Tata-Corus: India's New Steel Giant

Executive Summary:

By acquiring Anglo-Dutch steel firm Corus, India's Tata Steel is now one of the world's top five steel makers. Professor Tarun Khanna says the fact that the deal is the largest out of India and generated by the private sector makes this a notable event. But now comes the hard part—making the merger work. Can Tata avoid mistakes made by Chinese companies? From The Economic Times/India Times. Key concepts include:

• Tata's acquisition of Corus is notable not only for creating a new steel giant, but also because this deal was a private sector venture far from Indian government influence.
• Tata should be able to make the merger work by virtue of its position of financial strength as well as previous cross-border experiences. The West should not underestimate this heretofore relatively unknown competitor.
  

The Tata Group is celebrating its acquisition of the Anglo-Dutch steel firm Corus, and the catapulting of Tata Steel into world steel's big-five status (by revenue). It should. The $11 billion deal is a marker in the ground. Not that it is the biggest deal ever from an emerging market.

Recent deals, even attempts, have been bigger. For example, Brazilian firm Companhia Vale do Rio Doce successfully acquired most of Canadian nickel company Inco Limited for $19 billion last year, and Chinese petro giant CNOOC tried, but failed, to pull off an $18 billion acquisition of Unocal in the U.S.

But Tata-Corus is the largest out of India, and is done by a private sector entity of its own volition, away from the shadow of state influence. For these reasons, it bears noticing.

The same euphoria surrounded Shenzhen-based TCL Multimedia when it acquired the French company Thomson's TV assets to become the biggest TV manufacturer in the world (by volume, even if not by revenue) in 2004, just twelve years after TCL entered the TV business in mainland China.

"Tata Steel is … acquiring from a position of strength amidst a boom in the world steel market."

In that case, as in Tata-Corus, the rationale was to supplement the customer-facing front-end in the developed markets, with a lower-cost back-end in an emerging market. That is, TCL was trying to buy a sales and marketing structure and a set of brands. Much like Tata is with Corus. But that story had a sorry ending.

TCL chairman Li Dongsheng was awarded a French accolade, Officer de La Legion D'Honneur, the highest honor France had yet bestowed upon a Chinese entrepreneur, but his shareholders don't have much to show for the deal.

TCL had to write off much of its investment. The CNOOC-Unocal deal, in the different setting of the oil industry, also had a sorry ending. So, it is perhaps worth reflecting why Tata-Corus might be different. I believe it will be. Here's why.

First, CNOOC's bid collapsed amid Washington intrigue. The Chinese proved to be babes-in-the-wood in navigating the Byzantine corridors of Washington's power, and underestimated a relentless backlash that unwound the deal. While politics and steel are not alien to each other, there is nothing in Tata-Corus like the level of political concern in the CNOOC-Unocal situation.

Second, TCL acquired Thomson's assets from a position of weakness. Margins at TCL were under pressure from cut-throat competition in mainland China. Even though TCL was one of the largest Chinese TV manufacturers (even prior to the acquisition of Thomson's assets), commodity TVs and other consumer electronics items were not producing good returns.

In contrast, Tata Steel is one of the most profitable, if not the most profitable, steel companies in the world, and is acquiring from a position of strength amid a boom in the world steel market. This will buy it valuable experimenting time and learning space.

Third, there was much difficulty in integrating Chinese and French management. Some of this surely stemmed from language considerations. To an extent, the Indians' greater command of the world's lingua franca will lubricate the inevitably-difficult integration process.

Fourth, the Tatas have built up some experience in the past few years with cross-border acquisitions. Some of this lies within Tata Steel itself, as in its acquisition in Singapore. And the rest lies in the broader ambit of the Tata group through its acquisitions of Daewoo's truck assets in South Korea, Tetley Tea in the U.K. and ritzy hotel properties on the U.S. East Coast.

TCL had some experience taking over factories in Vietnam and environs, and also a failed bid for a much smaller German company, but nothing to prepare it for the Thomson assets' integration.

Fifth, there is learning in the ambience. That is, India Inc. has built up, and is building up, its own cross-border acquisition capability. This arises not just from entrepreneurs who have been doing this for years like the Birlas and Asian Paints but also from more recent moves by India's pharmaceuticals, software, and auto component sectors, among others.

Cross-border experiences with integrating diverse management teams, communicating across borders and time zones, and integrating compensation practices, are not as new to the Tata group as they might well have been to the hapless TCL management team.

And finally, my feeling is that the Indians are still underestimated in the West, at least relative to the Chinese. This complacency might well prove to be the biggest weapon available to the new big-five kid on the block from Jamshedpur.

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Tarun Khanna is the Jorge Paulo Lemann Professor of Business Administration at Harvard Business School.

[Courtesy - http://hbswk.hbs.edu]

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Corporate Study Team,
IMERT, Pune

Corporations plying the Monopoly game!

Yes, 2007 beginning itself has witnessed a number of Mergers & Acquisitions that it would not be wrong to say that Corporations are now seen as products by the big corporations! Also the speed at which the ownership of these huge corporations change hands, FMCG or rather Fast Changing Corporate Governance 'FCCG' has become the buzz word!

This time we have Vodaphone buying 67% in Hutchison Essar at an enterprise value of $19.3 billion (Rs 86,000 crore). Where once company paves its way into the Indian Markets on one hand, we also have Hindalco an Aditya Birla Group undertaking on the other, that acquired Atlanta- based flat aluminium products major Novelis.

The global markets follow the Jungle rule, Survival of the fittest!

The Scenario today is quite like the monopoly game. One who acquires the most, gets the most in the long run. In years to come, I think we will have only 4-5 Big corporations with major market share that will make the world go round.


Here is where you can read more on Vodaphone and Hindalco Acquisitions.

Vodaphone Story -
http://economictimes.indiatimes.com/Vodafone_connects_buys_Hutch_for_19b/articleshow/1593577.cms

Hindalco Story -
http://www.financialexpress.com/fe_full_story.php?content_id=154537

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Varun Nagpal,
Corporate Study Team,
IMERT, Pune

Scientists Claims They Can Read The Secret Intentions In The Brain

How and where the brain stores these intentions has been revealed by John-Dylan Haynes from the Max Planck Institute for Human Cognitive and Brain Sciences, in cooperation with researchers from London and Tokyo. For the first time they were able to "read" participants intentions out of their brain activity. This was made possible by a new combination of functional magnetic resonance imaging and sophisticated computer algorithms (Current Biology, 20th February 2007, online: 8th February).

Our secret intentions remain concealed until we put them into action -so we believe. Now researchers have been able to decode these secret intentions from patterns of their brain activity. They let subjects freely and covertly choose between two possible tasks - to either add or subtract two numbers. They were then asked to hold in mind their intention for a while until the relevant numbers were presented on a screen. The researchers were able to recognize the subjects intentions with 70% accuracy based alone on their brain activity - even before the participants had seen the numbers and had started to perform the calculation.

Participants made their choice covertly and initially did not know the two numbers they were supposed to add or subtract. Only a few seconds later the numbers appeared on a screen and the participants could perform the calculation. This ensured that the intention itself was being read out, rather than brain activity related to performing the calculation or pressing the buttons to indicate the response. "It has been previously assumed that freely selected plans might be stored in the middle regions of the prefrontal cortex, whereas plans following external instructions could be stored on the surface of the brain. We were able to confirm this theory in our experiments", Haynes explained.

The work of Haynes and his colleagues goes far beyond simply confirming previous theories. It has never before been possible to read out of brain activity how a person has decided to act in the future. The trick by which the invisible is made visible lies in a new method called "multivariate pattern recognition". A computer is programmed to recognize characteristic activation patterns in the brain that typically occur in association with specific thoughts. Once this computer has been "trained" it can be used to predict the decisions of subjects from their brain activity alone. An important technical innovation also lies in combining information across extended regions of the brain to strongly increase sensitivity.

The study also reveals fundamental principles about the way the brain stores intentions. "The experiments show that intentions are not encoded in single neurons but in a whole spatial pattern of brain activity", says Haynes. They furthermore reveal that different regions of the prefrontal cortex perform different operations. Regions towards the front of the brain store the intention until it is executed, whereas regions further back take over when subjects become active and start doing the calculation. "Intentions for future actions that are encoded in one part of the brain need to be copied to a different region to be executed", says Haynes.

These findings also raise hope for improvement of clinical and technical applications. Already today the first steps are being made in easing the lives of paralyzed patients with computer-assisted prosthetic devices and so-called brain computer interfaces. These devices focus on reading out the movement the patient intends to - but is unable to - perform. Previous research has shown that patients can move artificial limbs or computer cursors purely by the power of their mind. The current research by Haynes and colleagues now opens up a completely new perspective.

[Courtesy – www.playfuls.com ]

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Corporate Study Team,
IMERT, Pune

Centre fully prepared to combat inflation: FM

Finance Minister P Chidambaram has said that the government is taking all necessary steps to curb the rising inflation. He said that an unusual combination of factors like growing GDP, the increasing year-on-year credit and money supply has contributed to the rise.

"There is an unusual combination of factors. The GDP growth in the Indian economy is at over 9%, the year-on-year credit is growing at over 30% and money supply is growing between 20-21%. One has to proceed with great deal of deliberation in moderating these factors," Chidambaram said while addressing a press conference in Mumbai on Saturday.

The inflation figures rose to a two-year high at 6.58% for the week ending January 27, despite the rollout of the fiscal and monetary measures to control the overheating in the economy. The numbers stood at 6.11% a week ago. The FM added: "There are three factors that will help in bringing down the inflation: fiscal measures; the monetary policy, which the Reserve Bank of India is looking after; and the supply side constraints. Sugar prices have come down, (following imports being allowed). Similarly, prices of wheat and agri commodities are also expected to come down by the end of the month."

Earlier, delivering the keynote address at the second Association of NSE Members international convention, he suggested that to cut the cost of regulating the huge number of market intermediaries in the Indian capital market, intermediaries in the Indian capital market should ideally merge.

"In the Indian capital market we have around 30,000-odd brokers and sub-brokers and various other intermediaries. Not most of them are active. A sizeable number of them are inactive, increasing the regulatory costs. I urge the industry bodies for a possibility of consolidation of the intermediaries to reduce the regulatory costs," said the finance minister.

[Courtesy – http://www.financialexpress.com ]

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Corporate Study Team,
IMERT, Pune

Samsung joins Apple, LG in the Touchscreen Phone War

Samsung Electronics Co., on Friday announced a new mobile phone that features a full-touch screen display occupying most of its front face and internet & media capabilities, apparently jumping into the smartphone market to take on Apple's much-hyped, yet to release, iPhone and LG's Prada Touch Screen Phone.

The Korean electronics giant, the third after Apple and LG to show a handset with such a design, said it will showcase its new revolutionary handset, the 'Ultra Smart F700' next week at 3GSM World Congress, the largest telecommunications event in Barcelona.

The F700 is an "Ultra Smart" cell phone that the company said compliments its Ultra handset portfolio. It will be the fourth member of Samsung's "Ultra" family of phones.

Samsung's revolutionary F700 features a stunning 2.8-inch 440x240 color display and technology that allows the user to download a digital music track in around 4.4 seconds. Media playback support includes multiple AAC audio formats, Real, and variants of MPEG-4 including H.264.

The device also contains a full QWERTY key pad tucked behind the screen. Samsung said the traditional QWERTY key pad that slides out at its base is "for users who are not yet familiar with a touch-screen-only user interface."

The new Ultra Smart F700, which measures 4.1 by 2.9 by 0.6 inches, slightly thicker than the iPhone, can also access the Internet, take pictures, show videos, handle e-mail and share photos, said Samsung.

Besides all, one notable feature in Samsung's innovation is its support for third-generation (3G) networks. Among the three handsets the F700 is the first that is compatible with 3G WCDMA (Wideband Code Division Multiple Access) in addition to conventional GSM (Global System for Mobile Communications).

Samsung's 3G technology is considerably faster than the iPhone's EDGE system. On 3G networks, it can receive data at up to 7.2Mbit/sec, capable of appealing enterprise level buyers and prosumers who need frequent access to email.

Packed with a 5-megapixel camera, Samsung's phone outclasses the iPhone's 2-megapixel camera. It will also feature a microSD slot for additional storage and Bluetooth support, said Samsung, the world's third-largest manufacturer of mobile phone handsets.

Samsung's device, though, seems better in most aspects compared to the LG K850 "Prada" and the Apple iPhone, but its comparatively short display is its disadvantage over rivals. F700 has 2.8 inches against 3 inches on the K850 and 3.5 inches on Apple's iPhone.

Apart from the small screen size difference, one more disadvantage will probably be its price. F700, featuring overall better specifications, seems to be more expensive than rival smartphones. However, Samsung has not yet decided when or where the phone will be launched nor how much the device would cost and which cellular operators will offer it.

The iPhone, which is due to release in June, has been priced at $499 for the lower end model and $599 for the higher end version, while the LG Prada phone is expected to carry a USD $770 price tag.

[Courtesy www.themoneytimes.com]

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Corporate Study Team,
IMERT, Pune