Ratan Tata, who runs the Tata Group, one of India’s two biggest conglomerates, is buying into a history of trouble with his $2.3 billion cash deal, announced today,  to acquire the Jaguar and Land-Rover companies from Ford (F). Transfer of ownership to Tata Motors is due to be completed by the end of June, and the  question is whether Tata can then break a cycle of decline.

It’s been 40 years since the British government, in a bid to rebuild the country’s automobile industry, cobbled together ailing car brands such as Jaguar, Rover, Austin, Morris and Riley into a giant called British Leyland. BL, as it became known, was a failure, mainly because of endemic labor problems, uninspired products and poor quality. Since 1968, there have been many rescue attempts, but only rare short bursts of success. Several of the once proud names are long forgotten and none is British-owned; the iconic MG brand was bought three years ago by China’s Nanjing Automobile to make sports cars in China and the U.K., and the Morris Mini cult car is with BMW.

So could Tata succeed where others have failed? Market and industry analysts have their doubts, fearing the companies do not fit and that Tata’s optimism about growth could be hit by worsening economic problems in the United States and elsewhere. Tata Motors shares lost 4.4% on the Mumbai stock market today as brokers awaited the announcement.

But there is some reason for optimism. Ratan Tata isn’t expected to treat Jaguar and Land Rover like a traditional takeover: He says he’s not planning to overhaul senior management, close factories in Britain, or cut workers. He said today: “We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.” Ford will continue to supply Jaguar and Land Rover with powertrains and other components, in addition to a variety of  environmental and other technology and support services.

Tata also doesn’t seem all that concerned about instant profits – just as he doesn’t expect instant returns from the tiny Nano car he hopes to launch by year’s end. Instead, he is expected to use the brands and their U.K. plants, executives and labor to help build Tata Motors, which had $7.2 billion sales in fiscal 2007, into a global car company. He’s been on this mission for several years, buying Britain’s Tetley Tea in 2000, a Korea-based Daewoo truck plant in 2004 and steel giant Corus (previously British Steel) last year.

Ratan Tata’s hands-off ownership could win him crucial support as he tries to fold the Jaguar and Land Rover brands into Tata. Mark Norbom, the head of General Electric in Japan, wrote recently in the Financial Times about the importance of the “soft side” of a takeover deal. The “look in the eyes that (the buying) company is worthy” has special value, said Norbom, and is something that “does not come naturally to the typical western-trained dealmaker.” Well, it seems to come naturally to Tata and his people. It was evident in the Corus deal, and it seems to be at work again in their Jaguar and Land-Rover plans.

This could, of course, mean that Tata is seen - especially by British trade union leaders - as a soft option who will let workforces carry on as usual. Land Rover has had three years of record sales for Tata to build on. But there’s no telling how long the status quo can last, especially if demand slackens in the United States and elsewhere and Ratan Tata has to institute cutbacks at the luxury car makers.

Tata has said that Land Rover and Jaguar will benefit from India’s low-cost design and IT ability - and boost sales in Asia. His company will “add value in co-operating on engineering and development which are considerably cheaper (in India) than in the West,” he said. Tata Technologies, the group’s advanced industrial design house, is based in Pune and operates in twelve countries, with international headquarters in Singapore. It has been involved in the design of Tata Motors’ cars and vans, but does about 75% of its work for foreign clients, including Chrysler, General Motors (GM), Boeing (BA) and Airbus.

There’s another question hanging over the deal: Tata’s future once its 70-year old patriarch retires. He is not due to step down until he’s 75 - in December 2012 - but has said he would like to go earlier, and there are rumors it could be at the end of this year.

That seems unlikely, if only because there is no clear successor. From inside the Tata family there is a reclusive cousin, Noel Tata, who runs some of Tata’s retail businesses, but there is no sign of him being groomed for the corporate and public life that goes with the top job. One or two top executives from outside the family, and even outside the Tata Group, have also been rumored, but none has been publicly held out as a successor.

It is Tata who has provided the personal drive and leadership to turn Tata Motors into a business that can produce the Nano and buy two world famous brands - in the same year. There’s a big job waiting for someone – and Tata is not yet saying who. Until it does, the era of uncertainty at Land Rover and Jaguar won’t be over.

Ratan Tata, who runs the Tata Group, one of India’s two biggest conglomerates, is buying into a history of trouble with his $2.3 billion cash deal, announced today,  to acquire the Jaguar and Land-Rover companies from Ford (F). Transfer of ownership is due to be completed by the end of June, and the  question is whether he can then break a cycle of decline.

It’s been 40 years since the British government, in a bid to rebuild the country’s automobile industry, cobbled together ailing car brands such as Jaguar, Rover, Austin, Morris and Riley into a giant called British Leyland. BL, as it became known, was a failure, mainly because of endemic labor problems, uninspired products, and poor quality. Since 1968, there have been many rescue attempts, but only rare short bursts of success. Several of the once proud names are long forgotten and none is British-owned; the iconic MG brand was bought three years ago by China’s Nanjing Automobile to make sports cars in China and the U.K., and the Morris Mini cult car is with BMW.

So could Tata succeed where others have failed? There’s reason for optimism. Ratan Tata isn’t expected to treat Jaguar and Land Rover like a traditional takeover: He says he’s not planning to overhaul senior management, close factories in Britain, or cut workers. And he doesn’t seem all that interested in instant profits – just as he doesn’t expect instant returns from the tiny Nano car he hopes to launch by year’s end. Instead, he is expected to use the brands and their U.K. plants, executives and labor to help build Tata Motors, which had $7.2 billion sales in fiscal 2007, into a global car company. His been on this mission for several years, buying Britain’s Tetley Tea in 2000, a Korea-based Daewoo truck plant in 2004, and steel giant Corus (previously British Steel) last year.

Ratan Tata’s hands-off ownership could win him crucial support as he tries to fold the Jaguar and Land Rover brands into Tata. Mark Norbom, the head of General Electric in Japan, wrote recently in the Financial Times about the importance of the “soft side” of a takeover deal. The “look in the eyes that (the buying) company is worthy” has special value, said Norbom, and is something that “does not come naturally to the typical western-trained dealmaker.” Well, it seems to come naturally to Tata and his people. It was evident in the Corus deal, and it seems to be at work again in their Jaguar and Land-Rover plans.

This could, of course, mean that Tata is seen - especially by British trade union leaders - as a soft option who will let workforces carry on as usual. Land Rover has had three years of record sales for Tata to build on. But there’s no telling how long the status quo can last, especially if demand slackens in the United States and elsewhere and Ratan Tata has to institute cutbacks at the luxury car makers.

Tata has said that Land Rover and Jaguar will benefit from India’s low-cost design and IT ability - and boost sales in Asia. His company will “add value in co-operating on engineering and development which are considerably cheaper (in India) than in the west,” he said. Tata Technologies, the group’s advanced industrial design house, is based in Pune and operates in twelve countries, with international headquarters in Singapore. It has been involved in the design of Tata Motors’ cars and vans, but does about 75% of its work for foreign clients, including Chrysler, General Motors (GM), Boeing (BA) and Airbus.

There’s another question hanging over the deal: Tata’s future once its 70-year old patriarch retires. He is not due to step down until he’s 75 - in December 2012 - but has said he would like to go earlier, and there are rumors it could be at the end of this year. That seems unlikely, if only because there is no clear successor. From inside the Tata family there is a reclusive cousin, Noel Tata, who runs some of Tata’s retail businesses, but there is no sign of him being groomed for the corporate and public life that goes with the job. One or two top executives from outside the family, and even outside the Tata Group, have also been rumored, but none has been publicly held out as a successor.

It is Tata who has provided the personal drive and leadership to turn Tata Motors into a business that can produce the Nano and buy two world famous brands - in the same year. There’s a big job waiting for someone – and Tata is not yet saying who. Until it does, the era uncertainty at Land Rover and Jaguar won’t be over.

At India’s DefExpo defense show this week, Tata announced a string of tie-ups with foreign manufacturers from the United States, Israel and Europe that set it apart from other emerging Indian defense manufacturers like Larsen & Toubro (L&T) and Mahindra & Mahindra.

The Tata group is becoming well known around the world for its low cost car, its bids for the Jaguar and Land-Rover brands, and for taking over Europe’s Corus steel company. Now it is emerging as the Indian market leader in a new area – defense equipment.

The company is transferring India’s proven ability to produce low-cost software and international-quality auto components and cars to the defense and aviation industries, persuading companies like Boeing (BA), European Aeronautic Defense & Space Company and Israel Aerospace Industries that they can benefit by buying from India.

The pairing with IAI is probably the most important announced in the past week. A joint-venture company is planned to develop and manufacture defense and aerospace products such as missiles, unmanned aerial vehicles, radars, and electronic warfare and security systems. With EADS, Tata will be bidding for a long-delayed $1 billion Army communications system, while it is to supply Boeing with aerospace components – including orders for the United States Air Force – totaling $500 million over five to eight years. There is also a helicopter cabin order from Sikorsky Aircraft Corporation.

The main prize that everyone wants is a $10 billion Indian Air Force order for 126 multi-role combat aircraft (MRCA) that is now out to tender. Robert Gates, America’s defense secretary, will push Boeing’s and Lockheed’s bids when he is in Delhi next week to try to revive slow-moving joint defense and security collaboration agreements.

India’s private sector has historically played a very minor role in the country’s $10 billion-plus annual capital expenditure on defense equipment. Up to 70% is spent abroad because the Indian public sector cannot deliver in terms of quality or speed on either research or production. Only about 30% of the orders placed in India (around 10% of the total) goes to firms like Tata, L&T, and Mahindra because the public sector-dominated defense establishment has never allowed the private sector to develop. That is beginning to change, but only slowly.

In June last year, I wrote a post saying India would soon announce names of a small number of Indian private-sector companies - Raksha Udyog Ratnas or, literally translated, “defense industry jewels” - that would be allowed to compete for big research, development and production projects on equal terms with the public sector.

I should have known better, as I wrote last October when it was becoming clear that the policy would be blocked. The names have still not been announced, and it doesn’t appear that they will be, at least until after the general election  next year, because of opposition from Leftist political parties, encouraged by trade unions and the defense establishment.

There is also a new offsets policy which requires foreign defense suppliers to spend 30%-50% of their orders in India. The government has forecast this could generate $12 billion in orders in the next four to five years - among the first will be business from Lockheed (LMT) for six Super Hercules C-130J military transport aircraft costing $1 billion that India ordered earlier this month.

It will be some time however before offsets produce orders that provide economies of scale, so Tata wants to build manufacturing capacity independent of how the Ratnas and offsets develop. Tata Advance Systems has been set up to manage the manufacture and integration of orders, and Tata Industrial Services will match Tata’s and other Indian companies’ capabilities with offset and other requirements from abroad. For large projects, various group companies such as TCS Aerospace (software), Tata Power, Tata Advanced Materials and Tata Motors will pool capital raising and risk management resources.

This will enable Tata, one of the country’s two largest business houses, to build up capacity and scale so that it is ready to manufacture in quantity for the Indian defense forces when it is allowed to do so. It also enables foreign defense companies to get used to working in India at a time when they are about to be forced to use Indian components through the new offsets policy. Other companies are also making similar moves, though none is so wide-ranging as Tata which, so far, is winning.

Ratan Tata has achieved his dream. This morning the chairman of Tata Sons, one of India’s two largest companies, unveiled his “Peoples’ Car” at a pop star-style media circus staged at the Delhi auto show. He fixed the price of a basic 623cc model at the much vaunted level of one lakh (a hundred thousand) rupees or about $2,500. That makes it the world’s cheapest car, though it may not be very profitable. And he named it Nano – to conjure up high tech and small size images.

“A promise is a promise” he said, announcing the price. When I asked him whether the figure would otherwise have been higher, he said the promise had been a response to what had appeared in the media. This had become “a challenge” that he felt he had to meet. He’s proud that he has launched “a means of transport that does not exist”, enabling families to move up-market faster from motor cycles that frequently carry three young children as well as parents.

The basic model of this handsome elongated bubble of a car will have the dealer price of $2,500 but will cost the consumer about $3,000 with tax and delivery costs when it is launched toward the end of this year. That is about three times the price of an average motorcycle and half that of the Maruti Suzuki 800cc saloon, currently India’s lowest priced car. More luxurious versions, with air conditioning and other features, will be priced higher. The car is unlikely to be exported for three years or more but, when it is, extras such as air conditioning and power brakes and steering would be added.

Rajiv Bajaj, managing director of Bajaj Auto, claimed this week when he launched a concept $3,000-plus car to be developed with Renault and Nissan (NSANY), that Tata (TTM) had never said his one-lakh car would be profitable. Today Tata dodged the question, saying the auto show was “not the platform to talk about breaking even.” Margins would be “spread over several models” and, with variants, the car would be “a profitable proposition for the company.”

Contrary to recent mocking jibes, Nano would meet all emission, pollution and safety norms, though its basic India version would not be sufficient for full European emission and side-crash requirements, nor have an air bag. Its maximum speed will be about 65 miles an hour with regular gas (diesel will follow later) consumption of 50 miles to the gallon.

Tata would not say much about how the low price has been achieved beyond that his Indian designers had “shrunk the package of the car” so that less steel and other materials are used, along with a smaller engine. But it is only 8% smaller than the Maruti 800, though it has, Tata claimed, 21% more inside space. Some savings will come from locating suppliers on the same site as the main Tata Motors factory in West Bengal (which has been hit by rows over use of land). Further savings might be made later by using subcontractors to assemble cars nearer the point of sale.

Overall, Nano is undoubtedly a major achievement for Indian design and manufacturing. It is also a huge personal success for Tata, whose ideas have been met with widespread incredulity since he first broached the idea nearly ten years ago of moving families off dangerously overloaded motor bikes and into the relatively greater safety of a low cost car.

He has said recently that he would like to retire before too long and that it would be a good time to do so when the Nano is fully launched. He is now 70 and is due to go by the time he is 75. “I do not want to go out in a wheelchair,” he recently told Business World, an Indian business weekly. But first he has to find a successor who can provide the widely diversified and growing Tata group (currently bidding for the Jaguar and Land-Rover car businesses) with the type of strong leadership that he has achieved - and that seems to be posing him with a more difficult challenge than designing and unveiling the Nano.

The Tata group’s Indian Hotels company, which runs the Taj hotel brand, has sent an angry riposte to Orient-Express (OEH), a UK-based hotels-to-trains company that last week said an association between the two companies would reduce the value of OEH brands. Krishna Kumar, vice chairman of Indian Hotels and a director of Tata Sons, the parent company, last night accused Paul White, OEH’s president and CEO, of being “highly misinformed and unduly aggressive”. A letter sent to him by White was “pejorative, inaccurate and libelous.”

This escalation of exchanges between the two companies could be building up into a major row unless OEH backs down. Kumar denies White’s claim that Indian Hotels had launched a takeover bid for OEH and insisted he only wanted to develop joint activities in areas such as sales and human resource initiatives. Kumar pointed out that Indian Hotels’ 11.5% stake in OEH makes it the largest shareholder. He added that OEH “does not respect the most basic tenets of corporate governance” because it was refusing a dialog with his company and with Dubai Holdings, a Dubai government investment company that is the other largest public shareholder.

He ended the letter saying that “those with a fossilized frame of mind risk being marginalized” – which looks more like a warning that Indian Hotels will beat OEH on the ground rather than trying to take it over. Time will tell.

It’s not the job of this blog to track all the moves in such corporate battles, but I have returned to this one as a follow-up to what I wrote last Monday, which provoked dozens of fiery comments.

Answering some of those comments, I live in India (as I have explained before) and I have stayed in many Taj hotels over many years – at Pune, Hyderabad and Chennai in the past few months. And I do drive a Tata car – I have a slightly battered but lovely old Sierra (born out of the Tatamobile that someone mentioned, and related to the Sumo), which I have driven happily for the past 12 years. Sadly I’ll have to replace it soon.

All comments are most welcome – that’s what blogs are all about – so thank you everyone. But most of the attacks have been over things I did not say.

I have also written in Fortune magazine recently that Indian manufacturing is now transforming itself. No one I know in India disputes how appalling quality has been in the past, so I am amazed by such angry comments (mostly from outside India) about what in India is undisputed.

My views on Taj hotels stemmed from my own and many visitors’ experiences. My comments on Jaguar and Land-Rover were limited to the impact on their image of possibly being Indian owned– I did not comment myself on whether the best owner is or would be Ford (F), Tata or One Equity Partners.

Happy Holidays

After a string of successes, India’s industrial giant, Tata, has hit a rough patch in the United States. Advances made by Indian Hotels, which runs the Taj brand, to Orient-Express (OEH), the U.S. owner of luxury hotels, trains and cruises, have been firmly rebuffed. And American dealers selling Jaguar cars have objected to Ford selling the British luxury brand to Tata Motors (TTM).

The setbacks are a blow to Ratan Tata, chairman of Tata Sons, the group holding company, and one of the world’s 25 most powerful people in business. Early this year, he scored his biggest triumph when Tata Steel bought Corus, the British steel company, for $12.1 billion, defeating a strong rival bidder, CSN of Brazil, in a dramatic knock-out contest. Now Tata is bidding along with Mahindra & Mahindra (M&M), another leading Indian autos-based company, to buy the Jaguar and Land-Rover brands from Ford (F).

Some analysts question whether Tata Motors can handle Jaguar and Land-Rover, especially their difficult trade unions. Critics also point out that Tata is more focused on smaller cheaper cars – including a low-end model now in development that it plans to sell for around $3,000. That feeds U.S. dealers’ worries that Jaguar would lose its upscale image if it were Indian-owned - whether it’s bought by Tata or M&M. 

Ken Gorin, chairman of the Jaguar Business Operations Council, which represents Jaguar car dealers in the U.S., has said that Ford should sell the two brands to another bidder, One Equity Partners, a private equity arm of J.P.Morgan Chase (JPM). He’s reportedly concerned that the American public won’t accept a luxury-car brand such as Jaguar “out of India.”

Gorin, of course, doesn’t get to decide who buys the brands, and the deal is still open - with Tata being tipped to win in some reports. But he has a point: Indian manufacturing is only starting to gain acceptance internationally. Foreign car companies are increasingly looking to India for supplies of components and even complete cars – Suzuki Motor announced last week that a factory near Delhi will supply its planned A-Star car to Europe and elsewhere. But A-Star is not a luxury model.

Perceptions about the low quality of Indian products are also behind Orient-Express’s rebuttal of Tata’s moves for a closer relationship. Indian Hotels increased its stake in Orient-Express to 11.5 percent recently, prompting Paul White, the CEO of Orient-Express, to say a combination was not in his company’s interests. “Any association of our luxury brands and properties with your brands and properties would result in a reduction in the value of our brands,” he told Indian Hotels, which is expected to respond to the rebuff shortly.

White’s remarks shocked officials at Tata’s Taj hotels, who deem their hotels to be one of Asia’s, and maybe the world’s, best. Taj hotel guests, however, do not always rate them so high: There are frequent complaints about the quality of service and inferior finishes. The group’s award-winning Taj hotel on the waterfront in Mumbai is one of Asia’s most splendid buildings, but service there does not always match the elegance.

 So it is perhaps not surprising that White has serious reservations. What is more curious is that Tata has pursued the company despite the cool reception. Ratan Tata recently said in a television interview that he does not like hostile takeovers.  “We walk in the face of opposition on an acquisition bid,” he said. What’s more, he denied that Indian Hotels is seeking to acquire the Orient-Express. Tata approached Orient-Express management “basically to seek an alliance and were misunderstood,” he said.

Meanwhile, Indian jingoism is on the rise in the media and among the country’s politicians. “Racism can’t halt Indian takeovers,” declared the Economic Times, a leading business daily, slamming “quasi-racist slurs.” Kamal Nath, India’s outspoken commerce minister, said “there cannot be any discrimination against outward investment from India.”

The bluster is unfortunate. A more effective tack for Indian officials would be to accept that their country is just beginning to lose its decades-long reputation for dreadful quality – and to vow to show the world that it can do even better.