reversing colonialism

Posted on March 27, 2008

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The once-mighty British Raj had counted on its colonization of India to contribute to its wealth.

India’s raw materials like opium, cotton and tea swelled British coffers and enabled them to build the world’s greatest navy of the time.

In a stunning reversal of fortune, the once-colonized Indians have now come to demonstrate the new world order. India’s largest truckmaker, Tata Motors, had announced it will purchase two of Britain’s biggest auto brands, Jaguar and Land Rover, from the ailing US auto company, Ford.

The $2.3 billion deal is not a huge one, but it is significant given how much the fortunes of the British auto industry have fallen and the irony of its needing a former colony to come in and hopefully, revive its viability.

Jaguar has stood for the luxurious best of British motoring, while the Land Rover is associated with high-end off-road ruggedness. Tata now faces the prospect of retaining the two brands’ strong luxury identities and making them more successful than Ford had been able to.

It is an odd marriage in many ways. Tata is not known to be an upmarket auto developer. It has built its fortune and company on producing hardy trucks that carry the world’s most mundane goods. More recently, Tata hit the headlines for developing the world’s cheapest and most utilitarian car, the Nano, which Tata hopes to sell for about $2,500, so that more of the world’s population could afford to own a car.

So the issue now is whether Tata has the research and development capacity to support the luxury segment it has just bought itself into. More than just the products, Tata would also have to learn to manage the image of the products so that they will not lose their status nor customer base. That intangible might be tougher than just the nitty-gritty of engine and design.

Financially, this transaction is going to be costly for Tata. It is likely to finance the deal by selling shares it holds in an associated company, Tata Steel. Investors have already expressed a lack of confidence in the deal on Tata Motor’s stock. Bloomberg reports that its shares have fallen by four percent on the Bombay Stock Exchange after the deal was disclosed.

It would be hard work, but Tata will try to make this work in its bid to showcase the rising prominence of India’s auto industry vis-à-vis the global auto market.

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