Five years hence, we see ourselves ahead of market changes. If market is going to grow by 50%, then we'll grow by 55%. If market is going to grow by 100%, we will grow by 110%. We'll be doing better than the market. In international business, we'll be consolidating. We hope that foreign revenues will contribute 25-30% of our total revenues. We'll set up assembly units abroad, as and when the need arises.

The biggest challenge?
Manpower is going to be the biggest challenge. To get and retain quality manpower will be a huge challenge before companies.

On R&D strategies...
So far we have been trying to create everything ourselves. We have seen that model need not be the best model. We could network with design houses, testing centres and R&D boutiques abroad to roll out new vehicle models and remain contemporary.