The Tata Invasion
Monday, January 28, 2008
If Tata is so powerful, why have so few Americans heard of it? In large part, because so much of its fortune has been made selling to its home market and to other developing countries, rather than to the U.S. and Europe. Historically, developing-country firms that have become global powerhouses?like Japanese companies decades ago or, more recently, Korean companies like Samsung?were companies that, in addition to dominating their domestic markets, were heavily oriented toward exports to the West. Tata?with some exceptions, such as its steel and consulting businesses?has taken a very different approach, becoming tremendously rich while selling to people who are still pretty poor.
By James Surowiecki
Americans are used to foreign cars?nearly half of us, after all, drive one?but no American has yet seen a vehicle bearing the brand name Tata Motors tooling along the highway. So when, a few weeks ago, news broke that this same Tata Motors, an Indian auto company, was close to buying Jaguar and Land Rover, the first reaction of many was ?Who?? The implausibility of the bid was magnified when Tata rolled out its newest product, a tiny, stripped-down car that will sell for a mere twenty-five hundred dollars. The spectacle of a low-end specialist trying to buy a couple of established luxury brands looked to some like a cubic-zirconium peddler making a play for Tiffany.
There?s no denying the audacity of Tata?s bid?the company has never sold a car in the U.S.?but there?s also no denying Tata?s distinguished pedigree: the parent company of Tata Motors (called the Tata Group) started in the nineteenth century, and, in the years since, its divisions have created India?s first steel mill, provided electricity to Mumbai, started the country?s first airline, and built its first locally made trains and automobiles. Today, Tata is a huge conglomerate?ninety-eight companies producing everything from tea to steel and solar power?with annual revenues of around thirty billion dollars and a chairman whom Fortune recently named one of the twenty-five most powerful people in business.
If Tata is so powerful, why have so few Americans heard of it? In large part, because so much of its fortune has been made selling to its home market and to other developing countries, rather than to the U.S. and Europe. Historically, developing-country firms that have become global powerhouses?like Japanese companies decades ago or, more recently, Korean companies like Samsung?were companies that, in addition to dominating their domestic markets, were heavily oriented toward exports to the West. Tata?with some exceptions, such as its steel and consulting businesses?has taken a very different approach, becoming tremendously rich while selling to people who are still pretty poor.
Tata has been able to do this because of the way the global economy has changed. Even three decades ago, selling to the U.S. and Europe made sense, because that?s where all the money was. Most developing countries had only a minuscule upper class and a tiny middle class, and business conditions in these countries were difficult at best. Today, the economies of developing countries are still only a fraction of the size of Western economies, but many nonetheless have growing middle and upper classes with disposable income. And, as the business professor C. K. Prahalad argues in his book ?The Fortune at the Bottom of the Pyramid,? even the poor in these countries constitute a market worth trillions of dollars. Twenty years ago, few people in India could have afforded even a twenty-five-hundred-dollar car. Today, tens of millions can.
Making money in developing countries remains challenging, of course, but meeting those challenges can actually help a company like Tata become a formidable global competitor, since figuring out how to earn a profit in markets where your selling prices are necessarily low forces a company to be innovative in thinking about how products are made and sold. That may be why a huge wave of what you might call developing-country multinationals?companies like Mittal Steel, Lenovo, Chery Automobile, and Cemex?have recently begun to move aggressively into Western markets. These are the advance guard of what?s been called ?the emerging-markets century.?
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