Family Empires Still At India's Forefront

The southern portion of Bihar, India's poorest state, is filled with darkness - dirty smoke stacks, abandoned coal mines, towns blackened by pollution, and forests poisoned by acid rain.

But one place stands out. It is India's first planned industrial city, Jamshedpur. It is now the largest company town in the world. With its tree-lined streets, imposing office and residential blocks, and parks, the city is a memorial to the vision of Jamsetji Nusserwanji Tata, the man who 110 years ago founded India's No. 1 industrial conglomerate - the Tata Group.

The strength of India's economy today owes much to the legacy of the Tatas and other family business empires, such as the Birlas, Modis, and Goenkas, which rose to prominence before the end of the British Raj (rule) in 1947.

As India prepares to celebrate its golden jubilee of independence this August, many here note the success of these companies, which have managed to keep their preeminence despite decades of strong government control of the economy.

And since the early 1990s, when India began to shed socialism for more open markets, these family-owned enterprises have adapted well by changing rapidly to the entry of foreign competition.

"The Indian economy will be increasingly dominated by [foreign] multinationals in the coming decades, so only those companies that have maintained an edge ... will survive," says Ajit Dayal, director of Bombay-based Quantum Financial Services. "The Tata Group ... has successfully repositioned themselves in the market place ... to meet the multinational challenge," he says.

The Tata family arose from the Parsee immigrants who came to India from Persia (now Iran) in the 7th century. Like many Parsees who became wealthy merchants, the Tatas built a trading empire that spanned half the globe.

In 1887, Jamsetji founded the House of Tata, one of the pioneers of Indian industry that established the country's first private cotton mills, electricity plants, steel mills, automotive plants, and commercial airline.

"The Tatas single-handedly were responsible for the founding of heavy- and core-sector industries; they helped usher in the industrial revolution in India," says Gita Piramal, author of "Business Maharajas," a book on India's richest tycoons.

Today the Tata Group comprises 84 companies, employing more than 270,000 people, with combined sales exceeding $6 billion. The group contributes nearly 3 percent of India's gross national product.

The corporate giant controls India's largest private-sector steel company, Tata Iron and Steel (TISCO), and its largest automotive manufacturer, TELCO, which has a plant in Jamshedpur.

As India approaches the next millennium, the Tatas have ambitious modernization and expansion plans to meet the demand for raw materials, manufactured goods, and services. But the halcyon days of the 1990s are a relatively new phenomenon. In the early years after independence, India's first prime minister, Jawaharlal Nehru, took the country's economy down a socialist path. The heir to the Tata empire, J.R.D. Tata, bitterly opposed the plan and urged him to make massive investments in power, mining, roads, and railways.

"He was up against a wall because he didn't fall into the socialist scheme of things," says N.P. Sinha, who heads the engineering division at TISCO.

In 1952, J.R.D., a keen pilot, watched helplessly as his airline was nationalized and the government started regulating almost every aspect of Indian industry. Over the next two decades, banking, insurance, and mining were nationalized too and imports of technology and consumer goods almost ground to a halt.

"India became a highly protected economy; prices were regulated, and there was no access to foreign technology, as a result of which there could be no growth in the local steel industry," says Sanjay Singh, TISCO's corporate relations head.

Between the late-1950s and mid-1980s, steel production at Jamshedpur remained stagnant at around 2 million tons a year.

But the gradual opening of the economy in the 1980s changed all that. The old blast furnaces and rolling mills at the TISCO plant here were gradually phased out and new equipment and technology brought in.

But to remain competitive TISCO will have to shed thousands of workers from its bloated labor force of 40,000 employees and find more efficient ways of managing a city the size of Jamshedpur, which has a population of 600,000.

Another legacy of Jamsetji's vision for Indian industry is the Tata commitment to labor reform and social work. The Tata Group was the first to introduce an eight-hour working day in 1912, paid leave and accident compensation in 1920, and maternity benefits in 1928. The TISCO steel plant has not seen a day of labor unrest since 1928.

The community-development program covers 300,000 people and costs the company $11 million annually. "You cannot remain an island of prosperity when all around you is poverty," says Arun Narain Singh, a TISCO vice president, explaining the company's philosophy.

But no one at Jamshedpur or at the group's headquarters in Bombay believes that being good corporate citizens is enough to enable the Tatas to remain the largest industrial conglomerate. Since taking over as chairman in 1991, Ratan Tata has strengthened his control by bringing in professional managers and branching out into new areas. "Ratan wants to radically change the Tata culture, make it more competitive and agile," Ms. Piramal, the author, says.

"The moment this country gathers momentum, nobody will be able to stop it," Tata's Mr. Sinha adds.