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PRESENTATION AT PIMR ,INDORE,4th INTERNATIONAL CONFERENCE

2010

31st JAN 2010

by Prof S V Bidwai & Prof K K Jain

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TATA NANO - THE WORLDS CHEAPEST CAR FOREMERGING MARKETS

--- By Prof S V Bidwai & Prof K KJain, Adjunct Professors IBS Mumbai

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The Objective of This Study

Assessing the impact of the fast changing businessscenario of the passenger car Industry in India includingopportunities for exports of small passenger cars from

India. The global and Indian economic meltdown of 2008and its impact on the small passenger car industry in Indiaand world wide.

Strategic analysis of automobile industry for identifyingdemand drivers mainly for small passenger cars and itsrelevance to Tata Nano an infant product from TataMotors .

To identify strategic choices available for Tata Nano forcom etin in the future

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RESEARCH METHODOLOGY

Identifying & critically examining the passenger carmarkets with focus on the upcoming small &subcompact, low cost passenger car market

segments in India including those with potential forexports , with a view of targeting and positioning forTata Nano.

Strategic analysis of Indian Automobile Passenger carIndustry using Porters Five Forces Model & PESTEL

Analysis based on information available in publicdomain for identifying Driving forces and challenges

faced by Tata Nano.

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EVOLUTION OF TATA NANO

The concept of Nano Evolved when Mr Ratan Tata saw afull family of four persons driving on a scooter. He sawthat, husband is driving the scooter, a small child isstanding on the footboard, wife sitting on the pillion seatwith a baby in her arms.

He felt that, if a cheaper car at a price of Rs 1 lac can beprovided, these families can move to a much safer andcomfortable mode of transport.

With this concept and price target given, his research teamat Pune started working on the project. It took them 2

years time to convert the idea from concept stage to aphysical product.

It involved working with vendors to rewrite thespecifications so as to cut down the cost of thecomponents without sacrificing the quality.

At the end of the research project, indeed a no frills model

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Tatas Entry in Passenger Car Market

Tata Sierra

(1991)Tata

Estate(1992)

Tata

Sumo(1994)

Tata Safari

and

Indica(1998

)

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NANO(2009)

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PASSENGER CAR INDUSTRY, TARGETING &POSITIONING (STP)

There is no fixed or widely accepted method ofsegmenting the passenger car market in India.Segmentation has mostly been done on product typeor price ranges.

Government of India has segmented the cars fortaxation purposes on basis of engine displacementvolume and on length of cars.

We propose Market segmentation based on pricingrange and displacement volume. This results in betterdefinition of market segments in India.

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Segmentation Seg 1:- Ultra low cost car (ULCC) segment

(less than Rs. 2,25,000/-, less than 800cc).

Seg 2:- Sub-compact car segment (less thanRs. 3,25,000/-, 800cc).

Seg 3:- Compact car segment (less than Rs.5,25,000/-, less than 1,300cc).

Seg 4:- Mid-size car segment (Rs. 5,25,000 to10,25,000, between 1300cc-1800cc) .

Seg 5:- Luxury/premium car segment (morethan Rs.10,25,000 and more than 1800cc).

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Ultra Low Cost Car (ULCC)

Tatas Nano has created a new segment of Ultra

Low Cost Car (ULCC) in Indian and world-widemarket.

This segment has created a new dynamics in theIndian car market with the present two wheelerowners aspiring to upgrade themselves into carsegment.

This has opened up new vistas for export of Nanoin the so far untapped ULCC segment in theinternational market.

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Characteristics of Different SegmentsSegments for

passenger cars

Ultra low cost car

(ULCC)

Sub-Compact

car

Compact Car Midsize car Luxury/premium

car

Segment 1 Segment - 2 Segment - 3 Segment - 4 Segment 5

Market Share(2007-08)*

Launched in 2009New Market Segment

5-10% 65-71% 20% 4%

Owner /buyerProfile

Lower middle classwho desire toupgrade from 2-wheeler. Personswanting to buysecond-hand cars.

Lower middleclass / MiddleClass

Middle/Higherclass,Sr.Executives, Household

Higher middleclass & high levelexecutives/Richbusiness class.

Corporate, Richbusiness class ,diplomats, and HNI

Basis ofCompetition

Price & OperatingCost, mileage ,

Service and Sparesn/w

Price &Operating Cost,

mileage, Serviceand Spares n/w

Price & operatingcost ,mileage ,

features, Servicen/w

Price, power ,comfort, special

features

Safety , power ,comfort, special

features

Driven By Owner Owner Owner Owner / Chauffer Chauffer

Demand Drivers Upgrading from twowheelers to fourwheelers.

Second hand carbuyers can shift toTata Nano

DisposableHouseholdincome,

Corporateexecutive perks,

DisposableHouseholdincome, Corporate

executive perks

Status Symbol,New Models,Financial

Schemes, SeniorCorporateExecutive

Rising Affluence,Status Symbol.

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STRATEGY

Indigenous Design and development for new models forIndian and global markets and continuous improvements inexisting models.

No frills strategy for Tata Nano base version.

Low Cost and differentiation Competitive Strategy.

Continuous technological up-gradation and innovationstrategies.

World Class Manufacturing.

Focus on excellence in quality product meeting all stringentspecifications.

Strategic location of manufacturing facilities with provisionfor vendors facilities JIT Strategy.

TQM

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TATA NANOS COMPETITIVE

STRATEGY

Continuous improvement in productivity. Lowest

cost in the industry. It is cheapest car in the world.

Focus on utmost customer satisfaction throughextensive and efficient service network, ensuring

availability of original spares at reasonable price.

Suppliers Partnership and continuous improvementand development through technical support.

Aggressive Advertising & Communications strategy.Tata motors was at the top of the advertisers table.on audio and Television media (Source AdEx India- Adivision of TAM Media Research).

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TATA NANOS COMPETITIVE

STRATEGY

Extensive Distribution Channels.

Human resources development (HRD) strategies for

continuous up-gradation and development of skills not onlyfor their own employees but also for vendors and sales and

service staff of the distributors.

Facilitating loans for buyers of Tata Motor Products at

competitive rates. To develop and retain customer loyalty and trust.

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Threat ofSubstituteProducts

Threat ofNewEntrants

Threat of NewEntrants

Rivalry AmongCompeting Firms in

Industry

BargainingPower ofBuyers

BargainingPower ofSuppliers

Porters Five Forces

Model of Competition

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STRATEGIC ANALYSIS CAR INDUSTRYUSING PORTERS FIVE FORCE MODEL

Rivalry Among Existing Firms :-

Today there is no one in the segment of Ultra LowCost Car (ULCC) any where in the world. Tata

Nano stands uniquely alone in this segment. TataNano has potential to grab global Market in thissegment.

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Threat of New Entrants:-

Recently in Nov 2009, Renault-Nissans CEO MrCarlos Ghosn who had come to India to participate

in the India Economic Summit 2009, met Mr RajivBajaj - MD of Bajaj Auto and finalized the jointventure arrangement with Bajaj Auto for the ULCC(Ultra Low Cost Car) project in India (expected in

2012). Hyundai Motors has recently announced that, they

would introduce a car smaller than Santro at muchreduced price. This may fall into ULCC segment.

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Bargaining power of Vendors :-

It is in this area that Tata Motors has a uniqueadvantage. Based on the large volumes projected

for Nano, Tata Motors has been able to getcomponents at the lowest cost in the Industry.

For many components, Tata Motors has jointly

worked with the vendors to simplify the design andreduce costs. This engineering input to the vendorshas been a major contributor for reducing the costsand it has resulted in improved vendor partnership.

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Substitutes:- The demand for Electric cars is expected to

increase as substitute due to growing environmentalawareness, uncertainty of fossil fuel prices and

improvements in battery technology for electriccars. Today with Lithium-ion batteries, it is possibleto get a range of 150 kms for the electric cars. Thisobviates the need for opening up charging stations

around the city.

The introduction of Lithium Ion Batteries which havemuch higher power to weight ratio, the electric carscan now become normal sedan as compared toearlier electrics which were largely battery carriers

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Bargaining power of Buyers:-

The Indian car buyer is increasingly demanding bettervalue for money & economy in running cost of cars bothin terms of fuel cost & maintenance costs.

For export of Tata Nano to European Countries andother developed economies, the cars would need tomeet Euro IV standards and ELV specifications andwould need to be having superior safety features (ESCSystem) apart from being lower in price. Cars would

also need to be equipped with GPS system, with CDsgiving MAPs for each of location in the country.

Buyers of cars demand extensive and efficient servicenetwork and availability of spares at reasonable prices.

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STRATEGIC ANALYSIS USINGPESTEL

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PESTEL ANALYSIS:-

Political:

The auto manufacturers lobby including SIAMintend persuading the Government (for 2010-2011

budget) regarding FDI, customs and excise duties &other taxes for not only automobiles but also formajor raw materials like steel, rubber and other autocomponents.

As a follow-up of Copenhagen Conference, therewould be increasing pressure to reduce the CO2emission, for every segment of cars.

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PESTEL ANALYSIS:-

growth of passenger car industry will be linked withfurther liberalization in the economic policies inIndia.

The political decisions at national level (in 2010-2011) can profoundly affect the fuel prices, the costof cars (by changing excise duty), liquidity in the

banking system etc., which have direct influence onthe demand generation for passenger cars.

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PESTEL ANALYSIS:- Economic :

The demographic dividend is the rising share ofyoung working age people in the growth of any

economy. According to Goldman Sachs Report, outof BRIC nations the demographic dividend (Higheryoung population having high disposable income)would be a great advantage to India.

Growth in the manufacturing, infrastructure andservices sector is expected to drive the domesticGDP growth, which, in turn, will lead to rise in the

household income levels.

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PESTEL ANALYSIS:-

Social:-

The ownership of car in the society is considered asa status symbol. The lower cost Nano makes more

2 wheeler users to realize their aspiration of goingfor a car to improve their social status.

The second driver for demand for cars isreplacement market. With the rising population of

aging vehicles, replacement demand is animportant & stable source of demand.

The retiring small cars like Maruti-800, Alto, Santroetc provide a demand for Nanos higher version

models.

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PESTEL ANALYSIS:-

Technology:-a) Technological collaborations & R & D:-

technology transfer to the Indian car industrytook place mainly through: licensing and

technical collaboration with foreignmanufacturers.

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PESTEL ANALYSIS:-

Hybrid Technology:-

Honda Civic is the only imported car in Indiadeploying hybrid technology. This may be followed

by others. The pressure to reduce the carbonemissions, Hybrid technology would be more indemand in the 21st century.

Toyota is committing huge resources for its Hybrid

vehicle Prius to address this market. Even Maruti is planning to bring out Hybrid versions

of its popular cars.

M & M is also planning introduce hybrids in its

range.

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PESTEL ANALYSIS:-

Carbon dioxide emission from the cars:-

Globally cars having higher CO2 emissions wouldbe discouraged to address the issue of global

warming. In European Countries, there is likely to be penalty

for higher CO2 emissions per kilometer. It is in thisarea that Nano scores over all the other cars in the

industry. Nano with CO2 emission of just 101gms/km has the lowest CO2 emission in gms/kmamongst all cars in India.

Its CO2 emission is even lower than Prius the

Hybrid car from Toyota which has emission of 104gms/km.

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Co2 Emission for Selected CarsSrl Car Model CO2 Emission gms/km*1 TATA NANO 101

2 HONDA ZAZZ 134

3 MARUTI ALTO 103

4 MARUTI VERSA 103

5 MARUTI A-STAR 109

6 HYUNDAI SANTRO 151

7 GM SPARK 120

8 HYUNDAI i-10 139

9 HYUNDAI i-20 133

10 GETZ 139

11 FABIA (SKODA) 109

12 TOYOTA COROLLA 128

13 TOYOTA PRIUS (HYBRID) 104

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PESTEL ANALYSIS:-

Disruptive Technology of Nano:-

If we compare the price of Nano and the price ofToyotas Prius, there is a difference of an order of

magnitude. While the cost of Nano is US$ 2000/-,the cost of Toyota Prius is US$ 25000/-. HoweverNano delivers even lower carbon foot-print at 1/10ththe cost, while the seating capacity of Nano is same

as that of Toyota Prius. Dr Stuart Hart of Cornel University in his recent

interview to ET Now Channel (in dec 2009),

described this performance of Nano as Disruptive

Technology.

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PESTEL ANALYSIS:- Environment:-

There would be increased pressure on car industryand particularly compact car segment fromenvironmentalists in the future for reduction in CO2emission.

All players will have to introduce Euro-IV compliantfeatures in all their cars.

In addition, ELV (End of Life of Vehicle)regulations will have to be imposed by Govt of Indiaon the auto industry. The ELV regulations in Europe,restricts auto industry to use metals like lead,mercury, cadmium, nickel and hexavalentchromium.

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PESTEL ANALYSIS:-

Electric Vehicles:- With continuous improvements in the technology of

Batteries, the electric passenger cars would become astrong force to recon with in the 21st century. With thelatest Lithium-ion batteries, the electric cars can now

have a range of more than 150 kms. With continuousimprovement in power to weight ratio for the batteries,the electric vehicle no more remains a battery carrierand it can now provide more room for people to sit inand enjoy the ride.

The charging time is also decreasing continuously,making the use of electric vehicle more easily feasible.

The author has suggested to Mr Ratan Tata, to launch aresearch project to develop an electric car with two/fourmotors mounted on the wheels, eliminating complete

transmission, thus making the car much simple andrequiring very little maintenance.

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PESTEL ANALYSIS:-

Legal:- All players would be under pressure to give more

attention to safety and environmental features andcompliance of laws and regulations enacted from

time to time. All the cars would need to meet the European and

American safety standards.

Tata Nano has recently passed the current

European Front and side impact standard crashtests, which were conducted at the Motor IndustryResearch Association (MIRA) crash test facility inUK under the supervision of Britains Vehicle

Certification Authority.

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CARS

India is emerging as International hub formanufacture of small cars mainly due to its costand quality competitive auto component industry.

As per statistics released by SIAM, export of carsfrom India has already touched a figure of3,31,539 in 08-09.

The passenger car exports from India are likely toincrease to 1 million in the next few years time.

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ULCC S

India is a rapidly growing economy with youngdemographics-provides fastest growing market forsmall cars.

The Economic slow down world-wide would also

encourage people towards thrift in their spendinghabits. This would encourage many more people toshift towards ULCCs.

ULCCs have much lower fuel consumption ascompared to the existing cars, resulting in lower CO2

emission per km. Due to this, it would find favour withthe users and the Governments in the Europeancountries.

The developed economies also have large number ofpeople who cannot afford costly cars and are goingfor used vehicles. They can go for Tata Nano to notonly save on investment but also on the running and

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CHALLENGES FACED BY TATANANO: Tata Nano will face stiff competition from Bajaj-

Renault Nissan who will start manufacturing ULCCpassenger cars in 2012.

There may be more new players in this marketsegment in coming years. Hyundai Motors has alsoannounced on 21-11-09 that, they would launch a carsmaller than Santro at much lower price.

Maruti Suzuki has also announced recently theirEECO at a price of Rs 2.59 lacs.

Tata Nano at present has a distinction of being insuppliers constrained market at present.

They would have to move to demand driven marketnot only in the fastest growing auto market of India,but also in the emerging international market, in the

years to come .

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CHALLENGES FACED BY TATANANO:

Tata Motors would have to plan for strategic capitalinvestments in India and abroad for catering to the hugeanticipated demand.

In view of the emerging market of the developed and newlydeveloping economies of the world, Tata Motors wouldalso need to augment and create new extensive andefficient after sales service and spares network.

Nano would also need to face pressure from substituteproducts like electric cars (Rewa) etc.

Tata Motors would also need to develop Models of Nano

using alternative fuels (CNG, LPG, Diesel etc) and ethanolblended petrol. Tata Motors would need to continuously do innovations in

the Nano to keep it at the cutting edge of technology andto be meeting the changing customer requirements.

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STRATEGIC CHOICES AVAILABLEFOR COMPETITIVE STRATEGY:-

Strategically augment production capacities inTata Nano Plants in Gujarat, Uttaranchal andelsewhere in India as well as abroad, for

addressing the upcoming huge emergingmarkets.

Strategic alliances to address the internationalmarkets in all major geographical destinations.

All vendors for components and sub-assembliesto be asked to ramp up their capacity in line withIndian and the international demand for TataNano.

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Tata Motors would need to put continuous efforts for gettingcomponents and sub-assemblies from vendors at cheapest& competitive rates by offering bigger volumes, differentdesign / technology and partnership with them.

Tata Nano would also need to augment the service centernetwork in India & Overseas.

This would call for not only building up the service centersby Major distributors, but would also call for developmentand supply of tool kits for repair of fibre/frp based bodyparts.

The service center staff would need to be specificallytrained for using these tool kits. In coming years when competition from Bajaj-Renault and

Hyundai becomes more intense, Tata Nano would need toevolve Red Ocean strategies to address the competition.

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Tata Motors has already developed a model of Nano forEuropean Markets. This model would need to have ESC(Electronic Stability Control) System, GPS and shouldmeet ELV specifications.

Tata Nano would need to continue to concentrate ontechnological innovations and develop new design ofelectric and hybrid versions of Nano.

Tata Nano would need to evolve models using alternatefuels like Diesel CNG, LPG; Ethanol (upto 20%blending) blended petrol and other options suited forIndian conditions.

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Road Ahead Entry into European :-

Meeting the Euro IV standards for emission.

ELV specification meeting.

ESC & GPS incorporation.

Need support for the dealership network from Fiat. For US Market:-

Power of the Engine has to increase.

Capability to maintain the Highway Speed Norms.

Must incorporate ESC and GPS in the cars.

New partners for dealership Network.

For Latina America ,Africa and South Asia JV has tocreated .

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REFERENCES:-

www.tatamotors.com www.marutisuzuki.com

www.chevrolet.co.in

www.hyundai.co.in

www.fordmotors.com

www.indiastat.com

www.skodaindia.com

www.siamindia.com

www.indiastat.com
http://www.tatamotors.com/http://www.marutisuzuki.com/http://www.chevrolet.co.in/http://www.hyundai.co.in/http://www.indiastat.com/http://www.siamindia.com/http://www.indiastat.com/http://www.indiastat.com/http://www.siamindia.com/http://www.indiastat.com/http://www.hyundai.co.in/http://www.chevrolet.co.in/http://www.marutisuzuki.com/http://www.tatamotors.com/

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REFERENCES:-

Autocar magazine, vol month year. Michael E.Porter Competitive Strategy, 1st edition

2004, Free Press. Bhaktavatsala Rao. C. Structural analysis of the

Indian Automobile Industry, Decision, Vol. 21, Nos. 1

& 2, Jan Jun 1994. The Indian Automobile Industry: Speeding into the

future? Avinandan Mukherjee, IIM C, Actes duGERPISA n 28.

Blue Ocean Strategy - W Chan Kim & Renee

Mauborgne HBR. The Age of Turbulence Alan Greenspan by Allenlawf

2007, Penguin Books, UK. The Economic Times, August 27, 2008, Nov 15, 2009,

.

ENVIRONMENTAL RESEARCH LETTERS The

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THANK YOU

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Tata Nano Final .31!01!10