From near bankruptcy to profitability: The Japan bet that saved Tata Elxsi

Tata Elxsi has undergone a striking transformation, evolving from a company on the verge of bankruptcy to one of the most valuable entities within the Tata Group. This turnaround can largely be attributed to S Devarajan, who joined the firm in 1993, initially overseeing sales and marketing, before being elevated to Managing Director and CEO in 1996. Devarajan recalls a time when the company faced dire financial challenges, characterized by dwindling revenue and negative profits. "When I joined, we were deeply in losses and had very limited cash on hand," he shared in an exclusive interview. Amidst concerns from Ratan Tata, Devarajan recognized that a drastic change in business strategy was essential. He documented this journey in his book, *Designed to Win: The Story of Tata Elxsi*. Instead of directly competing with larger Indian IT firms in saturated markets, Devarajan opted for a more strategic approach. The company began to concentrate on specialized sectors that were largely overlooked by its competitors. Notable areas of focus included engineering design and services, particularly in automotive component design and styling, as well as the burgeoning field of animation and visual effects. By collaborating with high-end software providers from North America and Canada, Tata Elxsi played a pivotal role in nurturing India's early animation and VFX landscape. Devarajan notes, "We seeded a whole bunch of animation and VFX studios," helping to establish firms like Prasad Studios, Ramoji Film City, and UTV. In addition to these ventures, Tata Elxsi targeted visual simulation for aerospace and defense, working closely with prestigious organizations such as the Department of Space and the Indian Air Force, particularly on the Tejas aircraft program. The successful proof of concept for the Tejas simulator garnered significant praise, with the Indian Air Force’s chief test pilot noting its remarkable accuracy. The firm also entered the realm of molecular modeling for pharmaceuticals and biosciences, providing state-of-the-art software and workstations to government research centers and pharmaceutical companies, effectively addressing another untouched niche. To manage these diverse initiatives, Tata Elxsi established dedicated teams for each vertical, each with clear revenue goals. A significant strategic decision was made regarding geography. While many Indian tech firms were focused on the US and Europe, Devarajan chose to target Japan instead, despite initial pushback. "Maybe that is precisely the reason why we should go and be the first to plant our flag," he asserted. This decision led to extensive investments in understanding Japanese business practices and quality expectations, which proved fruitful. Tata Elxsi secured its first major Japanese client, Hitachi, developing advanced MRI imagery interpretation software and contributing to video technology. This initial success paved the way for collaborations with other major Japanese companies, including Mitsubishi and Sony. Armed with Japanese references, Tata Elxsi gained credibility in Western markets, leading to swift results; within two years, the company achieved a balance in domestic and international revenues and celebrated a return to profitability with dividend declarations.