The move by Ratan Tata to create a Tata Group brand was a brilliant idea that paid of well for the company. Ratan Tata had been under pressure to create such a system and in the end when he did, Tata Son’s reaped maximum benefits from the creation of the Tata brand. This also was an advantage to the companies within the Tata umbrella. The existence of the Tata brand was crucial for the growth and revitalization of the company amid a new era that saw huge changes in the business world.
In an emerging market, the creation of the Tata brand was crucial and pivotal to the success of not only the parent company, Tata sons, but also all the involved companies in the Tata family. The creation of the Tata brand in emerging markets opened up numerous opportunities and avenues through which all the involved companies could exploit. The following are some of them:
The Tata Brand as a Beacon
Brands symbolize affiliations, allegiances and identities. A brand name, in this case the Tata brand created a beacon that attracted customers, funding access and distribution channels for the companies under the Tata brand. This is because customers and suppliers tend to look for a well-developed and established brand name that they can be associated with.
The Tata Brand as an Amplifier
Through the creation of the Tata band, the conglomerate of companies of the brand were able to experience the ripple effect of a collective and larger bargaining power. The companies were able to reap the benefits of legal protection, advertising and promoting of the brand name.
Through creation of the brand, all of the companies involved had to subscribe to a unified and standard code of ethics. This ensured a standard way of operations for all companies within the brand.
Pros of creating a group brand
- Collective bargaining power: through creating a brand, all the companies within Tata brand umbrella, i.e. the Tata companies, have provided themselves the ability to have a better bargaining power in the market and with governments as compared to bargaining individually.
- Standards in business operations: through creation of a brand, all the companies within the Tata group had to subscribe a code of conduct that ensured uniform ethical business practices and quality.
- Increased marketing power: through the brand name, all the groups paid subscriptions that went towards developing and marketing the brand. This collective power of the Tata group served a much stronger and larger marketing force.
- Larger market share: through including several companies in the Tata brand, the company was able to acquire a large market share in all markets, and eliminating competition from within its members.
- Creates following: customers are more willing to identify with a large brand that commands economies of scale and scope. This is because the economies of scope and scale translate to a lower price for customers.
Cons of creating a group brand
- Bureaucratic challenge (red-tape): the creation of a brand and the inclusion of several companies to form the Tata group leads to a much longer decision making process as major decisions affecting the whole group require the involvement and consultation of all concern parties. This creates a lot of red tape in the decision making process
- Increased collective responsibility on all companies involved
- Costly: creating a brand is quite costly as issues of patents, copyrights and franchise have to be created and appropriately put in place. These business instruments are expensive to acquire.
When the companies within an intended group brand are closely held, the logistics involved in the formulation of a group brand are much easier. The creation of interlocking share holdings involves the business to be comprised of separate legal entities rather than all of these businesses being a part of one legal entity. When this happens, the businesses need to be closely held, or each will operate freely apart from the group’s interest. When they are closely held, formulation of a group brand is solid.
Pros of Equity interlocking
- Tata Sons have had an enhanced control across the board on the group.
- All the companies under the Tata brand name have been aligned to the objectives, goals and standards of the Tata brand.
- Capacity to raise capital internally. This aspect is crucial in the protection of the group from hostile takeovers. This gives the investors within the group with 26% shareholding the legal ability and right to block takeover resolutions. Instead of offering shares or borrowing from the local markets, the Tata brand should exploit this facet and resource to finance new businesses and ventures.
- Through economies of scope, the Tata Group can create several synergies within itself through utilizing the ability to distribute resources across the companies more effectively.
Cons of Equity Interlocking
- There is the creation of a bureaucratic chain that leads to a lot of red tape, thus slower decision making.
Through the sale of part of Tata Industries Ltd. To the Hong Kong based Jardine Matheson Group, the company was consistent with strengthening portfolio. This is true because of the following reasons:
At the moment of the sale to the Jadine Matheson group, Tata was experiencing financial hiccups with financing its new venture start-ups. This required the involvement of another partner who had the capability of pooling massive resources.
The John Matheson Group was a well-established group that had similar ideals and goals as the Tata group.
The john Matheson Group brought to the table great financial resources as well as human resource. The group boasted a pool of qualified staff that would prove crucial in the coming ventures.
Ratan’s main interest in selling off 20% of the Tata Industries Ltd. To the Jardine Matheson Group was the fact that there were many areas that Ratan Tata wished to venture into but jointly in order to create further value to the Tata Group while at the same time creating more synergies. The goal was to add value to the group through curbing the difference that the group experienced in specific markets. Through the economies for scale, scope and experience, the group would exploit these new markets
According to the information, in the recent years the group’s ability to maintain the reputation of recruiting and retaining top talent had slowly faded. The company was in dire need for revitalization of the Tata Administrative Services Unit.
The managerial labour market is a system that continuously assesses manager performance. The value of a manager placed by the market is determined by their reputation. This reputation is influenced by the manner in which the manager discloses information on the market. This managerial labour market offers incentive for the production of reliable information, creating an efficient market.
Through the new and improved system of hiring or recruiting that TAS was going to undertake, it would greatly increase the value and reputation of the company in the managerial market.
The approach to branding employment at TAS as a premium employment opportunity, set the quality standards at TAS at a very high place. The preferred candidates for employment would be MBAs. This raised the stature of employment at TAS in the Managerial Labour Market.
The new system of employment would avail the new recruits the opportunity to be rotated in the various Tata companies in three different industries. Exposure to changing and evolving work place creates the great appeal of a vibrant and exciting work experience. The program launched successfully and saw the company able to take in 25 more recruits the year after the programs launch. This was testament to the increasing value of TAS in the Managerial Labour Market.
The offer to these new recruits in senior management positions, based on work quality and experience, depicts the value and confidence that TAS had in its new recruiting program. When a new recruit arrived at TAS, the Tata companies that chose to participate in this program received newsletters of the recruit who was available for employment at the Tata companies. The open development and sharing of information both internally and externally, adds value to the reputation of TAS as a company that shares information freely and openly, in effect increasing or adding value to the managerial labour market intermediation.
There is sound and justified basis in the activities of the subsidiaries of this company. Looking at the market value of these companies, they are below that if Crisil 500 as required. On the other hand the price index of these companies are at their all-time high, higher than the industry standard except for TATA chemicals. Tis might suggest that the company is being opportunistic but in reality it is not. The high price index may be due to high profitability and withholding of dividends by this companies. In short there is constant reinvestment of retained earnings. It is evident that out of all the companies TATA power seems to be to an extent draining the financial resources of the other companies. Its price index stands at 199, the second lowest of all the subsidiaries. The group has put the second highest investment of Rs.1922 in TATA power. It is a justified investment since the power plant supplies electricity, an important source of production, to the entire group.
Telo has the highest receivables, but it has offset this with greater sales and profit on the other hand TATA chemicals capital gain compared to the entire market is low. There may be stiff competition in this area. From a CEOs perspective Tisco is performing badly as compared to the industry average. Its price index and return index are lowest, Rs 141.6 and Rs 151.4 respectively. It also from the financials that it has been operating on the highest current liabilities. It might have been the company’s net worth was overvalued. A CEOs interest would be to maximize returns and it would be best to divest the interest of this company. Followed by TATA power, the demand for energy by the entire group is really high and it would be better to divest a portion of the company. Outsourcing power from outside would ease expenditure or else the TATA power should strive for self-sufficiency by constantly expanding their power projects.
Since the hotel industry is doing better compared to the other subsidiaries, I would invest in the hotel industries. Its price index is the highest. This may because, the raw materials for building hotels is obtained cheaply from the other subsidiaries. Power is obtained from TATA power , metals, steel for building, tea for hotels and company vehicles .
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