Business Economics

Case Analysis: Tata - Daewoo “The Road to Gunsan” Business World,

August 9, 2004

Note: Read the case study “The Road to Gunsan” to answer the following questions.

“The Road to Gunsan” Business World, August 9, 2004.

http://www.businessworldindia.com/aug0904/coverstory01.asp

(i) Examine the market implications of acquiring the Daewoo plant by Tata Motors

(ii) Analyse how new markets technology and policies are influencing Tata Motors Costs?
 TATA- DAEWOO : THE ROAD TO GUNSAN

Tata Motors' acquisition of the Daewoo plant in Korea is more than just a deal. It is a stepping
stone to global markets. Here's how India's biggest automotive player is going places.

A down-to-earth chairman: Ratan Tata

arrives at the Gunsan plant in a private taxi

AT Tata-Daewoo's factory in Gunsan, an industrial port 290 km south of Seoul, you soon get accustomed to the
constant roar of giant, 400-hp trucks that are being put through their paces at the test tracks. A few hundred yards
away from the tracks is a functional, glass-and-steel building called the Daewoo Technical Centre. On most days, the
engineers and the handful of administrative staff who work in the building quietly do their work during the normal
office hours, and vacate the building by around 5.30 p.m.

On 5 July too, very few of them were working late. And that's why they didn't get to hear the din from the executive
offices that drowned out even the noise of the trucks on the test track. Raised voices in both Korean and English
could be overheard from behind the closed doors of vice-president Chandra Vir Singh's office. Singh is the man in
charge of making sure that the Daewoo business integrates smoothly with Tata Motors. Also seated in his room are
Kwan-Kju Kim, Ki-Hee Won and S.U.K. Menon. Kim is the managing director of Daewoo's product division, while
Won is also designated as managing director, with the responsibility of administration. Menon is Singh's peer and
handles finance and business planning.

The room was thick with tension. The meeting had dragged on for over 45 minutes. The conversation was
occasionally interrupted by an angry yet firm voice crackling over a speakerphone. The caller was Ravi Kant,
executive director, Tata Motors, sitting in his first-floor corner room office in Bombay House, the headquarters of the
Tata Group.
Tata breaks the Korean culture barrier:
Chatting with managers in the factory

The meeting had been called to draw up the game plan for the final round of labour negotiations scheduled for the
next afternoon. Korean labour organisations were known to be extremely tough. In the past, they had stopped at
nothing - workers had even tried immolation - to get better deals.

The negotiations didn't seem to be going the way Kant had wanted. Kant felt Singh and the rest of the team, including
president Kwang-Ok Chae (who was away), were giving away far more than what Hyundai, Daewoo's biggest
competitor, had promised its union just the day before. He didn't want the new Indian owners to appear weak before
the Korean labour unions. But at the same time, he didn't want the negotiations to be aborted as that could lead to a
strike and a factory closure. He wanted answers quickly. But every time he asked a question, Kim and Wong would
first discuss it among themselves in Korean, before answering in halting English. It began to test Kant's patience.
Sitting miles away, how could he ensure the Koreans weren't being too soft on their unions?

Four months after the Pimpri-based, Rs 15,483-crore Tata Motors snapped up the South Korean, $231-million
Daewoo Commercial Vehicle Company (now Tata-Daewoo Commercial Vehicle Company) for a little over $100
million, the action is heating up. India's biggest automaker is squaring up to the challenges of managing its first major
overseas acquisition.

Sure, this isn't the biggest overseas deal that India Inc. has struck. At nearly $502 million, the Tata Group's buyout of
Tetley in the UK was five times bigger. The Daewoo deal is also smaller than Reliance's $207-million buyout of FLAG
Telecom.

But for Tata Motors the deal has huge implications. Till it acquired the Korean firm, Tata Motors' commercial vehicles
(CV) business was squarely focused on the domestic market; global sales were just 5 per cent of total sales. It had
plans to expand the global business to 20 per cent by 2005-06, well before the Daewoo deal was on the radar, but
nothing much had come out of it. (See 'Telco's Big Bet', BW, 7 July 2003.).
Lunch at the workers’ canteen

Among other things, the Tatas had planned an ambitious entry into China, the world's fastest growing CV market. For
over a year, Tata Motors had tried hard to break into that country through possible joint ventures and technology
transfers. But none of these options succeeded - Tata just did not have relevant products in the fastest-growing
segments of the market. With their expressway system in plan, the Chinese were no longer interested in low-powered
trucks that made up the Tata Motors range; they wanted more sophisticated trucks.

That's exactly what Daewoo brings to the table. Daewoo makes heavy trucks with payloads of 8 tonnes and above.
These are tough machines for developed countries with good road infrastructure. These machines, powered by
engines of 350 and more horsepower, run at 140 kmph even with loads of 12 tonnes. With the Daewoo trucks, Tata
can now enter not only China and Korea, but also markets like Italy and Spain.

So, instead of being seen as a niche player making small trucks, the Tatas can now enter all the big, sophisticated
markets with a full product range.

Also, the Tata range of 1-tonne pickups could find a new market in Korea and the rest of the region. Daewoo isn't
present in that segment yet. (One-tonne pickups form the biggest segment of the market in that country.)

In fact, the acquisition has significance for the whole of Indian manufacturing. This is the first real test of whether
India can graduate from making low-cost, low-technology products for developing markets to making products for
developed markets as well. As Chairman Ratan Tata says in an interview with BW (See 'Tata Motors Has A Way To
Go...'), Tata Motors has a distinct home market disadvantage. The Indian trucking market is years behind Europe, the
US and even Korea. So how does a predominantly Indian manufacturer leapfrog to the next level and catch up with
its global peers?
At the same time, the Daewoo acquisition will also show whether
Indian manufacturers can make the transition to a truly international
mindset. Most firms still prefer to 'export and sell' instead of thinking
about local manufacture-assembly-and-selling. There are some like
Sundram Fasteners who have set up a new plant in China. And
Bharat Forge acquired a German forgings plant earlier this year. But
both these players primarily make components abroad. Not many
have taken on the challenge of making and selling products under
their own brand name in a foreign market to local consumers - as
Tata plans to do in Korea within the next six months.

Then there are other lessons to be learnt. Delicate labour Inspecting Tata Motors’ first global
negotiations and the issue of trust they raise are just a few of them. acquisition.
Tata Motors can learn a lot from Daewoo, especially about how to
crank up its product development and design skills. Also, there is a
big gap between the productivity levels of Korean and Indian workers. About 600 workers in Korea make trucks that
are stronger than what 1,000 workers in Jamshedpur make. Will Tata Motors have the humility to learn from a
company it bought?

But if it does play its cards right, this deal can catapult the Tatas' CV business into the global league. R. Seshasayee,
MD of Ashok Leyland, India's second-largest commercial vehicles manufacturer, says: "Most certainly, there is a
demonstration effect. Every visible success - and failure -will be seen as representative of the industry/country
concerned."

Already, the deal has put Tata Motors on the international map
for auto M&A deals. A few days ago, a representative from an
East European government called the company out of the blue,
asking whether it would be interested in buying a stake in an
auto company in that country. Says Tata Motors executive
director Praveen Kadle: "It has opened a few doors that didn't
exist even a few months ago."

For all the strategic importance Tata Motors is assigning to the

The Integration team: (L to R) Kwan-
Kju Kim, Ki-Hee Won, C.V. Singh and
S.U.K. Menon
acquisition, the deal itself happened rather accidentally. In April
2003, Kadle had finalised a plan for growing Tata Motors' CV
business inorganically and had asked merchant bankers to
locate possible buyouts. In July 2003, even as the newly formed
M&A team headed by general manager (corporate finance) R.S.
Thakur was scouting for deals, KPMG's Indian office, acting at
the behest of its Korean counterpart (the official advisers to the
deal), sent the company a proposal asking if it was interested in
bidding for Daewoo Commercial Vehicle. A court receiver
appointed to liquidate Daewoo's assets after its collapse in 2001
was selling the firm.

Kadle asked Kant if he was interested. The fact sheet on the company provided by KPMG was skimpy. More details
would be available for Rs 96,000 ($2,000). After a brief discussion, Kant decided to find out more about the offer. At
that time, they had no inkling they would put in a bid. They bought the documents out of curiosity and to conduct a
small exercise for the fledgling M&A department.
What they saw in the offer documents excited them. Daewoo's manufacturing plant was operating at only a quarter of
its capacity, yet it commanded a 22 per cent marketshare in the 8-tonne-plus segment. Being under court
receivership, no investments had flowed into the company, making the existing models a bit dated. But it clearly had
the technology prowess to bring out newer versions. Further, Daewoo had no products in the biggest CV segment in
Korea. Sure, they were warned against the militant labour unions in Korea, but it looked like a great opportunity.
Eventually, Tata Motors decided to make a non-binding bid.

All this action took place within a week as per the

strict deadlines set by the Korean court.

In the initial round, there were 15 other companies

who had made non-binding bids. A couple of weeks
later, Tata Motors was among the 10 bidders
shortlisted to go on to the next round. That's when the
team at Tata Motors got real serious. The deal was
discussed in the next board meeting. Thakur would
lead a team of 20 people to Gunsan to begin due
diligence, before the Tatas put in their final, binding
bid. In Korea, Deloitte Touche was hired as
accountants and Kim, Chang and Lee as the lawyers
for the acquisition.

On 27 August 2003, Kant landed at the Gunsan

factory just before the due diligence exercise to
receive instructions from the Korean company
officials. While he was sitting in the VIP visitors' room,
Kant chatted with a young manager, Charles Choi.
Choi, who was conversant in English, was there as an
interpreter. He told Kant Daewoo would prefer to
partner with a European company that could bring in
high technology.
The M&A Team
Praveen Kadle (R) took the proposal to bid for the
Daewoo plant to Ravi Kant (seated). Finally, M&A
team head R.S. Thakur and his team did the due
diligence that led to the final bid

This showed up in the hospitality too. When the bidding teams arrived for due diligence some weeks later, the
Europeans were put up at Gunsan's best hotel, Summit, whereas Tata Motors was booked into the somewhat
rundown Gunsan Tourist Hotel. Kant says: "To me, this was the turning point in the deal. I realised it was not about
bidding high. Clinching the deal was about winning the confidence of the Koreans."

Once he got out of the VIP room, Kant immediately issued instructions to Thakur to change tack. He no longer
wanted Thakur to stress on the financial capability of Tata Motors. Instead, he wanted him to make presentations on
Tata Motors being the sixth-largest commercial vehicle company in the world, its strong labour relations, and the fact
that unlike Daewoo, the company was not a mere assembler of trucks.

"Tata motors has a way to go (to globalise)"

Chairman Ratan Tata chats on the future of Gunsan and Tata Motors.

 What difference did the Daewoo deal make for Tata Motors?

Historically, Tata Motors has been outside India for most part.
Although it broke a lot of new ground in exports in the years gone
by, they were really in soft currency areas. And the exports [were]
from India because those countries did not have hard currency. Or
in developing countries, where you operate on a low selling price. It
has been only in recent times that we have sort of struck out to try
and get a foothold in the developed world and compete against the
advanced products in Europe and Asia. I said all of this because, in
many ways, it is now that Tata Motors will have to position itself
against the majors in the automotive world. Short answer to your
question is that Tata Motors will now have to gear up to compete
and it has a way to go.
 Are there any inherent competitive advantages that Tata
Motors has in its quest to go global?

It has many competitive advantages and some disadvantages. The advantage is, of course, the cost base
and the engineering base which enables it to design and engineer products. Its disadvantages are that a
large market, its own home market, does not demand the kind of products it wants to sell elsewhere. So
Tata Motors is not producing those products for the Indian market because the Indian market today does not
need them. And in so doing, even when it designed products for the international market that were different
from those in India, it did not have the scale to produce them competitively. In the past, all the exports were
'this is what we have and that is what we give you'. Today markets are very different. You have to give the
markets what they want. So there lies a bit of disadvantage until India itself increases its product
requirements to equal that of the world. If that were to happen, then I think Tata Motors' competitive
advantage would be even greater because it would have a home base with scale for a similar product range.
 How long do you think that would take to happen?

Well, it is already happening in the pollution front. It will soon happen on the safety front. And to some
extent, Tata Motors itself would have to drive things like driver comfort, product reliability in higher speeds
when we get the highway network, etc. So, broadly, I would say that in the next five to seven years, India
should be more or less where the Asian markets are in terms of product sophistication.
 So, essentially you would be looking at the Asian market with this acquisition? Or would you also
look at Western markets?

In the acquisition of Daewoo, we have catapulted ourselves or accelerated our ability to have products that
India does not have or does not need. Out of Daewoo with its scale, [we can address a] geographic market
[that] we would not be able to address [otherwise]. For example, in the Middle East, we have products that
are appealing but cannot be used because they are not designed for highway speeds there. In other
countries, we don't have the size -- of products like the 40-45 tonne product. We don't have tractor-trailer,
multi-axle -- the types that are used abroad. Now, we do. I believe we will address various sophisticated
markets in South Africa, in Asia, in China and in some countries in Europe with the Daewoo product, and we
will use those Daewoo products as the foundation to engineer new products out of India.
 Tata Motors has been quite adept in engineering. Now, you are going to add another company which
comes will similar or greater skills. How will you integrate the two companies?
We have C.V. Singh in Korea whose main job is to integrate the two factories or companies. The way we
have to do it -- it is a delicate exercise - [is that] neither side must feel that they are superior to the other. We
should really have an integration of two equals. And I think even though Daewoo might be smaller, in terms
of work ethics, in terms of good practices, quality and productivity, we have a lot to learn from them. In terms
of scale and size, we are bigger. But I think what they can learn from us is probably the level of
innovativeness that has made us what we are today. So the integration will really be to try and put the
strengths of the two companies together in such a way that each one would draw on what it thinks it needs
from the other rather than either side imposing its will on the other. I think that is the crucial issue.
 At the plant in Korea, there are executives who have substantial experience in operating huge
business and plants in other countries. Now that it is a part of Tata Motors, how would you
 specifically integrate these people? For example, the current CEO Mr [Kwang-Ok] Chae, headed the
car business in China for Daewoo. How will you integrate him into the Tata cadre?

I did not know of Mr Chae's role in China…

 Mr Chae was sent by the then Daewoo chief Mr Kim to break into the Chinese market. Mr Chae set up
the manufacturing units in China which have now been acquired by GM.

I didn't know that. If that were so, as it obviously is, what we should do is avail of that experience and
integrate that into our operation. Now, one way to do this is to create a joint forum between the two
companies. In Tata Tea, for example, we brought the managing director from Tetley on to the board of Tata
Tea. He participates, therefore, in the well-being and growth of Tata Tea. I think, now that you are saying it,
we would need to set up an integration group between the two companies on which Mr Chae and Ravi Kant
and others should be. And optimise and leverage the strengths that each of the companies have. After this
meeting, I will set that up.
 Everybody is talking of China. Big as it is, it is also a very tricky market and auto companies have
lost immense amount of money there. But not being in China means you are not in the fastest
growing market. Would you set up a deadline that you must be in China by this time?

We are already in China. We have already signed an MOU with China Brilliance for the Indica. We are
talking to another company about the commercial vehicles. And I believe our entry into China will be
somewhat easier than [that of] a US company or a German company. For two reasons. We are not really
paranoid about setting up in China. Like for many of the other companies, the only way to be in China is to
be there oneself, take one's product and graft it into China and sell it as one's product. In both the cases, we
have been willing to talk in terms of a joint developed product. We may lose our identity a little bit, but we will
be in China in a smoother and on a larger scale than some other companies who started out.
 Hyundai has a technical tie-up for commercial vehicles in China. Will you also adopt a similar entry
strategy for China?
No, we won't go in for a technical tie-up. What we are thinking of doing is not so much with our India product.
It is [with] the Korean product. There will be a partner in China who will assemble those products. We will
encourage the local country. We will have a royalty for what we do. Well, it won't be just the transfer of
technology. We will transfer the product. What I am trying to say is that if one of the US or German
companies in China wanted to make a change, they could not make it there because of their parentage.
Their product couldn't be any different in China than elsewhere in the world. We would not have that
problem. We will be more flexible. So, what is in China may not be the same vehicle as it is in Korea or in
India. It would be for the Chinese market and foundation of that would be ours.

There was tough competition for Tata Motors. The qualified bidders included financial investors like Carlyle
Investment Corporation, which was advised by George Bush Sr; a local auto component company named Tongil
Corporation; and Voith, a European transmission company. There was also an unnamed European CV manufacturer.
Each one did its due diligence from the exclusive data room assigned to it.

Tata Motors did more than that. During the two weeks they were there, Kant and Thakur informally disseminated
information to local authorities and trade associations. They made presentations specially prepared in Korean to the
local governor and mayor, and organised banquets for the bureaucracy. Gunsan's mayor, Kang Keun Ho, told BW he
had changed his perceptions about the Indian auto industry. He says: "Though Korean companies exported to India,
we had no idea that India had big auto companies. It was a revelation to us and now we are proud to have them
here." Adds Kant: "Eventually, I will believe that it is this soft-selling that clinched the deal for us."

After the due diligence, the Tata Motors board members again deliberated on the issue. Kadle and Thakur
considered the future business, volumes and expected cash flows to arrive at an appropriate bid. By this time, Ratan
Tata's interest in the deal was building up. He wanted to see the plant. But Kant insisted he should go to Gunsan only
once the transaction was complete. And at one stage, when Kant felt they could lose the deal, Ratan Tata was quite
concerned.
The board gave the green signal to Thakur, the head of the M&A team, and told him the range he could bid within.
Thakur did the mathematics, chose a figure on the lower side of the range, and made his binding bid. Says Thakur: "It
was love at first sight when we saw the plant. But we consciously tried to suppress our excitement."

On 22 October, KPMG's director George Traub told Kadle and Kant over a conference call that Tata Motors was the
preferred bidder. When Tata heard the news, he personally congratulated each senior member who had worked on
the deal. Thakur again left with a team to do the final due diligence, as the earlier analysis had been restricted to the
data room. Now, he would have access to all the books of the company. This final due diligence was important, as
the rules allowed for a 5 per cent reduction in the bid price if the bidders found any substantial anomalies in the
books. Which the Tatas did. The team found sales for June 2003 was corrected after the first due diligence and stood
lower in the October 2003 accounts. The Tatas got a full 5 per cent reduction. All this took a few weeks.

The court then put the final bid to the Daewoo creditors who owned the company. Getting their approvals and sorting
out Daewoo brand issues (which was owned by 12 firms including Daewoo Commercial Vehicle) took two months
more. Ratan Tata wanted the deal completed before Tata Motors closed its books for 2003-04, and so the final
handover of share certificates was advanced to 29 March.

That was when Ratan Tata first visited Gunsan. A few days earlier, executives from Vaishnavi Communications, the
Tatas' public relations agency, flew to Seoul and hired a local agency to introduce the Tata Group to the local media.
Soon articles began to appear in the local media. The Korean media was fascinated by the trusteeship structure of
the Tata Group, where a portion of the profits of group companies go to charity. Articles talked of Tata's frugal lifestyle
and the group's trouble-free labour policy. Tata, when he reached Gunsan, didn't disappoint. He arrived at the
Gunsan factory in a maxicab, a paid taxi service, with his key executives. Inside the factory, he wore the Daewoo
jacket and ate in the workers' canteen. Says Mayor Ho: "My first impression was that you can trust this person." In his
speech to the workers at the factory, Tata said his company was there to learn from the Koreans.

A revolution on Indian roads?

The Safer Ride

Cabins of Korean trucks are designed to be safe
and ease driver fatigue, as is visible in the
photograph above. In contrast, Indian trucks (left
bottom) are cheaper, but do not make the long
hours spent driving a truck any more comfortable
for the driver

Travelling down a Korean expressway at 120 kmph in the SsangYong luxury model - Chairman - the last thing
you expect is to be overtaken by another vehicle. Unless it were a Mercedes. After all, the Germans helped the
Korean automaker design the sedan. But a fully-loaded truck? During the hour-long drive from Gunsan to
Jeollabuk-Do, each time one of these 16-tonne beasts thunders past, you can only rub your eyes in disbelief.
In India, it is popular belief that cars travel faster, more comfortably and more safely than trucks. But in the
developed world, that's no longer true.

In Europe, for instance, trucks come with air suspension under their drivers' cabins to ensure that the ride is
smoother than that of even the latest Mercedes car. Sophisticated electronics control the braking system and
the engine, which, in turn, stop these monsters from causing accidents.

Now, here's the moot point: why put so much technology into trucks that simply carry goods? That's because
trucks travel down the same expressways as cars do. They also occupy more road space. A tractor-trailer
truck can be as long as five large sedans parked one after the other. If it were to travel at a leisurely pace, just
as trucks do in India, it would simply clog up highways that you pay expensive tolls to use. Also, since trucks
carry heavy loads, accidents not only dislocate traffic, but also tend to substantially damage road
infrastructure.

That's why many progressive countries are actually ensuring, through legislation, that trucking technology
keeps pace with that of cars and, in some aspects, goes beyond. In Europe, there are accepted norms on
power-to-weight ratio, which means trucks have to be made in such a way that they can carry heavier loads at
higher speeds. This ensures quicker turnaround times for operators and, thereby, increases operational
efficiency. Retreading of tyres, a common practice in India, is banned in some countries. Overloading, too, is
not allowed. Some Asian countries like Korea have had similar regulations for almost a decade, though the
enforcement isn't as tough as it is in Europe.

India, of course, continues to lag behind. But now, some like S.P. Singh believe that change is round the
corner. Singh is a senior fellow at the Delhi-based Indian Foundation of Transport Research and Training,
which researches the commercial vehicles business in India and also advises the surface transport ministry on
regulatory issues. Singh says: "Today, the trucking business in India is about short-term profits. That's brought
in a lot of unscrupulous players who compromise on safety and cause damage to infrastructure. All to make a
quick buck." In fact, a few state governments like Andhra Pradesh and Karnataka have now legitimised
overloading by levying a new cess. The result: though operators make quick profits and companies benefit
through lower cost of freight, a lot of time is wasted getting from place to place. For instance, it could take a
truck 4-5 days to get from Mumbai to Chennai, when it could have easily been done in two days.

So how will India get out of this vicious cycle? Singh says
there are three factors that could trigger a new revolution
on Indian roads. For one, the government is concerned
about the rising costs of maintaining the newly-built
highways and is, hence, bringing in a host of new
measures. It will shortly implement the Euro III emission
norms, which will force truck manufacturers to upgrade
engines. At the same time, the Central government is
working on a new legislation to put an end to overloading.
This is expected to push truck makers to develop more
powerful engines, which will allow trucks to carry more
loads. Two, to ensure driver safety, new rules are already
in place for cabin design. The idea: to design comfortable and strong cabins that help ease driver fatigue and
also safeguard human life. Three, in a bid to curb noise pollution, truck manufacturers will have to reduce the
vehicular noise to 78 decibels (at 60 kmph) by April next year, from the current levels of 85 decibels (at 45
kmph).

Effectively, this means that to remain profitable, truckers will have to carry heavier loads more quickly on every
trip. One easy, efficient solution: simply switch over to multi-axle vehicles in the long run. Multi-axle trucks
carry up to three times the loads of a two-axle truck at nearly the same speeds.
 Truckers see the value in this. Multi-axle and tractor-trailer trucks are the fastest-growing truck segment today,
with 10 per cent of total sales. In fact, Swedish truck maker Volvo's India strategy hinges on this, even though
its trucks cost 4-5 times more than the Tatas' two-axle trucks.

This could well have been Tata Motors' Achilles heel. But now, the knowledge and expertise that the Daewoo
acquisition brings could help it guard its home turf better.

Even before the share certificates had been handed over to Tata Motors, executive director Kant had begun his
assessment of how to turn around Daewoo. Since a couple of rounds of due diligence had been completed, the Tatas
had a good sense of the situation on the ground. But the key issue was, would the Korean managers cooperate? Or
would they come in the way of the changes that the Tatas were planning? Kant then picked nine high-performing
managers from the Indian operations who would drive the integration effort. Leading the pack were C.V. Singh and
S.U.K. Menon.

The Koreans, on the other hand, already had a senior team in place. Kwang-Ok Chae, the president, had worked
directly under the erstwhile Daewoo chairman, Kim Woo Choong, and headed important businesses for the group. He
was sent by Kim to China to set up the small car engine manufacturing plant. He was later in charge of building a CV
business there. Chae worked on the project for two years, but it remained incomplete because Daewoo had
collapsed by then. There were others too, like Ki-Hee Won, who had experience in the UK in sales, and later headed
the Austrian operations. Nearly all the 600
workers had been trained at the Isuzu plant in
Japan.

The Tatas knew that the best way to retain

such strong local managers was to give them
full operational freedom. After all, this is what
Tata himself had committed to the workers.
Wherever there were gaps, particularly in
service and marketing, Tata moved in its own
people. Earlier, Daewoo's trucks used to be
sold by another firm, Daewoo Motor Sales, and
hence, the company had no marketing and
servicing arm. Tata-Daewoo has a small sales
team of its own and also six authorised service
centres across Korea. In the next six months, it
will have its own finance schemes for
customers. The Tatas also took control of the
finance function (this is normal in acquisitions;
the Tatas had invested Rs 500 crore to acquire
the firm). Says Kwan-Kju Kim: "Nothing has
changed except for the fact that we now
belong a large automobile company. That will
take some time to sink in, but it is a positive
feeling."

To signal their full commitment, the Tatas did

one other thing. The Korean market was to adopt Euro III emission standards from 1 July 2004. On 12 June, Tata-
Daewoo organised a big-bang launch for its Euro III-compliant product Novus at the swanky Co-ex Centre in Seoul.
The total budget: nearly $500,000. Tata, who was in Seoul for another meeting, dropped by for the launch. The event
was attended by dealers, important business partners, and local dignitaries. Says Kant, "We had to create a flutter in
the market." For the Daewoo managers, this was a big event. Says Dong-Ho Lee, president of Daewoo Motor Sales
Corp: "This is first time in a decade that the company has made a significant launch."
But despite all the feel-good spirit, for the Tatas, managing cultural integration will be tricky. Unlike the senior team at
Daewoo, who have international experience, the Tatas have never had a cadre of managers trained in global
markets. They don't have the experience or the maturity to see through a global acquisition. Then there is the basic
difference between Indian and Korean cultures. For instance, some Tata managers say, President Chae does not
share information with them. That could be due to the Korean work ethic. Koreans tend to be hierarchy-conscious; a
senior manager seldom mingles with anyone other than his peers.

At the same time, the onus is clearly on improving Daewoo's performance. In 2003, Daewoo had sales of $231 million
and pre-tax profits of $9 million. At the net level, it made a meagre profit. Kadle says he plans to recover the
investment along with the opportunity cost within five years. Some Tata managers even feel they can pull it off in
three years.

There's a very good reason for their optimism. The clues lie inside the three-storied Daewoo Technical Centre. Here,
80-odd engineers are working on designs that will make the existing Daewoo products suitable for new international
markets. Daewoo has a product line-up that neatly complements the Tatas'. By tweaking existing models, Tata
believes it can take the Daewoo products into newer markets like China, South Africa, Turkey and the Middle East.
(That's because each trucking market has its nuances and, hence, requires customisation. In Korea, Daewoo's trucks
are customised for nearly every customer.)

In South Africa, Tata Africa recently set up a distribution network to sell its entire range of vehicles. Now, it will also
sell Daewoo trucks. A small team from Tata Motors has been to Turkey to study that market. Based on its
assessment, the Tatas will decide on an entry and a product line. In the Middle East, the Tatas expect the Daewoo
trucks to be sold without much modification. In effect, in the next 3-4 years, exports should account for 25 per cent of
Daewoo's turnover, up from 8 per cent currently.

There is a strong reason for the export focus. The Korean market for heavy trucks has stagnated in the last few years
at 15,000 vehicles a year. And Daewoo's marketshare had fluctuated between 22 per cent and 35 per cent for the
last six years.

But there's an opportunity here for Tata. Daewoo is absent from the single-largest segment in Korea's CV market -
the 1-tonne pickup. This 150,000-unit segment is monopolised by Hyundai and its subsidiary, Kia. The Tatas make
pickups slightly bigger than 1-tonne in India. Though they are different from the Korean 1-tonners, the Tatas could still
pull off a coup here. Nearly 18 months ago, the Tatas began working with a European firm for a sub 1-tonne pickup
based on an international design. As it turns out, the specifications of that van-like vehicle were similar to what the
Korean market needs. Sources say the Tatas are close to buying the rights to the product design and the tool room,
and could bring the product to the Korean and Indian markets in the next six months.

The biggest bet will, of course, be China, the fastest-growing CV market in the world. Kant's China strategy has been
a work-in-progress for the last 18 months. But the Tata products did not fit in, given the modern Chinese
infrastructure. Besides, the low-end Chinese trucks were far cheaper than the Tatas'. And the margins were simply
too small for the Tatas to make a profitable entry. But now, with a fuller product portfolio - thanks to the Daewoo
product line-up - the Tatas expect to gain critical mass more easily.

Talks are on with a local company for assembly. And by this time next year, the first set of trucks from the Tata-
Daewoo combine could roll onto Chinese highways.

It will be an exciting journey to watch. Tata Motors' USP has been to provide the cheapest solution to truckers. For
the Koreans, it is the power and design that matter. Together, can they make a robust trucking solution for the world?
Says Kant: "With this deal, Tata Motors has acquired all the attributes of a global company. It is the first step to being
one."