The year 1991 was when economic liberalisation in India kicked off. It was also the year Ratan Tata took up reins as the new Tata group chairman. In the following decade, Indian manufacturing went through its most tortuous period. During the same time, Ratan Tata also passed through his most trying period.
Today, while most of Tata's businesses are on a growth drive, many erstwhile stars of Indian manufacturing have fallen by the wayside.
Meanwhile, Ratan Tata has set his sights higher. The world, and not just India, is now the strategy canvas of the Rs 65,000-crore Tata group. Few others in India - with the exception of the AV Birla group - seem to share that vision.
In the last few years, Tata group flagships like Tata Motors and Tisco have gone on to set new rules in the global manufacturing game. The group's most recent global initiative is its decision to invest $2 billion in Bangladesh to produce steel, power and fertilisers. At the same time, it has started selling the Indica and the Indigo in South Africa.
It was primarily in recognition of his group's recent strides in manufacturing that Tata was inducted into the Prime Minister's National Manufacturing Competitiveness Council. We spoke with him for the first interview in the BW series on Manufacturing Competitiveness. Tata spoke at length about his vision of manufacturing competitiveness, about going global - and also about his most ambitious project till date, the Rs 1-lakh car. Excerpts.
Ratan Tata,
Chairman, Tata group
Which manufacturing company do you admire the most and why?
RATAN TATA: I don't think I can pick on any single company... but I admire companies like Toyota and Intel. If I were to widen my net, some companies that I don't know very much about but that I have come to admire are some of the Korean companies like LG and Samsung.
Why do you admire them?
RATAN TATA: I view a company as a very successful manufacturer when it has cut a path for itself where no one has travelled. Toyota has done that. It has brought down the time taken for production. It has increased productivity ... it has done a whole host of things. It has not followed someone else. It has innovated tremendously in processes, in products, in design...
Sony is another company I admire enormously, and for much the same reasons. Such companies produce reliable products that have been well engineered, well thought through, and well designed.
Where do you see Indian manufacturing in the global context?
RATAN TATA: India is, by and large, not yet world class in manufacturing. We have had the misfortune - although in some ways it was also lucky for us - of operating for a long time in a protected environment, which has caused us to produce goods that were not necessarily up to consumer aspirations.
What do you think of the free trade agreements being signed currently? Especially when seen through the filter of Indian manufacturing?
RATAN TATA: I am very keen that we break down all barriers between countries. I do think that the World Trade Organization concept is running into some problems internally. That's because a lot of bilateral agreements are being signed today. So, willy-nilly, we are going back to the days of the trading blocs. We really need to expand our trading horizons. If India were to be a part of one or more trading blocs, or free trade zones, I think it would be a great plus.
But there is always a flip side to that. A free trade agreement often needs to include certain things, and Indian manufacturers need to recognise that it's going to happen and that they need to compete. They also need to realise that competition is a good thing. It may bring short-term pain, and there may be some bloodshed, but it will help a lot in the long run. If you look at what competition has done to Indian manufacturing, it's been a critical catalyst.
It is only now that manufacturing seems to be getting a lot of attention, at least in the government circles. For a nation of our size, don't you think that more focus on manufacturing is necessary?
RATAN TATA: We have to be clear about how we are defining manufacturing. For all nations, a certain content of manufacturing is necessary. You can't be just in the services sector - certainly not a nation of our size.
But let's dwell upon the definition of manufacturing first. You can be a manufacturer in the context of what many Indian companies are. That is, you have a licence agreement, you manufacture. You don't embrace any of the technologies. You don't set up capabilities to develop a product. But you continue to manufacture the given product. When you can't do it any more, you find a collaborator who gives you a licence to manufacture, or to import whatever the collaborator says. You install a plant and produce that product. That's one interpretation.
Then, there is the second level of manufacturing. Here you really adopt the technology and develop a product. You see the product through its crude stage and its gestation period. With experience, you refine the product. It is at least a me-too product, and at least good enough to sell in the market. That's truly manufacturing in a sense, because you really own that product. Companies or countries that have a heavy bias in that kind of manufacturing are very robust economies - like Japan, Korea.
Finally, there is the third category and that is coming into its own today. This is when you are a systems integrator. You develop a system and you might consider that system to be your product... and you don't do very much actual manufacturing in that product. You buy the components but you design that product and you assemble that product.
The example I often like to give is of IBM's laptop, among the best-selling laptops in the world. But what does IBM make? It designs the product. The display is from Toshiba, the drives are from Seagate, the keyboard is sourced from outside, and the chip is from Intel. So what does IBM actually put in? But it still creates the product and that's also manufacturing.
The first category is an example of a bit of inane manufacturing - manufacturing a product with somebody else's knowhow, with somebody else's intellectual property.
The question is: in which category does the country fall? We, traditionally, have been in the first. There has been very little incentive for development, for focused knowhow - for the things that make manufacturing competitive.
The closest industry that has many of the real manufacturing capabilities that I am talking about today is, perhaps, pharmaceuticals. Because manufacturing per se in pharmaceuticals is possibly the process of tableting or filling the bottles for packaging. But the pharma industry has had a heavy dose of development from intermediates, from elsewhere. They have put a lot of product development in that industry.
Even in the engineering industry, by and large, we have had licensed manufacturers. The more enterprising companies probably did some reverse engineering. But few are actually really growing into developing a new product by themselves. The Japanese did that in the Fifties, but by the Sixties they were ahead of whoever they were copying.
In which of these kinds do you think we have our greatest opportunity? Or do you think it's a natural process of evolution?
RATAN TATA: My sense is that we have lost that opportunity. The world is moving and there will be those countries that will be majors in the manufacturing areas... in the second and third categories.
For India to come into that, it has to move very fast. It has to be able to grasp technology. And that takes time. Companies will have to spend a lot more money on product development. One has to look much more for long-term gains, rather than short-term gains. The question is whether the world will stand still while that happens. It will keep moving. And India will have to move faster to catch up.
My own feeling is that India has lost the chance to be the factory of the world.... That opportunity appears to have gone to China, and since then, to some other Asian countries.
Where India has its muse is one where inputs have a higher knowledge base, higher engineering skills, but are not necessarily innovative.
Maybe India will do well in CAD (computer-aided design). I am not looking at that as an IT capability; I am looking at that as an engineering process. There may be prototyping in India. Mass manufacturing? I don't know. Batch manufacturing and assembly? Maybe so. Who knows, may be 10, 15 years from now India might be the centre of choice to assemble satellites because it might be too expensive in the US.
How would you react to the statement, 'India is becoming a small car hub'? Indica has proven that. The whole of Hyundai's India efforts seem geared towards that.
RATAN TATA: The Santro is another product being manufactured in India. Hyundai may have the full skills to develop a product, but the Indian manufacturer falls in the first category. Maruti and Hyundai are manufacturing proven products in the country from process knowhow that has come from elsewhere.
You don't think there's a natural process of evolution? If they are doing that now, maybe tomorrow they will start designing and developing them, too.
RATAN TATA: No... If that were so, they would be taking people from here to their design offices in Seoul and exposing them to doing the same. They are not doing that. It leads me to believe they have no plan to move in that direction.
Some other companies like Texas Instruments are, in fact, doing that. The companies that are setting up product development and R&D centres in India are doing that. For example, Delphi and General Motors, BT and British Aerospace are making those inputs here. But that's in reverse - the manufacturing is outside. They recognise the knowledge base and skills here which are used to improve their operations elsewhere. In a way, the skills are the same but it doesn't suit them to manufacture here. In engineering, we could, in fact, be ahead.
In the automotive area, if we have one of the major engines designed fully in India, and then follow it up and manufacture it, India could become a major centre for manufacturing. Unless that were to happen, you would only be doing engineering for some other location.
What I'd like to say is that if over time we are able to build this knowhow base with our knowledge base, spin-offs from there may actually lead to start-ups in the manufacturing area. That will only be the low entry-cost businesses, but it could form a semi-conductor industry in India, or something which would be equally interesting.
In the two-wheeler industry, some global majors like Honda admit that the products made by Indian companies are truly world class. We seem to be making some headway there.
RATAN TATA: I think it's a good example. I think the two-wheeler industry has marched through the first category and gone beyond that. They have faced competition and, therefore, had to bring their costs down. They have achieved almost global scales because that business is on a global basis. And they have now started to invest in product development. They are still buying technology from outside, but it's fine to buy technology from wherever it's available. I should have included them when I talked about pharma.
And companies are trying hard to outdo even foreign manufacturers. Bajaj is proud of the fact that it tests its engines for 300 hours in full throttle before approving them, while Honda does that for 100 hours.
RATAN TATA: I must say it should not be interpreted in the wrong way. We run our car engines for x number of hours - I think it's 45 minutes. But Honda has developed its engine to such an extent that they put a cold engine in the car. They never run it. They have mastered it so that they don't have to run it for 300 hours or even 45 minutes. That's what I meant by breaking new grounds.
A view of Tata Motors’ engineering research centre in Pune, where the blueprint of the Rs 1-lakh car is being finalised
The other day, we were at Tata Motors looking at plant enhancements and I saw a few of the shower booths for checking the leaks. Now, the Japanese, for the last 10 years, have not had shower booths, because they have perfected their skills and are confident that the cars are not going to leak. We're still fixing leaks. Maybe less and less. But we have shower booths and we spray water to check for leaks.
If Bajaj runs its engine for 300 hours, it sounds good. But there is pride in it if Bajaj can do it for an hour and still come out 100 per cent okay.
We understand that design is very close to your heart and Titan is making some rapid strides in the area. Are you egging on other group companies to take up design and development in a major way?
RATAN TATA: Yeah, if I can. Not all companies necessarily share that view. But it's necessary.
Here, if you say you want to do something, the first reaction you will get is 'we will find a collaborator', 'we will find a joint venture partner', 'we don't know this business'. We have to overcome this mentality.
Titan has, I think, overcome that in the sense that it can do almost everything it wants to do in the area of watches. It knows the technology, it can keep up with it, and the technologies are growing fast anyway. But in the manufacturing process it is self-sufficient. If you ask if its movements are cheaper than Chinese movements, I would say no. If you ask it how it will get there, I don't think it has an answer. It tackles a different challenge. ...In the watch industry, your main task is to produce a watch at a decent margin. So what if your movements are from China? That's an IBM kind of example.
Sometimes at Titan, they get hung up because they feel that if they are not manufacturing it themselves, they are not doing the right thing. But you should remember that you are responsible for the end product.
How are you trying to convince your group companies that design and development is a process of evolution in manufacturing?
RATAN TATA: You see, some companies have nothing. Let's take the example of an Indian refrigerator manufacturer who is trying to go from A to B. It will go and buy some benchmark refrigerator, will take it apart, and reverse engineer - we're still in that phase - then make a product which may not be as good. Or, by luck, better. Some of our companies are in that position. Each time they have to develop a product, they have to find a product they want to emulate, take it apart, reverse engineer. I think we will have really arrived when we don't need to do that.
Are these the kind of examples you put forward for others to follow, like the small car project?
RATAN TATA: Tata Motors, for many years, has been self-sufficient in products. It has not necessarily been globally competitive in how it has engineered those products, but I think we are getting there slowly. Each of these products - Indica, Safari, Sumo, or any other product - is improving on itself, by the lessons we have learnt in manufacturing or manufacturability of these products. Maybe, those are not good examples. I don't have a ready example, but many of our companies are doing that. But many are also just producing the same product again and again, and are not improving upon it. They are just working on the same margins.
You are talking of Indian companies, not necessarily Tata companies.
RATAN TATA: I am talking of Indian companies and Tata companies as well.
Some projects, like the Indica, have been radical in a way, in their own field. But with regard to manufacturing, has TACO (Tata AutoComp Systems) disappointed you?
RATAN TATA: No, not at all. In fact, TACO did the right thing. When we looked at the car industry, we felt that the Indian component industry could not produce appropriate components for cars. And if they could not, then the car industry would falter in terms of quality and capability.
In the auto industry, more and more technology is moving towards the components and component makers, and the car makers have become designers, and integrators or assemblers.
So it has become impossible that, say at BMW or Mercedes, somebody could be sitting on top of transmission technology or electronic technology or telematics or suspension or fuel technology. There is a lot of development taking place in each of them. And the investment that is taking place in each of them is huge. So, what has happened is that the transmission manufacturers invest in transmission technologies, and the suspension manufacturers do that in their own field. And so you have sources of technology and the car manufacturer works mostly with those component manufacturers to make things happen.
In the case of TACO, it just did the right thing. It picked companies abroad that had those technologies. And I was involved very closely with it then. We invited them to be our joint venture partners. If you don't want to be our joint venture partners then come to India and we will help you, but come to India and set up your operations. Or, work with us on technology. So, we've got a mix of all.
Very importantly, TACO has absorbed the technology. If we divest ourselves with a joint venture partner, we'll keep technology with the holding company (TACO). So, I think TACO has been quite farsighted. The real challenge is to continue to upgrade those technologies. What we are trying to do is to supply to external companies, because from that will come not only the learning but also the requirement.
So TACO has not at all disappointed me. History will show we've done a very astute thing in TACO.
Wasn't it supposed to be a systems integrator for the Asian region?
RATAN TATA: No, no, not at all. I first talked about what led to TACO at an address to ACMA (Automotive Component Manufacturers Association of India), where I said, 'Why can't we produce an Indian car?' It was scoffed at. At that time, we were producing the Sierra, and they said, 'Why doesn't he do his own thing first before talking about an Indian car?' So nobody came forward. That led to the conception of the Indica. It was nothing to do with TACO more than what I just said.
I later came back, also to ACMA, that why don't we have an Asian car - that we leverage all the capabilities and component areas of every country in Asia. That would bring us scale. Maybe make some components in Malaysia, some in Indonesia. And that also did not get any response. But TACO was not supposed to do that.
The Rs 1-lakh car - how far has it progressed?
RATAN TATA: We are just finalising the concept of structure, material and powertrain - which are the building blocks. Each of those has an assigned price to meet that objective. We are just coming to closing choices on all of those.
Now we'll go after developing the car. This is the broad framework in place. But if these building blocks are not decided upfront, then there is no car. So we have taken a long time to get at that. We have a couple of new drawings showing us the size of the car, but these building blocks have to be in place.
Should we go monocoque? Do we do plastics or do we go sheet metal? Those decisions had to be taken. We're almost at the point where we have evaluated this. It will be a five-seat, rear-engine vehicle.
Will it be bigger than the Maruti 800?
RATAN TATA: It will be slightly bigger than the 800.
Even in terms of the engine?
RATAN TATA: Maybe not, because it will be a lighter car than the 800. The intention is that the car will be positioned between the 800 and the two-wheeler on price.
I would imagine it would attract a two-wheeler customer to a primary car, which is all-weather-proof, is safe, has four wheels and, in fact, has the capabilities of a car that will come in two or three trim levels. There will be a rudimentary level and there will be a higher model which he can buy when he wants to upgrade. It will take some market away from lower-end cars and a bigger market away from two-wheelers.
The rudimentary model - what will it not have?
RATAN TATA: There are a couple of views on what it may not have. For example, it may have a door, but the door may be a frame with a vacuum-coated plastic sheet on the front, with fixed windows that are sliding. And the higher version will have regular wind-down windows and regular doors. There is also a concept where there are no doors but just a safety bar, somewhat like the old jeeps.
When I said that the building blocks have to be in place, we needed to look at how each of those things can be done elegantly. And what we hope is that the customer can define the car he wants when he buys it. And the car can be built in that particular form. He can also upgrade the same car after he buys it.
Will it meet the safety standards?
RATAN TATA: It will meet all the safety standards that we require here. And until we really get involved in that, it will be difficult to say that it will meet the full safety requirements abroad, but our aim would be to try and meet most of those.
It will meet the emission requirements that are there, which is a must. And we want it to be a safe car. We want to move people from a two-wheeler, with a wife holding a kid, to a safer form of transportation.
What's the deadline?
RATAN TATA: Once all these things are in place. It will take toolings and a manufacturing plant, and so on. Usually, it's a three-year period.
Aren't you planning to crunch that?
RATAN TATA: Yeah. But I would still say it's a three-year period from that.
Are you trying to get this assembled by different vendors as a social cause?
RATAN TATA: No, that statement has been much misunderstood. We will manufacture the car. Then we could have a variant of this car that is manufactured by someone else, but we will manufacture all the mass parts for our car at one place - let's say, all the press metal parts, etc.
So we may farm out the car. Not for us, but to give a livelihood to some others. So, let's say that there is the car A, which is made by us, and a car B, which is made from the parts made for car A, but which looks different and has a different badge. If you and 30 other young guys from rural areas or semi-urban areas want to manufacture this car, we would send you these parts, we would train you, we would provide you with a modular manufacturing plant that will enable you to produce the car. We will not take warranty responsibilities. We will not let you use our name. But the view was that maybe we could give 30 or 100 entrepreneurs an opportunity to start a business without having to invest in a press shop and having to design a car.
Will it compete with us? To some extent, it would. We would expect our brand to take care of most of that. But it could also reach out in areas which we may never have reached otherwise.
And this has nothing to do with the target of 1 million units that you have for your small car?
RATAN TATA: I think there is a market for a million such vehicles. But a million may not be all Tata vehicles. We may produce 5-7 lakh; 3 lakh may be in this other form. It's not a million plus something.
The same philosophy that I am talking here can be grafted into South Africa or Namibia. Or, other countries that are looking for low-end cars. We can provide the pre-fab, the trimmings, the modular plant. We are looking at how to bring the cost of the plant down.
How much does design fascinate you in the context of manufacturing?
RATAN TATA: Very much. All products to me are fascinating.
Is it an area you are looking at as an organisation?
RATAN TATA: Yes. Tatas have looked at setting up a design house, which hasn't really happened because we would need to leapfrog into this with someone. There has been a hesitation. It's just something that, after I retire, I have an interest in doing on my own. Just to keep myself occupied.
Where all in the world would you like to manufacture as the Tata group? You are going to Bangladesh, South Korea and South Africa. Can you simplify the manufacturing footprint of the group? And when you chose some of those locations, what was the big picture?
RATAN TATA: We chose the locations because they seemed to be markets for various products of ours. What we do in those countries - whether we export to these countries, or we assemble in these countries, or whether we have full-scale manufacturing in these countries - will depend on the kind of stake we have in that country. Or the practicality of what we do.
For example, in South Africa, we may like to just assemble. We may not like to take full manufacturing there. There may be another country, say China, where we may not manufacture ourselves, but we may have full manufacturing done by others for the Chinese market. So in each of those countries we are evaluating what we might do.
How safe are your investments in Bangladesh, given the current Indo-Bangla relations?
RATAN TATA: I feel that if we are looking at the safest investments, we will probably never start anything. The areas we are looking at are good for Bangladesh. Be it power, be it steel, or be it fertilisers. All of these are commodities or utilities that are consumable within Bangladesh. ... Steel and fertilisers are also exportable.
Bangladesh - though I've been there only for a few days and only once in my life - looks to me a country that is suffering more from wrong perceptions than actual fact. When you go there you realise that their industrial policy is more open than India's. They do not have a history of going back on commitments. There are some places where pricing commitments have actually hurt the Bangladesh government. But they haven't changed the law; they have honoured those commitments.
But it's a country where there is a chicken-and-egg situation. We wanted to set up a power plant where there is no gas. IFC and the World Bank have projects to put up a pipeline. But they won't put a pipeline because there is no demand. Now, if we have a power plant, there would be demand - so they want to participate. It's that kind of thing.
And I have to say that I have been very pleasantly surprised by Bangladesh - and particularly by the reception we received - where the goodwill for Tatas exceeds that for India. We are not seen as political. We are just seen as ourselves. Many people have goodwill for Tatas going back to pre-Independence.
Is there a bigger game plan for the car business than just going into South Africa?
RATAN TATA: South Africa will be a stepping stone for southern Africa, and possibly for other countries in Africa. Also, they have a few trade agreements with Europe. So, if we could find a good manufacturing or assembly base, it would be our shipping point to Europe. And it will free up some of our capacity in India.
