A healthy 100
Business Standard — August 27, 2007

The mood at Tata Steel, which has just turned 100, is similar to the mood in the country, which has just turned 60. Both look and feel like a robust youngster with energy and confidence. It is interesting to note that this buoyant mood was mostly absent in both a decade ago, at which stage the Tata group was not even sure that it wanted to stay in steel-making. Even three years ago, Tata Steel had a manufacturing capacity of under 5 million tonnes, all of it in India and at one location, Jamshedpur. Then in 2005 it acquired NatSteel of Singapore, which has a capacity of 2 million tonnes. Thereafter, earlier this year it acquired Corus, the second-largest steel maker of Europe, with a capacity of over 18 million tonnes for a massive $13 billion, giving Tata Steel a capacity of 25 million tonnes and making it the world's sixth-largest steel producer. Now the firm has three greenfield projects in India, which should add 33 million tonnes to its capacity. Not all of it will come on stream quickly and so the firm has a more modest goal of becoming a 50-million-tonne player in the global industry by 2015.

To learn the right lessons from this remarkable achievement, it is necessary to ask three questions: What lies at the root of this success, why did it take so long to come, and does the firm have it in itself to realise the growth it dreams of? The global financial community and industry experts do not have any doubts on the last question (capability), implicit in the ease with which the firm is raising over a billion dollars globally for the deal. The second question is more relevant. If the firm had the capability, why did it take so long to get going? The answer to that lies in both national and corporate history, which also tells us the reasons for the current success. Steel prices in India were controlled by the government till 1991. There was little incentive to grow and the sales people in the company worked more like rationing officers.

The remarkable story is how Tata Steel transformed itself through the nineties so that in 2001, World Steel Dynamics, a US-based industry consultancy, described it as a world-class steel maker. In the seven years to 2003 it cut its workforce by 60 per cent and raised productivity two and a half times, making it one of the world's least-cost steel producers, without any industrial unrest. In terms of wanting to grow, the turning point came in 2003, when the world steel industry emerged out of a recession. Tata Steel has used the boom phase of the business cycle to remove one of the two shortcomings that it has had till lately, a small size when measured by global standards.

What is the company doing to earn a brand premium globally which it currently does not command? Again, by acquiring Corus, which had earlier subsumed British Steel, Tata Steel has got access to the technology to produce value added items. What it must now do is develop its own cutting-edge technology so that it can become a global leader in not just size but technology too.