Too Good to Failby Ann Graham

from strategy+business issue 58, Spring 2010 reprint number 10106

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India’s Tata, one of the world’slargest conglomerates, is basing an

ambitious global strategy on 142 yearsof social entrepreneurship.

TOOGood

by Ann Graham

TOFail

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When India’s Tata Tea Ltd. purchased Britain’sTetley Tea Company for US$450 million in early 2000— at the time the largest sum ever paid by an Indiancompany for a foreign acquisition — the rationale forthe deal was clear. Tata Tea would not just gain one ofthe world’s most iconic brands. It would also transformitself from a sleepy farming operation with a core busi-ness of barely profitable tea plantations to a high-marginglobal distributor of specialty teas and other healthy bev-erages. Soon after the acquisition, Tata made anotherlogical move. It sold its vast plantations in Munnar, amile-high, economically underdeveloped community inthe Western Ghat mountains of South India, where Tatahad been the largest employer for a century.

But the transaction was anything but routine.Instead of working out a lucrative deal with eager invest-ment bankers, bribing local politicians to mollify them,laying off workers, and selling to the highest bidder, assome other Indian companies shedding a moribundbusiness might have done, Tata Tea sold 17 of the 25plantations to its own former employees. Layoffs weregenerally limited to one per household, and Tata gave agroup of voluntary retirees enough cash to buy equity inthe new company that was formed. (That company,Kanan Devan Hills Plantation Company [KDHP], stilloperates as an employee-owned enterprise.)

Although Tata Tea would henceforth maintain onlylimited business interests in the area (including someequity in KDHP), the company continued its activesocial role there. It still subsidizes a range of social ser-vices and KDHP employee benefits, including freehousing for plantation workers, a private school, an edu-cation center for disabled children and young adults,and the newly renovated Tata General Hospital in

Munnar. Tata still remains a major customer of KDHP,which helps guarantee a stable supply of tea at compet-itive prices.

Such gestures of largesse and long-term commit-ment are not unusual for Tata, the massive, mostlyIndian group of companies to which Tata Tea belongs.Roughly 90 companies are part of this conglomerate, or“family” (as many Tata executives prefer to call it). Eachis led by its own executive team and governed by its ownboard of directors. But they are bound together by aninterlocking governance structure and a set of corporatevalues passed down over 142 years from the founder,Jamsetji Nusserwanji (J.N.) Tata. As of 2010, Tata is a$70.8 billion commercial enterprise, employing about350,000 people in 80 countries, across an eclectic arrayof industries — including hotels, consumer goods, min-ing, steel manufacturing, telecommunications, trucksand cars (including the much-publicized $2,500 TataNano), electric power, credit cards, chemicals, engineer-ing, and IT services and business process outsourcing.Not even General Electric sells such a wide range ofproducts and services.

Since its founding in 1868, Tata has operated onthe premise that a company thrives on social capital (thevalue created from investing in good community andhuman relationships) in the same way that it relies onhard assets for sustainable growth. With every generation,Tata’s executives and managers say, they have nurturedand improved their capability for “stakeholder manage-ment”: basing investments and operating decisions onthe needs and interests of all who will be affected. ForTata, this means shareholders, employees, customers,and the people of the countries where Tata operates —historically India, but potentially anywhere.

Ann Grahamann.graham@mac.comis the editorial director of theConscious Capitalism Instituteat Bentley University inWaltham, Mass., anda cofounder of ANDVantageLLC, a strategy consulting firmthat focuses on the inter-dependence of financial andsocial sustainability. She isa former deputy editor ofstrategy+business.

Previous pages:The Taj Mahal Palace &Tower, built in 1903 by TataGroup founder J.N. Tata,photographed on November26, 2009, the first anniversaryof militant attacks that killed166 people in India, including36 in the hotel.

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“We may be among the few companies around theworld who think and act first as a citizen,” says R.Gopalakrishnan, an executive director of Tata SonsLtd., the privately held holding company of Tata, and adirector of several Tata companies. Indeed, the primacyof citizenship — a philosophy associated historicallywith J.N. Tata — continues to be used as a corporatecredo: “In a free enterprise, the community is not justanother stakeholder in business, but is in fact, the verypurpose of its existence.”

If social benefits are one major goal of Tata’s strate-gies, another is rapid and continuing growth, in as manyindustries and venues as possible, on behalf of both phil-anthropic and fiduciary commitments. “We are hard-nosed business guys,” says Gopalakrishnan, “who like toearn an extra buck as much as the next guy, because weknow that extra buck will go back to wipe away a tearsomewhere.”

Before the 1990s, when Indian businesses were pro-tected from outside competition but also limited bytight government controls, Tata’s domestic expansionand diversification positioned the group as one of thetwo or three largest companies in India. Since 1991, thegroup has grown dramatically, stimulated by an aggres-sive $20 billion international acquisition campaign.Revenues and profits rose from $5.8 billion and $320million, respectively, in fiscal year 1992 to $62.5 billionin revenues and $5.4 billion in profits in fiscal year2008. Approximately 35 percent of sales in fiscal year2009, which were equal to roughly 2 percent of India’stotal GDP, were generated at home.

Tata’s international acquisitions have transformed itfrom a company deeply grounded in India into one ofthe world’s most visible conglomerates. In 2007, Tata

Steel acquired the Anglo-Dutch steel giant Corus Ltd.for $12.1 billion; that same year, Tata’s Indian HotelsLtd. company paid $134 million for the venerable Ritz-Carlton hotel in Boston and startled the city’s elite“Brahmins” by renaming it the Taj Boston. In 2008,Tata Motors’ $2.3 billion takeover of Jaguar Land Rover(JLR) received much press and analyst attention.

At the same time, in part as a result of its overseasspending spree, Tata’s strategy has been called into ques-tion. In recent years, the group has had to borrow moremoney, float more equity, and dip more deeply intointernal funds than ever before in its history. The timingof its overseas purchases, especially the highly leveragedCorus and JLR deals, couldn’t have been worse in termsof immediate financial returns; the worldwide recessionof 2008–09 slashed profits, hitting autos and steel hard-est. In response, the Corus unit launched a major effi-ciency program that reduced operating expenses bymore than $1 billion.

To many observers, Tata’s strategy contradicts theconventional wisdom about conglomerates: that theyare innately unfocused and sluggish. Indeed, a 2002Fortune magazine profile characterized the group’slabyrinthine corporate structure, unwieldy mix of busi-nesses, and low profitability in every sector (at that time)except computer services, referring to Tata as “one ofIndia’s most beloved companies [and] a mess.”

Moreover, as Tata has outgrown Indian capital mar-kets, it has sought more financing from global investors,who are generally less patient than those in India. Intoday’s competitive world, the group’s community-oriented generosity can seem as outmoded and unrealis-tic as the “company town” paternalism of AndrewCarnegie and Henry Ford.

The group’s leaders argue that theiremphasis on “family” values

holds Tata together as it diversifiesand expands outside India.

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To justify their decisions, Tata’s group-level leadersargue that their emphasis on “family values” represents acritical aspect of their corporate culture. It is strongenough, they say, to hold Tata’s family of companiestogether as it diversifies and expands outside India. It isalso essential to the group’s sustained financial success.Moreover, Tata’s corporate image, as measured by inde-pendent groups such as the New York–based ReputationInstitute, is viewed more favorably than that of Google,Microsoft, GE, Toyota, Coca-Cola, Intel, and Unilever.And, as billions of people move up from the bottomof the pyramid (as writer C.K. Prahalad calls the eco-nomic milieu of the poorest third of the world’s popula-tion), the group’s combination of developing-countryexperience and socially progressive business values may

give it a distinctive edge.In short, Tata’s leaders believe the group can survive

on the world stage only by being both too big to beatand too good to fail.

“We had set ourselves certain goals,” noted TataSons chairman Ratan N. Tata in a 2006 interview, “chiefamong which was to go global — not just to increaseour turnover but also to go to places where we could cre-ate a meaningful presence [and] participate in the devel-opment of the country.”

Past as PrologueLike that of many long-running family businesses —Sainsbury, Toyota, and S.C. Johnson come to mind —Tata’s culture can best be understood as a reflection of

A Tata Timeline

Jamsetji NusserwanjiTata, age 29, establishesa private trading firmin Bombay.

Queen Victoria is proclaimedempress of India; J.N. Tataopens his first textile mill onthe same day, January 1.

J.N. Tata convertshis trading firm intoa company, takinghis son Dorab asa partner.

1877

1868

1887

The J.N. Tata Endowmentfor Higher Education, oneof the world’s first charitabletrusts, is set up.

1892

In a letter to his son Dorab,J.N. Tata lays out a vision for anew city near the steel plant.

1902

The Tatas open theTaj Mahal Palace, India’sfirst luxury hotel and oneof the first buildings inBombay with electricity.

1903

J.N. Tata dies.Dorab Tatabecomeschairman ofTata Sons.

1904

The Tata Iron and Steel Company issuesthe first public offering on the BombayStock Exchange, with plans to build asteel mill in the village of Sakchi.

1907

The Indian Institute ofScience, dedicated to highereducation and scientificresearch in India, opensin Bangalore.

1911

The first ingots of steelroll off the assemblylines of the Sakchi plant.Tata Steel introducesan eight-hour workday.

1919Viceroy Lord Chelmsfordrenames the city ofSakchi as Jamshedpurin honor of J.N. Tata.

With Tata Steel on theverge of bankruptcy,Dorab pledges his entirepersonal fortune, includinghis wife’s jewels, for a loanto pay salaries and debts.

1924

Nowroji Saklatwalabecomes chairmanof Tata Sons.Tata Airlines, the firstIndian airline, islaunched. Jehangir R.D.(J.R.D.) Tata pilotsthe inaugural flight.

1932

J.N. Tata meetsGeorge Westinghouseand visits NiagaraFalls to see firsthandhow hydropowergeneration works.

1893

J.R.D. Tatabecomes chairmanof Tata Sons.

1938

1870 1880 1890 1900 1910 1920 1930 1

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1912

the founder’s beliefs and ingenuity, honed through gen-erations. J.N. Tata studied to be a priest in the Parsi reli-gion (also known as Zoroastrianism), but pursued acommercial career because he believed he could do morefor more people that way. As a fervent nationalist andentrepreneur, he sought to amass enough wealth andinfluence to elevate the Indian people and their com-munities, helping to prepare them for a struggle againstBritish rule. Although he eschewed the priesthood, Tataremained loyal to the tenets of the sect. The bedrock ofthis tiny religion — there are only 23,000 Parsis in Indiaand 100,000 worldwide — is the notion that a life welllived must dedicate itself to charity and justice.

“The culture of the Tatas comes from decades ofleadership that espouses a set of corporate values that is

quite extraordinary for any company,” says TarunKhanna, the Jorge Paulo Lemann Professor at HarvardBusiness School and an expert on the company.

At age 29, J.N. Tata founded the Tata business as asmall trading company. It prospered, and in 1877 heconverted an old oil mill in Bombay (now Mumbai)into a textile factory and financed it with stock issued inIndia’s first private placement. After making a small for-tune in textiles, he developed a plan for his family’s long-term role in India’s future. Starting with industrial infra-structure, he designed and planned India’s first domesticsteel plant, to be located about 800 miles east ofMumbai. This meant taking on the racial prejudices anddismissive attitudes of the British colonial viceroys,whose approval was needed.P

hotographscourtesyofTataCentralArchivesCollections;

2009timelineimage©Reuters/HoNew

2009

Tata Motors launchesthe Nano, the world’slowest-costautomobile.

2000Tata Tea acquiresTetley through India’sfirst cross-borderleveraged buyout.The Tata Council for Community

Initiatives (TCCI) is founded topromote sharing of best practicesin community engagement andemployee volunteering.

1996

1968

Tata Chemicals sets up asoda ash factory in Mithapur,Gujarat (known in Hindi as“the city of salt”) on theArabian Sea.

1939

1946Tata Airlinesbecomes apublic companyand is renamedAir India Ltd.

India is grantedindependence fromBritish rule and becomesa sovereign nation.

1947

Air India is nationalized.

1953

Ratan N. Tata becomeschairman of Tata Sons.

1991

Tata Engineering andLocomotive Company(Tata Motors) formsa partnership withMercedes-Benz AGto manufacturecommercial vehiclesin India.

1954

Tata Consultancy Services(TCS) is founded.

Tata Motors launchesthe Indica, the firstindigenously manufacturedpassenger car in India.

1998

With the acquisition ofCorus Ltd. for $12.1 bil-lion, Tata Steel becomesthe world’s sixth-largeststeel company and thefirst Indian company in theFortune Global 500.

2007Tata Motors buys the luxury carbrand Jaguar Land Rover for$2.3 billion. In November, terror-ists attack and take hostages atseveral locations in Mumbai,including the Tata-owned TajMahal Palace hotel.

2008

Tata is a $70.8 billionenterprise with 90major operatingcompanies and350,000 employeesin 80 countries.

2010

1940 1950 1960 1970 1980 1990 2000 2010

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Then he moved on to expanding and improvingeducation opportunities for Indians. In 1892, he creat-ed one of the world’s first charitable trusts, the J.N. TataEndowment for Higher Education. This scholarshipprogram sent bright young Indians of limited meansoverseas for training in science, engineering, law, gov-ernment administration, and medicine. One early grantrecipient, a woman named Freny K.R. Cama, would goon to become India’s first gynecologist. It was especiallyimportant to Tata that Indians be admitted to the civilservice, which was closed to them under the BritishEmpire; this would show that they were capable of gov-erning themselves. By 1924, with some restrictions lift-ed by the British, one out of every five Indians in thecivil service would be a J.N. Tata Scholar. (Today, thesame scholarship is one of the most prestigious educa-tion awards in the country.)

In his final years, in a series of letters to his sonDorab, J.N. Tata laid out his vision for a new type ofindustrial community to be built near his steel factory(which was still under construction). He wanted widelyavailable electric power; wide, tree-lined avenues; beau-tiful parks; and housing for workers that featured run-ning water — then nearly unimaginable, and even todayuncommon in India. Meanwhile, back in Bombay, heplanned and built the Taj Mahal Palace, a hotel as luxu-rious as any of its European counterparts. A devotee ofarchitecture and design, Tata chose the decor himself.On a trip to Paris, he picked out the wrought iron pil-lars that still stand in the hotel ballroom.

After J.N. Tata’s death in 1904, Dorab assumed thetitle of chairman. He and Ratan Tata (namesake of thecurrent chairman) took over the leadership of theirfather’s company, which they renamed Tata and Sons

(later, Tata Sons) in his honor. They spun out otherindustrial companies, making such products as tin plate,steel tubes, and vehicles. (The Tata Engineering andLocomotive Company later became Tata Motors.)These and other new businesses were set up to supplysome commercial good or service that India didn’t yethave. Tata made paper, cement, and soaps; sold insur-ance; and printed and published books. India’s first air-line was Tata Airlines, which took flight in 1932; by1953, it had been nationalized and renamed Air India.

Most of the managing directors (CEO equivalents)of these companies were not members of the Tata fam-ily. But the chairman of Tata Sons has always been a rel-ative by marriage or blood. Dorab and Ratan Tata (whowere both later knighted by the British Indian Empire)carried out their father’s commitment to economic de-velopment and community welfare. In 1912, they com-pleted the steel mill begun by J.N. Tata and built thetown he envisioned (later named Jamshedpur after theirfather), and eventually powered it with India’s firsthydroelectric plant.

Also in 1912, they expanded J.N. Tata’s notion ofcommunity philanthropy to include the workplace.Dorab instituted an eight-hour workday, ahead of justabout every other company in the world. In 1917, heinvited the famous British labor social scientists Beatriceand Sidney Webb to recommend a medical-services pol-icy for Tata employees. The company would be amongthe first worldwide to institute modern pension systems,workers’ compensation, maternity benefits, and profit-sharing plans.

Over the years, Tata’s complex, interwoven gover-nance structure evolved to ensure that profits wouldbe reinvested on behalf of stakeholders, especially cus-

Tata Consultancy Services (TCS),established in 1968, became the first

Indian provider of offshoredinformation technology services.

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nexus of the business. The trusts fund a variety of proj-ects (for example, in clean water delivery, literacy, andprenatal care); they founded and still support such cher-ished institutions as the Indian Institute of Science (apremier research university), Tata Institute ofFundamental Research, the National Centre for thePerforming Arts, and the Tata Memorial Hospital, aninnovative cancer treatment center in Mumbai. EachTata company, in turn, channels more than 4 percent ofits operating income to the trusts, and every generationof Tata family members has left the bulk of its wealth tothem. This makes the Tatas noticeably less wealthy asindividuals than their counterparts at other Indianfamily-owned megacompanies.

All Tata businesses annually earmark part of theiroperating expenditures for social, environmental, andeducation programs. For example, Tata Steel sets itsbudget for social services in the community as a per-centage of pretax operating income. In good years, itmight be 4 percent, and in lean years, 18 percent, butthe absolute amount does not change. At Tata Steel,money goes to employ doctors, teachers, rural develop-ment experts, athletic coaches, geologists, social workers,and others — often known internally as members ofcorporate sustainability teams — in ongoing commu-nity service activities in Jamshedpur and the surround-ing rural villages.

The group’s social expenditures add up to millionsof dollars annually: $159 million in fiscal year 2009 forall the trusts and businesses. The Tatas regard this spend-ing as an operating investment. “For us, [communitysupport] is a fixed cost of manufacturing,” says ParthaSengupta, vice president of corporate services at TataSteel. In 2008, this unusual level of community involve-ment helped the steel company win Japan’s prestigiousDeming Prize for quality — the first Indian company todo so.

Even Tata’s innovations — its efforts to find newmarkets through the launch of products and services —tend to have a social benefit component. The $2,500Nano car, for instance, was conceived (with Ratan Tatataking part in many of the brainstorming sessions) as anaffordable and safe family car designed to wean Indians

tomers and local communities. Each new Tata companywas set up independently, with its own board of direc-tors; some sold shares publicly, while others maintainedprivate ownership. All paid fees to use the Tata name.Tata Sons, which remained privately held, kept equitystakes in nearly all the group businesses; today, it pro-vides investment capital and sets overall group strategy.In its history, there have been only five chairmen of TataSons, all family members: J.N. Tata; his son Dorab;J.N.’s nephew Nowroji Saklatwala (who also pursueda career as a professional cricket player, even during histenure as chairman); J.N.’s second cousin, JehangirRatanjani Dadabhoy (J.R.D.) Tata; and current chair-man Ratan Tata, the founder’s great-grandson, whojoined the group in 1962.

(There is no clearly acknowledged successor toRatan, who turns 73 in 2010. One candidate may be theonly other Tata family member working for the group:Ratan’s half-brother Noel, the managing director ofTrent Inc., a Tata retail company in India.)

J.R.D. Tata, who was chairman from 1938 to 1991,is generally credited with expanding the group’s successin India after the country gained independence. He nur-tured its reputation for integrity and innovation, andcontinued exploring new technological domains. In1968, for example, Tata established Tata ConsultancyServices (TCS), which became the first Indian providerof offshored IT services. TCS is now the second-largestcompany in the world in this business (after the otherIndian global outsourcing leader, Infosys TechnologiesLtd.). Other individual businesses came and went overthe years (soaps and toiletries, for example, were sold toUnilever), but the same “big five” industries representedthe core sources of revenue through the 2000s: steel,motor vehicles, power, telecom, and IT services.

Service without SinPerhaps the most unorthodox aspect of the overall Tatastructure is the central role of the 11 charitable truststhat together own 66 percent of Tata Sons and that areintimately involved in its governance. (Family membersown only 3 percent.) No other company of this size andvisibility has placed its charitable arm at the controlling

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off their dangerous motor scooters, and provide themwith a symbolic entry into the middle class.

“Ratan’s main objective with the Nano was todemonstrate to the automotive industry that it is possi-ble to cost-effectively make a vehicle that is so small,”says Elias Luna, CEO of Luna & Goodman, an inter-national corporate finance advisory firm.

Another Tata project brought together engineersfrom TCS, Titan Industries (Tata’s watch manufacturingcompany), and Tata Chemicals to develop a compact,in-home water-purification device. Launched in 2009,the Tata Swach (the name means “clean” in Hindi) costsless than 1,000 rupees ($21), with filters that last abouta year for a family of five. This makes it affordable formillions of Indians who have no other access to safe

drinking water in their homes. The Swach was inspiredin part by the 2004 tsunami, which left thousands ofpeople without clean drinking water.

TCS also designed and donates an innovative soft-ware package that teaches illiterate adults how to read in40 hours. “The children of the people who have beenthrough our literacy program are all in school,” saysPankaj Baliga, vice president and global head of corpo-rate social responsibility for TCS. In these cases and oth-ers, Tata follows a philosophy of providing some of thepoorest people in the world with devices that improvetheir prospects (and those of their children) at pricepoints they can afford, often with enough profit marginto keep the company competitive.

Tata’s culture of service was on display after the

Left to right: Tata Group chairman Ratan Tata;the Tata Works in Jamshedphur; a Tata Nanoin Ahmedabad

Photograph(left):©AssociatedPress

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November 26, 2008, terrorist attack in Mumbai, whichbadly damaged Tata’s flagship Taj Mahal Palace hotel.The hotel was repaired and reopened less than a monthafter the attack. Indian Hotels, Tata’s hospitality compa-ny, directly oversaw the medical treatment of injuredstaff members and paid generous health and schooltuition benefits (including the assignment of a “coun-selor for life”) to the families of all slain individuals,including railway employees, police officers, and passers-by who had had no direct connection with the hotelbefore the attack. “The organization would spend sever-al hundred crore [tens of millions of dollars] in rebuild-ing the property,” noted Dileep Ranjekar, a manage-ment speaker who met with Tata Hotels senior executivevice president H.N. Srinivas after the attack. “Why not

spend equally on the [people] who gave their lives?”The founder’s Parsi beliefs continue to exert a

strong influence on Tata’s culture. Historically, most ofthe inner circle of Tata company leaders have been Parsi,and there are many lifelong employees whose modestbackgrounds fit naturally with the company’s self-effacing style. “They are extremely modest,” says RuthKattumuri, a codirector of the India Observatory at theLondon School of Economics. “They have sponsoredseveral events for us in India, often without wanting anypublicity.” Tata is known for hosting lavish celebrations,but in general it rewards employees less with giantsalaries and bonuses and more with a sense of belongingto an elite organization with an impact on the world.

This blue-chip attitude is reinforced by strict stan-

“They said, ‘Everyone else is making moneyin [Bollywood], why shouldn’t we?’

The inner circle discussed it and decidedthat this was not acceptable.”

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(middle);APPhoto/AjitSolanki(right)

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dards for integrity and ethical conduct. For example,Tata companies have always carefully avoided any activ-ities with even a tangential link to “sin” industries — aterm that for the Tatas encompasses not only tobacco,liquor, and gambling but also motion pictures, given theassociation in India between Bollywood and organizedcrime.

In the mid-2000s, the leaders of the group’s pub-lishing company tested this stance, asking for funding tostart a film division. “They said, ‘Everyone else is mak-ing money in this, why shouldn’t we?’” recalls JamshedJ. Irani, vice chairman of Tata Sons. “The inner circlediscussed it and decided that this was not acceptable.”The publishing company’s management team madeplans to go ahead anyway with a movie production unitusing outside investors. In response, Tata sold its sharesin the company and removed the Tata name.

“That gave them second thoughts,” relates Irani.“They told us, ‘We don’t want to leave the family.’ Butit was too late.”

Global StretchThe “expansion” era of Tata’s history (as it is calledon the group’s website) began in 1992, one year after theIndian government lifted foreign investment and ex-change controls and eliminated many restrictions onoutside companies. Suddenly, multinationals such asSony, Philips, Ford, and Toyota entered India, exposingthe quality problems of many local companies and usingtheir marketing prowess to outpace popular domesticplayers like Tata.

Ratan Tata and other company executives conclud-ed that they would have to revitalize their businesses andmove outside India’s borders. All Indian companies

faced the same pressure to globalize, but Tata movedfastest and furthest. The new strategy kicked into highgear in 2004, when Ratan Tata hired Alan Rosling,chairman of Hong Kong’s Jardine Matheson Group (aninvestment bank with large holdings in Tata Industries)and former director of a Jardine–Tata automotive jointventure, as an executive director of Tata Sons. Roslinglater said that his personal admiration for Ratan Tatahad compelled him to take the job.

In the acquisition strategy that Rosling designed,Tata has sought two types of companies: prestigious con-sumer brands like Jaguar, Eight O’Clock Coffee, andGood Earth tea; and critical industrial enterprises. Thelatter include Corus; the soda ash mining companiesBrunner Mond and General Chemicals; and Tyco GlobalNetwork, an undersea fiber-optics asset once held by thedisgraced Tyco telecommunications company.

One way that Tata hopes to quickly turn around itsoverly leveraged units is through equity offerings, onceglobal investors are willing to participate. In mid-2009,for example, Tata Motors used about $1 billion infinancing from fresh stock and asset sales to whittledown its 10-to-one debt-to-equity ratio. It remains to beseen how the broadening of Tata’s investment base willaffect its magnanimous corporate culture. But globalexpansion increases the pressure on Tata to provide rapidreturns, and it could diminish the family’s ability to fundphilanthropic projects in India or elsewhere.

Ratan Tata himself, when asked in 2007 whetherthe company’s social spending levels could be main-tained on a global scale, answered, “I can’t ensure thiswill survive. . . . [We] could turn it into a more conven-tional company. But you would have great discontent.”

Another type of challenge has arisen with the suc-

Tata has sought two types of companies:prestigious consumer brands such as

Jaguar and critical industrial enterprisessuch as Corus.

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cess of the Nano. Originally conceived only for emerg-ing markets like India, Latin America, Southeast Asia,and Africa, this car was being called a trendsetter for theglobal automotive market even before it went on sale inJuly 2009. Suddenly, company leaders were compelledto plan, finance, and develop a Nano line that would beacceptable for the U.S. and European markets. “Theyhave the possibility here for a very important vehicle,but they have to work hard convincing everybody in theU.S. and Europe they can produce a safe car in a timelymanner. The longer it takes, the greater the financialburden,” says Luna.

Tata Motors also faces other types of labor andmanagement issues as its percentage of non-Indianemployees grows. Managers are learning by trial anderror to become less hierarchical and more nimble, andto apply their labor relations expertise, which is sophis-ticated in India, to other parts of the world. When Tataclosed a Jaguar Land Rover factory and laid off workersat a Corus steel mill in the U.K., the company reactedslowly and awkwardly to denunciations from unionleaders and politicians.

“Over the past decade,” says Nirmalya Kumar, co-director of the Aditya V. Birla India Centre at theLondon Business School, “Tata has thrown off some ofits sluggishness. But globalization is a learning game; ittakes time to learn to manage a multinational organiza-tion, operate in diverse cultures, and integrate foreignacquisitions.”

Many Tata executives profess to take all these chal-lenges in stride, and they are bolstered by the fact thatthey seem to be coming out of the financial crisis rela-tively unscathed in the stock market. They know theycould appease some skeptics by scaling back their aggres-sive growth ambitions. But they are adjusting instead byreducing costs, putting some acquisitions on hold, andinvesting heavily in breakthrough innovation in a widevariety of endeavors: supercomputers, carbon footprintreduction, and manufacturing of new materials (such aslightweight steel) among them. And they are trying tofigure out how to bring their social innovation experi-ence and ideas to other parts of the world with emerg-ing economies, especially Africa and Latin America.

In the end, Tata executives stick by the familiarargument that doing well by doing good is simply goodbusiness. And if the group’s unique business modelproves to be financially sustainable, it could provide alasting example for other companies that — like Tata —seek to serve new markets, build a more solid reputationas global citizens, maintain growth, and above all fulfilltheir own sense of purpose.

“We do business the way we do,” says Gopala-krishnan, “not because we have clear evidence it has abetter chance of success. We do it because we know noother way.” +

Reprint No. 10106

Resources

R. Gopalakrishnan, The Case of the Bonsai Manager: Lessons from Natureon Growing (Penguin Portfolio, 2007): “The leader needs to think aboutissues at the edges of the spectrum of the obvious.”

Ann Graham, “The Company That Anticipated History,” s+b, Summer2006, www.strategy-business.com/article/06406: How South Africanpower utility Eskom Holdings Ltd. combined social leadership with busi-ness strategy to prepare for the end of apartheid.

Ronald Haddock and John Jullens, “The Best Years of the AutoIndustry Are Still to Come,” s+b, Summer 2009, www.strategy-business.com/article/09204: The Nano’s prospects in context.

Tarun Khanna, Billions of Entrepreneurs: How China and India AreReshaping Their Futures and Yours (Harvard Business School Press, 2007):Macro view of today’s two great sources of emerging business creativity.

Nirmalya Kumar, India’s Global Powerhouses: How They Are Taking on theWorld (Harvard Business Press, 2009): Profiles of ArcelorMittal, Infosys,Hindalco, Mahindra & Mahindra, Tata Group, and more.

C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006,www.strategy-business.com/article/06306: Impossibly low-cost, high-quality products and services (including one from Tata’s hotel group) thatstart by cultivating constraints.

Tata Group website, www.tata.com: Comprehensive information, originalinterviews and stories, public media reports, and links to other resourcesabout the company.

For more thought leadership on this topic, see the s+b website at:www.strategy-business.com/global_perspective.

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