India (Tata Group)
Guillermo Carrillo
April 19, 2015
MBA 526 Corporate Management
Self Study Question Ch. 13
1. Tata Group is one of India’s largest companies, employing 424,000 people in many different industries, including steel, motor vehicles, watches and jewelry, telecommunications, financial services, management consulting, food products, tea, chemicals and fertilizers, satellite TV, hotels, motor vehicles, energy, IT, and construction. Such diversity far exceeds that of any North American or Wester European company. What are the conditions in India that might make such broad-based diversification both feasible and profitable? In North America and Europe from 1950 - 1980 corporation focused on building business “empires” by large diversification. There was a tremendous expansion into many different product markets as a source of corporate growth for the newly formed conglomerate companies. The conglomerate fad quickly shifted during the 1980s into 2009 as corporate diversification methods reversed and instead turned into refocusing methods. Conglomerate firms have all but disappeared in North America and Europe as they fell prey corporate raiders looking to acquire them and either restructure them or sell off the pieces for a sizable profit over the purchased price, many times because the stock market valued the conglomerate companies at less than the sum of their pieces. For managers of such diversified companies, the immense amount of uncertainly and risk of corporate raiders created high incentives to quickly restructure before leverage buyouts specialist did it for them. On the other hand, the “conglomerate” diversified corporation still has a very strong presence in many countries with emerging economies such as the case of Tata Group in India. Much of the reasons are discussed more fully in the “Economies from Internalizing Transactions” and “The Diversified firm as an internal Market” sections of chapter 12. Because Tata group is broadly diversified across a
April 19, 2015
MBA 526 Corporate Management
Self Study Question Ch. 13
1. Tata Group is one of India’s largest companies, employing 424,000 people in many different industries, including steel, motor vehicles, watches and jewelry, telecommunications, financial services, management consulting, food products, tea, chemicals and fertilizers, satellite TV, hotels, motor vehicles, energy, IT, and construction. Such diversity far exceeds that of any North American or Wester European company. What are the conditions in India that might make such broad-based diversification both feasible and profitable? In North America and Europe from 1950 - 1980 corporation focused on building business “empires” by large diversification. There was a tremendous expansion into many different product markets as a source of corporate growth for the newly formed conglomerate companies. The conglomerate fad quickly shifted during the 1980s into 2009 as corporate diversification methods reversed and instead turned into refocusing methods. Conglomerate firms have all but disappeared in North America and Europe as they fell prey corporate raiders looking to acquire them and either restructure them or sell off the pieces for a sizable profit over the purchased price, many times because the stock market valued the conglomerate companies at less than the sum of their pieces. For managers of such diversified companies, the immense amount of uncertainly and risk of corporate raiders created high incentives to quickly restructure before leverage buyouts specialist did it for them. On the other hand, the “conglomerate” diversified corporation still has a very strong presence in many countries with emerging economies such as the case of Tata Group in India. Much of the reasons are discussed more fully in the “Economies from Internalizing Transactions” and “The Diversified firm as an internal Market” sections of chapter 12. Because Tata group is broadly diversified across a