Nano A new approach to creating market space* I

Introduction: 2007 saw record number of road accidents in Delhi involving blue line buses. O ne such accident involved a scooter in which both the driver and the pillion rider died on the road even before they could be taken to the hospital. This led to protests and violent demonstrations against blue line buses. The Supreme Court of India stepped in to ask Delhi Government on the action it took against erring bus drivers and owners. Two wheeler accidents are quite common in India. A study at Apollo Hospitals in India showed that 1,20,000 head injury deaths occurred annually in the country from twowheeler accidents alone and that such head injuries were the sixth leading cause of death in India (One death every 4 minutes). However these statistics never reveal the agony and misery faced by the family when the breadwinner is critically injured or dies. This study also showed that two wheeler riders were five times more likely to be killed in an accident than car or bus passengers. Earlier in 2003, Mr.Ratan N. Tata or RN T as he is affectionately called, C hairman Tata Group, described one of the regular sights on Mumbai roads. A family of four husband, wife and two children -precariously balanced on a two- wheeler driving on Mumbais roads especially during the monsoon. He often wondered about their safety and what he and his Tata Motors could do to give them a safe vehicle. The two-wheelers are a relatively unsafe mode of transporting a family. This two-wheeler image got Mr.Tata thinking on safer forms of personal transport. Further, he always had an unconscious urge to do something for the large majority of Indians. Development of a personal affordable safe transport was the obvious option because of Tata Motors presence in automobile industry. Also as urbanization gathered pace, personal transport was to become a major issue because mass transport was either not available or was of poor quality in all cities including metros. In an interview to Financial Times at the Geneva Motor Show in 2003 he talked of his dream of producing a low-cost car. When asked how much would it cost, he said about Rs.1 Lakh (Rs.1, 00,000 or USD 2,500 assuming exchange rate as being USD1 = Rs.40). The next day Financial Times had a headline to the effect that Tatas were to produce an Rs.100000 car. ________________________________________________________________________ *Developed by Dr. Rajan Saxena, Sr. Advisor to Chancellor & Distinguished Professor of Marketing & Ms. Hufris h Homavazir, Research Associate ,SVKMs NMIMS University, Mumbai, India. Authors acknowledge with gratitude the support from Ms. Vrushali Rane, Librarian, SVKMs NMIMS University. This case is to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative/ business situation. This case is based on published data information on different websites including that of Tata Motors. This is the first in the two-part series case on Nano being developed by the author.

Initially he thought of rebutting but then he took it as a target. The skeptics laughed at the idea and wondered whether it would be another modified three-wheeler. They poohpoohed the idea. The competitors ridiculed the idea. The Indian press too initially reacted cynically to the proposition. Notwithstanding any such criticism and skepticism, Mr.Tata decided to go ahead with his project. He bound his engineers with this announcement Development of a One lakh Car Soon after this announcement, a team of engineers got together to actualize this dream. At that time they did not realize that the next four years of their lives would be totally spent on this project. They were not allowed to share with anyone, even their wives, the developments on the project. Several ideas were explored. Initially, the thought was to make a low-end rural car, probably without doors or windows and with plastic curtains that rolled down-a four-wheel version of the auto rickshaw. As Jai Bolar, Senior Manager for development at Tata Motors Engineering Research Centre recalled they considered all other low cost modes of transport, which included two wheelers, auto rickshaw and the companys own low priced Indica car. They had no clue as to what they were supposed to do. So the engineers decided to ask RN T who exhorted them to dream of building a low-cost car that would cost marginally more than the two wheelers and revolutionize personal transport in India. Go beyond just the usual cost reduction exercise. Show the world the ingenuity of Indian engineers said RN T urging them to include him in their team. Only countries like India or Pakistan can make such a low cost car in the world, concluded RN T. These words of RNT had a far-reaching effect on the product development team. Over the next 18 months or so, the team had little or no breakthroughs. It tried to globally source components and even toyed, as mentioned above, with an open car with plastic or canvas sheet for protection. In all their ideation, they were still working on making the two-wheeler a safe drive. No brief and benchmarks only made the challenge tough, commented Bolar. At this time in August 2004, Girish Wagh, a 35- year-old engineer of a track record of breaking new grounds joined the team. He had earlier successfully made a mini truck, Ace in a very tight cost schedule. Wagh was known for his innovative approach of involving customers in product development. Recalling his Ace experience, Wagh remembered how he talked to customers who were mainly three wheeler drivers driving around in rural areas and towns carrying poultry, vegetables and other groceries. All of them wanted a cheap, dependable truck that could go from village to market carrying the produce. One night, reminisces Wagh, as sunset approached, he persisted with one rickshaw driver on probing why he needed a four-wheeler when the same purpose was achieved with the three-wheeler. After a long persistent query, this driver said If I had a four-wheeler, I would have better marriage prospects in my village. Three-wheeler drivers are looked down upon in my village. Wagh got his response four wheels had emotional and social appeal and not just the rational appeal. In May 2005, when Tata Motors launched this mini truck branded Ace at just $5,100, it became a roaring success. The company sold 100,000 vehicles in 20 months.

So, Wagh told the car team that Indians wanted to graduate from two wheelers to four wheelers for emotional reasons. And the average Indian cannot afford expensive fourwheelers. Wagh joined the team when the first mule, was ready. In automobile manufacturing, mule is a vehicle that comprises the engine and transmission, driving a mock-up addled with electronic sensors. It moves like a vehicle but only for testing purposes. The first mule had a marine engine with 20 bhp (brake horse power). The team wanted to know if such an engine worked. Another pioneer on the team was Narendra Jain who is credited with the first gasoline engine made by Tatas. Jain searched globally for an engine that could fit a small car. He even contemplated the engine of the two-wheeler but gave up, as it didnt produce RNTs dream car for the average Indian. He then started designing the engine afresh. His first product was one that delivered 20 bhp but that was not sufficient. He increased the engines capacity to 554 cc, which delivered 27 bhp. But it still did not have the required power .The process went on till the capacity of 586 cc was reached. The engine appeared to have the zing to satisfy all parameters namely low cost and acceptable performance and conformed to all current and potential regulatory requirements. The product development team had now swelled to 500 as new tasks were incorporated. While Tata engineers worked on the engine design & car engineering, Italian design house I.D.E.A * was mandated with styling. This design house had earlier designed Tatas Indica. RNT was personally involved in styling. As Wagh mentioned, RN T even made last minute changes to the style, as his concern was always the customer. In December 2005, the second mule was tested and by mid 2006 the first prototype or Model Alpha was ready. After testing it on 586 cc engine, the team found the car wanting. It needed more length. RN T also wanted changes in styling, which involved body design and increased safety performance. The team was back at the drawing board. No benchmarks was making the task difficult and often frustrating. The top leadership, involving Mr.Ravikant, Managing Director, was tasked to continuously motivate the team. He mentioned that the company continuously exposed the team to competitor products from all over the world, even tearing them apart. In designing a breakthrough product, sometimes the work can become repetitive and tedious. For example in the task of engine designing Jain did 150 thermodynamic simulations, each of them stretching from 8 to 10 hours. Another expert, R.G.Rajhans, had built the body of Indica and by this time built about 10 different floors for this dream car. And finally in October 2006, Jain built a 624 cc engine with a bhp of 34. This was an optimal design. First time a high pressure die cast engine was made in India, said Jain. Compared to the first Maruti 800, which delivered 37 bhp, Jains engine was more optimal. It was cast into a real engine in January 2007 when it was first tried. It had a multipoint fuel injection system developed by Bosch. The heart of the dream car was now ready. ________________________________________________________________________
* Institute of Development in Automotive Engineering.

But the company had still to cover many more miles. Components were critical and vendors played a significant role, in determining costs of any automobile. Tatas Head of Sourcing was one E.Balasubramaniam, who was greatly respected by vendors. He negotiated, held the hand and prodded vendors to go down on their cost curves. This involved vendors having to pare their margins and produce at substantially low cost. The vendors needed to invest in processes and methods to reengineer their products to specifications rigidly guided by cost. Breakevens were expected only after two or three years. Another problem was getting vendors to put up a shop in Singur* in West Bengal where Tatas had decided to make this car. The vendors so far were clustered in and around Delhi, Mumbai, Pune and Chennai. Further it wasnt just the costs but all components including seats and batteries that required reengineering. This obviously increased the investment of a component manufacturer in some cases by about 40-50%. But the results of this creative thinking were amazing. For example, Tata Engineers found that door handle had 70 percent less parts than one of the cheapest European cars. Another major component is steering shaft. Hollow steering shafts reduced further costs and weight. MRF, a leading tyre manufacturer, redesigned the tyre to bear extra weight on the rear wheels. Thus at every stage the goal was to cut costs by reducing the number of parts that went into each component. As some managers mentioned they were amazed how in some cases costs dropped as high as 60% just by reengineering and out of box thinking. The team now was seeing the dream come through. But outside the factory criticism and skepticism persisted. Concerns about pollution, road infrastructure and clogging up of cities in India were major issues that critics raised. But Tata was undeterred. He wanted his car to conform to the stiffest pollution control norms in the world. He firmly believed that his car would not only create and develop the Indian market but also provide a solution to the harassed low income class and those at the cusp of middle class who suffered daily the agony of undependable public transport and/or unsafe two wheeler ride. Finally, in Jan 2008 the car named Nano (because of its size and cost) was ready to be showcased to the world. Some vital statistics of Nano are shown below:

________________________________________________________________________
* Singur is predominantly an agricultural backward area in West Bengal, which is on east of India. Left government governs West Bengal. There were violent protests against West Bengal Governments decision to give land to Tata Motors. Despite violent protest and opposition, RNT stood his ground to locate the new factory Singur.

Nanos Key Statistics Parameters Total investment Engine Design Fuel efficiency Top speed Gearbox Length Inner space Safety Emission The Last mile Manufacturing the low cost car was just not enough. Efficiencies in distribution and service were also required. Cost of transportation of cars to all markets was also an important issue. Logistics is the last bastion of cost reduction. Tata Motors have come up with an idea of converting their distributors into entrepreneurs. The plan is to develop an assembly kit for distributors who would stock completely knocked-down (CKD) kits of the car at warehouses and assemble them on site. Transporting car in a CKD condition is much less expensive than a fully assembled car. To enable cheaper assembly at the distributors end, some parts of the car would be glued together than being welded. The Launch 9th of January 2008. The venue was Auto Expo, Delhi. A huge crowd and the global media had assembled at the Tata Motors stall. Everybody asked each other what it would be like. Will it be a scooter, an auto rickshaw or a half car? As excitement ran high, RNT entered the stall driving the Nano. Thunderous applause welcomed Nano.The world looked at this beauty from all sides. Wow, it was a real car. It had four wheels. It could accommodate a family of four and also had space for keeping the luggage. Whats more, RNT had kept his promise of delivering the car at Rs.1 lakh (Rs.100, 000) and not more. This was despite the fact the price of steel, rubber and other inputs had gone up since 2003. RNTs mellowed voice in the pavilion was heard by one and all when he said, A promise is a promise. Nano had passed all crash tests, and complied to Euro IV and Bharat III Auto pollution norms, he said. This was when these norms were still not applicable for any car here in India. It had a four-speed manual gearbox and was high on fuel efficiency as reflected by the fact that it gave 20 kms per litre. It had a lower emission than an average motorcycle. ________________________________________________________________________ * 1 crore = 10 million Statistics Rs.1700 crores* or Rs.17000 million 624cc, 34bhp rear-mounted Four-door monocoque 20kpl 105 kmph Four-speed manual 8 per cent smaller than Maruti 800 21 per cent larger than Maruti 800 Survived frontal crash at 48 kmph Bharat III and Euro IV complaint

In the background, music from Stanley Kubrick 2001, film Space Odyssey played. Very often RNT deviated from his prepared text to take a dig at his critics namely competitors, environmentalists and even the media. Among the audience were Maruti Suzukis Managing Director, Mr.Jagdish Khattar, and the car-racing star Mr.Narayan Kartikeyan. The international and national media was reporting live this innovation. CNBC, BBC and all others were now reporting live from Delhi, the launch of worlds lowest price car by none other than Tatas. Speaking on the sidelines, the components suppliers talked of their experience of working with Tata Motors on this project. One of the supplier Delphi which has developed the low cost centrally maintained instrument cluster of Nano, felt that the biggest learning was innovative thinking of cutting cost, meeting time lines and eliminating wastages. What Delphi did was to make the basic instrument cluster with just a speedometer, odometer and turn indicator signals. It also eliminated screws and replaced them simply with panels and parts that just snapped on firmly. Clear plastic panel covering the display was curved at an angle to eliminate reflections and glare a simple solution compared to the usual anti-glare coatings. Another major supplier Bosch mentioned that a lot of fundamental conceptualization had taken place for designing components for Nano. Like them, there were 100 vendors who made this dream possible. The customer on the street welcomed Nano. A young sales executive in Delhi remarked, Thank God, I can now own a car. A housewife in the middle-class colony of Delhi remarked that she didnt have to now worry now about the safety of her husband and children who daily went to work and school respectively on her husbands motorcycle. Similar comments were heard all over the country. It wasnt just that the Indian customers wowed Tatas, but Tatas also received calls from Latin America, Europe and other countries in Asia. Each caller either wanted to buy the car or start its distributorship or wanted RNT to set up a plant in their country. The world was now knocking at Tata Motors door. The Launch of Nano was a big talk at Detroit Auto Expo being held almost the same time in USA. Nanos development was compared to Fords model T. Nissan Renaults CEO, Carl Ghosn remarked that Nano was a major innovation and perhaps the first major breakthrough after the world saw the introduction of the first automobile by Henry Ford under the name model T. He believed that Nano went beyond the concept of frugal engineering. It was a story of a new mind set. Carlos was the only person who believed in RNTs ability to make a low cost car. Bajaj Auto Ltd, Indias largest two wheeler makers had earlier unveiled an indigenous low cost car at this Auto Expo. But this would require four years to bring it to the Indian road. Bajaj runs the highest risk of loosing its buyers of two wheelers and three wheelers. Mr.Rajiv Bajaj, the young Managing Director of Bajaj Auto, declined to discuss Tatas Nano even though he called it a cute car on the CNBC TV 18 channel, while Pawan Goenka, President, Mahindra and Mahindra Ltd complimented RNT for making Nano a

very impressive demonstration of Indian engineering. Maruti Suzuki now has a serious challenge for its 800cc car said S.Ramnath Vice President SSKI Securities Ltd. Hyundai Motors, another major car manufacturer in India, has also decided to make India a global hub of manufacturing small cars. In fact a number of carmakers, which include the Renault N issan, Toyota, Ford Motor India and Maruti Suzuki, have shifted squarely to small fuel-efficient space saving cars. Newsweek, in a special report on Nano in its February 25, 2008 issue, mentioned that the worlds future car was small, often risky, cool at times and was going to be available at an amazingly low cost. The magazine mentioned that even before Nano hit the road it was changing the rules of the road for the auto industry and the society as a whole. Millions of emerging market consumers can now own four-wheel transportation thereby creating unheard of mobility for the masses. It will put the Third World on wheels and will have far reaching implications for the whole world. Commenting on this development, Chief Designer of the Ford Motor Company. J. Mays said, For the first time in the world history of auto industry there is a generation that is connected globally. They see an iPod or a Nokia phone or a 1200 dollar womens hand bag and think just because it is small does not mean that it cant be fantastic. And this very belief will now guide them to buy low cost small cars like Nano. The magazine hoped that this development will accelerate research and development on alternative fuel vehicles. Recommending to the auto manufacturers, the magazine wrote that the more features automakers can stuff into small cars be the safety, style, stereos better it is for the bottom line. Japan and Europe are using this formula to develop a lucrative small car market. Antecedents of Nano Wikipedia defined a micro car as an extremely small automobile. Various definitions exist of defining such a car on the basis of length and engine capacity. Another name for micro car is a station car where the intended use is to travel from a suburban home to an interurban transit station or Park and Ride lot where the vehicle remains until the operator returns from the commute to and from the workplace. Europe has been home to such micro and mini cars. France and Germany have been in the lead. The most popular such car is SMART with a weight of 730 kgs. The reason for the success of micro/small cars is the economy of its operations, easier norms for driving (in some countries no driving licence is required for such cars), and ease of parking. These cars are battery/electric operated or use gasoline. Some of the various micro car makers are: Chatenet[1] (http://www.automobiles-chatenet.com/):Barooder S2, Barooder X2 MUST Barooder Sport (diesel, 4 kW), Barooder X4 and Speedino (gasoline, 15kW0.

Grecav [2] (http://www.grecav.it/index.en.php): Eke (berlina, pickup, van and SW) and Porter (truck). It also sells agricululture. Aixam Ligier Microcar make Piaggio Simpa-JDM [3] (http://www.simpa-jdm.com/): Albizia basic, club and confort. Micro-Vett (Ydea electric). [4] (http://www.micro-vett.it/english/ydeaing.html) Bellier [5] (http://www.bellier.fr/) Townlife [6] (http://www.townlife.it/) Casalini [7] (http://www.ydea.it/) Smart

Opportunities for Nano India today is one of the two rapidly growing economies of the world. The growth rate of Indian economy has averaged 8% in last three years. Today its gross domestic product has exceeded the trillion-dollar mark and will exceed the next trillion-dollar mark by 2025, if the economy continues to grow 8% and above. This has obviously increased demand as it put more money in the hands of all segments of the Indian population. According to one Mckinseys Global Institute, about 54% of Indias population had an annual household income of less than Rs. 90,000, 41% had an annual income of Rs.90, 000 to Rs. 2,00,000 and 4% had a household income of Rs.200,000 to 500,000. This data showed that 103 million people moved out of desperate poverty in the course of just one generation. This is true across India. This is all the more impressive if we keep in mind that Indias population grew by 352 million between 1995-2005. In effect there were 431 million fewer poor people in India, today then there would have been if poverty rate remained at its 1985 rate of 93%. Also since 1991, when India started its liberalization process, there has been a sizeable growth in the middle class. Because of all these changes and a predominantly young market, India is expected to become the fifth largest market by 2025. This is due to a combination of rapidly rising household incomes and a robustly growing young population. As one can make out, the income growth will be one of the biggest drivers of increasing consumption, far outweighing population growth or any change in savings behaviour. 80 % of consumption growth comes from rising incomes, while 16 percent of the increase is due to growth in the number of households. O nly 4 per cent will come, from changes in Indias household saving rate. As incomes grow, the class structure of consumption will change significantly as well. Consumption today is dominated by the lowest and low-income segments, which together control 75 per cent of spend. By 2025, however, the highest income segment will wield 20 per cent of total spending and the new middle class will come to dominate, controlling 59 per cent of Indias consumption power. 8

The second big change resulting from continued income growth will be the long-awaited emergence of a large Indian middle class. Not only will the magnitude of socio-economic change be great, its speed will also be far greater than anything the country has seen before. The deprived population has long dominated India, and that domination has started to decline only in the recent past. In contrast, the low and low middle-income class has been growing steadily over the past two decades. Spending power will also shift by income bracket as the middle class begins to bulge. By 2015 Indias middle class will control the largest block of income in the country at 19 trillion Indian rupees, or 44 per cent of total income. By 2025 it is expected to grow to 51.5 trillion rupees 11 times the level of 2007 or 58 per cent of total income. As one would observe from the above story, the Indian market is getting pulled upwards and that the consumer aspirations have also changed. This is largely because of the migration of population from one occupation to another, principally from very low paying wages to high paying wages, and the mobility of labour across the region and cities mainly because of the economic opportunities. The social image of an average Indian has also changed. Today education and employment are taken as two important criteria of determining the individuals image in the society. This is a significant change from the time when only income was considered for determining the status of an individual from the society. The change in the aspirations is also fueled by information, communication and telecommunication revolution in India. Satellite television, mobile phones, local language software and internet are just some factors that have driven this change. Development of small towns on the strength of the retail revolution, BPOs, service entrepreneurs and education has also influenced consumer aspirations. Globally also poor consumers in the low- income market represent a substantive opportunity. These consumers are not just located in India and C hina but are also found in Latin America, USA, former East Europe and Asia. These markets today call for innovative solutions. This has led to the development of new category of products and processes. For example, today Nokia makes low priced cellular phones in India, only for India and other poor markets of the world. In India the entry level phone is available for as low as $15. Likewise India also saw earlier in 1990s the development of low priced detergent powder under the brand name NIRMA and pre-recorded music cassettes under the brand name T-Series. They heralded a new approach to creating new market spaces. Nano-isation appears to be the future for exploiting this opportunity at the bottom of the pyramid. Automobile Industry in India The Indian Automobile Industry has come a long way since 1991 when it produced only two million automobiles. In 2006 it produced almost eleven million vehicles. The total number of cars produced in 1991 was 1,78,930 as opposed to 2006 where the total

production was 1.2 million. The total number of two wheelers in the same period increased from 1.6 million to 8.4 million. Between 2003-2007 the total number of cars produced grew from 770771 in 2003 to 1.2 million in 2006 and the two wheelers grew from 5.4 millions to 8.4 millions in the same period. The three-wheeler production also increased from 332095 to 5333595 as shown in the table below: Production of Vehicles
Two wheelers Electric Two Wheelers Total Two Wheelers Total Three Wheelers

Year

Cars

Scooters

Motorcycle s

Mopeds

2003 2004 2005 2006

770771 1005205 1068535 1261775

875569 992879 993283 944238

4196154 4944696 5936689 7069807

337018 348665 366228 370688 22472

5408741 6286240 7296200 8407205

332095 369169 413330 533595

Sales ( inclusive of exports) Likewise the sales (inclusive of exports) of the vehicles have increased as indicated in the table below:
Two wheelers Electric Two Wheelers Total Two Wheelers 5367950 6344367 7289524 22421 8389265 Total Three Wheelers 328306 369474 411860 529657

Year

Cars 809426 1028460 1086065 1289340

Scooters 888164 999675 970409 966855

Motorcycle s 4151272 4996863 5951221 7015137

Mopeds 328514 347829 367894 384852

2003 2004 2005 2006

10

Category wise share of Domestic Sales

13.65% 4.63% 4%

Passenger Vehicles
77.73%

Commercial Vehicles Three Wheelers Two Wheelers

As can be made out from the data above almost 78% of total automobile sales in India is accounted for by two wheelers in which motorcycles form the largest share. Categorization and Market share of diffe rent passenger car manufacturers A1: Mini (Upto 3400 mm) Maruti Suzuki India Ltd A4: Executive (4501-4700 mm) Daimler C hrysler India Pvt.Ltd General Motors India Pvt.Ltd Hindustan Motors Ltd Honda Siel Cars India Ltd Hyundai Motor India Ltd SkodaAuto India Pvt.Ltd Toyota Kirloskar Motor Pvt.Ltd A5: Premium (4701-5000 mm) Daimler C hrysler India Pvt.Ltd Ford India Pvt Ltd Honda Siel Cars India Ltd Hyundai Motor India Ltd SkodaAuto India Pvt Ltd A6: Luxury (5001 mm & above) Daimler C hrysler India Pvt.Ltd

A2: Compact (3401-4000mm) Fiat India Automobiles Pvt.Ltd. General Motors India Pvt.Ltd Hyundai Motor India Ltd Maruti Suzuki India Ltd Tata Motors Ltd A3: Mid-size (4002-4500 mm) Fiat India Automobiles Pvt. Ltd. Ford India Pvt.Ltd. General Motors India Pvt.Ltd. Hindustan Motors Ltd. Honda Siel Cars India Ltd Hyndai Motor India Ltd Maruti Suzuki India Ltd Tata Motors Ltd

Source: The Indian Automobile Industry, Statistical Profile 2007- 2008.SIAM (Society for Indian Automobile Manufac turers)

11

Within the mini segment Maruti Suzuki holds the sway. No car manufacturer has so far been able to unseat Maruti 800. Although its total market share over a period of time has got reduced today, it still has 50.38% market share. Tata Motors has 17% market share in the passenger car market as shown in the table below. Market Share of Passenger cars in 2006-2007 (% ) BMW India Pvt Ltd Daimler Chrysler India Pvt Ltd Fiat India Automobiles Pvt Ltd Ford India Pvt Ltd General Motors India Pvt Ltd Hindustan Motors Ltd Honda Siel Cars India Ltd Hyundai Motor India Ltd Maruti Suzuki India Ltd Skoda Auto India Pvt Ltd Tata Motors Ltd Toyota Kirloskar Motor Pvt Ltd 0.01 0.19 0.21 3.91 1.42 1.42 5.33 18.13 50.38 1.19 17 0.8

Source: The Indian Automobile Industry, Statistical Profile 2007- 2008.SIAM (Society for Indian Automobile Manufacturers) As mentioned above, in the category of Maruti 800, no company has so far been able to unseat Maruti Suzuki. It is this market that Nano is targeting. The other issues impacting the growth of automobile industry in India continues to be rising oil prices, poor road infrastructure and absence of proper parking, facilities in both residential and commercial districts, and increasing pollution in cities. High taxation of automobiles particularly the four wheeler continue to adversely affect the growth of this industry. At the micro level the problems remained in the areas of service and distribution. Poor service and absence of trained service personnel across the country also affect the growth of automotive vehicles especially those of passenger cars. Tata Motors is one of the significant players in this industry. It has principally been a manufacturer of commercial vehicles where it has had a dominant market share of over 60%. It first entered the passenger car market in the year 2000 with its small car, Indica. Over the last seven years, it notched 16% market share in this mini compact car segment. It has also lately recently bid to acquire Jaguar from Ford Motor Company. The companys financials are shown in Annexure 1. Tata Motors was bleeding almost until March 2003. It suffered a severe loss in 2000. Soon thereafter the transformation began when the entire company started working on

12

cost control and reduction. By 2007, the company partnered with other manufacturers around the globe. It improved its efficiency significantly. For example, now it takes 1215 minutes to change a die on the passenger car assembly line. This is down from the earlier time taken of 2 hrs. Its breakeven for capacity utilization is now one of the best in the industry worldwide. Tata Motors is also listed in the New York Stock Exchange. Conclusion As the euphoria on Nanos launch subsides, the team of Tata Motors got together to put a plan to mass produce and market this wonder, first successfully in India and then later in the world. As RNT mentioned, business plans to produce 200,000 cars had very little meaning when the demand was in millions. The concern was how to scale up the operations to meet this latent and overt demand. What innovations could be considered for successfully marketing this little wonder of India? After all, as RNT said, it was still a car. He wondered if this innovation could be extended to other products and processes.

13

References 1) Aiyar, S., (2008). Ratans Revolution, India Today, XXXIII No.3, 32-42 2) Bhanutej, N., (2008). Carnival Time .The Week, 26, 40-44 3) Big designs on the small car, The Economic Times, January 18, 2008 4) Everyone said Nano was a pipedream, The Economic Times, January 11, 2008 5) http://tatanano.inservices.tatamotors.com/tatamotors , Inclusive Innovation , Hindu ( Web Edition) 6) http://tatanano.inservices.tatamotors.com/tatamotors , Nano makes it to Times most important car of all time , Hindu ( Web Edition) ,January 17,2008 7) http://tatanano.inservices.tatamotors.com/tatamotors ,The Next Peoples Car, Forbes Asia ( Web Edition) ,April 16 ,2007 8) http://www.chennaionline.com/health/News/2005/02helmetday.asp 9) Nano to Drive in a New Customer Class, The Economic Times, January 15, 2008 10) Narayanan., D., ( 2008) . The Making of a Modern C lassic, Businessworld, 27,37-47 11) Naughton, K., (2008). Small. Its the New Big, Newsweek , 8, 28-34 12) Taking Cover Gets Cheaper, The Economic Times, January 11, 2008 13) Tata Motors, Annual Report, 2006-2007 14) Tata Motors plans multi- manufacturing hubs, The Economic Times, January 15, 2008 15) Tata Unveils the much- awaited Rs 1 lakh Nano, The Economic Times, January 13, 2008 16) The Income Pyramid, Business World, The Marketing White book (2007 2008) 17) The Nano Effect, The Economic Times, January 14, 2008

14

Commercial Vehicle Sales ( Domestic) and Market Share

350 64 300 64 66

250 61
Number in Thousands

62

60 200 60 Numbers in Thousands Percentage 58

59 150

100

56

56

Source - Annual Report of Tata Motors, 2006-2007

152

0 2003 2004 2005 Year 2006 2007

106

190

215

299

50

54

52

15

Passenger Vehicle Sales ( Domestic) and Market Share

250 17 17 17.5

17

17 200

16.5

Numbers in Thousands

16 150 16 Numbers in Thousands Percentage 15 15.5 100

Source- Annual Report of Tata Motors, 2006- 2007

15

50 14.5
179 140 104 189 228

0 2003 2004 2005 Year 2006 2007

14

16

Product Mix ( Volumes)

120

100

48

Percentage

50

48

46

42

80

60

Passenger Vehicles Commercial Vehicles

40

Source- Annual Report of Tata Motors, 20062007

52

20

0 2003 2004 2005 Year 2006 2007

50

52

54

58

17

Profits
4000

3500

3000

2865

3559
2500

2337

( Rs in Crores)

2053

2573

1941

1913

EBITDA PBT PAT

2000

1652

1292

1500

0 2003 2004 Year 2005 2006 2007 Source- Annual Report of Tata Motors, 2006- 2007. Rs 1 crore = 10 million

300

500

510

810

1000

1157

1237

1529

18

R& D expenditure as a % of net turnover

900 2.9 800 3 700 2.3 600 2.2 2.5 3.5

Rs in crores

500

2 R& D expenditure Percentage 1.5

Source- Annual Report of Tata Motors, 2006- 2007 Rs 1 crore=10 million

400

1.6

300

1.1 1

200 0.5
143 152 393 476 797

100

0 2003 2004 2005 Year 2006 2007

19

TURNOVER EBIDTA AND PAT AS A % OF TURNOVER

30000 27535 14.6 25000 12.7 20653 20000 17419
Rs. in Crores

16

13.7 13.3 12.8

14

12

10 Net income

15000 13223 6.1 7 7.3 6.9

Excise Duty EBIDTA MARGIN

6 10000 9097 3.3 4 5000 3063 1744 0 2003 2004 2005 YEAR 2006 2007 2270 3348 4349 2

PAT AS A % OF TURNOVER

Source- Annual Report of Tata Motors , 2006 - 2007 Rs 1 crore= 10 million

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ISSUES FOR DISCUSSIONS 1) 2) Innovative thinking process at Tata Motors. The process of innovation and evaluation of Nano from the innovation point of view. Development and motivation of the project team and the companys partners. Market opportunity in poor market of the world need for innovative approach. Does Nano have the potential to initiate a global shift in corporate strategy.

3) 4) 5)

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