EXPERTS ADVISORY

India’s Tata Steel—the biggest producer in Britain—has decided to sell all of its operations in the United Kingdom, causing a crisis for thousands of workers and smaller firms across the country.

University of Michigan experts can discuss the decision and its implications:

Puneet Manchanda is a professor of marketing at the Ross School of Business. His areas of expertise are business in emerging markets, strategy and marketing issues.

“Steel manufacturing is a global, not a local,l business. The global drop in demand, along with the oversupply, makes it difficult to compete for all but the lowest cost players. This along with the fact that Tata has struggled continually with the profitability of its British plant, makes it unattractive to continue.”

“Tata’s entry into the UK via the Corus acquisition was seen as more an ’emotional’ rather than a ‘rational’ decision. The general consensus is that Tata paid too high a premium. The new leadership at Tata is taking a more detached view. While it is unfortunate for the UK, the harsh reality is that the UK is structurally poorly positioned to play in these ‘close to commodity’ industries.”

Contact: 734-936-2445, [email protected]

M.S. Krishnan is an associate dean of global initiatives at the Ross School of Business. His research expertise is in Indian businesses and computer information systems.

“Tata Steel acquired the Anglo-Dutch steel giant Corus paying nearly $11 billion in 2007. At that time, Tata Steel although a regional player, was one of the most profitable steel companies globally. The rationale behind this acquisition was to get access to developed markets in Europe and other places, draw synergy across the capabilities and drive operational efficiency and economies of scale through massive size and resources of the combined entity.”

“Over the last 10 years, they have faced several challenges both externally and internally. First the global slowdown reduced the overall demand for steel. Second, slowdown in the Chinese economy sent cheap steel from Chinese manufacturers to the global market, further affecting the UK operations of Tata Steel. Internally, the combined entity had multiple cultures embedded in pockets, thus making the operational synergy a challenge. In addition, the UK unit had union employees making it difficult to rapidly adjust production to the market demand changes. As a consequence, over the last few years, it seems they had to maintain their production levels in the UK despite losing money. Hence the decision to sell or shut down.”

“Certainly the social implications of this decision are hard in terms of job losses. But Tata Steel is a public company, and they are accountable to their shareholders. There will now be more consolidation in the steel industry in the UK, maybe nationalization or even subsidies from the government to the steel firms as in the case of U.S. auto industry during global financial crisis.”

“However, given the growth rate globally and in China, demand for steel is not going to spike soon. Hence UK steel makers need to compete with the cheaper steel from China and other countries. It is a both economic and social challenge for UK.”

Contact: [email protected], (734) 763-6749