TATA: What Banks Can Learn from Leveraging Regional and Global Brands Within the Same Network
Business Groups, since they are only partially owned and legally separate, provide opportunities to leverage the alliances but also provide major challenges
- Written by Erik Vander Kolk, Publisher of Banking Exchange
TATA is a company that has its routes in India, and has steadily grown for more than a century. Over time, the company has successfully leveraged its competitive advantage in India, where there has been a strong emerging economy, and the country has historically set up major barriers to entry from foreign investors. However, as the country has eased some trade barriers, and the businesses TATA are stakeholders in are growing, the company faced new challenges on how to grow and manage its business.
But the business climate is not the only challenge it faces, as TATA’s companies are not actually owned by TATA, but rather it is a Business Group, and thus would face unique challenges in creating and executing a successful strategy even beyond its particular business and country climate. Business Groups, since they are only partially owned and legally separate, provide opportunities to leverage the alliances but also provide major challenges in providing a strong alliance between companies..
Building a Global Brand with Business Groups and Equity Interlocks
As TATA was seeking to expand the company’s position both in India and globally, the idea of building a global brand under the TATA name, based on integrity and excellence had great potential to the companies and the shareholders within the consortium. The brand reach, due to economies of scale with a combined marketing effort, allowed for a marketing campaign that could not otherwise be achieved with each individual firm. Global marketing opportunities such as the World Cup or Grand Prix racing has the potential to reach hundreds of millions of people, but can cost tens of millions of dollars. TATA companies would be able to be known worldwide by leveraging its brand across global media channels. With the emergence of the web and social media, the last twenty years has provided the opportunity to leverage a global brand in every major market..
Secondly, the strength of a reputation of excellence particularly for lesser known brands and startups allow those companies to have instant credibility for what might take years to achieve on their own. If managed correctly, companies have the benefit of working somewhat autonomously but still have the benefits of a multinational firm in terms of identity. This also might provide these companies easier access to expand into other businesses because their brand means more than just what the core competency of their individual company represents on it own.
Lastly, and perhaps most importantly, India had been a difficult market for competition due to its trade and ownership barriers, and TATA companies historically took advantage of the regional business climate. However, as the barriers to entry may continue to lessen, there will be more and more potential competitive threats from the outside. A global brand that communicates excellence, integrity and innovation could help fend off outside companies by elevating a real or perceived barrier to entry into the Indian market by being aware of a powerful brand with regional credibility across multiple business sectors.
The decision to build a global brand does present challenges to communicate the value to all of the companies. For instance, some of the companies already have built strong brand recognition. The TAJ Group of Hotels (part of the Indian Hotels) were already known worldwide for being a five star hotel chain with a unique value proposition to its customer base. The challenge is to make sure the overarching brand only enhances those companies that already have recognition.
TATA and other business groups are not the only ones that have challenges in this regard. This is also a problem, for example, when a larger media firm acquires a small media company that has a strong reputation in a specific sector that may even be a more powerful brand within its niche than the new owner. The head of TATA was shrewd, , however, in pointing out that when raising money, companies such as the Indian Hotel company already leveraged their affiliation with TATA and thus understood the value of the affiliation.
As TATA discovered, a second challenge is to have a fair distribution of costs relative to the benefit each firm is receiving for being affiliated with the TATA brand. In its cost sharing scheme, one company that has higher revenue or profit will be paying in more than some of the smaller companies, but the question can potentially arise from stakeholders of whether this is a really equitable way to distribute this cost. For instance, an argument could be made that actually the smaller companies may be benefiting more from the affiliation than larger established brands. . The startups, for instance, would be shrewd to leverage the relationships with customers and vendors in ways they could not otherwise have without the brand behind them. Lastly, in any such relationship, there can be resistance to anything that could be perceived as taking away autonomy or an entrepreneurial spirit.
However, the CEO had the power to overcome these objections because he was instrumental in turning around two of its biggest companies, Telco and Tisco, so that the bigger players had a positive view of the brand name. He had the credibility needed to bring the companies that would be paying the largest share of the marketing costs into the fold.
Strengthening the Relationship of Tata Companies to Increase Competitive Advantage:
Before the initiative to bring together the various companies, many of the leaders of the individual companies sited the benefit of having a very loose affiliation with TATA, but also enjoyed the autonomy and thus entrepreneurial spirit that they felt was critical to their success by keeping a distance. However, having a fragmented strategy for growth that goes company by company exposes some lost opportunities to be more efficient and thus more profitable for the shareholders. Companies that have positions in multiple companies in an equity interlock are in danger of competing in new markets with one another. In other words, autonomous decision making has the potential of having different parts of the whole work against one another. This situation can hurt shareholder value because some of these companies also have a stake in one another. With the companies fragmented, the company was missing opportunities to help share costs as well as expertise. The CEO of TATA made several bold steps to strengthen the ties.
Through the TAS program, TATA addressed a growing need in the global business climate. Attracting and developing managers with global competence and skills is a challenge to large companies. The management development program helped to attract and retain major executive talent. Up and coming executives began to perceive TATA companies as providing the benefits of a large corporation in terms of strength and development, but with a cutting edge company that was still innovative in spirit. TATA sought to provide executives with the opportunity to rotate throughout several of the companies that wanted to participate, and posted executive positions across the different corporations. The opportunity to grow and develop high level talent across different market sectors would never happen without more coordinated efforts.
Secondly, the various companies had more opportunities to learn from one another, and there are more advantageous situations to fund new products or ventures through a stronger network within the firms. For investors in the companies under the TATA Interlock, there is also the benefit of strengthening the investment of that company through pushing for a more balanced portfolio, and providing more synergy between the companies. While the main market that TATA developed has opened up competition, a stronger alliance can help to fend off would be competitors through a stronger alliance. While global demand for products are increasing, the vast majority of that demand is not satisfied locally. TATA companies can strengthen their supply chain internally. Also, with a brand that is clearly aligned with India, any negative perceptions of foreign investment can be leveraged with the strengthening of the brand. Finally, the strength of a greater economy of scale can provide opportunities to negotiate with outside entities necessary for each of the companies to develop a strong supply chain to answer the needs of their customers.
While there are clear benefits for strengthening the alliance, one should be cautious in considering the development of a business group as a strategy. It is very difficult, for instance, to build central control when the Business Group is reliant on the willingness for each entity to participate. Due to the fact that many of the firms are publicly traded, there is limited opportunity for instance to share financial costs as it is necessary to have autonomy in certain functions. Additionally, if one of the companies receives bad press, all companies could potentially suffer with a stronger working relationship with that company as well as an overarching brand. Overall, given TATA’s history, the steps mentioned above should strengthen the individual companies. However, as the company started to consider forming alliances with foreign entities, the potential of its brand strength in its home market could be challenged since it might change the perception of the company. The management of a Business Group clearly hinges on the strength of its leaders to craft a strong well thought out vision and be persuasive enough to get buy in from a multiplicity of stakeholders.
As acquisitions continue within the retail banking industry, banks need to consider the benefits of having a large brand overall for scale, but not to underestimate the power of a regional brand. The strength of regional banks will always be that the workers understand local community needs and markets. The balance is something that corporate boards and executives should consider.
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