Internationalisation Strategies of the Tata Group in the early 2000s

This article covers the internationalisation strategies of four of the businesses of the Tata Group in the early 2000s: Tata Consultancy Services, Indian Hotels Company, Tata Tea and Tata Steel.

**A caveat: the information regarding how each business had planned its expansion is based on the facts known at the time of the execution of their strategies in the early 2000s. The dynamic nature of the businesses would now present us with newer information.

Tata Research Development and Design Centre

Tata Research Development and Design Centre (Photo credit: Wikipedia)

Tata Consultancy Services (TCS)

The nature of consultancy services is such that they are not necessarily location-bound as the ubiquity of the Internet allows for the low-cost exchange of information (Hamill, 1997) across geographical distances. As such, a “Born Global” (Autio et al., 2000) like TCS is able to “decouple” some parts of its service production from consumption (Erramili, 1990), for e.g., producing a presentation and then emailing it to the client who will read it across another time zone, and “derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt and McDougall, 1994).

Its long-term M&A strategy focused on targeted additions to TCS’ technological capabilities as such service-related capabilities are replicable. To accelerate its global footprint, it behooved TCS to develop internal staff capabilities instead of using the market to manage M&A. Experience gained becomes tacit institutional know-how (Nonaka, 1994) which translates to replicating acquisition processes and faster exploitation of similar M&A opportunities. This is observed in the TCS acquisition trend commencing in 2001 with one company followed by the subsequent waves in 2004, 2005 and 2006 with 3 companies in each year.

Indian Hotels Company (IHC)

Hotel services are location-bound and simultaneously produced and consumed (Boddewyn et al., 1986). The hotel industry has a “high frequency” of management contracts (Dunning and McQueen, 1982) as both hotel owners and hotel management companies enter into mutually advantageous arrangements.

This provided IHC the opportunity to be closely connected to target markets with “intangible commitments” (Hadjikhani, 1997) at low-risk exposure (in its case, The Pierre hotel in the US). These contracts increased IHC’s learning of foreign market knowledge (Forsgren, 2002), allowing it access to “economies of information” to achieve desired scale effects (Galbriath and Kay, 1986), and aided in its subsequent acquisitions (Johanson and Vahlne, 1977) (in its case, hotels in Boston and San Francisco).

The employment of small equity positions allowed IHC to gain partial stakes across more entities rather than full ownership over a few by spreading risk across different baskets,  and IHC’s subsequent deviation into acquisitions from December 2005 could be due to a concern for quality dilution that could be be addressed only through direct ownership (Contractor and Kundu, 1998).

Tata Tea (TT)

TT produced mass market tea and Tetley’s higher-end, branded market tea that complemented TT’s product became the avenue to reposition the TT brand up the value chain and improve its ‘advantage package’ (Sandén and Vahlne, 1976, cited in Johanson and Vahlne, 1990).

As Tetley was thrice the size of TT and posed a high risk to acquire, TT had to fit its resources to the external opportunity (Conner, 1991). TT employed the use of a special purpose vehicle (SPV) to provide it a ‘bankruptcy remote’ (Klee and Butler, 2002) manner for the buyout. The non-recourse debt-financing approach and ring-fencing of the financing abroad also sought to spread, isolate and distance the risk and legal liability thereof from TT.

Part of TT’s consideration for acquisition was also good management talent, a specialised asset (Erramilli and Rao, 1993) which it retained to continue with the day-to-day operations without disruptions.

Tata Steel (TS)

TS’ internationalisation strategy is evidenced by its development of business relationship networks (Johansson and Mattsson, 1988) to upscale itself on the ‘advantage cycle’ (Sandén and Vahlne, 1976, cited in Johanson and Vahlne, 1990). For e.g., TS’ JV with NYK Line was to exercise greater control over the shipping logistical end of its supply chain; an essential portion of steel production business. Its JV with BlueScope Steel was so that it could expand its product offering downstream while accessing knowledge and sharing its risks of market entry into Southeast Asia. The price of steel as a commodity fluctuated significantly and had a great impact on TS’ profits, which perhaps also explained its progress into “branded” steel products to provide a better cushion.

It also acquired companies in advanced markets to improve its R&D capabilities but more importantly, to engage in preemptive internationalisation (Hout et al., 1982). Following the merger of Arcelor and Mittal Steel, there could be further consolidations within the steel industry and it behooved TS to acquire Corus in order to grow to become a consolidated entity or risk becoming a minor, fringe player which eventually becomes an acquisition target as other consolidated entities grew stronger.

Additionally, in order for TS to realise the cost synergies and benefits through the de-integrated model with Corus, TS would have to engage its planned expansions in ‘online internationalisation’ (Yamin and Sinkovics, 2006) for parts of the value chain that are online (Sahay and Gould, 1998). The online architecture would allow for an integrated delivery platform (Porter 2001) for the global operations of ‘finishing facilities in places where customers exist and primary manufacturing facilities in places where manufacturing is competitive’ (Trikannad, 2005).

 

J.CJ

 

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