Finally, Ratan Tata admits mistake

Finally, Ratan Tata has admitted that his companies “might have gone too far too fast” which is what I have stated on this blog long time back when everybody was going ballastic about Tata’s acquisition of Corus and Jaguar Land Rover (JLR).

Where was the need to buy Corus, a company which was much larger than Tata Steel? Of course, size matters. Any one could tell you that but people forget about how size needs to be built. Size has to be built primarily organically and not just by acquisitions as Tatas had done. When you build size organically you are building it on solid foundation of growth and economics and not just trying to achieve growth for growth sake. Growth by acquisitions is growth for growth sake and is usually expensive.

There was no strategic fit between JLR and Tata. The luxury car maker in Europe joining hands with low-end cars which are mostly run as taxi’s in India was a venture bound to get into trouble.

Ratan Tata has stated that both the acquisitions were at an “inopportune time in the sense that thet were near top of the market in terms of the price.” First, I think the acquisitions were not called for irrespective of when they took place. Ratan Tata should realize that it was the booming market which also raised the valuations of their companies based on which they decided to go aggressive on acquisitions. If the markets were down, most probably Tatas may not have even thought of such huge acquisitions.

Ratan Tata further states that “If one had known there was going to be a meltdown, then yes (Tata went to far), but nobody knew.” I am actually surprised that Ratan Tata thought that the unreasonable high valuations and the boom would remain a constant feature of the world economy. A guy like me could make out that something was out of place. I am surprised that Tata Group could not. One thing about the market and economy is that nobody knows what is going to happen. Actually, if people knew then maybe recession would not have actually happened because everybody would have tightened their belts sooner. I am not sure that this is a good excuse for acquiring companies much larger in size.

I have heard elders say, “Do not spread yourself beyond your chaddar (sheet),” that is, stay within your means. If you can afford to buy Honda City, buy a car on step below Honda City. When you do this you cannot get into financial trouble. This is what people like us with small businesses have to do as we cannot go to the government asking for financial help.

Avinash Narula

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