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Extended Essay Business & Management HL Topic: Growth Strategies What are the factors influencing the effectiveness of the “merger and acquisition” strategy pursued by the Tata group in the last 10 years? Supervisor: Mrs. Helen Andrew School Name: St. Georges British International School Rome School Code: 000817 Candidate Number: 000817-‐058 Candidate Name: Imran Uddin Exam Session: May 2012 Word Count: 3981
Imran Uddin Extended essay (Business & Management) 000817-058
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Acknowledgments Special thanks to my supervisor Mrs Andrew who was always available for support and
advice regarding the essay. Moreover, the meetings were very effective and helped me think
more critically about business strategies and mainly the integration chain. Ultimately helping
me achieve the knowledge beyond the IB syllabus.
Thanks to the rich information on the Tata group website which contributed a lot for my
essay, without which understanding about such a big company would have been overly
difficult.
Lastly, the ‘The Economist’ magazines and the books in the ‘St. Georges British international
school of Rome’ library also helped me get a better picture about business (growth strategies)
from various perspectives.
Word count: 111
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Abstract The purpose of this report is to analyse the factors that have influenced the effectiveness of
the merger and acquisition (M&A) strategy pursued by the Tata group in the last 10 years.
The success of the M&A programme was measured by examining the increase in turnover of
the group and the performance in the industry sectors where acquisitions have taken place.
An examination of Ansoff’s matrix in relation to alternative growth strategies illustrated that
the choice of acquisition followed a degree of related diversification, which although
acknowledged to be risky allowed high returns if successful.
An analysis of the integration chain showed that in many cases the choice of acquisition
allowed synergies, planning and cost control, and dominance in one particular market or
industry to occur over time. Backward, forward, lateral and horizontal integrations appeared
to be the overwhelming reasons behind acquisition choices. This strategy also enabled the
group to benefit from economies of scale in certain sectors, like the hotel business.
Further benefits were associated with the geographic presence which allowed a spreading of
risk of dependency on certain economic climates, currencies and customer spending. This
approach can reduce the vulnerability of decline from different perspectives.
Lastly, visionary expertise of management enabled acquisitions to take place in advance of
‘holding industry sector’ becoming published. The ‘hot industry’ identified sectors for 2011
which had already been acquired by Tata group in the previous year. This may have
facilitated lower prices to be paid for acquired companies.
Future recommendations focussed on acquisitions involving further backwards integration,
possibly companies dealing with extraction of raw materials, for example mining and forward
integration for example dealing with retail stores for Tata’s products. In addition, there
remains further scope to consolidate the group as a global conglomerate in an increasingly
global market place.
Word count: 299
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Table of Contents Acknowledgments ........................................................................................................................... 2
Abstract ........................................................................................................................................... 3
Section 1. Introduction ............................................................................................................... 5
Section 1.1 Brief History ..................................................................................................... 5
Section 1.2 Organisational structure of a holding company ............................................... 5
Section 1.3 Industry sectors ................................................................................................ 6
Section 1.4 Evidence of success & rationale for study ....................................................... 7
Section 2. Reasons for growth ................................................................................................... 8
Section 3. Analysis of growth .................................................................................................. 10
Section 3.1 Ansoff matrix ................................................................................................. 11
Section 3.2 Integration chain ............................................................................................. 15
Section 4. Additional Benefits gained from M&As. ................................................................ 19
Section 4.1 Quick and Easy ............................................................................................... 19
Section 4.2 Gaining entry to foreign markets ................................................................... 20
Section 4.3 Gain economies of scale with monopoly position ......................................... 21
Section 5. Innovation ............................................................................................................... 21
Section 6. Globalisation of markets ......................................................................................... 21
Section 7. Visionary expertise of management ........................................................................ 22
Section 8. Defensive position .................................................................................................. 22
Section 9. Conclusion .............................................................................................................. 23
Section 10. Recommendations ................................................................................................... 24
Bibliography ................................................................................................................................. 25
Appendices .................................................................................................................................... 26
Appendix A .......................................................................................................................... 26
Appendix B .......................................................................................................................... 27
Appendix C .......................................................................................................................... 27
Appendix D .......................................................................................................................... 28
Appendix E ........................................................................................................................... 31
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Section 1. Introduction Tata group is a multinational conglomerate company which is headquartered in Bombay
House, Mumbai in India. It is currently one of the biggest companies in India and has also
diversified into many western markets, now operating in over 80 countries (Tata Group from
Wikipedia, the free encyclopedia). In addition it has interest in many diverse sectors
including communications and information technology, engineering, materials, services,
energy, consumer products and chemicals. Furthermore Tata group has expanded its business
by merging, acquiring and taking over other business. The purpose of this investigation is to
examine the factors influencing the effectiveness of the merger and acquisition strategy
pursued by the Tata group in the last 10 years.
Section 1.1 Brief History Tata Group was founded in 1868 by Jamsetji Nusserwanji Tata, when he established a trading
company dealing with cotton in Mumbai. Nusserwanji eventually started Empress Mills in
Nagpur in 1877 and consecutively founded Taj Mehal Hotel in 1903 (Tata:Our Heritage).
After the death of Nusserwanji, his eldest son Sir Dorab Tata became the chairmen of Tata
group. In charge Dorab help lead the company into steel production (1905) and hydroelectric
power generation (1910). The group expanded significantly under Jehangir Ratanji Dadabhoy
Tata and Tata Group established subsidiaries such as Tata Chemicals (1939), Tata Motors,
Tata Industries (both 1945) Voltas (1954), Tata Tea (1962), Tata Consultancy Services
(1968) and Titan Industries (1984). Ratan Tata replaced JRD Tata and is currently in charge
of Tata Group (1991- now) (Contributor). The list of Tata group’s companies introduced with
time is quoted in (Appendix A).
Section 1.2 Organisational structure of a holding company Taking a closer look at the company structure and knowing that Tata group is a multinational
conglomerate company, it is safe to say that Tata Group can be considered functioning as a
holding company. It will be common for the separate elements owned by Tata group to
remain as separate companies, where often existing management team remain in place, for
example Jaguar & Land rover do not have Indian engineers, in fact Tata group employs more
British workers than any other manufacturer (Economist, Out of India Briefing (The Tata
group)). Legally the companies are independent but are wholly or partially owned by a parent
or holding company (Tata group in this case). In these instances Tata group may simply have
funded companies where R&D or product development (innovation) might be important and
this has allowed competitive advantage to follow (Jewell).
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3% 4% 4%
5%
16%
32%
36%
TATA Sectors Chemicals
Consumer products
Services
Energy
CommunicaKon & informaKon systems Materials
Engineering
Figure 1 Holding company structure (Adapted from Appendix C)
The figure above illustrates a typical structure of a holding company like the one of Tata
group, where yet again the companies are independent and retain their own names for
example Jaguar & Land Rover and NatSteel Holdings.
Section 1.3 Industry sectors
The pie chart above illustrates the diverse fields Tata Group is currently involved in and the
contribution made by each fields as a percentage for Tata group (as a holding company). The
following Section (1.4) will take a closer look at the success of Tata group with time by
focusing at each of Tata group’s industry sector.
Figure 2 Industry sectors of Tata Group (adapted from Appendix D)
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Section 1.4 Evidence of success & rationale for study
The performance of Tata group can be determined by taking a closer look at the annual total
turnover of each industry sector for the past 10 years. As we can see from the graph that Tata
Group’s most successful fields are Engineering, materials, and IT communication. Although
other industry sectors are having lower influence in terms of turnover but they are also
progressively growing with time. The external growth through M&A over time has
significantly influenced the group’s performance in the specific industry sectors illustrated by
the graph. The reasons why the factors influencing the effectiveness of its M&A strategy is
important to analyse so that the group can continue to identify the most significant reasons
for successful selection of companies to acquire.
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
Total Turno
ver (Rs m
illion)
Time (year)
Performance of Tata Group by industry sector in the past 10 years
Engineering
Materials
Services
IT and communicaKon
Chemicals
Consumer products
Energy
Figure 3 Total Turnover per year for each industry sector (adapted from Appendix D)
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Section 2. Reasons for growth Generally, it would be rare for any company to remain exactly the same size for any length of
time. In industries such as the one that Tata Group started in (originally steel, energy, textiles
and hospitality), most businesses, start small and then grow in size. They may aim to grow
for a number of reasons (Hall, Jones e Raffo, Reasons for growth Pg: 588).
• Survival: In some industries firms will not survive if they remain small. Staying small
might mean that costs are too high because the firm is too small to exploit economies
of scale. In addition, small firms, even if they are profitable, may face a takeover bid
from a larger firm and lose their independence thus for defensive reasons a firm can
merge to increase its size and avoid being a victim of a takeover itself. (Hall, Jones e
Raffo, Reasons for growth Pg: 588)
• Gaining economies of scale: As firms grow in size they will begin to enjoy the
benefits of ECONOMIES OF SCALE. This means that unit production costs will fall
and efficiency and profits will improve or the ability to charge lower prices than
competitors also may be an important factor to gain economies of scale. Economies of
scale can be successfully enjoyed by a firm if in the long run it can build another
factory or purchase more machinery which will cause the average cost of production to
fall (Hall, Jones e Raffo, Reasons for growth Pg: 588).
• To increase future profitability: By growing and selling larger volumes, a firm will
hope to raise profits in the future (Hall, Jones e Raffo, Reasons for growth Pg: 588).
By increasing the customer base the opportunities to increase profitability is enhanced,
especially if large production base allows the business to benefit from economics of
scales.
• Gaining market share: This can have a number of benefits. If a firm can develop a
degree of monopoly power through growth, it might be able to raise price or control
part of the market. Some personnel also enjoy the status and power associated with a
high market share. For example, it could be argued that Richard Branson enjoys the
publicity which goes with leading a large company like Virgin (Hall, Jones e Raffo,
Reasons for growth Pg: 588). In the case of Tata group that may be Ratan Naval Tata.
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• To reduce risk: Risk can be reduced through diversification. Branching into new
markets and new products means that if one product fails success in others can keep
the company going. For example, tobacco companies have diversified into breweries
to guard against a fall in demand for cigarettes (Hall, Jones e Raffo, Reasons for
growth Pg: 588).
• To create synergy: This occurs when the whole is greater than the sum of the parts,
i.e. when 2+2=5. This is often anticipated in take-overs or mergers, when directors
assert that the purchase of a rival (or willing competitor) will provide such economies
of scale as to make the combined firm a world-beater.
The points quoted above will be considered further for analyses in order to determine the
significance of each of them in shaping the growth of Tata group. These points will also be
reviewed in Section (4) in contrast to the outcomes of the analyses.
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Section 3. Analysis of growth The following is a chart outlining the acquisitions made on a yearly basis within the specific
industry sectors of operation. The way in which the company has grown in size over the last
10 years can be seen through the acquisitions that have occurred over the past 10 years.
Table 1 Acquired companies by Tata group (adapted from appendix E)
The way in which the choice of acquisition and the rationale behind the M&A programme
needs to be analysed taking into account the ways that business can benefit from such a
strategic decision as outlined in Section 2.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Tetley group
Computer Maintenance Corporation
(CMC)
Tata Communications (formerly VSNL)
Gemplex
Airline Financial Support Services
India (AFS) NatSteel Asia Pte UshaIspat,
Redi Unit Corus
General Chemical Industrial
Products (now Tata Chemicals North America)
Neotel BT Group's (BT) Mosaic
business
Regent Hotel
(renamed TajLands End)
Daewoo Commercial
Vehicle Company
Hispano Carrocera
TertiaEdusoftGmbh
Rawmet Industries
Artson Engineering Grand
Hewitt Robins
International
Hughes Telecom (India) Dishnet DSL's
ISP division
Indo MarocPhosphore
S.A. (IMACID)
TertiaEdusoft AG
Campton Place Hotel
Jaguar and Land Rover brands
Dutch Lanka Trailer
Manufacturers
Metahelix Life
Sciences
Aviation Software
Development Consultancy
India (ASDC)
Tata Finance Tata Infotech
Acquired Coastal Gujarat Power
Serviplem SA Hispano Carrocera SA British Salt
Hind Lever Chemicals The Pierre Millenium
Steel
Vitax and Flosana
trademarks Lebrero SA Bachi Shoes
India
Phoenix Global Solutions
Indigene Pharmaceuticals
Inc JEMCA
Transtel Telecoms
(TT)
China Enterprise Communications Limited (CEC)
Euro Shoe Components
Tyco Global Network
Teleglobe International
Eight O' Clock Coffee
Company
PT Kaltim Prima Coal
and PT Arutmin
Indonesia
Rohini Industrial Electricals
INCAT International
Joekels Tea Packers
York Transport
Equipment (Asia)
Geodynamics
Landmark Ritz-Carlton hotel
MiljøbilGrenland /
Innovasjon
Wündsch Weidinger Citigroup Global
Services
Tata Power Broadband
Good Earth Corporation
&FMali Herb Inc
Financial Network Services
Pearl Group Comicrom
Starwood group (W Hotel)
Brunner Mond (now Tata Chemicals
Europe)
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Section 3.1 Ansoff matrix The Ansoff matrix is a useful model to analyse growth strategies of a business based on
products and market. Here the Ansoff matrix will help us determine in depth the growth
strategy pursued by Tata group and eventually help understand how effective they were.
Figure 4 Ansoff matrix adapted from (Johnson e Scholes Pg: 222)
• Market development: In the case of market development the organisation maintains
the security of its present products while venturing into new market areas. Market
development can include entering new market segments, exploiting new uses for the
product or spreading into new geographical areas. Of course, market development and
product development may go hand in hand, since the move into a new market segment
may require developments of variants to the existing product range (Johnson e Scholes
Pg: 227).
• Diversification
o Related Diversification is the development beyond the present product and
market, but still within the broad confines of the ‘industry’ within which the
company operates (Johnson e Scholes Pg: 227-228).
o Unrelated diversification is the development beyond the present industry
into product/market which, at face value, may bear no clear relationship to the
present product/market (Johnson e Scholes Pg: 227-228).
Low Risk High Risk
Product
Existing New
Low
Ris
k
Mar
ket E
xist
ing
Market penetration Product development
Hig
h R
isk
New
Market development Diversification
Related and Unrelated
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The Mergers & Acquisition (M&A) programme pursued by Tata group can be super imposed
onto the Ansoff matrix. By identifying whether the acquisitions of companies can be
classified as a method of entering new markets, providing new products or as a
diversification strategy where both markets and products are new, the way in which Tata
group has been effective in covering the three quadrants with its M&A programme can be
illustrated. Market Penetration will not be considered within this report as these concerns
implementing strategies for growth for existing products in existing markets which is not
connected to M&As. In addition, although Tata group has pursued acquisition within new
product development but that has occurred alongside entering new market Development. For
instance developing luxury car brand in the product portfolio of Tata motors through the
acquisition of Jaguar & Land Rover, which in the past just had normal cars.
The following chart shows how the classification of Tata group’s acquisition can be allocated
to each of Ansoff matrix’s quadrants.
Table 2 Tata group’s acquisition allocated to each of Ansoff matrix’s quadrants (source used: appendix E)
Development Diversification Tata Companies New Market development Related Unrelated
2000 UK Tetley group Tata Global beverages
2001 Computer Maintenance corporation TCS
2002
Tata communications (formerly VSNL)
Tata
Teleservices
Regent Hotel (renamed TajLands End) Indian Hotels
Hughes Telecom (India) Tata Sons
2003 US Gemplex Tata Communication
2004
Airline Financial Support Services India (AFS) TCS
Korea Daewoo Commercial Vehicle Company Tata Motors
Dishnet DSL's ISP division Tata Communication
Aviation Software
Development Consultancy India (ASDC)
TCS
Hind Lever Chemicals Tata Chemicals Phoenix Global Solutions TCS
Tyco Global Network Tata Communication
2005 Singapore NatSteel Asia Pte Tata Steel
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Spain Hispano Carrocera Tata Motors
Morocco Indo Maroc Phosphore S.A. (IMACID) Tata Chemicals
Tata Finance Tata Motors US The Pierre Indian Hotels
US Indigene Pharmaceuticals Inc Tata industries
UK Teleglobe International Tata Communication
UK INCAT International Tata Technologies
Landmark Trent Germany Wündsch Weidinger Tata AutoComp
Tata Power Broadband Tata Communication
Good Earth Corporation & FMali Herb Inc Tata Global
beverages Australia Financial Network Services TCS
UK Pearl Group TCS Chile Comicrom TCS
Australia Starwood group (W Hotel) Indian Hotels
UK Brunner Mond (now Tata Chemicals Europe) Tata Chemicals
2006
Usha Ispat, Redi Unit Tata Metaliks Germany Tertia Edusoft Gmbh Tata Interactive
Switzerland Tertia Edusoft AG Tata Interactive Tata Infotech TCS
Thiland Millenium Steel Tata Steel
Czech Republic JEMCA Tata Global beverages
US Eight O' Clock Coffee Company Tata Global
beverages
South Africa Joekels Tea Packers Tata Global beverages
Ritz-Carlton hotel Indian Hotels
2007
UK Corus Tata Steel Rawmet Industries Tata Steel Campton Place Hotel Indian Hotels
Acquired Coastal Gujarat Power Tata Power
Poland Vitax and Flosana trademarks Tata Global
beverages
South Africa Transtel Telecoms (TT) Tata Communications
Indonesia PT Kaltim Prima Coal and PT Arutmin Indonesia Tata Power
Singapore York Transport Equipment (Asia) TRF
2008 US General Chemical Industrial Products (now Tata Tata Chemicals
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Chemicals North America) Artson Engineering Tata projects
UK Jaguar and Land Rover brands Tata motors
Spain Serviplem SA
Telco Construction Equipment Company
Lebrero SA
Telco Construction Equipment Company
China China Enterprise
Communications Limited (CEC)
Tata Communication
Rohini Industrial Electricals Voltas Australia Geodynamics Tata Power
Norway Miljøbil Grenland / Innovasjon
Tata Motor European Technical
Centre US Citigroup Global Services TCS
2009
Neotel Tata Communication
Russia Grand Tata Global Beverages
Sri Lanka Dutch Lanka Trailer Manufacturers TRF
Hispano Carrocera SA Tata Motors
2010
BT Group's (BT) Mosaic business Tata
Communication UK Hewitt Robins International TRF
Metahelix Life Sciences Tata Chemicals British Salt Tata Chemicals
Bachi Shoes India Tata International
Euro Shoe Components Tata International
As we know that synergy is where the activities of two or more business when brought
together create more value than they do separately (Hall, Raffo e Chambers Pg: 139). After
carefully examining all the companies acquired by Tata group in the last 10 years in relation
to the quadrants of Ansoff matrix, according to the pattern of acquisition it seems that there is
effective synergy associated between the companies it owns up till 2010.
Therefore it can be understood from the chart above illustrating Ansoff matrix’s quadrants
that, Tata Group’s aim towards the approach of acquiring these companies is to successfully
carry out related diversification for all the companies it decided to acquire due to potential
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synergies in order to ultimately achieve growth in its industries. Although as usual there are
risks associated with diversification but choosing related diversification controls the risk to
some extend and ensures a higher level of certainty of success as Tata group would have a
better potential for handling those companies due to them being related to the current
operations of Tata group. This is further discussed in detail with reference to the integration
chain in Section 3.2.
In addition, along with diversification it has successfully developed into new markets through
some of its acquisitions thus geographically expanding their sectors which spreads the risk so
that the companies are not just depended upon a certain particular geographic region and its
economic climate of any one time. In addition this can give access to different currencies and
reduce the consequences of exchange rate fluctuations associated with one particular
currency.
Moreover, no unrelated diversification was carried out because there are more related
opportunities due to Tata group’s diverse industry sectors (Appendix B) thus there is more
flexibility to go for related diversification and manage the risk effectively. This nature of
M&A was adapted by Tata group so that it can operate in the sectors which it recognises thus
avoiding unnecessary risk.
Section 3.2 Integration chain Integration refers to the bringing together of two or more companies, either by take-over or
merger (Lines, Marcousé e Martin, Integration Pg: 136). The integration chain is one of the
ways to class the mergers, but not all mergers fit in neatly. As identified before that Tata
group is very much involved and keen at performing related diversification and doing so
causes the movement within the integration chain.
Figure 5 Integration chain adapted from (Hall, Jones e Raffo, Types of merger or integration Pg: 651)
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• Vertical integration
o Backwards integration: refers to development into activities which are
concerned with the inputs into the company’s current business (i.e. are further
back in the value system). For example raw materials, machinery and labour
are all important inputs into a manufacturing company (Johnson e Scholes Pg:
228).
o Forward integration: refers to development into activities which are
concerned with a company’s outputs (i.e. are further forward in the value
system), such as transport, distribution, repairs and servicing (Johnson e
Scholes Pg: 228).
• Horizontal integration: refers to development into activities which are competitive
with, or directly complementary to, a company’s present activities (Johnson e Scholes
Pg: 228).
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The synergies associated within the companies acquired so far are one of the reasons for Tata
group to effectively diversify to this extent. The acquisitions have allowed movement within
the integration chain either forward backward or horizontal as illustrated below using
examples of companies from M&A programme in the past 10 years.
As per the Tata group’s industry sectors we know that it operates in diverse sectors already
but due to the further acquisition, it has allowed itself to move within the integration chain
and above all Tata group can effectively make production of its products by linking all the
industry sectors with the integration chain to make a flexible production line.
Figure 6 Integration chain (develop by related diversification adapted from (Johnson e Scholes Pg: 229)
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• Examples with reference to Tata group
o UK’s ‘Tetley group’ was acquired by Tata group in the year 2000 and after in
2005 USA’s ‘Eight O’clock coffee’ was also acquired this shows us Tata
group’s lateral movement within the integration chain thus ultimately
increasing the product portfolio of Tata global beverages and gaining entry
into USA and UK. This has allowed the company to benefit by using similar
production processes and expertise with two companies involved in hot
beverages. In the same year Tata group acquired Joekels Tea Packers of South
Africa which shows us Tata group’s forward integration within the integration
chain.
These operations can benefit the production of the two previously mentioned
companies products as the companies are linked in different parts of the
integration chain of the production of the products for Tata Global Beverages
thus this can reduce the dependence upon other business. In addition Tata
global beverages can also effectively control the quality of its products and
promote the products crucially as now it has a packaging company.
o The acquisition of the first automobile company took place in 2004 of the
‘Daewoo Commercial Vehicle Company’ thus integrating horizontally and
becoming part of Tata motors. The following year Spain’s ‘Hispano
Carrocera’ was also acquired (an automobile company mainly dealing with
coaches) and followed by the acquisition of Germany’s ’Wündsch Weidinger’
which became a part of Tata AutoComp which is responsible for making
automobile dashboards and various other automobile parts. In 2008 ‘Jaguar
and land Rover brands’ was acquired thus integrating horizontally and yet
again becoming a part of Tata motors and subsequently increasing the
portfolio of Tata motors and getting them involved with luxury automobiles.
Also Norway’s ‘Miljøbil Grenland /Innovasjon’ became part of Tata Motor
European Technical Centre in the same year.
Furthermore Singapore’s ‘NatSteel Asia pte’ was the first acquisition of a
steel company by Tata group thus integrating horizontally the same way.
Moreover, in 2006 Thailand’s ‘Millenium Steel’ was also acquired and
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following year the acquisition of Corus occurred making Tata steel one of the
largest provider of steel in the market.
Focusing on all these steel, automobile and other maintenance fields acquired
by Tata group we can see an important growth in each industry sector through
horizontal integration. Having all these companies in hand, Tata group can
effectively link all these sectors thus moving within the integration and
ultimately making production of its products effectively without being
interdependent with other companies and save cost of production. Moreover
having companies like Tata AutoComp can help control the quality of its
products and the acquisition of ’Wündsch Weidinger’ has also given access to
German technologies which Tata motors can use to efficiently produce
automobiles in its other automobile industries. To sum up we can see that
Tata group has performed successful integration planning which is often one
of the hard factors to achieve through mergers and acquisition.
Section 4. Additional Benefits gained from M&As. This section will look into benefits to be gained through mergers & acquisitions programme
(other than those related to integration chain) and analyse whether Tata group has derived
these benefits. In this way the effectiveness of its programme can be measured and used to
identify which factors have influenced this occurring.
Section 4.1 Quick and Easy Mergers and acquisition is a quick and easy way to expand the business. For example if a
restaurant wanted to open another fifty restaurants, its way could be to buy a company that
already owns some restaurants and convert them into their own chain (HORIZONTAL
INTEGRATION). This was the strategy first used by Tata group after the Tetley group
acquisition. The Indian companies within India are acquired or merged by Tata Group due to
this particular reason. In general it is easier to merge or acquire a business from your own
country because the companies deal with the same currency and culture.
Speed is particularly relevant to Tata Group due to the nature of the type of industries it is
operating in. For example, in 2000 when it bought Tetley Group, there was an established
company making teas, with factory production facilities and an experienced workforce. This
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enabled them to quickly enter an industry which had a huge customer base in their home
country with potentially high profits.
Section 4.2 Gaining entry to foreign markets The chart below shows how Tata Group has acquired different companies in different
continents. This will give us a quick overview of Tata group’s choices of acquisition over
geographic area with time. From the table we can see that Tata group has successfully
acquired 64 companies over the world since the year 2000. As expected the main growth
early on was in its home country of India and this remains the continual. Furthermore
acquisition in many different regions reduces the dependency of certain markets, for instance
if the economy of a particular country is not strong, thereby it can still depend on other
countries where it has its operations.
Table 3 M&As illustrated based on geographic regions with time (source: from appendix E)
Cou
ntri
es
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
UK India India USA India Singapore India UK USA South Africa UK
India Korea Spain Germany India India Russia UK
India India Morocco Switzerland USA UK Sri Lanka India
India India India India Spain Spain UK India USA Thailand Poland Spain India
India USA Czech Republic
South Africa China India
USA UK USA Indonesia India UK South Africa Singapore Australia India USA Norway Germany USA India USA
Australia
UK Chile Australia UK
Continents Total
Asia 1 3 6 4 3 4 3 1 3 28 Africa 1 1 1 1 4 Europe 1 6 3 1 4 2 3 20
America 1 1 4 1 1 2 10 Australia 1 1 2
Total 1 1 3 1 7 16 8 7 10 4 6 64
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Section 4.3 Gain economies of scale with monopoly position Throughout Tata group’s history of merging and acquisitions, it has managed to combine
different companies in the same industry for example it has merged and acquired many steel
companies starting from NatSteel Asia Pte of Singapore and other steel companies in Asia
then eventually acquiring Corus of UK which has increased the economies of scale of Tata
steel and made it the Top 7 steel company of the world according to world steel association
(World Steel Association). This has also allowed it to become the sole producer of steel in the
UK giving it a dominant position and control over supply chains.
Section 5. Innovation Innovation means bringing a new idea into being within the market-place (product
innovation) or workplace (process innovation) (Lines, Marcousé e Martin, Integration Pg:
135). Above all Tata group’s M&A programme has influenced, innovating the company by
giving it access to western technologies and culture from new market development, which
Tata group uses effectively. Tata group is also responsible for forming many of Indian’s
greatest institutions such as the Indian Institute of Science and the Tata Institute of
Fundamental Research. These institutes play an in important role in contributing R&D for
India. Moreover Tata group’s Tata Research Development and Design Centre (TRDDC) has
projects in many Universities such as Columbia University, Georgia Institute of Technology,
Indian Institute of Technology and Stanford University which can penetrate its market
segments more effectively and be used to drive the innovation in existing companies held by
the group and to help identify possible future acquisition where market growth may be high
(TCS Innovation Labs Tata Research Development & Design Center).
Section 6. Globalisation of markets Globalisation is the term used to describe the growing integration of the world’s economy
and it has played an important role in shaping Tata group so far. Tata group as a business
thinks globally about its strategies. It can be argued that its success is basically based on its
activities in global markets. As an example Tata produces steel in a specific region and
manufactures cars in some other region by having this Tata can cost effectively and
efficiently distribute its products to its customers. In addition being globally present enables
them to have larger scale operations and therefore most likely enables Tata to enjoy
economies of scale.
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Section 7. Visionary expertise of management
As per the figure above we can see the ‘hot industries’ for acquisition in 2011. By examining
the acquisitions made by Tata group in 2010 in their M&A programme notice that Tata
group’s vision and planning of the acquisitions are importantly effective. Therefore, it has
been able to acquire companies earlier than when identified as ‘Hot Industries’, possibly
enabling them to pay lower prices (if compared to their current prices). Focusing on 2010 we
can see that their first acquisition was of the ‘BT Group’s (BT) Mosaic business’, based in
the UK and involved with telecommunication. Currently as part of Tata communication
shows us how this industry was pre-empted for acquisition by Tata group’s unique visionary
planning.
Section 8. Defensive position Some of Tata group’s acquisitions were made for defensive reason because at the time of the
Corus acquisition Mittal steel (Tata steel’s competitor) also earlier started acquiring
businesses. Tata steel needed to grow equally large to compete against this rival and thus had
to keep up with it (Economist, Tata for now Pg: 36-37).
• Life sciences
• Telecommunications Media and
Technology (TMT)
• Consumer
• Energy
• Financial Services
Figure 7 2011 Hot Industry Sectors (Source Mergermarket “Report on Global M&A Activity”) (Right hand box adapted by Leah Dunlop of Hogan lovells.
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Section 9. Conclusion The effectiveness of the M&A strategy in choosing appropriate companies to purchase by
Tata group in the last 10 years has had an important role in bringing the holding company to
this current position. Also M&A strategy helped Tata group achieve an increase in turnover
for each of its market sectors in the past 10 years.
Tata group’s effective allocation for alternative growth using the Ansoff matrix had a positive
result on the company. Tata group undertook diversification which is the riskiest of all the
other options but making that choice has enabled them to grow rapidly. Nevertheless Tata
group managed to minimize the level of risk within diversification and undertook related
diversification which increased the certainty of their decision, and after left existing
management structures in place.
Consecutively, strategic diversification strategy reveals links within the integration chain.
Tata group’s ingenious strategy of the evaluation of synergy, integration planning of
choosing the companies and taking the risk to acquire them was successful due to them fitting
neatly into the integration chain thus benefiting the holding company to overall have better
control of supplies markets and quality. Innovation useful in many areas can flourish by links
with universities and R&D companies.
Increased geographic presence of the company has reduced its dependency on any one
market and balanced the risk. Moreover, it also helped gain economics of scale at a point
making it a sole provider, therefore enjoying monopoly power in same cases and as a
defensive position against rival’s acquisition in others.
Tata group being involved in different industry sectors has enabled them to experience the
flavour of different industries and spread risk. The intensions of growing through M&A was
one of the wise choice for a holding company as originating from such emerging markets but
Tata group’s strategy is not based on presumption, in fact it’s the ingenious visionary
expertise which penetrates every aspect of doing business. The visionary expertise is so
advanced that intuitively it seems anomalous as Tata’s executive of purchase of Tetley
quoted that “What looked too high in 2000 looked brilliant by 2007 and a sweet deal by
2010” (Economist, Tata for now Pg: 36-37). In general to summarize the factors influencing
the effectiveness of the M&A are the crucial decision making strategy and management
which are like the brain of Tata group.
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Section 10. Recommendations Tata group’s strategy can further help contribute the holding company in future. In general
from evidence of achieved success, it is safe to arguably say that Tata group should maintain
its strategies for future acquisitions. Perhaps, for a possible recommendation for future
acquisitions Tata group can perform backward integration, for instance becoming involved
with extracting raw material possibly starting mining operations. Furthermore, they can also
perform forward integration, for example by opening retail store for Tata goods.
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Bibliography Contributor, Wikipedia. Tata Group. n.d. 16 October 2011
<http://en.wikipedia.org/wiki/Tata_Group>.
Economist. “Out of India Briefing (The Tata group).” The economist 5 March 2011: 68-70.
—. “Tata for now.” The Economist 10 September 2011: 36-37.
Hall, Dave, et al. “Key terms.” Hall, Dave, et al. Business studies Third Edition. Causeway Press, 2007.
Hall, Dave, Rob Jones and Carlo Raffo. “Reasons for growth.” Hall, Dave, Rob Jones and Carlo Raffo. Business Studies Third Edition. Causeway Press Ltd, 2006.
Hall, Dave, Rob Jones and Carlo Raffo. “Types of merger or integration.” Hall, Dave, Rob Jones and Carlo Raffo. Business Studies Third Edition. Causeway Press Ltd, 2006.
Jewell, Bruce. An integrated approach to business studies. Harlow: Longman, 1996.
Johnson, Gerry and Kevan Scholes. “Alternative directions for strategy development.” Exploring Corporate Strategy (Text and Cases) Third Edition. Prentice Hall International (UK) Ltd, 1993.
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Appendices
Appendix A Adapted from http://www.tata.com/htm/heritage/HeritageOption1.html
Year Company Introduced
1903 Taj Mahel Hotel (now Indian Hotels)
1905 Tata Iron and Steel (now Tata Steel)
1911 Tata Hydroelectric Power Supply Company (now Tata power)
1911 Indian institute of science
1932 Consumer products
1932 Tata aviation service (renamed)
1939 Tata Chemicals
1945 Tata Industries
1954 TELCO(Tata Engineering and Locomotive Company) (now Tata
motors)
1954 Voltas
1961 Telco Construction Equipment (set up as a division of Tata Motors)
1962
Tata Tea (now Tata Global Beverages)
TRF
Tata International
1968 Tata Consultancy Services (TCS)
Tata Sons
1979 Tata Projects
1984 Titan Industries
1986 VSNL (now Tata Communications)
1989 Tata Technologies
1990 Tata Metaliks
Tata Interactive Systems
1996 Tata Teleservices
1995 Tata Autocomp systems LTD
1998 Trent
2005 Tata Motors European Techinical centre (subsidiary of Tata Motors)
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Appendix B Adapted from http://en.wikipedia.org/wiki/Tata_Group
Appendix C Source adapted from class hand-out.
TATA Group • Steel • Automobiles • Digital television • Power • IT Services/ITES • Hotels • Consumer goods • Retail • Agriculture • Financial services • Defence • Chemicals • Hospitality • Engineering • Beverages • ConstrucKon • Aerospace • Pharma
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Appendix D Source: http://www.tata.com/htm/Group_Investor_pieChart.htm#01
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Appendix E Source http://www.tata.com/htm/Group_MnA_YearWise.htm
Tata company
Acquired company
Country Stake acquired
Value
2010
January Tata Communications
BT Group's (BT) Mosaic business
UK 100 per cent £0.5 million
April TRF Hewitt Robins International
UK £3 million
December Rallis India (through Tata Chemicals)
Metahelix Life Sciences
India 53.5 per cent Rs99.5 crore
Tata Chemicals British Salt UK 100 per cent (wholly-owned)
£93 million (approximately Rs650 crore)
Tata International
Bachi Shoes India
India 76 per cent
Tata International
Euro Shoe Components
India 76 per cent
2009
January Tata Communications
Neotel South Africa
30 per cent
March Tata Tea (now Tata Global Beverages)
Grand Russia 33.2 per cent
July TRF Dutch Lanka Trailer Manufacturers
Sri Lanka 51 per cent $8.67 million
October Tata Motors Hispano Carrocera SA
Spain Remaining 79 per cent
2008
January Tata Chemicals General US 100 per cent
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Chemical Industrial Products (now Tata Chemicals North America)
stake
Tata Projects Artson Engineering
India
March Tata Motors Jaguar and Land Rover brands
UK $2.3 billion (approximately)
Telco Construction Equipment Company (Telcon)
Serviplem SA Spain 79 per cent
Telco Construction Equipment Company (Telcon)
Lebrero SA Spain 60 per cent
June Tata Communications
China Enterprise Communications Limited (CEC)
China 50 per cent equity interest
August Voltas Rohini Industrial Electricals
India 51 per cent Rs62 crore
September Tata Power Geodynamics Australia 10 per cent $37.5 million
October Tata Motors European Technical Centre Plc
Miljøbil Grenland / Innovasjon
Norway 50.3 per cent Kroner 12 million (Rs9.40 crore)
December TCS Citigroup Global Services
US 100 per cent $512 million
2007
January Tata Steel Corus UK 100 per cent
March Tata Steel Rawmet Industries
India Rs101 crore
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April Indian Hotels Campton Place Hotel
US $58 million
Tata Power Acquired Coastal Gujarat Power
India
Tata Tea through Tetley group (now Tata Global Beverages)
Vitax and Flosana trademarks
Poland
Tata Communications
Transtel Telecoms (TT)
South Africa
$33 million (approximately)
June Tata Power PT Kaltim Prima Coal and PT Arutmin Indonesia
Indonesia 30 per cent equity stake
October TRF York Transport Equipment (Asia)
Singapore 51 per cent stake
2006
January Tata Metaliks Usha Ispat, Redi Unit
India 100 per cent (wholly-owned)
Rs115 crore
Tata Interactive Tertia Edusoft Gmbh
Germany 90 per cent
Tertia Edusoft AG
Switzerland 90.38 per cent
February TCS Tata Infotech India
April Tata Steel Millenium Steel Thailand 67.11 per cent $167 million (Baht6.5 billion)
May Tata Tea through Tata Tea (GB) (now Tata Global Beverages)
JEMCA Czech Republic
Assets: intangible and tangible
GBP11.60 million
June Tata Coffee (now Tata Global
Eight O' Clock Coffee
US 100 per cent (wholly-
$220 million (Rs1015 crore)
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Beverages) Company owned)
September Tata Tea through Tata Tea (GB) (now Tata Global Beverages)
Joekels Tea Packers
South Africa
33.3 per cent GBP0.91 million
November Indian hotels Ritz-Carlton hotel
US $170 million
2005
February Tata Steel NatSteel Asia Pte
Singapore 100 per cent (wholly-owned)
S$468.10 million
Tata Motors Hispano Carrocera
Spain 21 per cent Euro12 million (Rs70 crore)
March Tata Chemicals Indo Maroc Phosphore S.A. (IMACID)
Morocco Equal partner $38 million (Rs166 crore)
April Tata Motors Tata Finance India Merger
July Indian Hotels The Pierre US $9 million Lease of the property
Tata Industries Indigene Pharmaceuticals Inc
US <30 per cent
Tata Communications
Teleglobe International
UK
August Tata Technologies
INCAT International
UK
Trent Landmark India 76 per cent $24.09 million (Rs103.60 crore)
September Tata AutoComp Wündsch Weidinger
Germany Euro7 million
Tata Communications
Tata Power Broadband
India
October Tata Tea through Tata Tea (GB)
Good Earth Corporation &
US 100 per cent (wholly-
$31 million
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(now Tata Global Beverages)
FMali Herb Inc owned)
TCS Financial Network Services
Australia
TCS Pearl Group UK Structured deal
November TCS Comicrom Chile
December Indian Hotels Starwood group (W Hotel)
Sydney 100 per cent (wholly-owned)
$29 million
Tata Chemicals Brunner Mond (now Tata Chemicals Europe)
UK 63.5 per cent (December 2005)
Rs508 crore (December 2005)
36.5 per cent (March 2006)
Rs290 crore (March 2006)
2004
January TCS Airline Financial Support Services India (AFS)
India 100 per cent (wholly-owned)
GBP271 million
March Tata Motors Daewoo Commercial Vehicle Company
Korea 100 per cent (wholly-owned)
KRW120 billion ($102 million / Rs465 crore)
Tata Communications
Dishnet DSL's ISP division
India
TCS Aviation Software Development Consultancy India (ASDC)
India
June Tata Chemicals Hind Lever Chemicals
India Amalgamation
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July TCS Phoenix Global Solutions
India
November Tata Communications
Tyco Global Network
US
2003
July Tata Communications
Gemplex US
2002
February Tata Sons Tata Communications (formerly VSNL)
India 100 per cent (wholly-owned)
GBP271 million
September Indian Hotels Regent Hotel (renamed Taj Lands End)
India Effective 100 per cent stake
Rs450 crore
December Tata Teleservices
Hughes Telecom (India)
India 50.83 per cent Rs858.83 crore
2001
November Tata Sons (TCS) Computer Maintenance Corporation (CMC)
India
2000
February Tata Tea and Tata Sons (now Tata Global Beverages)
Tetley group UK 100 per cent (wholly-owned)
GBP271 millionGBP271 million