January 2015 | Sangeeta Menon
'We have to get to a billion dollars quickly'
Tata Technologies is an engineering and design services company that offers outsourced services, product development IT services and product lifecycle management solutions to manufacturing companies, primarily in the automotive, aerospace and industrial machinery sectors. A Michigan-headquartered company, Tata Technologies emerged unhurt from the 2008 recession that impacted many of its major business verticals, and has now set itself a target of joining the billion-dollar revenue club by 2017. Warren Harris, CEO and MD, has been a part of the Tata Technologies success story for years. An alumnus of the University of Wales, Cardiff and Harvard Business School, Mr Harris was president of INCAT when it merged with Tata Technologies. He talks to Sangeeta Menon about the way forward and the challenges he expects.
Tell us about the big milestones of the Tata Technologies story in North America.
We started in the US in 1988 — that was the beginning of INCAT International, a company that Tata Technologies acquired in 2005 — and we have really scaled up the organisation since that time. Some of our key milestones over the last nine years are the first offshore project we won in the automotive industry; the tour of the Tata Nano around the US to profile our frugal engineering capabilities in 2012; the launch of an electric vehicle at the North American International Automotive Show in Detroit three years ago, which was a very proud moment for us; and about a year ago, the acquisition of Cambric, a company in Salt Lake City (with delivery centres in Romania), that offers services to the industrial machinery sector.
Personally speaking, my proudest moment was in 2009. The automotive industry in the US had imploded as part of the financial crisis and two big OEMs — General Motors and Chrysler — went bankrupt. In May 2009, Tata Technologies was sitting on a $9 million receivable from Chrysler. We had over 250 people working at the tech centre. It would have been very easy for us to cut our losses and pull out of the city. But the Tata group and our board of directors remained committed to the industry and the local community and we saw the crisis through. The commitment that we demonstrated to our customers at that time has really been the basis on which we scaled up our operations over the last five-six years.
How did Tata Technologies manage to weather the economic recession?
The three industry verticals that we support were impacted in different ways. In the automotive vertical, the number of vehicle units that were sold in the US went down from around 16 million in 2008 to around 10 million in 2010. There was real shrinkage in the volumes sold and that impacted the entire value chain – from OEMs through to the supply chain. Now we’re seeing the industry come back online. In the last 12 months, the number of vehicles that were sold in the US has gone back up to 17 million, generating a tremendous shortage for engineers. We have been able to address that need not only through the team in Michigan but also through resources in India and around the world.
|Find out how Tata Technologies aims to achieve the billion dollar target|
Where do you see growth coming from over the next three years as you aim to become a $1 billion company?
We are very bullish about the next two-three year timeframe. The automotive sector makes up about 65 percent of our business, followed by aerospace (14 percent) and then, industrial machinery. The prospects for the automotive sector over the next 10 years are very good indeed. The growth in China, the anticipated growth in India, and the growth we have seen over the last three years in the US, all of this is expected to continue. The need for product development capability in the automotive space will continue to grow.
In aerospace, the last five years have been very good. A number of programmes in both the commercial and defence sectors have driven demand. Those programmes are starting to move into the manufacturing stage and most of the aerospace companies are now more focussed upon manufacture throughput. Most of the companies have big order books and they can’t manufacture the product quickly enough. We are investing very heavily in manufacturing services to be able to support that need. As far as industrial machinery is concerned, one of the things we are trying to do is combine the turnkey knowledge gained through the Cambric acquisition with the full vehicle capabilities that we have developed in automotive so that we can take on both kinds of projects for key industrial machinery clients. One of the things that differentiates Tata Technologies is our focus on the high-end challenges that surround the product development process — our ability to undertake complete vehicle programmes, for instance, is a key differentiator. And we see our ability to support these kinds of programmes through a hybrid on-shore- off-shore model as the basis on which we are going to pursue our billion-dollar target.
Are acquisitions going to be part of the growth strategy?
We are committed to complementing organic growth with some inorganic acquisitions. We’re looking at acquisitions in terms of gaining target customers, complementing our in-house capabilities, and expanding into new geographies. Tata Capital is our in-house M&A team and we are very aggressively looking at opportunities in that space.
How does the Cambric acquisition fit into the strategy?
The Cambric acquisition was based on the need for Tata Technologies to diversify. We were very dependent on the automotive and aerospace sectors. Our growth depended upon those two verticals — at a macro level, both represent opportunities but are also driven by economic cycles. Our investment in industrial machinery was essentially to provide some level of insurance against those cycles. We also felt that investing in a somewhat associated vertical would allow us to complement our core capabilities in automotive and aerospace.
After the integration, we focused on cultural alignment and the management teams were very proud of the fact that all the key decision makers chose to stay with the organisation. We have also had very low attrition in Romania. Now that the organisation has really bought into the Tata Technologies value proposition and Tata group values, the next phase of that acquisition is to invest in helping them grow quicker by building their components capabilities.
Would you be looking at other ways to de-risk the business?
Yes, in terms of looking at new verticals and complementary capabilities. Most of the skills that we have on the engineering side have been in the mechanical domain areas. Increasingly, a lot of innovation is being driven in software and electronics and we will certainly look to make investments there, either in building capabilities at source or by looking at acquisitions in that space. But we are clear that we need to be increasingly relevant.
Are you planning to grow the Tata Technologies footprint in the Americas?
We already have operations in Canada and Mexico. Over the last six months we have begun our first project activity in Brazil as the relationship with Fiat and Chrysler provided us with an opportunity to establish an office in Belo Horizonte. We’re excited about South America, not just in terms of what the market there represents but also in terms of the supply side capabilities that exist in Mexico and Brazil.
What challenges do you expect on the way to the billion dollar goal?
The key challenge for us is people: being able to recruit quickly enough, build capability quickly, and attract and retain the best people in the industry. So we will focus on building a culture that enables us to win the hearts and minds of the people that join the organisation. Size is important — if we are going to partner with some of the leading manufacturing companies around the world, we have got to get to a size that gives the clients confidence that we are going to be around for the duration. We just surpassed US$ 400 million now; we have to get to a billion dollars relatively quickly, in order to demonstrate that we are stable and here for the duration.
What kind of sustainability initiatives is Tata Technologies involved in the North America region?
We are very active in the corporate social responsibility area. We are partnered with a number of different organisations, including First Book. This summer, we teamed up with a non-profit called Athletes for Charity, to begin a partnership with the local American football team, the Detroit Lions. We are working very hard to promote STEM education in Detroit. As you probably know, Detroit went bankrupt two years ago and that has represented a huge burden on the school system there. So we are trying to ensure that the school system gets access to the resources that it needs to be able to deliver support for elementary and high school children in the field of STEM. Tata Technologies has a global programme called Ready Engineer, which is focused upon encouraging STEM education and preparing engineers for the workplace. We donate the e-learning platforms that we use in-house to train our engineers to various universities and educational organisations around the US; we also provide our engineers as mentors and coaches to some of the new graduates that are entering the workforce. I think, particularly where education is concerned, technology has got a huge role to play in the area of sustainability.
How is the Tata brand perceived in North America?
The Tata brand is perceived extremely well. Everyone in the business world has tracked the Jaguar Land Rover acquisition and seen the turnaround there that the group has been associated with. That is being acknowledged not just in the context of turning a company around, but also in the context of the impact Tata had on manufacturing in the UK. Ten years ago, manufacturing in the UK was at a low, but JLR has been the catalyst for change and manufacturing is now an important part of prime minister David Cameron’s plan to stimulate the UK economy. The business community has a lot of respect for the Tata brand.
Another thing we are seeing in the US, particularly regarding people and recruitment, is recognition of the Tata values. After the financial crisis of 2009-10, people are increasingly looking to be a part of something that doesn’t just provide them with a salary but is bigger and better than that. The values of the Tata group resonate with people.
Fact file: Tata Technologies