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Diversification of Tata Group

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Ishan Loya

on 14 March 2014

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Transcript of Diversification of Tata Group

Ways to pursue strategic directions:
Organic Growth
Acquisition
Alliance
Internationalization
Diversification Analysis of the Tata Group
Diversification in Consumer Products Sector
Portfolio Management
Maintaining a balanced portfolio of cash-generating and cash-using businesses
Helps in risk-mitigation & investing earnings from one business to another
Diversification into the Aviation Sector
Tata SIA
- JV between Tata Sons & SIA
Expected impact
-
operate a full-service carrier, cash in on international traffic
Tata AirAsia Deal

- JV between Malaysia-based AirAsia & Arun
Bhatia with Tata owning 30% stake
Expected impact
- expand operations to tier II & III cities
Rationale
- growth opportunity, sentiment, belief that they could do better than existing players
Future Prospects
- enter the entire value chain including operating airports, repair & maintenance facilities, and IT for aviation services by leveraging existing businesses
Thank You :)
Corporate Strategy
Business Strategy
Determining the competitive positioning of businesses
Strategic Direction
Choices of products, industries and markets to pursue
Strategy Methods
Strategic Choices
Strategic choices available to multiple-business corporations
The Two Forms of Diversification
Horizontal or related diversification
Conglomerate or unrelated diversification
Adding related or similar product/service lines to an existing core business
Adding new business units producing new products/services separate from the existing core business
Motives for Diversification
Reduce the Underinvestment Problem
Internal capital cheaper than external financing
Greater Agency Costs
Managerial aspirations and compensation
Growth Opportunities
Escape stagnant or declining industries
Increase Interest Tax Shield
Reduced cash flow volatility & increased debt capacity

Competitive Advantage
Economies of Scope


Market Power
Parenting Advantage
Internal Market
Tangible resources
- production facilities, distribution networks, IT systems, R&D, and centralized functions such as accounting & HR
Intangible resources
- brand, technology
Organizational capabilities
- management prowess
Tie-in sales
Multi-point competition
Mutual forbearance
Vertical integration
General Management
Experience of the parent company
Corporate reputation
Goodwill
Internal capital markets
- balanced portfolio, cross-subsidization
Internal labor markets
- less hiring & firing, career development opportunities, informational advantage about talent

Attractiveness Test
The industry chosen for diversification must be structurally attractive or capable of being made attractive
Better-off Test
In what ways is the new business unit deriving operational and strategic synergies from the organization?
Porter's 3 Essential Tests
Cost of Entry Test
The cost of entry must not capitalize on future profits
Foundation (1868-1931)
1903
1907
1911
1910
1874
1868
Hospitality Industry
- The Indian Hotels Company is incorporated to set up the Taj Mahal Palace
Iron & Steel Industry
- The Tata Iron & Steel Company (now Tata Steel) established in Jamshedpur

Set up first office overseas
- Tata Ltd. in London
Power Sector
- The Tata Hydro-Electric Power Supply Company is set up

Merged with Tata Power in 2000
Education & Training
- The Indian Institute of Science is established in Bangalore
Jamsetji Nusserwanji Tata lays foundation of the Tata Group as a
trading firm
Textile Industry
- The Central India Spinning, Weaving and Manufacturing Company
1917
Consumer Goods Industry
- Tata Oil Mills Company established to make soaps, detergents, & cooking oils.

Sold to Hindustan Lever in 1984
Consolidation (1932-1989)
1945
1954
1968
1962
1939
1932
Engineering Products
- Tata Engineering & Locomotive Co. (now Tata Motors) established
Engineering & Manufacturing Sector
- Voltas is established
Beverage Industry
- Tata Finlay (renamed to Tata Tea & later Tata Global Beverages), one of the largest tea producers established

Exports
- Tata Exports (now Tata International), one of the leading export houses in India, established
Service Sector
- Tata Consultancy Services (TCS), India's 1st software services company established
Aviation Sector
- Tata Aviation established opening up the aviation sector in India


Chemicals Industry
- Tata Chemicals, now the largest producer of soda ash is established
1971
Precision Engineering Products
- Tata Precision Industries, first Tata company in Singapore, established
Later converted to Air India and nationalized in 1953
Expansion (1990-2014)
2006
2008
2012
2010
2001
1996
DTH Sector
- Tata Sky satellite television service launched

Retail
- Croma, multi-brand outlets for consumer electronics and durable products established
Automotive Industry
- Tata Motors acquires Jaguar and Land Rover brands from the Ford Motor Company
Pulses Sector
- Tata Chemicals launches i-Shakti dals, India's 1st brand of pulses

Health Drinks Sector
- Tata Tea announces JV with PepsiCo for health drinks
Retail Beverages Sector
- Tata Global Beverages forms a JV with Starbucks, opens its flagship store in Mumbai
Telecom Sector
- Tata Teleservices (TTSL) is established


Insurance Industry
- Tata AIG, a JV between the Tata Group and American Insurance Group (AIG) marks re-entry into insurance
2013
Aviation Sector
- Tata re-enters the aviation sector through a JV with Singapore Airlines (SIA)
Group 1 | Section F
PGP1 | IIM Indore
Strategic Management II

Abhishek Raj
Aditi Singh
Amit Kujur
Ishan Loya
Mohit Sahni
Sayak Mitra

Diversification Analysis of the Tata Group
Diversification in Retail Sector
Infiniti Retail-Croma
Wholly-owned 100% subsidiary of Tata Sons

Products in 8 categories - home entertainment, small appliances, white goods, computers, communications, music, imaging & gaming software
Westside
Trent operates the lifestyle chain Westside

Tata acquired UK-based Littlewoods retail chain in 1997 to form Trent Ltd.

Products - clothes, footwear, accessories, and furnishings
Landmark
Controlling stake (76%) acquired by Trent Ltd. in 2005

Products - books, music, movies and gaming, stationery, and magazines

Related diversification - Westland - distribution business, supplies books to all Landmark stores & other retailers
Casa Decor
50-50 Joint venture between the Tata Group and Poltrona Frau Group (Italy) in 2007

Products - luxury furnishings and design products
Retail Sector
Watches
The Titan watch portfolio commands 60% of the domestic market share
Brand portfolio
Fastrack watches - trendy youth segment
Sonata - mass market
Xylus - premium segment
Sub-brand
Titan Edge, Raga, Nebula & Zoop
Jewelery
In 1995 Titan diversified into the jewelery segment under the brand Tanishq

Tanishq
- premium range
Gold Plus
- mid-segment for semi-urban & rural markets
Zoya
- elite range
Eyewear
Titan Eye+
frames, lenses, contact lenses, sunglasses, international brands, and optical services

Dash
- in-house brand for frames

Fastrack
- in-house brand for sunglasses
Precision Engineering
Est. in 2005, caters to industry verticals such as aerospace, automotive, oil & gas, hydraulics, and medical instruments
Titan Company Ltd.
Est. 1984
Rationale Behind Diversification in Sector
Related businesses
- Titan Eye+
Diversification strategy
Spot growing consumer demand
Utilize extensive presence to understand market & ideate new products
Value creation
Wide retail network
Research data & valuable franchise network
Key motives
Personal adornment
Potential to become industry leader

Unrelated businesses
- Precision engineering
Core competency utilized
High precision manufacturing
Proven capabilities in watchmaking
Opportunity Identified
India - developing manufacturing base for precision products
Defense market expected $100 bn worth supplies
Govt. policy - mandated 30% domestic supplies
Other promising segments - gas exploration & medical industry

Challenges
Changing brand perception
Resistance from stakeholders
Brand-wise Same-Store-Sales Growth
Full transcript