A few weeks ago this blog talked about the mistake Ford (see chart here) was making by selling off its most profitable group (Jaguar and Land Rover) in order to generate cash to Defend & Extend the broken Success Formula in traditional Ford business.  Ford is selling it’s White Space for cash to defend in its old business.  Just the opposite action Ford should take to turn itself around.

And one very savvy competitor has seen the opportunity.  Tata Group of India is not well known outside its home country (see website for Tata here).  It’s best known business is TCS (Tata Consultancy Services) which provides IT services globally.  But inside India Tata is known for everything from electricity generation to automobile manufacturing.  While Tata makes a complete line of vehicles, from large trucks to very small cars, in India (see website here) these are not known outside it’s domestic marketplace.  The company has recently made a splash by developing a quality automobile that it will sell for only $2,000, and potentially taking this new vehicle global (see article here.) 

While Tata Motors is not yet regarded on the world stage, the company is very serious about learning how to compete.  And the commonly held view is that Tata should produce a cheap car, which is not expected to be very good, and eventually try to migrate up market.  This slow approach is what the Japanese auto companies did, and more recently the Korean auto competitors.  But Tata Group is very astute.  And they recognized an opportunity to take a very different approach.

It has been reported that Tata is considering buying Jaguar and Land Rover (see article here.)  And this sort of Phoenix Principle thinking is why Tata has become a very successful, high growth and extremely profitable company.  This acquisition would give Tata a fast growing and very profitable auto company operating across the globe.  Tata already knows how to make inexpensive high volume automobiles.  These companies would give Tata global market access, and two very positively positioned brands.  Tata could then migrate its business toward the global marketplace, learning what will work from its acquisition, while developing new skills and capabilities in its very large, domestic business.  These acquisitions will provide the White Space that can help Tata Motors continue its rapid growth by developing a new Success Formula which can meet future market needs and help Tata become a world -class competitor.

Ford should have migrated its Success Formula forward with the White Space it has in its premier auto gruop.  By selling these businesses it effectively hands over its White Space, probably its most valuable assets, to an emerging competitor very willing, eager and capable of learning from these businesses to accelerate its growth.  In effect, Ford will create a new global competitor that may well help accelerate the demise of Ford itself.

Tata has been brillliant in its efforts to expand its information services business globally.  It is one of the world’s largest suppliers.  And while TCS results are not reported, it is well known in the industry that TCS’s performance is right up there with Infosys (see chart here) – the fastest growing and most profitable competitor on earth.  Now, Tata is looking to move forward similarly with its auto business.  And Ford is handing the knowledge keys to Tata for some money to short-term protect its badly outdated traditional business.  When the fox comes home to eat the eggs, Ford will only have itself to blame.