Tata’s British empire
The Indian conglomerate is our biggest manufacturer but it has enjoyed mixed fortunes. Will its new chairman (Cyrus Mistry) change its philanthropic principles?
Karl West Published: 23 September 2012
COURTESY: Times of India
COURTESY: Times of India
Under Ratan Tata the Indian group bought up Jaguar Land Rover, Corus and Tetley.
Karl Köhler was meant to be happy, but his face told a different story. The chief executive of Tata Steel Europe was at the Port Talbot steelworks in south Wales to celebrate the start of work on a £240m investment.
Tata, the Indian conglomerate with sales of £54 billion and interests in everything from salt and tea to steel and cars, is refitting the No 4 blast furnace, a giant cauldron that can churn out 1.5m tonnes of steel a year.
Köhler hailed the investment — but also seized the opportunity on that July day to put the boot in over his misgivings about Britain ’s future as a manufacturer. He told the television cameras that ministers should back up warm words with action.
Britain needed a growth strategy, he said. Without one, Tata might delay lighting the refurbished furnace.
The warning carries clout in the government. Tata is now Britain ’s biggest manufacturer, with 50,000 employees working for 19 companies in more than 40 towns and cities.
The Indian group’s influence is not just economic. Its links with Britain stretch back to 1863, when founder Jamsetji Tata came to see Lancashire ’s cotton mills.
Sidney and Beatrice Webb, the Fabians, helped him to set up a company town around India ’s first large steel works, and Tata money funded a department at the London School of Economics, where Clement Attlee was one of the first lecturers. Atlee went on to become prime minister, privatising British Steel and setting up the NHS.
The current head of the family empire, Ratan Tata, is set to step down at the end of this year. He leaves a formidable legacy, and it would be a foolish minister who ignored Tata’s lieutenants when they speak.
Tata bought the former Corus steel business, comprising the remnants of British Steel, in 2007 for £6.7 billion.
It had looked at opportunities to grab steel plants in Turkey and eastern Europe, but saw Corus as the perfect way to bulk up its domestic steel business and move it on to the international stage.
Tata’s UK businesses are experiencing mixed fortunes — Jaguar Land Rover has been a roaring success, while the steel business has been less prosperous. The former Corus operation, now called Tata Steel Europe, plunged to a £846m pre-tax loss last year on revenues of £10 billion.
The steel group has been hit by falling demand and a slump in prices as global economic growth, including in China , has cooled. The business is also weighed down by borrowings of £3.4 billion — it shelled out £424m in finance charges to service the debt last year.
Tata, for now headed by Ratan Tata, the great-grandson of the founder, makes annual revenues of more than £20 billion from its British businesses.
Britain is now the group’s biggest international market — its largest businesses include Jaguar Land Rover, the former Corus, Tetley tea and Brunner Mond, a chemicals company.
Tata also owns a huge consultancy that specialises in back office outsourcing for the life and pensions industry, which made more than £1 billion in revenues last year. Its Taj Hotels business owns the Crowne Plaza and 51 Buckingham Gate in central London .
The success of Jaguar Land Rover, which Tata bought for £1.15 billion from Ford in 2008, contrasts with the struggles that have blighted the steel operation. Huge demand for its vehicles from the nascent car markets of China , India and Russia helped the car manufacturer to rack up record profits of £1.5 billion last year on revenues of £13.5 billion.
Jaguar Land Rover is now gearing up for a huge investment phase, with plans to produce 40 new vehicles over the next five years — including the F-type Jaguar, a successor of the iconic E-type, which is due to be launched at the Paris motor show this week.
The investment will boost Britain ’s automotive industry, as Jaguar Land Rover plans to revamp its Solihull factory and is building a new £355m engine plant in Wolverhampton .
But it has not always been plain sailing for the car manufacturer. Not long after Tata bought the two marques from Ford, the credit crunch hit and consumer demand for new cars evaporated.
Tata Motors — producer of the Nano, the world’s cheapest car — was forced to ask the UK government to support Jaguar Land Rover with loan guarantees. However, the offer of support came with too many strings attached, so the Indian group reluctantly pumped in more cash.
Phil Popham, sales operations director at Jaguar Land Rover, recalled: “We had to take cost out of the business. We had to go into survival mode.”
The company froze pay and pushed through compulsory redundancies.
“But Tata encouraged us — where we could — to maintain our product programmes, such as investing in the XJ, spending heavily on new engines and interiors. We knew that as the green shoots in the economy reappeared we would need to have the right products on the road,” he said.
Popham described the credit crisis as a wake-up call for the Midlands-based car producer. Previously, Ford was in effect Jaguar Land Rover’s bank — if the British subsidiary needed cash, it had only to ask. This is not how Tata operates.
“Tata is a conglomerate of different companies and these companies are expected to stand alone,” said Popham.
This devolved structure encouraged Jaguar Land Rover to take control of its own finances and strategy.
Jamsetji Tata, the founder of Tata Group, made his maiden voyage to Britain in 1863 “We benefited quite considerably from Ford, no doubt about that,” he said, admitting that much of the current product range, including the hugely successful Range Rover Evoque, was conceived under the Americans.
“However, we were a small part of a huge automotive company where all the big decisions were made in a boardroom in Dearborn [ Michigan ]. Those decisions are now being made in our boardroom in Coventry ,” said Popham.
But how long will this continue? Ratan Tata is preparing to retire as chairman of Tata Group in December, when he turns 75. He has headed the conglomerate since 1991, when he took the reins from his uncle JRD Tata.
The handover to Cyrus Mistry — a former boss of the Shapoorji Pallonji Group, which has interests in construction, textiles, shipping and energy — is intriguing for various reasons.
Mistry will become the first non-family-member to run Tata; he is also the son of Tata’s biggest shareholder, Pallonji Mistry, a billionaire whose family holds an 18% stake.
Lord Kumar Bhattacharyya, head of the influential Warwick Manufacturing Group at Warwick University , is a close friend and adviser to Ratan Tata.
It was Bhattacharyya who chaired the panel that chose Mistry to succeed Tata and believes there will be very little change to the group’s strategy or its philanthropic principles.
Bhattacharyya said: “Ratan Tata is passionate about British manufacturing. There will be no change. It will be the same culture, the charitable culture.”
It might look like the Indian version of General Electric — a conglomerate of disparate financial and industrial interests — but Tata’s ownership structure has stayed true to the philanthropic goals of its founder.
Tata Sons, the company that sits at the centre of the business empire, does not have majority control of its operating subsidiaries — 66% of the company’s equity is owned by charitable trusts set up by the family.
Last month, an emotional Ratan Tata said a final goodbye to investors at the annual meeting for Tata Global Beverages, whose brands include Tetley. Some offered him gifts, others urged him to sign the annual report. He will be a hard act for Mistry to follow.
Family pioneers steel and social reform
Under Ratan Tata’s leadership, the Indian group has grown to become Britain ’s biggest manufacturer — bigger than BAE Systems or Rolls-Royce — but the family’s links with these shores stretch back much further.
In 1863, Jamsetji Tata, pictured, the founder of Tata Group, made his maiden voyage to Britain . The young businessman made several visits to Lancashire cotton mills. The trip left a lasting impression on him, leading to the foundation of the Empress Cotton Mills in Nagpur .
In 1907, three years after his death, the family established its first British company — Tata Limited, representing the group’s interests across Europe .
The group’s business clout has grown rapidly in importance to the British economy since it acquired Jaguar Land Rover and Corus. But its paternalistic principles have had an equally profound influence on society.
When establishing steel works at Jamshedpur , the Tatas invited Sidney and Beatrice Webb — the British pioneers of social reform and co-founders of the Fabian Society — to India to advise him on the best form of social, medical and co-operative services. It led to the creation of schools, recreational facilities, crèches, and other amenities on site.
Sir Ratan Tata, younger son of the founder, and grandfather of the departing chairman, left an even bigger mark when he made a donation that enabled the London School of Economics to research poverty. This led to the creation of the Sir Ratan Tata department in 1912, which was to become the university’s department of social sciences.
In 1863, Jamsetji Tata, pictured, the founder of Tata Group, made his maiden voyage to Britain . The young businessman made several visits to Lancashire cotton mills. The trip left a lasting impression on him, leading to the foundation of the Empress Cotton Mills in Nagpur .
In 1907, three years after his death, the family established its first British company — Tata Limited, representing the group’s interests across Europe .
The group’s business clout has grown rapidly in importance to the British economy since it acquired Jaguar Land Rover and Corus. But its paternalistic principles have had an equally profound influence on society.
When establishing steel works at Jamshedpur , the Tatas invited Sidney and Beatrice Webb — the British pioneers of social reform and co-founders of the Fabian Society — to India to advise him on the best form of social, medical and co-operative services. It led to the creation of schools, recreational facilities, crèches, and other amenities on site.
Sir Ratan Tata, younger son of the founder, and grandfather of the departing chairman, left an even bigger mark when he made a donation that enabled the London School of Economics to research poverty. This led to the creation of the Sir Ratan Tata department in 1912, which was to become the university’s department of social sciences.
Its first lecturer was Clement Attlee, who went on to become prime minister and establish the National Health Service.
Sunday Times / September 2012
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