June 2013

African safari

By building several long-term relationships in Africa, Tata International has generated tremendous goodwill and has a reputation of being a credible partner

Tata Motors is India's largest automobile company, with consolidated revenues of Rs1,65,654 crore (USD32.5 billion) in 2011-12. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, Spain and South Africa. Among them is Jaguar Land Rover, the business comprising the two iconic British brands. Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon to produce both Fiat and Tata cars and Fiat powertrains.

For Tata International (TIL), distribution is one of its oldest lines of business. It began distributing the commercial vehicles of Tata Motors in Africa in 1978 and today has operations across 12 countries in the continent.

TIL introduced Tata Motors trucks and chassis to Africa with the aim of taking on rivals — including top names from the developed world — with reasonably-priced products. Significantly, it started distributing Jaguar Land Rover (JLR) vehicles in Zambia in early 2013 and expects to commence similar operations in Ghana by the end of 2013.

The company is also involved in the distribution of allied products, including agricultural, infrastructure and construction equipment. TIL distributes the tractors and farming equipment of global major John Deere in Uganda, Kenya and Nigeria, and infrastructure and earthmoving equipment manufactured by Singapore-based Trxbuild, and Tata Hitachi and Aquarius from India.

The non-auto distribution side covers healthcare, industrial chemicals, agriculture (seeds and fertiliser and the buying and selling of crops), and ad hoc trading of other products that are in demand in different countries.

Automobile distribution accounts for 60 percent of business, allied products about 10 percent and the non-auto segment 30 percent. Thamsanqa Mbele, managing director-designate, Tata Africa, looks forward to a 50:50 split of the two arms of the vertical.

Mr Mbele is upbeat about the growth potential of Africa and about the capability of the distribution vertical to service the growing need. "Africa is a high-growth area," he says. "There is a lot of untapped potential here, and most countries grow on average at about 6-7 percent a year. In my opinion, the biggest growth will come from infrastructure development and agriculture."

Political stability, maturing of democracies and a wave of economic reforms will pave the way for better opportunities. A McKinsey study conducted two years ago indicated that the middle class in Africa is growing extensively and that by 2020 there could be a massive increase in consumer spending.

Continental challenge
Huge as the opportunity is, the challenges that confront TIL in the region are just as big. The sheer diversity of Africa, with 54 countries and 1,000 spoken languages, makes the continent a formidable space.

Xavier Gobille, executive director, auto and allied distribution, Tata Africa, points out that the automotive market in the continent is growing. "There is a great need for transportation," he explains. "The distances are great and public transport is poor, so there is a need for commercial vehicles and cars. The roads are poor so there is a need for reliable vehicles."

The availability of skilled manpower poses another difficulty. Currently, 80 percent of the 1,700 employees in Africa are indigenous to their specific countries. And TIL intends to increase the percentage of local employees.

Varied as the challenges are, they present an exciting opportunity for the company. Having been in Africa for decades, the Tata name has generated tremendous goodwill by virtue of the contribution that TIL has made to the development of Africa.

"Our efforts over the decades have been acknowledged," says Mr Mbele. "TIL has built itself a reputation as a credible partner by its willingness to invest in building long-term relationships and by its ability to demonstrate success."

It is a point that Raman Dhawan, the outgoing managing director of Tata Africa, who has spent 35 years in the continent, is quick to corroborate: "The Tatas have a big commitment to Africa, and that commitment is growing. People here recognise the fact that we stayed and fulfilled our commitment."

Having established its presence in parts of Africa, the distribution vertical is now gearing up to figure out the niche that it needs to get into. The Africa story assumes tremendous significance given TIL's goal of being globally significant in each of its verticals by 2025. In this context, Mr Mbele has spent the last few months repositioning the team and aligning it to the new vision. "We are planning to grow organically in existing businesses," he says. "We will also expand to other places in Africa. Our aim is to increase the number of countries in which we are physically present to 20-25 over the next three-five years. The immediate goal is to end the year with a turnover of $400 million and double that figure in three years. The longer-term objective is to be a $2 billion business in five years."

While Africa is important given the fact that this is where the distribution business was born, Mr Mbele is clear that the business must spread. "Distribution is a global vertical," he points out. "We have to consolidate our position on the African continent besides South and East Asia. Thereafter, within three years, we will look at expanding to other regions." ¨

What customers have to say

RT Wasan, head of international business, Tata Motors (commercial vehicles business unit):

Africa is the second largest region in our international business after South Asia. We have found in Tata Africa a very strong and capable channel partner who not only understands the local market well but has built a strong local presence in many countries, making them a strategic fit for our growth plans in the continent. We are confident that with the introduction of more new products and supported by our strong channel partner in Tata Africa, we will continue to expand our footprint in this market.

Kevin Flynn, managing director of Jaguar Land Rover SA and SSA, at the recent launch of the company dealership in Zambia through Alliance Motors, a wholly owned subsidiary of Tata Zambia:

We welcome Alliance Motors to the Jaguar Land Rover team and will provide them with every support to make our Zambian operation a success. They are already close to our broader parent company and we are confident of their abilities and experience to deliver impeccable service to Jaguar and Land Rover customers in Zambia.

Len Brand, managing director, John Deere (South Africa):

We are proud to work with the Tata group to make a real difference in Sub-Saharan Africa. The power of having these well-known and respected brands cooperating is going to be immense, and I believe it will be seen as a best practice in the near future. Both companies are fanatical about taking care of the customer and do what is necessary to ensure customers have a unique ownership experience. Both also bring similar philanthropic ideologies to the table, which will be to the benefit of the people in the areas where they cooperate. I am looking forward to a unique and long-lasting relationship which will be seen as a model of how Africa should be approached.


This article is a part of the cover story featuring Tata international published in the July 2013 issue of Tata Review. Read other stories:
The page turns for a company recast
Value is the watchword
'Now it's all about execution'
Leather and Leather Products division: The fashion trail
Metals trading division: Metals unlimited
Minerals trading division: A bright side to coal
Agri trading division: The fifth wheel
Heart and sole