August 2006 | Christabelle Noronha

Vision of the future

Group Chairman Ratan Tata speaks on a wide range of issues concerning the Tata group and its place in a world changing more dramatically than ever before

What will be the nature and scope of the Tata group's engagement in the coming years with a world changing more rapidly and radically than ever before? There are numerous queries within this larger question and who better to address them than Group Chairman Ratan Tata?

In this wide-ranging interview with Christabelle Noronha, Mr Tata articulates the challenges and opportunities before the group as it continues reinforcing and reinventing itself, in India and in the world.

Ratan Tata

In the foreword to Lasting Legacies, the commemorative volume of Tata Review we brought out in 2004, you talked about what you expect the group to be a hundred years from now. You expressed the hope that "we will spread our wings far beyond India, that we will 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". How do you see this vision panning out in the coming 10–15 years?
I think there is no doubt that we have gone beyond the shores of India – to a greater extent, in fact, than I had expected and in a shorter period of time. We had set ourselves certain goals, chief among which was to go global not just to increase our turnover but also to go to places where we could create a meaningful presence, where we, as the Tatas, would participate in the development of the country. We have endeavoured to play that role in places such as Bangladesh, South Africa, Sri Lanka, Dubai and Singapore.

Over the next five to seven years, we will have to start looking seriously and strategically at creating brand awareness for ourselves in new geographies, and at how we are going to grow our businesses commercially and strategically in these regions.

Will this thinking also apply to industries other than automotive? Chemicals and steel, for instance?
It's a little difficult to make that comparison because in commodities the brand name is not as important as it is in products.

What about hotels?
In hotels it is important, and we are already doing that. We are not promoting our own brand, but we are getting a series of properties that have their own brands, The Pierre, for example. It can also happen with a company like Titan. If you are willing to spend huge amounts of money propagating the brand, it will work.

What's important is that, whatever we do, we have to be in the forefront, technologically speaking; we have to be seen to be making exciting products for the customer. We should take our cue from the South Koreans. I remember when LG was Lucky Goldstar and was third choice on store shelves. It was an unattractive brand, there was no advertising and you did not know where the product was made. They have changed so much: their name, their logo, their technology…

That's the line we need to take. We cannot afford to be a 'me-too' company and expect to grow. We have to be creative on the basis of our strengths: low costs, technological richness, innovation, whatever. We have to be different from the competition if we have to do what I have wanted us to do.

Talking about South Korean companies, can Indian business enterprises do what their Japanese counterparts did in the 1970s and the South Koreans pulled off in the 1980s – become truly global entities?
Theoretically, yes. Whether we can or not is a function also of the facilities that are available to us. The big South Korean business groups had plenty of help in terms of funding, low-cost debt and the encouragement to grow far beyond their marketplace. We don't have any of this. We don't have incentives that are attractive enough, that make you want to sail into a venture boldly. So, to a great extent, you are depending on your own balance sheet.

One of the key strategic tasks you identified shortly after you took over was sharpening the group's focus. The plan was to concentrate on sectors in which the Tatas could be a leading player and to enter emerging hi-tech businesses. While some businesses and companies were divested initially, and the group has entered a number of emerging businesses, it still continues to be very diverse. Is this trend going to continue?
No. I have not lost sight of the fact that we need to refocus ourselves into a tighter bunch of sectors. The dilemma, of course, is what to do when attractive new sectors open up. Should you be there or should you say, 'Hey, I've got my blinders on'.

There has been, you might say, a bit of a contradiction. We could have taken a view – something we would have been criticised for – that we have already decided what we are going to do over the next five years and we are going to excel in that, and we will not look at anything else. My feeling is that in a developing country such as India we should, perhaps, be more active in shedding some of the old baggage and embracing new opportunities. That's easier said than done, because of people, emotions and an unwillingness to change, or be confronted with the question: why me?

So we do have a problem here. My view is that we should keep looking dispassionately at our business portfolio. We should ease out of certain sectors, but do it in a dignified way that protects our employees and all our stakeholders. We should dispassionately look at exiting certain sectors, businesses or companies and embrace new opportunities when they come. It is possible that this strategy may result in a drop in earnings, because when you get into an industry that is still in its gestation period your enterprise is going to suck out cash, as is happening in telecom today.

Speaking of telecom, where do you see the group in this industry in, say, 2020?
2020 is too far away to make a statement, and I say that because technologies will change enormously; we will see a lot of change in the next two years. What I am saying is, if you have a billion-some people with very low penetration in rural areas, I think the potential is enormous.

You have said that in the future the group will face major competitive challenges in India and abroad, placing increased pressure on margins. What are these challenges, and how do you see the group coping with them?
One big challenge is being globally competitive. This may be a function of scale, or product design or something else, but the critical question is: can we be globally competitive in giving the customer a product equal or better than what he or she already has access to? The other is: can we be technologically advanced enough? The second part is harder because Indian industry, by and large – and the Tatas, too, by and large – have grown by way of licence protection and joint ventures, with little home-grown technology.

Like many of our counterparts and businesses, we are not too innovative. That's fine in the Indian context, but we need to move a lot faster and expend more funds on innovation and technology upgrading in our companies than we are doing.

Looking at things innovatively requires not just keeping abreast of new developments in many industries, but also making substantial investments in research and development. What is your view on R&D investment?
My outlook on R&D is that it is an absolutely necessary thing for us to do. And I don't think we are doing enough. The point is not just spending money; it's how many patents you file, your innovation rate and your product development.

Is this more of a mindset issue rather than the availability of resources?
Yes, because if today you were to give everybody a mandate that they can spend 3 per cent of their revenue on R&D, assuming they can spare the money, I don't think many companies would know the what, where and how of spending that kind of money, other than to put up an R&D place and buy lots of equipment. We're not attuned to spending the time and energy to develop technologies and products.

You once said that, in terms of strategy, Tata Steel should consider itself as a materials company rather than a steel enterprise. What does this really mean: that Tata Steel may make other metals some day, or get into plastics? How does such an approach translate with regard to the future of other group companies?
What I said then was with a purpose. I think all companies need to keep looking at their business definition and, possibly from time to time, to see if that definition needs to be redefined. If you take the example of Tata Steel, they could say that they are a steel company and find themselves in a shrinking market where steel is under threat of being replaced by some other material.

The question is: what do we call ourselves? One view was that steel is a material, so can we be a materials company? We don't have to be in all materials, but can we be in composites, can we be in plastics, laminates, etc? The automotive business needs to think similarly, and so does the chemicals business. We have to keep looking at ourselves and asking: what is our business?

A good case in point is tea. At one of our business review meetings, a proposal came up to acquire a plantation in Kenya. I raised an issue: are we a plantation owner or are we a tea company? That discussion threw up questions like, why do we have plantations, why don't we sell them and why don't we focus on buying tea from the best source we can and blending our tea and packaging it? We're now moving in that direction, but earlier we saw ourselves as a plantation company making tea.

You can look at yourself as an iron-ore company making steel. Or you can look at yourself as a materials provider. I prefer the latter definition.

You are known as a man who plays for high stakes. You were, in a way, staking the future of Tata Motors on the Rs1,700 crore Indica project. Even today, many industry watchers see the group's high levels of investment in the telecom sector as a bit of a gamble. What is your outlook on risk and its link to future growth?
I think risk is a necessary part of business philosophy. You can be risk-averse and take no risks, in which case you will have a certain trajectory in terms of your growth. Or you can, while being prudent, take greater risk in order to grow faster. I think, as a group, we were risk averse and we hardly grew because either it was not safe or no one else had done it before.

I view risk as an ability to be where no one has been before. I view risk to be an issue of thinking big, something we did not do previously. We did everything in small increments so we always lagged behind. But the crucial question is: can we venture putting a man on the moon or risk billions of rupees on a really way-out, advanced project in, say, superconductors? Do you restrict your risk to something close to your heart?

Talking about superconductors, is the group looking at getting into supercomputers?
Yes.

Human resource management has been a focus area of the group over the last decade. With the workforce getting younger – and more expensive – what kind of challenges and changes do you foresee in this area?
First of all, we are in a competitive human capital market and that young human capital is looking for quick growth. There isn't the corporate loyalty there used to be 15-20 years ago. The way to hold employees today is to make their work and their day-to-day activities in the company exciting enough for them to stay. Not everyone will stay, but I think if we can empower more people and are willing to pass on the responsibility for that, and if people are satisfied and motivated, there's less chance of them wanting to leave and go to a competitor.

If we cannot provide such an environment, if there is frustration, then the only way to hold a person is by the money you pay – and we certainly are not at the top end of that scale. So, for us, it has to be making the job exciting for people and for them to profit from a reward-and-recognition system that enables them to grow with the organisation.

The Tatas were one of the first Indian business houses to recruit women on the shop floor; yet, there are such few women at senior levels. Why is that so?
My reaction is that we have not done enough on that front. We don't have as many women in the organisation as we should have. We don't have that many on the boards of our companies as we should. The good news is that we are conscious of the fact and in time, we'll fix the problem – because we are not biased against women.

The Indian government is toying with the idea of imposing caste-based employment quotas on private sector companies. Is this is a good idea?
I feel very sensitive and concerned about people who have been traditionally deprived, but the word 'caste' is not in my vocabulary at all. So, as far as I'm concerned, our employees are our employees. We have never tried to determine what caste they come from or even what religion they come from, although sometimes a name may betray what somebody's religious roots are.

I believe that we, that is, Indian industry, should have the responsibility of doing something for the traditionally deprived, but quotas are not an answer. What is needed is to give people an equal opportunity, which they do not have today. And I think that equal opportunity will not come from quotas; it will come from having more primary schools for them, perhaps finding solutions that will enable their families to send them to school, instead of leaving them in a situation in which they have to pull them out of school to send them to work. I believe that equal opportunity will come from creating vocational training for them so that they can master a trade.

I also feel that industry could possibly be mandated by the government – I would support such a move – to help create enterprises that would be run by the underprivileged. You mandate industry to buy 5-10 per cent of their raw materials and components from companies run by underprivileged entrepreneurs, subject to quality and price being equal. That would be a healthy thing because we would then be creating enterprises, creating genuine prosperity. You buy from them, they become useful citizens and they grow. But I think to thrust them on companies would be a bad thing.

Recently, at Tata Tea, we sold our entire plantation in south India to our workers. What we have now is a company owned and managed by workers, and we buy tea from that company. There were sceptics who felt that we were making losses in the plantations and we passed on our losses to our workers. What has actually happened is that once the workers became owners, the plantations made a profit. So, it was a true win-win situation on both sides. In time we will have some very prosperous individuals who will own a piece of a tea estate or a set of tea estates. They will make their own destiny – and I think that's terrific. And if they become really wealthy, I think all of us at Tata Tea will be extremely happy. Now we are trying to do this in Assam.

I get enormous pleasure from seeing the uplift of an underprivileged or poor person. I feel elated when I walk on the street and see someone who pushes a handcart talking on a cell phone. Prosperity is spreading. Somebody who probably would never have been able to get a telephone connection at home suddenly finds that he can go and buy a phone with a pre-paid card and be connected to whoever he wants to be connected to. I think that is terrific. A peon who wears a uniform at work can be seen dressed in the same way as a manager outside the office. That didn't happen 20 years ago. This is urban India. In rural India too, the quality of life has without any doubt improved. We still have great disparities and it would be false to say that everything is fine. But it would also be wrong to say that India hasn't moved. It has moved a great distance.

One of your passions is to address the customer at the bottom of the pyramid, by bringing out high-quality products at local prices. This has led to Tata companies taking up projects like the small car and no-frills hotels. Can you expand a little on this philosophy and what you expect it can do for Tata companies?
I think industries in India, by and large, have mostly been looking at the small section of the population at the top of the pyramid, the 200-250 million middle class that is the consuming public. That's an acceptable model because of its consonance with the scale and size of our companies. The 400 million and more just below them is what we have to target, because they are potential consumers. Can we go and cater to that marketplace?

I think there is an opportunity there. But it should not be, cannot be, that low-cost products come to mean inferior or sub-standard products and services; definitely not. The aim is to create products for that larger segment – good and robust products that we are able to produce innovatively and get to the marketplace at lower costs.

Until recently, it was the urban customer who was being assiduously wooed by companies; but now the rural market is fast becoming the battleground for competing brands. How do you see this urban-rural divide unfolding?
Today the rural marketplace is addressed in a very insignificant way. Yes, soap may go there, and cloth will go and maybe beverages like tea and coffee will go, but are we really catering to that segment of the market? I don't think we are. We're only taking the frills out of products and offering a lower price, not really looking at the needs of rural consumers and developing products especially for them.

Was the creation of a low-end car also borne out of your passion to reach out to the customer at the bottom of the pyramid?
That's what drove me – a man on a two-wheeler with a child standing in front, his wife sitting behind, add to that the wet roads – a family in potential danger. I hope to contribute to making life safer for them.

You have said Tata Motors' small car should be out sometime in 2008, at a cost somewhere between a motorcycle and a currently priced small car. Is the project on schedule? What is its current status?
It will be on the road in early 2008. It will be a 4-door, 5-seater, rear engine car. It will sell for an ex-factory price of Rs1 lakh (approximately $2,000) and will have a 500-600 cc engine. I think there should be a big market. Today, the Indian market has reached a sales level of about a million cars and about six million two- and three-wheelers. In 2008, I think we should be at 1.6-1.7 million cars and probably 10-11 million two- and three-wheelers. If we can position our small car as we hope to, firstly, we should be able to create a new market that does not exist; and that market should take some sales away from the low-end cars and some from the two- and three-wheelers. We believe there should be a market of about a million cars per year.

After we establish the car in India, we will look at South Africa and other African countries, and at Indonesia and Malaysia. We are not looking at the developed world. We would need to re-think the car if we were looking at Europe. We are not looking at the US.

The first manufacturing plant for the small car is to be built in West Bengal. What dictated that choice?
We are very excited about the possibility of being in West Bengal because I think the eastern part of the country has been ignored industrially and, contrary to the belief of most people, the industrial climate in West Bengal is really good and the leadership is inspiring.

The other thing is that they move quite fast. For instance, when we went into the car project, I was very keen that West Bengal should not do anything special for us, since that could give rise to unnecessary controversy. So the government formulated a new industrial policy and incentives, applicable to anyone wanting to set up business in the state and the cabinet has already approved it. We were the first to avail of that policy. The land has been identified; as soon as it is handed over to us, we will start construction.

Will Tata Power get into nuclear energy if the Indo-US nuclear deal goes through and the government allows private participation in nuclear power generation?
Yes, all things being equal, Tata Power would like to get into that sector. Tata Power and TCE Consulting Engineers would be serious contenders there.

You have been involved at a personal level in formulating the country's response to the needs of a hydrogen-based economy. What is the group's perspective on energy alternatives?
I don't think we have been doing enough in the field of alternative energy. It's still a secondary business; we need to put it into prime focus. On hydrogen, addressing stationary power and finding ways to generate hydrogen and feed it as feedstock to power stations might be a good way to help solve the energy problem.

Which global geographies do you see as the most important, from the Tata perspective, in the coming years?
Latin America, subject to political stability, Africa, the Middle East, and Europe, to a lesser extent. I do not see much potential in the US, except in a few niche areas.

What's the chance of a global economic downturn in the near future, caused by something like the energy crisis? Can countries such as India and China – and companies such as the Tatas – prepare against such an eventuality?
To prepare a foolproof plan to ward off a possible energy crisis because of rising oil prices will be very expensive and wasteful if you don't end up using alternative sources of energy. However, at the same time, I believe that oil prices will rise. I think there is every likelihood that there will be some degree of political destabilisation in the Middle East, so there is a need to look at alternative sources of energy. We have been looking seriously at bio-diesel, but not seriously enough at ethanol. We are looking at wind-power as another alternative and we think nuclear energy will be a very good alternative.

Looking into the future, what are the problems that might arise and hold up growth in India? Is the Tata group adequately hedged against negative developments in the country?

No group can hedge itself totally against a slowdown. The only hedge we would have is our operations in other geographies. One problem could be political uncertainty. The other could be a rise in interest rates, which will impact liquidity.

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