East or West? Who should India side with, US or China?

India today finds itself in a very precarious situation. USA, the eminent superpower has been steadily growing its relation; be it through arms deals or helping India gain access to nuclear tech through the nuclear deal. On the other hand there is China; a country which feels it’s time has come to become the next superpower. Though China has always seemed somewhat hostile towards India; recent developments suggest that China has started to understand that the more India leans towards the US, the more difficult it will be for China to flex its muscles in Asia. Historically India has followed the policy of non-alignment, but those were the days of Cold War. Today’s India is a more outward looking nation, which itself wants to make a mark on the world. So is it possible for New Delhi to remain aligned in today’s world?

Leon Panetta, US Defence Secretary, on his recent visit to India said that US is keen on allowing India access to cutting edge military equipment and it is also considering joint development of arms and ammunition with India. Panetta was on a weeklong Asia tour to meet allies and spell out the new US defence strategy which seeks to shift US strategic focus towards Asia-Pacific. The US considers India as the linchpin in this strategy. US sees India playing a major role in strategic affairs of south and south east Asia. Both countries have been working hard on improving their military relationship. The annual naval exercise ‘Malabar’ has become one of the key areas of co-operation between the two countries navy’s. On the arms sales front, US knows how important a market India is for its companies. India happens to be the world’s biggest arms importer and plans to spend around $100 billion over the next ten years to modernize its armed forces. US realizes that arms deals are a key way to win India’s support and hence it considers this as a priority area of cooperation. US is going all out to woo India on this front by promising access to hi-tech arms as well as cutting the red tape.

On the same day when Leon Panetta, met with Defence minister A K Anthony; the external affairs minister S M Krishna was away in China holding talks with Vice Premier Li. Krishna assured Li, who will soon become the Chinese premier, that for India better bilateral co-operation with China is of utmost importance. The duo discussed trade and how economic co-operation between the two Asian neighbours can be increased. Krishna had met Li on the side-lines of the Shangai Cooperation Organization meet (SCO). Krishna also expressed India’s interest in joining the six nation SCO.  As India plans to give a major push to its infrastructure development plans it will need significant investment from abroad and Chinese companies might play an important role in this. India’s investments in South China Sea are also a reason why it wants to improve its relation with China. In a sign of growing momentum of bilateral ties, four Indian naval ships will dock in Shanghai. This is being seen as a positive step in building trust between the two nations.

Both US and China have realized that India will play a major role in tomorrow’s world order and hence both are focusing on improving ties with it. The US already has good relations with India, China on the other hand has had a very shaky relation given its hostile nature. Border disputes, trade imbalance and now the South China Sea issue, all these issues are possible impediments to any positive progress that the two nations might embark upon. Washington has already expressed its keen interest in helping India achieve its economic potential. Beijing, tough a little late, too wants to partner with New Delhi as much as possible. New Delhi, in the times to come, will have to take a tough decision. If it wants to continue with its age old non alignment policy then it may have to carry out a difficult balancing act between the two superpowers.

Jaguar Land Rover: The Turnaround Story

How a low cost Indian car manufacturer changed the fortunes of two premium British brands

The story of Jaguar Land Rover turnaround is quite a remarkable one given the short time frame in which the company returned to profits. Tata Motors succeeded where MNC’s like BMW and Ford motors failed. Initially critics had doubted Tata’s ability to manage such a premium and iconic brand, fearing that the Indian ownership will hurt the premium tag of the company. People couldn’t understand how a commercial and small car manufacturer will turn around the fortunes of premium marquee brands like Jaguar and Land Rover. Hence, the story is also of importance to the India growth story as it highlights how strong the management abilities of Indian companies are.

The June 2008, $2.5 billion acquisition couldn’t have come at a worse time for JLR and TATA Motors as the mortgage market in US collapsed leading to a global slump. Those who had money didn’t want to lend it to anyone. TATA Motors found itself saddled with a debt of around Rs. 21,900 cores, a tricky proposition for a company which had been relatively debt free. Unemployment and credit crisis meant lower sales in the critical markets of US and Europe. JLR needed a lot of cash but the recession made things worse for them. So bad was the situation that JLR even tried to approach the UK government for a probable bailout. At the height of the crises TATA Motors shares dropped to a low of Rs. 126.45 valuing the company at $ 1.5 Billion, fraction of what it paid Ford to acquire JLR

In FY2009 TATA Motors reported its first annual loss in the last seven years. It recorded a loss of Rs. 2,500 crores compared to a profit of Rs. 2,200 crores in 2008. The JLR unit made a pre-tax loss of Rs. 1,800 crores on the back of poor demand in crisis hit US and Europe.

Two years down the line those hard days seem very distant. JLR has been generating profits for several recent quarters. It now contributes to over 50% of the revenue of TATA group. The new launches have worked very well. Sales in China have surged contributing to the growth in revenue. Sales in US and Europe have also seen a healthy rise. Tata Motors current market capitalization is approx $13.87 billion(as per closing value of stock on 23.01.2012)

The Acquisition

It was first in 2007 that Mr. Ratan Tata and Mr. Ravi Kant (CEO TATA Motors) were given a brief about JLR by Ford. Mr. TATA asked his senior employees whether this acquisition would make sense. To decide on the acquisition Mr. Tata and Mr. Kant set off for US and UK to check whether these two brands still held sway in the market. In US they met dealers, who had been having hard time since long. However, these dealers expressed their faith in the brand to Mr. Tata. Next came the dealers in UK, they too held a similar view of the brand. This reassured TATA Motors that the brand of Jaguar and Land Rover was still strong in the market. Once assured of the brands power TATA Motors set on nine month long due diligence process culminating in TATA Motors acquisition of Jagaur and Land Rover marquee brands from Ford.

Bringing in the change

At the start itself Tata Motors realized that two things that needed urgent attention at JLR were cash management and cost reduction. The company was finding hard to get credit during the crisis time and hence cash was the top most priority for the TATA Motors. Since JLR didn’t have a cash management system of its own, TATA hired KPMG to implement one for them. They began managing cash on an hour to hour basis.

The next priority issue was cost management. To meet this end, Munich based Roland Berger Strategy Consultants was hired. They implemented a three pronged plan. First, a system for the managing cash and liquidity was put in place with the assistance of KPMG. Secondly, they developed a broad cost reduction plan and created almost 10 – 11 cross functional teams to handle these assignments. There was also a lot of change in the top management at JLR, with new heads coming in to the company.

Lastly a long term plan was formulated to run up to 2014 which focused on new model development and refreshing the existing models. TATA put up a young team of managers to lead these initiatives just like it had done during the restricting of TATA Motors in 2003. Also the parent company conducted daily reviews to keep check on the progress made.

The parent company also pumped capital in to JLR to tide over the problem of liquidity and to ensure that new model development programs continued as planned. TATA Sons divested its stake in a few group companies to raise cash for JLR. It was Mr. Ratan Tata’s conviction in JLR that made him take such bold decisions. All funds raised through these routes were channelized in to JLR.

Focus was also put on reduction the workforce at JLR. At the time of takeover the workforce of JLR was a humongous 27,000. Within a year the workforce was reduced by almost 11,000. Some external events like a favorable exchange rate and demand hike in China also helped JLR to clock better revenue figures.

Tata Technologies, a subsidiary of Tata Motors was handed over the work to separate JLR’s IT systems from those of Ford. This initiative also helped JLR save millions of dollars on IT.

The below table shows the amazing turnaround, in FY 2010-11 the net profit for JLR was 1,036 million pounds compared to a net profit of 24 million pounds in FY 2009-10.

The road ahead

The all new Range Rover Evoque was launched in September 2011 and has received very exciting reviews; it has helped JLR to acquire new customers. It has also announced plans to set up a 355 million pound state of the art facility in Wolverhampton, UK to produce new low emission engines. Today almost 38% of JLR’s revenue comes from the BRIC nations and it plans to increase this figure further.

Tata’s turnaround of JLR has become folklore in management circles. It shows how a committed management can bring about a change where everyone else has failed before. It also highlights the coming of age of India’s business houses; aggressive, ready to take on the world’s best.

Renault’s Indian Journey

Recent months have been witness to the French car maker Renault’s new strategy for the Indian market. Having learnt some valuable lessons, the hard way, Renault today seems poised for a good time in India. Having tried its hand at low cost models with M&M and Bajaj, Renault is going for the premium offerings now. It seems comfortable with wearing the premium tag on its sleeves.

Its sedan offering, Fluence has been received well in the market, selling more than what the company expected. Its second launch Koleos, a crossover between a sedan and an SUV is also a premium offering priced at around 18-20 lakhs. It has also announced launch of its hatchback, the ‘Pulse’. The hatchback will pit it directly against the likes of Maruti and Tata. A fourth launch, an SUV ‘Duster’ has also been announced. So that means Renault will be competing directly with its old rival M&M.

In all the segments in which it’s entering Renault wants to be the premium player. Its top down approach is similar to what Volkswagen did; launching Skoda first, followed by the Jetta and Passat sedans. It was only when the brand was established in the Indian market did Volkswagen go for Polo and Vento models.

Just like elsewhere in the world, in India too, Renault and Nissan are working closely. The alliance has set up greenfield factory in Chennai at an estimated cost of Rs. 4,500 crores. Their hatchback Pulse will be using the same engine as that of Nissan’s Micra. Their combined facility at Chennai will be producing both the models. While Nissan is using the facility primarily for exports, Renault wants to focus more on the domestic market.

What Renault has learnt from India

Renault executives admit that their biggest learning has been that, to work in India you need to be agile, on your feet, ready to adapt to fast changing conditions quickly. After Renault and M&M launched Logan the government announced a dual excise duty structure wherein the cars having length less than 4 meters would be charged at 12% and those above 4 would be charged 24%. It was obvious that the Logan’s length should be reduced to below 4 meters to take advantage of the new law. However, the two companies could not come to decision as Renault did not want to change a car based on a global platform. Tata Motors, on the other hand reduced Indigo’s length to below 4 meters to take advantage of the rule. 

Renault execs also cite example of their erstwhile partner M&M. M&M delayed the launch of its ‘Xylo’ when it realized that a dual air conditioner would be a significant factor to generate customer demand. This quick decision making is something that Renault wants to imbibe in its Indian division. The company’s Chennai plant which is spread over 760 acres was completed in 21 months as against a time of 36 months which should have been taken for a plant of this size.

The road ahead

It’s a general view that Renault is a late entrant in the Indian car market. However, Renault officials feel that in fact this is best time to be in India. Renault plans to make India its second largest manufacturing hub in Asia after South Korea.

Renault has set itself a target of acquiring 2.5% of the Indian market by 2013. The long term goal is to reach a share of 10%. Globally Renault has a market share of 10%. It is the second largest car maker in Europe.

The much awaited SUV ‘Duster’ will be unveiled at the AutoExpo 2012 at New Delhi. The model is expected to be available in market by Diwali. Renault also launched its ‘Pulse’ at the AutoExpo 2012.

This is surely a busy year for Renault with new launches, opening of new showrooms, and focus on localization to reduce costs. In its second try Renault seems to have got its game plan right. It will be interesting to see how it can continue to perform this way in the intensely competitive Indian market. For now the future surely seems bright and sunny for the French company.