Tata expansion plan abroad has an 8-country focus
Daily News & Analysis — February 27, 2006

The Tata group has identified eight "priority countries" that its companies — straddling diverse sectors — will focus on in the coming years. The markets in these countries will be of strategic importance going forward, even though the operating companies may have differing geographical focuses.

Talking to DNA Money, Alan Rosling, executive director on the board of Tata Sons, the main holding company for the group, said: "Our firms are responding to competition.

When enterprises from the US, Japan, South Korea and Europe set up operations in India, we had to take them on. For this we had to change our mindsets as group companies such as Tata Motors had to face competition head-on from global majors who came with scale (of operations), technology and brand." The 8 countries are the United States, the United Kingdom, Singapore, South Africa, United Arab Emirates, South Korea, China and Bangladesh. In 2004-05, the Tata group had international sales of $4.5 billion, 25% of its total revenue. Global business has doubled since 2002.

Five businesses accounted for 90% of this overseas business — Tata Consultancy Services, Tata Steel, Tata Motors, Tata Tea and Tata International. Till last year, the group spent nearly a billion dollars over a spate of acquisitions that included heavyweights like Tata Motors acquiring a bus body maker in Spain with side operations in Casablanca in Morocco and its subsidiary Tata Technologies making an aggressive acquisition of Incat for £53.4 million.

Rosling doesn't want to take a shot at the current year's bill for foreign acquisitions. "Usually, M&As are lumpy in nature. It may come or may take time. At times it comes all together at once," he said. Reports in the international press have revealed that the group is eyeing a steel company in South Africa and a hydel-power equipment maker from Austria. Tata Steel is also eyeing acquisitions to expand gradually its steel operations, though Rosling declined to comment on individual companies within the group.

But it's hard to miss the fact that Bombay House, the Tata headquarters, is throbbing with M&A activity. Categorising the group companies into three categories, Rosling said: "There are companies within our group that are naturally international such as TCS. Then there are companies that are naturally local like Trent Ltd (the retailing arm). There are a few businesses whose inclination for expansion will be ruled by choice - we're talking Indian Hotels here."

Some of the companies such as Titan Industries and even Tata Motors will expand "inside out", Rosling said, referring to a strategy within the group. Essentially the "inside out" strategy will focus on the communications links including television and language familiarity to tweak sales in neighbouring countries for watches, trucks etc. The Tata brand name counts in the neighbourhoods of Bangladesh, Sri Lanka, Thailand, South Korea and Gulf. Hotels also will expand their footprint optimally by signing up management contracts etc, even as they strengthen presence within the country.

"We will expand the segment through alliances, the travel agents network," said Rosling. In steel, the group is eyeing a different strategy. It believes that only vertical integration of the business coupled with cheap inputs such as power and iron ore will make it viable. Its criteria will be that even if the steel sector is at its lowest point of the business cycle, the business should be able to service its stakeholders with regular dividends and also have the ability to repay debt.

Of the 8 focus countries, the UK is home to 18 Tata group offices operating and earning aggregate revenues of $726 million, while United States has 16 Tata group offices generating $1.5 billion in revenues, a bulk of it emanating from TCS. As the US becomes increasingly important for the group, Tata Sons had opened last year a branch office in Washington DC to act as coordinating representative of the group in the country. The group with TCS generating the bulk of the revenues in North America has 50 offices spread across North America.

In South Africa, the Tata group believes it can increase its business exposure. The historical links the country has and the business friendly attitude of the government in addition to the size of the population has pushed the group to do business in that country. It is on the other side of the Indian Ocean and it is also the gateway to other African nations, Rosling said. Each operating company in the group develops its international business as an integral element in its overall strategy, depending on the competitive dynamics of the industry in which it operates.