By Ernst & Young
In the past few years, Tata Motors has transformed itself from a local Indian automotive company to a sizable global player.
In 2004, it acquired the struggling South Korea-based Daewoo Commercial Vehicle Company, and in 2008, it completed its acquisition of Jaguar Land Rover.
Faced with a similar international span of assets, many other companies would have embarked on an ambitious period of integration, merging functions and imposing a new culture from the top down. But Tata Motors has taken a different approach, preferring to retain the autonomy of the acquired businesses.
``We wanted to be seen as a local company in South Korea and the United Kingdom rather than an Indian company entering these markets,’’ says Ravi Kant, vice chairman of Tata Motors.
Managers at Daewoo and Jaguar Land Rover have considerable independence to make their own decisions, but within a set of parameters and accountability requirements that Tata Motors sets from corporate leadership.
``We see ourselves as facilitators,’’ says Kant. ``We want to preserve the independence of the management team and give them flexibility, but we will challenge them to meet the targets and objectives that we set. Those are non-negotiable.’’
For example, when the company tried to encourage managers at Daewoo to source components from China and India, they were met with stiff resistance from managers who were insistent that they would only buy from the South Korean companies that they had always used.
Rather than force the managers to change their procurement, Tata Motors took a different approach that was more of a ``nudge’’ than a prescriptive requirement.
``We told management that we wanted them to achieve a certain EBITDA (Earnings Before Income, Tax, Depreciation and Amortization) margin, and left it to them to figure out how this could be met,’’ says Kant.
``When they started working backwards from there, they came to the same conclusion as we did, that unless they diversified their purchasing activity, they would never be able to achieve their targets. So after a year, they started looking at sourcing from India and China and, in doing so, were able to meet their targets.’’
This case study was included in Ernst & Young’s Globalization Report ``The world is bumpy: globalization and new strategies for growth.’’