Mr. Ravi Kant
Managing Director, Tata Motors
Thank you, Dharen. Good after noon. What I’m going to be talking as the slide shows really not so much as brand as commonly known but as how do we build first the world class competence and that becomes the foundation stone for building a brand whether in the country or outside the country. We had some difficult times just few year ago and therefore this came into sharp focus for all of us and we had to rethink about the brand once again and I’ll share some of these things about TATA motors as to what happened in last six years. And how we are proceeding further and therefore that kind of road that we are traveling on as where do we expect to reach. First a very quick overview about building world class competence and what has been the result so far. So a little bit about TATA motors for those who do not know, it is India’s largest automobile company, it is the second largest company in the private sector, in the year that has just gone by we don’t have the figures yet, but the previous it was more then 20,000 crores and they are growing at a very fast clip for last three or four years. As you can see from these figures a very strong domestic position especially in the commercial markets where we had started our lives in the automobile business. We enjoy more then 60% market share and in cars we are the second largest player although we came into the market only seven years ago. As you can see 4.7 billion profit post tax 1.3 billion US dollars. If you see the history of the TATA motors like any other classical company we have also grown in similar fashion, early phase, slow growth then getting the momentum and finally when markets opened and liberalization happened we went full steam. Then we were hit by the cyclical nature of the industry actually the set came into sharp focus as long as the market was protected there was barriers out there you did not feel the nature of the market because all of us in which ever industry we were in you kept kind of growing and this is the first time that we got hit very hard, we turned in a loss of 500 crores and it was the biggest loss in the corporates in India. So we sat back and thought about it and then we unveiled the new strategy and you can see from that how things are taken of course market has helped us no question of that. I think that as we have gone along most of the strategic tings that we have implemented have worked very well and I think it is going very fairly accurately. First thing to understand in the industry what type of industry you are in, I think that is the key thing and that determines what kind of a strategy to have and the thing that we knew but we probably didn’t realize so badly is that we are in a cyclical industry and as you can see that there is secular trend as far as India is concerned and semi industry or commercial vehicle industry is cyclical anywhere, automobile industry is also cyclical but probably not so much, but civvies are far more cyclical as you can see that the amplitude satellite quality is going as we are going by. That therefore brings you number of things, what happens when you are in the down cycle, something’s have to happen, what happens as far as the top line is concerned and what happens to the bottom line is concerned, when you start thinking deeply about it common sense will give you many of the answers and you will or when you are going in the down cycle naturally your costs must be shrunk very badly so you should be a lean organization so that even when the market is down you are able to with stand the pressures. And you need to therefore go into the segments that are less cyclical like for example whether you take the passenger car market of LCV market you see that they are less cyclical then the heavy trucks. So one of the reason for getting into the car business was to offset the cyclicality of the commercial vehicles. that was the key strategic move that was done and you will see that it was not an easy decision and at that point of time there were lots of people who were skeptical about it but I think it has been ultimately proved that what the company did was right and along with that the second thing that is happening is the competition which all of us face in which ever industry you are in just as in the passenger car market you see. In five years alone there were 36 models and today there are 59 models. Out of 36, 24 were by the Indian companies and today there are only 22 models and 37 models have come from foreign players. That is the kind of intensity that is really happening. So if this is the context in which we are placed today then how do you tackle the situation? So these are the two points I have talked about are set cyclicality and de risking the business model and looking at the increasing competitiveness. De-risking the business model is very important because if the brand you are having is a strong brand and you are doing well and suddenly you find that your business has gone down and it has a great impact on the brand itself and there fore you need to de-risk the business model and we will come to some of the things that we have come to in de-risking, for example getting into personal transportation, new segments and in creasing segments that are less cyclical like the car business that I had mentioned and LCV that I had mentioned, buses because the whole bus market is controlled as far as the roots are concerned, prices are concerned. So these are less cyclical and it is all about getting into different business so these are the some of the things that we tried to do. Second is the increasing competitiveness. Here I would like to stay for a minute, so about the competitiveness it is not only the Indian players but now mostly from outside India. And if you look at that, what is the strategy that MNC or that brand is going to have. There are just two key points that we need to take, one is technology and quality gap and the other is cost gap. So that well known MNC is going to maintain ….it has as quality and technology gap with the Indian manufacturers say TATA motors, so in going forward you would like to maintain that gap but it has a negative cost gap of say like TATA motors. It would like to close that negative cost gap and maintain its technology and quality gap very naturally. We are coming from the other side we have the cost gap and it is a challenge as to how to maintain my cost gap going forward because those fellows can come to India and reduce the cost gap so for us therefore it becomes a huge challenge being in a low cost country how do you continue to enjoy that cost gap that you have and close the gap in technology and the quality and I think that time alone will tell because both are ultimately going to be fighting for the same ground and which of the two is going to be more successful. So during these both off set cyclicality and the competitiveness what kind of competence we need to build I have listed down six of them and we will go thru them very quickly on each one of them. Product development is the key. In our industry almost everything depends on the product therefore you need to have a highly efficient system of product development and I have just taken some examples like the passenger cars, normally what you need to change in from one generation to another generation the same platform in the car business is you need to spend about a billion dollars. What TATA motors was able to do quite cleverly in half a billion dollars it not only took a Greenfield site, built a factory and raised a platform on the three big variants were taken out one was the hatchback, sedan and the station wagon and all within half or slightly more then half a billion dollars. So you were able to do this thing is a very competitive manner because in the car business it is said unless you are a million player means million volume player, you have to talk in millions you don’t make money. And here we were able to prove that with 100 thousand vehicles that is one tenth of that you could make money. So I think that these are the kinds of things that we need to think as we move forward and we enjoy the good market share and we are number two in hatch, number one in sedan and station wagon segment. Second example is say a small mini truck, most of you would not be aware of this as this was introduced nearly eleven months ago and has turned out to be phenomenally popular thing because we were able to read the market well based on the road development which was going to take place, based on other activities in the country that were going to happen, distribution of goods and people. We had just introduced the lower version of goods vehicle and it has already reached in a year’s time an annual figure of fifty thousand. Now this is big and the whole commercial vehicle industry is about three to three and half lakhs vehicles so you can understand how one product has in eleven months time captured almost the fifty thousand annualized volumes. Now how did we do it? Earlier because of the historical reasons, because you were not allowed to import anything we tried to do everything in-house that was right at that point of time, because we did not have any connectivity to any technology at that time from outside and the government didn’t allow that and we didn’t have any collaboration. We had for first 16 years till ‘69 collaboration from the technical and the equity collaboration with ( not clear) and after ’69 there is not technical collaboration. They are just investors in the company. So from that mind set to be able to go to a mind set where you go to whole new ball game where the market has changed from a sellers market to buyers, where competition intensified as you said we had to change our business model itself of product development. Therefore we moved from trying to do everything in-house to as I said trying to develop the product ourselves to managing product development. It is not just the way onwards but if you think carefully it was the major change that was done in the company last four five years. It is the managing the process of product development and therefore we connected ourselves and networked ourselves with the whole technology partners, some within the company and some within the group itself, like TATA technologies and Incat UK, European technical center, the engineering centers in India along with the joint ventures and the companies that we have taken over and whole lot of vendors, suppliers and other people. While this was being done the whole process was being up graded many times over. We introduced the product lifecycle management system, new product introduction system and advanced computer rated design and I think that what we have got is fairly advanced level of things and we are still going into things understanding for example aircraft is being designed. Today we have come to a situation that if I tell you that the (not clear) systems is today creating a plane the very first plane which is going to made will be a saleable plane, that means no crashing, no testing. Normally what you need to do in the cars and others is that you need to test drive them by crashing and destroy lot of them. But we have now reached such an advanced stage level that the first plane itself is going to be a saleable one. So we are trying to see how we can make my automobile. Earlier I used to destroy hundreds of automobiles to have that right quality but now I can do these things mostly on software. That is the kind of change which is taking place. So building world class competence and product development, building world class competence and supply chain, improvement and quality, enhancing people capability and such things like that and I don’t want to spend time on that. just to give you an idea tat by doing this we are able to more then double the productivity in five years time. Outsourcing and global sourcing it is mentioned here that how do I maintain my cost competitive advantage. To maintain that I have to those places where there is lower cost and not be fixated that I have to buy everything from India or I have to do everything myself. So both outsourcing has become a big thing and also location wise and percentage wise as you can see out here from a highly vertically integrated company that we were, TATA motors were we have now reached the position where the small vehicle that I talked about almost 80% of it is outsourced. From almost 80% in-house we have moved to 80% outsource and these kinds of things have happened very rapidly last few years. So the key really is how do you move in times where you are able to retain you cost competitive advantage because if you don’t you will not be there. As in many companies in the automobile line what s happening to them. And of course the data management and I don’t want to go that much into that. The key is to do all this as I said how do I bring the break even point, in he sense that when bad times are there I still should not make losses though my profits may shrink. They all add up to whatever I have said to reduce because we are in a cyclical distance. That is something that you should understand and as you can see that in three years time from two thirds capacity of utilization it came down to one third capacity of utilization afterwards it has moved up slightly because of huge increase in input cost material like steel and all. All of these things are done to assure the continuous strength of the brand and does not get shaken because of the external circumstances which are going to buffet it. marketing and sales – again it is very simple but these kinds of things for the commercial vehicles is not done and we have introduced it in segmentation and what we are seeing is this principle is applicable in India as well as outside India and as you move forward you can really predict as to what will be compositions of the different segments and therefore what kinds of products that you need to have. And which markets in the world are moving in tandem in particular phases of evolution. The new sales planning process which was introduced have the….now getting into CRM TATA motors is the only automobile company in the world that has taken the end to end solution for the CRM which we are doing and no other automobile company is doing this or tried to really do it. Then there is the usual corporate identity program ands doing all these things you see that strength of the opposition in the market, in the domestic market the CV market share is about 16% and he car market is about 17%. One of the things to really look at is a dimension to go into less cyclical segments to offset the cyclicality. Other thing is go into markets which are also cyclical but also a phase like and that was the key thing for us to get into the international business although markets outside India are also cyclical but fortunately there is a difference in phase. And therefore some markets may be going up and some maybe coming up. If you play that intelligently you can manage the business mall. Now in international business there are two kinds, one is organic growth and the other is inorganic growth. So I’ll spend few minutes on organic growth. We were supplying vehicles to 80 countries and this was as I said merely dispatching vehicles from here and not really having the connectivity with the customers or with the classical marketing so we decided that’s not the way we are going to do this and this was decided about three and half years ago. And so we took a much focused approach and I will show you what this focused approach is as we actually sank the markets and by shrinking the market and taking the more focused approach we increased the numbers quite substantially. So the various factors and screens that we used was market attractiveness and potential regulatory environment in that geography and the TATA motors ability to adjust in that markets. The triangles that I had showed you earlier if that if we are strong in say segment C which is the India position today and therefore if I find that there is market like South Africa for example a substantial C type of a segment and we have e product which is close to us and there fore we can make a big difference. So how did TATA motors sales do?
As you can see from here that every year we have been doubling the sales in the international markets, from less then nine and half thousand to fifty thousand this year which is just to conclude. And next two years we are seeing that this process will continue. And as I said earlier three years ago we had shrunk to 45 and next year we shrank another five and later another five. So we are shrinking the markets and doubling the numbers. The other one is the inorganic growth. Tow years ago we took over a company called Daewoo commercials in South Korea, many reasons, some of these are given here but the best of it was the complimentary product range and it hastened our introduction and the entry into the higher grade of segment by almost two years and because we were anyway working at it and this enabled us to c\short circuit us the time frame and reduce that by half. What I want to talk here is….many times the financial marketing is all those things are important and the product is important but I think that we miss out on the soft issues and what is the important point here was that you need to be extremely conscious about the soft issues and we have put up a four stage process that we follow initial understanding, basic familiarity, language familiarity and the familiarization with the country and harmonization and finally synergization and I think that we have been extremely successful and that is what we were following now or last few years. So what we are making is good corporate governance, cost effectiveness is strong in generic ways and what we are getting from Korea’s work ethics quality and production activity. I think that we will be able to build a good brand in Korea of TATA Daewoo. And people aware now becoming familiar with that. I think a good respect amongst everybody all the government constituencies or the industrial constituencies or the media or the general public has enabled to create a very good brand image thru doing many things including advertising as the results speak for themselves. As you can see that we have increased the market share by almost by 8% and we launched a entry into the medium commercial vehicles. And in three months itself we were able to capture 13 and half % market share. So all these things that we have been trying to do have worked very well and today two thirds of all exports of the heavy commercial vehicles of Korea are actually accounted by our company; a similar kind of thing we did for the buses where we were able to get technology from a small company but we were able to take that technology and spread it over on a much larger canvass and which is therefore a win-win situation for both. Here also you can see as far as sales and revenues are concerned they have gone up very substantially. And therefore the point that I would like to mention which I was talking about – the soft issues. The philosophy is not to be an Indian country in that country and it is very natural I think that when we are talking about the templates we must be quite clear if I can take the lower portion first, when you think of a US multinational company some image comes to our mind, when you think of brand Japan something comes to our mind, when you think of brand Germany or Korea something comes to our mind, so when you think of an Indian company or a brand nothing comes to our mind. That is because there is no global Indian brand today; there is no Indian MNC today. But surely in five to ten years time there would be a few Indian companies and therefore there is a lots of responsibility in these companies to create that template to create that what India brand will be known as and the way we are seeing is that we should not be seen as an Indian company in that country but should be seen as a local company in that country. That means that I must connect myself to the society there, I must connect myself with the different constituents there, I must be seen to seeing and participating there in the development in that country and the society and the area in which I work. I think that is a very different kind of way which other MNC’s have worked and that is what the TATA motors in particular is trying to d o and I think that we are getting early successes of that and we are seeing the strength of that and I think that this is the template which at least as far as we are concerned we are going to follow and based on that the brand is going to be created, that means that the TATA brand or the TAT motors brand is going to be something which does not alienate and it is something which is trustworthy and the kind of values that we have built over hundreds of years or more then hundred years in India. We have to build in those countries; we have to bring those things of trust, transparencies, corporate governance, ethical values and things like that in those countries in a fast manner. And that is what we are tying to do and that is what is going to give us a sustainable competitiveness in the market as compared to others. That means warm up relationships with our constituents in the markets that we serve. So these are the kinds of things that we are doing. Human resources I don’t want to speak much on that. From a very hierarchical organization we are moving albeit not as fast as one would desire, to a very collaborative approach and trying to do things and see things …it is interdependence that is going to bring success to us. And finally whole thing is to be ….we are trying to knit together. Two things here one is what we call the TATA business excellence model and the balance score card. This excellence model we have done quite well as you can see there are seven things that are based on the Malcolm baldry award of the US, leadership strategic planning customer market focus information and the human resource process manages business itself, al these are kind of interdependency is clearly established here and we have done quite well on this as we have got the… we are the third company in the TATA group who got this TBM award and last year we also got the CIA award for business excellence. And the balance score card again which is knitting together various perspectives like the financial, business, customer process and learning both perspective and all knitting it together and again interdependency and the collaborative missive and here also you can see here that is happening that is well rewarded. And what the results have been of the various actions that we have taken, we are now in a generic company, it is very difficult but we are working on it on the negative working capital as I mentioned the cost of steel as in last two years it has gone up so it is bit positive but the attempt is going to be that we work it in negative capital and low debt equity rate ratio as you can see in business results have been quite favorable in revenue, margins and finally the market has awarded in terms of market capitalization as you can see market capitalization as on 19th of April that’s day before yesterday TATA motors were nearly 8 billion dollars and the GM was 11.6 and Ford was 13.4; well I think it speak two things one is how the market capitalization of GM and Ford has really fallen down very precipitously and how the TATA motors has gone up so there is a very little difference as you can see and that tells you as to where things are moving and other on of course is the market cap in India we are by far are the largest market cap. So all these things put together are actually building TATA motors brand to building TATA brand not so much as really about a particular indica brand or a particular ace brand and things like that, those things are there of course but many of the discussion will happen in the course of these two days you will learn about it but what I’m talking about is building the company brand basically and I think what has been done so far has been quite a challenge and is turning out to be quite a satisfaction to us. So thank you very much.
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