Tata Chemical Ltd. Case
Ques 1. Classify TCL as a dominant business corporation, related business corporation or unrelated business corporation? Why? ?? Answer: TATA Chemicals Limited started as a basic chemical company with intensions of producing soda ash. The company started further processing of the by-products and hence went on to bring in related diversification. The company took a strategically important step by foraying into the fertilizers business by setting up a manufacturing facility at Babrala in the year 1994. This diversification also was following a common thread of chemicals, as manufacturing of fertilizers require chemical engineering competencies. The expansion of corporate scope is justified on the following points
India is an agriculture supported economy. Production capacity is not very high in the country. The demand is also high internationally to warrant the scope of export. Sufficient capabilities developed with chemicals. Raw material sourcing has been established due to diligent network of suppliers for chemical business. TCL is a global company with interests in chemicals, crop nutrition and consumer products. It is the world's second largest producer of soda ash. With manufacturing facilities in India, UK, the Netherlands, Kenya and USA, TCL is the world¶s most geographically diversified soda ash company, with an efficient supply chain that can service customers better and faster across the globe. The company is a pioneer and market leader in the Indian branded iodized salt segment and India's leading producer of nitrogenous and phosphatic fertilizers. The company has extended its operations into the services sector and touches lives through applications in agriculture, animal nutrition, construction, consumer products, glass, metals, pharmaceuticals, soaps and detergents, and textiles and leather industries. The strategic business units of TCL are Soda Ash, Fertilizers, Table Salt, Fresh Produce and Bio Fuels. The presence of more number of business units contradicts the model of a Dominant Business Corporation where a corporation has one or two core businesses surrounded by a coterie of peripheral units.
Moreover in SBU¶s like Soda Ash, Fertilizer and Table Salt we can see a common thread that links the business which is a characteristic of related business corporation. Tata Chemicals' journey started as a synthetic soda ash manufacturer at Mithapur, Gujarat. The salt works spread across 60sqkm can produce over 2 million tonnes of solar salt, the base raw material for almost all the 27 basic chemicals that the company produces. The Mithapur plant is the largest integrated salt works and inorganic chemicals complex in this part of the world. It has an installed capacity of 8,75,000 tpa -- about 34 per cent of the country's capacity -- making it one of the largest producers of synthetic soda ash in the world. Thus the resources or skills can be transferred to new lines of business which means that resources can be shared across SBU¶s. Tata Chemicals finding great importance because of the national need to boost agricultural productivity has recently started joint venture in fresh produce, Khet-Se Agriproduce India. But we could see that SBU¶s like Fresh Produce or Biofuels don¶t have a common thread with other SBU¶s. As we can infer from the above discussion that TCL is Related Business Corporation, as all the areas of business (Strategic Business Units) are unified by a common thread of chemical engineering. It is only in the case of fresh produce that TCL has ventured into a relatively unrelated industry. But looking closely we can observe that with this line of business the intention of TCL is to support the farmers by guiding them. This has a modest correlation with the fertiliser line of business. Thus we can say that TCL is a Related Business Corporation. The strategic rationale for related diversification would be of expansion in business while maintaining a underlying common thread.
Ques 2. For any 3 of TCL¶s current SBU¶s, apply tests for horizontal scope and comment on the outcome. Answer: The diversified Tata group about 10 years ago started on a course when it decided to do away with significant number of businesses that it did not find a strategic fit as far as its activities were concerned. This was based on a report by McKinsey consulting that further advised that
the group increase its global footprint by looking outside India for increased global market and creating a global brand for the group and the companies. The group envisaged revenue of about USD 50 billion by 2010, and thereby went on growth path, both organically and inorganically. Tata Chemicals is an extremely successful company. Over the years it has ventured out into various products and maintained its leadership and supremacy in various consumer durables. Its' current approach towards its multiple businesses and SBUs has enabled it to work towards optimizing the use of raw materials, resources and technology and creating a portfolio of products that find application across industries and consumers. In the analysis of the horizontal scope of Tata Chemicals we have to first consider the BETTER OFF TEST. This test asks whether the four SBUs of TCL - Soda ash, fertilizers, salt and fresh produce should be working together after all. Thus this test helps to determine whether combining & coordinating the activities of the four units is enabling TCL to generate more "added value". The different SBUs of the country are as follows:
y
Chemicals: The range of chemicals produced at the company¶s integrated complex at Mithapur includes soda ash, caustic soda, salt, cement, sodium bicarbonate, bromine and bromine based compounds and gypsum.
y
Fertilisers: The company manufactures nitrogenous fertilisers at the Babrala plant. The company¶s plant at Haldia produces phosphatic fertilisers like di-ammonium phosphate, NPK complexes and single super phosphate.
y
Food additives: TCL¶s food additives business has two premium products: branded salt and sodium bicarbonate. TCL manufactures four varieties of salt, iodised salt, crystalline salt, vacuum salt and pure salt, and has over 40 per cent market share in the branded salt segment in India.
y
Agri-services: The company has set up a network of Tata Kisan Sansars (or Tata farmer centres) in the northern Indian states of Uttar Pradesh, Punjab, Haryana and Uttaranchal. The centres are one-stop resource centres for farmers.
Better off test: An expansion in the company horizontal scope must enable the corporation to capture and create more value together than as individual units.
Industry Attractiveness: Any company would drive have a greater wedge between the price that the customer is willing to pay and the cost of the goods to the company itself. Likewise Tata Chemicals' vast array of products ± chemicals, fertilisers and consumer products ± find application in several diverse industries that also enables the company to drive greater value for itself under the constraints of the five forces frame work. Given the fact that the chemical companies generally are diversified by serving a number of industries and end consumers at the same time, by the logic of ³mutual forbearance´ its presence in a number of activities through SBUs makes sense for Tata Chemicals. The company also intends to bring about a different set of values to a structurally weak industry, fertilizer industry by its core competency in the field of chemicals. Through its human touch initiative the company intends to have a end consumer interface through its presence in the food segment industry, rather than only industrial products. Table salt, actually produced as a by-product of its industrial product gives the company the opportunity for vertical integration. Cost effects: Considering the fact that the capital investments for the plant and machineries for the chemical industry is huge, so any saving as a result of shared cost is a welcome proposition. By serving customers in the pharmaceutical industry and the edible chemicals to the end consumers, the company finds significant opportunities for cost saving. The fertilizer industry and the other agri-services typically gives this example when the company has been able to save costs through its distribution network by serving the same client in the form of farmers.
Price effects: by being present in the fertilizer segment and also in the other agri-servives like animal nutrition and the µkhet-se initiatives¶ helps the company to provide the farming community the option of µ¶one-stop shopping¶ besides giving the company the opportunity for cross promotion. Best Alternative Test: Here, we need to consider if common ownership of the SBUs are beneficial or forming a joint venture or a strategic understanding more beneficial for the company and the SBU. It is a
well known fact that the chemical industry has to pass through a significant number of regulations. Apart from the fact that the agriculture services as well as the fertilizer industry is a weak industry. Hence, for the industrial products in which the company has developed its own core competency, the related SBU has established independent organizations, but for the agri-cultural related ones, it has moved into the space with a Joint Venture or a strate gic partner. Joint ventures and subsidiaries, associates of TCL:
y
Khet Se Agriproduce India: A 50:50 joint venture set up in 2007 with Total Produce, Ireland, the third largest fruits and vegetable distribution company in the world, to start a fruits and vegetables distribution business in India.
y
Indo Maroc Phosphore SA: An equal partnership with Chambal Fertilisers and global phosphate major, OCP of Morocco; set up in 2005.
Best parent test: Long considered very harsh, and hence changed to good parent test, the company needs to consider that usually the management for a SBU would be very confident of its capabilities, would want to create business empire of its own, would consider bigger organizations a better substitute for smaller organizations and are likely to be influenced by the investment bankers. But the company needs to consider very objectively whether it is a good parent for the SBU, providing it with the right resources and opportunity for growth, the right markets for its products, etc.
Recommendations: Given the following conditions and the prevailing structure where industrial products are with the company and the products linked to agriculture are in an alliance make sense for the reasons given above. The vertical integration for the industrial products can be exploited further for vertical integration into other consumer products which there by increases visibility for the company, while venturing into the agriculture related fields in an alliance helps it to hedge its risks and also utilize its expertise in the chemical business.
Ques 3. A) Identify the avenues for shared value creation for TCL & explain in detail any one of TCL¶s CSI initiatives. Companies of late have realised the importance of corporate social responsibility and TCL is no exception. However, the approach by the companies is often fragmented and reactive. A corporate social responsibility (CSR) has to be a part of the overall business strategy. Also, very important here are that the CSR activities should become self sustaining in the minimum of time. For this, the company needs to identify a set of social issues that the company is best equipped to help resolve, and in doing so gains a competitive benefit. Such activities can be identified by carefully studying the Inside out linkages and outside in linkages of the company; which are the points of intersection between a company and the society. If these intersection points are identified, then the company can work out a value proposition that is unique for its customers, and at the same time reducing or nullifying it¶s footprint on the ecosystem. Agricultural products, Agricultural services and secondary processing of agricultural output from the bulk of the operations carried out by the company. Therefore the Focus of the CSI activity should be aimed at the rural India, particularly improving the lives of the peasants and rural laborers. Tata Chemicals Limited has been awarded GOLD in the much-coveted Reader's Digest Pegasus award 2008 on 21st January 2009. Tata Chemicals is committed to meeting the highest standards of corporate governance and business practices. All of its activities integrate the principles of corporate sustainability. The company is a signatory to Responsible Care, a voluntary global initiative of the chemical industry that demonstrates allegiance to safety, health and environmental issues. Tata Chemicals Ltd was also awarded the Council for Fair Business Practices' (CFBP) Jamnalal Bajaj Award for best manufacturing enterprise (large) category. The Co mpany's Vision, Mission and Values, as well as, business plans and activities are in complete alignment with the TATA Group objectives of Improving the Quality of Life, and Leadership with Trust. This is continually verified and reinforced through the Tata Business Excellence Model and the Tata Code of Conduct assessments and assurance surveys. The Company's systems are conforming and certified according to ISO 9001, 14001 and OSHAS 18000 Standards.
Strategic CSR Activities 1. Tata Kisan Sansar(TKS): Tata Chemicals through its Tata Kisan Sansars provides farm extension services which are helping farmers in North India change their lives this is a One-stop shops for complete farm solutions. The rapid strides in cropcultivation techniques have necessitated comprehensive and continuous farmer education. Given the huge size and spread of the Indian farming community, educating and training farmers in new agricultural methods and practices has become a major challenge, one that demands institutional and manpower resources.TKS are operated through a Franchisee model. Kisan Sahyog Pariwars (KSP): Through KSP, TKS had provided farmers low interest credits to undergo easy access to modern farming concepts. They had formed selfhelp groups where the company had arranged for trained agronomists to interact directly with the farmers regarding modern agro practices.
2. Proposed Green Chemical processes (Innovation Centre): TCL sees this as a business opportunity, rather than a problem. Its Innovation Centre is working on technologies that can mitigate Climate Change through ³green chemistry´ and product offerings that will make a difference like Flue Gas treatment, Carbon Absorption and Nano glass-coatings for insulation.
3. Tata Chemicals for Society and Rural development (TCSRD):- Tata Chemicals in 1979 established a society for Rural Development (TCSRD) for the benefit of rural people around its plant and townships in Okhamandal, Gujarat and Babrala, Uttar Pradesh. This society is meant for participatory community development in and around the plant. Mithapur in Gujarat had developed into a full fledged township with a population of 20,000. The township had the entire amenities bank, post and telegraph office, broad gauge railway line, a police station, a telephone exchange, market with 219 shops, hospital, cinema halls and six parks and an airstrip. It had constructed a captive co-generation power plant of its own to generate uninterrupted electricity supply to that area. It had family-planning unit with child-immunization centers, mobile vans to cater healthcare needs of Tatachem employees as well as the
people living in the 42 villages of Okhamandal. Apart from the above medical and community activities it had come up with proper schools and training centers.
Benefits to Tata Chemicals:
Enhanced corporate image, added brand value, customer satisfaction and loyalty Access to quality business partners and favorable access to capital markets Established a good footing with public authorities and the general public Public relations opportunities and improved financial performance Increased productivity, sales and quality and ability to attract and retain employees Gained confidence of customers, suppliers, employees, communities, investors, activist organizations and other stakeholders A healthy society, which means healthy workers since the local population is employed for the blue collared jobs which means less problems of absenteeism, loss of production etc. The education provided to farmers regarding the better use of fertilizers and irrigation facilities new farming techniques and the most appropriate crop varieties, crop inputs and methods of pest management provides the company with a market for its own products.
TCL, in its business activities had incorporated CSR in its mission and vision, ethics, workplace health and safety, environment, community development, corporate governance. By this the organization had gained corporate image. It had improved reputation and relationships with stakeholders such as customers, investors, regulators, suppliers and local communities. It had gained social and environmental initiatives, improved quality, staff morale, product development, understanding of current and ne w markets and regulations, better risk management and innovation.
B) Identify the opportunities today for TCL to partner with NGO¶s, activist group. Explain in detail any one opportunity TCL is already working with NGO¶s/activist groups? The avenues for Tata chemicals to co create social compact with NGOs is in terms of rural development, education, self help groups etc. One of the initiative that is currently on is: Salt of the Earth. Mithapur in Gujarat, in the western part of India, has historically been the 'salt capital of the world'. The very hot and mostly dry coast of this region is ideal for the production of salt through the natural evaporation process in saltpans (as the fields fed with brine from the sea are called). One of the oldest (in the organised sector) and possibly the largest manufacturer of salt in India, Tata Chemicals, has a huge presence in Mithapur and its surrounding area. It is the second largest producer of soda ash in the world. To give you an idea of its scale of operations: About 110 million litres of fresh seawater is pumped
from the Gulf of Kutch into its saltpans every day. Fortunately, Tata Chemicals is committed to environmental conservation and has always upheld its credo not just by being involved in various conservation projects in and around its sites, and supporting environment conservation initiatives by other institutions, but also by providing active volunteers. The Tata Chemicals Society for Rural Development (TCSRD) has been in active service of the communities near its various production units. The framework of activities adopted by TCSRD considers an integrated approach, working on activities that give direct economic gain to target beneficiaries and those that nurture the environment for sustainable development. Tata Chemicals partners with other agencies (NGOs as well as governmental bodies) and the target community itself, to take up programmes that impact lives in a sustainable manner. Apart from facilitating and implementing the usual development programmes, five 'js' which are very important for life in such areas have been identified ² jal, jaan, jamin, jangal and jaanwar (water, life, land, jungles and animals) ² and the projects are devised along these lines. Community development initiatives also focus on natural resource management programmes that target water and land management along with promoting rural energy sources like biogas and windmills for pumping water from community wells. As Satish Trivedi, who works with Tata Chemicals especially in the area of community development, told us, the biodiversity of Okhamandal, the region in which Tata Chemicals operates, is facing a serious threat due to the rampant spread of an exotic weed called the gando bavalor 'mad weed' (prosopis juliflora). This weed has already invaded most of the croplands and is now spreading into the forest area at the cost of the native vegetation. Mr Trivedi is concerned that construction activities may result in large-scale destruction of the last few pockets of indigenous forest and, subsequently, the biodiversity of Okhamandal. Although it may be possible to reintroduce the indigenous forest species using germ plasma from other areas, the local strains of the plants that have evolved over the centuries and adapted well to the adverse climatic and physical conditions of Okhamandal, may be lost forever. The need of the hour is to secure a sanctuary for these local strains of indigenous vegetation. This sanctuary would be an assured source of seeds for mass regeneration of the native flora, if and when the need arises. This plantation project is spread over an area of 75 acres and shelters 18 species of native plants, and over 107 species of ephemerals (herbs, grasses and other monsoon growth). This project is an ex-situ (outside forest area) effort for the conservation of the native flora. The idea is to expand the plantation by 15 to 20 acres every year, and in the process, try to introduce the entire spectrum of the indigenous vegetation of Okhamandal at this place. More than half of the world's population is still dependant on plant-based medicines for
their healthcare. Plant products are also in high demand for the manufacture of cosmetics. Almost all the plants at the Mithapur biodiversity plantation site possess medicinal properties. Aloe vera is used for multiple applications, including medicines and cosmetics. Kerdro (capparis decidua) is considered useful for the cardiac system. The endangered gugal plant (commiphora wightii) has been mentioned in the Atharvaveda, Charaka Susruta and other tomes of Ayurveda. Ancient Indian literature speaks of drugs manufactured from gugal resin that can be used as antiseptic agents, for treating rheumatism and many other common ailments. The list of the medicinal properties of other plants runs quite long. The immediate benefit of the biodiversity reserve plantation project has been to the wildlife community around. There has been a steady rise in the number of bird species sighted here. Reptiles, mainly the monitor lizard, saw-scaled viper and cobra, are to be found here. The growth of native vegetation has also started drawing hares, hedgehogs, mongoose, jackals and wild boar to the area. A herd of nilgai (Indian blue bull) can often be seen grazing in the plantation area. Their number is expected to swell in the coming years. One of the local tribes ² Rabaris, traditionally shepherds, who have great knowledge about local herbs ² is helping to identify herbs, grasses and plants and help plant them in the area. A delegation of 80 forest officers from the Indira Gandhi National Forest Academy, Dehradun, visited the biodiversity reserve plantation site to understand and observe the efforts being made at Mithapur for the conservation of the indigenous plant biodiversity of the Okhamandal region. A biodiversity awareness programme for the conservation of indigenous medicinal plants was also carried out at Bhimrana village under the National Environmental Awareness Campaign, funded by the Ministry of Environment and Forests. Being a coastal operation, Tata Chemicals' facilities are intrinsically interlinked with mangroves. Mangroves are an important component of the coastal marine ecosystem. They help in filtering land run-off and controlling coastal erosion. They act as cushions and help mitigate the impact of cyclones and tsunamis. They also regulate flooding, act as a sink, and absorb pollutants brought down by rivers and streams. Their most important function is to provide critical habitat for many marine species and terrestrial wildlife ² the mangrove zones serve as spawning grounds and nurseries for many species of finned-fish and shellfish. Mangroves also provide the much-needed roosting and nesting sites for waterflow. Keeping this in mind, a mangrove plantation project has been initiated for ecological
improvement of the coastal areas around Mithapur. Forty thousand seedlings of the avicennia marina species were raised and transplanted at three sites ² Mithapur, and nearby Khatumba and Padli. Hopefully, the project will lead to mangroves that will support terrestrial and acquatic species in the future.
Ques4 What are the key challenges facing TCL today? Outline your strategic recommendations ? Key challenges faced by TCL today1. Increasing costs of input: Cheapest source of making fertilizers is gas, but India today doesn¶t have enough gas and more than 30% of fertilizers are being produced from naphtha and other liquid fuels. Today naphtha is five times costlier than gas. 2. Strong Rivalry in the global market: For Intense competition in the global market the company has used carefully the horizontal integration strategy, which has enabled the TCL to achieve economies of scale, larger scope, and a wider access to the markets. For example acquisition of a company like BML has given company opportunities in 18 countries. 3. Diversification: Managing overall growth of the company will be a tough task given the diversification into new business domains globally. 4. Environmental concern: In chemical industry one of the important inputs is electricity. Lot of power is consumed in chemical industry. The more is the electricity consumption the more will be CO2 emission. Today the world is very much conscious about the GHG emission. Because of the growing concern for global warming industries are looking for low energy consuming technology. This change has effect on TCL¶s manufacturing operation. 5. Government policies for the Agricultural sector: The fertilizer business accounts for more than 60% of companies revenues and is directly linked to the agricultural sector and hence to the government policies related to the sector. Variation in these policies may significantly affect companies business. To reduce the risk the company has formed a new SBU the Agri Services. Concern for soil nutrition for instance goes well beyond the mere application of fertilizers ± it would mean determining and then providing the nutrition the soil actually needs, using modern technology and new value added offerings.
6. Supply-demand imbalance in soda ash industry: The world soda ash industry saw significant structural change in the 1990s, and the process is still continuing. US and Chinese production capacity rose substantially, while a number of plants in Europe and Japan closed. As production has outstripped demand, soda ash producer have s been unable to raise prices for a number of years. Strategic recommendations for TCL Corporate Strategies Corporate strategies are the choices which a firm adopts to achieve its objectives. They are the decisions which an organization takes for allocation of the resources among the various businesses of the firm, selection of various businesses for a firm, transferring of resources from one business to the other and managing a portfolio of businesses in such a way so as to create synergy among the businesses to achieve the overall objective of the firm. Some of the corporate strategies which TCL can take up are y
Creating shared value: TCL can take up some CSR initiatives through which it can create shared benefit both for the company and society. Already it has set up call center which has provided employment to the rural population. TCL should increase this effort.
y
Geographical scope: TCL can broaden their geographical scope and can set up plants where energy prices are lower
Country Strategies: TCL has manufacturing locations located in India, UK, Netherlands, Morocco, Kenya and South Africa. TCL¶s strategy is to grow inorganically, and as a part of this strategy, the company is eyeing markets in the EU. It plans to make some acquisitions in the EU through its subsidiary, HIPL. This will help it to strengthen its brand in the market and also acquire expertise in the chemicals domain. Moreover, it plans to expand BMGL¶s plant in Lake Magadi, Kenya, to meet the demands of the rapidly growing glass industry. As per the vision statement of the company, TCL acquired the strategic stakes in various companies present in
various regions of the world.e.g. TCL acquired Brunner-Monnd in UK who was amongst the largest Soda Ash manufacturers in Europe.
SBU Strategies: Agri Product: TCL has been following a policy of shared value creation in this field. The company has launched its KHET SE initiative where the company is providing the farmers with the technical knowhow & various ways of improving the yield. The other activities undertaken in this initiative being the Farm Loans, Insurances etc. which the company is using for Co-Creating the value , & thus propounding a sustainable model Consumer Goods: The company has launched various products like TATA SHUDH, the detergent powder but its flagship product remains the TATA SALT, the iodized common salt which has been the market leader for over 20years. The company doesn¶t have much focus on the same, as this segment doesn¶t present a lucrative option for growth. Fertilizer Industry: With the worsening world food situation, the availability of fertilizers and thus the fertilizer manufacturing plants gains significance. This industry is going to be the lifeline for many other industries hence TCL is making concentrated efforts to innovate and bring down the input costs thus becoming a major player in the international market as well. Chemical: TCL has already gained market leadership in few of the flagship products globally like in Soda Ash , in which it is the 2 nd Largest producer in the world.
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Ques 1. Classify TCL as a dominant business corporation, related business corporation or unrelated business corporation? Why? ?? Answer: TATA Chemicals Limited started as a basic chemical company with intensions of producing soda ash. The company started further processing of the by-products and hence went on to bring in related diversification. The company took a strategically important step by foraying into the fertilizers business by setting up a manufacturing facility at Babrala in the year 1994. This diversification also was following a common thread of chemicals, as manufacturing of fertilizers require chemical engineering competencies. The expansion of corporate scope is justified on the following points
India is an agriculture supported economy. Production capacity is not very high in the country. The demand is also high internationally to warrant the scope of export. Sufficient capabilities developed with chemicals. Raw material sourcing has been established due to diligent network of suppliers for chemical business. TCL is a global company with interests in chemicals, crop nutrition and consumer products. It is the world's second largest producer of soda ash. With manufacturing facilities in India, UK, the Netherlands, Kenya and USA, TCL is the world¶s most geographically diversified soda ash company, with an efficient supply chain that can service customers better and faster across the globe. The company is a pioneer and market leader in the Indian branded iodized salt segment and India's leading producer of nitrogenous and phosphatic fertilizers. The company has extended its operations into the services sector and touches lives through applications in agriculture, animal nutrition, construction, consumer products, glass, metals, pharmaceuticals, soaps and detergents, and textiles and leather industries. The strategic business units of TCL are Soda Ash, Fertilizers, Table Salt, Fresh Produce and Bio Fuels. The presence of more number of business units contradicts the model of a Dominant Business Corporation where a corporation has one or two core businesses surrounded by a coterie of peripheral units.
Moreover in SBU¶s like Soda Ash, Fertilizer and Table Salt we can see a common thread that links the business which is a characteristic of related business corporation. Tata Chemicals' journey started as a synthetic soda ash manufacturer at Mithapur, Gujarat. The salt works spread across 60sqkm can produce over 2 million tonnes of solar salt, the base raw material for almost all the 27 basic chemicals that the company produces. The Mithapur plant is the largest integrated salt works and inorganic chemicals complex in this part of the world. It has an installed capacity of 8,75,000 tpa -- about 34 per cent of the country's capacity -- making it one of the largest producers of synthetic soda ash in the world. Thus the resources or skills can be transferred to new lines of business which means that resources can be shared across SBU¶s. Tata Chemicals finding great importance because of the national need to boost agricultural productivity has recently started joint venture in fresh produce, Khet-Se Agriproduce India. But we could see that SBU¶s like Fresh Produce or Biofuels don¶t have a common thread with other SBU¶s. As we can infer from the above discussion that TCL is Related Business Corporation, as all the areas of business (Strategic Business Units) are unified by a common thread of chemical engineering. It is only in the case of fresh produce that TCL has ventured into a relatively unrelated industry. But looking closely we can observe that with this line of business the intention of TCL is to support the farmers by guiding them. This has a modest correlation with the fertiliser line of business. Thus we can say that TCL is a Related Business Corporation. The strategic rationale for related diversification would be of expansion in business while maintaining a underlying common thread.
Ques 2. For any 3 of TCL¶s current SBU¶s, apply tests for horizontal scope and comment on the outcome. Answer: The diversified Tata group about 10 years ago started on a course when it decided to do away with significant number of businesses that it did not find a strategic fit as far as its activities were concerned. This was based on a report by McKinsey consulting that further advised that
the group increase its global footprint by looking outside India for increased global market and creating a global brand for the group and the companies. The group envisaged revenue of about USD 50 billion by 2010, and thereby went on growth path, both organically and inorganically. Tata Chemicals is an extremely successful company. Over the years it has ventured out into various products and maintained its leadership and supremacy in various consumer durables. Its' current approach towards its multiple businesses and SBUs has enabled it to work towards optimizing the use of raw materials, resources and technology and creating a portfolio of products that find application across industries and consumers. In the analysis of the horizontal scope of Tata Chemicals we have to first consider the BETTER OFF TEST. This test asks whether the four SBUs of TCL - Soda ash, fertilizers, salt and fresh produce should be working together after all. Thus this test helps to determine whether combining & coordinating the activities of the four units is enabling TCL to generate more "added value". The different SBUs of the country are as follows:
y
Chemicals: The range of chemicals produced at the company¶s integrated complex at Mithapur includes soda ash, caustic soda, salt, cement, sodium bicarbonate, bromine and bromine based compounds and gypsum.
y
Fertilisers: The company manufactures nitrogenous fertilisers at the Babrala plant. The company¶s plant at Haldia produces phosphatic fertilisers like di-ammonium phosphate, NPK complexes and single super phosphate.
y
Food additives: TCL¶s food additives business has two premium products: branded salt and sodium bicarbonate. TCL manufactures four varieties of salt, iodised salt, crystalline salt, vacuum salt and pure salt, and has over 40 per cent market share in the branded salt segment in India.
y
Agri-services: The company has set up a network of Tata Kisan Sansars (or Tata farmer centres) in the northern Indian states of Uttar Pradesh, Punjab, Haryana and Uttaranchal. The centres are one-stop resource centres for farmers.
Better off test: An expansion in the company horizontal scope must enable the corporation to capture and create more value together than as individual units.
Industry Attractiveness: Any company would drive have a greater wedge between the price that the customer is willing to pay and the cost of the goods to the company itself. Likewise Tata Chemicals' vast array of products ± chemicals, fertilisers and consumer products ± find application in several diverse industries that also enables the company to drive greater value for itself under the constraints of the five forces frame work. Given the fact that the chemical companies generally are diversified by serving a number of industries and end consumers at the same time, by the logic of ³mutual forbearance´ its presence in a number of activities through SBUs makes sense for Tata Chemicals. The company also intends to bring about a different set of values to a structurally weak industry, fertilizer industry by its core competency in the field of chemicals. Through its human touch initiative the company intends to have a end consumer interface through its presence in the food segment industry, rather than only industrial products. Table salt, actually produced as a by-product of its industrial product gives the company the opportunity for vertical integration. Cost effects: Considering the fact that the capital investments for the plant and machineries for the chemical industry is huge, so any saving as a result of shared cost is a welcome proposition. By serving customers in the pharmaceutical industry and the edible chemicals to the end consumers, the company finds significant opportunities for cost saving. The fertilizer industry and the other agri-services typically gives this example when the company has been able to save costs through its distribution network by serving the same client in the form of farmers.
Price effects: by being present in the fertilizer segment and also in the other agri-servives like animal nutrition and the µkhet-se initiatives¶ helps the company to provide the farming community the option of µ¶one-stop shopping¶ besides giving the company the opportunity for cross promotion. Best Alternative Test: Here, we need to consider if common ownership of the SBUs are beneficial or forming a joint venture or a strategic understanding more beneficial for the company and the SBU. It is a
well known fact that the chemical industry has to pass through a significant number of regulations. Apart from the fact that the agriculture services as well as the fertilizer industry is a weak industry. Hence, for the industrial products in which the company has developed its own core competency, the related SBU has established independent organizations, but for the agri-cultural related ones, it has moved into the space with a Joint Venture or a strate gic partner. Joint ventures and subsidiaries, associates of TCL:
y
Khet Se Agriproduce India: A 50:50 joint venture set up in 2007 with Total Produce, Ireland, the third largest fruits and vegetable distribution company in the world, to start a fruits and vegetables distribution business in India.
y
Indo Maroc Phosphore SA: An equal partnership with Chambal Fertilisers and global phosphate major, OCP of Morocco; set up in 2005.
Best parent test: Long considered very harsh, and hence changed to good parent test, the company needs to consider that usually the management for a SBU would be very confident of its capabilities, would want to create business empire of its own, would consider bigger organizations a better substitute for smaller organizations and are likely to be influenced by the investment bankers. But the company needs to consider very objectively whether it is a good parent for the SBU, providing it with the right resources and opportunity for growth, the right markets for its products, etc.
Recommendations: Given the following conditions and the prevailing structure where industrial products are with the company and the products linked to agriculture are in an alliance make sense for the reasons given above. The vertical integration for the industrial products can be exploited further for vertical integration into other consumer products which there by increases visibility for the company, while venturing into the agriculture related fields in an alliance helps it to hedge its risks and also utilize its expertise in the chemical business.
Ques 3. A) Identify the avenues for shared value creation for TCL & explain in detail any one of TCL¶s CSI initiatives. Companies of late have realised the importance of corporate social responsibility and TCL is no exception. However, the approach by the companies is often fragmented and reactive. A corporate social responsibility (CSR) has to be a part of the overall business strategy. Also, very important here are that the CSR activities should become self sustaining in the minimum of time. For this, the company needs to identify a set of social issues that the company is best equipped to help resolve, and in doing so gains a competitive benefit. Such activities can be identified by carefully studying the Inside out linkages and outside in linkages of the company; which are the points of intersection between a company and the society. If these intersection points are identified, then the company can work out a value proposition that is unique for its customers, and at the same time reducing or nullifying it¶s footprint on the ecosystem. Agricultural products, Agricultural services and secondary processing of agricultural output from the bulk of the operations carried out by the company. Therefore the Focus of the CSI activity should be aimed at the rural India, particularly improving the lives of the peasants and rural laborers. Tata Chemicals Limited has been awarded GOLD in the much-coveted Reader's Digest Pegasus award 2008 on 21st January 2009. Tata Chemicals is committed to meeting the highest standards of corporate governance and business practices. All of its activities integrate the principles of corporate sustainability. The company is a signatory to Responsible Care, a voluntary global initiative of the chemical industry that demonstrates allegiance to safety, health and environmental issues. Tata Chemicals Ltd was also awarded the Council for Fair Business Practices' (CFBP) Jamnalal Bajaj Award for best manufacturing enterprise (large) category. The Co mpany's Vision, Mission and Values, as well as, business plans and activities are in complete alignment with the TATA Group objectives of Improving the Quality of Life, and Leadership with Trust. This is continually verified and reinforced through the Tata Business Excellence Model and the Tata Code of Conduct assessments and assurance surveys. The Company's systems are conforming and certified according to ISO 9001, 14001 and OSHAS 18000 Standards.
Strategic CSR Activities 1. Tata Kisan Sansar(TKS): Tata Chemicals through its Tata Kisan Sansars provides farm extension services which are helping farmers in North India change their lives this is a One-stop shops for complete farm solutions. The rapid strides in cropcultivation techniques have necessitated comprehensive and continuous farmer education. Given the huge size and spread of the Indian farming community, educating and training farmers in new agricultural methods and practices has become a major challenge, one that demands institutional and manpower resources.TKS are operated through a Franchisee model. Kisan Sahyog Pariwars (KSP): Through KSP, TKS had provided farmers low interest credits to undergo easy access to modern farming concepts. They had formed selfhelp groups where the company had arranged for trained agronomists to interact directly with the farmers regarding modern agro practices.
2. Proposed Green Chemical processes (Innovation Centre): TCL sees this as a business opportunity, rather than a problem. Its Innovation Centre is working on technologies that can mitigate Climate Change through ³green chemistry´ and product offerings that will make a difference like Flue Gas treatment, Carbon Absorption and Nano glass-coatings for insulation.
3. Tata Chemicals for Society and Rural development (TCSRD):- Tata Chemicals in 1979 established a society for Rural Development (TCSRD) for the benefit of rural people around its plant and townships in Okhamandal, Gujarat and Babrala, Uttar Pradesh. This society is meant for participatory community development in and around the plant. Mithapur in Gujarat had developed into a full fledged township with a population of 20,000. The township had the entire amenities bank, post and telegraph office, broad gauge railway line, a police station, a telephone exchange, market with 219 shops, hospital, cinema halls and six parks and an airstrip. It had constructed a captive co-generation power plant of its own to generate uninterrupted electricity supply to that area. It had family-planning unit with child-immunization centers, mobile vans to cater healthcare needs of Tatachem employees as well as the
people living in the 42 villages of Okhamandal. Apart from the above medical and community activities it had come up with proper schools and training centers.
Benefits to Tata Chemicals:
Enhanced corporate image, added brand value, customer satisfaction and loyalty Access to quality business partners and favorable access to capital markets Established a good footing with public authorities and the general public Public relations opportunities and improved financial performance Increased productivity, sales and quality and ability to attract and retain employees Gained confidence of customers, suppliers, employees, communities, investors, activist organizations and other stakeholders A healthy society, which means healthy workers since the local population is employed for the blue collared jobs which means less problems of absenteeism, loss of production etc. The education provided to farmers regarding the better use of fertilizers and irrigation facilities new farming techniques and the most appropriate crop varieties, crop inputs and methods of pest management provides the company with a market for its own products.
TCL, in its business activities had incorporated CSR in its mission and vision, ethics, workplace health and safety, environment, community development, corporate governance. By this the organization had gained corporate image. It had improved reputation and relationships with stakeholders such as customers, investors, regulators, suppliers and local communities. It had gained social and environmental initiatives, improved quality, staff morale, product development, understanding of current and ne w markets and regulations, better risk management and innovation.
B) Identify the opportunities today for TCL to partner with NGO¶s, activist group. Explain in detail any one opportunity TCL is already working with NGO¶s/activist groups? The avenues for Tata chemicals to co create social compact with NGOs is in terms of rural development, education, self help groups etc. One of the initiative that is currently on is: Salt of the Earth. Mithapur in Gujarat, in the western part of India, has historically been the 'salt capital of the world'. The very hot and mostly dry coast of this region is ideal for the production of salt through the natural evaporation process in saltpans (as the fields fed with brine from the sea are called). One of the oldest (in the organised sector) and possibly the largest manufacturer of salt in India, Tata Chemicals, has a huge presence in Mithapur and its surrounding area. It is the second largest producer of soda ash in the world. To give you an idea of its scale of operations: About 110 million litres of fresh seawater is pumped
from the Gulf of Kutch into its saltpans every day. Fortunately, Tata Chemicals is committed to environmental conservation and has always upheld its credo not just by being involved in various conservation projects in and around its sites, and supporting environment conservation initiatives by other institutions, but also by providing active volunteers. The Tata Chemicals Society for Rural Development (TCSRD) has been in active service of the communities near its various production units. The framework of activities adopted by TCSRD considers an integrated approach, working on activities that give direct economic gain to target beneficiaries and those that nurture the environment for sustainable development. Tata Chemicals partners with other agencies (NGOs as well as governmental bodies) and the target community itself, to take up programmes that impact lives in a sustainable manner. Apart from facilitating and implementing the usual development programmes, five 'js' which are very important for life in such areas have been identified ² jal, jaan, jamin, jangal and jaanwar (water, life, land, jungles and animals) ² and the projects are devised along these lines. Community development initiatives also focus on natural resource management programmes that target water and land management along with promoting rural energy sources like biogas and windmills for pumping water from community wells. As Satish Trivedi, who works with Tata Chemicals especially in the area of community development, told us, the biodiversity of Okhamandal, the region in which Tata Chemicals operates, is facing a serious threat due to the rampant spread of an exotic weed called the gando bavalor 'mad weed' (prosopis juliflora). This weed has already invaded most of the croplands and is now spreading into the forest area at the cost of the native vegetation. Mr Trivedi is concerned that construction activities may result in large-scale destruction of the last few pockets of indigenous forest and, subsequently, the biodiversity of Okhamandal. Although it may be possible to reintroduce the indigenous forest species using germ plasma from other areas, the local strains of the plants that have evolved over the centuries and adapted well to the adverse climatic and physical conditions of Okhamandal, may be lost forever. The need of the hour is to secure a sanctuary for these local strains of indigenous vegetation. This sanctuary would be an assured source of seeds for mass regeneration of the native flora, if and when the need arises. This plantation project is spread over an area of 75 acres and shelters 18 species of native plants, and over 107 species of ephemerals (herbs, grasses and other monsoon growth). This project is an ex-situ (outside forest area) effort for the conservation of the native flora. The idea is to expand the plantation by 15 to 20 acres every year, and in the process, try to introduce the entire spectrum of the indigenous vegetation of Okhamandal at this place. More than half of the world's population is still dependant on plant-based medicines for
their healthcare. Plant products are also in high demand for the manufacture of cosmetics. Almost all the plants at the Mithapur biodiversity plantation site possess medicinal properties. Aloe vera is used for multiple applications, including medicines and cosmetics. Kerdro (capparis decidua) is considered useful for the cardiac system. The endangered gugal plant (commiphora wightii) has been mentioned in the Atharvaveda, Charaka Susruta and other tomes of Ayurveda. Ancient Indian literature speaks of drugs manufactured from gugal resin that can be used as antiseptic agents, for treating rheumatism and many other common ailments. The list of the medicinal properties of other plants runs quite long. The immediate benefit of the biodiversity reserve plantation project has been to the wildlife community around. There has been a steady rise in the number of bird species sighted here. Reptiles, mainly the monitor lizard, saw-scaled viper and cobra, are to be found here. The growth of native vegetation has also started drawing hares, hedgehogs, mongoose, jackals and wild boar to the area. A herd of nilgai (Indian blue bull) can often be seen grazing in the plantation area. Their number is expected to swell in the coming years. One of the local tribes ² Rabaris, traditionally shepherds, who have great knowledge about local herbs ² is helping to identify herbs, grasses and plants and help plant them in the area. A delegation of 80 forest officers from the Indira Gandhi National Forest Academy, Dehradun, visited the biodiversity reserve plantation site to understand and observe the efforts being made at Mithapur for the conservation of the indigenous plant biodiversity of the Okhamandal region. A biodiversity awareness programme for the conservation of indigenous medicinal plants was also carried out at Bhimrana village under the National Environmental Awareness Campaign, funded by the Ministry of Environment and Forests. Being a coastal operation, Tata Chemicals' facilities are intrinsically interlinked with mangroves. Mangroves are an important component of the coastal marine ecosystem. They help in filtering land run-off and controlling coastal erosion. They act as cushions and help mitigate the impact of cyclones and tsunamis. They also regulate flooding, act as a sink, and absorb pollutants brought down by rivers and streams. Their most important function is to provide critical habitat for many marine species and terrestrial wildlife ² the mangrove zones serve as spawning grounds and nurseries for many species of finned-fish and shellfish. Mangroves also provide the much-needed roosting and nesting sites for waterflow. Keeping this in mind, a mangrove plantation project has been initiated for ecological
improvement of the coastal areas around Mithapur. Forty thousand seedlings of the avicennia marina species were raised and transplanted at three sites ² Mithapur, and nearby Khatumba and Padli. Hopefully, the project will lead to mangroves that will support terrestrial and acquatic species in the future.
Ques4 What are the key challenges facing TCL today? Outline your strategic recommendations ? Key challenges faced by TCL today1. Increasing costs of input: Cheapest source of making fertilizers is gas, but India today doesn¶t have enough gas and more than 30% of fertilizers are being produced from naphtha and other liquid fuels. Today naphtha is five times costlier than gas. 2. Strong Rivalry in the global market: For Intense competition in the global market the company has used carefully the horizontal integration strategy, which has enabled the TCL to achieve economies of scale, larger scope, and a wider access to the markets. For example acquisition of a company like BML has given company opportunities in 18 countries. 3. Diversification: Managing overall growth of the company will be a tough task given the diversification into new business domains globally. 4. Environmental concern: In chemical industry one of the important inputs is electricity. Lot of power is consumed in chemical industry. The more is the electricity consumption the more will be CO2 emission. Today the world is very much conscious about the GHG emission. Because of the growing concern for global warming industries are looking for low energy consuming technology. This change has effect on TCL¶s manufacturing operation. 5. Government policies for the Agricultural sector: The fertilizer business accounts for more than 60% of companies revenues and is directly linked to the agricultural sector and hence to the government policies related to the sector. Variation in these policies may significantly affect companies business. To reduce the risk the company has formed a new SBU the Agri Services. Concern for soil nutrition for instance goes well beyond the mere application of fertilizers ± it would mean determining and then providing the nutrition the soil actually needs, using modern technology and new value added offerings.
6. Supply-demand imbalance in soda ash industry: The world soda ash industry saw significant structural change in the 1990s, and the process is still continuing. US and Chinese production capacity rose substantially, while a number of plants in Europe and Japan closed. As production has outstripped demand, soda ash producer have s been unable to raise prices for a number of years. Strategic recommendations for TCL Corporate Strategies Corporate strategies are the choices which a firm adopts to achieve its objectives. They are the decisions which an organization takes for allocation of the resources among the various businesses of the firm, selection of various businesses for a firm, transferring of resources from one business to the other and managing a portfolio of businesses in such a way so as to create synergy among the businesses to achieve the overall objective of the firm. Some of the corporate strategies which TCL can take up are y
Creating shared value: TCL can take up some CSR initiatives through which it can create shared benefit both for the company and society. Already it has set up call center which has provided employment to the rural population. TCL should increase this effort.
y
Geographical scope: TCL can broaden their geographical scope and can set up plants where energy prices are lower
Country Strategies: TCL has manufacturing locations located in India, UK, Netherlands, Morocco, Kenya and South Africa. TCL¶s strategy is to grow inorganically, and as a part of this strategy, the company is eyeing markets in the EU. It plans to make some acquisitions in the EU through its subsidiary, HIPL. This will help it to strengthen its brand in the market and also acquire expertise in the chemicals domain. Moreover, it plans to expand BMGL¶s plant in Lake Magadi, Kenya, to meet the demands of the rapidly growing glass industry. As per the vision statement of the company, TCL acquired the strategic stakes in various companies present in
various regions of the world.e.g. TCL acquired Brunner-Monnd in UK who was amongst the largest Soda Ash manufacturers in Europe.
SBU Strategies: Agri Product: TCL has been following a policy of shared value creation in this field. The company has launched its KHET SE initiative where the company is providing the farmers with the technical knowhow & various ways of improving the yield. The other activities undertaken in this initiative being the Farm Loans, Insurances etc. which the company is using for Co-Creating the value , & thus propounding a sustainable model Consumer Goods: The company has launched various products like TATA SHUDH, the detergent powder but its flagship product remains the TATA SALT, the iodized common salt which has been the market leader for over 20years. The company doesn¶t have much focus on the same, as this segment doesn¶t present a lucrative option for growth. Fertilizer Industry: With the worsening world food situation, the availability of fertilizers and thus the fertilizer manufacturing plants gains significance. This industry is going to be the lifeline for many other industries hence TCL is making concentrated efforts to innovate and bring down the input costs thus becoming a major player in the international market as well. Chemical: TCL has already gained market leadership in few of the flagship products globally like in Soda Ash , in which it is the 2 nd Largest producer in the world.
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