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Tata Daewoo: An Indian Success Story in Korea

Friday, January 1st, 2010

 

Tatadaewoo
In 2004, employees at Daewoo Commercial Vehicle heard good news that they would have a new owner after months of uncertainty sparked by the bankruptcy of its parent company Daewoo Motor Co.

 

But their excitement turned into confusion when they found out that the new owner is Tata Motors, a company based in India, which they had considered a lesser developed country. Tata was something they had never heard about before.

"A lesser known company tries to buy us to snatch our advanced technology."

"It is out of the question to sell our company to India, they are inferior to us."

A wave of disappointment overran Daewoo unionists who had welcomed a divestiture plan for job security. They argued it was better not to sell than to be under a company nobody knows about.

The argument was understandable, given its sister companies were successfully sold to household name companies - a passenger car affiliate to General Motors Co. and a bus manufacturing arm to Youngan Hat Co., both the world's leader in their respective field.

The management, however, decided to sell the truck maker to Tata Motors because there was no other choice left. They explained to employees that Tata Group is India's largest company with a time-honored tradition in employee benefits and social responsibility. Some persisted, showing complaints about the deal. But it went through.

After the birth of Tata Daewoo Commercial Vehicle (hereafter Tata Daewoo), the new company was back on track to roll to victory, calming the jitters of its Korean workers. Over the four years from 2004, exports jumped about five times to 4,280 units from 874 units, revenues more than doubled to 673.1 billion won from 292.3 billion won and operating profit grew more than eight times to 59.2 billion won from 7 billion won.

Tata Daewoo exports trucks to more than 40 countries including the UAE, Algeria and South Africa, as well as domestic sales in India. In 2006, it was honored with a government award to celebrate $100 million in exports of heavy-duty trucks. In 2008, it achieved a $200 million milestone in exports. Employees grew to 1,281 from the 806 registered at the start of the new company.

Tata Daewoo is the only one showing a stable and steady growth among the three business arms that Daewoo Motor Co. sold. GM Daewoo is facing a liquidity crisis after it posted billions of dollars in losses, and Daewoo Bus is reportedly in management trouble. Tata Daewoo workers who knew little about the Indian company are grateful for the acquisition. Loyalty to their company became strong.

Then, how did Tata Daewoo overcome the crisis and succeed within such a short period of time? The key was tripartite cooperation between Tata Motors, new management and employees.

First, the acquirer Tata Motors has performed operations with a 'humble attitude.' Tata Motors is one of 82 affiliated companies owned by India's largest conglomerate. It has represented India's industry for more than a century by producing everything "from iron to consumer goods." But what made it more famous is not the business size but its commitment to social responsibility and ethical business, leading to great respect from the Indian people.

Tata Motors is India's biggest automobile company and the world's fifth largest commercial vehicle manufacturer (truck and bus). Last year, it surprised rival carmakers by unveiling 'Nano,' the world's lowest priced four-passenger car costing just $2,500. Tata Motors acquired the entire equity of Tata Daewoo, but it never behaved as if it were an occupation force. It appointed a native Korean as CEO and it respected the Korean business style and corporate culture, while slowly integrating its strength of trust and ethical management into the whole organization.

For example, Tata Motors presented a mid- and long-term development plan to Daewoo Commercial Vehicle employees during the acquisition, by promising more investments in R&D, facilities and plants. That eased some concerns that it might exit from Korea soon after garnering advanced technologies. Afterwards, Tata realized most of its plans as promised. Employees showed trust towards management and had their morale heightened. Its decision to maintain the old Daewoo brand in Korea and in 10 overseas markets, including Algeria, pleased the employees.

Attention also should be paid to the company's drive for business excellence through the Tata Business Excellence Model. It is different from the Western model that usually focuses only on efficiency. Tata's model is not only about profit-seeking, but it considers the growth of both the company and the community. This is well echoed in Tata Daewoo's vision, which is 'To be the most admired commercial vehicle company of Korea.' It aims to achieve a parallel growth of customers, shareholders, suppliers, employees and the community based on ethical business principles. It details a mission for each stakeholder as follows.

1) Shareholders: To ensure the company's growth and enhance shareholder value by consistent profitable operation

2) Customers: To achieve customer satisfaction by providing products and services that exceed customer expectations

3) Vendors & Channel Partners: To ensure sustainable growth through mutually beneficial long-term relationships based on trust

4) Employees: To provide an exciting work environment of equal opportunity, hope and pride by promoting motivation and morale

5) Community: To be an environment-friendly and socially responsible company

The second key success factor is the appointment of excellent management staff and 'strategic management.' President Chae Kwang-ok is behind the success of today's Tata Daewoo. He took office as a court-appointed manager to supervise the company, which was hard hit by the foreign exchange crisis in the late 1990s in Asia. The trade union, who wanted job security more than anything else, gave him full support to keep afloat through a divestiture plan. Mr. Ravi Kant, then managing director of Tata Motors, who led the acquisition work of Daewoo Commercial Vehicle, named Mr. Chae as new CEO of Tata Daewoo instead of appointing an Indian manager.

Chae, known as a leader with charisma, joined the efforts to help Tata Daewoo get over the crisis. He directed the launch of new models almost every year and dared to enter the mid-sized truck market. But many were concerned that entering the mid-sized truck market was imprudent as the market was then controlled by Hyundai & Kia Motors, Korea's No. 1 automaker. Nevertheless, he continued his push with his own firm belief.

Tata Daewoo's 'hidden card' was to produce 'a mid-sized truck like a large-sized one,' a model as spacious and safe as a large-sized truck, but with a medium-sized load carrying capacity. This was the outcome of management innovation to minimize expenses in design and investments.

The new truck model sold like hotcakes. It took only 20 months for Tata Daewoo to occupy a 35 percent share in the medium-sized truck market. It was a remarkable event in the history of Korea's truck market that showed unchanged purchase behaviors tamed by monopoly brands for a long time. In April 2007, Tata Daewoo became the first automobile company in Korea that received the ISO/TS 16949 standard certification, which provided recognition of quality of the brand both at home and abroad.

Tata Daewoo ran in high gear. All models of NOVUS Euro 4 tractors and cargo trucks unveiled in 2008 received the low-pollution vehicle certification from the government, from which it benefited much in government subsidies, a 5-year exemption from pollution-related payments and a discount in gas exhaust inspection fees and the use of a public parking lot. With the benefits, it was able to lower retail prices, benefiting its customers. About 80 percent of the low-pollution heavy-duty trucks sold in 2008 were produced by Tata Daewoo.

Influenced by Tata Group's management philosophy, Tata Daewoo has also focused on developing environmentally-friendly low-emission trucks, as it is always keen to resolve environmental and global warming issues. It started to commercialize conventional low-emission trucks powered by compressed natural gas (CNG) and also completed the development of eco-friendly trucks that use clean fuels such as liquefied natural gas and liquefied petroleum gas.

The LPG-fueled truck, first displayed at the exhibition of the 2008 World LPG Forum, received much attention from domestic and overseas participants. Being recognized for these efforts, Chae was given the award of 'Businessman for Korea' from the Hankook Ilbo Daily and the award of 'Korean CEO' from the Economic Review, both in 2007. The Hankook Ilbo Daily said it selected Chae since "he is a businessman who has contributed to Korea's economic development and raised Korea to new heights with his excellent leadership, management innovation and vision."

Last but not least, it is the management's trust towards employees and efforts for mutual prosperity. The trade union of Daewoo Commercial Vehicle was a die-hard union under the influence of the Korean Confederation of Trade Unions. Nevertheless, its union members gave full support to their management with a single goal in mind: to overcome the crisis. They showed trust in Tata Motors even though they were unfamiliar with the company. Of course, it was the result coming after both management and union recognized each other and made the best possible choice.

Below are some examples to show their efforts for co-existence. Tata Daewoo agreed in 2004 with its union members to turn a certain number of irregular workers into full-time workers every year. Tata Daewoo's management kept its words. Despite difficulties due to the financial crisis around the world, Tata Daewoo gave 42 workers a regular position in April 2009, which was not an easy decision. About 250 irregular workers have so far been made regular workers.

Kim Geun-gyu, vice president of Tata Daewoo's trade union, said, "Though Tata is a foreign company, we were able to confirm that it recognizes and respects Korea in many aspects," adding, "the regular position benefit was possible with both the union's efforts and the management's decision."

Instead of this mutual trust and cooperation, what if the two sides had gone to extremes like the recent case of Ssangyong Motors, where China's Shanghai Automotive Industry Corp. had invested? If that had been the case, Tata Daewoo might not have remained viable.

Tata Daewoo hires people in its vicinity with a vision for the development of the local community. The company is located in Gunsan, Jeonbuk Province, and more than 70 percent of its workforce comes from the city, contributing to job creation in the region. Additionally, it runs a humanitarian program for deserving underserved neighbors and the disabled to show its commitment through action. It was named as one of exemplary companies last April by the province and was given an award by the government.

Tata Daewoo achieved another milestone on Sept. 14, 2009, when Ratan Tata, chairman of the Tata Group, and 500 participants launched the new range of premium trucks called PRIMA at COEX in southern Seoul and began marketing from October. The new truck is a premium model made after investments of 100 billion won in R&D over a period of five years, including more than two years of component checks, as well as test-runs that exceed 1 million kilometers, or travel around the globe 50 times.

With the launch of PRIMA, Tata Daewoo aims to significantly raise its share in Korea's medium- and large-sized truck market. It is not an impossible goal given Tata's strong performance. Tata Daewoo is developing products in phases with a plan to expand its product portfolio as a global commercial vehicle manufacturer with a wide line-up of models from the current medium- and large-sized trucks to small-sized (1 ton), compact-sized (2.5~3 ton) and even buses for export.

The Comprehensive Economic Partnership Agreement (CEPA) signed by Korea and India will be in effect from January of next year. It is a free trade agreement that India struck with Korea ahead of Japan or China, through which Korea and India will be able to further cement bilateral economic ties. In this respect, Tata Daewoo is a good example of successful economic cooperation between two countries.

* The writer is the president & CEO of "India Fortune," Indian Economy Research Institute, Seoul, Korea. He has taught Korean economics at the CEAS (Center for East Asian Studies) in Jawaharlal Nehru University, New Delhi, India.

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