The world’s economic axis seems set for more change, tipping the balance further toward Asia and away from Europe and North America. Two years ago the Chinese bought out the failing British MG Rover car company and shipped the production lines to China. The latest evidence of major change is the confirmation that India’s Tata Industries is the favored bidder to buy the UK’s Jaguar and Land Rover businesses from Ford. Though not yet a done deal, the Indian conglomerate looks set to best its private equity rivals, not least because tighter bank credit means the investment funds face difficulties raising the $2 billion which is the likely asking price.
If the sales go through, Tata will not merely have acquired two premier international motor brands but also a major high-technology boost. Its existing product, the Indica range, is facing growing challenges in the domestic market, not just from locals but from Japanese and American plants that have been established in India. Analysts expect that Tata will use its new assets and turn itself into a multirange international manufacturer with a strong offering in the Indian subcontinent. However, the company’s share price drop in Mumbai indicates that the deal has its dangers. For a start, Tata will be taking over the UK factories of Jaguar and Land Rover. These are high-cost installations, especially in terms of labor and pension-fund obligations. Both companies are currently profitable. So this is not a distress sale by Ford; it is part of a worldwide reorganization of its businesses. Therefore, labor unions will suppose they are negotiating from a position of strength. Tata will in no way be able to dismantle the two production lines and take them off to India as the Chinese did with the effectively bankrupt Rover MG plants. Tata management seems set to gain not only new technology but some tough lessons in European labor relations with highly paid workforces.
These, however, will be short-term challenges for the Indian industrial giant. The long-term gain for the company, for India and for Asia, will be substantial. Other Indian entrepreneurs have been building up their presence in Europe and America in key sectors such as food and IT. This may indeed be the year in which an Indian IT company seeks to buy one of the big — almost certainly American — software names.
The US, however, though advocating free trade, practices covert protectionism, not least in resisting the operational takeover of its companies and making life difficult for successful acquirers. Foreign bank takeovers of US financial institutions have all come unstuck. Renault’s 1979 acquisition of AMC and Daimler’s take over of Chrysler both ended in commercial failure. Acquisitive Japanese companies were told in the 1990s that if they wished to enter the US market, it would have to be through building local production plants, not by acquiring a big US motor company. So they built — and very successfully too. Last October for the first time in the United States, Toyotas outsold Fords.
