Tata is that name of the business world which needs no introduction. And in this post we are going to talk about one of the greatest businessmen who ever lived in India. This is also the story of a man who laid the foundations of one of the greatest companies on the planet, which we all know today as the Tata Group of Companies. This icon that I'm talking about is none other than the pioneering industrialist Mr. Jamshet ji Tata. And while most of us know about the philanthropic contributions of the Tatas, hardly any of us know about their business strategies that turn the Tata Group of Companies into such a successful conglomerate, which is why in this post, we're going to talk about three important pointers.
- What exactly was Jamshetji Tata's business strategy?
- How did he build the foundations of the Tata Group even during the British Raj?
- And most importantly, what are the business lessons that we need to learn from this legendary businessman?
This is a story that dates back to 1858 India. When the British Raj had just established itself in India by ending the control of the East India Company. During this time, the world was witnessing a textile Revolution and the cotton industry was one of the most prosperous industries of all time. At the time, America was one of the largest suppliers of cotton, and because of the use of slaves, the Americans were able to produce the cheapest cotton in the world.
But just three years down the line in 1861, the American Civil War broke out and suddenly the export of American cotton stopped. And because of this, the Britishers began to look towards India for raw material. Why? Because India had both, fertile lands to produce cotton and naturally strategic seaports to ship it to the world. Therefore, Britain started buying India's crop under the monopoly of its administration. And because of this scenario, the demand for cotton in India shot up to such an extent that in 1860, India was supplying just 31% of British cotton imports. But by 1862, this number shot up to 90% and This marked the beginning of the cotton revolution in India.
Now although the demand declined after the end of civil war, India's cotton growers were still supplying 67% of Britain cotton imports in the later years of the war. And during this time, Jamshetji Tata's father, Mr. Nusserwanji Tata was a trader and Jamshetji Tata was just a helping hand for his father in his business. This is when he saw the sequence of events happening in the cotton industry. And in 1869, he did his pilot type project wherein he bought a bankrupt oil mill in Chinchpokli, converted that into a cotton mill and sold the mill for a profit in just two years. This is when he learned the basics of the cotton industry. But before he embarked on his primary business journey, he decided to do a thorough market research about the cotton industry.
So you know what, he took a trip to England to study the advancements in the market, because during that time, he realised that the West was at least 100 years ahead of the East, both in terms of technology and civilization. So he planned his travel in such a way that he visited the most important business destinations in the world. And this included Egypt, Syria, Palestine, Turkey, and Russia. And at each place, he studied the business ecosystem, and noted everything in his diary. This is when he realised that India literally had all the golden elements to build a cotton Empire. We had coal mine for the supply of energy, we had enough population to get labour for work, we had fertile lands to grow cotton, and most importantly, we had the most tragic ports connecting the most important destinations all across the world.
Why? Because in 1869, something magical just happened. And that was the opening of the Suez Canal. Before the Suez Canal was built, if you wanted to go from Europe to Asia, you had to take a long route by leaving from Mumbai, halt at Cape Town and then park in London. But the French and the Egyptians collaborated together and decided to build a cannal over here by cutting through the land, connecting the Mediterranean Sea directly to the Red Sea. And this move, ladies and gentlemen was so revolutionary that it reduced the travelling distance from Bombay to London by 7000 kilometres and reduced the travel time by 23 days in each trip. And this is what made Indian ports extremely valuable to the traders.
But in spite of having all these advantages, the only thing that was missing in India was an organised enterprise to process cotton, because at that time, Bombay definitely had 15 Mills. But the problem was that as compared to the west, all these Indian Mills used primitive machinery, had ill adopted buildings, unskilled and untrained labour, and overall, the infrastructure was so backward, that the factories didn't even have protection against fire hazards. And this is when after six long years of rigorous study, Jamshetji Tata decided to solve this fundamental problem in the market by setting up a high quality cotton mill that will sell world class cotton to the world.
During that time, Bombay was the first choice to start a cotton mill because of its proximity to the port. But Jamshetji Tata had a different plan altogether. And he chose a remote town 800 kilometres away from Bombay, which is known as Nagpur. Now, as soon as everyone in the market came to know about this idea, they laughed at Jamshetji saying that it was a stupid decision. In fact, he was even refused loans because the financier saw no potential in a mill being build in Nagpur as opposed to Bombay. But little did they know that Jamshetji Tata knew something that the rest of the traders did not know. And that was the potential of the railways. Because during that time, while railways was relatively new to India, in Britain, it had already become the backbone of trade and commerce. And thanks to the wanderlust of Jamshetji Tata, he had seen the power of railways in action.
On top of that, after an extensive survey, he also found out that Nagpur was located in a cotton producing district. So, raw material was very close by in addition to that, it was also within the reach of the coal supply from Baroda mines and it was also the centre of a large handloom industry. And that is when, ladies and gentlemen in 1877, the central India spinning, weaving and manufacturing company, Empress Mills was founded by Jamshetji Tata. And he invested heavily to get the best machinery in the world. However, even shipping machinery was a herculean task back then, because it took them four months to get the machinery from Europe to India. And unlike today, they did not have trailer trucks, and the most common mode of transport was just bullock carts. But even then, with a lot of effort, finally the machinery arrived, and the mill started functioning and just went Jamshetji thought that he could conquer the cotton industry with this strategic location, he faced another critical challenge, and that was the workers management. And as it turns out, the people of Nagpur were so far away from the industrial culture of Bombay, that most workers did not even consider it important to come to the factory every day. And they used to take leaves even for the smallest reasons.
During the initial times, things were so bad that the mill was always working with only 80% attendance, overhere most industrialists would tackle this problem very aggressively, and would either engage in higher and fire strategy or they would penalise the workers for less attendance. Because the point to be noted here is that, we are talking about a time when even after the 13th amendment, slavery was still unofficially prominent in America.
This was the same time, when in spite of being in our own motherland, the Britishers started their atrocities and put up boards which said- dogs and Indians not allowed outside the British premises. But this is how ladies and gentlemem, Jamshetji Tata decided to deal with this problem. Instead of punishing or scolding the workers, he introduced a provident fund scheme, which ensured that every worker would lead a comfortable life after retirement.
This was combined with the introduction of medical insurance to help cover the medical costs of workers in case if they got injured at work. On top of that, he also introduced family days, sports days and various ceremonies wherein 1000 odd families were rewarded gold chains, wrist watches, cash rewards, etc. And all of this was done to develop a bond between the company and the workers such that the attendance could be incentivized, and not so surprisingly, attendance was never a problem after that, and this eventually improved both the profitability and the efficiency of the Empress mill. Such was the greatness and generosity of Jamshetji Tata during a time when humans were a little less human. Now the question is, with all this competition in the cotton industry, coming from all around the world, starting from US to Europe, what exactly was special about Jamshetji Tata that he was able to stay ahead of his competition?
And this is what ladies and gentlemen brings me to the last segment of this episode, and that is the research and innovation at the Tatas. Jamshetji Tata was so keen on advancements that he heavily invested into research and innovation, and spent months travelling to Europe just to study the market. And then one such trip in 1883, his technical expert James Brooksby saw ring frames being used in the United States, and he immediately send them back to the mill in Nagpur for trial. Now these frames were still untried by the inventors themselves. But Jamshetji Tata was so shrewd that he bagged the experiment with ring spindles and got his team to work upon the invention. And the Fun Fact is, even before the inventors in the US or the Britishers tried it on a large scale, Jamshetji Tata insisted that the entire mill must have this technology equiped, and the results were extraordinary. While in normal days, they were able to achieve 6000 revolutions, using this idea they were able to achieve 9000 to 12,000 revolutions in no time. As a result, the dividends of the company went up to 16% and the company's profits started shooting up.
This is how by extensive study combined with consistent innovation, turn the Empress mill into one of the most profitable companies in the country, paying the shareholders close to 18 lakh rupees in the next 30 years, which is equivalent to more than 100 crores even by rough estimates in today's world. And this is what laid the foundations of the iconic Tata Group and turned Jamshetji Tata into one of the richest men in the world. But even then, Jamshetji Tata did not stop.
Even during his last days, he worked very hard to set up a steel plant in India so that India could become a beneficiary of the steel revolution of the world. Apart from that, he also build the Swadeshi mill as a capitalistic contribution to the independence struggle, even before the actual Swadeshi movement started. And the most astonishing thing about this wonderful person is that he donated so much of his wealth, that when adjusted for inflation, the value of his donation is $102 billion, which is even beyond Bill Gates contribution. And this makes him the most philanthropic person in the 20th century. These are some of the many many reasons why Jamshetji Tata is known as one of the greatest businessmen who ever lived in India.
And this is what brings us to the most important part of the article and that are the lessons from the case study and the study material to help you understand the game changing business strategies of the Tatas.
There are three important lessons that we need to learn from Jamshetji Tata.
1. Market research is by far the most important task while starting a business. In this case, Jamshetji Tata spent six years to extensively study the market that helped them build the foundations of the Tata Group.
2. Every century has some of the other industry that brings in a wave of opportunity for the entrepreneurs. And if you keep track of the most important events in world history, you will be able to tap into these opportunities. Eventually, it will help you build a formidable business. In this case, it was Jamshetji Tata's understanding of the potential of railways, and the construction of the iconic Suez Canal, which helped him understand the potential of the cotton industry.
3. Always remember, empathy and compassion are two of those attributes that can turn a commoner into a king. In this case, they gave rise to one of the greatest businessman and by far the greatest philanthropist India has ever seen who went by the name Jamshetji Nusserwanji Tata .
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