Hailed a triumph in 2012, Tata’s acquisition of Jaguar and Land Rover (JLR) was perceived as extravagant in 2008, saying more about Indian imperial ambitions than commercial logic. How was success achieved?
The largest privately owned Indian company, Tata group, has interests in steel, hotels, telecommunications and consulting. It has pursued internationalisation with acquisitions including Corus, the Anglo-Dutch steel company and, in 2008, JLR. At €1.7 bn (£1.4 bn, $2.2 bn), the acquisition from struggling Ford Motors gave Tata two well-known brands and enlarged its global footprint. But critics asked how could a company known for commercial vehicles and cheap cars (the Nano), do better than a gargantuan of the global auto world which had pumped billions into the brands, when there were no obvious synergies? Unfortunately the deal coincided with the global financial crisis. Petrol prices spiked, bank collapses spooked consumers, credit markets froze and demand for luxury cars was hit hard. JLR sales plunged 32 per cent in 10 months and lost €807 m in the year. Tata’s debt nearly doubled to €12.9 bn hitting its share price and credit rating. With 16,000 employees at five UK sites, there was alarm that some might close and production be sent overseas. As one banker remarked, ‘if they carry on operating JLR as it is, it will fail’. Tata pleaded with the British Government for assistance, but support for JLR was refused.
Chairman Ratan Tata was quick to reassure with a personal visit to JLR. He recalled his father had bought a classic Jaguar half a century ago and talked about reviving the revered British Daimler brand and returning Jaguar to racing. A further 600 skilled staff were hired to help develop environmentally friendly cars. JLR still faced challenges. It had relied on Ford Credit to finance its operations and sales and now needed to switch financing to other providers. All its information technology was based on Ford systems and CEO David Smith commented: ‘the IT is an absolute hydra’. To improve efficiencies and save the marques, 2,200 jobs were slashed and tough cuts were made to operation costs.
However, Tata did not insist on tight integration into the group. A three-man strategy board comprised Ratan Tata, the head of Tata Automotive and David Smith, overseas JLR. But the JLR executive committee, directly responsible for company operations, had no Tata representatives. Smith commented: ‘Tata wants us to be autonomous – I’ve got all the executive authority I need . . . We can make decisions quickly – very different from life at Ford. Relationships with Tata are based on individual relationships.’ Ratan Tata also commanded respect: ‘The designers love him, because he’s an architect and not only quite capable of telling them what he thinks; he can say it in the right language too’ (Smith). JLR has also used Tata Motors’ expertise in cost control and Tata Consultancy Division’s skills in information technology.
In 2012 JLR introduced new models including the hot-selling Range Rover Evoque – an all-aluminiumbodied car originally started by Ford, boasting improved fuel consumption and better performance. Secondquarter pre-tax profits were up 77 per cent and sales were up 27 per cent on the previous year, helped by strong demand in India and China. In the UK 1,000 jobs have been added and new manufacturing capacity is being built abroad. The ‘staying power’ of Tata has been rewarded.
1 Using Haspeslagh and Jemison’s matrix, assess Tata’s integration approach to JLR.
2 How do you explain Tata’s success at JLR?