Jamshedji Tata'S Strategy To Build Tata Empire

Tata Empire

The Seekers

17 days ago|9 min read

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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. Jamshetji Tata. And, while most of us know about the philanthropic contributions of the Tatas, hardly any of us know about the business strategies that turn the Tata Group of Companies into such a successful Conglomerate, we’re going to talk about three important pointers.

1.     Cotton Demand Exploded in the 1840s

What exactly was Jamshetji Tata’s business strategy? How did he build the foundations of the Tata Group, even during the British Raj, 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 toward India for raw materials. 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 crops 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 the civil war, India’s cotton growers were still supplying 67 % of Britain's 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.

2.     Tata’s First Business Venture Cotton Mill

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 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 realized 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 realized that India had all the golden elements to build a cotton Empire. We had a coal mine for the supply of energy. We had enough population to get the labor 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. Now listen to this very, very carefully. 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 and decided to build a canal over here by cutting through the land connecting the Mediterranean Sea directly to the Red Sea. And this move was so revolutionary that it reduced the traveling distance from Bombay to London by 7000 kilometers and reduced the travel time by 23 days on each trip. And this is what made Indian ports extremely valuable to the traders. But despite having all these advantages, the only thing that was missing in India was an organized enterprise to process cotton, because at that time Bombay had 15 Mills. But the problem was that, as compared to the west, all these Indian Mills used primitive machinery. Had ill-adapted, buildings, unskilled and untrained labor, 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.

3.     Jamshetji was refused Loans for Building Cotton Mill in Nagpur

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 kilometers 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. He was even refused loans because the financier saw no potential in a mill being built 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 were relatively new to India in Britain, they 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 center of a large handloom industry. And that is when, 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.

4.     Jamshetji Provided Medical Insurance and Provident Funds to workers in the 1800s

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 over here.

Most industrialists would tackle this problem very aggressively and would either engage in higher and fire strategy, or they would penalize 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, despite being in our motherland, the Britishers started their atrocities and put up boards that said- dogs and Indians were not allowed outside the British premises. But this is how ladies and gentlemen Jamshetji Tata decided to deal with this problem. Instead of punishing or scolding the workers, he introduced a provident fund scheme that 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 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 not so surprisingly, attendance was never a problem after that, and this eventually improved both the profitability and the efficiency of the Empress mill.

5.     Jamshetji Tata always Preferred Innovating and using Advanced Machinery

Now the question is, with all this competition in the cotton industry coming from all around the world, starting from the US to Europe. What exactly was special about Jamshetji Tata, is that he was able to stay ahead of his competition, and that is the research and innovation at the Tatas. Jamshetji Tata was so keen on advancements that he heavily invested in research and innovation and spent months traveling 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 equipped and the results were extraordinary.

While on 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.

6.     Jamshetji was one of the Biggest Philanthropic of the 20th Century

But even then did not stop Jamshetji. 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 builds 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's 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 me to the most important part of the episode, and that is the lessons from the case study and the study material to help you understand the game, and changing business strategies of the Tatas.

7.     Lessons from Jamshetji Tata

Moving on to the lessons of the case study. There are three important lessons that we need to learn from Jamshetji Tata. Number one and I’ve said this countless times, market research is by far the most important task while starting a business. In this case, Jamshetji Tata spent six years extensively studying the market that helped them build the foundations of the Tata Group. Number two every century has some 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. And lastly, 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 businessmen and by far the greatest philanthropist India has ever seen, who went by the name Jamshetji Nusserwanji Tata.

 

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