When Jamsetji Tata, perhaps India's most revered industrialist, aired the idea of starting the subcontinent's first steel mill in 1907, Sir Frederick Upcott, the British commissioner of railways in India, seemed to think it was no more than hot air. He is said to have remarked at the time that he would "eat every pound of steel rail" the plant produced.
So executives at the Mumbai headquarters of Tata Steel, the country's largest steel producer, could be forgiven a chuckle after the board of Corus, the former British Steel, recommended Tata's audacious £5.1bn bid last week. If shareholders back the offer, the deal will be worth more than three-quarters the combined value of all previous foreign acquisitions by Indian companies.
Yet Tata Steel is just a small part of the massive empire of Tata Group, which numbers more than 100 companies and is now pursuing an aggressive push beyond its domestic borders. It is virtually impossible in India to get through the day without somehow adding a few rupees to Tata's coffers. Cup of tea? How about a drop of Tetley, which the company bought in 2000, served in a mug made by Tata Ceramics? How about a holiday? Try a stay in one of the five-star properties run by the Taj Hotels and Resorts, the country's largest luxury chain and also part of the group. The heaving streets of Mumbai are clogged with cars and trucks made by Tata Motors; the new skyscrapers puncturing the city's skyline are built with Tata Steel.
The group, which was started as a trading firm by Jamsetji Tata in 1868, today accounts for 2.5 per cent of India's GDP. It is majority owned by a Tata family trust that funds a range of initiatives including hospitals, universities and disaster relief.
Yet for all its ubiquity at home, Tata is still relatively unknown abroad. Until now. If the purchase of Tetley, once famous for its Yorkshire "tea folk" marketing campaigns, was its coming-out party in the UK, the offer for Corus, a company four times the size of Tata Steel, is its coming-out to the world.
Under the 68-year-old Ratan Tata, who took over as chairman in 1991, the group has been an active buyer of businesses, but these have generally been small. Now, fuelled by an economy that Standard & Poor's predicts will grow at 7.5 per cent annually for the next few years, and by a sudden willingness on the part of international banks to lend to acquisition-minded Indian enterprises, Tata is looking beyond its borders like never before.
None of the group's sprawling portfolio of companies encapsulates its growth and ambition more than Tata Consultancy Services (TCS). Already the largest of India's booming information technology outsourcing companies, it writes software, runs call centres and manages back-office systems for an array of big international names, including Virgin Atlantic and Alliance Boots in the UK, and Lehman Brothers and retail giant Target in the US. It accounts for roughly half of the group's $49.1bn (£26.1bn) market value and has set itself the goal of growing annual turnover from $2.9bn last year to $10bn by 2010.
To do so, TCS is in the midst of a massive recruitment drive. Within the next 12 months, it expects to hire 30,000 engineers - more than a third of its current workforce of 78,000 - at a rate of around 100 people every day. While some critics worry about such breakneck expansion, bigger rivals such as IBM and Accenture are pushing into India and domestic competitors Infosys and Wipro are growing at similar rates. And for now the market loves TCS, giving it about the same market value as Accenture, though the latter has six times the turnover.
S Ramadorai, the avuncular chief executive, who started at TCS over three decades ago as a trainee engineer, acknowledges the scale of the task but exudes complete confidence that the plans will work. "Our biggest challenge is managing growth," he says in an interview at his 11th-floor office in the Air India building in Mumbai. (JRD Tata, an aviation enthusiast who led the company for five decades after Jamsetji died, started Air India. It was later nationalised by the Indian government.) "It does get harder day in and day out, but then good companies will always attract the numbers."
Much of the growth will come in the city of Chennai, a technology hub where many international and domestic firms have set up shop. After a job fair earlier this year, TCS received over 26,000 applications in one day. Using the kind of automation software it sells to clients, it whittled down the pool to 13,000 candidates, who were then tested. A week and a few thousand interviews later, it offered jobs to around 1,000.
Wages for Indian engineers are on the rise and the number of companies providing similar services is increasing. As that happens, the cost advantages enjoyed by TCS and its ilk will erode. So the company is betting that the future lies in a shift of focus from low-cost outsourcing to hi-tech innovation and consulting, which can be sold at a premium to Western clients.
Like much of Indian industry, TCS is in transition: instead of making someone else's widgets, it wants to design them. For example, it is putting the finishing touches to an airline innovation lab in Chennai, where executives can walk into a room mocked up as the interior of a commercial jet and test-drive new software or any other ideas the company is coming up with.
Ramadorai says TCS is open to more acquisitions "when it makes sense", but that it will not buy companies that might dent its chunky 25 per cent margins. TCS looked at Vertex, the call-centre business now being auctioned by United Utilities in the UK, but walked away because its 3 per cent margins were too low. Instead, it is scouring low-cost markets such as South America and Eastern Europe.
Analysts expect TCS to list in either the US or London within the next couple of years as a way of increasing its profile and beefing up its balance sheet.
Yet looking out from the top floor of one of TCS's innovation centres on the "IT highway" - a road through Chennai that houses numerous technology companies - one can't help but be struck by the obstacles that stand before it. The IT highway, for one thing, looks anything but.
Across the street from TCS's sleek brick-and-glass building, which would not be out of place in Silicon Valley, a naked, emaciated child squats defecating on the side of the road. The highway is flanked by thatched huts and open ditches, while motorised rickshaws jostle among the tangle of cars and cows on the potholed road. The government promised years ago to improve the thoroughfare, but roadworks lie abandoned. Criss-crossing the city is an unfinished elevated railway system, the empty stations serving as temporary shelter for the homeless.
In contrast to China, where big infrastructure projects are relentlessly pushed, things here move at a glacial pace. "In the next few years, they need to build a lot more roads, a lot more ports, a lot more everything," says Standard & Poor's analyst Ping Chew. "When they build new highways, they're almost coming to capacity as soon as they are done."
Whether or not such projects get off the ground, Tata is used to the government being more hindrance than help.
Consider the story of the Taj Mahal Hotel in Mumbai, a palatial building on the waterfront. In the early 1900s, Jamsetji Tata was already a successful businessman, yet he was, so legend goes, denied entrance to a British hotel because he was Indian. So he decided to build his own. When it opened in 1903, the Taj Mahal was the first hotel in India to have electricity; it remains the group's flagship property.
"There is a very strong pioneering sprit here," says one TCS executive. "We all grew up with Tata soap and Tata shampoo." And if the group has its way, Tata will become a hosehold name in the rest of the world too.
So executives at the Mumbai headquarters of Tata Steel, the country's largest steel producer, could be forgiven a chuckle after the board of Corus, the former British Steel, recommended Tata's audacious £5.1bn bid last week. If shareholders back the offer, the deal will be worth more than three-quarters the combined value of all previous foreign acquisitions by Indian companies.
Yet Tata Steel is just a small part of the massive empire of Tata Group, which numbers more than 100 companies and is now pursuing an aggressive push beyond its domestic borders. It is virtually impossible in India to get through the day without somehow adding a few rupees to Tata's coffers. Cup of tea? How about a drop of Tetley, which the company bought in 2000, served in a mug made by Tata Ceramics? How about a holiday? Try a stay in one of the five-star properties run by the Taj Hotels and Resorts, the country's largest luxury chain and also part of the group. The heaving streets of Mumbai are clogged with cars and trucks made by Tata Motors; the new skyscrapers puncturing the city's skyline are built with Tata Steel.
The group, which was started as a trading firm by Jamsetji Tata in 1868, today accounts for 2.5 per cent of India's GDP. It is majority owned by a Tata family trust that funds a range of initiatives including hospitals, universities and disaster relief.
Yet for all its ubiquity at home, Tata is still relatively unknown abroad. Until now. If the purchase of Tetley, once famous for its Yorkshire "tea folk" marketing campaigns, was its coming-out party in the UK, the offer for Corus, a company four times the size of Tata Steel, is its coming-out to the world.
Under the 68-year-old Ratan Tata, who took over as chairman in 1991, the group has been an active buyer of businesses, but these have generally been small. Now, fuelled by an economy that Standard & Poor's predicts will grow at 7.5 per cent annually for the next few years, and by a sudden willingness on the part of international banks to lend to acquisition-minded Indian enterprises, Tata is looking beyond its borders like never before.
None of the group's sprawling portfolio of companies encapsulates its growth and ambition more than Tata Consultancy Services (TCS). Already the largest of India's booming information technology outsourcing companies, it writes software, runs call centres and manages back-office systems for an array of big international names, including Virgin Atlantic and Alliance Boots in the UK, and Lehman Brothers and retail giant Target in the US. It accounts for roughly half of the group's $49.1bn (£26.1bn) market value and has set itself the goal of growing annual turnover from $2.9bn last year to $10bn by 2010.
To do so, TCS is in the midst of a massive recruitment drive. Within the next 12 months, it expects to hire 30,000 engineers - more than a third of its current workforce of 78,000 - at a rate of around 100 people every day. While some critics worry about such breakneck expansion, bigger rivals such as IBM and Accenture are pushing into India and domestic competitors Infosys and Wipro are growing at similar rates. And for now the market loves TCS, giving it about the same market value as Accenture, though the latter has six times the turnover.
S Ramadorai, the avuncular chief executive, who started at TCS over three decades ago as a trainee engineer, acknowledges the scale of the task but exudes complete confidence that the plans will work. "Our biggest challenge is managing growth," he says in an interview at his 11th-floor office in the Air India building in Mumbai. (JRD Tata, an aviation enthusiast who led the company for five decades after Jamsetji died, started Air India. It was later nationalised by the Indian government.) "It does get harder day in and day out, but then good companies will always attract the numbers."
Much of the growth will come in the city of Chennai, a technology hub where many international and domestic firms have set up shop. After a job fair earlier this year, TCS received over 26,000 applications in one day. Using the kind of automation software it sells to clients, it whittled down the pool to 13,000 candidates, who were then tested. A week and a few thousand interviews later, it offered jobs to around 1,000.
Wages for Indian engineers are on the rise and the number of companies providing similar services is increasing. As that happens, the cost advantages enjoyed by TCS and its ilk will erode. So the company is betting that the future lies in a shift of focus from low-cost outsourcing to hi-tech innovation and consulting, which can be sold at a premium to Western clients.
Like much of Indian industry, TCS is in transition: instead of making someone else's widgets, it wants to design them. For example, it is putting the finishing touches to an airline innovation lab in Chennai, where executives can walk into a room mocked up as the interior of a commercial jet and test-drive new software or any other ideas the company is coming up with.
Ramadorai says TCS is open to more acquisitions "when it makes sense", but that it will not buy companies that might dent its chunky 25 per cent margins. TCS looked at Vertex, the call-centre business now being auctioned by United Utilities in the UK, but walked away because its 3 per cent margins were too low. Instead, it is scouring low-cost markets such as South America and Eastern Europe.
Analysts expect TCS to list in either the US or London within the next couple of years as a way of increasing its profile and beefing up its balance sheet.
Yet looking out from the top floor of one of TCS's innovation centres on the "IT highway" - a road through Chennai that houses numerous technology companies - one can't help but be struck by the obstacles that stand before it. The IT highway, for one thing, looks anything but.
Across the street from TCS's sleek brick-and-glass building, which would not be out of place in Silicon Valley, a naked, emaciated child squats defecating on the side of the road. The highway is flanked by thatched huts and open ditches, while motorised rickshaws jostle among the tangle of cars and cows on the potholed road. The government promised years ago to improve the thoroughfare, but roadworks lie abandoned. Criss-crossing the city is an unfinished elevated railway system, the empty stations serving as temporary shelter for the homeless.
In contrast to China, where big infrastructure projects are relentlessly pushed, things here move at a glacial pace. "In the next few years, they need to build a lot more roads, a lot more ports, a lot more everything," says Standard & Poor's analyst Ping Chew. "When they build new highways, they're almost coming to capacity as soon as they are done."
Whether or not such projects get off the ground, Tata is used to the government being more hindrance than help.
Consider the story of the Taj Mahal Hotel in Mumbai, a palatial building on the waterfront. In the early 1900s, Jamsetji Tata was already a successful businessman, yet he was, so legend goes, denied entrance to a British hotel because he was Indian. So he decided to build his own. When it opened in 1903, the Taj Mahal was the first hotel in India to have electricity; it remains the group's flagship property.
"There is a very strong pioneering sprit here," says one TCS executive. "We all grew up with Tata soap and Tata shampoo." And if the group has its way, Tata will become a hosehold name in the rest of the world too.
Source:The Independent [22 Oct 2006]
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