Tata at a fork in the road

Posted in India | 08-Oct-08 | Author: Raja Murthy| Source: Asia Times

Tata Group Chairman Ratan Tata.

MUMBAI - Didier De Le Ferriere, native of Casablanca and new manager of the Sofitel San Francisco Bay in Redwood City, California, will help his hotel host an unusual award ceremony this October 21, for India's Tata Motors, winner of the Wall Street Journal 2008 Technology Innovation Award for the Nano car.

Yet Tata has just packed up the primary factory site that was to produce 250,000 Nano cars annually - and reports no substitute address to date.

"The Nano, a tiny, fuel-efficient, four-seat car priced at US$2,500," reads the official award citation that little Nano won, beating 700 entries worldwide in the "Transportation" category. "It's designed to appeal to millions of poor families in India who otherwise rely on motorbikes or other two-wheeled transportation."

As guests at the Dow Jones Alternative Energy Innovations Conference, organizers of the awards night, applaud Tata, few will be aware of the tragedy among those "millions of poor" in Singur, West Bengal, with one committing suicide near the former factory site for the Nano.

Sushen Santra killed himself in September after hearing news of the Nano factory stopping work. The US$6,300 compensation that the family received from the West Bengal government for his land where the factory was built had been spent rebuilding their house. They, like 11,000 other local families who sold their land for the Nano factory, became dependent on jobs at the factory.

After seeing the Nano factory work-stoppage news flash on TV - the television set bought with the land sale money, his family told reporters - Santra drank pesticide and died, leaving behind his wife and three sons.

On October 3, India's Tata Group officially pulled out its $340 million "world's least expensive car ever made" Nano project from West Bengal state in eastern India, a troubled decision that industry body the Associated Chambers of Commerce and Industry of India described as "as the most unfortunate happening in the arena of industrial activity in the 21st century".

"A bit far-fetched, that," economic historians will no doubt snort, but the Tata Motors pullout has painfully ended one of the sorrier sagas in recent Indian political and business history, marring the remarkable story of the 140-year-old behemoth Tata Group, whose fortunes reflect the growth of modern India.

One of the Tata Group stars, Tata Motors - the world's fifth-largest medium and heavy commercial vehicle maker, India's largest automaker and employer of 22,000 people worldwide - has suffered a stunning setback to what it termed as its "dream" project.

Dramatis personae were a curious mix of India's second-largest and most respected corporate group being enthusiastically wooed by a communist-ruled government, a 55-year-old firebrand female politician playing "villain" to break up the marriage, and the product: a rear-wheel drive, all-aluminum, two-cylinder engine, 623cc car expected to satisfy millions of first-time car owners worldwide.

The 90-year agreement the West Bengal state government signed with Tata Motors on March 9, 2007, for the Nano factory plant died in less than two years.

In a rare, emotional public condemnation, the usually polite, reserved and measured Tata Group chairman, Ratan Tata (70), specifically blamed the opposition Trinamool Congress party leader Mamata Bannerjee for the pullout, declaring she had held a gun to his head and pulled the trigger.

But as trucks hauled Nano factory equipment to less exciting locales out of West Bengal, Ratan Tata - who says he has no patience for shoddy, underprepared work - had discovered the hard way that aiming for the "cheapest" can cause expensive trouble: $230 million has been spent on factory facilities that now lay waste, and local lives in ruins.

Ratan Tata, listed on the Fortune 25 and Time 100 lists of the most influential people in the world, revealed that his peers two years ago had called him "mad" for venturing to invest in West Bengal, a state notorious for violent trade unions, poor work culture and shaky infrastructure, yet the venue Tata chose for a project as critically sensitive to cost-efficiency as the Nano.

Tata, on calm reflection, might realize that no one put a gun to his head, but he had put his head to where the gun was.

Worse, the Tata Group went ahead with starting Nano work without the factory land dispute being first settled, a bit like opening a restaurant while the kitchen is on fire.

Tata Group is a unique global corporation since the majority shareholder is "Mr Compassion", with Tata Trusts owning more than 68% of the equity in Tata Sons, the holding company. Billions of dollars from the majority shareholder fund hundreds of educational institutions, hospitals, environment-protecting and community welfare projects.

But recent investment decisions such as the Nano in West Bengal, another dud $3 billion investment in Bangladesh, and a spate of debt-backed high-profile global takeovers all seem to ask whether the Tata Group is losing its clarity of decision-making in the dusty blur of fast growth.

In 1868, a 29-year old Jamsetji Nusserwanji Tata, fresh from setting up his family's first overseas offices - in Hong Kong and Shanghai - laid the foundation of what would grow to become Tata Group, now running 96 companies across six continents, 140 countries and employing 350,000 people.

Tata Group says its working principles hinge on the Tata Business Excellence Model (TBEM), adapted from the Malcolm Baldrige archetype, named after the late Malcolm Baldrige, the US secretary of commerce in the early 1980s who was a leading expert on managerial excellence and instrumental in helping technology transfers to India and China during the Ronald Reagan presidency years.

The TBEM revolves around two factors: business excellence and business ethics. While the Tata Group has steered clear of political and corruption scandals, the business excellence aspect could be under threat with its phenomenal eight-year, $18 billion run to increase its global profile: buying the British tea giant Tetley (2000), South Korea's Daewoo Motors (2004), Singapore-based NatSteel (2005), the Boston Ritz Carlton Hotel (2006), US brand Eight o' Clock Coffee (2006) and its biggest buy, the Anglo-Dutch steel mammoth Corus (2007).

This year, Tata Motors bagged the iconic British brands Jaguar and Land Rover, along with $15 billion in losses the previous owner Ford Motor Co had accumulated in the past two years.

The frenzied acquisition of global trophies, with debt as baggage, is starting to worry people in India. "Tatas had better slow down," came a friendly warning on March 28 from the sober daily Business Line, which belongs to one of India's oldest newspaper groups. "India cannot afford to let its star performer stumble, unleashing a tsunami of demoralization all round ... We can only hope that the Tatas know what they are doing and wish them all success."

With growing anxiety over whether the Tata Group is stretching itself imprudently thin, the market is delivering its own verdict. Tata market capitalization of nearly $60 billion on March 27, 2008, had shrunk to to $37.9 billion on October 1.

The Nano is the latest in a recent series of debatable decisions from the Tata Group. Earlier, Tata chairmen such as Ratan Tata's predecessor Jehangir - JRD as he was popularly known, and the founder of civil aviation in India - might not have been impressed with the Nano as a solution to "help millions of poor families in India" with their transport problems, particularly in the current era of oil stress, high fuel prices, urban-gridlocked roads and spiraling car support costs such as parking fees. "Ratan," they might have told him, "think of what we can do to make public transport more efficient and comfortable."

Nano may be two decades too late in capturing the cheapest car market, already firmly under the control of Maruti Suzuki, India's largest car maker, which rolled out its first car in 1983. Bringing out a $2,500 "People's Car" in 2008, Tata lays itself open to the charge of predatory marketing, unless the "People's Car" can run on water for fuel, or fly.

Unlike other countries with smaller populations, India and China have to factor in the logistics of a billion-plus people in taking every major step ahead. With transport, the priority issue is not so much owning a car, many cars or a helicopter, but on quickly, comfortably and affordably traveling from point A to B.

India's larger cities are already debating restrictions on private car use - such as curbing travel to odd and even numbered license plates on alternate days - the prospect of the country's existing urban infrastructure suddenly trying to support a million more car owners is daunting.

Ratan Tata has dismissed such issues, saying, "It's my business to make cars, the government has to make roads." And where is the land within, say, Mumbai, the country's already utterly congested financial capital, for new roads, Mr Tata? It's hard to imagine his predecessor, the science-loving JRD Tata, being mesmerized by technology and casually washing his hands of the bigger part of the picture.

When we sometimes rush down a road angels fear to tread, protective forces sound a warning. It's our choice whether to heed it and take a corrective course, or continue speeding towards a crash. Tata Group and Tata Motors may have had their warning in Singur.

As Tata looks at attractive bids from other states to host a new factory site, protests have already been reported on Sunday, October 5, as a Tata team inspected land in the south Indian state of Andhra Pradesh.

Post the Singur-pullout, mixed reactions are emerging from the auto industry. Support is there from Tata Motors vendors such as managing director NK Minda of Minda Industries, joint managing director Sulajja Firodia Motwani of Kinetic Engineering and Arvind Kapur, managing director Rico Auto.

They are not writing off the Nano yet; no one is. But the Tata Group may yet come to wish it had written off the Nano while the chance was there and the trucks were still hauling away the machinery for its production out of West Bengal.