Sunday, December 23, 2007

** Hand over the keys

Hand over the keys, the Indians are here
By Sudha Ramachandran
Asia Times - Dec. 21,07

BANGALORE - Even as Indians were popping champagne corks last week over the appointment of a compatriot Vikram Pandit as chief executive of Citigroup, doubts were being expressed in the US over the wisdom of Western luxury brands being sold to Indian business houses. "I don't believe the US public is ready for ownership out of India of a luxury car make," Ken Gorin told the Wall Street Journal.

Gorin, who chairs the Jaguar Business Operations Council, which represents Jaguar car dealers in the US, was referring to the likely sale by US-based Ford Motors of its Jaguar and Land Rover luxury brands to India's Tata Motors. Cash-strapped Ford - the number two US-based car maker - put the two ailing British iconic British brands on sale in July.

About half a dozen companies put in offers, reduced to three for final negotiations. Of these, two are Indian - Tata Motors and Mahindra & Mahindra (M&M). The third is OneEquity, a US private equity firm. Gorin drew attention to "unique image issues" that would arise if the two luxury car brands were sold to either of the two Indian bidders. It "would severely throw a tremendous cast of doubt over the viability of the brand", Gorin said.

Even before the dust kicked up by Gorin's remark could settle, Tata was at the receiving end of another put-down when Orient Express Hotels, a New York-listed luxury hotels and travel group, rejected overtures for an alliance by Tata Group-controlled Indian Hotels. Orient Express chief executive Paul White wrote in a letter to Indian Hotels that any association of its brands and properties with the "predominantly domestic" Indian hotel chain would result in an erosion of the brand and business value of its "global portfolio of luxury hotels and unique travel experiences".

Indian Hotels runs the Taj chain of hotels, which includes the near US$3,000 a night Taj Mahal Palace in Mumbai. In 2005, it took over management of the landmark Pierre hotel at Fifth Avenue, New York. The remarks by Gorin and White have been widely perceived in India as rooted in racism. An editorial in Economic Times, a leading business daily, slammed the comments as "close to racism, barely camouflaged in the language of branding". Shombit Sengupta, an international growth strategy consultant and founder of Shining Emotional Surplus, doesn't agree. "Luxury brand business is not hype or PR action. It is embedded in superior craftsmanship and legacy of the past that has been transcended generation after generation. That's why there is no question of racism" in the concerns raised by Gorin and White, he told Asia Times Online.

The Tata Group is one of India's largest and most respected business conglomerates. Early this year, Tata Steel bought the Anglo-Dutch steel company Corus for $11.3 billion. Tata Motors, a subsidiary of the Tata Group is the frontrunner in the race for acquisition of Jaguar and Land Rover. It is India's largest automobile company, with many firsts to its credit. It developed India's first indigenously developed light commercial vehicle, the country's first sports utility vehicle and, in 1998, India's first fully indigenous passenger car.

It is preparing to unveil in early January a "people's car", which at a price of $2,500 will be the world's cheapest automobile.

Those opposing Tata Motor's likely acquisition of Jaguar and Land Rover doubt its capacity to manufacture a luxury car. Could the manufacturer of a people's car be trusted with running a luxury icon? "I do not understand how a company that is going to make cars for $2,000 can sell cars for $120,000," Thomas Stallkamp, a partner with the US private equity firm Ripplewood, was quoted by The Times as saying. Ripplewood was among the companies that were eliminated early in the race for the marques.

A senior Tata Group official said that such questions are rooted in ignorance about the conglomerate's diverse interests. Tata manufactures hydraulic excavators, fertilizers, heavy vehicles and cheap cars. It also produces high-end diamond jewelry and sophisticated software, as well as running top-end hotels. "Tatas is running the Ginger chain of hotels where a room could cost around $30. But it is also running exclusive hotels; a room at Taj Mahal Palace in Mumbai could cost anywhere around $2,800 per night. So yes, we can be trusted with running luxury icons," the official told Asia Times Online.

As for allegations that Tata's "cheap car image" would damage the Jaguar brand and turn away potential customers, the official pointed out that "no guest has to date refused the privilege of staying in the Taj Mahal Palace because Tata also owns budget hotels". This is not the first time that Indians daring to challenge ownership of global giants have been ridiculed.

Last year, when Lakshmi Mittal, the Indian steel magnate and the world's fifth-richest person, bid for the Europe-based Arcelor to create the world's biggest steelmaker, its chief Guy Dolle belittled Mittal by saying that Arcelor produced perfume whereas Mittal Steel merely made eau de cologne. Dolle also described Mittal's shares as "monkey money". Shareholder pressure made Arcelor subsequently bow to Mittal's takeover of the company.

Indian liquor baron Vijay Mallya's bid for the French champagne company Taittinger was turned down on the grounds that non-French ownership would hurt the brand. Mallya went on last year to acquire Taittinger's wine business. The barbs, the taunts and the disparaging remarks that Indians and Indian predators face today in Western markets is similar to the Japanese experience in the US a couple of decades ago.

When Japanese car manufacturers entered the American market, they faced much hostility, racist verbal abuse and even physical violence. But soon American car manufacturers had to come to terms with an American public that was setting aside automobile nationalism to purchase the more economical and reliable Japanese cars. But when it comes to luxury brands, Asian brands are not hot in Europe and America.

The Americans have always preferred European luxury brands and have been reluctant to embrace luxury brands from elsewhere. "Shiseido [the Japanese luxury cosmetics brand] is not Chanel No 5 for Americans or other buyers of luxury brands," says Sengupta. Even so, the trend with luxury cars appears to be different. The US luxury car market, once dominated by Cadillacs and Lincolns, seemed safe from the Japanese.

That changed in the 1990s when Honda released its Acura line, followed by Toyota with Lexus and Nissan with Infiniti. Today, US automakers have been edged out of the domestic luxury car market: three out of four Americans who buy a luxury car opt for a European or Japanese model.

And while European luxury car brands now dominate in the US, the Lexus is the highest-selling make of luxury car. Indian analysts have pointed out that the fuss over Indian ownership of Jaguar and Land Rover is absurd, especially at a time when global businesses are increasingly turning to Indian talent to run their enterprises.

Citigroup zeroed in on Indian Vivek Pandit to steer it out of the worst crisis the bank has faced in its 195-year history. Earlier, Pepsico chose the Indian-born Indra Nooyi as its chief executive. Of the 15 Fortune 100 companies that are run by foreign-born executives three are of Indian-origin - with Ramani Ayer, chief executive of Hartford Financial Services, up there alongside Pandit and Nooyi.

India's growing presence at the top rungs of corporate America notwithstanding, the country "still conjures up images of abysmal poverty in the West", pointed out a European luxury car dealer in Bangalore. "When Americans buy luxury cars they want the snob value attached to it. They will not warm to Indian-owned luxury brand as it will not give them that value." Not so, argues Harish Bijoor, chief executive of a Bangalore-based consulting firm that specializes in brand and business strategy.

"The image of India in the world market is not what it was in the past. Today, it is seen as a hot bed of commerce and indeed, a hot bed of mergers and acquisitions activity," he told Asia Times Online. Dismissing allegations that Tata's takeover of Jaguar would undermine the latter's brand value, Bijoor argued that "brand value is a function of what consumers think of the brand at large. An ownership shift seldom has a negative impact on brands, particularly when they pass on into the hands of organizations that have a pedigree in the same space."

And "Tata Motors has that pedigree, as has Mahindra & Mahindra [the other Indian bidder for Jaguar]," Bijoor said. The workers, meanwhile, have a different perspective. Tata Motor's bid for Jaguar and the Land Rover received a boost last month when Unite, Britain's largest manufacturing union, said it preferred the luxury brands being sold to Tata as it offered them the best future in the long run. And unlike their counterparts across the Atlantic, Jaguar dealers in Britain have extended their vote of confidence in Tata's ownership of of the marque. As the dispute rages, Tata is the frontrunner to secure Jaguar and Range Rover, with deal expected to be clinched within the next few days.

"It is definitely Tata. There is one final meeting and so long as there are no last-minute hitches, which are not expected, then an announcement will be made on Friday," sources in Land Rover have been quoted as saying. It looks like Europe and the US need to brace themselves - corporate India is coming, and at Jaguar and Land Rover, they will have to make way for an Indian in the driving seat. Sudha Ramachandran is an independent journalist/researcher based in Bangalore.