Tata Steel in India - Research Paper Example

Tata Steel of India Table of Contents Introduction 1 Tata Steel and Economic Conditions in India 2 Corporate Management Strategy at Tata Steel 3 Sustainability Policies at Tata Steel 4 a. Investment in New Processes and Products 5 b. Operating Margin 5 c. Return on Capital Employed 6 d. Value Added 6 e. Generating Greenhouse Emissions 6 f. Material Efficiency 7 g. Energy Intensity 7 h. Steel Recycling 7 i. Environment Management Systems 7 j. Employee Training 8 k. Lost Time Injury Frequency Rate 8 Recommendations for Change in Management Strategy 8 Implementation Plan for Corporate Management at Tata Steel 9 Managing the Transition of Business Strategy 9 References 10 Introduction Tata Steel is recognized as India’s first Iron and Steel company, having been founded in the year 1907 during the British colonial era. (Indicus Analytics, 2009) Tata Steel operates as part of the Tata Group, allowing it to pursue integrated supply and distribution facilities to automotive manufacturing, heavy industry, and consumer goods production within the conglomerate’s structure. (Economy Watch, 2010) Tata Steel competes with a large number of different Iron and Steel companies within India’s domestic economy and internationally, including the Steel Authority of India (SAIL), Arcelor-Mittal, POSCO, Hindustan Steel, JSW Steel, and other companies. The Indian Government has pursued a policy of progressively opening India’s local economy to foreign competition, and there is currently no levy or tax restriction on the import and export of iron and steel products. (India Ministry of Steel, 2009) The consequence of this is considered to be increased competition in the sector, and lower prices, particularly as set by Chinese steel producers for export. China produced over 10 times the steel capacity of India, at 567 million metric tons in 2009 compared to 56.1 million metric tons produced by India in the same period. (India Ministry of Steel, 2010) Nevertheless, Tata Steel has produced a corporate strategy to meet these competitive challenges, and this includes sustainability policies directed at the greater welfare of workers, the environment, and community. This report will review Tata Steel’s sustainability policies as implemented by corporate management to determine the success of these programs and to recommend changes that are mutually beneficial to the stakeholders of the company. Tata Steel and Economic Conditions in India Tata Steel states publicly that “the primary purpose of a business is to improve the quality of life of people.” (Tata Steel, 2011) This tenet constitutes the cornerstone of the company’s sustainability policy, and represents the wider mandate held by corporate management on behalf of stakeholders. In India, there is a need for social and economic development that uplifts people out of poverty. One of the main processes that enable individuals to improve their life condition in the modern, globalized economy is the possession of a professional, well-paying job. Another factor is the level of education that an individual receives in the formative years of development. Education is recognized as vital to the long-term sustainability of business and industry, as well as being one of the main constituents of what is required in a good employee. As India’s economic development needs change on a national level from addressing the dire threats of the poverty situation of the post-colonial era through socialist policies to supporting the booming economy expanding at a rate of 8% to 10% annually in the 21st century through progressive market policies, it should be expected that the sustainability policies at Tata Steel are also updated and analyzed by management teams to reflect the changing requirements of the communities themselves that are being served. As stakeholders should be considered in the wider manner of the community and not merely as the employees, families, and business partners of Tata Steel, the need exists to see how Tata Steel management have updated and developed their sustainability policies as part of India’s changing economic situation in transitioning from the 20th to 21st Century. “The stakeholder theory has been advanced and justified in the management literature on the basis of its descriptive accuracy, instrumental power, and normative validity.” (Donaldson & Preston, 1995) Due to Tata Steel’s pivotal role in the development of the Indian economy and their goal of improving the standard of living, the company’s sustainability policy should be analyzed as to how it has actually achieved these goals. This can be seen in critically evaluating the company’s commitment to education support, healthcare, labor relations, and environmental initiatives. Nevertheless, these sustainability policies should be seen as inseparable from the core business management strategies that the company employs to generate its competitive advantages. Corporate Management Strategy at Tata Steel Tata Steel is regarded as one of the leading examples of corporate management in India, and its sustainability policies reflect a long tradition of commitment to social progress through business development. Tata Steel competes in the domestic India market as well as internationally with factories in Thailand, the UK, E.U., and other locations. (CCI, 2010) As Indian demand for steel per capita is less than a third of the international average and India as a nation will need to produce over three times the current level of production to reach the standards of the U.S, E.U., & UK in economic development vs. standard of living or parity in infrastructure development, the importance of Iron and Steel production to the larger needs of stakeholders is evident. (Indicus Analytics, 2010) Yet, questions exist whether India can environmentally produce this level of production in Iron and Steel without seriously impacting the natural wildlife areas or if there are even sufficient natural resources available in India to support this level of production increase indefinitely. (CSIS, 2006) Consequently, Indian Iron and Steel companies have been importing more raw materials and finished products. India’s coal reserves may not be of the type ideally used for Iron and Steel production, requiring further import of this commodity. (CSIS, 2006) With the threat of a global slowdown, the problems involved with overproduction in the global Iron and Steel marketplace may force prices down and present a risk to Tata Steel, in the same manner that U.S. Steel experienced in the erosion of margins. It is within these larger concerns that a sustainability policy that embraces the wider definition of social responsibility must be developed and evaluated, as they point to the strategic needs of the company, its environmental preservation, and social development. Sustainability Policies at Tata Steel Evidence exists that the sustainability policies at Tata Steel are to be considered industry leading and a model for other companies to follow. The company defines sustainability as “an enduring and balanced approach to economic activity, environmental responsibility and societal benefit.” (The Times 100, 2011) The wider definition of a stakeholder approach must consider the concerns of the greater society outside of its own employees and business partners. Thus, to evaluate the effects of this commitment by Tata Steel management, the success of the group in achieving longevity of operations growing value to shareholders, benefits and service to employees, the effect of measuring environmental impact must be undertaken. The social benefit can be found in salary support for a wide number of workers in a developing economy and internationally, support in healthcare and pensions, education assistance, recycling, environmental protection measures, anti-pollution policies, fair trade, labor relations, non-discrimination policies, quality, safety, and human resources all within Tata Steel’s sustainability goals. (Tata Steel, 2011) Tata Steel has furthermore accepted 11 principles from the World Steel Association sustainability criteria that reflect their corporate management policies that prove “the Company has made social responsibility a part of its business process and sets aside its people and resources to supervise the work of socio economic development”. (Tata Steel, 2011) In analyzing the corporate management strategy of Tata Steel as related to sustainability, these express goals can be a guide for benchmarks that make the process and statements of the company verifiable according to their ability to achieve the social welfare through successful enactment. The eleven principle of the World Steel Association are: a. Investment in New Processes and Products Tata Steel’s management team has successfully pursued this requirement through their acquisition of the world's fifth largest steel company Corus, but questions remain as to if management over-paid for this purchase. (Economy Watch, 2010) b. Operating Margin According to the last 2011 quarterly report, Tata Steel’s operating margins are threatened by rising cost of operations, which are increasing at a greater rate than revenues. (Ananthanarayanan, 2011) c. Return on Capital Employed Tata Steel’s management announced a plan to double the return on capital following the 2007 acquisition of Corus for $13 billion USD. (Bloomberg, 2008) This plan failed as the global economy collapsed in 2008, suggesting a possible better price could have been secured for Corus had the company anticipated the macroeconomic recession. d. Value Added Tata Steel’s management succeeded in scaling the company to a global level and able to compete directly with both international and domestic Iron and Steel companies. Management has synergized efficiencies within the Tata Group, though it is not clear that it has fully optimized the potentials between further international integration. e. Generating Greenhouse Emissions Tata Steel’s green policies, monitoring of emissions and commitment to environmental protection is industry leading in India, but it may remain one of the largest polluters and disturbers of the natural environment through expansion, leading to potential public relations impact on operations. f. Material Efficiency The iron ore resources mined and used in India for production represents a natural resource that can be depleted and as a heritage of future generations. The Indian iron ore reserves require inherent environmental destruction to extract, thus mandating efficiency or limiting of impact. g. Energy Intensity The energy needs for smelting and iron ore refining by Tata Steel may require types of coal that require imports, depleting limited coal resources in India, or pollution of the environment. Similarly, mining costs may be determined by the rising cost of petroleum or natural gas imports required to run heavy machinery. h. Steel Recycling Tata Steel is leading the industry in recycling policies in steel, and can be expected to innovate or create new means of increasing efficiency through the talented R&D staff. i. Environment Management Systems Tata Steel is in accord with Indian, E.U., UK, and other standards in environmental protection in operations, advocates public support and donates funding to additional green programs beyond the scope of the law that can be considered progressive, but inherent business model issues lead to environmental destruction. j. Employee Training Tata Steel leads in the industry with regard to putting welfare of employees, social uplift, and non-discrimination in hiring part of its sustainability policies. k. Lost Time Injury Frequency Rate Tata Steel has implemented “Productivity Improvement Committees” to monitor operations and find means of improving efficiencies. (Tata Steel, 2011) Recommendations for Change in Management Strategy 1. Tata Steel needs to leverage its global network, including further expansion into the Chinese market for resources and production, both to stay competitive with market costs and to facilitate exports to world markets. 2. Tata Steel needs to become a fully global company with integrated synergies within its network of operations, which includes the need for changes of management strategies where employees or facilities are accustomed to local operations and focus. 3. Tata Steel needs to avoid the mistake of previous industry leaders in Iron and Steel to expand in Africa, South America, and Australia, leverage the talents of its employee base and operating system to facilitate cost efficiencies and competitive advantage. Implementation Plan for Corporate Management at Tata Steel The company should continue to study the successes of past merger and acquisition strategies while transitioning from a company with a regional focus and international plans, to a fully established and market leading global brand. In this manner Tata Steel can internationalize its socially innovative sustainability programs to other locations. Tata Steel must implement strategic management changes which emphasizes the training of employees for global operations and inter-connectivity between facilities. Tata Steel needs to innovate in environmental protection to prove empirically that it can continue to expand operations while simultaneously minimizing damage to natural wildlife and undeveloped areas. The recommendation is for an evolutionary or incremental plan of implementation which is achieved through benchmarking. Managing the Transition of Business Strategy An evolutionary or incremental plan with benchmarking can be implemented by Tata Steel corporate management across all operations in a manner that can lead to increased profitability in the long term. This includes education to employees of the challenges of the global environment, and to develop new approaches using information technology to solve them across borders. This will lead to the further success of the sustainability policies at Tata Steel, and can be benchmarked on a time-limited basis to achieve stated targets. References Ananthanarayanan, Ravi (2011). Tata Steel’s outlook clouded by global economic uncertainty. Live Mint, Aug 14 2011. Retrieved from http://www.livemint.com/2011/08/14222438/Tata-Steel8217s-outlook-clo.html Bloomburg (2008). Tata Steel aims to double return on capital. Business Standard, November 20, 2008. Retrieved from http://www.livemint.com/2011/08/14222438/Tata-Steel8217s-outlook-clo.html CSIS (2011). India’s Energy Dilemma. South Asia Monitor, Number 98 September 7, 2006. Retrieved from http://csis.org/files/media/csis/pubs/sam98.pdf Donaldson, Thomas and Preston, Lee E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. The Academy of Management Review, Vol. 20, No. 1 (Jan., 1995), pp. 65-91. Retrieved from http://www.jstor.org/stable/258887 EconomyWatch (2011). World Steel Industry. World Industry Directory, 30 June 2010. Retrieved from http://www.economywatch.com/world-industries/steel-industry/?page=full India Ministry of Steel (2009). AN OVERVIEW OF STEEL SECTOR. NIC, 2009. Retrieved from http://steel.nic.in/overview.htm India Ministry of Steel (2010). Iron and Steel Industry in India. NIC, 2009. Retrieved from http://www.cci.in/pdf/surveys_reports/iron-steel-industry.pdf Indicus Analytics (2009). PUBLIC ENTERPRISES, GOVERNMENT POLICY AND IMPACT ON COMPETITION INDIAN STEEL INDUSTRY. Final Report Prepared for the Competition Commission of India. January 2009. Retrieved from http://www.cci.gov.in/images/media/completed/Indicussteel_20090420151842.pdf Tata Steel (2011). Policies. Tata Steel Corporate Website, 2011. Retrieved from http://www.tatasteelindia.com/corporate/policies.asp Tata Steel (2011). World Steel Sustainability Indicators. Tata Steel Corporate Website, 2011. Retrieved from http://www.tatasteelindia.com/corporate-citizen/corporate-sustainability/iisi.asp Read More