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TATA Chemicals Case Study – INTERNATIONAL MARKETING

Taking on the world

When Tata Chemicals reviewed its internal systems, it found that its
marketing processes were not in line with the market’s requirements. So
it drew a multi-pronged customer focus strategy. It began by
restructuring the marketing department, from the regional or
geographical approach to the customer approach...

Until a few years ago, Tata Chemicals was content with its role in
servicing the Indian market. The commodity mindset was so deeply
ingrained in everybody’s mind that the emphasis was on price and
production, rather than customer satisfaction.

All that is a thing of the past. More than ANSAC’s dumping threat, it
was the deadline for complying with the new global trade norms of the
World Trade Organisation (WTO) that made Tata Chemicals take note
of the new business dynamics. While many chemical manufacturers
viewed WTO and the China factor as a threat, the company saw it as an
opportunity to pursue its global dreams.

In the post-WTO era, it was obvious that the markets would widen.
So the first thing that Tata Chemicals could do was to benchmark its
cost and customer interface processes with global best practices. Tata
Chemicals is one of the largest manufacturers of fertilizers and soda
ash in the country. The immediate threat came from cheap imports. But
Jehangir M. Engineer, assistant economic advisor of the Tata Group,
says, "Fertilizer is not under the bound rate so WTO provisions don’t
apply. But we are under pressure in the case of soda ash. Our tariff is
already at 20 per cent and is well below the bound rate of 40 per cent."

In order to align with global practices, one must understand the


global landscape of the industry. The trends and practices adopted by
global players fall under the following heads: cost reduction,
consolidation, globalization, increased use of R&D, IT enabling of
business processes, and focus on core businesses. Tata Chemicals’
theme was no different.

Sharing the vision


The act of turning around the work practice of the entire organisation
and exposing the backend operations to the customer is easier said
than done. For a company, which has been used to serving local
customers with what they produced, it came as a culture shock. But the
management was successful in sensitising all the layers of the
organisation about the impending global threat. It carried out a WTO
audit across all departments.

"It is important that the top management’s thinking gets percolated


to the bottom. Today our distributors, field persons and workers at
Mithapur, the oldest plant, discuss the threat from China and ANSAC. It
shows the awareness and the urgency," says Kapil Mehan, vice
president, sales and marketing.

When Tata Chemicals reviewed its internal systems, it found that its
marketing processes were not in line with the market’s requirements. So
it drew a multi-pronged customer focus strategy. It began by
restructuring the marketing department, from the regional or
geographical approach to the customer approach — key accounts and
channel accounts. This new approach has given the company the
opportunity to assess and segregate profitable and unprofitable
customers and focus the key account efforts on the former. Tata
Chemicals followed up this process with customer satisfaction surveys
to improve product and service levels.

Over the last year, key account managers have initiated numerous
joint improvement initiatives with key customers. "In the post-WTO
period, the choice available to customers has widened. So it is
important to manage customer relationships better and improve the
interface," says Mr Mehan. For instance, when Tata Chemicals’ biggest
customer, Nirma, became a competitor, the company plugged the gap
immediately through long-term contracts with new and other existing
clients. The lesson it learnt in the process was that marketing is not the
function of the marketing department alone; it is the responsibility of
everyone in the company. Today even a shop-floor employee finds a
place in joint cross-functional teams that work with customers. However,
the full impact of this restructuring will be evident only in the years to
come.

Putting Manthan on TOP


Cut to the present. The company is now using information technology
extensively to remain connected with the customer. Key customers can
access their order status online through the enterprise resource
planning software implemented by Tata Chemicals.

In commodities like chemicals it is price more than the client


relationship that dictates buying decisions. While European bulk
chemicals makers are working on numerous cross-business
improvement projects and demand-capacity alignment to cut costs, Tata
Chemicals has launched project 'Action 500'.

Says Mr Mehan, "We have stated our intent to be the lowest cost
soda ash producer in the world. We have achieved Rs 500 a tonne
reduction in soda ash cost. We are also close to achieving our target
price per tonne." The initiative was the starting point of Project Manthan,
launched by Tata Chemicals. This project is similar to Tata Steel’s TOP
project.

Although a lot of domestic demand potential is yet to be tapped,


Tata Chemicals is aggressively looking at opportunities abroad to
broaden its market base. There are two reasons for this move. One of
these was the potential of the Indian market and the subsequent
liberalisation that has resulted in the targeting of India by US and
Chinese chemicals manufacturers. Secondly, it was only natural that the
geographical spread would give Tata Chemicals the ability to optimise
its supply chain cost globally. Higher local levies, energy cost and cost
of money continue to be irritants, but that has not deterred the company
in global trade.

As per a Confederation of Indian Industry study, says Mr Mehan,


"The effective rate of protection required is 37 per cent." Tata Chemicals
hopes that Manthan will address all the cost-related disadvantages that
are within its control and help the company in its global foray. India
currently accounts for just 1.3 per cent of the global chemicals trade of
$545 billion. Tata Chemicals has made a slow beginning on this front. It
exported over 1 lakh tonnes of soda ash to markets like Thailand,
Bangladesh and Indonesia in the last financial year and hopes to
improve upon that figure in this fiscal.

Globalisation is not just about trade; it is also about scouting and


building new business opportunities. "We are looking at strategic
alliances and partnerships that will give us market access and
distribution reach," says Mr Mehan. Tata Chemicals has already tied up
with a Japanese trading house and Tata International for international
marketing. The company is also trying to leverage these relationships to
source raw materials like coal and coke at cheaper prices. The cost-
reduction programme encompassed all functions with the micro
management of all sub-tasks.

Now that cost management is a way of life, Tata Chemicals is


taking the Manthan programme to the next stage of quality. "We believe
that by ensuring quality in processes and products, we will be in a
position to reap significant cost savings," says Mr Mehan.

Tata Chemicals has managed to address all the immediate


concerns and threats, with the exception of research and development.
"We admit that we have not done much on the R&D front or in the new
product development area. Hopefully, our diversification will address
these concerns," says Mr Mehan. Tata Chemicals is looking at new
acquisitions and growth opportunities in knowledge chemical areas like
biotech and speciality chemicals. Globally, knowledge chemicals are
expected to grow at 3.75 per cent. They also have a higher profit
margin, compared with the 0.6 per cent growth rate of basic chemicals,
and margins of less than 5 per cent.

So far so good. The growth plan chalked out by Tata Chemicals is


in line with the Vision 2010 plan laid out by the task force set up by the
government. The biggest plus of all the initiatives that the company has
undertaken so far is the change in the mindset of the employees. "The
market fundamentals have not changed much, but the mindset has.
Earlier, price revisions and response to such market developments
would happen over a three-month period. Now the response is in less
than 24 hours," says Mr Mehan.

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