Tata Daewoo

Introduction

Ravi Kant felt relief and a tremendous sense of accomplishment. As head of the Commercial Vehicles Division within India's giant Tata Motors, Kant had helped orchestrate the winning bid for Daewoo Commercial Vehicles (DWCV) after the South Korean government decided to auction off the failing company, accepting bids from many of the world's leading auto makers in 2004. Winning the bid had by no means been a sure thing, and Tata had to overcome several obstacles along the way.

Kant recalled a surprising conversation with a mid-level manager at Daewoo's truck division in the Korean port city of Gunsan in 2003. The Koreans preferred one of the European bidders, believing them to be best able to secure the future of Daewoo. Kant realized Tata's bid was seen as a long-shot from a company that was not well-known in Korea The Indian conglomerate would need to launch a massive public relations campaign to change the Koreans' perception of Tata, and help them see what Tata was all about. Tata thus began a process of wooing local officials by showing that they would keep the "Korea in Daewoo." This deal would be Tata's first ever global acquisition, and signified a major breakthrough for the company that wanted to expand and accelerate its entry into new markets in China, Western Europe, South Africa and Latin America.

Tata had chalked out a globalization strategy in early 2003, and had created a merger & acquisition (M&A) team to identify potential acquisition targets. Tata Motors planned to increase exports from Rs. 10 billion in 2004 to Rs. 20 billion by 2005- 06. The company also wanted to enter the Chinese market through joint ventures or technology transfers, but so far these efforts had not materialized. The remainder of this case study addresses how Tata developed and implemented policies to deal with the following issues: How could Tata convince the Koreans that theirs was the best firm to acquire Daewoo? What steps did the Tata management need to take to prepare for this major, global acquisition? What would the Tata management footprint look like in the Korean facilities? What cultural differences would Tata have to overcome to ensure a seamless merger and management transition?

Background information

The Tata Group's history began in 1868, when Jamsetji Tata established a textile mill at Nagpur in Maharashtra. The Group set up the first steel mill in the country, as well as the first luxury hotel and the first airlines service in India. The Group consists of ninety-one separate companies with operations spanning multiple sectors, from engineering, materials, energy, chemicals, consumer products & services to communications and information systems. Tata Motors is the largest company within the group, and is the fifth largest commercial vehicle manufacturer in the world. By 2004, Tata Group's turnover was $14.25 billion, contributing 2.6% of the India's gross domestic product.

In July 2003, Praveen Kadle, Executive Director, finance and corporate affairs at Tata Motors, called a meeting with Ravi Kant, the executive director of the commercial vehicles business unit, to know if Kant was interested in orchestrating the company's bid for DWCV. Most analysts felt that the DWCV acquisition was a perfect fit for Tata. According to Satish Ramanathan, an analyst at ICICI Securities, "The fit is very good and will incrementally add around four to five percent to turnover and the same amount to profit." The acquisition would enable Tata Motors to increase both its domestic and export earnings.

Tata Motors' current product lines focused on the lower end of heavy trucks boasting up to 210 hp. The DWCV trucks ranged between 210 to 450 hp. This expanded product range could help Tata Motor compete more effectively with Volvo's Indian unit. Satish Jain, a Morgan Stanley analyst, felt that DWCV would serve as Tata Motors' platform in Southeast Asia, and would also help expand its product range and market share in its existing markets - including India. The DWCV offer came from the target firm itself, through KPMG, the official advisor to DWCV. The acquisition offer seemed to open up possibilities for strong synergies like expansion of the product line, good R&D capabilities and new markets. It also gave Tata Motors the opportunity to de-risk its business by countering domestic market cyclicality through overseas expansion. However, there were initial apprehensions. The militant labor unions in Korea could prevent the deal or create labor problems after the acquisition. What's more, Tata Motors had virtually no global experience at that point, and this could make integration difficult.

Daewoo Group ran into deep financial trouble in 1998 in the wake of the Asian financial crisis, exacerbated by a tumultuous relationship with the government and its own poor financial management. While the economic crisis forced most Korean companies, including such giants as Samsung and LG, to scale back, Daewoo foolishly acquired 14 new firms, expanding well beyond its existing 275 subsidiaries. In that same year the Daewoo Group lost a combined 550 billion won ($458m) on sales of 62 trillion won ($51 billion). By 1999, Daewoo, the second largest conglomerate in South Korea holding interests in approximately 100 countries, went bankrupt, with debts of about 80 billion won (84.3 million USD). Daewoo's fall dealt a serious and highly contentious blow to the South Korean economy. The collapse resulted in billions of dollars in losses to the government and South Korean banks; however, the bankruptcy of the company was not merely a financial but also a political crisis, and came as a large shock to much of the nation's population. The government's auction of DWCV was another step in South Korea's attempt to clean up the debris left by Daewoo's collapse.

Winning the bid

Ravi Kant immediately enrolled Tata executives in intensive Korean language classes so that they could better communicate with their Korean counterparts. Tata's company brochures were reprinted in Korean, and Kant's team launched an aggressive campaign of presentations to Daewoo employees, the chief of the local Korean Automobile Association, government officials in Seoul, and even South Korea's Prime Minister. They spoke with management and employees and explained to them that they would be increasing jobs in Korea, not eliminating them, by building the operations into a main export source. Tata viewed this as an opportunity to expand into the Asian market and build a presence and knowledge base of the region. With such an aggressive acquisition strategy, Tata prided itself on being