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information will the acquisition of Land
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Rover and jaguar be a smooth ride for
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Tata Motors that is the question many
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observers have been asking ever since
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the Tata group and Ford announced their
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$2.3 billion deal at the end of March
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the Takeover has been greeted with lots
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of Jubilation especially in India
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because of The Prestige of these Marquee
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brands on the other hand Skeptics have
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also been wondering how this acquisition
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fits in with the tataa group's overall
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strategy what can the Tartas do
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differently than Ford to ensure that the
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acquisition pays off what major
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challenges will TARTA Motors face in
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integration and marketing to help us
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make sense of these issues India
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knowledge at water interviewed John Paul
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McDuffy a professor of management at
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Wharton and co-director of the
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international Motor Vehicles program and
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harbir Singh acting chair of the
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management department at Wharton and
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co-director of the Mac Center for
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technological innovation harbir and John
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Paul thank you so much for joining us
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today glad to be here so let's start
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with the question that's on everyone's
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mind does this deal really make sense
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economic sense uh John Paul do you want
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to start
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sure uh it's a very fascinating deal I
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think for uh all the reasons that you
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that you highlighted um it's clearly not
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a deal that is trying to build economies
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of scale in just one business and uh
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just reach into new markets it's a quite
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a differently motivated deal and for
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Tata it's uh not the first time that
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they've reached for uh brand with some
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Prestige value as part of expanding
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their Global visibility um so I think
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viewed as an acquisition that they
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intend to learn a great deal from uh I
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think it could very well make sense uh
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the uh uh the exposure that they'll have
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to uh the high end of the auto business
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which they know very well uh at the at
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the at the domestic end uh and to the
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managing of this uh very prestigious
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brand I think could uh offer a lot of
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learning opportunities har just to
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follow up a little bit on the same issue
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the T do have the indicia and they also
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recently launched the the Tata Nano the
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the famous One lakh rupe car or the
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$2,500 car do Brands like the jaguar and
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Land Rover really fit in with that
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overall portfolio what's your sense of
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the fit uh my sense is that the tatas
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are trying to um expand the portfolio in
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general and uh these Brands kind of I
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don't think it's a question of um the
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the customer viewing Nano and jaguar and
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Land Rover as all offerings of the same
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company it's much more a question of uh
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you know like Louis vuon MO Hennessy
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having a a set of Brands and really
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doing the best you can for Land Rover
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and the best you can for Jaguar and in
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terms of you know the economic sense of
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the transaction I think another way of
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looking at it is what's the replacement
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value of those Brands right and clearly
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uh whatever price they pay is much lower
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than the replacement value so the real
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challenge here for them is to make sure
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that they can enhance jaguar in its own
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terms and en Land Rover in its own
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terms John Paul do you do you agree yes
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and uh you know Ford of course sold the
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companies because they're in deep
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financial distress and they really
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needed cash now uh toats others can be
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dispute I guess about the uh you know
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was the price too high or too low but
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they certainly paid substantially less
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than Ford paid for those Brands and uh
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by all accounts Land Rover is profitable
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and uh and jaguar has has has made a
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strong comeback based on building
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capabilities improving quality uh they
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have some interesting new products in
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the pipeline so I do agree so so it's
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your sense that the the tatas did get a
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bargain or did did they overpay because
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the this was a higher price than the
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market expected yeah it's it's always
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very tough to uh to know exactly uh and
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there's always this kind of of
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speculation at the time um I think that
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Ford was certainly counting on uh
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increasing the volumes of of these
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Brands probably particularly Jaguar uh
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to a much higher level and so uh at a
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certain point their efforts to greatly
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expand the volume uh I think probably
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hurt them somewhat they were introducing
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uh lower price Jaguars that uh a lot of
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people didn't feel represented the brand
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very well they were trying to leverage
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their own uh you know for design parts
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from other models uh so I actually think
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managing it uh as Prestige brand from
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the base that Ford established should
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should work well for the tatas and that
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appears to be their pattern with their
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Acquisitions that they uh by and large
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uh allow the the management to uh keep
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doing what it's doing and and as I said
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to to look for opportunities to learn
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from these foreign Acquisitions right
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you know some of the critics have been
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saying that uh for for the tatas this
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was a deal motivated more by the desire
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to acquire uh Marquee brand or iconic
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Brands uh almost like you know former
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Colonials acquiring the uh you know the
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trappings of the for the former Empire
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uh uh is is does that criticism make
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sense uh or or do you think this is a
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deal that is economically rational in
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business
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terms who knows about that motivation
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there certainly uh uh a kind of Interest
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I think in the whole deal comes partly
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from all those associations um one of
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the other tataa deals that's gotten some
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attention is uh the acquisition of tle
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te another British brand and also of of
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British steel the the remains of British
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steel and so uh clearly investing in
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Britain has uh worked well for Indian
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companies uh there were competing uh
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buyers uh mostly private Equity uh
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sometimes in partnership with with other
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auto companies and the both the unions
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and the suppliers of jaguar and Land
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Rover uh very much prefer Tata uh I
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suspect not because they're an Indian
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company but because of their track
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record in the way they've managed
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Acquisitions they by and large have not
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done widescale layoffs uh they have not
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done lots of consolidation they've
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focused on uh leveraging the strengths
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uh and the capabilities they've acquired
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so my my comment on that is that it's
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important for I agree with everything
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John Paul is saying my comment is that
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it's important for the tatas not to get
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distracted by this the the nationalism
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and you know those kinds of things which
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are all inevitable and natural and I
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think it's good it's the pride is well
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placed you know the pride in tatas by
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with by Indian investors and others is
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well placed um but fundamentally this
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transaction has to perform because it's
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a this is a large transaction I think it
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is a very good chance of Performing but
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I think it's important for them to not
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get wrapped in the in the overlay of um
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national pride and British clanism and
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all of those things well I think that's
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an excellent point harir because as we
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know uh Ford really had a tough time
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during the many years that it owned
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these these uh Brands uh what could the
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tatas do differently to make sure that
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the Acquisitions pay off well I think
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Ford uh I think it's correct that Ford
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struggled quite a bit with these
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transactions uh I think one of the
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issues that John Paul mentioned earlier
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was that Ford um is in financial trouble
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so if you were think about tata's
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approach to all of this uh they they
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could get a good price because it's a
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distress uh sale and I mentioned Market
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to replacement value and it's a good
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chance that uh the 2.3 billion is well
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below replacement value because Ford
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bought Jaguar for a similar reason they
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wanted that luxury name plate and Land
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Rover also is a very very um Marky name
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plate highend name plate um so from
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those points of view Market replacement
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value it makes a lot of sense uh but we
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can also ask that based on these
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multiple biders present that what we
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will get is kind of almost an auction
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like value right except that it will uh
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given that the biders are all well
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informed and they've had access to the
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books this is a private transaction it's
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not a public transaction I would think
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that 2.3 is probably a fair market value
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and I say that obviously without access
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to the to the books so um looking ahead
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then what can Tartas do differently I
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think what Tas can do differently is to
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manage the supply chain uh effectively
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and uh and and take advantage of the
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their experience in in managing
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manufacturing companies in uh England uh
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and in Europe um specifically with
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chorus that they've had some experience
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with um and to preserve uh the sources
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of value where they are and enhance them
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where they are so I think they they
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should try that and not integrate quite
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as much as Ford and jaguar did with the
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uh Jaguar X type and the Ford Lincoln uh
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counterpart right now you you've looked
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at other mergers that the Tata group has
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done uh is it your sense that the Tata
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that Tata Motors will try to integrate
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jaguar and Land Rover with their other
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Automotive operations and if so what do
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you think will be the major challenges
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involved uh well I think that they uh
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just speaking of tata's um experience
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with m&a in general um they've as a as a
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group have shown um you know a boldness
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in uh in going Beyond boundaries and uh
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making rather visible transactions um uh
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I think each of the operating companies
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is very professionally run and um I
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think there's some opportunity for
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learning across you know what what does
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a tly acquisition uh tell the the Tata
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group about crossb Acquisitions and what
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does the chorus experiened more recently
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tell them about manufacturing based
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Acquisitions and I think they're going
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to try to transfer some of those
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learnings to tataa Motors and I think
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that'll be very effective
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uh John Paul you have any comments on
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what challenges they might face and how
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they should tackle
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them when you think of other big uh
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mergers or m&a activity in the Auto
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industry uh this may bring to mind for
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some people something like dler Chrysler
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in the sense that you had a a high-end
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brand assoc combined with a set of more
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mass Market Brands and at first people
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thought uh this meant
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that there was not going to be a a great
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deal of conflict for the two companies
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because they would operate in you know
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in those different parts of the market
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uh that quickly turned to criticism that
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they weren't achieving synergies from
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from the deal and uh towards the end of
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that you know somewhat ill faded uh
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Union uh they were trying in fact to
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leverage more dler engineering and parts
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into Chrysler vehicles uh and in the end
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of course it it it fell apart and
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chryler was sold um you know to me
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there's such a a huge range between the
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Tata domestic products and um these
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luxury Brands uh and there's also the
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complete you know physical location of
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of the supply chains and and the
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manufacturing facilities uh I I think
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that I agree with our beer that uh this
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is probably a case where uh rather less
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uh actual integration activity but more
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focus on where you know experiences in
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in other Acquisitions uh can be uh can
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be transferred is the way to go and just
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to just to add to that comment I would
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say that uh value engineering may be
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very important they could bring some
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value engineering skills which I think
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uh tatas definitely have uh but beyond
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that I think it's much more a question
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of uh was the price uh right in relation
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to the value that uh tatas would get
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down the road I think that's going to be
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the uh the key determining Factor and of
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course there are many cultural issues
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that we can also talk about what
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cultural issues do you think will crop
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up between uh Tata Motors and uh the the
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the new acquisitions so you know just to
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start it off John Paul talked about
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Mercedes and Chrysler right and a lot of
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um it seemed like the the national
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cultural differences in addition to just
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differences in terms of how you produce
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a very high-end automobile and and a
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medium priced automobile um those
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cultural issues organizationally began
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to play a significant role um and and
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became significant challenges what uh
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tatas needs to do is to avoid some of
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those Dynamics so I think they have to
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avoid nationalism from rearing its head
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particularly in jaguar and land morover
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um from their end um because I don't
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think it is productive to have that um
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secondly um they have to ensure that uh
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for that Land Rover and jaguar
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achieve their potential and and manage
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them as if um they were a luxury
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manufacturer themselves to do value
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engineering on the back end but give the
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resources necessary for maintaining and
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enhancing the brands so that really
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calls for kind of the the the Tata
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Executives to to sort of uh transform
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their thinking and yet bring in to the
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to the luxury end or the the higher end
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price point but at the same time bring
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in value engineering and some of the
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fruit ality that that they would have a
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better handle on and that's that's a
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that's a challenge again thinking back
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to the D Chrysler situation uh clearly a
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big factor from the very beginning uh
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was a sense that the
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Chrysler uh management had that uh
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essentially it was a takeover and that
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control coming from schukart was really
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uh uh the dominant factor and a lot of
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executive Talent left in the very early
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days um it already appears to be clear
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that the a lot of the jaguar and
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Landover management will stay in place
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uh they seem to have already gotten
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those assurances the uh again the the
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care with which rajant Tata himself and
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and his staff spoke with the unions and
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suppliers to assure them continuity I I
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think they've already approached some of
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those uh challenges associated with the
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transition um very skillfully uh I also
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noted in in just one press account of uh
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of the approach that Tata has taken with
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some of their Acquisitions something
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that uh I've seen as as being very
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effective in for example the Rena Nissan
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Alliance um which is essentially uh
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allowing a lot of decentralization um
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but reaching into the organization for
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uh Talent sometimes lower down in the
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ranks assembling task forces to work on
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certain important strategic issues and
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then letting their recommendations come
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up to a senior level and trying to enact
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them quickly and and providing res
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ources for them so again based on not a
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lot of information my sense is that
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they're approaching this quite
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skillfully so far let me in fact add to
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that um that sometimes we think about
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these companies as homogeneous entities
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so tatas produces kind of uh lower
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priced or medium priced in developing
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country Automobiles and these are luxury
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automobile manufacturers but I think I
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agree with John Paul's point that when
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you break it down to the operational
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level and you know the the automobile
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design groups and so on and so forth the
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supply chain uh there are there are a
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lot of commonalities in how you think
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about the engineering of these
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Automobiles and to try to develop task
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forces that can find the best of both
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practices and in fact transfer learning
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across organizational boundaries is
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entirely possible and the Reno Nissan
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example is an excellent one uh where um
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you know they actually uh went in and
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turned around Nissan uh and everybody
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thought that it was very very difficult
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to do so that was a concrete example
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that actually can be emulated in this
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setting so I think that's great point
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right apart from the operational and
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cultural issues there's also a marketing
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challenge that the tatas will face uh
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how how do you think that should be
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tackled um I mean first of all I think
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we've you know our basic stance is that
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a lot of the management of those brands
00:16:54
should should probably continue without
00:16:55
a great deal of change uh this is a new
00:16:57
area for Tata to to to learn from uh I I
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noticed one uh quote from uh Shakur
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kapor the director of the two movies
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about Queen Elizabeth who lives in
00:17:10
London and he talked about uh a sense of
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Pride that he felt at hearing about this
00:17:15
acquisition and so there probably is an
00:17:17
opportunity I wouldn't say to play to
00:17:19
nationalism per se or to or to this uh
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Colonial uh reversal uh kind of angle uh
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but in fact to to Market uh to um you
00:17:30
know successful Indian expatriates
00:17:33
Around the World perhaps in India as
00:17:36
well but I think particularly in in
00:17:38
countries around the world that's a a
00:17:40
desirable market and there's some
00:17:43
opportunities there I would agree with
00:17:45
that as well I think uh if you think
00:17:47
about um the Tata group as a whole on
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one hand the challenges are that you
00:17:51
don't want to you know dilute the name
00:17:53
plate of jaguar and Land Land Rover with
00:17:56
um the lower cost kind of imagery uh but
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tataa as a group has um you know
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marketed luxury products as well I mean
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they have you know jewelry division
00:18:05
that's very successful I'm not
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suggesting they use the jewelry kind of
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approach but they certainly have the
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diversity of perspective within the
00:18:12
group uh to to more than tolerate uh
00:18:15
luxury uh products and Brands so um and
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if you look at data if you look at tly
00:18:21
te most people don't associate that uh
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with with the Tata ownership uh outside
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of uh out outside of India and um you
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know deadle has thrived as a brand so I
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can I can see them replicating that kind
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of approach where we we keep the brand
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intact and we keep the management
00:18:39
largely intact but we try to infuse
00:18:41
knowledge where we think there is
00:18:43
something beneficial to infuse into this
00:18:46
uh this domain right let me uh conclude
00:18:49
by asking one final question to both of
00:18:51
you uh if rat and Tata the head of uh
00:18:54
Tata Suns and Tata Motors were in the
00:18:56
room with us right now uh what ADV viice
00:18:59
uh might you give
00:19:01
it I think I would emphasize uh two
00:19:05
things that have been themes here um one
00:19:07
is is focus and and not being uh
00:19:10
distracted there is a need to extract
00:19:12
value from this and that will largely
00:19:14
depend on being very focused at finding
00:19:17
what it takes to make jaguar and Land
00:19:19
Rover succeed on their own terms uh kind
00:19:21
of grander schemes that involve trying
00:19:23
to leverage these Brands across uh the
00:19:26
rest of of their portfolio I think think
00:19:29
uh probably don't make a lot of sense at
00:19:30
this point but secondly the the theme of
00:19:33
learning I mean I think the that already
00:19:35
appears to be a Thrust of some of the
00:19:37
emerging market multinationals that when
00:19:38
they acquire uh access to uh learning
00:19:44
and the chance to develop new
00:19:46
capabilities is really the motivation
00:19:47
and and not simply ways to get scale or
00:19:50
take cost out so uh if they can stay
00:19:52
focused on that the the companies uh
00:19:55
that I've filed for many years in the
00:19:57
Auto industry that have have
00:19:58
consistently been successful Toyota most
00:20:01
notably um have kept that focus on
00:20:03
learning and Improvement at the
00:20:04
Forefront consistently in good times and
00:20:06
bad and I would urge that on Mr Tata so
00:20:09
I would say three things the first of
00:20:11
course I would uh be honored to be in
00:20:13
his presence you know and uh compliment
00:20:16
him on his uh statesmanship you know
00:20:18
he's he's led a group uh that already
00:20:21
had a tremendous reputation but he's
00:20:23
taken it to new heights uh but the
00:20:26
second thing is to say that uh um that
00:20:29
that he should trust his uh divisional
00:20:31
his CEOs of his companies and and he
00:20:34
does and uh you know see how they can
00:20:37
get the most value out of this uh these
00:20:39
transactions uh not just uh Tata Motors
00:20:42
but also the Tata steel and the other
00:20:45
transactions that the companies are
00:20:46
doing and the third thing is to actually
00:20:50
um Talk a bit more about learning across
00:20:52
the group uh I think each of the
00:20:54
companies is doing has a lot of
00:20:55
practices within it and how can we get
00:20:58
the most out of transferring knowledge
00:20:59
across the groups and related to that is
00:21:01
the point of discovering uh a unique
00:21:04
style that is uh appropriate for these
00:21:07
kinds of business groups and how do
00:21:09
business groups create value I think is
00:21:11
an emerging style and to further develop
00:21:14
that so those are the three things great
00:21:16
well har and John Paul thank you so much
00:21:18
for joining us
00:21:21
today for more information please visit
00:21:24
knowledge. won. up.edu India
00:21:28
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