Americans are used to foreign cars — nearly half of us, after all, drive one — but no American has yet seen a vehicle bearing the brand name Tata Motors tooling along the highway. So when, a few weeks ago, news broke that this same Tata Motors, an Indian auto company, was close to buying Jaguar and Land Rover, the first reaction of many was “Who?”
The implausibility of the bid was magnified when Tata rolled out its newest product, a tiny, stripped-down car that will sell for a mere $2,500. The spectacle of a low-end specialist trying to buy a couple of established luxury brands looked to some like a cubic-zirconium peddler making a play for Tiffany.
There’s no denying the audacity of Tata’s bid—the company has never sold a car in the U.S. — but there’s also no denying Tata’s distinguished pedigree: The parent company of Tata Motors (called the Tata Group) started in the 19th century, and, in the years since, its divisions have created India’s first steel mill, provided electricity to Mumbai, started the country’s first airline, and built its first locally made trains and automobiles.
Today, Tata is a huge conglomerate — 98 companies producing everything from tea to steel and solar power — with annual revenues of around $30 billion dollars and a chairman whom Fortune recently named one of the 25 most powerful people in business.
If Tata is so powerful, why have so few Americans heard of it? In large part, because so much of its fortune has been made selling to its home market and to other developing countries, rather than to the U.S. and Europe.
Historically, developing-country firms that have become global powerhouses—like Japanese companies decades ago or, more recently, Korean companies like Samsung — were companies that, in addition to dominating their domestic markets, were heavily oriented toward exports to the West. Tata — with some exceptions, such as its steel and consulting businesses — has taken a very different approach, becoming tremendously rich while selling to people who are still pretty poor.
Tata has been able to do this because of the way the global economy has changed. Even three decades ago, selling to the U.S. and Europe made sense, because that’s where all the money was. Most developing countries had only a minuscule upper class and a tiny middle class, and business conditions in these countries were difficult at best.
Today, the economies of developing countries are still only a fraction of the size of Western economies, but many nonetheless have growing middle and upper classes with disposable income. And, as the business professor C. K. Prahalad argues in his book “The Fortune at the Bottom of the Pyramid,” even the poor in these countries constitute a market worth trillions of dollars. Twenty years ago, few people in India could have afforded even a $2,500 car. Today, tens of millions can.
Making money in developing countries remains challenging, of course, but meeting those challenges can actually help a company like Tata become a formidable global competitor, since figuring out how to earn a profit in markets where your selling prices are necessarily low forces a company to be innovative in thinking about how products are made and sold. That may be why a huge wave of what you might call developing-country multinationals — companies like Mittal Steel, Lenovo, Chery Automobile, and Cemex — have recently begun to move aggressively into Western markets.
These are the advance guard of what’s been called “the emerging-markets century.” The distinctive thing about this trend is that the companies involved aren’t simply making stuff abroad and then shipping it here. Instead, they’re now using their wealth to take a shortcut, by buying up Western companies. In 2005, the Chinese computer company Lenovo bought IBM’s PC division, and the Mexican cement company Cemex acquired the British cement giant RMC. Last year, India’s Mittal Steel paid $33 billion for the Belgian company Arcelor, and Tata’s steel company bought the British-Dutch steel producer Corus for more than $11 billion.
The acquisitions help companies avoid potential export restrictions, bring them closer to customers in the developed world, and provide a kind of instant credibility — at least, when the acquisitions are done well. (Lenovo’s ThinkPads, for instance, seem to be as well regarded as IBM’s once were.) These deals are often also a way to acquire managerial and technological expertise.
It may very well be true, as many have suggested, that knowing how to build a $2,500 car doesn’t mean that Tata will be able to build a $70,000 car. But the people at Jaguar can, and buying Jaguar will give Tata quick access to that knowledge.
This buying spree could, of course, end badly. When some Japanese companies in the 1980s went on a buying binge in the U.S., they often ended up overspending. But such an outcome wouldn’t change the fact that developing countries are now producing genuine global contenders.
Globalization, it once seemed, was mainly going to give companies in the U.S., Europe, and Japan billions of new customers and plenty of cheap labor. But it has also meant that these companies have had to face many more real competitors than they once imagined. When we persuaded developing countries to open their doors to us, we also opened our doors to them. Now they’re walking through.