India Unlimited

Discussion with B. Muthuraman TATA steel Industry
TATA steel was established in the year 1907 and until the late 1990’s, it was under the Indian government control. This essentially meant that companies like TATA steel, SAIL and Vizag steel industry were under the complete control of the Indian government. The government told them what to produce, how much to produce and the prices at which steel needs to be sold within the Indian market. These prices were almost 20-30% lower than the global average. These factors deterred Indian steel companies from expanding their capacities and gaining strength.
In the year 1992, thanks to Dr.Manmohan Singh the economic reforms that were introduced ensured that globalization, liberalization and privatization started taking place!
TATA steel is now a global company – with the recent acquisition of CORUS steel, they have managed to increase their total capacity from a mere 2 Bn per year to almost 27 Bn per year. But what are the challenges and benefits of being a global company?
Muthuraman says it’s more of a mindset issue than anything else. Being global for any company essentially means being able to think beyond the borders of their own country in various matters pertaining to the company. For instance in the case of Steel companies; sourcing raw materials, establishing newer manufacturing facilities, sourcing and retaining the best of talent across the globe are all indications of being global. TATA says it has been able to establish a great working relationship with people from an altogether different culture and nationality thanks to the CORUS deal. This has proved to be a win-win situation for both the organizations.
India’s thirst for steel
The year 2001-2002 was the worst in the history of steel industry. It was during this period that steel was being looked upon by all as a sunset industry. But the years have passed and things have changed. Now the global demand for steel is growing at the rate of 5-6% per annum and the Indian demand for steel is growing at the rate of 9-10% per annum.
The current per capita consumption of steel is about 40 Kg per person per year and it is due to go up to about 300 Kg per person per year! Which means that the overall production in India has to go up to about 300-400 Million tonnes per year! This is a huge increase in capacity and this would be what is expected from India around the year 2020.
But what are the pitfalls? Surges in Demand need to be met up with increased capacity and infrastructural facilities. On an average mere acquisition of land in India for the construction of a steel manufacturing facility takes at least 5-7 years! Leave alone obtaining grants from the state government for the raw materials and then to move on with the actual construction. This essentially means that the Indian government should actually take up steel as its mission! This was the approach followed by the Chinese government. Political, policy related and other obstacles in the way of Steel expansion must be smartened out. Rehabilitation and resettlement policies needs to be tweaked and benefits must be enhanced. Manufacturing is the back bone of any industrialized nation and for any country to turn around its fortune, steel is a vital player. Its output determines much of the input for several other industries including construction, automobiles, shipping etc.
The price of raw material is a very important factor in the steel industry. If we consider the value chain of a steel industry we would find an anomaly that’s existing even till date. Most of the suppliers of raw materials for the steel industry are a part of highly consolidated segment. Likewise the end consumers of the steel industry are also highly consolidated. However steel since olden days has always been a very fragmented industry. Thus it makes sense for companies like TATA steel to take over companies. This type of consolidation would give them better bargaining power with their customers.
Attracting and Retaining Talent
Talent crunch is a common phenomenon in almost all industries. Manufacturing is no exception. However the fault in this case lies greatly on the part of manufacturing industry. It has not marketed itself well enough to bring in rich vibrant talent and younger generation seems to get influenced by the cosier nature of software jobs. Now a days however there is increased focus in this direction and manufacturing companies including TATA steel are working on their marketing efforts to retail the best of the breed talent!