International Business

Case Presentation
Submitted By
GROUP 4
Manvendra Gupta - 09927841
Mayur Kumar - 09927875
Mehta Vighnesh Ishverlal - 09927910
Meraiya Harshil Arunkumar - 09927821
Mukesh Kumar - 09927891
 Insight – Group Chairman

“ We have two guiding arrows. One Points overseas, where we want to expand markets
for our existing products. The other points right here, to India, where we want to explore
the large mass market that is emerging - not by following but by breaking new grounds in
product development and seeing how we can do something which hasn’t been done
before. “

Ratan Tata
Group Chairman

Source : Group Website/ tata.com

 International Revenues

Source : Group Website/ tata.com

With Increasing International Revenues and a high Compound Annual Growth Rate of
62.4 % , we could clearly see why a coherent Strategy for Globalisation of Tata
Companies appears must
Way Ahead for 5 Next Years- Recommendations

• Developing products and services to serve the large base

of the pyramid in India, Africa and Asia
• Global/regional leadership in IT Services, steel,
automobiles, hotels, chemicals, beverages, telecom
• Domestic leadership in Power
• Seek ventures joint/individual to aggressive Grow
Domestically in Retail, Financial services, Real estate,
Hospitality
• Increased concentration on rural reach & Development by
Various Tata Group Companies
1. Tata Group Company Analysis
&
Corresponding
Recommendations’
 Major Tata Group Companies - Introduction

Large Tata Companies Market Capitalization Market Capitalization Year Established

· Tata Consultancy Services RS 160618 cr $ 36.19 bn 1968

· Tata Steel Rs 60,805 cr $ 13.70 bn 1907
· Tata Motors Rs 92,519 cr $ 20 bn 1945
IHC ( Taj Resort & Palaces) Rs 7758 cr $ 1748 mn 1903
· Tata Tea (Tata Global Beverages) Rs 6388 cr $ 1343 mn 1964
· Tata Power Rs 29,521 bn $ 6.65 bn 1911
· Tata Chemical Rs 7718 cr $ 1739 mn 1939
· Tata Communication Rs 8103 cr $ 1.83 bn 2002

Analysis Included

Market Capitalization As Reported By Tata Group Globally

 TCS- History
• Founded in 1968, TCS is a software services consulting company
headquartered in Mumbai
• Company Ethos: Leading change, Integrity, Respect for the individual,
Excellence, Learning and sharing
• Largest provider of information technology and business process
outsourcing services in Asia
• Offices in 42 countries with more than 142 branches across the globe
• Revenue of US$ 6.82 billion, profit of US$ 1.28 billion , total assets of US$
6.112 billion in 2010
• Highest number of employees, 174417
• Publically listed in 2004
• Tata Research Development and Design Center, in Pune which undertakes
research in Software Engineering, Process Engineering and Systems
Research
• TCS go into alliances with other players to have a global outreach and
drive new market initiatives
• Tie-ups with leading sports brands including Formula 1 racing team
Ferrari, Ducati and several major marathons worldwide
 TCS- Acquisitions
TCS management fully understands the importance of inorganic growth in
being a significant player at world stage. It has acquired a lot of companies
and entered into alliances with them. Some of them are:

• Citi Global Services Limited in 2008

• TKS-Teknosoft in 2006
• Comicrom in 2005
• FNS in 2005
• Pearl Group in 2005
• Phoenix Global Solutions in 2004
• Swedish Indian IT Resources AB (SITAR) in 2005
• Aviation Software Development Consultancy India (ASDC) in 2004
• Airline Financial Support Services India (AFS)
• CMC Limited

Without undermining the importance of organic growth TCS should keep

looking for global opportunities and expansion keeping in mind the
sustainability and synergy with the new company (acquired /partner)
 TCS- Global Strategy
Market Penetration Strategy
Current Markets: USA and Europe
Current Products: ADM, BPO, KPO, consultancy services (BFSI, manufacturing
and retail) and software products (financial products)
Recommendation: As most large clients in US and Europe are cutting costs, TCS
needs to be more aggressive on cost and quality front

Market Development Strategy

New/Emerging Markets: India, Middle-east and Australia
Current Product: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing
and retail) and software products (financial products)
Recommendation: Since these are fast developing IT market, TCS needs a
paradigm shift in focus from US and EU markets to these markets

Product Development Strategy

Current Market: USA and Europe
New Product: Consultancy and package implementation services in relatively
growing sectors especially life sciences & healthcare, aviation sector, and KPO
services
Recommendation: Concentrate on building expertise in these domains by
strategic acquisitions
 TCS- Corporate Strategy
Diversification Strategy
• Restructure its global operations to adopt an integrated, customer-centric
Approach
• Dependency on US market should be reduced and other avenues explored

Strategic Alliances
• Enter into strategic relationships with various global technology vendors
• Collaborate on joint research leveraging each other’s strengths to research
and to the development of best-of-breed offerings
• Develop solutions with associated services and offer the same as an
integrated business model to customers

Acquisition Strategy
TCS is a firm believer in ‘organic growth’ and acquire only those companies
which are in line with TCS’ strategic long term goals

• Both the companies should have coherent synergies

• Set up a dedicated internal team which will focus only on acquisition
strategies to fuel TCS’s growth
• Enter into JVs with like minded companies to mutual beneficial partnership
 TCS- Recommendations
•Ensure marketing articulates your value proposition to all stakeholders concerned.

•Create specific value propositions aimed directly at the relevant stakeholders— and in
the new tech ecosystem, these relevant stakeholders must include business executives,
not just IT personnel

•‘Do not put all eggs in one basket’ – TCS must provide diverse services to refrain from
being over-dependent and increasing exposure to the vulnerabilities of few sectors
/geographies

•TCS should shift focus from Low cost advantage to high quality services commanding a
premium being the pioneer in the industry

•Consolidation and strategic acquisitions are essential for future growth of revenues.

•Quickly adapt and gain customer confidence in high growth markets. TCS should
leverage its success stories to drive the growth in this market.

•TCS has rightly placed SMB (Small and Medium Businesses) as a separate strategic unit,
which should be focused aggressively. They should also focus consulting practice on the
same radar.

•TCS should focus more on increasing their IP assets

 Changes we like to See in Management Approach
( for TCS)
“ We have two guiding arrows. One Points overseas, where we want to expand markets for our
existing products. The other points right here, to India, where we want to explore the large mass
market that is emerging - not by following but by breaking new grounds in product development
and seeing how we can do something which hasn’t been done before. “ TATA Group

TCS MUST CONCENTRATE ON BEING A HIGH END

MANAGEMENT FIRM, ALONG WITH PURSING A
PRODUCT FIRM STRATEGY
 Tata Motors

India's largest automobile company, with consolidated revenues of Rs. 92,519 cr (USD
20 billion) in 2009-10.

Leader in commercial vehicles segment, and among the top three in passenger vehicles
with winning products in the compact, midsize car and utility vehicle segments.

The company is the world's fourth largest truck manufacturer.

World's second largest bus manufacturer.

24,000 employees.

First company from India's engineering sector, to be listed in the New York Stock
Exchange (September 2004).
 Tata JLR deal
Opportunities: Threats
• Rising appetite for luxury automobiles • Volatility in market driven by new
in growing markets like India and China products
• Established European brands available • Strong presence of competitors like
at affordable investment Mercedes, BMW, Lexus and Infinity
• Support from Jaguar in Technology, • Receding sales and brand image
Engine, IT, Accounting • Downturn making Investment riskier
• Complete product line with addition of and costlier
luxury brands • 90% of TAMO revenues comes from
• Access to European and American one market alone-India
Market

Strengths: • JLR would give TAMO an in-house R&D • Acquisitions like JLR will help TAMO in
• Tata’s strong management capability and designing capabilities competing with brands like Merc. etc.
• Strong monetary base to invest • Better utilization of cash reserves • Proven Management and brand
• Synergy due to Corus, TACO and TCS available with TAMO building capabilities would facilitate
• Experience in growing market like India • Reduce production cost of JLR by faster JLR turnaround
• New product development and brand synergizing better with other TATA cos • Strong financial muscle will help TAMO
building experience like Corus to invest in R&D and produce new
better products
• Improve risk profile of TAMO with
diversification in different markets

Weaknesses: • JLR experience and designing capability • Leverage experience gained with Tetley
• Inexperience in Handling luxury would help TAMO in improving their and Corus in allaying market
automobile brand existing products in Indian markets. apprehensions about acquisition
• Inexperience in turning around loss • JLR’s strong brand image will ease • Make Jaguar design center as their
making company acceptance of TAMO in international global design HQ
• R & D and designing capabilities markets • Use Jaguar channel to distribute TAMO
• Keeping the existing management team brands without merging the brands
of JLR make turning around easier
 Recommendations – Tata Motors

Tata Jaguar
Motors Land Rover
●With Continued Strong Industry ●Continue to grow its presence world
Growth leverage upon Market wide & in the Indian market by opening
additional dealerships throughout.
Share Gains. ●Should collaborate with Tata Motors for
●Introduce more products from
joint product development ( May be in
pipeline(Aria, Magic Iris, India or at a Foreign R&D Centre)
●Continue with the cost reduction
Venture, Prima Range)
●Exporting Nano to other Asian
initiatives & use the extra money to
Invest in Emerging Markets
Countries (ex. Indonesia) / ●Continue to invest in new product &

other African Countries technologies

Disadvantages by not going for this acquisition?

• JLR was over priced and the balance sheet of TATA was not in a
position to absorb more.
• Ford purchased JLR at $5 bn and sold at almost half the price to
TATA after operating it for losses for few years.
• As the market would have recovered from recession the valuation
would have increased since there would have been growth in the
demand of JLR thus creating more problems for TAMO.
• Tata would not have been able enter into the premium segment
(>10 lakhs) in India.
• TAMO would have lacked in robust designing capabilities.
• Above all, at that time no other major automobile brand was
available for acquisition with such designing and R&D capabilities.
JLR-Business Rebound
Tata Motors-Business Performance
Financial Performance(consolidated)
Tata Motors
 TATA Steel

• Established as TISCO in 1907

• Initiative to become Global player in 2003
– Domestic Expansion, De-integrated strategy, Raw Materials
Security, Downstream products, Logistics Control
• Corus acquisition in 2007-08 (12 Bn deal 3.88 Bn by Tata
equity and rest debt)
• Tata Corus 6th biggest player from 56th in world
• Risk: Price fluctuation in steel may cause great impact to
profits
– Major loss for 10% price fall in steel prices or Break even in 2 yr
for 10% Price rise
 TATA Steel before Corus deal
Leverage vs ROE
D/E(%) ROE(%)
Peer Comparison
170.5 120.0

131.3
100.0

75.4
60.3
45 45.2 42.4 80.0
30.3 32.8 33.5

TISCO SAIL AM JFE Baoshan 60.0

40.0

Increasing Leverage means Inc ROE 20.0

ROE(%) D/E(%)
170% 0.0
TISCO SAIL AM JFE Baoshan Nippon POSCO

ROE(%) ROA(%) EBIT Mgn(%) CAGR(%)

78%
63% 64%
42% 45%
34%
27% 21%
19% 17% 20% 20%
15%
TISCO SAIL AM JFE Baoshan Nippon POSCO
 TATA Corus impact
60.00%
Tata Steel - Corus : Projected capacity 55.7 50.00%
4% 3%
40.00%
Corus Group (in UK and The
9% Netherlands) EBITDA/Turnover
30.00%
Tata Steel - Jamshedpur PBT/Turnover
34% Return on Avg. Capital
20.00%
11% Tata Steel - Jharkhand Employed
Tata Steel - Orissa 10.00% Return on Avg. Net
Worth
Tata Steel - Chattisgarh 0.00%
NatSteel – Singapore
22% Millennium Steel – Thailand
18%
Sharp decrease in profitability
Increased D/E ratio after Corus deal
3
2.5
EPS
2
200
1.5
Gross Block to Net 150
1 Block 100
0.5 Net Debt to Equity
50
0
0
10 09 08 07 06 2009-10 2008-09 2007-08 2006-07
0 9- 8- 7- 6- 5- -50
0 0 0 0
20 20 20 20 20
EPS
 Recommendations

• There is a lot of room for improvement in

operations between Corus and TATA after Europe
picks up on demand and Domestic prices improves.
• Crystallizing long term contracts as prices of steel
increases.
• Higher costs would weigh on the company's profits
in the near term if steel prices don't move in
tandem with raw material prices hence capacity
extension is only option at hand.
 Indian Hotels Company

• Globalization strategy: Management contracts

and small equity in property holdings, instead
of outright buying.
• Acquisitions in Sydney ‘05, Boston ‘06, San
Francisco ’07.
• Geographical presence build up or chain
acquisition?
 Financial Analysis
100%
90% •This suggests that in the initial years of 2003-2006 the
80% business was not managed efficiently which improved
70% after the acquisitions and is expected to reach the
60% industry benchmark in 2009 when compared to
50% industry benchmark. Also acquisition done in 2006 end
40% reflected in 2007 cashflows due to high negative
30%
investment cashflows with an aim to improve TATR and
20%
NPM
10%
•Improvement in TATR suggesting improvement in Op
0%
2003 2004 2005 2006 2007 2008(E) 2009(e) 2010(E) margins and a more than proportionate rise in ROE
TATR(75% avg) EBIT(33% avg)
when compared to ROA and ROIC
ROE(26.5% avg)

GPM
Cause of concern as operating GPM
85%
costs are still very high for Indian 31%
56% 59%
36%
Hotels however its ROA is the
highest at 8% which suggests that
financing costs and other
inefficiencies not present
*Projected figures based on past historical data and then compared with industry averages
 Recommendations
• Geographical presence build up with case by case
acquisition.
• Continue Expansion as profit margin is industry
comparable. At present at least 38% of the new hotel
projects in India are Taj projects. IHC have 50
projects on the design board and development stage.
• No problem in raising money from Debt if EBIT
settles around 33% industrial average
• By opportunity if IHC can integrate hotel chain for a
lower price, it’ll add to profitability of IHC.
 TATA Tea

• First time foraying in global acquisition by Tata

group in FEB 2000.
• Only tea brand not owned by consumer
conglomerate
• 3 times bigger-70 Mn £ equity, 45 Mn £
through GDR and rest Non-recourse financing.
• 2005- Good earth of US,Jemca of Czech,US’s-
eight O’clock coffee,30% stake in EBI
 Financial Analysis
D/E High leverage high risk
•Acquisition of Tetley using a
Nestle
D/E
leverage buyout in 2000 which
HUL
impacted its bottomline due to high
Tata tea interest costs. Also Energy brands
0% 50% 100% 150% 200% 250% acquired in 2006
Peer Comparision
ROE ROA
•High efficiencies and bargaining
Ne 28
85
power due to its ability to have
HUL 78 negative WC cycle 2005 onwards
15

24
Tata... 6
Tata tea ROA and ROE low •Heavy investment done in 2007 for
expansion reflected in b/s
Nestle

HUL

•Very high D/E with significant rise

Tata Tea
in 2007 putting it under severe risk
0% 10% 20% 30% 40% 50% 60%

GPM Revenue Growth

 Recommendations

• Go ahead with global distribution in regions -

Middle East, South America, South Africa and
the Commonwealth through joint ventures or
partnership
– 70% of the company’s revenues is contributed by
the overseas operations of the company. It makes
sense to expand distribution network.
• Also expand into coffee business and
positioning extension of tata tea into beverage
company catering both tea and coffee.
2. Challenges Ahead
 Potential Challenges

How to Manage Change due to Globalization on TATA’s Corporate

Culture while TATA’s are squaring its origin, organization & capabilities with
their Global Competitors

How to Manage Non Performing Businesses while

having a Global Portfolio of Businesses

What will be the role of Tata’s Group Centre ( if

any)

Should Tata Group Pursue the incremental approach

for International Expansion on a case to case basis
 Overcoming Challenges Presented within the case
• TATA Group MANAGEMENTS MINDSET on
Jaguar Acquisition
Acquisition
– Jaguar Acquisition will result in
– Tata Group have done around 49
rich benefits in the long term .
Acquisition in between 2000 and 2007.
Benefits in Long term will out
– This Clearly Shows Tata’s are very Good at
weight the losses in short term.
Acquisitions ( otherwise they may have
– Our Stand is confirmed by
stopped acquiring after suffering
Jaguar showing profits in the considerable losses)
current timeframe
– Mindset is to spend Money very very
– Considerable Value add in Carefully ( when it comes to acquisition –
terms of Global Business There shouldn’t be any doubt about
Development, Technology Financials of the acquired company)
Transfer, Management
Practice, Market Access

Acquisition Vs Incremental Approach

– Tata Group should Pursue M&A Approach for Acquiring Global Front ( Given their
vast experience in M&A’s . In case they go by incremental approach, it is seen
that it takes 20-25 years to build the business, however Building PROFITABLE
ACQUIRED BUSINESS GLOBALLY takes around 4-5 yrs, giving advantage of 15-20
years, in terms of Technology, Speed to Market, Business Development
 Overcoming
HTCChallenges

 Managing Change to TATA’s  Role of Group Centre in Global

Business Scenario
Corporate Culture ( due to
Increasing Global Businesses)
 Group Centre must let the bandwidth
to work for various Global Business
 Tata group Must Move towards a  They Should not Interfere in days to
philosophy of evolving cultural day Business, and should keep specific
practices among Global right over decision which may have a
Businesses. No knee Jerk Action major impact on the Group
is Required  However Group Centre must Track the
Global Portfolio of Business
( without interference)

MANAGING NON PERFORMING BUSINESS AMONG GLOBAL PORTFOLIO OF

BUSINESSES

Again concept of EVA can be applied in the global context ( However Suitable
Bargaining/ concessions must be available from the foreign government for doing
so)
4. Strategies for Successful Global
Operations
 Strategies for Successful Global Operations
PROMOTING GROUP VALUES AMONG ‘GLOBAL’ EMPLOYEES: By Promoting Group
Values like Integrity, Understanding, Excellence, Unity & Responsibility among global
employees, Tata’s would be able to Bring Different Operational Methods Together
and dissolving cultural differences to a great extend. This will Lead to Global Success
in the future.
THINK REGIONAL, ACT LOCAL: A holistic approach to developing several strategies
for different regions (eg European/African), but simultaneously Fulfilling the Needs
of the LOCAL REGULATIONS of the country of concerned Operations

BUILDING TATA BRANDS GLOBALLY: In order to win Big Orders Globally, TATA Group need
to Build its Brand Awareness. ( one possible ex. of doing so is to Grant Funds for building
TATA Memorials at various Global B Schools, which provide Business Education to
Executives. In turn Awareness among business Leaders will be Benefit Tata Brand)

CONTINUE ‘TATAS COMMITMENT’ FOR GLOBAL BUSINESSES : This Means fulfilling

Tata’s commitment for improving the quality of life around foreign businesses also.
By returning to the society from which they earn will lead to trust among foreign
consumers, foreign employees, shareholders and the foreign community. This will
be beneficial for the long term Business Growth in a foreign country.
Thank You