Tomado de: Strategic International Management-Text and Cases. Por Morschett, D. et al.

, Springer - Gabler Verlag,

Netherlands, 3rd Edition, 2015.

Emerging Country Multinationals

5
Further Reading
MATHEWS, J.A. (2006): Dragon Multinationals: New Players in 21st Century
Globalization, in: Asia Pacific Journal of Management, Vol. 23, No. 1,
pp. 5-27.

RAMAMURTI, R.; SINGH, J.V. (Eds.) (2009): Emerging Multinationals in

Emerging Markets, Cambridge, Cambridge University Press.

RUGMAN, A.M.; VERBEKE, A. (2004): A Perspective on Regional and Glob-

al Strategies of Multinational Enterprises, in: Journal of International Busi-
ness Studies, Vol. 35, No. 1, pp. 3-18.

Case Study: Tata Group*

Profile and Company Structure

The Tata Group, founded in 1868, is a global enterprise headquartered in
Mumbai, India. Among other areas, the Tata brand received worldwide
recognition through Tata Motors, which is part of the Tata Group. Tata Motors
won renown by launching a car with a selling price of one lakh (equal to
USD 2,500 or EUR 1,500), the lowest price for a car at that time, and by ac-
quiring Jaguar and Land Rover in 2008.

Besides Tata Motors, the Tata Group consists of about 100 operating compa-
nies in seven business sectors: communications and information technology,
engineering, materials, services, energy, consumer products and chemicals.
Each company in the portfolio, including well-known and respected compa-
nies like Tata Steel, Tata Consultancy Services (TCS), Tata Power, Tata Chemicals,
Tata Tea, Indian Hotels, Tata Communications, and Tata Motors, operates inde-
pendently and has its own board of directors and shareholders (Lala 2007).
According to their own reports, the companies operate in more than 100
countries across six continents and export products and services to over 150
countries. About 63% of their revenue of 96.79 billion USD in 2012/13 was
generated from business outside India. With 540,000 employees across its
companies, Tata Group is India’s largest employer.

* Sources used for this case study include the website www.tata.com, various com-
pany reports and explicitly cited sources.

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Since 2012, Cyrus Pallonji Mistry is chairman of the Tata Group. He is the first
chairman from outside the Tata family. Around two-thirds of the parent firm,
Tata Sons Ltd., is held by philanthropic trusts (Srivastava et al. 2012).
Through these trusts, Tata Sons Ltd. utilises on average between 8 to 14% of
its net profit every year for various social causes, such as support for aca-
demic institutions, social and community causes and programmes for under-
privileged people. Figure 5.3 shows the ownership structure and revenues
for each business sector within the Tata Group.

Ownership Structure and Business Sectors within the Tata Group Figure 5.3

Companies of the Tata

Public Trusts Free Float
Group
Sir Dorabji
JN Tata Private Institutional
Tata and Sir Ratan
Endow- Investors Investors
Allied Tata Trust
ment (3%) (18%)
Trusts

13% 66% 21%

Holding

Tata Sons Tata Industries

98 Companies/7 Cusiness Sectors

31.9 Materials

17.0 Engineering Products

and Services
9.9 Information Technology
(Sector-Wise Revenues and Communication
in billion USD) 4.3 Energy

2.8 Chemicals

2.1 Services

2.1 Consumer Products

Source: Schuster/Holtbrügge 2011.

Given the Tata Group’s origin as a family-run company, it is closely linked to

its surrounding community. This is clear from a quote by Jamsetji Nusserwan-
ji, the founder of the Tata Group: “In a free enterprise, the community is not
just another stakeholder in business but is in fact the very purpose of its
existence” (Srivastava et al. 2012). The company fulfils its corporate social
responsibility in various ways. It feels especially committed to five core
values that – by its own account – drive all of the business activities:

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Tata Code of „ Integrity: fair, honest, transparent in all dealings.
Conduct
„ Understanding: care, respect and compassion for customers and col-
leagues.

„ Excellence: highest possible standards for goods and services.

„ Unity: build strong relationships with partners and customers world-
wide.

„ Responsibility: What comes from the people goes back to the people many
times over.

Formation and Early Development of the Tata Group

The Tata Group has its origins in 1868 when Jamsetji Nusserwanji Tata estab-
lished a trading company in Bombay. Tata used early revenues to fund the
Tata Group’s first big industrial project in 1877: Empress Mills, a textiles ven-
ture set up in Nagpur in central India. Like many companies in emerging
markets, Tata was not committed to specific products or fields. A fixed com-
mitment would have been disadvantageous because market potentials for
single products were usually not sufficiently profitable. At the same time
potential customers in the emerging market had various needs that were not
adequately met by existing offers. Tata reacted to this situation by offering a
wide portfolio. In this way Tata made use of new market opportunities even
though they had little to do with their previous business. Ravi Kant, Vice-
Chairman of Tata Motors, describes this strategy as follows: “[We] look at
opportunities in the market as they emerge. We then try to convert those
opportunities into real business” (Crainer 2010, p 14). In that spirit, Tata
opened up the Taj Mahal Hotel in Bombay in 1903. In subsequent years the
Tata Group stuck to this strategy. In 1907 they diversified the coal and steel
industry by founding the Tata Iron and Steel Company. In 1915, the company
entered unknown territory once again by generating hydroelectric power
from a site near Bombay.

Expansion From the 1930’s, the Tata Group consolidated its business while still entering
through Ventures new areas, notably insurance and the production of soaps, detergents and
cooking oil. The Tata Group continued to rely on expansions in the home
market. Some prominent ventures include Tata Chemicals (1939); Tata Motors
and Tata Industries (both 1945); Voltas (1954); Tata Tea (1962), now known as
Tata Global Beverages; Tata Consultancy Services (1968) and Titan Industries
(1984). Until the end of the 1980s this diversification was limited to the home
market in India.

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Development of the Tata Group since 1990
Only at the beginning of the 1990s did Tata become a multinational company.
The groundwork was laid by changes in the political environment in India,
leading to increasing liberalisation. At the same time, these changes were
accompanied by the opening of the Indian market for foreign companies and
investors. This resulted in a modified strategic orientation for the Tata Group:
Growth was still generated through innovations in the home market. Further
development of the Indian market through joint ventures with Multinational
Corporations and expansion to foreign markets complemented the strategy.

Growth in the Home Market through Innovation and Joint

Ventures
Liberalisation of the Indian Market in the early 1990s and innovation strate-
gies led to new growth for many Indian companies. The goal was to harness
market potential resulting from the changes in overall political conditions.
The companies within the Tata Group also followed this approach.

One example is Tata Motors. The precursor of this company was founded in Tata Motors
1945 as a truck manufacturer. Before the liberalisation of the Indian market
the company gained a leading market position in commercial vehicles in
India. The new market conditions at the beginning of the 1990s made it pos-
sible for Tata Motors to reach new customer groups by starting production of
passenger cars. The company now faced the challenge of offering products
to a segment that they had hardly any experience with at that time. Their
goal was to gain experience in a new market area while keeping costs and
risks for the company as low as possible. They now had to decide whether to
imitate competing manufacturers’ existing systems or work on their own
innovations (Khanna/Palepu 2006).

Tata Motors decided to combine innovation and low costs: The company
entered the car and utility segments with products such as the Estate (a sta-
tion wagon), Sierra, and Sumo (a utility vehicle used in both urban and rural
India for multi-passenger transportation). In 1998 and 2002, Tata Motors
launched two very popular passenger cars, the Indica and the Indigo (Lala
2007). These innovations significantly expanded the company’s customer
potential and contributed to its growth (Krishnan/Jha 2011). At the same
time the new products were oriented towards existing capabilities that Tata
Motors had built in the light commercial vehicle arena. For example, the
Estate and Sierra models were based on the chassis of a light truck the com-
pany had already launched. Thus Tata Motors were able to gain experience in
a new market segment and reduce the risk associated with innovations. The
locus of innovation was largely internal to the company (Krishnan/Jha 2011).

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Joint Ventures More recently, the Tata Group has also brought best-in-class technologies to
India, mainly through joint ventures with Multinational Corporations such
as automobile engines (Cummins), industrial controls (Honeywell), computer
hardware (IBM), and telecom equipment (Lucent Technologies)
(Basu/Maertens 2010). This strategy was another way for Tata to generate
growth in the home market. In doing so, Tata offered foreign companies
access and experience in a high-growth market. In return, the companies in
the Tata Group benefit from an influx in expertise and resources.

International Growth through Mergers and Acquisitions

Diversification of Since the turn of the millennium, the Tata Group has generated part of its
Tata Tea growth through mergers and acquisitions outside India. The first important
acquisition was that of Tetley by Tata Tea (today Tata Global Beverages). Tetley is
a British beverage manufacturer, and the world's second largest manufactur-
er and distributor of tea with an annual turnover of 1.5 billion USD. The
acquisition in 2000 was the largest overseas acquisitions by an Indian com-
pany at that time. Since 2005, Tata Global Beverages has been expanding
strongly into Europe (JEMCA, Czech Republic, 2006; Vitax and Flosana, Po-
land, 2007; Grand, Russia, 2009), Africa (Joekels Tea Packers, South Africa,
2006) and the USA (Good Earth Corporation & FMali Herb Inc.,
2005).Nowadays, Tata Global Beverages makes more than 65% of its consoli-
dated revenue in markets outside of India. The expansion not only led to an
increase in revenues but also a modified orientation regarding Tata Global
Beverages’ products. The main objective was to change from an exclusive tea
producer to a supplier of “good for you” beverages. Consequently, their
products’ sales shares changed. Before the acquisitions nearly all of their
revenues came from tea interests. As a result of the diversification strategy
this figure is now only 70%.

Starting in 2003, Tata Communications acquired three telecommunications

companies: Gemplex (USA, 2003), Tyco Global Network (USA, 2004) and Teleg-
lobe (UK, 2005). According to its own reports on these acquisitions, the Tata
Group now owns and operates one of the world’s largest international mo-
bile, data and voice networks, providing 1,400 wholesale customers and 650
enterprise customers with coverage to more than 240 countries and territo-
ries.

Indian Hotels (IHCL), part of the Tata Group, also expanded into foreign coun-
tries very early. After IHCL became one of the largest and finest hotel groups
in Asia, Indian Hotels tried to strengthen its position outside of Asia as well.
In 2005 the company took over the Starwood Group (Australia). Ritz Carlton
(USA) followed in 2006 and Campton Place Hotel (USA) in 2007.

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In 2004, Tata Motors acquired the heavy vehicles unit of Daewoo Motors, South
Korea. According to Ravi Kant, Vice Chairman of Tata Motors, the company’s
values and culture were an essential factor in the acquisition: “we were able
to convince people in Korea that we were right for their company because
we talked about our culture and values. Although in the short term it may
appear that our model is not attractive because there are more roadblocks
(…), in the long term, considering how important it is to have a sustainable
business model” (Crainer 2010). Within a year Tata had purchased a 21%
interest in Hispano Carrocera S.A (HC), a well-known Spanish bus manufac-
turing company. In 2008 the acquisition of Jaguar and Land Rover (both UK)
gained international attention. At the same time, Tata Motors was expanding
into other emerging markets with its own brand. For this, the company used
the experience it had gained with its own products on the home market in
India. There, the company could gain customer insight on the trade-off be-
tween price and product features.

Internationalisation made it possible to launch products initially optimised Bottom-of-the-

for the home market into other emerging markets as well. For example, Tata Pyramid Markets
Motors developed Tata Nano as a reference product for bottom-of-the-pyramid
(BOP) markets (Holtbrügge/Schuster 2009) and contributed to the satisfaction
of the increasing mobility needs of Indian households. For many Indian
households the price gap between a two-wheeler and existing passenger cars
was too big. The Nano was designed to fill this gap and give as many Indian
households as possible access to passenger cars. Similar patterns of demand
could be found in other emerging markets. Therefore, Tata was able to suc-
cessfully adapt the Nano to other markets as well. This role can be described
as local optimisation (Ramamurti 2012). For these markets, Tata upgraded
the basic model in order to meet the safety standards. Several additional
features were added, such as a more powerful engine, power steering, air-
bags and ABS. It was offered for a price of 6,000 USD (Grünweg 2009). Tata
Motors’ commercial and passenger vehicles are sold in several countries in
Europe, Africa, the Middle East, South Asia, South East Asia, South America,
CIS, and Russia.

Tata Steel adopted the role of a global consolidator by using the strength, ca-
pacities and revenues in the home market to become established in other
markets (Ramamurti/Singh 2009). Unlike in developed countries, the steel
industry is considered a high-growth industry in some emerging economies
like India. Therefore, it was Tata Steel’s goal to quickly expand in the Indian
home market and gain both experience and capacities. This strategy made it
possible for Tata Steel to also compete with highly developed Western firms.
Although these firms were superior in terms of technologies, Tata Steel had
modern factories and low labour costs (Ramamurti 2012). With this strategy
the company became the leader in its home market. Thanks to this strong

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5
position, Tata Steel was able to acquire the Singapore-based NatSteel (2005)
and Millennium Steel in Thailand (2006). The largest acquisition was in 2007,
when Tata Steel acquired Corus, the Anglo-Dutch giant, in a landmark deal.

Branding Tata Group chose a pragmatic approach in dealing with new acquisitions.
Strategies Instead of giving all acquisitions the corporate brand name and mark, Tata
only re-brands its acquisitions when it will clearly add value to the Tata
Group and the acquired company (Witze 2010). For example, the Tata Steel
brand was stronger than the relatively weak Corus brand, so Corus was re-
named Tata Steel Europe after the acquisition by Tata Steel in 2010. In the case
of Tetley the Tata Group decided to stick with the original name. Even though
the company has been a part of Tata for a long time, the Tetley brand is inde-
pendent in terms of its identity. It is possible that a tea product could benefit
from an Indian brand like Tata, but Tetley’s customers resolutely see it as
British, and rebranding might compromise its image and reputation in their
eyes (Witze 2010).

Summary and Outlook

The Tata Group has had a long history since its founding in 1868. During the
first 60 years the company grew rapidly in the home market in various mar-
ket segments. The goal was to identify as many market opportunities as
possible and fill the gaps with the company’s own products and services.
The years between 1930 and 1990 were marked by increasing business con-
solidation in the home market. By 1990, many companies in the Tata Group
were in leading positions in the Indian home market. Multinational activities
hardly played a role. Only liberalisation of the Indian market and the associ-
ated political changes made it possible for the Tata Group to focus on expand-
ing into different markets.

This expansion was based on mergers and acquisitions that in some cases
were internationally recognised – usually due to the strong position of the
respective company in the Indian home market. Thus Tata Group gained
access to the necessary capacities and financial resources to acquire strong
companies in mature markets. As well as these mergers and acquisitions, the
Tata Group also expanded into other emerging countries with their own
brand. In these cases the Tata Group benefitted from the experience it gained
in the home market, allowing them to enter the market with low-cost prod-
ucts that were optimised for the needs of emerging markets.

Tata Group will probably rely on expansions in the future. This will be to
either diversify the Tata brand, which has become a strong brand in a num-
ber of markets, or profitably invest capacities and resources from their own
business into other companies in new markets: “Having said that, I hope

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that a hundred years from now we will spread our wings far beyond India,
that we become a global group, operating in many countries, an Indian
business conglomerate that is at home in the world, carrying the same sense
of trust that we do today” (former group chairman Ratan Tata).

Questions
1. How has the history of the Tata Group up to the 1990s affected the ex-
pansions starting in 1991?

2. Why did the internationalisation of the Tata Group take place in the
1990s? How would you describe Tata’s internationalisation processes?
What are the advantages and disadvantages of these strategies?

3. Think of the roles played by the different Tata Group companies that
developed in the home market until 1990. Illustrate the effect of politi-
cal environment on the company’s history and discuss the roles of
global consolidator and local optimiser.

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