The greatest challenge — to be globally competitive
Financial Times — August 11, 2000

Lisa Urquhart of FT.com, the website of Financial Times, London, interviewed Tata Group chairman Ratan N Tata recently for an article, which appeared on FT.com on 11 August 2000. Below is a transcription of the interview, which covers a range of issues, from restructuring and the Tata retirement age to global acquisitions, and bidding for Air-India.

Lisa Urquhart: You trained as an architect but considering that you never worked as an architect, do you regret that?

Ratan N Tata: I worked in an architect's office for a couple of years. Yes, in some ways I miss not being an architect because it was a very satisfying profession. But it has also served me very well in industry.

In many ways architecture is dealing with the translation of a set of requirements to specifications that have to find their way into how people exist in an environment, in taking a set of requirements and converting them into a usage. Architecture also involves dealing very closely with budgets, it involves relating to people, marketing a product to people and it involves a lot of attention to details and design, all of which in one form or another have been a great boon to me as I have gone through my career.

LU: You studied in Cornell. How did that come about?

RNT: I always wanted to go to the United States. I didn’t go straight to Cornell, I went to America and applied from there. At that time the college board exams were not given in India.

LU: How old were you then?

RNT: I was 15 at the time, and I went on my own.

LU: Was it daunting?

RNT: Daunting? No, it was wonderful. I was a free person suddenly, in a country for some reason I always wanted to go to.

LU: Right, to shift gears slightly. You’ve been busy restructuring the Tata Group, consolidating, sharpening focus. How far down the road have you travelled?

RNT: Not very far down the road, I am afraid. We have a long way to go in terms of consolidation and focus. I would say in conceptual terms we are probably 60 to 70 per cent of the way, and in terms of implementation probably 20 to 15 per cent of the way.

LU: Is this because of the scale of the task?

RNT: Consolidation, restructuring have to take into account so many issues, some of them emotional, some of them traditional. There is also the issue of our shareholding, there are the employees, and there is tradition.

There has been a great deal of problems in terms of attempting to change a culture that is very soaked in tradition, that has been there for many years, that’s been handed down from generations. Many employees feel that is the way that the Tatas have operated and a change from that is something that they resent. But they also resent it when you don’t make any changes (laughing).

LU: Are you also looking at changing the corporate structure?

RNT: Yes. The corporate structure does need to change along with consolidation. The kind of structural change that we are seeking is giving more attention to performance and measurement of performance, greater mobility between companies in terms of manpower and a greater focus in companies on strategic issues rather than on tactical operations.

LU: Is the need for more innovation in focus also?

RNT: In a country that has been very protective, innovation was not the main differentiator. But now it is different. Some of our companies have adapted well and some are having problems doing this.

LU: Which are the ones that are having problems ?

RNT: The more traditional companies in very capital-intensive areas are having problems making those changes because they have not necessarily modernised over the years. Others, which are in the less capital-intensive areas and are therefore less locked into given technologies are able to innovate quite fast.

LU: Tatas have been known to be generous in terms of perks like housing, etc. Do you see that changing?

RNT: No. I think in the near future that will probably not change, because there is no way in the Indian context an Indian employee can afford his own housing. For some time to come, the culture will be that the employer provides all these benefits in addition to salary.

It has to change one day, but it will change when housing shortages disappear and when housing costs come down to within the reach of all employees. These benefits were not there 50 years ago, because they were not necessary. Your salary allowed you to go and rent a place or buy a place to live in, but today it is impossible.

There would be no way on my salary that I could go out and either buy a home or rent an apartment. Even on my salary I couldn’t do it.

LU: What are the main threats you see to the Group? And to the Indian corporate sector?

RNT: I think the main threat to the Tata Group would be our inability to change fast enough. We do have resistance to some of the changes, it is easier not to do, but we have to change in order to be in keeping with the changing times. Our inability to do that effectively will be one major threat.

The other challenge we have is to be less risk-averse. We have been a very conservative house and we have been applauded for our conservatism but today we need to take more risk. We don’t need to be flamboyant or cavalier but we need to be less conservative than we have been.

Moving to industry as a whole in the country, the greatest challenge to industry will be to be globally competitive, and that is something within the group we have made as one of our main objectives: that each of our companies should benchmark itself against the best of breed globally and we must decide on whether we remain in that business using that as one of our criteria. If India cannot be globally competitive then in course of time Indian industry will slip into the hands of others.

LU: Is the brain drain, particularly in the hot sectors of I-T, affecting Tata?

RNT: No, not really. We have the largest software operation in the country, I think collectively we employ 15,000 to 20,000 computer specialists. All IT industries have a high attrition rate, something of the order of 25 per cent, ours is slightly lower, but it is still very high. But if you ask: is there a brain drain from India, I would say, yes, there is a brain drain and I think that will continue so long as the opportunities elsewhere exceed the opportunities in India.

LU: Are your companies offering equity to keep IT staff?

RNT: That is starting to happen, and we are also looking at share options being offered to our employees in many of our companies. In fact, in the current year, we are going to many of our shareholders' meetings to seek shareholder approval to institute employee share option schemes.

But this in itself I don’t think will keep people here. It is the excitement of being involved in a Cisco or a new dotcom company in the US that has a lot of promise. And the US in itself is an attraction, in terms of quality of life. So there are many issues we have to address here if we are to keep our brain power in the country.

LU: You’ve decided to merge your cellular company with AT&T-Birla. How is that shaping out?

RNT: That is developing in a very exciting way. We hope that the three of us coming together will provide a large footprint, which we believe is necessary to count in the country as a cellular services company. We hope this will be the start of further amalgamation and of acquisition of other telecom service providers. Our aim would be to be one of the larger cellular companies in the country.

LU: Are you satisfied with the growth in the market?

RNT: In the metro cities it is almost phenomenal: you see every person with a cell phone in his or her hand. In smaller towns, it has been slower, but it is a pretty phenomenal rate of growth.

LU: How ambitious is your telecom deal?

RNT: Right now it covers the states of Maharashtra, Andhra, Goa, and Gujarat. What it can cover will be more a function of what we are able to acquire.

LU: What are you planning to acquire?

RNT: I don’t think I can talk about that without either putting prospective players into a state of consternation or prematurely displaying our hand -- so I would like to refrain from answering that question.

LU: Is the Tata Group also looking at infrastructure?

RNT: We have looked at that -- certainly in power, because we are in power ourselves. But the problem with power is either you should get the distribution of power within your control, or, if you don’t, you need a so-called power purchase agreement with the state electricity board, which provides you with assured payment. This has been one of the greatest deterrents to many of the power projects taking off.

The need for power is certainly there, but it is supplemented by the need for road connectivity, for telecoms. The need of the hour for India is massive investment in infrastructure, which will also create a massive job market, which India also needs. And this, in turn, would call for investment from abroad and a tremendous opportunity for foreign investment or foreign involvement in the contracts.

LU: Are opaque government regulations a deterrent?

RNT: Yes, government regulations have been a little vague in terms of what will happen and how Indian companies will operate. Issues like land acquisition, right of way, litigation by environmentalists -- all these factors have played their part in the lack of growth of infrastructure projects in the country. We need legislation that will ease these deterrents.

LU: What was the driver in your acquisition of Tetley?

RNT: I think the main driver for that was, in fact, (the need) to obtain a global brand, a brand that was well respected and a brand that had visibility in the Western world. What it brings to us is tremendous synergy between the source of tea, which is ourselves, and the use of a global brand in helping penetration in various markets -- for that brand and for ours by the use of complementary strengths in leaf tea and teabags. Also: synergies in the US between Tetley operations and ours in the instant teas business. So there are a whole host of synergies we feel this can bring.

Apart from that, I think it gives us a global reach that we did not have earlier. To me it is a very exciting acquisition, very strategic for us in the tea business. Perhaps it will move us into the beverage business in the course of time. I am very positive about this and very hopeful about the future.

LU: Beverage business, as in coffee, soft drinks?

RNT: Well, in the first instance, tea-based beverages are what I was referring to.

LU: And what are your plans vis-à-vis Air-India?

RNT: In fairness I can’t say that I am planning to bid but I am certainly interested in seeing what the international adviser puts out as a document. I have a view that Air-India will need the input of a foreign airline because there is too much to be done in that airline that a non-airline company would find impossible to do. It needs fleet replenishment, it needs resurrection of its presence at various airports, improvements in maintenance facilities and great synergies can come from an international partner. So if we were to be involved we would necessarily want to choose an international airline to partner with.

LU: Do you have preferences among foreign airlines? Singapore Airlines?

RNT: No (laughing). As you know we tried, in vain, to form a domestic airline in conjunction with Singapore Airlines, which we respect very much in terms of its capabilities and its performance. Certainly, at an appropriate time, if we were interested we would go and talk to Singapore Airlines again. We haven’t ruled out bidding for Air-India but we haven’t taken any decision to do so either. But if we were to do it we would certainly seek a partnership with an international airline and certainly I think Singapore Airlines would be the first airline we would go talk to.

We hear it is going to be some time in August that they are going to seek a statement of interest. There will be some document that goes out in August that both defines the role and provides some data on Air-India. We would certainly be interested in looking at those documents and then deciding what we should do.

I was the chairman of Air-India for three years in the mid-'80s and so, in a manner of speaking, I do know some of its problems -- but I don’t have the answers as to where it stands today.

LU: You are now in your mid-60s and have been quoted in recent times that you will be stepping down when you turn 65. What will this mean for the Tata Group?

RNT: Let me clarify this because my comments have been somewhat misinterpreted. What I said on that BCC show was that I would be stepping down from my executive role in the company, because 65 is the retirement age from executive positions of managing director or chief executive. Today I am the chief executive of Tata Engineering (Telco), our automobile company, and I am the executive chairman of Tata Sons. I hold no other executive positions in the group, and from both those positions I would need to withdraw.

In the case of Telco I would need to find a chief executive and put that chief executive in place, and I would probably continue as its chairman but in a non-executive capacity. In the case of Tata Sons, (the company) even today does not have a managing director. I am the executive chairman, because there were reasons to make me that, and also because I drew my salary from Tata Sons. But I will continue as a non-executive chairman of Tata Sons and retire but withdraw the executive nomenclature from my title.

Tata Sons may have a managing director at some point of time, but there will not be a successor necessary there in two years’ time. There will certainly have to be one in the next seven years.

But there will have to be a successor in two years’ time as the chief executive of Tata Engineering. This will either be an internal candidate or someone from outside. It is something that we are actively working on -- to put one in place, hopefully even before the two-year period is up.

We have been trying to induct new managerial blood into (the Tata Group), we have been moving people from companies into a group activity. We are trying to identify younger stars in the group, and I would imagine many among them will certainly be candidates to head the group in the not too distant future.

All I’d like to say is that I’d like to guarantee that I will hold to my own guidelines of retirement by not making an exception in my case and I will therefore find and put in place a successor. If there was one that was readily identifiable today, I assure you he or she would have been in place today, identified as that successor.

LU: What would you look for in your successor?

RNT: I think a person who has the vision to take the group where we would like it to go. A person who embodies the value systems that my predecessor and the founder put into the group. And yet someone who could take this group into the new century, with a young field rather than only by carrying on with tradition, business tradition. I want the group to carry on the ethical and value traditions that this group has had, but in a business sense the manner in which we conduct our business needs to change enormously. We really do need to change gears on that front.

I would hope that we can have a younger person. I think it has been a disadvantage for the group to have someone at the helm of affairs so late in their career as in my case. I think it would be wonderful to see someone in their 40s or early 50s heading the group — preferably in their 40s. Whether that happens to be the age of my successor or my successor’s successor, I would certainly like to see that happen.

LU: Last question: What do you do in your spare time?

RNT: I don’t get much spare time, but what little spare time I have is spent flying. I am a trained pilot both for planes and helicopters. Right now I prefer helicopters because they are slower and lower and therefore much more fun to fly than a jet, where you are more of a systems manager. Also, in planes, you are very much in the control of air traffic controllers and you are just going from one place to another.