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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

THE TATA EMPEROR

India’s biggest industrial conglomerate turns in a record performance. Now comes the hard part

By Cesar Bacani and Shirish Nadkarni / Bombay



(Vibhor Chandra)

IF RATAN TATA IS beaming these days, it is not only because the Tata Group’s new airline still has a chance of taking off. After 18 months of controversy, India’s Foreign Investment Promotion Board cleared the conglomerate’s venture with Singapore Airlines on Jan. 6, though New Delhi has yet to issue final approval. Actually, Tata has a billion other reasons for feeling jaunty -- $6.2 billion, to be exact. That’s the record sales of the group’s seven major companies in the fiscal year to March 1996. In rupee terms, the amount is nearly a third more than the take in 1995. Profits are up 65%, to $656.2 million, on the back of a similar increase the previous year.

To think that in 1992, a year after he became group chairman, Tata announced a 41% drop in earnings at flagship Tata Iron & Steel (TISCO) and a 77% plunge at Tata Engineering & Locomotive (TELCO). The two giants account for more than half of group turnover. “I made a conscious decision that my first task was to turn these companies around,” the 59-year-old Harvard MBA told Asiaweek. “I made no effort to play a group role until TISCO and TELCO were doing extremely well. I’m trying to play that role now.”

Not an easy task, that. Top executives at Tata’s 84 companies jealously guard their turf. Then, there is the challenge of growing new businesses. In addition to Singapore Airlines, the Tata Group has tied up with British Petroleum, Bell Canada and AIG of the U.S. to enter oil exploration, telecommunications and insurance. Some of the start-ups are stalling. Sales of Tata-assembled Mercedes-Benz E220 cars, for example, are said to be off 50% from initial projections.

Can the chairman continue his winning streak? “He’s a careful planner and thinker, and his long-term decisions seem to be spot-on,” says Vijay Baoney of Jardine Fleming in Bombay. “But he’s not too market savvy and is not good when consumer demand patterns change rapidly.” Stockmarket analyst Imran Contractor praises Tata’s moves to streamline group operations: “He is bringing the small arms together so management is made easier.” But others worry that, in playing a stronger group role, the tycoon may go too far in clipping the autonomy of individual operations, which has often been cited as one of the group’s strengths.

Not that any one man can single-handedly run the far-flung, 129-year-old empire. When the legendary J.R.D. Tata, who died in 1993, handed the reins to his nephew Ratan, the Tata Group had become India’s largest industrial conglomerate. It made and sold everything from steel to trucks to power plants to household goods to jewelry. The product list continues to grow. But Ratan Tata is also consolidating. He has flogged off detergent maker Tata Oil Mills and says he favors the merger of electricity producers Tata Power, Tata Hydro and Andhra Valley.

Expect more restructuring. “We have somehow to consider ourselves as one group,” says the tycoon. “That’s what we’re trying to do in terms of corporate communications. We need to get the companies to operate synergetically with each other. After that, we will have to evolve a structure that has to be accepted, not mandated.” Note the emphasis on evolution. More than anyone else, Ratan knows how tough it is to deal with Tata’s company fiefdoms.

He has had epic fights with some chieftains. The most famous was his 1991 tiff with former TISCO supremo Russi Mody, who recently resigned as chairman of government-owned Indian Airlines, the former domestic monopoly, and international carrier Air India. Then 75, Mody was seen as the obvious successor to J.R.D. Tata, his close friend. Even with his family connections, Ratan Tata was considered a lightweight -- he is only a distant relative of J.R.D., being the son of the patriarch’s cousin, Naval Tata. In the end, though, J.R.D. chose blood ties over friendship.

The feud spilled into the open when the imperious Mody appointed his trusted associate Aditya Kashyap as his key lieutenant in TISCO. “I told Russi that if he wanted to change the succession plan so drastically, a board discussion would be needed,” recalls Ratan. “J.R.D. backed me on that point. But Mody made it a point of issue that nothing he had done could be reversed.” His authority challenged, Ratan pushed through a policy that made 75 the mandatory retirement age for Tata chairmen. Mody was later ousted.

Tata defends the retirement rule. “We may all feel that we are supermen and can have the same energy at 75 and 80 as we did in our younger days,” he argues. “But can you run around the marketplace? Can you have the perspective to take the company into the next century? Shouldn’t you give up the executive position to a younger person but remain on the board so your wisdom and experience can be availed of?” Says the chairman: “The top echelons of the Tata Group today are filled with younger people who never had the chance of showing what they could do because the people at the top never moved.”

He credits the new leaders for the group’s recent financial successes. At TISCO, chief executive Jamshed Irani aims to produce “the Mercedes-Benz of steel products.” The focus on specialty steels helped lift fiscal 1996 turnover in rupee terms by 26% to $1.8 billion -- and profit by an astonishing 101%. A low-key metallurgist, Irani is preparing a $3-billion expansion program to double manufacturing capacity. Truck-maker TELCO, which has Ratan as both chairman and CEO, increased sales by 39% to $2.4 billion and earnings by 66% to $163 million.

TELCO’s results could have been better had its car project with Mercedes-Benz performed as expected. Some 13,000 orders poured in when the $115-million venture got rolling in 1995. (Tata also distributes the imported Mercedes, such as the E250.) “We thought all we needed to do was deliver the cars,” recalls Tata. “But there were a lot of cancellations. The cars were not moving, so we could not have a dealer network. And perhaps we were slow in putting service centers in place.” Some executives blame the government for the cancellations. Those who booked a Mercedes E220 were reportedly targeted by the tax man.

Tata is not discouraged. “We’re getting out of the syndrome of just getting orders, then making the vehicles,” he says. The new E-class, which has superseded the E220 in other markets, will be assembled in India this year. “Many Indians feel that the E220 is an obsolete car,” says Tata. Price remains an issue. Because of import duties on parts and the depreciation of the rupee against the deutschemark, the E220 sells in Bombay for $64,800. The E-class would be pricier: the new E280 goes for more than $100,000 in Hong Kong.

The other high-profile Tata venture is the proposed $700-million domestic airline. A licensed pilot, Tata has committed the group to a 60% stake in the new carrier, with Singapore Airlines owning the rest. The plan is to acquire 19 planes -- Indian Airlines operates 25 -- and plug into SIA’s international network. “The new venture will change the entire nature of the industry in India,” predicts aviation analyst Joseph Thachil. “The airline business needs large amounts of capital. Only a venture with big players such as Tata and SIA could really get a handle on it. They can give [cash-strapped] Indian Airlines a real run for its money.”

That is the key reason why the Tata-SIA carrier -- the partners have not decided on a name -- is not yet flying. First, the short-lived 1996 administration of the Bharatiya Janata Party rejected the application, saying the venture was not in the national interest. New Prime Minister H.D. Deve Gowda is said to be more sympathetic to Tata-SIA. But a day after the foreign investment board gave its approval, Civil Aviation Minister C.M. Ibrahim said the decision should be put on hold until the cabinet approves a new aviation policy.

“I don’t know where we stand,” says Tata. “The Foreign Investment Promotion Board approval must first go through. Then the Civil Aviation Ministry has to grant us a no-objection certificate. Their view has been that there is no parking space and no counter space at airports, that the skies are crowded.” Ibrahim has said that no foreign airline should be allowed to invest in India, period. Under current rules, non-Indians can own up to 40% of a local carrier. That’s the joint share of Kuwait Airways, Gulf Air and an Arab consortium in Jet Airways, one of India’s three private airlines.

The controversy saddens Tata. “I’ve always been a proponent of a totally free market,” he says. “Even though it would hurt some of our companies, I have not endorsed any kind of restraint or barrier to protect Indian industry. We have a tremendous role to play in the development of Asia and there are many abroad who feel that India is going to be one of the tigers of the next two decades. But it will never be if we build walls around us.” There are dangers, of course. The forward-looking CEO has recently been increasing the Tata family’s stake in key firms to guard against takeover attempts.

The moves would also help ensure that the Tatas will have a bigger say in who succeeds him. The family has minority stakes -- the public and state firms have larger holdings -- in Tata companies through Tata Sons, a private vehicle chaired by Ratan Tata and majority-owned by Parsi charities. (The Tatas are members of the small community, which follows the teachings of the Iranian prophet Zoroaster.) A bachelor who likes to drive cars, fly planes and run with his dog in the evenings, Tata can stay on for 16 more years before retirement. What else does he want for the empire? “We must have either the first, second or third position in whichever industry we are in,” he says. “Then they become core competencies.” And contributors to record earnings.

-- With additional reporting by Arjuna Ranawana/New Delhi


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