Clash of the Titans: Tata vs Vedanta – Comparing the approaches of Indian Giants

The Indian government is actively encouraging diversification and growth in manufacturing, particularly in electronics. This article examines the contrasting approaches taken by two major Indian conglomerates, Tata Group and Vedanta Ltd., in response to this push.

Tata’s Calculated Step

Tata Group, a well-established conglomerate, recently acquired Wistron InfoComm Manufacturing (India) Private Ltd. (WMMI) for USD 125 million. This strategic move positions Tata to enter the lucrative iPhone assembly business. WMMI, previously owned by Taiwanese company Wistron Corp., was already profitable despite the current global smartphone market slump.

Analysts believe Tata has a good chance of success. This is due to several factors. Firstly, Tata is already established in precision component manufacturing, a crucial aspect of electronics production. Secondly, acquiring an existing, operational factory from Wistron allows Tata to quickly enter the market without starting from scratch. This “incremental step” positions them well for future growth.

Vedanta’s Ambitious Gamble

In contrast, Vedanta Ltd., led by billionaire Anil Agarwal, is taking a much riskier approach. They announced plans to set up a new chip fabrication facility in Gujarat, with an initial investment of around USD 20 billion and a projected workforce of 100,000 employees. However, this ambitious plan raises several concerns.

Firstly, the proposed investment and staffing figures seem unrealistic for the chipmaking industry, which is known for being capital-intensive but employing relatively few people. For example, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest dedicated chipmaker, has only 73,000 employees despite its vast size.

Secondly, Vedanta’s initial plan included ventures into less technology-intensive areas like chip testing and flat-panel displays. However, the specific figures they presented appear more focused on securing government subsidies than reflecting a realistic business plan. This approach ultimately led Foxconn, a potential partner, to withdraw its support from the project.

Learning from Others

While diversifying away from its core mining business is not inherently wrong, Vedanta’s strategy has several flaws. Unlike Tata, they are trying to “chase exciting headlines” by entering a highly competitive and complex field without first establishing themselves in simpler segments.

Examples like Taiwan’s Formosa Plastics Group, which diversified into chipmaking after establishing itself in related industries, demonstrate the importance of a gradual approach. Additionally, the global chipmaking landscape is becoming increasingly nationalistic, with governments around the world heavily subsidising domestic players.

Conclusion

The contrasting approaches of Tata and Vedanta offer valuable lessons for Indian companies and policymakers alike. While strategic diversification is crucial for long-term growth, it should be based on a realistic assessment of risks and opportunities. Chasing ambitious but unrealistic goals without proper planning can lead to failure, while calculated steps with a focus on building expertise can pave the way for sustainable success.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.