Abhinav 0161/56 Prachi Thanvi 0207/56

David Barman 0181/56 Priyanka Gill 0211/56

Malay Nandgave 0196/56 Ravindra Khudania 0190/56
Mayank Pawar 0193/56 Sonakshi Singh 0227/56
Case Overview
● The house of Tata is India’s oldest and largest group of companies
● Ratan Tata became the chairman in 1991 and guided the group through the fast
changing business environment in India
● The post 1991 period of economic liberalization forced the management to take
several strategic initiatives to overcome the threat of multinational companies
● Ratan Tata launched several strategic initiatives to increase the degree of Group
ownership in the individual companies and strengthen global brand image to tap
into the growing attraction of globalization
● His strategy revolved around:
○ The Tata brand
○ Restructuring
○ Increasing Tata Son’s investment capabilities
○ Tata Administrative services (TAS)
Timeline of major events

JRD Tata becomes the Ratan Tata proposed the Ratan Tata Changed several
chairman of Tata Sons “Tata Strategy plan” policies

1874 1938 1970 1981 1991 1995

Jamshedji Tata establishes The Tata company becomes

the first single textile mill legally independent Indian government
(dismantling of the encourages foreign
managing agency system in investment. Ratan Tata
1970 succeeded to head the Tata
Sons Chair
Business Environment - Evolution of Indian corporate governance

Pre 1945 1945-1970

Item 2 1970-1991 Item 3 Post 1991
● British colony ● Closed economy ● License Raj ● Liberalisation -
● Post industrial ● Planned ● MRTP Act, 1970 movement towards
revolution phase development (five ● Government laissez faire
● Development of year model) control on economy
Indian production - ● Most industrial industrial growth at ● Inflow of foreign
owing to WWII growth in public its peak capital
● Deficit of sector, i.e. govt. led ● Heavy red tapism, ● Growth of the
homegrown capital; ● Bank corruption in private sector
entrepreneurs few nationalisation - obtaining permits ● Growing
and far in between 1969 (14 major ● Managing agency anti-foreign
● Managing agency banks taken over) system abolished sentiment as
system prevalent companies exposed
to takeover threats
Soft Infrastructure - existing voids
Capital Market
Unorganised and unattractive
● Underdeveloped domestic equity
market
● Weak financial ecosystem -
accountancy, financial press and even
enforcement of regulation - lacking on
all fronts
● lack of access to foreign capital and
upon liberalisation, widespread failure
to attract foreign capital
● Illiquid markets
● Primary capital sourcing via debt from
nationalised banks
● Hesitant investor sentiment - domestic and
foreign
Labour Market
Underdeveloped and highly
regulated
● Management and technical education
in nascent phase
● Strict labour laws - layoffs rarely
permitted, strong unions
● Scarcity of highly qualified labour and of
staff of the likes of mid level managers
● Inefficient deployment of labour
Governance
Unpredictable and Bureaucratic
● Very high possibility of
government intervention (esp. u.
MRTP)
● High corruption coupled with high
frequency of necessary
interaction with bureaucracy
● Sluggish judiciary, lack of ADR
and consumer protection
● Business environment not supportive of
growth
● Slow and expensive movement of required
permissions further slow growth
● Difficulty in contract enforcement and
dispute resolution (also affects investor
sentiment)
● Consumer rendered relatively powerless
 Selling 20% stake in TIL to JM Group
● Ratan Tata contemplated selling a 20% stake in TIL to Hong Kong based Jardine Matheson
group for Rs 1.26 billion.
● The idea was to use this capital influx for venture start-ups promoted through TIL thus
providing soft infrastructure.
● This deal will push TIL’s share capital to Rs. 595 million
Why it was a good idea
➔ Added expertise of Jardine in different business activities like retailing and distribution, real
estate, hotels, engineering, construction.
➔ It can provide a win-win situation through potential synergy that can be formed specifically in the
financial businesses (Tata Finance and Jardine Fleming) and also in creating a major car
distribution network.
➔ It can get access to global market though utilization of the new liberal economy
➔ TIL would not have to pay dividend to the company for five years.
➔ JM Group could provide expertise to TIL in forecasting consumer demand patterns which was
lacked by Mr Ratan Tata
➔ Tata Sons had a control because of the cross holdings of Tata Sons in TIL even after the sale which
was as a result of the majority shares held by various Tata companies.
 Tata Administrative Services Top
Diversified
Gross Pay
(1994)
Retention rate of 67% (1986-1995) Companies

Ratan Tata’s Plan J.K 15000

Organizatio
● Promote TAS as a premium career n
● High profile TAS coverage in business publication
RPG 14145
● Increase Mobility of TAS participants
Enterprises
● Develop TAS as a group resource
● To be in top 10th percentile of MBA Compensation packages Reliance 14006
Industries
Revitalization of TAS is a good idea because: Ltd.
➔ Development of a TATA culture & its transmission across divisions will occur as
TAS recruits move towards senior management Ballarpur 11750
➔ World Class Quality & services as well as best practices will be maintained as Industries
TAS officers move across industries Ltd.
➔ Being a premier career option will ensure quality recruits which will also
leverage the perception of the brand in people’s minds TAS 11250
➔ Subsequently, value addition through Internal training programs can be
conducted UB Group 10875
➔ Management talent from existing businesses will help the company diversify
further
Need for Restructuring
To increase the market ● In many industries, TATA was present but didn’t have any
value of the subsidiary significant presence and has its market value much lower
firms than the industry average (See Exhibit 5)

● Their current strategy led to a lack of coordination among

Increase coordination/ the various TATA companies. Sometimes it even led to
operational efficiencies them competing against each other

● Ratan Tata foresaw the onset of liberalization, and figured

Developing trust that the Tata group companies would be better off
through TATA Brand competing with the likes of Mitsubishi under one Brand

● After JRD Tata stepped down, absence of a forceful

Creating a sense of personality to keep the culture and a sense of unity among
Unity the various Tata Companies was a problem
How Tata Group can add value to affiliated firms?
Reformed Business Practices
● Trade-off between ‘internal labour market’ and
Incentive systems talent retention - TAS saw a 67% retention rate over
1986-95, vs. 10-25% in other organisations
● Tomco sold to Hindustan Lever - 1993
● Plan to merge Tata’s 3 electric companies - 1996
Exiting businesses
● Lack of coordination - Tisco, Tata Chemicals and
ACC all in the cement business
● Over-reliance on debt by traditional family-run
conglomerates
Change in financial ● Tata reversed this trend through Tata Sons’ rights
strategy issue of INR 3 billion
● Equity capital influx from selling stake to Jardine
Matheson group, rightly used to fund new ventures
How Tata Group adds institutional value to affiliated firms?
● On an average, the percentage of funds sourced internally
is more than the industry average. Reliance on external
sources of funding is minimum making the business self
sustaining which on the other hand also shows possible
Improving movement of profits between group companies.
management of ● Between the mid-1980s and mid 1990s, Ratan promoted 20
Group finances: solo and joint ventures with a combined sales of Rs 7.5
billion
Using funds from
● TIL maintained a 25-50% stake in all solo ventures.
existing operations ● In joint ventures too, Tata group had a controlling interest.
to start new ● Other TATA companies were encouraged to become
ventures co-promoters only in those firms in which they had a
strategic interest
● This strategy for funds management rhymes with the one
VC firms and LBO firms use, signifying prudence!
On an average, the percentage of funds sourced internally is more
than the industry average. Reliance on external sources of funding
is minimum making the business self sustaining which on the other
hand also shows possible movement of profits between group
companies. Both Telco and Tata Power grew ~3x in terms of net
worth from FY1991 to FY1995, unlike other group companies. This
might explain why external borrowing didn’t decrease in the said
period.

Higher Capital gains for the Tata companies may be attributed to

higher profitability and better brand name of these companies
which helps increase investor confidence which in turn boosts the
price increase. This would be extremely beneficial in raising capital
for these companies.
How Tata Group adds institutional value to affiliated firms?
● ● Between
Ratan the mid-1980s
Tata planned to elevateandTASmid
as a1990s, Ratancareer’
‘premium promoted
among20
Improving solo and
upcoming joint ventures
business with a combined
leaders through sales ofhigh
media exposure, Rs 7.5
profile
management of billion
coverage in business publications, audio-visual presentations
Group finances ● ● TIL maintainedfirst
Selective recruiting, a 25-50%
year onstake in alland
courses solo ventures. sessions
interactive
In joint
● Tata
with venturesand
executives too,visits
Tatato
group
majorhad a controlling
Tata plants interest.
● Recruits have the opportunity of rotating among 3 industries in
More active role in first 10 years, gaining exposure & building network
Management ● Continuous mentoring and career direction, provides
development management education and a certification service
● Tata Group Mobility plan: cross company teams of ‘stars’ resolve
problems of individual companies
● Through this, Tata wanted to develop its own Management talent
● This is one of the more efficient ways to train the Management in
prudent Management practices of the Western companies.
How Tata Group adds institutional value to affiliated firms?
● Between the mid-1980s and mid 1990s, Ratan promoted 20
● After restructuring, Tata Sons will take principal responsibility
Improving solo and joint ventures with a combined sales of Rs 7.5
for promoting a unified Tata Brand which can be used by all the
management of billion
subscribing companies
Group finances ● TIL
○ maintained a 25-50%
Each subscribing stake pay
company in all solo Sons
TATA ventures.
an annual
● In joint
contribution based on its association with TATAinterest.
ventures too, Tata group had a controlling brand.
Promoting Contribution rate – 0.1% to 0.25% of PBT, capped at 5%
standards in role in
More active solely used for brand promotional activities
quality: Building a
Management ● ○ Participating companies would need to follow a code of
conduct to ensure high quality and ethical business
common group
development practices
“TATA” Brand ● Brand would create a single strong equity that will benefit all the
group companies
● A business group with a reputation for quality products and
services can use its brand name to enter new businesses even if
those businesses are unrelated
How Tata Group adds institutional value to affiliated firms?
● Between the mid-1980s and mid 1990s, Ratan promoted 20
Improving ●
solo and joint ventures with a combined sales of Rs 7.5
Though Tata has less equity investments in the group companies
management of billion
it can use its expertise and help them to take major decisions.
Group finances ● TIL maintained
Diverse a 25-50%
group of board stake incould
of directors all solo ventures.
bring the plethora of
● In joint ventures too, Tata group
business knowledge and expertise had a controlling interest.
● The increase in cross-holding helps in ensuring different
More active role
Implications of in
businesses are not at loggerheads with each other
●● Using profits of one company to invest in another's helps in easy
Management
Equity Interlocks capital transfer among them, but might create a sense of
development animosity among their managers who might have different
corporate agenda
● But according to the VCs, corporate headquarters should
abandon the role of financial coordinator between the affiliated
firms
THANK YOU