Asian brand buyers learning from their purchases

Ford Motor Co.’s Jaguar and Land Rover brands might seem ripe candidates for a radical overhaul and a swift swing of the ax. Instead, India’s Tata Motors Ltd., which has bought the brands for US$2 billion, likely will take a different approach: Do next to nothing.

Rather than seeking to wring profits out of two luxury automotive brands that frequently have lost money, Tata is looking to learn from them to help launch its own global expansion in autos, using the brands’ own management team and a full roster of employees.

Tata sees benefits from their knowledge, their technology and their sales networks. Although the brands have been plagued by high manufacturing costs and other difficulties, Tata doesn’t seem concerned about short-term losses.

Eventually, it may bring Jaguars and Land Rovers to India and sell its own cars overseas, which the company hopes will translate into profits over the longer term. An acquisition is less expensive than creating a global brand from scratch. This approach is common for Indian companies that, for the first time, are seeking to translate fast growth at home into an international presence. It is coming to define mergers and acquisitions, Indian-style.

India’s Essar Global Ltd. last year paid more than $1.7 billion to acquire Canada’s Algoma Steel Inc. and kept its management and its suppliers. Far from laying off employees and sending their jobs to India, Essar gave them a raise. Meanwhile, it sent a few directors to Canada to learn from the company.

Technology and outsourcing company Infosys Technologies Ltd. has $2 billion set aside for acquisitions, but will buy only when it is welcomed by, and can work with, the current management of targets.

Bharat Forge Ltd., one of India’s largest auto-parts makers, has made many small acquisitions in the U.S. and Europe and done little to shake them up.

“Indian companies and culture show a tendency not to come in and turn things upside down,” said Gene Donnelly, global managing partner for advisory and tax at PricewaterhouseCoopers in New York, who has helped advise many India companies on how to deal with mergers and acquisitions. “A Western acquirer goes in and says, ‘I need to take costs out.'”

Tech giant Wipro Technologies, which has spent more than $1 billion on overseas acquisitions in the past few years, looks in part to its new takeover targets to teach it things, like how to understand local culture, the buying habits of customers, or the expectations employees will have about vacation.

In many cases, managers later are given a larger part of the Wipro Ltd. unit to run. For example, Tim Matlack, who headed the energy and utilities consultancy business of American Management Systems Inc., which Wipro bought in 2001, now heads up Wipro Technologies’ global consulting business.

“From our point of view, it’s important; culturally, strategically, sometimes even technologically and of course, financially to get the team to continue to run that business,” said Lakshminarayana, chief strategy and M&A officer for Wipro Technologies (who goes by one name).

No company has played a greater role in crafting that approach to acquisitions than Tata Group, India’s flagship industrial conglomerate and most active international acquirer. “We have sought to keep management in place after we acquire a company,” Ratan Tata, chairman of Tata Motors as well as Tata Sons Ltd., the holding company for the conglomerate, said in a recent interview. “We pride ourselves on our ability to motivate management’s plans.”

One of the first major international acquisitions by an Indian company was Tata Tea Ltd.’s takeover of one of the U.K.’s biggest tea brands, Tetley Tea, in 2000.

To this day, no Tetley directors or senior management have been asked to leave. Tata, instead, has sent its managers to work for Tetley and learn about tea buying and branding and exporting to new markets. Tata Tea, for its part has invested more money in Tetley and helped it expand through its own acquisitions.

“Experts say you have to slash, burn, cut and we have not. People might say that is foolish,” says R. K. Krishna Kumar, vice chairman of Tata Tea. “Sometimes acquisitions should have an equivalent impact on the acquiring company.”

He says Tata Tea has applied what it learned from Tetley about making quality consistent for all its tea brands. It has also taken the Tetley brand to new markets, like neighboring Pakistan and Bangladesh.

Another Tata company, Tata Steel Ltd., bought the Anglo-Dutch steel company Corus Group PLC last year for around $12 billion, leaving its management team intact and retaining its employees. From the Corus deal, Tata Steel plans to learn about making higher-quality steel for the booming automotive industry in India.

[From the WSJ]

And you could add the brands that China is acquiring (or trying to acquire) in many parts of the world. As Asian countries look to expand their brands around the world, they are seeing one first-step strategy is to buy international brands and learn from them. Once they have some experience under their collective belts in terms of cultural differences, resourcing, management and focus, they’ll be in a far better position to export home-grown brands.


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