Tag: Tata Group

Starbucks Comes to India, Selling Coffee and Atmosphere

Posted on February 1, 2012

After Starbucks detailed the roadmap for its entry into the Indian market on Monday, among the first to see an impact was Tata Global Beverages. Shares of the company, which has a joint venture with the Seattle-based coffee giant, jumped more than 10% on the Bombay Stock Exchange the next day. The increase reflected investor confidence in the prospects of Tata Starbucks, the 50-50 partnership between the two firms. “We are excited about the opportunities the alliance presents,” says Tata Global vice-chairman R.K. Krishnakumar.

The first India Starbucks locations are scheduled to open in August in New Delhi and Mumbai. Company officials have hinted that the grand opening could be August 15, India’s Independence Day. With an initial investment of around $80 million, the Tata-Starbucks partnership is expected to open 50 stores in the country in 2012. The locations will be branded “Starbucks Coffee — A Tata Alliance,” an unusual move, as the Seattle firm does not typically sell its products under a hybrid brand. The stores will be offering a range of teas in an effort to cater to local tastes.

Tata observers note that the partnership is a continuation of a trend. When Pepsi came to India, it did so as part of a joint venture with Tata Group subsidiary Voltas. The product name in that case was also a hybrid — Lehar Pepsi — due to restrictions on sale of foreign brands in India. Once the laws were changed, and Coca-Cola entered the country on its own, Pepsi parted ways with Voltas.

Due to the current legal framework, Starbucks would have come to India without a partner; instead, it chose to enter into the venture with Tata. In addition, observers note, Tata had no experience in consumer products at the time of the Lehar Pepsi launch; Voltas was a marketing company that had handled successes such as dairy products brand Amul and soft drink concentrate manufacturer Pioma Industries (which sells under the popular brand name Rasna).

This time, the Tatas bring much more to the table, observers say. First, they have developed considerable retail experience, through chains such as Westside (clothing and accessories), Landmark (books), Croma (consumer electronics) and Titan (watches and jewelry). In fact, according to economic daily Business Standard, Noel Tata, who oversees many of the retail brands, is likely to be asked to oversee the Starbucks venture. (Noel Tata recently lost out to Cyrus Mistry in the race to succeed group chairman Ratan Tata.) “We are putting a high-caliber leadership team in place,” John Culver, president of Starbucks China and Asia Pacific, told the newspaper.

Secondly, the two firms are already comfortable with each other: There has been a sourcing agreement in place between Starbucks and Tata Coffee (also part of the group) for over a year. Starbucks will now be working with other group firms such as Taj Catering and the Taj hotel chain.

But the big benefit that the Tatas bring is the large number of outlets available under in different sectors and under different names, some of which could be used to accommodate Starbucks cafes. This provides a cheap entry point in a country where real estate is often one of the biggest costs for any retail venture. “We are keen to sell our products in multiple channels, such as hotels, restaurants, colleges and universities,” said Culver. “As part of this, we want to look at where we can place our stores in Tata hotel properties.”

Although coffee was practically virgin territory in India five years ago, Starbucks now faces considerable competition. Indian chain Cafe Coffee Day, for example, has more than 1,000 outlets. A dozen more chains, including Barista and Costa Coffee, have also established themselves. But competition may be helping the market grow. According to Technopak, a New Delhi-based research firm, the more than $200 million sector has been expanding at a compound annual rate of 25%. Information technology entrepreneur Subroto Bagchi gives one reason why. “CCD has raised coffee from a brew to an experience,” he told India Knowledge@Wharton. Says Culver of Starbucks: “We look forward to bringing the ‘Starbucks Experience’ to customers in India.”

See also: Logo Overhaul: Will Customers Still Answer the Siren Call of Starbucks?

Posted in Marketing, Strategic Management | Also tagged , | 2 Comments

Shareholders’ Choice: Cyrus Mistry to Take the Helm of India’s Tata Group

Posted on November 23, 2011

Indian conglomerate the Tata Group has finally found a successor to chairman Ratan Tata. The board of directors of Tata Sons, the holding company for the group, announced today that Cyrus P. Mistry has been appointed deputy chairman of the company. According to a statement by the group, Mistry “will work with Ratan Tata over the next year and take over from him when Mr. Tata retires in December 2012. This is as per the unanimous recommendation of the selection committee.”

In some ways, Mistry is an obvious choice. His father, the reclusive Shapoorji Pallonji, controls close to 18.5% of Tata Sons. This makes Pallonji the single largest individual shareholder. Most of the holding is with charitable trusts and the chairman of Tata Sons has always been the chairman of those trusts. Mistry is currently managing director of the $2.5 billion Shapoorji Pallonji Group, which is a big player in India’s construction sector.

But the 43-year-old Mistry is also a bit of a dark horse. He was never really mentioned as a candidate by the media during the search process, which has been going on for more than a year. The early favorite was Mistry’s brother-in-law Noel Tata, who is also Ratan Tata’s half brother. But Noel Tata was deemed to have moved out of the running after the senior Tata told the media that he felt that Noel Tata was too young to take on the chairman’s role.

“I don’t think that anyone had speculated it would be Cyrus Mistry,” analyst S.P. Tulsian told CNBC TV 18. “Ultimately, the family shareholder has emerged as the successor.” U.R. Bhat, managing director of Dalton Capital Advisors India, noted to Bloomberg that Mistry “is a sort of enigma.” Pradeep Mukerjee, founder-director of Confluence Coaching and Consulting, who has worked for several years in the HR area with Citigroup in the U.S., told India Knowledge @Wharton that the choice of Mistry is  “unexpected, but it is a good thing. The uncertainty has been laid to rest.”

Ratan Tata applauded the selection of Mistry. “[Mistry] has been on the board of Tata Sons since August 2006 and I have been impressed with the quality and caliber of his participation, his astute observations and his humility,” he said in a statement. “He is intelligent, and qualified to take on the responsibility being offered.” The chairman will mentor Mistry over the next year “to give him the exposure, the involvement and the operating experience to equip him to undertake the full responsibility of the group on my retirement.” Mistry is a graduate of civil engineering from Imperial College in London and has a master of science in management from London Business School.

“I feel deeply honored by this appointment,” Mistry said in a statement today. “I am aware that an enormous responsibility, with a great legacy, has been entrusted to me. I take this responsibility very seriously and in keeping with the values and ethics of the Tata Group, I will undertake to legally disassociate myself from the management of my family businesses to avoid any issue of conflict of interest.”

Mistry may well find himself in the sort of position that Ratan Tata was when he took over the reins from J.R.D. Tata in 1991. Ratan Tata had to fight against the entrenched chairmen of the larger Tata companies, who had become very independent during J.R.D. Tata’s tenure. The difference is that the Tatas had limited shareholding in the group companies at that time; Ratan Tata has raised group holding to a level that a takeover or a management-inspired secession is not possible. But there are many professionals in the group who thought they had a fighting chance of succeeding Ratan Tata. They may not make things easy for Mistry.

Mistry, too, will have to adjust. He is currently as low profile as his father or elder brother Shapoor. As chairman of Tata, an $83 billion group with operations in more than 80 countries, however, he will have to lead from the front.

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India’s Energy Woes Power New Business Opportunities

Posted on July 28, 2011

India is well-known for its power problems. The country has an installed capacity of 174,361 megawatts for its billion-plus population. According to the Central Electricity Authority (CEA), in the fiscal year 2010-2011, India’s energy shortage was 8.5% and its peak shortfall was 9.8%. CEA has projected an energy shortfall of 10.3% and a peak shortage of 12.9% for fiscal 2011-2012.

The situation is expected to only worsen. With industrial and urban expansion, growth in household consumption and electrification of rural areas, power requirements are on the rise. It is estimated that India’s demand for power will soar to as much as 315,000 megawatts by 2017. But new generation capacity is not coming online as fast because of the inevitable delays related to permissions, acquiring funding and construction.

Environmental concerns, too, have come to center stage and are impacting the progress of upcoming power projects. One example: bidding for the 4,000-megawatt power project at Surguja in Chhattisgarh has been held up for over a year. The Fukushima nuclear power plant meltdown in Japan in the aftermath of the earthquake and tsunami earlier this year has increased the concerns around the proposed 9,900-megawatt nuclear plant in Jaitapur in Maharashtra.

According to a study by consultancy McKinsey, the power deficit in India could be as high as 25% by 2017.

Interestingly, some companies — including multinationals — see this as a business opportunity. They don’t aspire to solve macro problems; they are looking at tackling the micro end of the issue and making a profit in the process.

Take Atlanta-based beverage giant Coca-Cola. It recently piloted eKOCool, a solar-powered cooler with a capacity to store 48 glass bottles of 300 ml each, in Uttar Pradesh in North India. The cooler, which can also charge mobile phones and solar lanterns, has been developed by the firm’s India team. Talking to the news daily, The Times of India, Asim Parekh, vice president, technical, for Coca-Cola India said: “The eKOCool is an outcome of our technical team’s persistence to use renewable energy for operating cooling equipment. The rural markets pose challenges in expansion as a huge swath of the rural belt is not yet covered by the power grid and hence remains without electricity or has low power.” Parekh believes that eKOCool will give Coca-Cola “a competitive edge as well as a first mover advantage.”

Others have spotted similar opportunities in the Indian market. Finnish mobile handset maker Nokia has come up with longer-lasting batteries; Dutch electronics maker Philips has introduced solar lamps and GE Healthcare has devised electrocardiogram machines that can operate on batteries.

Indian companies, too, are on the bandwagon. The Swatch water purifier from the Tata Group; the ChotuKool refrigerator from Godrej & Boyce and Studylite, a study lamp for children from BPL, are all innovations that seek to fulfill consumer needs in the face of power shortages.

Vijay Govindarajan, a professor of international business at the Tuck School of Business at Dartmouth College, points out that constraints can actually be liberating. “In the West, we assume abundant power supply and create products that can use that power. What do you do in rural India, where electricity is either unavailable or unreliable? You can either wait for power to become abundant or just innovate under constraints. If necessity is the mother of innovation, constraints are a boon, not a curse.”

Of course, there is another challenge for companies: To make these products affordable for the masses.

Posted in Innovation and Entrepreneurship | Also tagged , , , , , , , , | 3 Comments

Landing in Fights Over Land

Posted on July 5, 2011

Disputes over land acquisition issues are breaking out all over India. At Singur, in West Bengal, where the Tata Group was supposed to set up its Nano car plant, confusion abounds. Mamata Banerjee of the Trinamool Congress, who led the agitation over the Tata acquisition of farmland, is now the state’s chief minister. One of her first acts after gaining power — she won the recent elections with Singur as one of her major campaign points — was to push through the Singur Rehabilitation and Development Act. The law would enable the government to return the land to the farmers.

Regarding this as a victory of sorts, the locals in Singur scaled the Tata walls and had to be restrained by policemen. As preparations were underway to return the land, the Tatas approached the Calcutta High Court and later, the Supreme Court. The Tatas say they have made an investment of US$400 million in the plant. The Supreme Court has asked the government to maintain status quo at the site and directed the Calcutta High Court “to dispose of the main matters as early as possible, preferably within a period of one month.”  What has particularly annoyed the Tata group is that the state government has claimed that the company failed to commission the project and abandoned the site. “The state government failed to ensure a safe and congenial environment which forced the company to shift the project,” say the Tatas.

This is not the only project in which land acquisition has become a controversial issue. (See Bumps in the Road: India’s Industrial Growth Seeks Solid Ground).

In Orissa, work at the Posco site was halted for several days. Posco, South Korea’s Pohang Steel Company, is planning to build a US$12 billion steel plant here. “Nearly 2,000 women, children and men formed a human barricade to prevent the entry of police and administration in the proposed [Posco] plant area, in what they say is a last ditch attempt to protect their land,” reports NDTV, a New Delhi-based media firm. In Uttar Pradesh, several highway and power projects are in limbo because of agitations, some of which have been violent. In Jaitapur in Maharashtra, where a nuclear plant has been planned, the same issue has caused widespread protests. Here, however, the anti-nuclear lobby has overshadowed the anti-land acquisition movement.

There is another side to the picture. In Rajasthan, in Barmer district, many farmers have turned millionaires overnight as oil major Cairn Energy has bought up their land. The company struck oil in Rajasthan a few years ago and now proposes to build a refinery close to the site. With the government having finally cleared the proposed sale of Cairn India to the UK-based Vedanta, controlled by Anil Agarwal, the refinery project is likely to be speeded up. Farmers in the vicinity are expecting another windfall as two other projects – a power plant and a lignite mining operation — are also being planned.

Debates are growing louder about what Indian farmers really want. Agriculture does not pay dividends and the future seems to be tilting in favor of large farms with consolidated landholdings run by corporations. The farmers’ own inclination, say many, would be to sell out if a fair deal is offered. Most companies in India – the Tatas, for instance – have been offering jobs as part of the compensation package when buying land. This gives the lie to the claim that the farmers will have no sources of income after the money they get for their land runs out. The other argument – that the farmers will take to drinking and gambling as has happened with some textile workers who were paid compensation when their mills closed down – is an argument for drawing rooms, not one you can use with the farmers themselves.

The reality is that land acquisition has become a political issue and a lot of would-be leaders are trying to climb on that bandwagon. Banerjee has shown the way; others are bound to follow. “The protest against land acquisition has become a national problem as some people want to politicize the issue,” says the apex chamber of commerce Assocham. “For the interest of the country the political parties should not politicize the land acquisition process.”

These agitations, whatever their catalysts, are causing a great deal of damage to India’s growth prospects. An earlier Assocham report released at the end of 2009 says that “delays in land acquisition for industrial projects [are] likely to endanger investments worth US$100 billion in the near term”. The report adds that “smooth implementation of these projects could have created job opportunities for at least 164,000 people directly and 270,000 people indirectly.”

At the end-June meeting with economic editors, Prime Minister Manmohan Singh said that amending land acquisition laws (along with foreign investment in the retail and insurance sectors) was at the top of his reform agenda. For land acquisition, at least, this move is more than a century overdue. The relevant legislation that is being sought to be replaced is the Land Acquisition Act of 1894.

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