Tata Iron & Steel Co. Ltd.

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Tata Iron & Steel Co. Ltd.

Bombay House, 24 Homi Mody Street
Fort, Mumbai 400 001
India
Telephone: (91) 033-2882727
Fax: (91) 033-2889881
Web site: http://www.tatasteel.com

Public Company
Incorporated: 1907
Employees: 48,821
Sales: Rs 66.4 billion ($141.41 million)(2000)
Stock Exchanges: Bombay
Ticker Symbol: TISCO
NAIC: 33111 Iron and Steel Mills; 331221 Rolled Steel Shape Manufacturing

Tata Iron & Steel Company Ltd. (TISCO) is the iron and steel production company associated with the Tata group of some 80 different industrial and other business enterprises in India, founded by members of the Tata family. TISCO operates as India’s largest integrated steel works in the private sector with a market share of nearly 13 percent and is the second largest steel company in the entire industry. Its products and services include hot and cold rolled coils and sheets, tubes, construction bars, forging quality steel, rods, structurals, strips and bearings, steel plant and material handling equipment, ferro alloys and other minerals, software for process controls, and cargo handling services. Through its subsidiaries, TISCO also offers tinplate, wires, rolls, refractories, and project management services.

Tata’s Early Beginnings in the 1800s

The story of TISCO is the story of one family or, more accurately, one man whose vision and determination to give India a modern industrial economy helped provide a platform for the country’s independence half a century after his death. At the same time, he helped create what was by 1970 India’s biggest nonpublic enterprise. Jamsetji Nusserwanji Tata was born into a well-to-do family of Bombay Parsees in 1839. The Parsees, a religious minority group, had carved a niche for themselves in business, in this case in the economy of Victorian India, which was dominated by British interests and was being developed as a client imperial economy. Tata’s father was a successful merchant with interests in the cotton trade to Britain. Tata joined the family business after an education at Elphinstone College in Bombay and was sent to Lancashire, England, in 1864 to represent the firm there. This was to be the first of many travels in Europe, North America, and the Far and Middle East during which he formulated his ideas on the best strategy to realize his own ambitions for success in business and to contribute to the economic development of India.

Tata’s own background was in cotton production. He believed that mills could function successfully in India in close proximity to the cotton-producing areas in the west of the country, thereby putting them in a strong position to undercut their Lancashire competitors. He obtained air conditioning equipment from suppliers in the United States and the latest cotton spinning machinery installed to provide the optimum climatic conditions for spinning. His early ventures showed promise and in 1874 he founded his first company, the Central India Spinning, Weaving and Manufacturing Company. Three years later, on the same day that Queen Victoria was declared empress of India, he opened the Empress mill in Nagpur.

As Tata was taking his first steps toward establishing a viable cotton spinning business, Indian nationalism also was beginning to find a focus for its aspirations through the Indian National Congress. Tata was present at its inaugural meeting and his devotion to the cause of an independent India was undoubtedly a motivating factor in his own drive for success in business. Cotton was only a start. From his travels in other industrialized nations he had come to identify three essential elements for a modern industrial economy: steel production, hydroelectric power, and technical education. Although he did not live to see any of his schemes in these areas come to fruition, he laid the foundations on which his sons, and then later generations of his family, were able to build to realize his ambitions.

Development of Tata Iron & Steel Company: Late 1800s–1980s

From the mid-1880s, Tata commissioned a series of surveys in India’s coal-producing areas, such as Bihar and Orissa in the northeast of the subcontinent, to locate iron ore within easy reach of coal deposits and water, both essential elements in steel production. He visited the United States to seek the advice of the world’s foremost metallurgical consultant, Julian Kennedy, and went to Birmingham, Alabama, to study the coking process in action. In England in 1900, he discussed his plans with the secretary of state for India, Lord George Hamilton. In India, the way had been opened for private enterprise with the introduction of a more liberalized mineral concession policy in 1899. With Julian Kennedy’s help, American specialists were brought in and began surveying in 1903. After a series of disappointments, rich iron ore deposits were identified in the dense jungle in Bihar at the confluence of two rivers near Sakchi three years after Jamsetji Tata’s death in 1904. Also involved in the surveying was Tata’s nephew, Shapurji Saklatvala, whose health suffered so much that he was sent to London to recuperate. There, he joined his uncle’s London office, which had been established some years earlier to represent the interests of the family cotton business. His energies were soon channeled away from business matters and into politics, and he became Communist member of Parliament for Battersea North in 1922.

Four years after Tata’s death, his sons Dorabji and Ratanji began development of the Bihar site. A factory and township were carved from the jungle and named Jamshedpur. A conscious decision was made to retain control within India of the new enterprise, the Tata Iron and Steel Company, by seeking out Indian investors. In the face of warnings that India could not afford a flotation of this size, the Tata brothers set out to raise Rs 23.2 million in shares. Within eight weeks some 8,000 Indian investors came forward and the whole share issue was taken up. The Tatas retained 11 percent of the stock for themselves. There were enormous initial problems in clearing the Sakchi site and, once production began, in ensuring that the coal was of a uniform quality. By 1916, however, production was meeting expectations and during World War I the company exported 1,500 miles of steel rails to Mesopotamia. Rapid expansion to support the Allied war effort was followed by Depression during the 1920s with escalating prices, transport and labor difficulties, and a major earthquake in Japan, by now TISCO’s biggest customer. The company had to suspend its dividend for 12 out of 13 years in this period and was on the brink of closing in 1924 when Sir Dorabji Tata had to pledge his personal fortune to secure the necessary bank loans to keep the business afloat. TISCO emerged from the 1930s, however, as the biggest steel plant in the British Empire. World War II brought a resurgence in demand for Tata products and the company specialized in the manufacture of armored cars, known as Tatanagars, which were used extensively by the British Army in the North African desert.

Following six years of almost continuous production to serve the war effort, it became imperative in the late 1940s to begin replacement of the plant. In association with Kaiser Engineering of the United States capacity was expanded and a Modernization and Expansion Program (MEP) was launched in 1951, upgraded four years later to the Two Million Ton Project (TMP) to give TISCO the capacity to produce two million tons of crude steel. This was achieved in 1958 but further expansion was put on hold during the 1960s while the country passed through a period of devaluation and recession. By 1970, however, TISCO employed 40,000 people at Jamshedpur, with a further 20,000 in the neighboring coal mines.

Government attempts to nationalize TISCO in 1971 and 1979 were defeated, in part, it was believed, to retain an efficient private sector yardstick against which the performance of public sector companies could be judged. An ever-increasing range of government legislation to bring private sector businesses into line with national economic planning on the Soviet model, however, hampered Tata’s freedom to develop in the postwar period. In 1978, the government restricted TISCO’s dividend to 12 percent to force it, as India’s only private sector steel producer, to plough money into modernization. Expansion was restricted by a government committed to helping nationalized industry. Further difficulties were created in the late 1970s by chronic shortages of coal, power, and rail transport. An estimated Rs 45 crores of salable steel was lost during 1979–80 because of these shortages. TISCO soldiered on, however, and in the following decade began to benefit from a relaxation of government control as a more pragmatic attitude to the importance of private sector industry emerged. In 1989, the Tata group increased its stake in the steel firm to ward off any attempts by outside shareholders to gain control of the company. By 1990, TISCO remained India’s largest nonpublic company, announcing a 30 percent increase in profits against a backdrop of general depression in the Indian economy as a whole.

Company Perspectives:

Consistent with the vision and values of founder Jamsetji Tata, Tata Steel strives to strengthen India’s industrial base through the effective utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices. Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.

Growth of the Tata Empire Over the Course of the 20th Century

The growth of Jamshedpur and the involvement of the firm in every aspect of its industrial and municipal life was the subject of several studies. Jamsetji Tata was both a nationalist and a philanthropist. He showed a paternalistic concern for the well-being of his employees, which set the tone for future company policy. The British proponents, pioneers of social reform Sydney and Beatrice Webb, were invited out to India from England to advise the Tatas on the best form of social, medical, and cooperative services for the newly established Jamshedpur and as a consequence schools, recreational facilities, creches, and other amenities were established on site at an early stage. An eight-hour working day had been introduced in 1912, an officially recognized Tata Workers’ Union established with Gandhi’s associate, C.F. Andrews, as its first president, and profit-sharing schemes were brought in in 1934. Against this, it was argued that the Workers’ Union operated in fact as a management tool to impose its will on a workforce so heterogeneous by nature that rival unions made little headway. Despite the reputation of the Tata family for concern over workers’ rights, there was much unrest among the workforce during the 1920s over wages and conditions and it has been claimed that this, as much as anything, contributed to advances. The commitment of the Indian Trades Union Congress after independence to the same goals as central government—economic self-sufficiency and prosperity—allowed the Tatas a relatively free hand in dictating their own industrial relations policy. Whatever the arguments, TISCO could claim in 1989 that it had not lost a day’s work through industrial action in 50 years, and its management illustrated its commitment to the welfare of its employees by commissioning an audit of its “social performance” by a team of eminent public figures.

TISCO’s success spawned numerous offshoots making use of Tata products, some of them part of the Tata Group. These included the Tata Engineering and Locomotive Company (TELCO). This ripple encouraged other areas of Indian industry to become suppliers of spare parts for new products and by 1970 TELCO had more than 500 Indian ancillary suppliers.

The second element in Jamsetji Tata’s plan for India’s modernization was the development of a hydroelectric capability. Within reach of Bombay’s thriving, basically steam-driven cotton spinning industry lay the monsoon-swollen rivers of the western Ghats. If Bombay’s captains of industry could be persuaded to invest in the necessary conversion from steam to electricity, the natural resources existed to provide this new source of power. To encourage the process, the Tatas bought up sufficient mills to create the necessary demand before launching Tata Hydro-Electric Power Supply Company in 1910. By 1915, the required dams and reservoirs, ducts, and pipelines had been laid to feed the new turbines. Two further power stations followed in 1916 and 1919. Between the wars the family had to sell some 50 percent of its stake in the hydroelectric company to a U.S. syndicate to support other less successful firms within the group. By the 1960s, power stations had been supplemented by four thermal installations, which together satisfied Bombay’s entire domestic and industrial requirement.

TISCO, TELCO, and Tata Hydro-Electric Power Company were only three parts of the Tata empire that by the late 1970s included 30 separate companies. Together the group accounted for 1.8 percent of India’s GNP, with TISCO alone providing 0.4 percent, far more than any single equivalent firm in the United States or United Kingdom. In 1970, the managing agency system that had characterized much of Indian industry since the British period was abolished. Under this system, British investments in the subcontinent were managed by firms of agents who charged commission for their services. Tata Industries Ltd. acted in this capacity for many of the firms in the Tata Group, and until 1970, central control was not difficult. After this date, shares in the 30 or so Tata enterprises were retained by Tata Industries, whose chairman from 1938 was Jehangir Ratanji Dadabhoy Tata, a distant relative of the founder of the Tata industrial dynasty. He was succeeded in 1981 by Ratan Naval Tata, whose father had been adopted by Ratanji Tata’s widow in 1917. Following the Monopolies and Restrictive Practices legislation of 1969, which represented the views of a government hostile to large private enterprises, the Tata group was self-conscious within India about the size of its operation and great emphasis was placed on publicizing the independent nature of each of its firms. It was pointed out that 75 percent of the firms’ shares was owned by trusts established by the Tata family to promote research and welfare projects. In reality, the Tatas had been adept in holding together their empire with a steady growth in the group’s assets, much informal consultation between firms, a recurrence of names in the lists of directors, and a shared head office in Bombay.

The continued prosperity of the group during the difficult postwar years for private sector firms was probably also helped by its refusal to take up an overtly political stance in opposition to prevailing government policy. The only exception was in 1956, when it backed the short-lived Forum of Free Enterprise against a government committed to assigning a dominant role to public sector industry. Government monopoly legislation also restricted diversification into high-profit areas such as fertilizers or pharmaceuticals, an obvious move for a group such as Tata whose traditional staple was high-cost, low-profit industry. There were no restrictions on overseas investment or new technology, however, and inroads into both these areas were made. India needed firms such as TISCO or TELCO if the country was to maintain a viable industrial capability. Therefore, even when government controls officially restricted growth, the Tata Electric Company was given the green light during the 1970s to build privately a new 500-megawatt plant, and sanction was given to TELCO to increase its output from 24,000 to 36,000 vehicles per year.

Key Dates:

1907:: Tata Steel is established by Jamsetji Tata.
1924:: On the brink of disaster, Sir Dorabji Tata pledges his personal fortune to secure bank loans to keep the company afloat.
1939:: By now, TISCO operates as the largest steel plant in the British Empire.
1951:: A Modernization and Expansion Program (MEP) is launched.
1955:: The MEP is upgraded to the Two Million Ton Project (TMP).
1970:: TISCO employs 40,000 people at Jamshedpur and 20,000 workers in neighboring coal mines.
1978:: The Indian government forces TISCO into modernization efforts.
1989:: The Tata Group doubles its stake in TISCO to thwart takeover attempts.
1990:: TISCO begins expanding and establishes subsidiary Tata Inc. in New York.
1996:: The company begins a joint venture with Inland International to build a steelworks facility in India.
1998:: TISCO records a 61 percent decline in net income due to a downturn in the steel industry.
2000:: TISCO completes a ten-year, $1.5 billion modernization program.

TISCO developed as one of the independent but interrelated companies within the Tata group. Among the better known of these firms is the Indian Hotels Company, whose centerpiece, the Taj Mahal Hotel, in Bombay, was conceived by Jamsetji Tata and opened in 1913, as the first hotel in the country using electricity. Tata Chemicals was launched in 1939, and its Mithpur plant produced mineral extracts required for glass, ceramic, and leather production. The plant had a checkered history in its early years owing to delays in perfecting the soda ash process. With the support of the Tata group and the usual Tata resourcefulness in times of crisis, however, the company stayed in business. For example, when a drought in 1962 threatened to close the plant, management prevailed upon the local population to ration the domestic consumption of water. This “lakeless week” was a great success and ensured that sufficient supplies of water remained for the company to continue in production. Another venture in 1962 involved joining with James Finlay and Company of Scotland to form the Tata-Finlay Company, which bought Finlay’s 53 tea estates and has become the biggest tea producer in the world.

In the field of electronics, Tata joined the Burroughs Corporation of Detroit in 1977 to market the U.S. firm’s computer systems and to begin to develop the manufacture of mainframe computers in India. With such an array of experience and expertise, the group entered the consultancy market with the establishment of the Tata Consulting Engineering and Tata Economic Consulting Services. One Tata initiative that slipped through the net was air travel. An air service was inaugurated to carry the mail between Bombay, Karachi, and Madras in the 1930s. In 1946, however, Tata Airlines went public as Air India Ltd, and the company was nationalized in 1953 to form Air India and Indian Airways.

The third requirement of Jamsetji Tata for a successful and independent India was a system of technical education. His scheme to launch a Science University in India in 1898 was opposed by the viceroy Lord Curzon as overambitious and inappropriate for Indian needs. Tata persevered, however, and offered to underwrite the project with an endowment derived from his Bombay properties. He did not live to see the scheme realized. After Curzon’s departure, the government of India showed itself more amenable to the proposal, and in 1911, Bangalore was chosen as the site for an Indian Institute of Science with joint funding from the Tata family, central, and provincial governments. The institute produced a number of eminent scientists and became a focus for much pioneering research. Tata funds have gone into other projects such as the Bhabha Atomic Research Center in Bombay, which has developed techniques for more efficient power generation. One of Jamshedji’s greatest legacies was a concern for creating better educational opportunities for his countrymen. By the 1920s, one in five of Indian recruits to the Indian civil service had benefited from Tata scholarships.

This commitment to education, welfare, and other humanitarian projects continues today and is part of the Tata distinctiveness. TISCO, for example, took part in a Green Millennium Countdown program and planted 1.5 million trees. In 2001, it also supported the Lifeline Express program that provided healthcare to those living in remote areas. TISCO is also known for providing relief during natural disasters and was awarded the Outstanding Corporate Citizen Award from the Economic Times.

The Tata family was often accused of paternalism toward its workers, of an often ill-judged concern for the continued existence of every member of the corporate group irrespective of profitability, and of an over-concentration on traditional high-cost but low-profit industries. TISCO, however, cut its workforce from 78,669 employees in 1993 to 48,821 in March 2001. The management culture of the group as a whole was changing in the new millennium. Tata directors were focused on profitable operations as well as securing leading industry positions for each Tata company.

Since the abolition of the managing agency system in 1970, TISCO and the various Tata companies operated entirely independently, but they retained many personal, family, and business ties. TISCO and most of the larger firms in the “family” shared the same head office in Bombay. The Tata sense of identity survived a postwar period of almost continuous economic and political adversity. At the start of the new millennium, the Tata group included 80 companies involved in various industries including engineering, chemicals, energy, materials, consumer products, IT and communications, and services.

TISCO Operations During the 1990s

During the 1990s, TISCO was faced with trying economic times as it forged ahead with modernization and expansion. During the decade, the steel firm began its fourth stage of upgrades and improvements. As part of the modernization, TISCO planned to increase its annual steelmaking capacity in Jamshedpur to 3.2 million metric tons by 1999, up from 2.7 million tons in 1996.

The steelmaker also broadened its geographic reach. In 1990, a U.S. subsidiary, Tata Inc., was established and the following year, the firm opened offices in Singapore and Dubai. It was during 1991 that restrictions on licensing, price, and distribution were lifted in India, allowing TISCO to expand its capacity. India also began allowing foreign manufacturers involved in such steel-dependent industries as electronics and automobiles to operate in the country. As demand increased, TISCO set plans in motion in 1995 to construct India’s largest blast-furnace mill with an eventual annual capacity of ten million metric tons. By 1996, steel consumption in India had grown by ten percent in each of the last four years. That year, TISCO expanded further and teamed up with Inland International Inc. to create Tata-Ryerson, a joint venture that would provide industrial materials management services in India.

During the mid-to-late 1990s, however, India’s steel industry and economic climate weakened. Many construction projects in the region were put on hold. As steel demand and prices fell, TISCO’s profits plummeted. In 1998, the company reported a 61 percent fall in net income. As such, TISCO began aggressive cost-cutting measures and drastically cut its workforce. While most companies involved in the steel industry reported losses, TISCO was able to keep its bottom line in the black.

Despite the trying economic conditions, TISCO was able to complete its $1.5 billion modernization program in April 2000. It began operation of a 1.2 million metric ton cold rolling mill and also became one of the lowest-cost producers of hot-rolled coils. During fiscal 2000, TISCO reported earnings of $90.1 million, an increase over $60.2 million earned in the previous year.

In 2001, after 30 years of service, Jamshed Irani, TISCO’s managing director, retired, leaving B.D. Muthuraman at the helm. Under a new director, TISCO pledged to continue cutting costs and focus on new growth areas such as making investments in the telecom industries. Although conditions in the steel industry remained uncertain and the economic climate in India remained unstable, TISCO appeared to be well positioned to handle the problematic environment.

Principal Subsidiaries

Tata Refractories Ltd (51%); The Tata Pigments Ltd.; Kalimati Investment Company Ltd.; Tata Korf Engineering Services Ltd. (60.1%); Tata Incorporated; Stewarts & Lloyds of India Ltd.; Tata Technodyne Ltd.