New Kind of CompanyTata coddles workers, not managers, keeps its distance from Wall Street. Yet it thrives in brutal global industries as a uniquelyIndian kind of multinational.A new kind of multinational corporation is emerging out ofIndia, the hot newcomer in the global economy. It is the Tata Group, a family conglomerate that has gone professional without losing adistinct set of old-school values. Forged from both India’s strugglefor independencefrom Britain and the influence of early-20th-century Fabian socialists, Tata is a ferocious competitor with a very liberal touch.Consider: one of the largest of its 32 businesses, Tata Steel, has cutalmost half its work force in the last 15 years to become thelowest-cost competitor in this brutal industry.TATA has kept its promise to pay all laid-off workersfull salary until retirement.In some ways, Tata could exist only in India, where wages of $1.20 anhour make cradle-to-grave corporate welfare far more affordable than it would be even in China. But Tata is unique even inside India, whereits rigid ethical standards are so well known that corrupt officialstypically don’t evenbother asking Tata executives for bribes. The company has walked away from Indian industries, like Bollywood films, known for shady cashtransactions. Though India is a hotbed of labor strife, Tata Steel hasgone 75 yearswithout a strike. Tata’s car plant at Pune has gone 16 years, and local union rep Sujit Patil says his people work with managementdaily, a state of labor relations “very different” from that at otherIndian companies.Today India’s best-known global competitors are young companies like Infosys, which provide outsourcing services to global companies andgovern themselves by unabashedly Western business standards. Incontrast, Tata is131 years old and remains true to its 19th-century mission of developing India as an industrial power. Yet it also includes in itsstable India’s leading outsourcer: Tata Consultancy Services, which isbigger thanInfosys. As a whole, the Tata Group is India’s largest company by market cap, with $17.6 billion in revenues and $1.9 billion in profitsin the 12 months through March, roughly three times its results adecade ago. Theconglomerate expects revenues to skyrocket to $24 billion this year, driven by cars, steel and IT consulting.The story of Tata is thus a window into the rise of India. While thecountry’s vibrancy is attributed to free-market reforms that began inthe early ’90s, Tata executives emphasize that even now, they grow despite obstacles thrown up by red tape and special interests. Unlikethe boom in China, which has been orchestrated by the government,India’s rise is primarily the story of an enterprising private sector.Often seen in the United States as an outsourcing economy that threatens to siphon offservice jobs, India also has a wider potential that is mirrored in therange of Tata’s ambitions from luxury hotels and jewelry to a planned$2,000 car. The company’s expansion is a symptom of how India’s boom is lifting demand across the domestic economy.In recent years, as Tata began listing shares in some of itsaffiliates on Wall Street, Americans often compared the company to themodel conglomerate they know best: General Electric. But CEO Ratan Tata, 67 , is no JackWelch. “Certainly not,” he says. Tata executives, many armed withWestern M.B.A.s, have all read about Welch, and dismiss many of hisAmerican tactics from mass layoffs to hostile takeovers as violations of the Tata way.Ratan Tata says his company is not driven to grow “over everybody’sdead bodies.” This is a company where 66 percent of the profits of itshighly successful investment arm, Tata Sons, go to charity. At Tata “corporate socialresponsibility” is not just a hot buzzword, as it is in the West, withno real money behind it.That’s all very laudable, to be sure, but can Tata remain true to itsliberal roots as it goes global? While the conglomerate has put shares of some of its companies up for sale in the West, Ratan Tata makes itclear he is in no rush to submit its real power center, Tata Sons, tothe short-term profit motives of Wall Street. Since 2000, Tata hasacquired Tetley Tea of Britain, Daewoo Motor of South Korea and NatSteel of Singapore. Yet it’s also moved into markets where Westernmultinationals dare not tread, including Bangladesh and Africa, whereTata has assumed the role of a for-profit development agency. Howeverfar those markets, they are near in spirit to the century-old socialexperiment of Jamshedpur, the company’s original steel town.Welcome to JamshedpurThe town was the creation of company founder Jamsetji Tata. Born to the Parsi minority (who worship the Persian prophet Zoroaster), Tatajoined his father’s trading company at 13, and by 35 owned one ofIndia’s largest textile mills. According to R. M. Lala’s officialcompany history, “The Creation of Wealth,” he led a generation of young Indian entrepreneurswho viewed industrialization as a means to end British imperialism.”Jamsetji,” Lala writes, “was a nationalist long before this word had any real significance.”When Jamsetji began to carve Jamshedpur from the jungle southwest ofCalcutta nearly a century ago, the British scoffed. Sir FrederickUpcott, India’s railway commissioner, mockingly vowed to “eat every rail pound of steel rail they succeed in making.” After Jamsetji’sdeath, banks inLondon withdrew backing, so his heir, R. D. Tata, turned to Indianfinanciers in the thriving Swadeshi (Self-Help) movement. The steel mill was the first in Asia when it opened in 1912, just in time forthe steel boom triggeredby World War I.R. D. Tata laid out a small city based on progressive principles thenfashionable in Europe. The company built schools, churches, parks, a hospital and workers’ housing. Fabian socialists Sidney and BeatriceWebb, founders of the London School of Economics, advised onsanitation.Setting standards new to Asia, Tata cut the workday to eight hours, offered free medical aid and stuck to this social contract even intough times. During a 1923 cash crunch, when critics called his socialspending a waste of money, R.D. dismissed them as “sadly lacking inimagination.”Today Jamshedpur is Tata’s only company town, but the conglomeratestill pays full health and education expenses for all employees. Itstill runs the schools and a 1,000-bed hospital in Jam-shedpur (population: 800,000). The city looks frozen in time around 1960, whenTata Steel was controlled by Soviet-inspired central planners: allgrimy blast furnaces and smokestacks circled by aging suburbs.Indeed,when Ratan took over in 1991, he says, Western bankers andconsultants,”little 25-year-old kids”,told him to get out of the dyingsteel business. But Tata could not just walk away, says Ratan, fromits commitment to Jamshedpur and to building Indian industry. Steel RevolutionNo matter how gritty Jamshedpur may look, inside the steel mill therehas been a revolution in efficiency. Since 1991 Tata has cut the workforce from 78,000 to 45,000 in a downsizing so well managed, steel-union presidentR.B.B. Singh says, “all the employees… have no regrets at all.” Tataalso spent $2.5 billion replacing century-old machines, transformingthe mill from one of the world’s oldest to one of the newest, says Tata Steel managing director B. Murthuraman.Once dismissed as too shy to make a big impact, Ratan Tata hasorchestrated similar strategic turnarounds across the Tata empire.India Hotels sold a stable of three-star properties outside the country to refocus on the luxury sector, and this month bought one ofManhattan’s legendary hotels, the Pierre. Tata is shifting out of teaproduction in India by selling majority stakes in its plantations toits workers, who as owners now pick on average 50 bushels a day, upfrom 30 before. “Ratan Tata was dismissed as a man with the anti-Midastouch,” says parliamentarian Jairam Ramesh. “But in the past 10 years he has made Tata a remarkable success story.”An Asian Family ConglomerateTata is a trend breaker among Asian family conglomerates, a breedwhose incestuous flaws were exposed during the regionwide financial crisis of 1998. Even today, other Indian family business empires arebreaking up around Tata (sidebar). One reason Tata has worked, saysRatan, is thatit has been professionalizing its management for decades: he insists that, if anything, his status as a Tata landed him the worstassignments at “troubled companies,” like textile mills, where hehoned skills as a turnaround artist. When he took over in ’91, herecalls, Tata had a reputation as a “fuddy-duddy group” based on “an ethical framework that was passe,”and he himself “suffered from the reputation of often not exertinghimself.”Tata came to power just as India was opening to foreign and free-market competition, and soon asserted himself. His immediatepredecessor, J.R.D. Tata, had created a “loose confederation” in whichthe central holding company (Tata Sons) held small minority stakes in each affiliate. Thiswas designed to avoid the wrath of anti-monopolists in New Delhi, butcreated what Tata Sons director Krishna Kumar calls “powerfulchieftains, each pulling in a different direction.” To reassert control, Ratan threatened topull the family name, by then a sterling brand inside India, fromthose who would not submit to a strict code of conduct and a newperformance review.Ratan Tata would prove tough on white-collar staff. He used growing revenue from TCS, an arm of Tata Sons, to extend the latter’s stake ineach affiliate to at least 26 percent enough under Indian law to exertmanagement control. Then he pushed out recalcitrant chieftains,including the managing directors at Tata Steel and Indian Hotels. Today, he says, if Tata Sons has a U.S. parallel, it is BerkshireHathaway, where Warren Buffett has “a say in the direction” ofcompanies he has invested in.A People’s CarRatan’s fingerprints are clearest at Tata Motors, once a symbol of India’s backwardness. After independence, Tata became astate-protected monopoly known for trucks that, as the humorist, P. J.O’Rourke, once wrote,”blunder down the road… brakeless, lampless, on treadless tires, moving dog fashion with the rear wheels headed in a direction thefront wheels aren’t.” Ratan saw a fix: cars for a rising domesticmiddle class. Tata bought a usedNissan assembly line in Australia and shipped it to Pune, three hours east of Mumbai. Designers went to work on a four-door car with a largerear seat, modern styling and a price under $4,000. Skeptics saw it asa vanity projectof the kind that had undone Asian family businesses before. “When he came up with the car people said, ‘This will be the end’,” saysShekhar Gupta, CEO of the Indian Express Newspapers.It wasn’t. Introduced in 1998, Tata’s cheap Indica sedan was aninstant hit. Now, with 500,000 sold to date in India, and exports going to Europe, South Africa and Russia, Tata plans a second act: a$2,000 car. Its market is “thefamily of four sitting on a two-wheeler, driving on slippery roads inthe rain,” says Ratan, who figures to sell up to 1 million a year in India. The plan is to distribute the car in kit form to small,low-tech assembly plants in the countryside. Ironically, this echoes ahoary socialist scheme that once forced Tata to hire cottageindustries to hammer bodies of wood and sheet metal onto unfinished chassis. The aim this time, however, is less to develop the “smallsector” than to replace expensive automation with cheap labor. “Wewill do something which everyone thought was not possible,just like the Indica,” says Ratan. “History will show whether we’vebeen foolish or courageous.”The India FactorSuccess could depend on the changing Indian business environment.Ratan says India today is a nation where top officials are writing the right policies, but are often foiled in execution by business lobbies,provincial politicians or leftists in the ruling coalition. “Eminentlyridiculous”rules have driven Tata out of such businesses as airlines, and make it all but impossible for India to compete with China. For example, itcosts less to import wheel rims from China than to buy the steel alonein India. Tata worries that India is in “some form of denial” about China’s manufacturing lead. The reason China is the big winner fromthe recent elimination of global textile quotas, he says, is that theIndian government “destroyed” the Indian industry over the years, creating small mills without the capitalto expand, and jacking up cotton prices to uncompetitive levels. Tatagot out of the textile business, too, years ago.Tata Goes GlobalA decade ago forecasters said globalization would kill old family conglomerates like Tata, but it has not. The purchase of brands likeTetley provided instant name recognition and distribution networks.More intriguing is Tata’s move into poor regions with historic ties toIndia. Tata is infinal talks to build energy, steel and fertilizer industries virtuallyfrom scratch in Bangladesh. Valued at $2.5 billion, the deal wouldrepresent the largest foreign investment ever in Bangladesh. “It was a chicken-and-egg situation,” says Tata. No one was investing inBangladesh because therewas no infrastructure, which couldn’t be built without investors.Tata is also moving into South Africa, building on a shared colonial past.R. D. Tata helped finance Mahatma Gandhi’s campaign to wingreater rights for Asian immigrants to South Africa. Once the countrydemocratized, Tata built schools to train carpenters and electricians.Now the group strategy is to promote “black empowerment” in order to raise the quality of lives, says Tata, and to use the country as agateway through which to popularize the Tata brand in Africa.Ratan Tata’s departure as CEO could spark as much apprehension as hisarrival, but for opposite reasons. He is now seen as vital to Tata’s success. Though he has centralized power inside Tata Sons, he has nobiological heirs and has professionalized the top ranks so thoroughlythat analysts see no risk of a family struggle. Senior executives atTata Sons say it recently (and quietly) raised the retirement age forboard members from 70 to 75 effectively extending Ratan’s tenure to2012, andgiving him a little breathing room to find a successor. In themeantime, Ratan expects Tata to keep growing as a different kind ofcompany. For one, he says, Tata has always performed best “when wewent beyond the role of just the ordinary corporate citizen.” Foranother, Tata’s profit margins rival any multinational’s, says Ratan, proving a gentle giant can make it in global competition.
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