Journal of Case Research vol:1 issue: i Tata Sons Limited: Firm Characteristics expressed under Competition Amar K.J.R Nayak1 Abstract The mainstream literature on strategy relating to firm performance is heavily oriented towards the managerial competence and the way they make use of the internal resources and capacities. While normal growth could be explained through the literature of strategy and performance using the two factors viz., the environmental deterministic approach and the employed managerial talent of the firms, the explosive growth of firms in India and other developing countries does not appear to fit the explanation. This compels us to examine if the approach of large firms have been positivist and that they extensively influence and shape the larger environment including policies, regulation, and socio-cultural behaviour of people. Further, it is important to examine the significant role of other external actor-network of large owners/proprietors of the firms with reference to the explosive growth of firms in India during the last about two decades. The case of Tata Sons raises some important theoretical question on the basis of firm growth and especially the explosive growth of relatively large business houses in the fast changing regulatory and institutionally deficient but large developing countries. 1 Amar K.J.R.Nayak, Ph.D., Strategic Management, Xavier Institute of Management, Bhubaneswar. 1 Journal of Case Research vol:1 issue: i Tata Sons Limited Firm Characteristics expressed under Competition The Tata way of doing business has remained to be the role model of doing business for many in India and outside India. The Tatas have been reported to be one of the most respectable business houses in the world. John Canning in his book 100 Great Modern Lives had observed the same sentiment long before in the following words. ‘Probably no other family has ever contributed as much in the way of wise guidance, economic development and advancing philanthropy, to any country as the Tatas have to India, both before and since Independence’ The story of the Tatas and their business endeavours goes back to Jamshetji Nusserwanji, who about 140 years back started a private trading firm in 1868 that laid the foundation of today’s Tata Group of companies. Set up in 1917-18, Tata Sons Limited after 72 years of operation, in 1990 had a total income of INR 98.35 crores, and profit after tax of INR 8.92 crores with total net asset of INR 84.92 crores only. Its income consisted of commission, dividends and interest, income from services, rents and other incomes1. Tata Sons has been the owner of the Tata name and the Tata trademark, which are registered in India and several other countries. Apart from lending its brand name to group companies as per the Brand Equity and Business Promotion Agreement, Tata Sons activities has been to; to maintain shareholding in main operating companies, to invest in operating companies to facilitate growth, and to promote the group's entry into new businesses.2 Following the liberalization process in India begun by Rajiv Gandhi in 1985 and then with the watershed of liberalization in 1991, the company has had an explosive growth. In about the last 18 years, Tata Sons has increased its income from INR 98.35 crores to INR 4476.67 crores. It increased its profit after tax from INR 8.92 crores to INR 3379.80 crores. During the same period, Tata Sons increased its assets from INR 84.92 crores to 1 Tata Sons Limited, 72nd Annual Report, 1990. 2 http://www.tata.com/company/profile.aspx?sectid=DpOT+Lbrdvg= <accessed May 9, 2009> 2 Journal of Case Research vol:1 issue: i INR 27093.49 crores3. See Exhibit 1 for growth of Tata Sons on key financial indicators4 for the period 1991-2008. While the power of control of the Tata family through the two Managing Agents viz., Tata Sons and Tata Industries were clipped by the Government of India on April 2, 1970; the house of the Tatas, have bounced back during the last 18 years of liberalization in India to emerge as the leading business conglomerate of India. In 2008, Tata Sons Limited along with Tata Industries, have financial holdings in 114 companies (see Exhibit 2), whose operation spans across the world. Tata Sons Limited has not only intensified its growth machine in India but has also expanded deeply to countries and markets outside India, both in the industrially advanced countries and the developing countries. Comparative financial position on sales, PAT and total Assets of most of the Tata Sons companies during the period 1990 to 2008 have shown remarkable growth. The financial trends of 78 companies for three years viz., 1990, 2000, and 2008 are shown in Exhibit 3. Individual companies where the Tata Sons have high stakes and strategic interest have been performing superbly in the last about 20 years. The case of Tata Steel is a point in case. Established in 1907, Tata Iron and Steel Company (Tata Steel) in 1931 had a profit of only INR 0.19 crores and with total assets of INR 23.41 crores. After 50 years, in 1981, it had a profit of a 26.46 crores and assets of INR 550.48 crores. Ten years down the line in 1991, that is after 85 years of operations, the company had a profit of INR 160.13 crores and assets of INR 2703.29 crores. Within the last 18 years, however, with the onslaught of industrial and economic liberalization, Tata Steel has soared high with a profit reaching INR 4687.03 crores and enhancing its asset base to INR 20,746.57 crores. For details on growth in financial indicators of Tata Steel for the period 1931-2008, see Exhibit 4. Many of its holding companies like TCS have surged in their performance in the last about 10 years. The financial figures of sales, assets, PAT, PBDIT, investments, investment abroad, foreign exchange earned, number of shares, and market capitalization 3 Tata Sons Limited, Annual Report, 2008 4 Please note that CMIE data may slightly vary from the data in the Company Annual Reports because of data standardization / normalization followed by CMIE. 3 Journal of Case Research vol:1 issue: i of the 13 large companies of Tata Sons for the period 1991-2008 are provided in Exhibit 5 -14. It is quite mesmerizing to observe the performance of Tata Sons in the last 18 years. What did the company do to achieve tremendous growth in a period of liberalization, market uncertainties, imperfections in the intermediate markets and the regulatory framework, and a poor image of Indian companies in foreign markets? How has the focus of the Tata Sons and their Trusts changed over the years? How did the company leverage the brand of the Tatas, goodwill created by the Tata Trusts and their social contribution, bureaucrats-regulators-policy makers-legislators-business leaders’ network for achieving growth? How was the house of the Tata companies reorganized and disciplined to achieve the performance? Did the company have to breach the trust on its Trusts to achieve some of its growth and profit objectives? How much did the stiff competition in the industry and economy shape its methods, processes and style of management? Trusts and Development activities of the Tatas The Tatas have set up several trusts in India. In their philanthropic efforts, Jamsetji Nussewanji Tata, the founder of the Tata Group of companies started the JN Tata endowment scheme in 1892. This scheme was provided loan scholarship for higher education. Of the 37 beneficiaries of this scheme, 15 joined the India Civil Services during the British rule in India. Tata Group report that by 1924, a third of the ICS officers in India were Tata scholars. In September 1898, Jamshetji pledged to offer about half his personal wealth that is INR 30 lakhs (then 2 lakh pounds) to set up an institute of research. After 13 years of this, with the generous donation of 300 acres of land from the Maharaja of Mysore, the Indian Institute of Science, Bangalore was established5. The sons of Jamshetji followed the father on his philanthropic endeavours. Both his sons, Sir Dorabji Tata and Sir Ratan Tata donated large amounts of their personal wealth to form trusts for various public services in India. The Sir Ratan Tata Trust was established in 1919, a year after the untimely death of the second son of Jamshetji Nusserwanji Tata. Later in 1932, Sir Dorabji Tata, the eldest son of Jamshetji Tata founded the Sir Dorabji 5 http://www.tata.com/ourcommitment/index.aspx?sectid=ei6stgDjpgA= <accessed May 10, 2009> 4 Journal of Case Research vol:1 issue: i Tata Trust. Of the many trusts of the Tatas, these two have remained to be the most prominent ones. Through these trusts, the Tatas have been able to initiate several well known research institutions such as the Indian Institute of Science, Bangalore (1911), Tata Institute of Social Studies, Mumbai (1936), Tata Memorial Hospital, Mumbai (1941), Tata Institute of Fundamental Research, Mumbai (1945), and International Institute of Population Studies, Mumbai (1956). In the recent years, the Tatas have also set up the JRD Tata Ecotechnology Centre, Chennai (1996) and plans to commission the Tata Medical Centre, Kolkata by 20096. For details on the various activities and contributions of the Tatas, see Exhibit 15-16. A number of Tata trusts were formed before the sixties. They were not so active in the seventies and have begun new development initiatives in the nineties. While most of the national institutions that were partially started by the Tata trusts before the nineties were based in and around Mumbai, the new institutions supported by the Tatas have now begun to spread to other parts of the country where their business activities have increased substantially.