'The fortune is indeed at the bottom of the pyramid'
Business Standard — March 15, 2005

Tata proposes to now begin looking for a successor and remains firm on his retirement plans.

The fastest growth, Ratan Tata says, does indeed lie at the bottom of the pyramid and discusses his group’s plans to get to it, including a fundamental re-look at how products/services are produced.

He expresses a bit of disappointment over how the telecom/media ventures have done, explains Sivasankaran’s role in the group as well as his plans to now look for a successor. Excerpts from the concluding part of an interview with T N Ninan and Palakunnathu G Mathai.

You seem to have adopted C K Prahalad’s thesis that fortune lies at the bottom of the pyramid. That’s the trend that we see when you focus on the Rs 1 lakh car, IndiOne hotel and the sub-Rs 10,000 air conditioner.

Do you want to attack the Indian market through a different way than earlier?
In the hotel and car areas, we’re going where the fastest growth is going to be — reaching the masses. We’re going to expand our base rather than merely look at the five-star brand or at the higher end of automobiles.

We’re going to go after growth not just by expanding our existing products but by creating products that will reach out to the lower-end of the pyramid.

I would imagine that the fastest-growing segment in the hotel business is going to be down there somewhere, not on top. So the low-end hotel — not the stripped down hotel, but one that provides all the amenities with no frills — is going to be a model that will grow.

We have only a small window because we’re not doing anything that is proprietary to us. We’ll get lots of copycats coming in. So we have to move at a rate so that we can own that space.

What volumes would you look at for the Rs 1 lakh-plus car?
Let me first tell you what the potential is. Leave growth figures out, take the snapshot today — we sell 5 million two-wheelers and about 600,000 low-end cars.

You can position a product well below the conventional car, slightly below the used small car and into the motorcycle range, for families that ride three or four on a scooter — the 2CV Citroen or Deux Chevaux approach.

Today, the opportunity to do something like that by using plastics, smaller engines, superior packaging is far, far greater. We hope we can give the public the car that probably has 80-90 per cent of the inner space of the Indica, rear engine, not a stripped down car, not a motorcycle with four wheels.

The advantage is that you start from scratch. So you really look at what you can do. We wanted to be able to manufacture this on a low-cost assembly base and we’d like to develop the manufacturing modules along with the car.

We would produce all the high volume cars and kits ourselves. So, in effect only the assembly will be done outside. What we need is low-cost assembly akin to a CKD or an SKU kind of operation here.

This has not been done in the automobile industry anywhere.

The automobile industry has always looked at scale not only in components but also in assembly. So we’ve got to break that paradigm. You’re amortising all that cost and all the robotics and everything else.

You do enough to ensure that you’ve got consistent quality and you can work that into the design. For instance, you have 80-90 robots welding a car. So maybe you can develop a process that doesn’t require welding but uses adhesives and so on.

You said somewhere that you wish you were 10 years younger because the opportunities now are so exciting. Is there a temptation to stay on beyond your tenure?
That is a difficult question to answer. On the one hand, you obviously want to finish what you’ve started.

By finish I mean that you’ve just started thinking about a low-end car and you want to do it, and you’re involved in seeing the hotel business grow and maybe a couple of other things, too.

At the same time, selfishly, I want to leave when I can still walk and play golf and do the things I want to do, rather than being semi mobile. I’ve seen a little bit of that and I don’t want to follow that. It is a bit of a dilemma.

Because you’ve made no apparent moves for a succession.
I will do that.

But you haven’t done it yet. It’s less than three years since you stepped down as executive chairman.
Two years.

Are you not leaving it late?
There are different views on that. You can anoint someone early and then have the organisation battle that person, or you can be watching and grooming [someone] and that happens all over the world.

People are even brought in from outside in several US companies overnight. So there will be a time period and I hope there will be a smooth transition.

You don’t expect a change in the time frame?
That’s not for me to say. I set the criteria at that time and I would like that to stay.

Regarding telecom, we’re told you’re not happy with how it’s gone so far.
I don’t know who told you that. Telecom takes a lot of investment. It takes in many ways a different mindset to what we have in many of our companies.

Let me elaborate because on the one hand, it’s a hi-tech business in terms of technology and on the other, it is like soap in terms of distribution and sales and marketing.

It’s almost like a fast-moving consumer goods company on the one side and a technically-oriented company on the other. You’ve got to go through that transition, make the right decisions technologically, and transition that into an everyday product.

We have emerged as another all-India telecom company, but we have lost time and we have not gained that critical mass as fast as we might have.

Are you disappointed with the Star DTH venture. It hasn’t really moved forward.
Yes it has not moved. We are an open society and yet there are vested interests that don’t want it open.

Is there an issue where effective control would be with your partner?

No. To say that we would have nothing to do with it would not be true because we have always been keen to have it be a company that in many ways is Indian. The way we saw it we would be developing Indian content.

Would you be getting into content itself?
Whether we farm out or do it ourselves (that is, through the joint venture), the fact is that it would be Indian content. It would not just be a grafting of what Sky or Star did abroad.

I thought you stayed away from the media as an industry.
From the print media, yes.

But not electronic?
This would be more on the lines of entertainment. DTH is more on the lines of entertainment.

But it doesn’t stop you from doing news?
It doesn’t stop us from doing news. In fact, I think you’d be crazy not to have a news element.

So this means a major move into the media, entertainment and news?
Yes. [Mr Tata later clarified that the group was not entering the media industry and that any group initiatives in this connection would be confined to the group’s joint DTH venture with the Star group]

So it’s not just carriage and not just a tie-in with telecom at some stage?
No. It could have a tie-in with telecom in the sense that we are looking at somehow carrying video into the home. There are three ways to do it: wirelessly, through cable operators and through the telephone line.

Pallonji Mistry stepped down from the board of Tata Sons. There’s been no replacement so far for him.
Mr Mistry has no right of nomination. If there were a member of the Mistry family that comes on the board, it would be to represent the shareholding — if we chose to make that happen.

Mr Mistry himself came on the board, we recognised him as the largest shareholder (of Tata Sons). We may take that view again in the future. So there is no issue of replacing him and there’s no fixed number for the board. We may replace him or add more people who may not be from his family.

On Indian Hotels, there has been interest in acquiring the Raffles group. Have these talks fallen through?
Today there are no active talks.

There is no forward movement in hotels acquisitions overseas.
We are in dialogue in several cases. As you know, we have a management contract in Mauritius, we run an operation in the Seychelles, we are looking at South Africa, Europe and the US and we want to be in those countries. So we are scouting, we are exploring and we are in dialogue where opportunities exist.

The last time we met you, you had discussed the issue of integrating the group’s IT companies. Now that the TCS IPO is over, does that intention remain?
The intention is still the same.

What is C Sivasankaran’s role in the group?
He has been someone who has known the telecom industry and has helped us enormously in terms of defining some of the areas. We had a gap in terms of how we address the purchase of capital equipment.

He has saved us enormous amounts of money in that sense. In the process, he’s been someone I’ve come to consider a friend and who I believe has helped us in terms of gross savings more than anyone else I have seen in the group.

Is he completely outside your corporate structure?
He would like to leave it that way and that’s fine by me, too.

There’s no intention of formalising the relationship with the group?
No, there has been no intention of doing that. Nor does he want that. We’ve had some convergence of views, he has been in the telecom business. Our gain from him has been quite substantial and I am quite happy to acknowledge that publicly.

Are you still shooting for a doubling of profits every three or four years?
No, we set that as a task and have achieved that. Whether we want to do it again or want to do something different is something we will decide. That’s what I meant when I said that times have changed; you can’t be doing the same thing again and again.

If you were to look five years into the future, what headline changes do you think will take place?
I would hope that some of our plans mature into bigger businesses. I would imagine that as a group we would be much more prominent in the IT and communications area than we are today, and that we have some international scale in some of our businesses and that we’d have the same value system and ethics as we do today. I hope the fabric of the country allows us to do so.