A parallel between Ratan Tata and Warren Buffett

Philanthropy was a striking feature of both Ratan Naval Tata and Warren Edward Buffett. Both Tata Group and Berkshire Hathaway are common benefactors to Bill Gates Foundation having contributed significant amounts. Along with philanthropy, there are many other parallels that could be drawn between these two legends and their respective groups that are global conglomerates.

First is business interests and financial metrics. Tata Group operates in IT, Automative, FMCG, Steel, Engineering, and telecommunications. Berkshire operates in insurance, railroads, energy, manufacturing, and retail. Berkshire Hathaway has $1 trillion market cap whereas Tata Group has a market cap of $360 billion, which is about 1/3rd of Berkshire. Revenue of Berkshire is $364 billion whereas that of Tata Group is $66 billion. Net income of Berkshire is $48 billion whereas that of Tata Group is $5.4 billion. Tata has 25% gross profit margin whereas Berkshire has 19%. But Berkshire has 11% net profit margin whereas Tata has 8%. Berkshire earns return on equity of 20% whereas Tata earns 15%.

Second is organizational structure. Tata Group is 156 years old. Berkshire Hathaway is 185 years old. Both have about 150 plus subsidiaries. Majority of shareholding and control of Tata Group is by charitable trusts owned by Tata Sons. Berkshire subsidiaries operate in a highly decentralized pattern whereas Tata Group operates with limited decentralization.

Third is managerial approach. Warren Buffett adopts laissez faire style whereas Ratan Tata adopted mentoring with involvement style. Warren Buffett focusses on returns and long term wealth creation whereas Tata focused on growth.

Fourth is acquisitions. Tata Group made more than 100 acquisitions in and outside India. Berkshire also made more than 100 acquisitions mostly in US and few outside US. Both believed in organic and inorganic growth and provided capital for acquisitions.

Fifth is brand image. Both Tata and Berkshire command high brand equity. Tata is among most valuable brands in India. Berkshire is a strong investment brand around the world. Berkshire is seen as a synonym for investment wisdom whereas Tata is seen as a responsible corporate citizen.

In December 2004, when Tata Group studied options to reframe their group structure, Ratan Tata openly acknowledged Berkshire Hathaway. He shared their intention to list Tata Group as an investment company similar to that of Berkshire Hathaway the group run by Warren Buffett. Thus, Ratan Tata admitted that they would like to emulate the investment wisdom, smartness in organizational structure, and managerial control of Berkshire.

Interestingly, Ratan Tata and Warren Buffett did not meet each other. Bill Gates was the common friend to both.

Millions of business leaders around the world paid rich tributes mourning the death of Padma Vibhushan Ratan Naval Tata. Mr. Bill Gates, the common friend of Ratan Tata and Warren Buffett also paid emotional tributes to Ratan Tata. He stated: "Ratan Tata was a visionary leader whose dedication to improving lives left an indelible mark on India - and the world. I had the privilege of meeting him on several occasions, and I was always moved by his strong sense of purpose and service to humanity,".

Disclaimer: Dr. Kishore Nuthalapati is an Economist, and is the CFO of BEKEM Infra Projects Pvt Ltd, Hyderabad, India. Views are his personal and do not reflect those of any of the organizations he is or was associated with.