Succeeding a success

Ratan Tata turned a family conglomerate into a tiger. He will be a hard act to follow.

If India were a nation of gamblers,the betting on who will succeed Ratan Tata,chairman of the Tata group,would be furious. On August 4th Tata Sons,the holding company for one of Indias biggest conglomerates,announced that it was seeking Mr Tatas replacement when he retires in 2012 at the age of 75. Since then speculation has been rife. Will the board pick a younger relative,as so many Indian companies do? Or will the group confine its search to the tiny,commercially successful Parsi community to which the Tatas belong? Will Mr Tatas successor even be an Indian? Unusually for India,the panel picking the new boss says it will consider foreigners.

The succession has seized the attention of Indias fast-growing middle class because they see Tata products wherever they look. The 142-year-old group makes everything from salt to cars see chart. It has also become a symbol of Indias growing might. Last year 65 per cent of its revenues of 70.8 billion came from abroad. On a recent visit to India,Britains prime minister,David Cameron,noted that Tata was now Britains biggest manufacturer. Its transformation into a world-beater is largely due to Mr Tatas two decades of bold leadership.

When he took over from his uncle,J.R.D. Tata,in 1991,the group was an unwieldy sprawl of 300 companies. He was fortunate that Manmohan Singh,now prime minister,was then finance minister,unshackling Indias economy. Mr Tata sold a number of unprofitable businesses and kicked the rest into shape. Today Tata has 98 firms,including Indias biggest IT outsourcer and second-biggest carmaker. These companies are impressive innovators: last year,Tata Motors launched the worlds cheapest car,the 2,500 Nano. The group has also been on a buying spree abroad,starting with Tetley Tea a decade ago. In 2007 it bought Corus,an Anglo-Dutch steelmaker,for 12 billion,constituting Indias biggest foreign splurge; a year later,it took Jaguar Land Rover JLR from Ford Motors for 2.3 billion.

Mr Tatas foreign shopping has drawn some scepticism,especially over the purchase of the then lossmaking JLR. He has often confounded his critics,however,and JLRs sales have overtaken his own estimates. On August 10th Tata Motors reported a forecast-beating first-quarter profit,which it said had been driven by demand for JLRs luxury models. But the groups heady expansion will present Mr Tatas successor with some difficulties. Tata has a clear vision: to exploit Indias low costs and the Wests spending power. Holding it all together across diverse industries and countries,however,will take a firm hand.

Whoever takes over from Mr Tata is likely to focus on making the groups constituent companies work better,rather than rushing to acquire more. He will also strive to maintain Tatas much-lauded value system,an important part of its brand in India. Two-thirds of Tata Sons is owned by charitable trusts which finance a wide range of philanthropic activities. The group has a reputation for treating its workers relatively well and refusing to pay bribes to open-palmed officials.

The manner in which it appears to be seeking Mr Tatas replacement is also a positive example to Indian businesses. Though there is speculation that his half-brother Noel is up for the crown,the group is open to outsiders. That bucks a national trend. Recent research by Bain,a consultancy,found that most Indian companies never bother to discuss how chief executives will be appointed.

In so many companies the eldest son just becomes the boss, says Kavil Ramachandran of the Indian School of Business in Hyderabad. Tata is doing a great job of setting standards here. And not only nationally: many emerging-market conglomerates,especially in South-East Asia,remain in the grip of ageing founders,and would do well to follow Tata in looking outside for their successors.

The Economist Newspaper Limited 2010