Analysis of the comparative advantage of Tata

Abstract

The Tata Group is the largest private group in India. Founded in the middle of the XIX° century (1868) by Jametsi Tata. Born in a Parsee family, he joined its father’s business at the age of 20, before creating its own trading company 9 years later. Then, its first diversification took place only six years later in the textile industry. He also laid the seeds for the future development of the company, especially in the steel industry, which was one of his major projects. Nowadays, the group encompassed through more than 90 companies seven business sectors as diverse as information, services and communication, engineering, materials, services, energy, consumer products and chemicals. Its activities are worldwide (more than 54 countries). Its revenues in 2005-06 were Rs. 967,229 million ($ 21.9 billion). Tata Steel was created in 1907, TELCO (now Tata Motors) in 1945 and Tata Consultancy Services in 1968 (India’s first software services company). Figure 1 : Data on Tata Group Source: http://www.tata.com/0_investor_desk/group_financials.htm 2005-06 (US$ billion) 2004-05 (US$ billion) % change Total revenue 21.9 17.8 23.0 Sales 21.4 17.4 22.7 Profit before tax 3.0 2.6 13.8 Profit after tax 2.1 1.8 18.6 Total assets 18.0 15.2 18.8 Total shareholders 2,302,446.0 2,766,903.0 -16.8 Tata is a well-known brand in India, based on more than a century of history. Its core values are deeply rooted in the group culture : integrity, understanding, excellence, unity, responsibility. These values, issued from the history, are still emphasized as the legacy of the founder. The Tata Group Chairman, M. Ratan Tata, has mentioned the recent successes of the group in its message of January 1, 2006: “We should all feel proud of our achievements in 2005. It has been the best year in the history of the Tata Group — and this success has been mainly due to your personal commitment. I feel confident that in 2006 the Tata Group will see even greater growth and scale even greater heights.” 1 In fact, recent events have also shown the strength of Tata Group, as for example the launch of the Indica in 1998 (the first car entirely design and manufactured in India, without any alliance with a foreign partner), the purchase of the English brand Tetley by Tata Tea in 2000 or the acquisition by Tata Motors of the heavy vehicles unit of Daewoo. For these reasons, Tata is one of the most famous companies in India, and it is highly interesting to study how this company has achieved such an above-normal competitive position. The study is organized as follows. The first part develops the scope and limits of the analysis, as well as the initial hypothesis. Then, the next section presents the theoretical aspects of the resource based view and the benefits of this approach. The empirical methodology –design of the questionnaires- is in the next part, followed by the results in three main case studies. The final section includes the learning of the study and its limitations.