A Kinder, Gentler Conglomerate

In today’s world of cut-throat competition, corporate ruthlessness, global economy and free markets, it is heartening to note that there are still a few companies which value “corporate social responsibility” is valued above the bottom line.

Having been a fan of the Tata Group, this article in this week’s Newsweek makes great reading.

“A new kind of multinational is emerging out of India. It is the Tata Group, a family conglomerate that has gone professional without losing its old-school values. Forged from both India’s struggle for independence from 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 cut almost half its work force since 1990 to become the lowest-cost competitor in this industry–yet has kept its promise to pay all laid-off workers full salary until retirement.

In some ways, Tata could exist only in India, where wages of $1.20 an hour make cradle-to-grave corporate welfare far more affordable than it would be even in China. But Tata is unique even for India, where its rigid ethical standards are so well known that corrupt officials typically don’t even bother asking Tata executives for bribes. The company has walked away from industries, like Bollywood films, known for shady cash deals. Though India is a hotbed of labor strife, Tata Steel has gone 75 years without a strike. Tata’s car plant at Pune has gone 16 years, and local union rep Sujit Patil says his people work with management daily, a state of labor relations “very different” from other Indian companies’.”

In some ways, Tata could exist only in India, where wages of $1.20 an hour make cradle-to-grave corporate welfare far more affordable than it would be even in China. But Tata is unique even for India, where its rigid ethical standards are so well known that corrupt officials typically don’t even bother asking Tata executives for bribes. The company has walked away from industries, like Bollywood films, known for shady cash deals. Though India is a hotbed of labor strife, Tata Steel has gone 75 years without a strike. Tata’s car plant at Pune has gone 16 years, and local union rep Sujit Patil says his people work with management daily, a state of labor relations “very different” from other Indian companies’.

Today India’s best-known global competitors are young outsourcing firms like Infosys, which govern themselves by unabashedly Western rules. In contrast, Tata is 131 years old and still true to its 19th-century mission–developing India as an industrial power. Yet it also runs India’s leading outsourcer: Tata Consultancy Services, which is bigger than Infosys. As a whole, the Tata Group is India’s largest company by market cap, with revenues expected to hit $24 billion this year, driven by cars, steel and IT consulting.

Tata is a window into the rise of India. While that rise is often traced to free-market reforms that began in the early ’90s, Tata executives emphasize that even now, the company grows despite obstacles thrown up by red tape and special interests. Unlike China’s boom, which was orchestrated by the state, India’s is primarily the story of an enterprising private sector. Often seen in the United States as an outsourcing economy that threatens to siphon off service jobs, India’s wider potential is mirrored in the range of Tata’s ambitions–from luxury hotels and jewelry to a planned $2,000 car.

In recent years, as Tata began listing some of its affiliates on Wall Street, Americans often compared Tata to the model –conglomerate they know best: General Electric. But CEO Ratan Tata, 67, is no Jack Welch. “Certainly not,” he says. Tata executives, many armed with Western M.B.A.s, have all read about Welch, and dismiss many of his American 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’s dead bodies.” Some 66 percent of the profits of its investment arm, Tata Sons, go to charity, and executives make clear they have no intention of relinquishing control to Wall Street. At Tata, “corporate social responsibility,” to use the Western buzzword, has real money behind it.

That’s all laudable, but can Tata remain true to its liberal roots as it goes global? Since 2000, Tata has acquired Britain’s Tetley tea, the truck division of South Korea’s Daewoo Motor and Singapore’s NatSteel. Yet it’s also moved into markets where Western multinationals dare not tread, including Bangladesh and Africa, where Tata has assumed the role of a for-profit development agency. However far-flung those markets, they are near in spirit to the social experiment of Jamshedpur (population: 800,000), the steel town Tata carved from the jungle a century ago. It still pays full health and education expenses for all employees, and runs the schools and a 1,000-bed hospital. The city looks frozen in time about 1960, when Tata Steel was still inspired by Soviet planners, yet the mill is one of the newest in the world. Since 1991, Tata has spent $2.5 billion replacing century-old machines and cutting the work force from 78,000 to 45,000 in a downsizing so well managed, steel-union president R.B.B. Singh says, “all the employees… have no regrets at all.”

Once dismissed as too shy to lead, Ratan Tata has since orchestrated many similar turnarounds. India Hotels sold a stable of three-star properties to refocus on the luxury sector, and recently bought a Manhattan landmark, the Pierre. Tata is shifting out of tea production in India by selling majority stakes in its plantations to its workers, who as owners now pick an average of 50 bushels a day, up from 30 before. Today, he says, if Tata Sons has a U.S. parallel, it is Berkshire Hathaway, where Warren Buffett has “a say in the direction” of companies he has invested in.

Ratan Tata’s departure as CEO could spark as much worry as his arrival, but for opposite reasons. He is now seen as vital. Senior executives at Tata Sons say it recently (and quietly) raised the retirement age for board members from 70 to 75–effectively extending Ratan’s tenure to 2012, and giving him a little breathing room to find a successor. In the meantime, Ratan expects Tata to keep growing as a different kind of company. The fact that Tata’s profit margins rival any multinational’s, says Ratan, proves a gentle giant can make it in global competition.

With Sumeet Chatterjee in Mumbai

© 2005 Newsweek, Inc.

3 Comments

  1. Sunil October 27, 2005

    I’ve been a big fan of the Tata’s for years….ever since i found out that the IISc and TIFR were both established/built by the Tatas. They’ve contributed tremendously (perhaps more than all other major industrial groups in India put together) towards research, health care and social empowerment. And its all done very quietly. Remarkable.

  2. arZan October 27, 2005

    Sunil u r right.

    The number of institutions run by Tata funds is astounding. Tata Memorial Hospital, the Tata Scholar Program and many other such are contributions from the House of Tatas.

  3. rashmi November 1, 2005

    I spent the first 18 years of my life in Tata Land. Its an awesome place to grow up in and honestly one of the best small cities if not the best in India. Jamshedpur has been chosen to be one of the six cities to participate in the UN Global Compact Cities pilot programme.
    The Tatas give you everything that money can buy … all kinds of amenities, membership to elite clubs and just a really high quality of life. Something which they don’t give their employees is actual money though and this does lead to dissatisfaction amongst a lot of the employees, who would like to have more money in their bank accounts than a lavish lifestyle.
    And one thing, Jamshedpur is not frozen in time at all. Huge buildings have sprouted up, specially in the outskirts of the city as more and more retired tata employees settle in Jamshedpur.We have beautiful parks, a pretty decent amusement park and a zoo, and lots of adventure sports stuff going on in the lakes and the hills nearby. Earlier, Calcutta used to be the shoppers destination, but now a lot of brands have their showrooms in the city. It’s definitely a big town/small city kinda place, so there aren’t many malls and absolutely no night life(unless you are a member of an elite club), but yea, its so totally not frozen in time.

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