Britain should not bail out Land Rover Jaguar
By Lopa Patel (26 March 2009)

I must admit to having divided loyalties over Mr Ratan Tata's request to the British Government to give him a £500 million bailout for his company Land Rover Jaguar. This is the sum needed to protect 15,000 car workers jobs in the UK, claims Mr Tata. As an Indian, I do want to see India prosper and as a Brit I want to secure jobs over here. But I think this demand, which is tantamount to blackmail, is really not about either of these loyalties. For the first time I agree with British Business Secretary Lord Mandelson when he says "these businesses must stand on their own feet".

Ratan Tata is Chief Executive of a conglomerate that had a turnover of $62 billion in 2007-2008, their market capitalisation is $60 billion and he and his board preside over 98 companies worldwide, 27 of which are listed on stock exchanges globally. In recent years, he has been part of "reverse Raj" takeover of iconic British brands including steel maker Corus and Tetley Tea. In March 2008, he paid $2.3 billion for LandRover Jaguar, marques that lost their American parent company, Ford Motor Company, $12.6 billion in the previous year. Quite frankly I am surprised that he paid more than $1.

Given that it was the capitalist hey-day of huge mergers and acquisitions, one can perhaps forgive the bad advice he got when he paid over the odds for Land Rover Jaguar. There was no arm-twisting from Government for him to make this purchase - perhaps not as much as their might have been over say, Corus. However, Mr Tata raised much of the financing from the City and his 3.2 million shareholders so now the British tax payer is effectively being asked to bailout these same investors.

'Writing has been on the wall' for British car manufacturing for decades

We can indulge in nostalgia over British car manufacturing, but let us not forget that Land Rover Jaguar was not a British company at the time of purchase. The 'writing has been on the wall' for British car manufacturing for decades. Paying £500 million to protect 15,000 jobs (£33,000 per worker) this year may be politically expedient but this is not going to help motor-car manufacturing return to these shores. The innovation in this market sector has long since departed from Britain. Only proximity to market and work around protectionism measures keep the industry going over here.

Publicly elected British MPs should not kowtow to Indian Oligarchs

In his blog, Indian political commentator Vikas Pota wrote "I have no doubt that Peter Mandelson has Ratan Tata's mobile number on his speed dial and speaks to him often, for the simple reason that Tata employs nearly 50,000 people in Britain alone". Why should our publicly-elected MPs (or privately elevated Peers for that matter) kowtow to a non-domiciled Indian Oligarch? Mr Tata may employ 50,000 people in this country, but the banking bailout and ballooning of the public sector means that the British tax payer is the biggest employer in this country - that's you and me. Perhaps we should all have Lord Mandelson on our speed dial?

And while we are on the subject, we should immediately ban all donations from foreigners to British political parties and prevent these same people from purchasing commercial and residential properties in the UK. Protectionist measures these may be, but they would ensure taxable corporate structures being set-up in the UK. If we are going to start pouring money into British businesses, let's at least ensure that the money does not seep away offshore.

Tata Shareholders should bear the burden

I am sure that Mr Tata avails himself of all manner of advice, off-shore tax vehicles and money-dispersal schemes that ensure maximum return for his shareholders. Rightfully it should be these same investors who bear the burden when Tata companies face difficulties. Perhaps Mr Tata should also be asking the Indian Government for the bailout given that he has plans to export his newly launched $2000 Nano car to Europe.

Will Land Rover Jaguar make the European Tata Nano car?

Very little has been said about European production of the Tata Nano. Is not possible to refit the Land Rover Jaguar plants to manufacture the Nano instead of green field sites in India being dug-up to create new production plants? Of course, economists will now say that European manufacturing, with its high labour costs, could not possibly produce the Nano at a cost of only $2000. A major cost efficiency of the Nano car comes from the low pay of Indian engineers who earn 150,000 rupees (approx £2000) a year. So the grounds for future Nano-production in Europe look remote.

The production of the Nano in India has also not been without controversy. Tata pulled out of creating a new production plant in Singur in West Bengal after much bickering with state authorities about farmland purchase. The plant relocated to a 1,100 acre greenfield site in Gujarat in a matter of weeks, where critics claim Chief Minister Narendra Modi made a secret deal agreeing to give him (Ratan Tata) a soft loan to the tune of approximately $10 billion to make the car in Gujarat.

Leadership, morals and ethics....but for whom?

Much has been written about Mr Tata's business ethics. "Ratan Tata defined what leadership, conviction, morals and ethics are in today's world. Leadership in making sure that the safety of personnel is larger than profits or monetary investments" writes a blogger under the pseudonym Parsi Khabar. But the speed at which Tata withdraw from the Singur plant in West Bengal belies some of these publicly held views of the man. Jaguar also axed 450 jobs, including 300 managers, in January 2009. Corus axed 2,500 British jobs in the same month.

Today, the smooth, suave, and introvert Ratan Tata is being seen as an aggressive and ambitious businessman, whose strategic vision has shifted from local to global. He is obsessed with four critical issues: The first is to globalise his group's operations, the second is to safeguard his companies against hostile takeovers and finally to protect his turnover and profit in the face of ever-increasing competition from domestic and global players. To achieve this objective, he had no option but to become aggressive, a quality that helped him in other areas.

So ultimately this is not about safeguarding people, or jobs, it is about money: money to protect Tata Group shareholders from the group's high-risk globalisation strategies of recent years.

Ratan Tata is first and foremost a businessman who may claim that "…the [UK] government is being short-sighted in playing a game of chicken with us, as the result could be devastating for the UK economy" when he insists that £500 million is needed to fend off bankruptcy. Indian political commentator, Vikas Pota adds that "Tata has a fantastic, ethical, and serious track record in doing the right thing with the long term in mind." The question remains "for whom" is Mr Tata "doing the right thing", the British worker or the Tata shareholder?

Personally, Lord Mandelson, I'd call his bluff.

References

Vikas Pota's Globalisation & India blog Indiabriefingcentre.worpress.com
Sky News: Jaguar Appeals for Urgent Government Help