Global factors led to Tata Steel's UK exit

The announcement by Tata Steel that it proposes to sell its loss-making UK steel company, Corus, should not shock anyone though, as they say, when a for big tree falls, the earth shakes. The Rs 6.6 lakh crore ($100 billion) Tata Group had bought the deep-in-the-red Corus at a huge premium for $12.9 billion in 2007, when it was a boom period for global economies and the world was agog at the biggest acquisition ever.

The Tatas had the distinction of being the largest employers in Britain. But things soon changed and, following the global economic crisis that gripped all economies, Tata Corus losses mounted. The company witnessed at least two to three waves of  retrenchment of its work force, so the writing was on the wall the last few years. It was making huge losses annually before it decided to shut the UK steel operation.

Tata Corus is just one of the Indian foreign acquisitions that have become victims of the global economic slowdown which none of them had anticipated. There was a rush of some of the biggest names following the Tatas, from Kumar Mangalam Birla to Mukesh Ambani to the Adanis and Sunil Mittal of Bharti Airtel, to acquire companies in the developed world. They, too, have made losses amounting to billions of dollars as the global economies did not turn around and the situation changed from one of over-demand to oversupply. 

The Tatas’ decision to exit from their UK business is symptomatic of the situation of oversupply of steel, caused especially by China dumping cheap steel. However, the acquisition of the iconic Jaguar Land Rover in the UK is thriving and is the profitable mainstay of Tata Motors. 

This proposed exit from Tata Corus, however, is not likely to make any dent in the iconic Tata image. They remain the bluest of blue chips and have retained this position ever since the creation of the group by Jamsetji N. Tata in 1918. It has seen ups and downs but overcame them. The consumer brands of the diversified Tata Group, from salt to steel and defence, remain household names and the consumers are far removed from steel.

So domestically there is not expected to be any impact. Globally companies will be watching how the situation unfolds and what the UK government decides to do about the company and its work force of 15,000. But everyone recognises that the business environment does not help growth and no one can say when this situation will change. If the Tatas could be faulted, it could be that they took so long to take this decision when the writing on the wall was becoming clearer in the last few years. Perhaps they had their own compulsions. But for now the Tata brand remains intact.