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India's Tata Flexes Its Muscles

Slowing global economy poses challenge

By Heide B. Malhotra
Epoch Times Washington D.C. Staff
Jul 08, 2008

Ravi Kant, Managing director of Tata Motors, listens during a press conference in Mumbai in May. (Pal Pillai/AFP/Getty Images)
Ravi Kant, Managing director of Tata Motors, listens during a press conference in Mumbai in May. (Pal Pillai/AFP/Getty Images)

Last month, Jaguar Cars Ltd. and Land Rover Group Ltd. officially changed ownership as India's Tata Motors Ltd. finalized its $2.3 billion purchase with the creation of the new Jaguar Land Rover Co.

"Tata has purchased a transformed business with a brilliant future," Tata Motors announced during an investor's conference call, published on the company's Web site.

Jaguar and Land Rover sold a total of 300,000 cars in 2007 in 169 countries, earning $15 billion in revenue, a 50 percent increase since 2003.

Tata became the proud parent of all licenses, intellectual properties, manufacturing plants, two research and development centers in the United Kingdom and a global network of sales offices. Ford contributed $600 million in pension plan funds.

At a meeting in the House of Commons, Ratan Tata, Chairman of the Tata Group, assured Coventry South Labor Party representative Jim Cunningham that there would be no reduction in the labor force. Instead, the company announced plans to hire additional personnel.

Ford is not completely out of the picture yet. According to a recent Tata press release, Ford would continue to manufacture engines for Jaguar and Land Rover, have a hand in technological development, and provide other parts and expertise. Ford's involvement will most likely be phased out over time.

Tata faces many challenges—especially with technological issues and cultural differences. The company's expertise is in making inexpensive car for India's domestic market. It must tread carefully to ensure a smooth transition from selling lower-end cars to luxury vehicles.

"We do not know whether it is Ratan Tata's personal ambition that is driving the [acquisition] or whether it is strategy that has been thought out for the good of the company," said Nandan Chakraborty, head of research at Enam Financial, in a recent Knowledge & Wharton (KW) report.

Tata Goes Global

The Mumbai-based Tata Group is India's largest company. In addition to Tata Motors, the conglomerate operates businesses in manufacturing, steelmaking, IT, telecom, and hospitality industries.

Tata seems confident in its quest to achieve global recognition, as confirmed by Ratan Tata in a Q&A session published on the Tata Group Web site regarding the company's strategy.

"Global companies can act in multiple markets to retaliate against increased competition from other large companies in any given market," Tata said.

Tata has been on an acquiring spree, with 51 business purchases since 2000. Close to one-third of its acquisitions, or 16 companies, were based in India. Nine of its acquisitions were in the United States and six in the U.K.

The most talked about was its acquisition of Corus Group, a U.K.-based steel producer that ranks among the largest in the world. The purchase was finalized in April of 2007 for $12 billion. Another major purchase was the U.S.-based Eight O'Clock Coffee Co. in 2006 for $220 million.

Tata has also aggressively sought partnerships throughout the world. Tata and The Boeing Company announced a joint venture in February to produce parts for the upcoming Boeing 787 Dreamliner.

In 2007, Tata formed a joint venture with Italian automaker Fiat S.p.A. Under the agreement, Tata would produce certain premium cars for Fiat. Annual output is projected to be about 100,000 cars and 200,000 engines.

Slowing Demand Poses Challenge

India's demand for cars will accelerate despite soaring fuel prices. The trend is sustainable because of a growing middle class, and most Indian banks are willing to finance up to 80 percent of a car's value.

"The domestic market in India is growing very rapidly, and it may perhaps have somewhat less demanding customers and lesser regulatory constraints," Professor John Paul MacDuffie said in the KW report.

However, the developed markets—where most of Jaguar and Land Rover sales originate—see little growth potential in car sales.

In 2007, total vehicle sales and leases decreased from 59 million in 2006 to 58.5 million in the United States, according to statistics from the U.S. Bureau of Transportation.

New car sales in Europe dropped by 7.8 percent in May compared to the same month last year. Bulgaria was hit the hardest, with a 65.3 percent decrease, followed by Greece with a 50.7 percent decline in auto sales, according to the European Automobile Manufacturers Association.

To everyone's surprise, Jaguar was the only brand that sold 1,500 more cars in May 2008 than last year. Toyota and Daimler topped the list with the biggest drops.

Given rising fuel prices, industry leaders talk of a gloomy future for the industry.

"It's clear that the business in the mature North American and certain European markets could be dragged down to lows we haven't seen since the recessionary days of the early 80s," said Carl-Peter Forster, President of General Motors Europe, according to Global Insight, a European think tank.

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