Ratan Tata’s inheritor in the most widely watched succession quest in India’s corporate landscape, Cyrus Mistry, has the Obamaesque task of steering a large, multi-decked ship — the Tata Group. Much is being made of his one advantage — that he understands the ‘Tata culture’. Mistry’s true test, though, may really end up being far less about the Tata culture and more about steering the group through what’s the worst incessant drubbing the global economy has taken since World War II, given the group has never been more global in scope or ambition.
The challenges faced by the Tata group now are vastly different from when Ratan Tata took over in 1991. Today, about 58 per cent of its revenues are from global operations and its most high-profile and indeed most expensive acquisitions — the buyout of steelmaker Corus, tea maker Tetley, or carmaker Land Rover — have been overseas. Its rivals are deep-pocketed, fiercely ruthless and globally entrenched firms that are playing to survive amid a slowdown.
For Mistry to leave his stamp, and he has plenty of time to do this given his relatively young age of 43, he will have to ensure that Ratan Tata’s acquisition spree, running up a bill of nearly $20 billion, is converted from an ambitious plan to an immensely profitable one.
The Tata group’s struggle will be played out at its biggest companies, ironically, also those that led its two big ticket buyouts — Tata Steel’s European steel operations from the buyout of Corus, and Tata Motors which owns Nano as well as the luxury car brands of Jaguar and Land Rover which it acquired.
Tata’s European steel operations have already taken a bruising in the second quarter of this fiscal, with profit slipping 89 per cent because of high raw material costs and lower average selling prices in Europe. Larger rival ArcelorMittal has already shuttered five plants in Europe alone, with the slump in the Eurozone economies and anemia in the US choking prospects of a recovery for the industry.
In the meantime, while Tata’s luxury cars have been selling well, helped by demand in emerging markets such as China and Russia, Tata Motors second quarter profit was down 16 per cent. What’s worse, Nano is straining to sell. Sure, Tata Motors turnaround of Jaguar Land Rover is the stuff of case studies, but it may need to shift gears as emerging markets ready for a slowdown.
Other stars in the Tata stable are also feeling the heat of the slowdown. TCS has talked of negativism among clients amid the global slowdown and uncertainty, and its most recent quarterly profit missed expectations. In short, as economists are already dismissing this as a lost decade for the world’s biggest economies, businesses, disparate as they may seem, are starting to chafe.
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So far, there has been little to suggest that the Tata group is not up to the task of a big challenge. It has competed successfully with the best, be that in hospitality through its Taj range of hotels or as the world’s second largest tea maker. The much talked about Tata culture, one that’s been handed down from founders, broadly summed by insiders as being understated, resilient, trustworthy, sticking to principles and one of giving back to society, is a sound one to live by. Good governance demands that at the minimum. The winners in this climate, though, will need a lot more than that.
Ironically, Mistry’s timing in the public eye mimics President Obama’s, as does his challenge. Few Americans remember that Obama inherited a complicated, weakening economy. They just want him to fix it.
Anjana Menon is a Delhi-based writer