|
THE
RATAN TATA INTERVIEW — part I
We will see growth through acquisitions, including in
telecom and steel
Business Standard —
September 30, 2002
A year ago, and eight years after
he succeeded JRD Tata, Ratan Tata finally moved across
the corridor on the fourth floor of Bombay House, into
JRD’s old office — but after substantial remodelling
to include an expansive visitor’s area, several cubicles
for staff officers and (next to his own spacious office)
a meeting room overlooking shrubbery on a terrace. The
colour scheme is a stark black and white, with relief
provided by slashes of red. The ambience is businesslike,
restrained and unpretentious, with only the sense of
space being used to convey corporate power.
In a wide-ranging 90-minute interview
with Business Standard, the Tata group chairman
talked, among other things, about vested interests being
the biggest hurdle to business growth, the Tata Finance
affair, and the group’s plans to grow through acquisitions.
Excerpts:
What do you see as
the future growth drivers for the group?
We will see major growth in the information technology
(IT) and telecommunications areas. We have staked a
great deal of funds and human resources in them. We
will also see investments and no stagnancy in the areas
of steel and automobiles, in India and outside. In all
the areas we are in, we will see some growth through
acquisitions rather than organic growth only. In the
telecommunications area and steel also, we are looking
at expanding capacity through acquisitions.
The Tata group had
announced a change in strategy and said that the group
would shift from being a commodities group to a services
group. In this context, where does the issue of TCS
going public stand?
There has been a tremendous shift towards branded products
in percentage terms of the total from where we were
when we started.
On TCS, our plans will be led
by whether we believe the market is right for us. Today,
the markets, not only in India but all over the world,
are not what they were. We are not at all sorry that
we didn’t make that move when the market was at its
peak.
When you look at the
portfolio of businesses which you have, and you look
into the future, what do you see?
If I were to step back and make a statement on that,
I think the Tatas have by and large been long-term players
in most of the industries they’ve been in. If anything
today, software services is a sort of pinnacle industry.
Down the road it may also turn out to be a dog. Who
knows, it could be replaced by biotechnology and lose
its lustre in comparison to that.
We have a big stake in the telecom
industry. The industry is considered to be a difficult
one and does not attract investors. But telephone density
in the country has still got to be built. And I think
we will be there through these bad times, hopefully
to reap the rewards of the good times when they follow.
Today, our new endeavours look
a little bleak because the industry looks bleak. There
will be a shootout in the industry, consolidation will
take place and we will be there and hope to be a significant
player.
In IT, we are growing. We hope
to make a significant play in China, which we see as
the next emerging area of IT services, and we hope to
be there in a big way.
In most of the industries where
we have a prominent or dominant position, our intention
is to continue to hold that position and improve our
margins in those businesses. I believe you will see
a lot more divestment or consolidation of our businesses
than you have seen.
Much of what we have done is
not noticeable. As I have always said, the start is
going to be slow as this is the first time we have done
this in a group that is 150 years old. So when you have
an industry that you want to sell, the employees are
suddenly Tata employees and they ask why are we being
picked up for sale. It happened in Tomco and some of
the other companies. Once it becomes clear that unless
they meet some of the parameters, be they business parameters
or those on tax or returns, they will have to go. Once
that falls into place, the acceleration of that will
take place too.
We sold Hitech Drilling, Petrodyne,
Forbes. There are some more as we move forward. We’ve
also had some closures. Tata Steel is closing or merging
several of its 18-odd subsidiaries into a more meaningful
entity.
Don’t you have an untidy
structure in both IT and telecom and are not quite sure
how it fits into a piece?
We are quite sure how it fits into a piece, but there
are other reasons why it can’t. In telecom, we have
a problem in terms of policy where you can’t have the
same company doing cellular and basic. It is a policy
framework that affects everybody. If you say we don’t
have a holding company, you will see that happening
in the next few years.
What’s been your experience
so far with the group executive office and the other
attempts to shake up the group? How far have you progressed?
It’s going okay. It’s not going as well or in as meshed
a manner as one would have thought. One reason is that
the GEO needs to be expanded, which we are in the process
of looking at.
While expanding the
GEO, will you induct people who might be potential successors
to you?
Yes. They will be worthy people who are potential successors
and they would be from within the group or from outside.
What does retirement
mean for you and what changes at 65?
At 65, it means that you can’t hold an executive office
and you can’t undertake executive duties. For me it
means changing from being executive chairman of Tata
Sons to being non-executive chairman of Tata Sons, which
JRD was all through his life.
So if you become non-executive
chairman, does that mean there will be a group chief
executive?
There probably will not be a group chief executive,
but there will be a successor to the group head by the
time I leave, when I reach the age of 70.
So what you’re saying
is that you’re still some distance away from saying
who will be succeeding you.
I’m not saying that. I have a responsibility to put
somebody in place, which I will do. Whether that happens
two years from now or three years from now or six months
from now will depend to some extent on the person, and
to some extent on the feeling that that person is going
to take the group forward in a particular way.
For argument’s sake,
if you were non-executive chairman of Tata Sons, would
you still have got involved in, let’s say, crisis management
in the Tata Finance situation, or would somebody else
have handled it?
I think it would have been absolutely identical.
So nothing really changes,
except in the personal sense?
Yes. Because executive chairman or otherwise, let me
ask you what my connection with Tata Finance is except
to decide how the group deals with that particular situation.
It is exactly the same.
There are reports that
three or four internal candidates have been identified
and that Tata Sons directors have been asked to groom
them. Is this correct?
No. And I don’t know where that came from. But we are
trying to identify in the group between 100 to 150 star
performers in the ages of 35-45 and 45-55.
And what we’d like to do is to
expose these people, obviously the 35-45 category one
way and the 45-55 another way, to a variety of industries
and functions and interactions with the GEO, with the
executive directors, so that they have greater visibility
within the group and are better groomed for positions.
How do you explain
the problem that the group has had with its old stalwarts?
Kerkar, Talaulicar, Fredie Mehta, Pendse...is there
an issue there somewhere that you need to address?
No. I don’t know why this is being made an issue because
almost each of these have had different contexts. We
will always have aberrations of one sort or another.
The main issue is how you deal with them. I don’t want
to go further into this other than to say that perhaps
in the past these never came out.
Or that you gave too
much independence?
No. I repeat with some degree of care what I’m saying.
In the past, where there were issues of this nature,
the properness or improperness of an act was either
condoned or overlooked.
The Russi Mody issue is not what
we are talking about. Darbari Seth’s name keeps coming
up but that was never an issue. And there was never
any conflict with Darbari Seth that caused him to leave.
He retired and so that was not an issue. I know that
Darbari’s son’s name was brought in because he had a
disagreement with the board. This again had nothing
to do with a shootout or anything of that nature.
The Kerkar issue again was an
issue that was similar in the context of the powerful
CEO who almost owned the company and yet owned nothing
in the financial sense. And, in some ways, the Pendse
issue has been the same kind of issue. The learning
from that is that the board should be more attentive,
interactive and proactive on issues of this nature.
Some of this has now become statutory, which was not
the case earlier.
But certainly governance at the
board level has to change quite substantially in the
Tatas. Many of the Tata boards have not been as interactive
or as involved in depth as they perhaps should have
been.
In the next two years,
several senior Tata Sons directors are going to retire.
Have you found replacements for them?
Just yesterday we initiated a note of priority to
deal with this issue, because we recognise that in a
few years, not only there but in companies also, we
will have this gap. And the softest option is to change
the retirement age. The consensus is that we ought not
to do that.
How will you address
this?
What we have done is the obvious thing — we are looking
at names and we have initiated an inventory of all the
younger people. And it is an opportunity to look at
the growth of the younger people in the organisation,
as also to fan out outside the organisation to try and
see who we can attract as independent directors.
Where does Noel Tata
stand in this?
Noel is really involved in his first operative job.
He seems to be deeply engrossed in it. It’s a company
in a new area for the Tatas. If it grows I think Noel
will grow with it. I’m glad he’s getting that kind of
exposure and we’ll see where that leads him.
You don’t have any
game plan to groom him for the chairmanship...
In all our plans — and I say that very measuredly —
people like Noel (and not because of Noel’s last name),
will all have a chance for career growth.
Do you regret the VSNL
acquisition?
No, I don’t. I regret that we are going through the
present controversy because it is unfortunate and needless.
Did the group make
a mistake in not looking at the fine print at the time
of the acquisition?
No. If it’s being said that we missed some fine
print, I think it is not the case. I think the fine
print was so big that you couldn’t make any determination
of it one way or another. And in one form or another,
either the government is going to be exposed to that
or it has to be decided by the courts.
Does the group have
an image problem? At one level it’s obvious the group
commands enormous respect and at another level a sense
comes through that the Tatas are getting a bad image
and bad press.
Yes, we are getting a bad press. Hopefully the press
believes in what it is saying rather than being motivated
to do what it is doing.
I don’t think we have a bad image.
We feel that our image is being sullied and it hurts
me to see this image being sullied.
I believe that we are being damned
for bringing the Tata Finance matter out into the open.
On the Tata Finance thing, I wouldn’t spend even a moment
arguing with you that there was poor governance. But
no one has said that the Tatas made the whole board
resign. The board of WorldCom did not resign, but the
entire board of Tata Finance was made to resign and
was reconstituted. But no one has said that it was act
of corrective measure or a recognition of what took
place.
Do you see corporate
rivalry anywhere in this?
That’s something I can’t comment on. It’s been said
all around that it is corporate rivalry. I can only
say that I am amazed at the amount of visibility that
all of this is getting. And when somebody says that
somebody wants to sully our image, I can easily believe
that that might be so. If you ask me if it’s corporate
rivalry, I have no direct evidence. Everything I hear
and everything I’ve been told say so.
Are you closer to your
objective of doubling the group’s turnover every four
years and profits every three years?
When we set those objectives, India was going through
a growth phase. During the first year and a half, we
were on our way to meeting those objectives. Then we
went into what I call the demand recession. Many of
our major companies, like Telco and Tisco, did badly,
not at the same time but at different times. What it
led me to do finally was to say that these objectives
were out of sync with what was happening in the country,
and that we should focus on improving our margins, on
restructuring individual companies.
So the quick answer to your question
is, no, we are not anywhere near meeting those objectives
and, given the businesses we were in, there was no way
we could have met those objectives.
Have you then restated
those objectives?
No. We just decided that we would put them back
into context as soon as we are on the same kind of national
growth path that we were in.
How do you see the
way the stock market assesses your group companies?
We have in some cases underperformed the market. Several
of our companies are in businesses which, in the new
context, are considered to be dogs by the stock market.
It’s not just Tata Steel. The steel industry is not
the darling of analysts and investors. The same is true
of automobiles.
All this changed very suddenly
over the last six-seven years and it’s only the new
economy businesses that have been attracting attention,
and the services sector, which has by and large seen
growth. So by and large we have fared very poorly in
the stock market, in a manner of speaking.
It also depends on what you take
as your reference. Tata Engineering, for example, had
a stock price of Rs 60 a year back; it is now Rs 120-130.
But the Indian stock market, unfortunately, doesn’t
seem to go on the basis of company performance.
We’ve had a terrific recovery
in Tata Engineering but there does not seem to be a
reflection of that even when we announce our quarterly
results. Today we don’t have the reflection of Tata
Consultancy Services (TCS) in the market at this moment,
which would have offset what is happening to old-economy
stocks.
And returns on capital
employed?
I know it’s not faring well. (But) if you were look
at where we were before we undertook some really hard
work that the external economy forced on us, we are
doing much better. Tata Engineering has improved its
return on invested capital quite substantially from
what it was two years ago, and to some extent so has
Tata Steel.
What are the biggest
challenges in the Indian environment when you are running
a business?
The greatest negative we face in India is that the country’s
directions and policies are today dominated by vested
interests groups, and these have a much greater impact
on policies than they have in other countries. The government,
by and large, or Parliament, by and large, seems to
look to those vested interest groups. By that I do not
mean large segments of the population — I mean vested
interest groups, very often industry itself.
Is that the biggest
problem when you see what the group wants to do?
It’s not what the group wants to do. It affects demand,
growth; it’s not an issue that is stopping the group
from growing. It is certainly creating inequities in
Indian industry.
Can India be a base
for significant growth in exports of manufactured products?
My personal view is that we have lost our ability to
be the factory of the world, for a variety of reasons.
The cost of manufacturing, power, fuel, infrastructure
costs relating to logistics, getting the product to
the marketplace, taxes on raw materials — all of those
things put together create an environment where, in
fact, manufacturing products are at a disadvantage on
a global basis.
So long as India was protected
by high tariffs, Indian products appeared to be competitive.
To give you an example, we are
about to embark in Tata Steel on taking ferro chrome
ore to South Africa, refine it and sell it to Japan
because the power costs in South Africa are 50 cents
a unit, and in India it is something like five times
that.
Similarly, if you look at fertilisers,
it is the same. Input costs are out of sync with what
they are in other countries. Take the automotive industry,
where the cost of raw material may be 70 percent of
the cost of your product. Or the electronic industry,
where raw material costs are of the same kind of order.
There, every percentage point really hurts you if it
is more expensive, or helps you if it is not. And it
is in that area that India has lost out.
If you put that against
the export competitiveness of Tata Steel and Tata Engineering,
would you still say that?
One of the greatest benefits that Tata Steel has is
that it has its own ore mines. I have often said that
if Tata Steel were to cost its ore on the same basis
as Posco, we won’t be the lowest-cost producer in the
world. I believe that India should not give up the opportunity
to be the factory of the world, which is definitely
gravitating towards China.
Do you see companies
like Indian Hotels, Tata Tea and TCS really focusing
on global demand more than domestic demand as a driver
for growth?
I see them focusing on growing outside India; it’s not
instead of domestic demand. There is no doubt that in
the hospitality area, India is missing an enormous opportunity.
Today we have 2.4 million tourists to India against
7 million in Singapore and 20 million in Hawaii. We
have got to ask ourselves why we don’t have 5 or 7million
tourists a year. So are we anywhere near where we ought
to be in hotel capacity and related services?
The
Ratan Tata interview – Part II
|
