Hand over the keys, the Indians are here
By Sudha Ramachandran
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.
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