The British Business Secretary rushing down to Mumbai to meet with the Tata group chief to save 15,000 British jobs has a deeply ironic ring to it. Adding another layer to this is the likelihood of Prince William and his wife Kate Middleton raising this issue with Indian officials and businessmen during their upcoming visit to India. But I don’t want indulge in a futile act of schadenfreude. Though it may be tempting to argue that the British had it coming, especially given our colonial past and how the British ‘de-industrialised’ India in the 18th and 19th centuries, the issue on hand is a lot more complex.
After all, an Indian company — Tata Steel — is involved, and it is bleeding £1 million a day. Also, the loss of 15,000 jobs, whether it is happening in the UK, India or any part of the world, is a serious matter.
It was in 2007-08 that the Tata group stepped up its international acquisition play by acquiring Corus in the UK and Jaguar Land Rover from Ford Motor. Those were the heydays when Indian companies had begun ambitious global forays, and players from sectors as diverse as steel, automobile, IT, telecom and liquor started making serious bids to acquire firms abroad. This was also the period when the government and the RBI had considerably eased rules for companies to raise funds abroad. This had made the possibility of ‘leveraged buyouts’ easier.
How globalisation works
I remember having a conversation in early 2008 with a journalist friend during a visit to Mumbai. This friend, now a senior editor in a leading financial daily, was critical of the Tata group’s acquisition of Jaguar Land Rover but was more positive about the Corus acquisition. His argument was that, despite its cyclical ups and downs, steel is a product that will always have demand and, hence, the Corus acquisition made sense, whereas the JLR buy was risky, given the volatile nature of the automobile industry. The argument made a great deal of sense then.
But eight years on, the JLR acquisition has proved a major success for the Tata group, while the steel venture is the one dragging it down. In fact, it is JLR’s stellar performance that has buoyed Tata Motors, especially given the tepid performance of its other car brands.
Tata Steel’s predicament is, in a way, symbolic of how globalisation works today. In a world where financial and goods markets are interlinked, there are far too many factors or ‘variables’ at play and businesses can never predict which of these will come back to bite them. Now, in steel, it is the China factor that looms large. China, which is going through a rough patch economically, is literally flooding its steel into the world market, sending prices crashing. In 2015, China accounted for 50 per cent of the world’s steel production, despite a 2.3 per cent dip in output.
Levelling the field
After hectic lobbying by domestic steel companies, the government, in early February, imposed a minimum import price to help steel players withstand the onslaught of Chinese imports. But one will have to wait and see how this plays out for the industry.
A recent report on the global steel industry by EY states that “the steel sector is undergoing a transformation, as globalisation defines the business landscape”. The report goes on to state: “Steel companies that embrace globalisation (in their strategy, supply chains, knowledge and information, processes, talent and financial flows) while balancing this with customisation (of their products, marketing and stakeholder relationships) will emerge as sector leaders in the long term” (Global Steel 2015-2016 — Globalise or customise: finding the right balance).
Will Liberty House, another UK-based business owned by an Indian-origin businessman, come to the rescue of Tata Steel and the UK government to save 15,000 jobs? It will be interesting to see how this issue unfolds as it will tell us more about how companies and governments deal with the crises thrown up by globalisation.