Global Strategy Framework- an Illustration of Tata Steels

Global Strategy Framework- An illustration of Tata Steel.

Introduction: Most managers have to face the increasing globalisation of markets and
competition. That fact requires each company to decide whether it must become a
worldwide competitor to survive. While deciding to go for globalization, the managers
face two challenges. . First, they need to figure out what a global strategy is. Then, when
they know what to do, they have to get their organisations to make it happen. Developing
a global strategy is complicated by the fact that there are at least five major dimensions of
globalisation such as playing big in major markets, standardizing the core product,
concentrating value- adding activities in a few countries, adopting uniform market
positioning and marketing mix and integrating competitive strategy across countries.

Global strategy framework given by George.S. Yip, Pierre .M. Loewe and Michael .Y.
Yoshino helps the manager to decide whether it should globalise a particular business and
what sort of global strategy should it pursue. The global strategy framework/audit
involves seven steps as shown in chart-1.(shown at the end)

1. Identify Strategic business unit to audit: This step involves identifying the
particular business unit for which the company is planning for globalisation.

2. Evaluate industry potential for globalisation: Managers should look first to the
business's industry. An industry's potential for globalisation is driven by market,
economic, environmental and competitive factors (see Chart 2 at the end of the paper)
Market forces determine the customers' receptivity to a global product; economic factors
determine whether pursuing a global strategy can provide a cost advantage;
environmental factors show whether the necessary supporting infrastructure is there; and
competitive factors provide a spur to action.

Market factors like homogeneous market needs, global customers, shortening product
life cycle, transferable brands and advertising and internationalising distribution channel
determine the potential for global strategy. Factors like economies of scale in
manufacturing and distribution, steep learning curve, significant differences in country
costs determine the potential for global strategy from economic point of view.
Environmental factors like falling transportation costs, govt policies and technology
changes push for global strategy in some industries. Competitive interdependence among
countries and global moves of competitors also affect the potential of an industry for
global strategy.

3. Evaluate current extent of globalization: The current extent of globalization of SBU

under study is evaluated from five dimensions such as market participation, product
standardization, activity concentration, marketing uniformity and integration of
competitive moves.

Playing big in major markets - countries that account for a sizeable share of worldwide
volume or where changes in technology or consumer tastes are most likely to start –
brings benefits such as, larger volume over which to amortise development efforts and
investments in fixed assets, ability to manage countries as one portfolio, including being
able to exploit differences in position along the product life cycle, learning from each
country, and being at the cutting edge of the product category by participating in the one
or two major countries that lead development.

The core product can be standardized while customizing more superficial aspects of the
offering. This will help the firm to enjoy the economies of scale relating to production.

Instead of repeating every activity in each country, a pure global strategy provides for
concentration of activities in just a few countries. For example. fundamental research is
conducted in just one country, commercial development in two or three countries,
manufacturing in a few countries, and core marketing programs developed at regional
centres, while selling and customer service take place in every country in the network.
The benefits include gaining economies of scale and leveraging the special skills or
strengths of particular countries.

The more uniform the market positioning and marketing mix, the more the company can
save in the cost of developing marketing strategies and programs. Again it is easy to
manage one or two brand than having several brand names.

Instead of making competitive decisions in a country without regard to what is

happening in other countries, a global competitor can take an integrated approach.
Another benefit of integrating competitive strategy is the ability of a company to cross-
subsidise. This involves utilising cash generated in a profitable, high-market-share
country to invest aggressively in a strategically important but low-market-share country.

4. Identify strategic need for change in the extent of globalisation: From the previous
analysis, a firm’s extent of globalisation is compared with the industry potential. In case
the firm’s extent of globalisation is less than industry potential, there is a need for global
strategy for that firm. Then the next issue would be to check whether the firm has the
internal ability to implement such global strategy.

5. Evaluate organisational factors: Organisational factors can support or undercut a

business's attempt to globalise. Therefore, taking a close look at how the organisation will
affect the relative difficulty of globalisation is essential. Four factors affect the ability of
an organisation to develop and implement global strategy: organisation structure, man-
agement processes, people and culture (see chart 3 at the end of this paper)

a) Organisational structure:
· Centralisation of global authority: One of the most effective ways to develop and
implement a global strategy is to centralise authority, so all units of the business around
the world report to a common sector head. In a company pursuing a global strategy, the
business focus should dominate the country focus.

· Domestic/ International split: A common structural barrier to global strategy is an

organisational split between domestic and international divisions. The international
division oversees a group of highly autonomous country subsidiaries, each of which
manages several distinct businesses. A global strategy for any one of these businesses can
then be coordinated only at the CEO level.

b) Management processes: The appropriate processes can even substitute to some extent
for the appropriate structure..

· Cross Country coordination: Providing cross-country co-ordination is a common

way to make up for the lack of a direct reporting structure.

· Global Planning: Too often strategic plans are developed separately for each
country and are not aggregated globally for each business across all countries. This
makes it difficult to understand the business's competitive position worldwide and to
develop an integrated strategy against competitors who plan on a global basis.

· Global budgeting: Similarly, country budgets need to be consolidated into a global

total for each product line to aid the allocation of resources across product lines.

· Global performance review and compensation: Rewards, especially bonuses, need

to be set in a way that reinforces the company's global objectives.

· International groups and forums: Holding international forums allows exchange of

information and building of relationships across countries. This in turn makes it easier for
country nationals to gain an understanding of whether the differences they perceive
between their home country and others are real or imagined. It also facilitates the
development of common products and the co-ordination of marketing approaches.

c) People: Being truly global also involves using people in a different way from that of a
multinational firm.

· Use foreign nationals: High-potential foreign nationals need to gain experience not
only in their home country, but also at headquarters and in other countries. This practice
has three benefits: broadening the pool of talent available for executive positions;
demonstrating the commitment of top management to internationalisation; and giving
talented individuals an irreplaceable development opportunity.

· State global intentions: The senior management of a company that wants to go

global needs to constantly restate that intention and to act accordingly.
 d) Culture: Culture is the most visible aspect of organisation. If the company lacks
global identity and has strong national identity, then it will face difficulty in designing
global products and programmes. A high level of autonomy for local business can also
be a barrier to globalisation.

6. Identify organisational ability to implement globalisation: From the internal or

organisational factor analysis, the firms ability to implement global strategy has to be
identified.

7. Diagnose scope and direction of required strategy and organisational changes:

From the above analysis, it will be clear whether the firm can implement global strategy
or not? What are the changes required in the organisation to implement global strategy?

Illustration of Tata steels global strategy with the use of global strategy framework:

1. Identify business unit: Amongst the various SBU of Tata groups, I have selected Tata
steel company (with special reference to their take over of Corus) as the SBU for the
study of global strategy framework.

2. Evaluate Industry potential for globalization: Market factors pushed for globalization.
The market needs for steel was homogeneous and they had global customers. Because of
homogeneity of needs, the brands and advertising were
transferable.

Economic factors were also favourable for globalization. Because of standardization of

core products, the company was able to enjoy economies of scale in manufacturing. Since
the company is ninety nine years old, they also enjoy the benefit of steep learning curve.
Again, the raw material cost in U.K. is high. This can be offset by sourcing from India,
where raw materials are comparatively cheaper.

Environmental factors increased the potential for global strategy. Since Corus had good
sales network at various countries, the transportation costs of Tata steel will be reduced.
Again, government policies like easing foreign currency restrictions both in UK and India
were favourable for global strategy.

Global moves of competitor i.e. Mittal acquiring Arcelor also forced the Tata steel to go
for global strategy.

3. Evaluate current extent of globalization: The current extent of globalization is

measured under 5 dimensions.
· Market participation: Tata steel has sales in various countries like USA, Srilanka,
Nepal, Shanghai etc but it lacked global identity or image.

· Product standardization: The basic product was standardized throughout the world. At
final stages the product was customized as per the requirements.

· Activity concentration: Tata steels technological and integration, finance, strategy etc
were concentrated only in India whereas the manufacturing activities were dispersed in
India, USA, UK, Thailand, Vietnam, Malaysia etc. Trading was done in Bangladesh,
Srilanka, Nepal, South Africa, Hong Kong, etc.

· Marketing uniformity: The market positioning and marketing mix strategy were
uniform throughout the world.

· Integration of competitive moves: Tata steel has taken an integrated approach to

global competitors. They have tough competition with Mittal steels in almost all
countries.

4. Identify strategic need for change in the extent of globalization: From the previous
analysis, Tata steel concluded that its extent of globalization was significantly lower than
the industry potential and lower than its competitor’s global strategy. The Mittal Arcelor
is ranked number one in steel industry in the world whereas the Tata steel ranked fifty
sixth (before acquiring Corus). Furthermore, the industry potential for Tata steel had a
strong need to develop a more global strategy. The next issue was whether Tata steel
would be able to implement such a strategy.

5. Evaluate organisational / internal factors: To internal ability of Tata steel to implement

global strategy is tested under the following factors:

· Structure: The head quarter of Tata steel was located in India. The five main functions
such as technological and integration, finance, strategy, corporate relation and
communication and global minerals were centralized. While the production, selling and
distribution was decentralized and the divisions heads were given autonomy to take
decisions.

· Management processes: The management processes were favourable for global

strategy. Since the strategy and corporate communication was centralized, there was well
cross- border co-ordination.

· People: There were no foreign nationals working in India either at corporate or

divisional levels. There were many foreign nationals overseas, but these were mostly in
their home countries and there was little movement between international and domestic
jobs. But the leader Ratan Tata, through his action and statements had a global approach.

· Culture: Tata steel had a strong Indian national identity than a global identity. But
some SBU of Tata group like Tetley Tea, Taj group of Hotels had created global identity.
6. Identify organizational ability to implement globalization: Tata steel had the ability to
implement globalization because of its rich experience of 99 years of running a business
successfully in India. Hence it had the ability to acquire big steel company like Corus.

7. Diagnose scope and direction of required changes: The most important change, the
Tata steel has to do is to encourage the transfer of people between nations. According to
IISI data, the average hourly rate of pay in UK steel was 6 times that of Brazil and 10
times that of India. So by movement of people, the company can reduce the cost and
strengthen its competitive advantage of low cost leadership.

Tata groups in foreign countries should blend into the adopted corporate culture. For
better brand visibility, more Tata companies will have to go abroad and learn to flourish
abroad.

Conclusion: The global strategy framework provides a relatively simple and quick way
to get answers to some of the most complicated questions facing corporate management
today. It also greatly facilitates the undertaking of the strategy development phase that
follows, because it has identified the major thrusts that are needed. Furthermore, it has
the potential for avoiding major errors such as a move towards globalization when none
is warranted. Finally it sensitizes the organization to the issues and to the commitments
needed if it really decides to compete globally.

A century of achievements

Few companies have the privilege and the lineage to celebrate one
hundred years of successful existence. Tata Steel, a distinguished
member of that select club, raises a toast to its centenary.

B Muthuraman has a hundred reasons to feel good. The managing director of Tata Steel
— which is celebrating one hundred years of a remarkable existence — can affod to look
back with satisfaction on the exceptional achievements notched up by the company. “I
believe our founder’s vision of conceiving an integrated steel plant in 1907,much ahead
of its times, at a remote place like Sakchi, Jamshedpur, in close proximity to key raw
materials was the most significant milestone in the history of the company,” he says. This
provided — and continues to provide — us the cutting edge to be cost competitive
compared to steel players with no captive raw material access.

Having begun well, Tata Steel strove hard to fuel its growth aspirations, despite working
in an era of severe controls and tight regulations until 1990. Its efforts were enhanced by
a four-phase modernisation programme — in 1979, 1985, 1990 and 1996 — which
helped upgrade the company’s facilities, enabling it to gear up to face international
competition.
Tata Steel has come a long way since its inception, when it started with steel production
of 1,00,000 tonnes a year. “In the last 100 years, Tata Steel has changed its identity from
a dominant domestic player to a regional player to an upcoming global company, ranking
sixth in the world in steel production,” says a proud Muthuraman. “We have 84,000
employees spread across four continents.”

There have been many more milestones along the way. Tata Steel has been an EVA-
positive company since 2003. It was declared the ‘lowest cost producer of steel in the
world’ in 2001 and the ‘world’s best steel plant’ in 2005 by World Steel Dynamics.

Going global
The last few years has seen Tata Steel take giant strides and make its mark around the
world. “The acquisition of NatSteel Singapore, which has production bases in seven
countries, and Millennium Steel (now Tata Steel Thailand) were the first steps in Tata
Steel’s global growth strategy,” says Muthuraman. “Our acquisition of these companies
gave us a strong foothold in the growing economies of South East Asia and provided us
the base to further consolidate our position in the region.” Both these acquisitions proved
to be perfect fits in Tata Steel’s growth strategy.

The acquisition of Corus in January 2007 took Tata Steel from a world position of 56 to
six. It also gave Tata Steel access to the former’s developed markets, its strong product
portfolio and its research and development facilities. Muthuraman adds, “We aspire to
have a balance between the growing markets of the developing countries and mature
markets with high-end products and technologies. The Corus acquisition has been a giant
leap in this direction.”

Tata Steel’s global acquisitions are in tune with its strategy of adopting the de-integrated
production model — to produce primary (semi-finished) steel near the source of raw
material in countries such as India, and then turn these into final products closer to its
markets.

The acquired companies have been seamlessly integrated into the Tata Steel family. The
similarity in the acquired companies’ work ethics, as also Tata Steel’s stress on constant
and seamless communication between the top management of both companies and the
operating units, has enhanced the process of integration.

Buoyed by the strength and resources of its new partners, Tata Steel has now renewed its
desire to become a significant player in the global steel industry. “I would like to
emphasise that our growth and change has been driven by our ability to dream big,
supported by well laid out strategies and plans,” says Muthuraman. “With every
achievement, we have shifted the goalpost. Today, we are aspiring to be the second
largest steel company in the world by 2012 and a 100-million tonne company.”

A time to cheer
With so many significant achievements and so much to look forward to, Tata Steel’s
centenary is cause for celebration. Numerous activities have been planned and all
companies and manufacturing locations within the Tata Steel family, in India and
worldwide, will be encouraged to participate in these celebrations.

Noteworthy events include the release of two books — the first, authored by RM Lala
titled Romance of Tata Steel, which was released on August 26, 2007, and the second
authored by Rudrangshu Mukherjee to be released during the year. A new corporate
anthem, a special raga on ‘Harmony’, by renowned sarod maestro ustad Amjad Ali Khan,
a special centenary diary, a calendar depicting some of the defining moments in the
company’s history and a mobile exhibition on the uniqueness of Tata Steel are other
initiatives to commemorate the historic occasion.

Also, a painting competition and a quiz are planned for the children of Tata Steel
employees. A special centenary website has various features on the company and allows
interaction between stakeholders and Tata Steel.

True to the spirit of the Tata Group, Tata Steel will ensure that the commemoration is not
merely self-congratulatory in nature.

Recognising the fact that a lot needs to be done to improve the quality of life of the
communities in which the company operates, Tata Steel has signed a Rs100-crore
agreement with the Sir Ratan Tata Trust for land and water management initiatives in the
backward tribal areas of Jharkhand, Chhattisgarh and Orissa. The company aspires to turn
these blocks into models of excellence that may be replicated by the government and
corporate entities working in the area of community development.

A second Tata Steel initiative on this red-letter occasion is the launch of three all-day
schools, which will accomodate 1,000 children from the scheduled caste and scheduled
tribe in Jharkhand, Orissa and Chhattisgarh. “These initiatives are long-term in nature and
designed to help to improve the quality of the life of the people in that area,” says
Muthuraman.