[Jeroen]

Having just lived for the last three years in Kansas City, USA let me share my thoughts on this.

Americans love their cars, by and large they still like them big too. Seen from my European point of view, Americans are considering and will buy smaller cars as well. Fuel economy is becoming more relevant for them, and to some extent environmental friendliness is becoming relevant as well.

But it varies from state to state. E.g. a Prius sells reasonable well in California, where there is a lot of emphasis on environment. Having Hollywood stars roll up to the Oscar ceremony in a Prius helps a lot too.

Where we lived, Mid West, or when you go further South, I'd say American still favor big cars, pick ups and trucks.

it's very much to do with lifestyle. Also, a true Republican will never ever buy a car not made in the USA. So that's about half the population, give or take. The other thing is that cars are really part of the American lifestyle.

For instance in Kansas City there is no Metro, no trams , virtually no busses, no form of public transport at all, or very limited at best. Distances are to big to ride on your bicycle and if you do, you get knocked off your bike. Nobody is used to bicycles on the road. Trust me, I did ride my bicycle and ended up in the ER twice!

You simply can't do your shopping, if you don't own or have access to a car. You want to go to the next sizable town, you need a car. From Kansas City its about 300 miles to the east to St Louis, 350 miles to the south to Tulsa, 250 miles north to Omaha and 700 miles west to Denver. Those are the four nearest towns of similar size. So distances are vast and other than flying there is no option but to drive. Your average American will think nothing of driving for 6 hours to see a friend/relative and drive back again.

Now the above might sound a bit theatrical living here in India. It probably is, but what I'm trying to say is that having a car is very much the American way. Even people with little income will try and maintain a car, maybe just an old banger, because that's the way it is and you do become isolated and run into many practical issues if you don't have a car.

Again, against how many people live in India with much more to worry about then no car, it does seem pathetic and or decadent, but when you live in the USA, that's your world.

Having a driving license is more or less considered a given right, although you do need to pass a test. In some states you can start driving at 15 years of age, most States at 16 years. Kids from middle income families will routinely get a car, albeit perhaps second hand, for when they turn 16 or go to college a few years later.

Cheap in itself doesn't necessarily sell in the USA. It's a consumer paradise, and as long as you have some income, you can get financing on a nicer bigger car new or second hand. Americans like comfort, convenience, functionality and above all choice. And cars are bought on the spot. You go to a dealer, who needs to stock at least several hundreds of cars and 30 minutes later you drive out in your new (or new second hand) car. So as a newcomer to the market you need vast investments in dealer networks and stock just to get yourself noticed.

Would I buy a TATA in the USA? No, but then again, I would properly not buy a TATA anywhere else in the world either. Mind you, when I lived in the USA I did buy a 2002 Jaguar through Ebay. A few months ago when I send out a mail to all friends that we were about to move from Kansas City to Delhi, one of them replied "what will you do with the TATA?". Very funny, until another friend chimed in and told me I should leave the Ford where it belonged, ie stateside.

So in the end, its all in the eye of the beholder.

Jeroen
PS I think my Jaguar is a proper Jaguar, no matter who owns Jaguar.

[Samridh]

Originally Posted by bigron

I have yet to come across one person who would buy a TATA car for PERSONAL USE if he could afford or had an option of picking up any thing else.
With the acquisition of LR/J i think TATA now has access to much superior technology which they should apply /adopt in their own products. I see no reason for them not to use the technical know how these big brands have bough with them.

Two things:

1. Your first statement seems to be away from facts. I am no fan of TATA cars. I beleive they are still making small (and further smaller) trucks and not cars. But there are many (and I mean 100's and 1000's of) people in India, who beleive that TATA is a truly Indian brand and with such a huge company franchise / independent 'service network' (which also caters to the cabbies) keeps them secured if the car throws up. As a country (holistically), we still look at the ease of spare availability and resale as primitive factors at the time of buying cars. We hardly ever look at 'what is the actual probability of the car throwing up' (which is where TATA and many others fail) but are more interested in 'how easily will we get spares and mechanics if the car throws up (which is where TATA and a few others excel). So TATA may be the 1st choice for many customers for their PERSONAL USE. Its altogether different if they will ever buy another TATA (which most wouldn't).

2. I see that many people have echoed the sentiment of 'benefitting from Jaguar's and LandRover's technical know how'. See I am a Foreign Investment lawyer and have advised on various technical collaboration and know-how license agreements. From my limited understanding, it is not as simple as we make it feel to be. See most laws internationally respect and uphold the concept of corporate veil of incorporated entities. Which means that one company is fundamentally different (fiscally and managerially) from another irrespective of the fact if these two entities are related (i.e. if the shareholders of both entities are the same or its directors). What flows from such inherent distinction between two related entities is this:

a) Unless a case of tax fraud or corporate fascade is prima facie made out out against any one of the related entities the corporate viel will not be lifted.

b) Correspondingly, checks and balances are present in the fiscal statues of ALL jurisdictions to check tax evasion and/or oversee the actions of related entities.

3) I know it will get a tad more confusing from here . Hahahaha!! (Please don't read further if you aren't patient enough to re-read it another 2-3 times)

4) Technical know how apart from being a a trade secret qualifies as an intangible property of a company (which often includes several patents, designs and copyright at times) which has to be valued by a certified -independent- financial analyst for entry into the books of accounts. This valuation is not imperative until and unless the company is desirous of selling/leasing the same.

5) In simpliciter, company A will not be allowed (in law) to lease out its property (including industrial and intangible property) to company B without adequate compensation. So as a matter of caution, a company when leasing out its intangible property will seek an indpendent opinion of an analyst as to what lump sum fee and what rate of royalty is 'adequate'* in the facts of that case and will be required to (more or less) stick to the suggested rates at the time of licensing.

* Why is 'Adequacy' of payment required - The answer is simple, if a particular asset (including technology) is licensed at a rate lower than what it deserves (especially in the case of related entities), it will lower the income generated from that asset and will inturn un-naturally deflate the income of the licensor company. This reduced income will mean lowered taxation for the licensor company. Hence could amount to tax evasion/fraud in the eyes of law [Now read point 2 (a) given above].

6) Now you will be asking yourself how tough is it for a conglomerate like TATA to get valuation figures that suit its interest (read lower valuations). The answer is quite tough . And even if they decide to go down this route (which i don't think a group like TATA will ever do - remember Mr. Ratan Tata's honest confession re going down to Mahindra), the Fiscal authorities in most countries have enough teeth and can strike down a valuation report as 'doctored' and adduce expert testimony in support of their claim of under valuation.

7) Ok so, uptill now what emerges is this - Tata's (the shareholders) just can't pick up J's or LR's technology and start manufacturing. They will have to pay from their nose to get the same at market rates (or quite close to the market rates).

8) Now coming to the practical perspective of things. What do J's and LR's technology stable have to offer?? 3000/5000 cc engines, expesive gear boxes, monsterous go anywhere type 4x4 technologies, the art of customizing fine grain leather, making durable and premium poly plastics et al. All of this is great. All of this also comes at a price. Assuming TATA's were willing to induct this technology under a license from J and LR, what will they use it for?? An indica with a 3000cc engine, or an Aria with 4x4 capabilities to climb the everest?? Think about it!!

9) The next obvious question is - why can't they implement this technoolgy in their cars with tweaks for their relevant customer base. Yes they can, but that will involve costs for these two activities (at least):

a) payment of license fee to J and LR - which will be high; and
b) Rn'D costs to localise the licensed technology so that they can make something of their own (they may suceed but also may fail but one thing is certain that they will sure incur huge huge costs).

So then the question is if such expenditures are undertaken will TATA be able to even sustain??

10) So whats the answer, the answer is invest yourself in R n' D. Look at impoving by one step at a time and try and bring yourself at par with your contemporaries. There's no point of FIRST getting one of the worlds best personal assault rifle and THEN start looking for an opthamologist who can test your eyes for a cataract.

Hope it helps!!

P.s:

AND TO ANSWER THE MAIN QUESTION - IF TATA DOES WHAT IT HAS BEEN DOING IN INDIA, IT WONT COME OUT WITH FLYING COULRS IN THE USA (OR ANY OTHER EVOLVED MARKET WITH NUMEROUS OPTIONS AVAILABLE TO THE CUSTOMER) UNLESS THEIR ECONOMY TAKES A DIP SO BIG THAT ONLY CHEAP AND FLIMSY REMAINS SUSTAINABLE.

(GOD FORBID HOW CAN I SAY THAT, I AM A FOREIGN INVESTMENT LAWYER WITH MANY AMERICAN CLIENTS AND I WILL BE ON THE ROAD IF THAT WERE TO HAPPEN TO THEIR ECONOMY!! SOB SOB!! SOB SOB)

[bigron]

Aaa we have a lawyer in the house. Great , i am a corporate lawyer myself.

Coming back to the point in contention your first point actually just says what i included in my post. Our population ensures that they get the numbers to keep doing business no doubt. Thats why they still churning out indicas and indicos by bucket loads even after shoddy build quality and poor engineering. Because they cater to a spectrum which desires space , affordability and cheap ownership. Something which they will be unable to carry on in the US market because its way to developed interms of local players and cheap but better that tata foreign players.

Your explanation on the foreign investment was very insightful. Thank you.

[carboy]

Originally Posted by Samridh

Which means that one company is fundamentally different (fiscally and managerially) from another irrespective of the fact if these two entities are related (i.e. if the shareholders of both entities are the same or its directors).

But didn't Tata Motors buy JLR? i.e. JLR is a fully owned subsidiary of Tata Motors. They aren't just related entities.

[Samridh]

Being a wholly owned subsidiary means that they are 'related entities' (as defined under law). I was mindful of this fact while writing that post.

[ACM]

Samridh

Thank you for detailing the various points that make it difficult for TATA to simply lift and place any stuff that they like at JLR into TATA cars back here in India. Yep you are totally correct in you analysis in my eyes.

That said I believe that TATA in India has been growing and learning at a really fast almost exponential pace (the ARIA may not have sold due to poor marketing and possibly the pricing fault but it is also a case to point on what TATA can manage even today interms of quality and finess) and it may really be as soon as 5-8 years that we really start believing that TATA could make a mark for itself worldwide with it's India creations.

Also without going into exactly what they could barter there would be the possibility of TATA Motors India having something that they can barter with JLR to gain access to JLR technology in reverse. Of course that too would involve complex valuation calculations but would make for a better case for technology transfer.

[yogeshnaik]

When Tata has acquired Land Rover, I have a firm belief that they can market vehicles to US also. They are very conscious about their moves with respect to the laws of the respective countries. In India, we look for cheaper alternatives, and the manufacture has to compromise on the OEM supplied parts. Tata also takes feedback from the customers and keeps a close watch on their products and take decisions accordingly.

Tata had come up with premium vehicle ARIA, the technical specifications and build quality was great! But the target customers were different.

When Japanese, Koreans can do it, a clean Indian Industry giants like Tata can build JLR quality vehicles for US markets. A good move from Tata.

[Harbir]

One doesn't need to believe anything. One only needs to let the product speak for itself.

It isn't saying anything impressive so far. JLR doesn't have the engineering capacity to do its own vehicles AND also help Tata develop Honda grade vehicles.

[Jeroen]

Hi Samridh,
I read your reply with great interest. It makes you wonder why TATA bought J&LR in the first place. Seems there is very little they can get out of it.

I'm no lawyer, but I have been involved in very similar cases. I work for a Multinational and we have been acquiring a few companies per year for quite a while. And we do manage to integrate them. So for instance integrate the R&D fascilities, move the respective IPR's to our total global IPR portfolio. So after a while the products, service and IPR of the aquired company are dealt with in an indentical fashion as all our other products, services and IPR. There are cases where we did not integrate or partly integrated. But that was based on business decisions. Eg. because we felt it would be advantageous to keep a brand seperate from our own. Not really because of legistive and or fiscal reasons. (at least not primarily).

Your point on Company A not being able to let/lease or sell at only cost level to Company B, even though they belong to the same entity, is very true. It gets even more complicated if company A and B reside in different countries and their common entity (mother company) resides in another country. In all three countries various legal and fiscal regimes will need to be adhered to. But for a multinational it is relevant what the cost is and for how much you can sell it.

The price level at which A sells to B needs to satisfy their respective legal and fiscal regimes obviously. But at a global level the cost of the product is still essentially the cost price at company A. The rest is intercompany transfer profits, but they don't add to the companies bottom line. They are very relevant for the reasons you point out and are essentially the basis for fiscal transfer and fiscal levies in the respective countries. Those taxes are of course a real cost to the company.

In my company we only look at the consolidated result. So all our intercompany transfer gets cancelled out but the cost of the various tax is still there or course. To be precise, there are real PO's and invoices going back and forth, real money gets transferred and appropiate tax gets paid towards the respective authorities.

But from a business point of view I can deal, and be held accountable on the consolidated view, which is the real result for the (Global) company. Which is the real cost of the product/service plus the appropiate taxes, but not the intercompany invoicing. Again, at a group/global level companies A's gain is company Bs loss or vice versa. Very relevant for tax, but not for the business as such.

The same applies for software, services and even IPRs/patents. The above is of course simplified, but it does illustrate the essence of how intercompany trading in a multinational works and hopefully illustrates that it is indeed possible to get benefits of products/services/IPR's even if one local company needs to purchase them from another different local company, both being part of the same mother company. And still adhere to all applicable local legal and fiscal regimes.

Jeroen

[Samridh]

Originally Posted by Jeroen

Hi Samridh,
Again, at a group/global level companies A's gain is company Bs loss or vice versa. Very relevant for tax, but not for the business as such.

The same applies for software, services and even IPRs/patents. The above is of course simplified, but it does illustrate the essence of how intercompany trading in a multinational works and hopefully illustrates that it is indeed possible to get benefits of products/services/IPR's even if one local company needs to purchase them from another different local company, both being part of the same mother company. And still adhere to all applicable local legal and fiscal regimes.

Jeroen

Jeroen thanks for your perspective. Please consider it as my shortcoming - portions other than the ones quoted above were not very clear to me.

However, with a view to further clarify the position:

1) Aquisition of a company results in one company being merged into the other (with all its assets including IPR's etc.) being transferred to the surviving entity.

2) While it is possible for this surviving entity to transfer all the assets it deems fit (eg IPR's) to another entity (eg a holding company), the holding company may then license it back to the surviving entity or to the other group companies or even unrelated 3rd parties (but for 'adequate' compensation).

3) The test, however, remains unchanged - the licensor letting out a particular technology (or other IPR or even any other asset) must not under value the asset and receive reduced compensation for the same. In practice, over payment of royalties is a much larger question internationally than under payment (this is because often the parent company is the licensor and subsidiaries are licensees are coaxed to pay more than what the asset ordinarilly deserves - this is just the opposite in our case as the parent company is the licensee and the subsidiary is the licensor and thus the inverse proportion of royalty payments). However, the fiscal authorities in the country of the licensor (JLR in our case) can certainly question the commercial expediency or rationale for receiving lowered royalty payments or no royalty payments (this is irrespective of the fact that Indian laws permit royalty free licensing of IPR's).

4) Sale of goods and license of assets is governed by completely different yardsticks. A licensor is not free to claim, "what has not been added by way of royalty in its income (component by which its license fee or royalty is lesser) is taxed in the hands of the licensee and that deficit amount is brought to tax any ways". This is for the reason that while the concept of a 'group company' is recognized in a few selected jurisdictions of the world, most countries internationally do not treat all companies forming part of a group as one for the purposes of computation of tax. To simplify, if India would have accepted the concept of a 'group company' in its tax structures, conglomerates like TATA and RELIANCE would have filed consolidated tax returns at the end of each financial year and not seperate tax returns for each of the group's company seperately. It may well be possible that you work for a multinational company that has its origins in a country that recognizes the concept of a 'group company' and, thus, it makes little or no difference if the asset is with one entity or the other or what has been paid in lieu of its sale/license.

Hope this clarifies the situation!!

Waise I agree with you on one front - if a company is bent on having an asset from another related entity there are quite a few MEANS of achieving this. I semmingly specialize in those !! Hahahahhaha

But the point still remains, 'technology le ke karenge kya. Paisa bhi lagega aur gaadi bhi ban jaaygi, lekin TATA ki mehngi gaadi lega kaun' (ARIA is not even 'mehngi' and we see what numbers its doing).

[tj123]

In my opinion it will take some time for Tata to capture some market share provided they have the right product mix. Look at Hyundai & Kia they are here for a decade or more, now they have started to slowly flourish. Earlier market perception of Korean cars was not that great , but slowly but surely they have overcoming that barrier.

To establish yourself in a mature market like US will take a while and things are vastly different from a developing economy. People here are brand loyal and trust them blindly, no freebies will improve sales.

Yesterday, I was listening to a Chevy commercial on radio, the offer was take a “Chevy you will love it , if you don’t like it return it”, simple no obligations. Can any car manufacturer in India can offer such a promise ?

[Jeroen]

Hi Samridh,

Let me illustrate my point with a very simple example that hopefully everybody can understand.

We have two companies, A&B, in two different countries, both belonging to the same parent company C, again in a different country.

Say company A produces something at a cost of 1000. It sells it to it's sister company B for 2000, for all the reasons you point out, Tax in Country B is say 200. Company B pays that tax obviously.

Company B sells it locally to a customer for 2500, in country B.

Now one step further. On Company B local level they have made a profit of 2500 -2000-200 = 300. But on a global level company C has made of profit of 2500 - 1000 - 200 = 1300!

The 1000 is not relevant on a consolidated level!! Again, very relevant for tax and it does add cost to the total equation (i.e. 200).

For the parent company C, the sales is 2500, the cost is 1000 + 200 = 1200.
The 1000 difference charged between A and B is not relevant for parent company C. For company A its' a profit/margin, but as they sell to a sister company for the company C, its effectively an inter company transfer and doesn't affect company C bottom line at all. So A profit (1000) is a cost to B. As I pointed out, it is relevant for tax purposes.

I'm not (yet) familiar with how things work in India, but the basic principles seems to be in place for my company here as well. And there are difference between products/services and IPR. But the principle remains largely the same.

In practice it means that you need to sit down with the local tax authorities to determine what tax, ie inter company price level, is acceptable to them.

I have been party to discussions with various tax authorities in Europe on how we set the internal transfer prices within my company. It varies, even in Europe, a lot.

My point is that for a multinationals all those inter company transfer don't have an impact what so ever on their bottom line, other than than from a tax perspective. The cost price for a product/service, IPR remain the same and gets cancelled out on a global level, except for the various taxes.

I read your initial post as that it is difficult to say the least, for companies belonging to the same group/mother company to share and or benefit from each others assets. Although not easy, it is very possible and it is done all the time by all. If it couldn't been done why all these mergers and acquisitions? What's the use of TATA buying J&LR if it doesn't contribute to TATA's bottom line ultemately?

Where and how the mother company is taxed varies from country to country of course. Even, if the likes of TATA file individual taxes per company/entity, here in India, I would think the above would still hold true.

We shouldn't confuse cost, intracompany transfer and how and where you pay tax. The cost is where it starts, Intra Company transfer prices are to satisfy and regulate the local taxes. But the intra company transfer price or cost is not a real cost to the overall company/structure. It is a legal and fiscal maze, but that can be navigated. And I understand you're the man to do so!

In our company we maintain P&L's per local account. This will be a consolidated view. i.e. the real value to the company. all inter company transactions get netted out.

Next to that we maintain legal entity P&Ls in order to comply with all local tax regulations. But we drive and manage our business on the consolidated P&L per account for all the reasons as mentioned above. The legal P&L's are extremely relevant, but are more in the domain of our controllers and accounts to ensure we comply with tax regulations. Of course, for large multinationals a lot can be gained by setting up the "legal entities" in such a way to consolidate and make use of the respective tax regimes as effectively as possible.

I'm sorry but you have to excuse me on your last line in your reply. I speak Dutch, English, a bit of German, French and Swedish, but that's all. More things to learn!!

Jeroen

[aerohit]

To the original poster based in Bangalore:

I think you should ask this question to larger target audience, the 'Real Americans' (which you will not find on this forum) rather than minority immigrants or temporary visitors.

If Indian products are inferior, then, logically, I shouldn't be hiring Indian employees at all in all other fields of service industry, because I am going to receive inferior service from them. May be that is why Indians are willing to work for slightly lesser salary, locally and abroad, may be because they are all guilty of not be able to provide same quality of service comparable to Americans, Japanese or Koreans.

Similarly, if you change your question to: Will i hire an Indian? Answer is: Probably not, but for lower salary, yes. This is exactly the reason why Tata sell their products at competitive price. You get what you pay for. In the US, they will probably sell higher quality product for higher price, they have a diverse portfolio catering to both lower end and high end. Remember, US is not becoming richer, it is becoming poorer (relatively).

Personally, I think we can learn more from the Chinese market which is much newer, closer and larger than US in terms of sales now, unless TML has caught "the world revolved around the US bug".

Tata enters China-
http://www.chinadaily.com.cn/bizchin...t_15690130.htm

[torquecurve]

If the same question was asked to someone about Toyota a few (1980's?) years ago in the US the answer would have been the same. Toyota had to bring in the Lexus brand to make a name for themselves. A company like Hyundai was looked down upon, even in India for making flimsy cheap cars. Hondas never sold like hot cakes during the muscle car era (when even Nissan came up with Pocket rocket cars!).

Tata as a company manufacturing serious cars came into the scene only in 1999 with the Tata Indica V1. A car which was made completely in house without any external support. (I am not counting the Sierra, Estate and Sumo) as all were based on the 207 base truck with a 407 engine.

The Indica V1 was panned they came up with the very successful V2. If you look at a V2 from 2001-02 and compare it to a Vista from 2012 you will see the company has made leaps in terms of technology and quality. The ARIA is a case in point, which feels very European and just doesnt look that way. The 2.2 DiCoR engine is a case in point where they have made a world class engine.

Give them another 5-8 years, then lets see.

[Technocrat]

Originally Posted by torquecurve

A company like Hyundai was looked down upon, even in India for making flimsy cheap cars.

Looked down upon? US, Yes India, No. Hyundai was always known a quality car makes in India, all of their products had better quality than Maruti & were priced higher as well.