India’s Tata To Buy Jaguar – Marks Top of Globalization

| March 24, 2008

Jag XF Concept.jpg

Word from Bloomberg that Ford is likely to sell its Jaguar and Land Rover units to India’s Tata motor company:

Jan. 3 (Bloomberg) — Ford Motor Co. selected Tata Motors Ltd. as the preferred bidder for Jaguar and Land Rover, putting India’s largest truckmaker in a position to take over two iconic British luxury auto brands.

Buying Jaguar and Land Rover, which date back to Britain’s colonial era, would give Mumbai-based Tata a presence outside Asia and provide access to new technology. Ford, the world’s third-largest automaker, wants to sell the brands to focus on its money-losing North American business.

Tata’s bid reflects a “new guard” in automaking, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. Jaguar and Land Rover are “a signal of wealth,” he said. “Everybody is going to notice.”

Globalization is the process where local wages, skills and wealth are decimated by shipping the factories, jobs and everything with it to another country where the work can be done cheaply. It means that workers are not just competing against the folks down the road, but with workers in China, India or Vietnam.

This has been underway for at least 20 years, and have lead to many of the underlying conditions of our current financial trouble. As a result US wages have stagnated while nearly everything you can buy is now made in China.

This has been a huge disruptor in the Computer Science and IT fields in this country, as outsourcing to India is in the process of obliterating the domestic skill base. The results of this “off-shoring” has been highly variable. I have personally made several good contracts out fixing or re-building a “Bangalore Special”.

The purchase of Jaguar by Tata seems like “a bridge too far” – the sort of headline grabbing story that usually marks the inflection point in a trend. For England it is fairly clear that they continue to become a shadow of their former, imperial self. Their flagship car brands are now going to be out-sourced to India.

With wages and prices increasing in India and China, and the dollar dropping fast, the advantages to sending work overseas may draw to a close. While you will read many gloom and doom headlines about our economic condition, there are many seeds being sown that will usher in the next “golden age” for the United States.

In the end, it is typical for cheap markets; like India, China and Brazil, to burn out by pricing themselves out of the market. Expect that process to be unusually sharp and dramatic given the economic decline of the world’s foremost market.

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Category: Economics, Geopolitics, Main

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

Comments (4)

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  1. brucehoult says:

    I think this viewpoint is quite wrong-headed. The greatest shortage in any country is skilled workers. The more of the low value stuff you can buy in cheaply from somewhere else the more you can free up your own people to do the really valuable things that you couldn’t tackle before.

    This applies equally to companies and countries and has certainly been our experience here in New Zealand over the last twenty years.

    We’d had one of the most “protected” economies in the world and were rapidly sinking into poverty. We totally opened up our borders to trade — effectively declared a unilateral free trade agreement with the entire world, whether they reciprocated or not (the USA and EU of course did not).

    We very quickly lost lots of businesses that we should never have been in in the first place such as car and TV assembly, low end clothing and footware manufacture. And farmers producing the wrong products quickly went out of business.

    But those people and skills ended up doing things that we do very very well. Building racing and luxury yachts for the Larry Ellison’s of the world. Exporting top quality flowers and fruits into the most demanding markets in the world (e.g. Tokyo). Dairy farming has never done better — in fact NZ dairy farmers and farming techniques have been expanding into places such as Australia and China (creating farms there and taking profits from their land, not just selling to them).

    And then there’s software.

    On just one floor of the building I work in we have small companies selling software and services to an international market, including:

    – our company is winning business *away* from Indian programming houses. We’ve targeted the mobile games (and other applications) market, which uses a number of operating systems and programming languages, meaning that standard practice is to write a game once (typically for Java phones) and then send it to India to be translated to C++ for Qualcomm’s BREW (Verizon, Alltel), and whatever is appropriate for other platforms. This takes weeks or months, and introduces new bugs. We have developed a fully-automated system that in a couple of minutes creates BREW applications directly from Java source and resources. We provide a much more valuable service than the Indian porting houses, but at near zero marginal cost.

    – a company that is selling English language teachng materials into China

    – a company doing web design and hosting. Their business has increased massively since they got attention by releasing their in-house Content Management System as open source and established a world-wide community around it.

    – a company providing business plan creation and tracking services a a web site. Their product got a great response at DEMO recently.

    Elsewhere in Wellington (pop 300,000) we have:

    – a company with an online accounting system for small business, currently getting rave reviews as they expand into the UK.

    – a company with an online auction site that has totally kicked eBay’s arse in NZ and sold for around half a billion dollars.

    – a company with online maps that beat Google Maps to market in NZ and Australia by a year and offers more features

    – oh and a local boy started a small movie studio here and has had some success with indie movies about Hobbits and large gorillas and so forth.

    I’m not even going to mention Flight of the Conchords making men laugh and women swoon all over the world 😉

    As for Jaguar and Rover: I think that’s an inward-looking move by Tata. Those two companies are practically irrelevant in terms of global car making, but acquiring the very symbols of colonial industry will be terrific PR in India. It simply is not about making them cheaper in India and selling cut-rate Jags to the rest of the world.

    The same goes for Kingfisher and their new Formula 1 team.

    I think you perhaps don’t appreciate how much money there is floating around in India now, and how much they spend on their obsessions.

    Take cricket, for example. The Indians are now paying huge money for the national cricket teams from outside the subcontinent (NZ, Australia, South Africa, England) to spend large amounts of time playing against each other (and against India, Pakistan and Sri Lanka) for the benefit of Indian audiences.

    Where you are correct is that the low wage countries soon cease to be low wage, once they join the global market. It happened to Japan, and then later to Malaysia and Korea and other asian countries. It will happen to China and India as well.

  2. Bruce Henderson says:

    Fabulous comment Bruce, but I would say that against the backdrop of my broader thesis, the entire world has been operating under an immense economic distortion. The open market approach is very useful during to boom times, and in fact the open market approach is part of what fostered the boom, but will work very differently on the down side.

    I am very happy to hear that New Zealand has done well with open economic approaches – I agree that they are the way to go. New Zealand is a wonderful place, and is probably one of the best places to live in the world!

    The points of the story (I think) still stand:

    1) England continues to decline for no reason other than they seem to have lost the will to be great

    2) India is probably close to the top of their bubble.

    3) The globalization status quo is about to take several large, hard blows, because when everyone is no longer well funded and well fed, people may become a lot more protectionist, looking to “take care of their own” first. Should this happen, there is going to be compound trouble as producers of goods find their factories in China and Brazil are political and social liabilities.

    4) Part of the shift of the status quo is that China, India and Brazil are now moving towards a more affluent economy, and they are no longer a source of “cheap” labor. In fact with a very cheap dollar there may be a large (and for India crippling) move to bring projects back to North America because the cost savings no longer exists.

  3. brucehoult says:

    Ok, let’s see..

    1) Agree. They’ve taxed their wealth-creators to death, don’t allow R&D unless its government managed, and are intent on handing over all power to the new Franco-German empire headquartered in Brussels. Very sad. I suspect it started with losing the best of a generation in WWI, with short reversals of the downslide during WWII and the reign of Maggie.

    2) disagree. India has vast numbers of people still to be dragged into the 20th century, let alone the 21st. The scale of the place is mind-boggling.

    Several years ago I was working for a small Wellington company that does telephone-exchange add on software (“IN” == “Intelligent Network”). We’d supplied the software for call setup and billing for nationwide prepay mobile phone networks in Poland and Indonesia (though we weren’t “corporate” enough to get business from any NZ telco) and were bidding on a contract in India.

    The telco we were dealing with was signing up 200,000 new subscribers a DAY. That’s a TelecomNZ every week. Unimaginable.

    3) I’m sure that you’re right that some countries will react to poor economic conditions by becoming more protectionist. Which is entirely the wrong thing to do. The good news is that will hurt themselves more than anyone else.

    Btw, did you know that NZ and China will sign a comprehensive bilateral free trade agreement next month? Everything we make will get unfettered access to the Chinese market, and they have many millions of people entering the middle class. (the reverse has of course been true for 20 years already) This is the first and only such agreement between China and a western country.

    4) agree.

    The only thing I really object to in your original post is: “outsourcing to India is in the process of obliterating the domestic skill base.”

    That’s just simply not the case. Anyone whose job was capable of being outsourced didn’t have much in the way of skills in the first place — or, at least, wasn’t using them in that job. They are like the Detroit auto workers in the 70’s: paid too much for doing too little semi-skilled work badly.

  4. Ron Smith says:

    One think that no one has mentioned yet and that I think plays a big part in the potential success of outsourcing is the cultural differences. I am about to speak in broad generalities so forgive me if I offend though anyone who knows me are probably amazed that I have made it this far into the text without offending someone.

    Of course New Zealand is doing well — on the whole, you have a strong work ethic, fair business business practices, social equality and respectable government. Many of the problems in the US today can be attributed to our degradations in one or more of these areas. Compared to India, Russia and many of the other common outsourcing destinations and you will see a difference in more than one of these criteria. There is a reason we call these places “developing” countries.