Carl-Peter Forster's Appointment Marks the Next Stage in the Tata Motors' Globalisation

Carl-Peter Forster had an option to become the next vice-chairman of General Motors. And he also had a competing offer from Ratan Tata to lead Tata Motors, the country’s biggest automotive firm, to the next level. He chose the latter.

For Ratan Tata, who personally led the search for the past six months, Forster’s appointment on February 15 as group chief executive officer (CEO) is more than just a badge of honour. It is a part of his larger plan to transform Tata Motors into a serious contender in the international arena.

He’s the Man
Forster comes in with top notch credentials for the job at hand. In his previous job, Forster, who started his career with consulting firm McKinsey, was the group vice president and member of the General Motors (GM) automotive strategy and was responsible for GM’s activities in Europe. He has earlier handled restructuring and new product innovations for two of GM’s brands, Opel and Saab. Prior to joining GM, Forster was a director on the board of BMW, leading product development during its ownership of MG Rover and Land Rover.

And the manner in which he exited from GM in November last year speaks a lot about the man. For over eight months, Forster had painstakingly led negotiations to sell GM’s troubled brands, Opel and Vauxhall, to Magna International, a leading auto components company. GM went back and forth, initially deciding that it will sell to Magna, then asking for another bid before returning to Magna, only to finally call off the deal. Speaking to Germany’s Bild Daily after the deal was called off, Forster said, “Such a sudden shift isn’t comprehensible. I hoped that it would have come to a much different outcome.” Forster left GM subsequently. 

His Inheritance
Driving the transformation to be a global company has been anything but easy for Tata Motors. Shortly after Tata acquired Jaguar Land Rover (JLR) from the Ford Motor Company, a global recession left JLR reeling under heavy losses. Today, the global recovery is underway, but the job of fixing JLR is far from over. Ravi Kant, vice chairman, Tata Motors, has stationed himself at the JLR headquarters in the British Midlands to push through some critical decisions. With volumes under pressure, JLR needs to cut its workforce — and shutter one of its factories. But the powerful worker unions have stoutly resisted all such moves. The inability to strike a deal with the labour unions is said to have cost the incumbent CEO, David Smith, his

job. Smith resigned last week and was replaced by another new hire, Ralph Speth from BMW. “David was a finance director who was elevated to the role of a CEO after Tata Motors took over JLR. He didn’t have any operational, product planning or restructuring skills. So, Ravi Kant was increasingly getting impatient to get someone more hands-on to head JLR,” says a senior executive at Tata Motors on condition of anonymity.

In his last days at the company, Smith had been negotiating with the union to cut wages of new employees by about 20 percent. Another point of discussion was cancelling any salary pension to new workers in lieu of guaranteeing jobs till 2015 for 8,000 full-time employees. The talks collapsed after only six days. Both parties had reached a deadlock. 

His Task
At Tata Motors, Forster’s immediate priority will be to take over the reins from Ravi Kant and attempt to stabilise the ship. But that’s not all. Forster also has to build a coherent global strategy and structure to support Tata Motors’ aspirations as an international auto company. Some of the building blocks may already be in place: The company is well-positioned in a high-growth emerging market. With the launch of the Nano, it has set new global benchmarks in low-cost design and manufacturing. Today, almost 60 percent of Tata Motors’ revenues come from JLR which has presence across almost 160 countries.

Contrast this with what Tata Motors looked like before 2008. More than 80 percent of the company’s revenues in 2007 came from a single market — India. The JLR acquisition brings in a whole new dimension for the company and managing it relying on home-grown talent or out of its base in Bombay House in South Mumbai has proven difficult. “Tata has always said that going global means managing local. You’ve got to use local management which has the local understanding to grow your business. You should see Forster’s appointment in that perspective,” says the CEO of a large automotive component company.

But for most part, its strategy and structure isn’t quite tailored for a global market. “Today, Tata Motors looks more like a patchwork — with a local presence in commercial vehicles, passenger vehicles and exports and bits of business sprinkled in the rest of the world,” says an automotive expert at a big consulting firm, who did not wish to be named. Tata Motors’ domestic business includes commercial vehicles and cars, while it has a presence in South Korea through its Daewoo commercial vehicle acquisition, in Spain (thanks to its stake in Hispano Carrocera, bus manufacturing firm) and Thailand (a truck manufacturing joint venture with Thornburi).

As Tata Motors looks to expand its global presence, Forster’s mandate will be to tie all these myriad parts into a coherent global strategy and structure. High on his priorities is also to launch the Nano in the international markets. This is a game that Forster will know well. Having worked inside a global auto company, he has the knowledge of managing a diverse set of operations across international markets.

The Hurdles
There are some practices that Tata Motors will need to incorporate to play the global game. Take for instance, the way Toyota, the world’s largest automobile manufacturer works. The hybrid-synergy drive technology that was developed for the Prius, by the time it reached a second generation stage, was made available in many other Toyota models like Camry right up to the company’s luxury brand Lexus. “Global companies take a holistic view of global markets in a way that they can see applicability across a range of products and across a range of markets. Take a look at Tata Motors’ product portfolio and you will see that it is not happening today,” adds an automotive expert.

Let’s take a closer look at Tata Motors’ passenger vehicles business, the third largest in the country after Maruti Suzuki and Hyundai. After being in the business for over a decade, Tata Motors has had to source the latest generation engines from Fiat. Its product portfolio doesn’t cater to the premium segment of the market and it has a limited offering in large sedans. On the lowest end, there is Nano catering to mass market, that needs to be scaled up locally and then, perhaps in the international market. In the premium end, there are the Jaguar and Land Rover brands that now operate as a separate entity to preserve their exclusivity. “In BMW, from the 9-series to the mini, you can see a common luxury strategy. What is it for Tata Motors?” says another automotive consultant. 

To Start With…
So Forster is expected to bring in the desired seamless integration. His immediate step will be to draw up the long-term plans for the car business of Tata Motors that will include, apart from putting JLR on track, taking the Nano overseas before competition from the likes  of Renault takes away the surprise from ultra low cost cars.

But among all the various pulls and pressures, Forster’s first task will be to break the deadlock inside JLR. When Tata Motors had acquired JLR in June 2008, it did not envision a big change in the existing set up as the company was returning back to profits. But, the economic downturn suddenly upset their plans last year, which left their calculations awry. For starters, Tata Motors had to borrow nearly $2 billion at higher rates as credit was not forthcoming in the market. It also had to cut down production as the demand for luxury vehicles fell sharply. Though sales have picked up recently and it is only 20 percent lower than last year, Tata Motors is using the opportunity to slash costs quickly.

“The agreement that it struck with the work force very much set the industry standard in the sense that they agreed for a real pay cut in return for eliminating redundancies. But during the downturn, they reduced the headcount by almost 2,000. Going forward, they want to shut down one of the plants in the West Midlands but I don’t think it is possible without a headcount reduction,” says David Bailey, professor of international business strategy and economics, Coventry University.

In September 2009, Tata Motors had informed workers that either the Solihull plant, which makes the Range Rover, or the Jaguar plant in Castle Bromwich is to shut down by 2014. The decision is expected in the first half of 2010 and JLR has maintained that no jobs will be lost in the process. The idea is to merge both the plants, located eight miles apart, into one to bring in cost efficiencies. Moreover, JLR has said that the merger would lead to the creation of almost 800 new jobs at its Halewood plant in Liverpool, which will be manufacturing the low-carbon and more fuel efficient car, the ‘baby Land Rover’.

At GM Europe, Forster was responsible for leading Project Olympia, a massive restructuring operation, mainly targeted at cutting losses at Opel’s European operations. During that time, the Der Spiegel magazine anointed the new German boss as a messiah for Opel. Inside Bombay House, Herr Forster may soon come to enjoy a similar status.