GROWTH STRATEGY-AN ILLUSTRATION
Growth comes with a growing appetite and even it means looking outside the home country. The $23 billion Tata group is strategizing its growth plans in a methodical way. Tata Sons, the group holding company, is chalking out strategies to seek new markets for Tata products and services that span from software to steel, hotels, tea and automobiles.
Under the contours of this new strategy, the Tata Sons board has identified over 26 new markets to invest in countries like Brazil and Mexico in Latin America, Indonesia, Philippines and Vietnam in South East Asia. They are including Russia and even Pakistan in their growth oriented plans and are being looked at aggressively for the first time. One of the Directors of the holding Tata Sons Board said that they need to grow bigger, find new sources of raw materials for their companies and reduce business volatility and risk.
The identified markets have been broadly classified into two kinds: priority and challenge markets. Priority markets are defined as those that have immediate potential for Tata businesses. These include not just existing markets in developed countries like the US, UK and Australia but new ones like South Africa, UAE, South Korea and Malaysia where the groupâ€™s businesses have been growing quickly in the recent past.
The others have been designated as challenge markets. There is where the group reckons it still has to figure out the size of the opportunity. In these markets, the group is yet to develop a business model. And entry could be on the back of spanking new Greenfield ventures or joint ventures with existing players. Even acquisitions are not being ruled out.
The new focus on overseas markets is driven by one variable grow big and fast. Last year, for instance with revenues of $4.5 bilion, Tata Consultancy Services (TCS) contributed more than half the groupâ€™s earnings from exports.
TCS is not complacent at these levels. Market sources are expecting it will invest at least $ 1 billion into an overseas acquisition by the end of 2006. This is in an attempt to catapult itself into the global Top 10.
Let us take the case of Tata Tea. Six years ago the company was worth Rs. 900 crore and acquired the UK-based Tetley. The acquisition propelled the company into the Rs. 3,000 crore club.
Tata Motors acquisitions of South Koreaâ€™s Daewoo Motors gave them new markets and the acquisition has also brought in new technology. It also expanded their product range overnight.
The progress of their overseas ambition can be noted from the fact 4 years ago the overseas business contributed to a fifth of the groupâ€™s total sales and a year ago, 25% of the sales came from goods and services sold overseas. Now the board of directors has set a target of 35% from the international business. Much of this will continue to be accounted for by software, automobiles, steel and tea.
But in some business, like telecom, retailing, real estate and budget hotels, the growth will come only from India. The reason is fairly simple. The economy of these businesses and the opportunities in their demand stays local. The only caveat there is this: inputs, ideas, technology and the people to run it can come from anyplace in the world.
Human resources is currently the biggest constraint. The Tata Group will develop a bench strength developing its own people, hiring senior level foreigners or attracting NRIs to come home. Most of their overseas employees are foreigners.
Summarizing the growth strategy Software, automobiles, steel and tea businesses account for 80% of the international revenue. Group companies will evaluate each of these markets and plan distinct business strategies. Three possible entry strategies are listed: Greenfield, joint venture or acquisition. Some businesses like Tata Tele services, Trent and Tata Housing will stay local.