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OUR BUSINESSES > TATA COMPANIES > TATA MOTORS > ARTICLES
June 2005 | Shifra Menezes
Foreign factor

Resting on the laurels of being India's top automotive manufacturer is not an option for Tata
Motors, which is looking to increase its footprint in international markets

Recent years have seen a number of foreign automobile enterprises coming to India, attracted by
a growing economy and an expanding market. The reverse — Indian auto companies seeking
new frontiers abroad — is a trickle, but Tata Motors is working hard to change the equation.

Tata Motors has come a long way since the 1950s and 1960s, when it needed technical
assistance from Daimler Benz and had just commercial vehicles to power sales. Today, the
company is the country's largest automobile manufacturer and has a passenger vehicle business
that has broken new ground in exemplary fashion. But domestic patronage, hefty as it may be, is
ultimately limiting, particularly with increasing competition. Which is why the exploration of foreign
markets is an imperative for ambitious automobile companies such as Tata Motors.

Besides competition, the automotive business, particularly the commercial vehicle market, is
characterised by its considerably strong link to national economies. Companies looking to do
more than just stay afloat cannot afford to keep their business connected solely to the fortunes of
one country.

Another reason that Tata Motors is looking outwards is cost advantage. Until now Indian
companies, manufacturers in particular, have been protected by high duty structures and a
generally depreciating rupee. But sometime in the near future, if import restrictions are relaxed or
the rupee begins to gain ground, India may not continue to have the low-cost manufacturing
advantage it has enjoyed thus far. In that scenario, a presence in countries that offer greater cost
advantages for manufacturing will pay off.

A third argument for overseas expansion is the fact that the automotive business relies so much
on economies of scale, which translate into price benefits. Tagging along is the competitiveness
factor, where quality and efficiency are directly improved (or should be) as a result of the high
level of competition in foreign markets.

Discussing the company's plans, Praveen Kadle, Tata Motors' executive director of finance and
corporate affairs, is quick to make the difference between international businesses and export
activity. "A large number of Indian companies began their international operations with exports,
but exports constitute only a segment of international business, and using the terms
interchangeably means taking a very narrow view of things," he says.

Tata Motors is looking to widen its foreign campaign to more than just exports. In 2002,
recognising the need to integrate its international strategy with its domestic one, the company
split its previously independent international business arm into commercial and passenger
segments and, as part of its overall business strategy, merged them with its commercial and
passenger vehicle business units.

As part of its plans, the company has plotted four routes to international expansion. The first is
the traditional method of export, at which the company has been quite successful, notching up
export revenue of Rs969 crore in the first nine months of FY 2004-05, recording a growth of 41
per cent from sales in Europe, Africa, the Middle East and Asia.

The second is setting up assembly operations abroad. This does not necessarily involve
establishing a full-scale manufacturing unit, but an operation where kits are sent in semi knocked
down or completely knocked down assemblies, or as a fully assembled vehicles and sold in that
market. Tata Motors worked this into its strategy when it set up its first assembly operation in
Malaysia in 1974. Since then the company has similarly expanded into Malaysia, Bangladesh,
Senegal, South Africa and Ukraine. All these assembly operations are set up by the distributors of
Tata Motors for these countries.

The third scenario would be actual acquisition, the route Tata Motors took with Daewoo South
Korea. Here, Tata Motors bought the full-fledged heavy vehicle-manufacturing unit and, in the
process, gained not just a manufacturing asset base, but access to the market through an already
strong brand identity. The company was also presented a wide choice in terms of the markets in
which it could use the Daewoo brand and, more importantly, access to R&D capability in the area
of commercial vehicles.

In the short period of six years since the launch of passenger cars, Tata Motors has already
achieved the No.2 position in the domestic car market in India. The company has successfully
launched Indica in South Africa and Turkey and is marketing it under its own brand name.

An independent international effort will call for the company to dig deep into its pockets. "The
automobile business is a resource-intensive one," explains Mr Kadle. "There needs to be
consistent profitability and a proven track record. Businesses have to contribute, on an ongoing
basis, a significant amount of cash for their survival and future growth. You need this winning
combination: a track record of profitability, cost competitiveness, global sourcing for
components/aggregates, effective capital-base management, and the ability to raise resources
from international capital markets at the right time."

Expanding on the company's globalisation plans, Mr Kadle explains, "Tata Motors does not plan
to be all over the world. Supply will follow demand and the company will need to address the
markets for different vehicles as stand-alone projects. For example, the compact-sized Indica will
be marketed in countries where the company perceives a substantial market for it, like it did in
Europe. The same goes for our commercial vehicles business."

He adds that China is a distinct possibility for expansion, an opinion that is justified by just a
glance at the dragon's consumption patterns. Right from commodities to automobiles, annual
demands are phenomenal. "China is a big market and, I think, if you want to be a successful auto
company then you may have to have some presence there. But, at the same time, one must keep
in mind that no major auto company, except maybe Volkswagen, has made serious money in
China. One has to be very careful in one's approach to the Chinese market."

Tata Motors' immediate goal is to achieve a 20 per cent contribution to its overall revenue from its
international businesses by 2006. This seems to be realistic enough following the Daewoo
acquisition, and its own products getting into more than 70 countries. Looking at successful global
auto majors, for whom anywhere from 30 to 50 per cent of their business accrues from overseas
sales, Tata Motors is still a long way off, but Mr Kadle believes that with its aggressive growth
strategy a contribution of around 35 per cent may be achievable in five-six years. The trickle
factor will by then begin to gather force.

The Tata group’s revenues for 2009-10 from its international operations were $38.4 billion, which
constitutes 57 per cent of its total revenues.

Each operating company in the group develops its international business as an integral element
in an overall strategy, depending on the competitive dynamics of the industry in which it operates.
For some businesses a focus on the domestic Indian market remains the priority. For others it is
developing a robust presence in neighbouring markets. And then there are Tata companies, a
small but growing number, that have global ambitions.

Exports from India remain the cornerstone of the Tata group’s international business, but different
Tata companies are increasingly investing in assets overseas through greenfield projects (such
as in South Africa, Bangladesh and Iran), joint ventures (in South Africa, Morocco and China) and
acquisitions.

Acquisitions are a crucial component of the global expansion of Tata enterprises. Over the past
ten years the group has made overseas acquisitions. Among the bigger deals on this front have
been Tetley, Tata Chemicals Europe (formely Brunner Mond), Tata Steel Europe (formerly
Corus), Jaguar and Land Rover in the UK, Daewoo Commercial Vehicles in South Korea,
NatSteel in Singapore, and Tyco Global Network and Tata Chemicals North America (formerly
General Chemical Industrial Products) in the US.

Priority markets
While individual Tata companies have differing geographical imperatives, the Tata group is
focusing on a clutch of priority countries, which are expected to be of strategic importance in the
years ahead. The regions are North America, UK, China, the Netherlands, Germany, South
Africa, members of the Gulf Cooperation Council, Brazil, Vietnam, Thailand and Sri Lanka.

Ratan Tata, Chairman, Tata Sons, sums up the Tata group’s efforts to internationalise its
operations thus: “I hope 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.”