Tata-Corus: Spearheading India's Global Drive to Growth
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ecch: 310-281-1
Dr Krishna Kumar London Business School REF: CS-10-005
Dr Kishore Kumar Morya Date: 2008
Tata-Corus: Spearheading India’s Global Drive to Growth
“It‟s a tremendous strategic acquisition. I believe this will be the first step in showing that
Indian industry can in fact step outside the shores of India in an international marketplace
and acquit itself as a global player.”1
“The completion of this acquisition of Corus by Tata Steel is a major step forward in the
company's global strategy and represents an exciting future for both businesses.”2
– Ratan Tata, Chairman Tata Group
Tata had recently won the bid to acquire the European steel maker Corus Group PLC for
$8.1 billion to become a world player in the steel industry. The deal had been concluded
with Tata offering to pay 608 pence a share, 22% more than the offer they made six
months earlier. Critics believed that Tata had gone over the acceptable risk-limit as the
leveraged buy-out deal could become a financial burden for the company. Would a deal
this size, a first in Indian corporate history take Tata‟s to the commanding heights of the
global steel industry?
1
“Tata Steel wins bid for Corus”, http://www.iht.com/articles/ap/2007/01/31/business/AS-FIN-COM-
th
India-Tata-Corus.php?page=1, January 30 2007.
2 nd
“Tata-Corus deal becomes effective”, http://www.rediff.com/money/2007/apr/02corus.htm, April 2
2007.
This case was prepared by Dr Krishna Kumar,ICFAI Business School Research Centre, Chennai and Dr Kishore Kumar
Morya, ICFAI Business School, Jaipur India as a basis for classroom discussion rather than to illustrate either effective or
ineffective handling of a management situation. The case study was supported by the Aditya Birla India Centre at London
Business School.
Copyright © 2008 London Business School. All rights reserved. No part of this case study may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means electronic, photocopying, recording or otherwise without written
permission of London Business school.London Business School ecch: Company Background Tata Steel Jamshedji Nusserwanji Tata, the founder of the Tata Group, began by setting up a textile mill in central India in the 1870s. His dynamic vision inspired the creation of steel and power industries in the country, positioned the foundation for technical education, and placed India firmly on the road to becoming an industrialised nation. Tata Steel was established in the year 1907, with the ideals and philosophy laid down by its founder, Jamshedji Tata. After Jamshedji, 34 year old Jehangir Ratanji Dadabhoy Tata (JRD), his grandson, became the chairman of the Group in 1938, by when the Tata group was already India‟s biggest business conglomerate. In 1939, the group included fourteen companies with sales of INR 2,800 million.3 JRD‟s vision for the Tata Group was manifest in the formation and emergence of companies such as Tata Steel, Indian Hotels Company Ltd, Tata Power, Tata Engineering and Locomotive Company (TELCO), Tata Chemicals, Tata Consultancy Services (TCS), Tata Indicom and Tata Tea. Besides this, the Tata Group was strongly committed to social causes like the expansion of metropolitan Mumbai and the development of sports. The Tatas were the leaders in the implementation of Corporate Social Responsibility (CSR) strategies which had been put into practice in their different group companies. Tata Steel introduced the concept of paid leave in 1920, which was later established by law only in 1945 in the whole country. Tata Steel further set up a provident fund scheme the same year that was legalised in 1952. Tata Steel was also one of the earliest companies in India to have a dedicated human resources department. In 1937, a Research and Control laboratory was opened where researchers developed an extensive variety of special steels. The lab also developed a type of high-tensile alloy steel – Tiscrom – which was used in building the Howrah Bridge at Calcutta. This was the first time that such a bridge was built entirely from Indian construction material. Another corrosion resistant, low-alloy, high-yield strength steel – Tiscor, was used for the manufacture of all- metal steel coaches for the Indian railways. In 1971, except Tata Steel‟s coal mines, the rest of the coal industry in India was nationalised. Mohan Kumaramangalam, the then Indian industries emphasised, “The efficiently run mines like Tata Steel‟s coal mines would provide a model for the other nationalised mines.”4 The company had three Greenfield steel projects in the Indian states of Jharkhand, Orissa and Chattisgarh, and planned to establish steel making facilities in Vietnam and Bangladesh. Tata Steel, through its joint venture with Tata BlueScope Steel Limited, had also entered the steel building and construction applications market. The iron ore mines and collieries in India gave the company a distinct advantage in raw material sourcing. Through their joint ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) 3 “The Tata titans”, http://www.tata.com/0_about_us/history/pioneers/index.htm. 4 th “JRD Tata: A life extraordinary”, http://inhome.rediff.com/money/2004/aug/19tata.htm, August 19 2004. Copyright © 2008 London Business School 2
London Business School ecch:
and Oman, Tata Steel was striving towards raw materials security. Exploitation of
opportunities in titanium dioxide business in the South Indian state of Tamil Nadu, founding
a high carbon ferro-chrome plant in South Africa and setting up of a deep-sea port in
coastal Orissa were all integral to the growth and globalisation objectives of Tata Steel.
Through investments in Corus, Millennium Steel and NatSteel Asia, Singapore, Tata Steel
had created a manufacturing and marketing network in Europe, South East Asia and the
Pacific-rim countries. Corus, which manufactured 18.3 MT of steel in 2006, had operations
in the UK, the Netherlands, Germany, France, Norway and Belgium. Tata Steel (Thailand)
was the largest producer of long steel products in Thailand, with a manufacturing capacity
of 1.7 MT. NatSteel Asia produced about 2 MT of steel products annually across its
regional operations in seven countries.5
Tata Steel was a global player with a balanced presence in the developed European and
fast growing Asian markets with a strong position in the construction, automotive and
packaging markets (Exhibit I).
The company‟s social outreach programme covered the company-managed city of
Jamshedpur and over 800 villages in and around its manufacturing units. Planned
initiatives for income generation, health and medical care, education, sports, and other
relief work were undertaken by the company. Tata Steel took proactive measures to
ensure optimum utilisation of natural resources. This was reflected in the ISO-14001
certification that all its operations had achieved optimum levels in environment
management. 6 It also received the SA 8000 certification for work conditions and
improvements in the workplace at the steel works in Jamshedpur Tata Steel pioneered
numerous employee welfare measures like the 8-hour working day and the three-tier joint
consultation system of management which became the platform for nearly 80 years of
industrial harmony in its Steel Works at Jamshedpur.7
In 2007, the consolidated turnover of Tata steel excluding Corus increased by 23% at INR
27,437 crores ($6,311 million) and the consolidated profit after Tax excluding Corus also
increased by 12% at INR 4,177 crores ($961 million).8 Gross Steel sales also increased by
8% at 4.79 million tonnes.9 The financial performance of Tata Steel had shown progress
from the year 2006 to 2007 in terms of gross sales, operating profit and earnings per
share.
The first Indian private sector steel plant which started with a production capacity of
100,000 tonnes had been transformed into a global giant. It had been Asia‟s first integrated
steel plant and India‟s largest integrated private sector steel company. Tata Steel‟s vision
was to be the global steel industry benchmark for value creation and corporate citizenship.
5
“Tata Steel - Profile”, http://www.tatasteel.com/Company/profile.asp.
6
“Tata Steel - Profile”, op. cit.
7
Ibid.
8
“Tata Steel – Towards Growth and Globalisation”,
th
http://www.tatasteel.com/investorrelations/an200607/AnalystMeetFY-07-18May07.pdf, May 18
2007.
9
Ibid.
Copyright © 2008 London Business School 3London Business School ecch: It was one of the few steel companies in the world that was Economic Value Added (EVA) positive. It was ranked in the list of “World's Best Steel Maker”, for the 3 rd time by World Steel Dynamics in its annual listing in February, 2006. 10 (Exhibit II) Tata Steel was awarded the Prime Minister of India‟s Trophy, five times, for the Best Integrated Steel Plant. Tata Steel completed 100 glorious years of existence on August 26th 2007. It was the world‟s second most geographically diversified steel producer, with operations in 24 countries and commercial presence in over 50 countries. After taking over Corus, it had become the world‟s 5th largest steel company with an existing annual crude steel capacity of 28 million tonnes.11 Steel Industry Overview In the year 2007 the World Crude Steel output reached 1343.5 million tonnes and showed a growth of 7.5% over the previous year. It was the fifth consecutive year that world crude steel production grew by more than 7%. China remained the world‟s largest Crude Steel producer in 2007 (489.00 million tonnes) followed by Japan (112.47 million tonnes) and USA (97.20 million tonnes). India occupied the 5th.position (53.10 million tonnes) for the second consecutive year. The International Iron & Steel Institute (IISI) in its forecast for 2008 predicted that 2008 would be another strong year for the steel industry with apparent steel use rising from 1,202 million tonnes in 2007 to 1,282 million tonnes in 2008 i.e. by 6.7%. Further, the BRIC (Brazil, Russia, India and China) countries will continue to lead the growth with an expected increase in production by over 11% compared to 2007.12 The Indian steel industry entered into a new development stage from 2005-06, riding high on the resurgent economy and rising demand for steel. Rapid rise in production resulted in India becoming the fifth largest producer of steel. Price regulation of iron & steel was abolished by the Indian government on 16.1.1992. Since then, steel prices had been determined by the interplay of market forces. There had been an increase in the domestic steel prices since 2006-07 and which continued till January, 2008. Rise in raw material prices, strong demand in the international and domestic markets and an up-trend in global steel prices were some of the reasons cited by the industry for the increase in steel prices in the domestic market. It had been estimated by certain major investment houses, such as Credit Suisse, that India‟s steel consumption would continue to grow at nearly 16% annually, till 2012, fuelled by demand for construction projects worth US$1 trillion. The scope for raising the total consumption of steel was huge, given that per capita steel consumption was only 40 kg – compared to 150 kg across the world and 250 kg in China. The Indian National Steel Policy envisaged steel production to reach 110 million tonnes by 2019-20. However Ministry of Steel projected that the steel capacity in the country was likely to be 124.06 million tonnes by 2011-12 (based on the assessment of the then ongoing projects, both in Greenfield and Brownfield areas). Further, based on the status of 10 “Tata Steel - Profile”, op. cit. 11 Ibid. 12 th “An Overview of Steel Sector”, http://steel.gov.in/overview.htm, June 20 2008. Copyright © 2008 London Business School 4
London Business School ecch:
MOUs signed by the private producers with the various State Governments, it was
expected that India‟s steel capacity would be nearly 293 million tonnes by 2020.13
With the expected buoyancy in the steel markets, the Tata-Corus deal came at the
appropriate time to cater to the increased consumption of steel in industry. The acquisition
was ranked fifth in the list of mergers that had taken place in the global steel industry
during that decade (Exhibit III).
The merger was also ranked fifth in terms of capacity amongst the top ten steel producers
in the world (Exhibit IV).
The union would also bring Tata Steel into the prominent Fortune 500 list of top
international companies. This would not only enhance the brand name of the company,
valued at $9 billion by industry experts, but also bring it on par with other business giants
like Morgan Stanley, Goldman Sachs, FedEx and Chrysler. Also, the acquisition would list
Tata Steel on the United Kingdom stock exchanges and allow its stock to be traded. This
would further help the Tatas to acquire other companies, if they wanted, on the basis of
stock deals rather than total cash transactions. 14 Moreover, within the framework of
backward integration the merger could be widely seen as a strategic move to consolidate
the procurement of steel as a raw material for their sister concern Tata Motors, who had
boosted productivity by taking over Landrover and Jaguar in the UK, and made a strong
commitment towards the production and delivery of their one-lakh rupee people‟s car in
India, the Nano, by October, 2008.
The IISI predicted that demand for global steel would average 4.9% per year till 2010 and
it would moderate to 4.2% per year from 2010 to 2015. Much of this demand would be
generated from China and India, where IISI estimation of growth rate was 6.2% to 7.7%
annually from 2010 to 2015. 15 According to IISI forecasts, world steel demand would
increase to 1.32 billion tonnes by 2010 and 1.62 billion tonnes by 2015. Arcelor-Mittal, the
first rank world steel producer constituted just 6.8 percent of the projected demand in 2015.
Therefore, there was considerable scope for consolidation in the steel industry. Tata Steel
would have remained a medium sized player even after increasing capacity, by Greenfield
investment strategy implementation, in the coming decade.16 This necessitated the need
for large acquisition opportunities. However, apart from Corus, there were not many
amongst the top ten steel makers, which would become possible acquisition targets in the
future.
One of the major advantages for Tata Steel was that after acquiring Corus it could plan to
become the third largest steel producer in the world by 2015 with a total estimated
production capacity of 55.7 mtpa (Exhibit V).
13
Ibid.
14
“Ratan Tata‟s Corus acquisition is a master move”,
rd
http://www.parinda.com/news/feb2007/02.shtml, February 3 2007.
15
Mathew Rex, “Tata-Corus: Visionary deal or costly blunder?”, http://www.domain-
st
b.com/companies/companies_t/tata_steel/20070201_tata_corus.htm, February 1 2007.
16
Ibid.
Copyright © 2008 London Business School 5London Business School ecch:
With Indian companies increasingly venturing into European and American markets, Tatas
wanted to be in the frontline of mergers and acquisitions, spearheading India‟s global drive
to growth and prosperity. In the year 2002, its tea division bought a controlling stake in the
UK firm Tetley for $407 million. In 2004, Tata Steel acquired Singaporean firm Natsteel for
$486 million. In 2005, Videsh Sanchar Nigam Limited (a Tata company) acquired US firm
Teleglobe, a provider of voice, data and mobile signalling services, for $239 million. In
2006, Tata Tea bought a stake in the US water manufacturer Glaceau for $677 million, and
Tata Coffee acquired Eight O'Clock Coffee of the US for $220 million. In January, 2007,
Tata Steel acquired the Anglo-Dutch Corus Group for £4.3 billion (INR 366.5 billion). The
first decade of the new millennium saw the Tatas vigorously expanding their horizons on
the international scale. (Appendix I)
Tata Corus Deal: Issues and Challenges
In the steel sector, Ratan Tata emphasised that Tata Steel would not impose its leadership
on Corus. He said, “Our intention is that Corus will retain its identity for the foreseeable
future, will remain an Anglo-Dutch company. The management will be substantially the
same.”17 Commenting on the get-together with Tata, Corus Chairman Jim Leng said that
the firm had been scouting for a strategic partner and a presence in a low-cost country with
raw material availability. “India, with its strong and growing economy, indigenous raw
materials, rising consumer demand and infrastructure needs was always a favoured
location.”18
The union of these two companies Tata and Corus was built on a global strategy with both
companies seeking to address new markets. Together, they planned to build a stronger
and bigger combination in terms of global output. In the beginning of the acquisition itself
Tatas had stressed that Corus would retain its identity and remain an Anglo-Dutch
company with the existing management structure in place even after the takeover. The
major benefits expected by Tata Steel through this deal were economies of scale, strong
downstream business process operations, enhanced Research & Development
capabilities, distribution channels in some of the most developed markets and premium
customer care functions. Along with the expected synergies, there were problems such as
the valuation of the deal, the integration of ownership, the cultural fit (Exhibit VI) between
the two conglomerates, with a reality check on expected outcomes and the ultimate benefit
to both companies.
According to market analysts, the Tatas were interested in the takeover as it would expand
their geographic reach. The union of the two companies offered Tata Steel the latest
technology in making high-tech carbon steel to cater to high-end customers. Corus had
become a subsidiary of Tata Steel with about 24mtpa of production capacity. The deal
17
“Tata acquires Euro Steelmaker Corus”,
rd
http://ibef.org/artdisplay.aspx?cat_id=60&art_id=13821&in=28, October 23 2006
18
“Tata acquires Euro Steelmaker Corus”, op. cit.
Copyright © 2008 London Business School 6London Business School ecch:
received an uninterested response from Corus‟ biggest shareholder Standard Life
Investments. Nearly 49% of Corus was owned by UK shareholders, 11% by North
American shareholders, 10% by shareholders in the Netherlands and another 30% by
shareholders in Germany, France, Belgium and other countries.19
As part of the integration process, Tata Steel and Corus had started joint sourcing and
purchase of materials, including ore, coal and refractories. Both the companies also
decided to jointly explore new iron-ore sources in Africa, Australia and Brazil. Tata Steel
was 80% self-sufficient in raw materials and their main objective was to achieve self-
sufficiency in raw materials for Corus also. The integration process also examined the
ways in which it could leverage the strengths of the other Tata group companies in the UK
such as Brunner Mond and TCS. The integration was done internally with international
consultant Accenture appointed to look at the performance issues. All this was in line with
Tata Steel‟s global strategy to continuously seek out low-cost production options, facilitate
backward integration with raw material procurement, and consistently expand its market
share in the high-end of the steel value chain. Tata steels global strategy with the means
of the Global Strategy Framework is shown in Appendix II.
Tata Steel had pioneered the development of a contemporary grade of high-strength steel,
HS-800. Corus had also tested HS-800 and declared it to be „far superior‟ to most of the
800 tensile strength grades it had been producing. Having received the process of
manufacturing HS-800, Corus developed it and launched it in the market. Similarly, Corus
had advanced technology for „metallic-fuel-tank‟ grade steel. Tata Steel, on its part, also
developed this superior „fuel-tank‟ grade steel in India, utilising the technology available
with Corus.
Tata Steel had lost $1 billion in market capitalisation in October 2006 (The BSE (Bombay
Stock Exchange) Sensex increased 18% during the same period). The market perception
was that the Tata Group had paid more for the Corus acquisition. Several brokerage
houses had pointed out that the deal implied a high enterprise value earnings before
interest, taxes, depreciation and amortisation (EV/EBITDA) multiple of 9 for Corus versus
4.6 for Tata Steel.20 Ratan Tata disagreed with this opinion and said, “We believe that,
looking back in time, the price today will prove to be one that was worthwhile because the
price of steel companies is likely to be even higher in the coming year.” 21 Despite the
disapproval from the market, the Tata Group was convinced of the long-term synergies-
post Corus- in manufacturing, access to global customers, opening up of the steel sector in
India and leveraging Research and Development for Tata Steel‟s Greenfield projects.
Tatas further believed that the combined entity could also explore options for more
effective future acquisitions in the buyouts of finished steel and iron ore. It also expected
that the combined entity would increase Tata Steel‟s capacity exponentially and give it a
wider customer base with an enhanced product portfolio. The merger was expected to
19
“World's 5th Largest Steel Co”,
st
http://www.financialexpress.com/old/fe_full_story.php?content_id=144090, October 21 2006.
20
Piya Singh, “TATA-CORUS - Making Corus Work”,
http://businessworld.abp.in/content/view/297/337
21
Ibid.
Copyright © 2008 London Business School 7London Business School ecch:
save about $400 million annually, after the first three years, to the company. 22 The savings
would come basically from synergies in logistics, manufacturing, procurement and
marketing.
The Tata-Corus coming together meant combining the manufacturing practices, services,
purchasing norms and complementary strengths and functions of both companies. For
example, Corus had strong R&D and product development capabilities for value-added
products in the international automotive, construction and packaging markets, which was
well-balanced by Tata Steel‟s strong presence in the Asian markets. The main challenge
for Tata Steel was to restore the competitiveness of the Corus group. The „Restoring
Success‟ programme of Corus had been implemented in the company‟s UK plants,
focusing on the main steel-making businesses there. Over and above restructuring in the
UK, the combined entity increased focus on safety and customer service.
The new organisational structure (Exhibit VII) of Tata-Corus included an umbrella
management team or „group centre‟ that consisted of senior Corus Group and Tata Steel
executives, co-chaired by Tata Steel‟s managing director B Muthuraman and Corus CEO
Philippe Varin. The group centre was set up to ensure a common approach across all key
functions – technology, integration, finance, strategy, corporate relations, communications
and global markets. According to Ratan Tata, “The reorganisation is designed to help
realise the group‟s ambition of becoming one of the leading players in the global steel
industry.” 23 Tata Steel Chairman Ratan Tata would continue to head the integration
committee. There was a great amount of cultural fit between the two companies, which
was the most important facet in any post-acquisition integration process between two large
conglomerates. Corus believed there was a positive cultural fit between Tatas and
themselves with both having similar work practices.
The merger maintained a balance between the growing markets of developing countries
and the mature markets of the developed world with high-end products and technology.
Corus also responded to unexpected cost increases with a rise in prices for wire rod
products. Corus increased its UK wire rod prices by £70 to £90 per tonne on deliveries as
of March 31st 2008. Gareth Beese, General Manager Sales and Marketing of Corus, said,
“Recent agreements concluded for iron ore contracts are at prices considerably above
analyst forecasts. Coking coal contract prices were also considerably above 2007 levels.
In addition, increases in scrap prices, combined with the additional costs of bulk freight and
utilities are resulting in unprecedented levels of input cost increases.”24
The acquisition paved the way to the opening up of new markets and product segments for
Tata Steel. The presence in mature markets would also provide Tata Steel an opportunity
to go further up the value chain as demand for specialised and high-value-added products
in these markets was high. The market reach of Corus also helped Tata Steel in seeking
22
“Tata-Corus merger will lead to $400 mn savings”,
th
http://www.tata.com/tata_steel/media/20070910_1.htm, September 7 2007.
23
“Tata Steel rejigs senior team to integrate Corus”, http://www.tatanagar.com/industries-news-of-
tatanagar/tata-steel-rejigs-senior-team-to-integrate.html.
24
“TEXT-Tata Steel unit Corus raises prices for rod products”,
th
http://in.reuters.com/article/companyNews/idINWEB715720080229, February 29 2008.
Copyright © 2008 London Business School 8London Business School ecch: longer-term deals with buyers and to explore opportunities for pushing branded products into differentiated markets. Corus was very strong in Research and Technology development, which added to the competitive strength of Tata Steel. Both companies learned from each other to achieve better efficiencies by adopting the best practices available. This combination served its worldwide customers more efficiently with more consistent offerings around the globe supported by higher supply chain efficiencies. Worker issues such as increases in labour costs were high priority for the unions representing most Corus workers. They wanted Tata Steel to invest an additional $600 million in the Port Talbot plant in the UK, and assure them the company would remain competitive, and not cut jobs. Ratan Tata had acknowledged that there would be no jobs cuts, in Corus, in the early stages of the merger. He had agreed to refinance the majority of Corus‟ debt but said the company could not give any guarantee over safety of jobs as its prime responsibility was to make the UK operations more profitable. Besides, funds would also be required for upgrading some of the Corus plants to improve efficiencies. Tata Steel would have to manage all these issues without jeopardising its Greenfield expansion plans which could cost a staggering $20 billion over a ten-year period. Tata Steel management had acknowledged that it would not be an easy task to manage the next five years (from the year 2007) when Corus would have to hold on to its margins without the help of cheaper inputs supplied by Tata Steel. If the group could survive this initial period without much financial damage, life may become much easier for the Tata Steel management. The company added that the investors would consider Corus a burden for Tata Steel until such time there was a perceptible improvement in its margins. That would keep the Tata Steel stock price passive and any decline in steel prices would have a disproportionately negative impact on the stock. Investors were worried about the financial risks owing to the high costs incurred in the deal. However, the joint venture provided an initial saving of $130 million in the first year itself, up to 31st March, 2008. Corus group Chief Executive Philippe Varin expected global demand for steel to grow annually by 5 to 6%. 25 Tata Steel Managing Director B Muthuraman said the steel industry was witnessing 14% demand growth in the domestic steel sector every year. He expected to increase the return on capital to 30% till 2012.26 The Corus transaction had loaded Tata Steel with $7.4 billion in debt. The debt facilities were structured in such a way that they could be serviced largely from the cash flows of Corus. Interest rates on credit facilities were much higher than market rates because of the risks involved. At an expected interest rate of 7% per annum, the interest would be over $650 million per year.27 Along with repayment of principal, the annual fund requirement to service this debt would be around $1.5 billion - assuming a 10-year repayment horizon.28 The current cash flows of Corus were not sufficient to cover this, even after considering the synergy gains. If the international steel prices declined, Tata Steel would have to dip into its own cash flows or find other sources like an equity dilution to service the debt. 25 “Tata Steel rejigs senior team to integrate Corus”, op. cit. 26 Ibid. 27 “Tata-Corus: Visionary deal or costly blunder”, op. cit. 28 Ibid. Copyright © 2008 London Business School 9
London Business School ecch:
The consolidated total income of Tata steel increased from INR 25,212.38 crore for the
year ended March 31st 2007 to INR 131,535.88 crore for the year ended March 31st 2008
(Exhibit XII). The integration of Corus with Tata Steel had resulted in it becoming India‟s
second-largest company in the private sector with consolidated revenues of over INR
1,32,110 crore during the year ended March 31st 2008. Tata Steel had also emerged as
India‟s second-most profitable company with a consolidated net profit of over INR 12,350
crore during fiscal year 2008. 29 It was higher than the previous fiscal (2007), boosted
mainly by its acquisition of Corus. The Tata Steel stock also increased 1.90% to INR
757.10 on the Bombay Stock Exchange.
As of July 2008, Tata Steel was looking for acquiring an iron ore mine in Western Australia
for developing iron ore reserves for Corus plants. Eric Ripper, Treasurer and Minister of
State Development, Government of Western Australia, said, “Tata Steel has expressed
interest to invest in Western Australia's iron ore sector.” 30 Tata Steel‟s executive
acknowledged that it was only logical for the company to look for iron ore mines in Western
Australia since the region had huge reserves. The company also planned to set up a
corporation overseas for consolidating its raw material assets and raise funds in the next 6
to 12 months for acquisitions. By July 2008, Corus had 19 million tonnes annual capacity,
with mainly imports of iron ore from Brazil to feed its production. This reflected badly on its
performance as was evident from the company‟s EBIDTA margin, a pointer to the health of
a firm, which was 9% for the year ended March, 2008 as against Tata Steel‟s Indian
operation at 43%. 31 The Indian operations of Tata Steel helped the company post a
relatively good show on EBIDTA margins for the year ended March 2008, which was about
14.05%.
Many analysts felt confident that Tata Steel‟s successful low-cost model in India would
help them to recover from the initial financial stress of the multibillion dollar takeover.
Hitesh Agarwal metal analyst with Angel Broking said, “There are lots of synergies
between the Tata Steel-Corus combine in the long term, like logistics, procurement of raw
materials, geographical mix. But the higher valuation of Corus would put pressure on the
consolidated financials of the company.”32
29
Kant Krishna, “Corus buy hauls Tata Steel next to Reliance”,
http://economictimes.indiatimes.com/Corus_takes_Tata_Steel_closer_to_No_1_spot_/rssarticlesho
th
w/3170078.cms, June 27 2008.
30
“Tata Steel shops for mine Down Under”, http://www.business-
standard.com/common/news_article.php?leftnm=1&subLeft=1&chklogin=N&autono=328603&tab=r,
th
July 14 2008.
31
Ibid.
32
“Tata-Corus: Cautious welcome to High Fives”, http://in.rediff.com/money/2007/feb/01corus3.htm,
st
February 1 2007.
Copyright © 2008 London Business School 10London Business School ecch: Competitors The leading competitor for Tata-Corus was Arcelor-Mittal with crude steel production capacity in excess of 110 mtpa. Arcelor-Mittal employed over 320,000 people in more than 60 countries.33 It led the concept of consolidation in the international steel industry and could claim to be the only truly global steel maker. It enjoyed leadership in steel making for the construction, automobile and packaging industries worldwide. The group held competitive advantage in R&D and technological innovation, possessing large captive supplies of raw material with an extensive distribution network. Arcelor-Mittal had representation in all key markets, emergent or mature, in the continents of Europe, America, Asia and Africa. The next three positions in the list of top ten steel makers were occupied by the Japanese Nippon Steel, South Korea‟s POSCO and JFE Steel, also from Japan. Nippon Steel used the world‟s most advanced technologies for medium-high grade steel which were corrosion resistant with high-strength welds. This provided Nippon the competitive advantage to offer a variety of steel to customers as well as a range of solutions including processing and welding. Pohang Iron and Steel Company, or POSCO was the next competitor for Tata Steel. POSCO acquired land in the state of Orissa in India, to establish a plant, thus directly competing with Tata Steel on its home ground. POSCO was viewed by many Koreans as a symbol of national pride and „can do‟ spirit. With the strong Korean shipbuilding and automobile industry dependent on POSCO for steel, the company had been seen as the bedrock of Korea‟s industrial development over the past 40 years. POSCO had specialization in producing Hot Rolled Steel, Steel Plate, Wire Rod, Cold Rolled Steel, Electrical Steel, and Stainless Steel. POSCO was consistently considered the world‟s best steel manufacturer in terms of productivity in the latter half of the 1980s. JFE Steel Corporation, a part of JFE Holding Inc. possessed the most innovative technology for steel production. The Steel Research Laboratory at JFE Steel was one of the largest of its kind in the global steel industry; the Laboratory, known for its innovation in process technology and product development. The technology developed at the Laboratory was used in related areas such as the chemical engineering industry and the environmental systems business. JFE had always been engaged in product development, it pioneered the development of high-strength steel sheets that were suitable for weight reduction in automotive parts. JFE had expertise in technologies based on precipitation, transformation structure, and texture control in steel production.34 These were the top global steel players which were ahead of Tata-Corus. Besides these, the major threat that could emanate was from China‟s steel production companies. China was the largest consumer of steel due to its burgeoning economy. There were around 800 isolated firms in China that were producing steel and out of these some 125 were integrated steel companies.35 China‟s Bao Steel was at the sixth position in the top ten steel producers. The other big names for steel manufacturing in China were Anshan-Benxi 33 http:// www.arcelormittal.com. 34 http://www.jfe-steel.co.jp/en/research/syoukai.html. 35 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4158. Copyright © 2008 London Business School 11
London Business School ecch:
and Laiwu-Jinan which were also amongst the top steel making companies of the world.
Although China had a very large number of steel companies, most were not expected to
become very efficient because they depended on imported raw material, which limited their
pricing power. Tata Steel might also have had to face competition from Russian and South
American Companies. US companies were not going to be a significant threat to Tata
Steel as the nearly saturated American Market absorbed most of the home production. In
India, the major competitors were SAIL (Steel Authority of India Limited), a government
owned enterprise, Essar Steel and the Jindal Group, but these were manufacturers with
lower efficiencies in steel making, who were unlikely to be a serious threat to the Tatas.
The Road Ahead
Tata had indicated its long-term commitment to Corus with the announcement of a £74
million investment at the Port Talbot works to improve production and reduce emissions.
Peter Fish, Director of Sheffield-based Steel Consultancy MEPS said, “Tata did not buy
Corus just to close the plants down, the technology transfer was the biggest thing behind
the takeover. The idea is to get all the information they need from Corus to push Tata‟s
products back in India more upmarket.”36
Corus announced that it would be increasing the price of reversing mill plate by £80 a
tonne as a result of robust global demand in all key plate-consuming market sectors.
Martin Maley, Director, Commercial for Construction & Infrastructure at Corus Long
Products, said “This rise has come about because demand is so robust. It is also an
opportunity for us to reflect in our UK prices where prices have got to elsewhere in the
European Union.”37 Robert Dangerfield, Manager of Corus Communications acknowledged
that the steel was a cyclical industry and it was very difficult to determine the long-term
process. He further stated that he was confident Corus had the best possible future under
Tata.38
One of the main strategies that drove Tata Steel to acquire Corus was that its low cost
plants in India would be used as points of supply for Corus‟s finishing plants, to supply and
expand its high-end customer franchises in Europe. But to bring in this efficiency would be
a challenge for Tata Steel, because Corus‟s operating profit was only $1.9bn on a
production capacity of 18 million tonnes compared to Tata Steel‟s operating profit of
$1.5bn on a production capacity of 5 millions tones.39 It remained to be seen how Tata
Steel was going to leverage this low cost advantage to Corus.
36
Will Smale, “Welsh steel dragon roars again”, http://news.bbc.co.uk/2/hi/business/7389767.stm,
th
May 11 2008.
37
“Corus announces UK reversing mill plate price increase”,
th
http://www.corusgroup.com/en/news/news/2008_jul_reversing_mill_price_increase, July 9 2008
38
“Welsh steel dragon roars again”, op. cit.
39
“Pedal to the Metal: Challenges of Tata Steel‟s Corus Takeover”
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4109, October 31, 2006.
Copyright © 2008 London Business School 12London Business School ecch:
For the year end 2007, Tata Steel‟s net profit increased by 11% to INR 4,687.03 crores,
while revenues also increased by 11% to INR 17,985 crores and the shares of Tata Steel
increased by 1.9% due to the contribution from Corus businesses. Tata Steel‟s
Muthuraman said, “Ownership of raw materials and a continuous improvement in
production has been the key to Tata Steel‟s profitability. In fact we‟ve believed in owning
raw materials for the past 100 years.”40 The Group Chief Financial Officer of Tata Steel
acknowledged, “We are looking at an overseas group structure below Tata Steel to create
the appetite for acquisitions. Since it would require capital, we are looking at various
options.”41
Tata Steel had been able to withstand raw material price fluctuations due to its captive iron
ore mines. Tata Steel was one of the least-cost makers of steel in the world at the time,
where other private steel companies, hit by iron ore and coal price increases, passed on
the hikes to their customers, prompting the government to clamp down on such price hikes
in order to control inflation. Tata Steel imported nearly one-third of its total coal needed for
local production. Coal prices had increased by $200 per tonne over three months (from
April 2008). However, Tata Steel faced no market restrictions overseas as Corus, which
bought both coal and iron ore from international markets, had passed on all price
increases to customers. Furthermore, Tata Steel and Corus together sold more than two-
thirds of their production in Europe.
Since the merger, Tata and Corus began discovering mutual benefits in several areas of
research and steel-making. Apart from the 15 R&D projects that the two sides have
identified for fast-track implementation, there were several „harvesting projects‟ 42 which
could be exploited commercially by either side. Around 50% of the projects being
exchanged by the two sides were said to be „harvesting‟ projects, where each side put the
others intellectual property rights (IPR) directly into use for production. Among several
harvesting projects of Tata Steel, „hydrogen harvesting‟ was one of the projects to be
adopted by Corus. (Tata Steel developed a process of cracking water into hydrogen and
oxygen by way of sprinkling water on hot slag. While the heat in the slag would otherwise
have gone to waste, hydrogen released in the process could be collected for future use
and also used as a fuel.)
Tata Steel had outlined its „Vision‟ for the future which was to increase the return on
investment (ROI) from around 16% at 2008 to 32% by 2012. The group hoped to be the
global steel industry benchmark for value creation and corporate citizenship. The vision
also envisaged the safety and environmental aspects of manufacturing and encompasses
the Tata Steel Group‟s aspiration to become an „employer of choice‟. It also focused on
reducing the implementation time of projects and improving product mix as well as cost
40
“Tata Steel plans pooling of raw materials”,
http://economictimes.indiatimes.com/News/News_By_Industry/Indl_Goods__Svs/Steel/Tata_Steel_
th
plans_pooling_of_raw_materials/rssarticleshow/3169810.cms, June 27 2008.
41
Ibid.
42
On the occasion of World Environment Day, Tata Steel launched new projects such as rain water
harvesting, hydrogen harvesting, to create awareness in society.
Copyright © 2008 London Business School 13London Business School ecch:
efficiencies. Both companies also took several steps to tap new sources of raw material
and re-engineer two of the Corus plants in Europe. The product mix of Tata Steel would
now include more of auto grade steel, skin panels, special rods, HR auto structurals and
steel for high carbon applications. An investment of about $260 million was being made at
Corus‟ manufacturing facility in the UK, where rails up to 105m in length would be
manufactured. In addition, steps had been taken to upgrade the production of tyre cords.
The initiatives taken by the Tata Steel Group were to create a focus on value creation
rather than just concentrating on product and sales volumes. With renewed attention on
performance improvement and margins, Corus, in turn, was committed to creating
incremental value of $600 million every year.43 Currently, Tata Steel is witnessing about 14%
demand growth in the domestic steel sector every year. The company is also preparing a
vision document for the year 2015 which would be completed by December 2008. Tata
Steel is working on a strategy roadmap entitled „Vision 2015‟ to outline the plans to emerge
as a top league player in the global steel industry. It is also planning to utilise alternative
technologies, developed by Corus, at its proposed steel plants in India. The new concepts
would use iron ore fines and coal for iron making instead of the more expensive lump-ore
and coking-coal.
With the acquisition of Corus, Tata Steel is on its way to becoming one of the top three
steel makers globally by the year 2015. But, will Tata Steel be able to reach the top rung of
the global steel industry in the years to come? Ratan Tata is quietly confident, “I believe
this will be the first step in showing that Indian industry can in fact step outside the shores
of India in an international marketplace and acquit itself as a global player.”44 He specifies
optimistically on behalf of India Inc., “The future potential is enormous but the country's
destiny is in our hands. The time has come to move from small increments to bold, large
initiatives. The time has come to stretch the envelope and set goals which were earlier not
seen to be possible.”45
43
“Tata Steel outlines „vision‟ 2012”,
th
http://www.thehindubusinessline.com/2008/03/04/stories/2008030452400200.htm, March 4 2008.
44
“Tata Steel wins bid for Corus”, op. cit.
45
“Ratan Tata Quotes”, http://www.woopidoo.com/business_quotes/authors/ratan-tata/index.htm.
Copyright © 2008 London Business School 14London Business School ecch:
Exhibit I
Products of Tata Steel
Products
Its Jamshedpur steel works produce hot and cold rolled coils and sheets,
galvanised sheets, tubes, wire rods, construction rebars, rings and
bearings.
In an attempt to 'decommoditise' steel, the Company introduced several
branded steel products, including Tata Steelium (the world's first branded
Cold Rolled Steel), Tata Shaktee (Galvanised Corrugated Sheets), Tata
Tiscon (rebars), Tata Pipes, Tata Bearings, Tata Structura, Tata Agrico
(hand tools and implements) and Tata Wiron (galvanised wire products).
In the financial year 2006-07 revenue from the sale of these branded steel
products was 26% of the company's sales revenues.
Corus' main operating divisions comprise Strip Products, Long Products
and Distribution & Building Systems Division.
Combining international expertise with local customer service, the
company supplied a range of long and strip products to demanding
customers worldwide in markets including the construction, automotive,
packaging and engineering sectors.
The NatSteel group produced construction grade steel such as rebars,
cut-and-bend, mesh, precage bore pile, PC wires and PC strand.
Tata Steel Thailand produced round bars and deformed bars for the
construction industry.
Source: “Tata Steel - Profile”, http://www.tatasteel.com/Company/profile.asp
Copyright © 2008 London Business School 15London Business School ecch:
Exhibit II
Awards and Recognition – Tata Steel
Awards and Recognition
World Steel Dynamics ranked Tata Steel as the world's best steel maker (for
two consecutive years) in its annual listing in February 2006.
Tata Steel has been conferred the Prime Minister of India's Trophy for the Best
Integrated Steel Plant five times.
It has been awarded Asia's Most Admired Knowledge Enterprise award in 2003,
2004 and 2006.
Conferred the prestigious Global Business Coalition Award for Business
Excellence in the Community in recognition of its pioneering work in the field of
HIV/ AIDS awareness.
Tata Steel works has been conferred the prestigious social accountability (SA)
8000 certification by social. Accountability international (SAI), USA. It is the first
steel company in the world to receive this certificate.
Corporate Sustainability Report of Tata Steel hailed by United Nation's
Environment Programme (UNEP) and Standard & Poor as strongest, submitted
by any corporate house from emerging economies.
Best governed company Award 2006 for setting high standards in governance
practices.
Tata Steel conferred Mother Teresa Award for Corporate Citizenship.
Tata Steel won "Award for Corporate Social Responsibility in Public health" by
US- Indian Business Council (USIBC), Population Services International (PSI)
and the Center for Strategic and International Studies (CSIS) in 2007.
Awards 2008
Tata Steel wins TERI Corporate Award for its HIV / AIDS initiative
Jamshedpur, June 1, 2008
National safety awards for Tata Steel‟s West Bokaro and Jharia division
Jamshedpur, May 07, 2008
Tata Steel‟s Dr. T Mukherjee awarded the IOM3 Bessemer Gold Medal
Jamshedpur, April 23, 2008
Tata Steel wins Amity Corporate Excellence Award
Jamshedpur, February 22, 2008
Source: (a) “Tata Steel - Profile”, http://www.tatasteel.com/Company/profile.asp
(b) “Awards 2008 – Tata Steel”, http://www.tatasteel.com/newsroom/awards.asp
Copyright © 2008 London Business School 16London Business School ecch:
Exhibit III
World’s Big Deals
BIG DEALS...
Target Buyer Value ($bn) Year
Arcelor Mittal Steel 32.2 2006
NKK Kawasaki
14.1 2001
Corp Steel
LNM
Ispat Intl 13.3 2004
Holdings
Krupp
Thyssen 8.3 1997
AG
Corus Tata Steel 8.0 2006
Dofasco Arcelor 5.2 2005
Intl Steel Mittal Steel 4.8 2005
Source: “Corus accepts takeover bid by Tata Steel”,
th
http://www.rediff.com/money/2006/oct/20tata.htm, October 20
2006
Exhibit IV
The World’s Top Steel Producers
Rank Name of the Capacity
Company (million
tones)
1 Arcelor-Mittal 110.0
2 Nippon Steel 32.0
3 Posco 30.5
4 JEF Steel 30.0
5 Tata Steel – Corus 27.7
6 Bao Steel China 23.0
7 US Steel 19.0
8 Nucor 18.5
9 Riva 17.5
10 Thyssen 16.5
Source: http://www.domain-
b.com/companies/companies_t/tata_steel/20070201_tata_corus.htm
Copyright © 2008 London Business School 17London Business School ecch:
Exhibit V
Aggregate Production Capacity of Tata-Corus (million
tonnes per annum)
Present Projected
Capacity Capacity by
2015
Corus Group 19 19
Tata-Steel Jamshedpur 5 10
Tata Steel Jharkhand* - 12
Tata Steel Orissa - 6
Tata Steel Chatisgarh - 5
NatSteel-Singapore 2 2
Millennium Steel-Thailand 1.7 1.7
Total 27.7 55.7
*-planned steel plants in India.
Source: http://www.domain-
b.com/companies/companies_t/tata_steel/20070201_tata_corus.htm
Exhibit VI
Powerful Combination – Strong Culture Fit
Source: “Tata Steel and Corus: A Unique Global Partnership”,
th
http://www.tatasteel.com/images/Pressmeeting1130hrsUK.pdf, October 20 2006
Copyright © 2008 London Business School 18London Business School ecch:
Exhibit VII
Combined Group Structure
Source: “Tata Steel and Corus: A Unique Global Partnership”,
th
http://www.tatasteel.com/images/Pressmeeting1130hrsUK.pdf, October 20 2006
Copyright © 2008 London Business School 19London Business School ecch:
Appendix I
Mergers and Acquisitions of Tata Group
Tata Acquired Stake
Country Value Year
company company acquired
Tata Motors Jaguar and UK 100 per cent $2.3 billion 2008
Land Rover
Tata Steel Corus UK 100 per cent $7.6 billion 2007
Indian Starwood Group Australia 100 per cent USD29 December
Hotels (W Hotel) (wholly- million 2005
owned)
The Pierre US USD9 million Lease of July 2005
property
Regent Hotel India Effective 100 Rs450 September
(renamed Taj per cent stake crore 2002
Lands End)
Tata Wündsch Germany Euro 7 September
Autocomp Weidinger million 2005
Systems
Tata Brunner Mond UK 63.5 per cent Rs508 December
Chemicals crore 2005
36.5 per cent Rs290 March
crore 2006
Indo Maroc Morocco Equal partner USD38 March
Phosphore S.A. million 2005
(IMACID) (Rs166
crore)
Hind Lever India Amalgamation June 2004
Chemicals
Tata Coffee Eight 'O Clock US 100 per cent USD220 June 2006
Coffee (wholly- million
Company owned) (Rs1015
crore)
Tata Tata Infotech India February
Consultancy 2006
Services Comicrom Chile November
2005
Pearl Group UK Structured October
deal 2005
Financial Australia October
Network 2005
Services
Phoenix Global India July 2004
Solutions
Copyright © 2008 London Business School 20London Business School ecch:
Aviation India March
Software 2004
Development
Consultancy
India (ASDC)
Airline Financial India January
Support 2004
Services India
(AFS)
Tata Indigene US < 30 per cent Not July 2005
Industries Pharmaceuticals disclosed
Inc
Tata Tertia Edusoft Germany 90 per cent Not January
Interactive Gmbh disclosed 2006
Tertia Edusoft Switzerland 90.38 per cent
AG
Tata Usha Ispat, Redi India 100 per cent Rs115 January
Metaliks Unit (wholly- crore 2006
owned)
Tata Motors Tata Finance India Merger April 2005
Hispano Spain 21 per cent Euro12 February
Carrocera million 2005
(Rs70
crore)
Daewoo Korea 100 per cent KRW120 March
Commercial (wholly- billion 2004
Vehicle owned) (USD102
Company million,
Rs465
crore)
Tata Steel Millenium Steel Thailand 67.11 per cent USD167 April 2006
million
(Baht6.5
billion)
NatSteel Asia Singapore 100 per cent S$468.10 February
(wholly- million 2005
owned)
Tata Sons VSNL India February
2002
Tata Sons Computer India November
(TCS) Maintenance 2001
Corporation
(CMC)
Tata Sons Energy Brands US 30 per cent USD677 October
through Inc million 2006
Tata Ltd and
Tata Tea
Copyright © 2008 London Business School 21London Business School ecch:
through
TTGB
Investments
Tata Tea Tetley Group UK 100 per cent GBP271 February
and Tata (wholly- million 2000
Sons owned)
Tata Tea Joekels Tea South 33.3 per cent GBP0.91 September
through Packers Africa million 2006
Tata Tea
(GB)
Tata Tea JEMCA Czech Assets: GBP11.60 May 2006
through Republic intangible and million
Tata Tea tangible
(GB)
Tata Tea Good Earth US 100 per cent USD31 October
through Corporation & (wholly- million 2005
Tata Tea FMali Herb Inc owned)
(GB)
Tata Tech INCAT UK August
International 2005
Tata Hughes India 50.83 per cent Rs858.83 December
Teleservices Telecom (India) crore 2002
Trent Landmark India 76 per cent USD24.09 August
million 2005
(Rs103.60
crore)
VSNL Tata Power India September
Broadband 2005
Teleglobe US July 2005
International
Tyco Global US November
Network 2004
Dishnet DSL's India March
ISP division 2004
Gemplex US July 2003
th
Source: “Mergers and Acquisitions”,http://www.tata.com/0_about_us/tatam&as.htm, January 20
2008
Copyright © 2008 London Business School 22London Business School ecch:
Appendix II
Illustration of Tata steels Global Strategy with the use of Global Strategy
Framework
1. Identify business unit: Amongst the various SBU of Tata groups, I have selected Tata
steel company (with special reference to their take over of Corus) as the SBU for the study
of global strategy framework.
2. Evaluate Industry potential for globalisation: Market factors pushed for
globalization. The market needs for steel was homogeneous and they had global
customers. Because of homogeneity of needs, the brands and advertising were
transferable. Economic factors were also favourable for globalization. Because of
standardization of core products, the company was able to enjoy economies of scale in
manufacturing. Since the company is ninety nine years old, they also enjoy the benefit of
steep learning curve. Again, the raw material cost in U.K. is high. This can be offset by
sourcing from India, where raw materials are comparatively cheaper. Environmental
factors increased the potential for global strategy. Since Corus had good sales network at
various countries, the transportation costs of Tata steel will be reduced. Again, government
policies like easing foreign currency restrictions both in UK and India were favourable for
global strategy. Global moves of competitor i.e. Mittal acquiring Arcelor also forced the
Tata steel to go for global strategy.
3. Evaluate current extent of globalization: The current extent of globalization is
measured under 5 dimensions.
Market participation: Tata steel has sales in various countries like USA, Sri Lanka,
Nepal, Shanghai etc but it lacked global identity or image.
Product standardization: The basic product was standardized throughout the
world. At final stages the product was customized as per the requirements.
Activity concentration: Tata steels technological and integration, finance, strategy
etc were concentrated only in India whereas the manufacturing activities were
dispersed in India, USA, UK, Thailand, Vietnam, Malaysia etc. Trading was done
in Bangladesh, Sri Lanka, Nepal, South Africa, Hong Kong, etc.
Marketing uniformity: The market positioning and marketing mix strategy were
uniform throughout the world.
Integration of competitive moves: Tata steel has taken an integrated approach to
global competitors. They have tough competition with Mittal steels in almost all
countries.
4. Identify strategic need for change in the extent of globalization: From the previous
analysis, Tata steel concluded that its extent of globalization was significantly lower than
the industry potential and lower than its competitor‟s global strategy. The Mittal Arcelor is
ranked number one in steel industry in the world whereas the Tata steel ranked fifty sixth
Copyright © 2008 London Business School 23London Business School ecch:
(before acquiring Corus). Furthermore, the industry potential for Tata steel had a strong
need to develop a more global strategy. The next issue was whether Tata steel would be
able to implement such a strategy.
5. Evaluate organisational / internal factors: To internal ability of Tata steel to
implement global strategy is tested under the following factors:
Structure: The head quarter of Tata steel was located in India. The five main
functions such as technological and integration, finance, strategy, corporate
relation and communication and global minerals were centralized. While the
production, selling and distribution was decentralized and the divisions heads were
given autonomy to take decisions.
Management processes: The management processes were favourable for global
strategy. Since the strategy and corporate communication was centralized, there
was well cross- border co-ordination.
People: There were no foreign nationals working in India either at corporate or
divisional levels. There were many foreign nationals overseas, but these were
mostly in their home countries and there was little movement between international
and domestic jobs. But the leader Ratan Tata, through his action and statements
had a global approach.
Culture: Tata steel had a strong Indian national identity than a global identity. But
some SBU of Tata group like Tetley Tea, Taj group of Hotels had created global
identity.
6. Identify organizational ability to implement globalization: Tata steel had the ability
to implement globalization because of its rich experience of 99 years of running a business
successfully in India. Hence it had the ability to acquire big steel company like Corus.
7. Diagnose scope and direction of required changes: The most important change, the
Tata steel has to do is to encourage the transfer of people between nations. According to
IISI data, the average hourly rate of pay in UK steel was 6 times that of Brazil and 10 times
that of India. So by movement of people, the company can reduce the cost and strengthen
its competitive advantage of low cost leadership. Tata groups in foreign countries should
blend into the adopted corporate culture. For better brand visibility, more Tata companies
will have to go abroad and learn to flourish abroad.
Source: Kamath Shilpa “Global Strategy Framework- an Illustration of Tata Steels”,
http://www.articlesbase.com/international-business-articles/global-strategy-framework-an-illustration-
th
of-tata-steels-441441.html, July 6 2008
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