MMRCDISCUSSION PAPER SERIES
No. 387

Market Life-cycle and Products Strategies for Emerging Markets:
Toward a New Age of Indian Automotive Market
Zejian Li
Manufacturing Management Research Center, the University of Tokyo
February 2012

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
permission when reproducing or citing any part of this paper. Copyright is held by the author.
http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Market Life-cycle and Products Strategies for Emerging Markets:
Toward a New Age of Indian Automotive Market

Zejian LI
Ph.D. in Economics
Manufacturing Management Research Center, the University of Tokyo
Takuken.ri@mmrc.e.u-tokyo.ac.jp【Summary】
With the current global financial instability, interest is returning to emerging nations. Every day
the media present unsubstantiated stories of the great potential of emerging markets, with their highgrowth rates and low product penetration. While there is no shortage of rosy predictions relying only
on the hope of future growth in these emerging markets, the debate is far from over regardingwhether such high growth can truly be achieved.
Although penetration of automotive products needs to be considered on a country by country basis,
there are some common characteristics. It is possible to compare these countries on certain criteria in
relation to the phases of development undergone by each market. By focusing on general andemblematic areas and avoiding complicating surface issues, it is possible to identify not only thephases of development but also the orientation toward actual achievement of growth. This paper will
examine the TATA “NANO,” and will discuss the necessity of creating product strategies that fit thephases of development of the market.
【Keywords】
market life-cycle, emerging markets, products strategy, automotive industry, TATA NanoMarket Life-cycle and Products Strategies for Emerging Markets: Toward a New Ageof Indian Automotive Market
Zejian LI
Ph.D.in Economics
Manufacturing Management Research Center, the University of Tokyo
Takuken.ri@mmrc.e.u-tokyo.ac.jp【Summary】
With the current global financial instability, interest is returning to emerging nations. Every
day the media present unsubstantiated stories of the great potential of emerging markets, with
their high growth rates and low product penetration. While there is no shortage of rosy predictions
relying only on the hope of future growth in these emerging markets, the debate is far from overregarding whether such high growth can truly be achieved.
Although penetration of automotive products needs to be considered on a country by country
basis, there are some common characteristics. It is possible to compare these countries on certain
criteria in relation to the phases of development undergone by each market. By focusing on
general and emblematic areas and avoiding complicating surface issues, it is possible to identify
not only the phases of development but also the orientation toward actual achievement of growth.
This paper will examine the TATA “NANO,” and will discuss the necessity of creating productstrategies that fit the phases of development of the market.

1. Introduction: What is the Essence of Growth?
In 2001, Jim O’Neill, Chief Economist of US Investment Bank Goldman Sachs, issued a report
called “Building Better Global Economic BRICs.” This report pointed out the medium to long-term
possibilities of non-G7 economies for the global economy, bringing considerable attention to thebusiness opportunities presented by emerging economies. Indeed, the term “BRICs” (Brazil, Russia,
India, and China) has become synonymous with countries that have emerged1 after the countries forwhich the term was coined. The original BRIC nations have entered the top 10 world economies on ascale comparable to the G7. Furthermore, while financial turmoil continues in the wake of the collapse of
Lehman Brothers, with advanced economies unable to dispel concerns over the prospects of a “double
dip,” expectations for these emerging markets increase even more every day.

1

Figure 1: Growing new car markets of BRICs after 2000

Souse: Scotiabank Group (2011)。

The same expectations are true for emerging markets in the automotive industry as they become
increasingly prominent in this industry. Figure 1 shows the transformation in the structure of global
demand since 2000. In 2000, markets in Europe, North America (not including Mexico), and Japan were
the three pillars of global demand, accounting for 80% of total demand. At the same time, markets inthese emerging BRIC nations were only getting started in 2002; by 2007 they still had reached only half
the scale of developed markets. This suggested that once they had built up their competitive advantage indeveloped markets, Japanese automotive manufacturers still felt that there was room for them tomaintain corporate strategies that focused on developed nations. However, since 2007, the financial
turmoil that had engulfed these developed nations has completely transformed the market, significantly
depressing demand. Because the impact of this financial crisis on emerging nations has been
comparatively small, and with the expectations surrounding economic growth in these regions, they havebeen gaining traction as investment destinations for companies.
Furthermore, since 2008, as demand has continued to contract, automobile markets in emerging
nations have grown to a size comparable to new car markets in developed nations, making them markets
that automotive manufacturers can no longer ignore. For example, while new car sales in China in 2000
were only 2.1 million units, domestic sales reached 18.347 million units by 2010, including net
automobile imports. This shattered the previous US record of 17.812 million units, making China theworld’s number one market for automobiles. Annual sales in Brazil around 2000 were only 1.5 million
units; this grew to 3.5 million units by 2010. Brazil thus overtook Germany to become the 4th largest
automotive market in the world, following China, the US, and Japan. Similarly, the size of the Indian
market around 2000 was only 820,000 units. This reached 3.2 million units in 2010, thus India outpacing2France, Britain, and Italy to become the 6th largest market in the world. Particularly, since India has alarge population but the number of automobiles per 1,000 people is only around 20, many havesuggested that after China, India has the greatest potential for automotive market growth.
Prior to the financial crisis, some stories suggested Russia was poised to surpass Germany to become
the largest automotive market in Europe. However, due to the financial crisis, by 2009 the manufactureand sale of automobiles in Russia had collapsed to just half of its peak level in 2008. By 2010 theautomotive market in Russia had recovered somewhat, but still remains at about 1.91 million units, orabout 70% of its peak level. Debate continues as to when Russia will achieve a level of 3 million units.
Thus, these so-called emerging nations have in fact shown considerable growth. However, thequestion remains as to why until now, most discussions of automotive markets in emerging markets havefocused on the issue of consistent growth and have lacked critical thinking regarding the inevitability ofgrowth. In other words, discussions seem to have focused the inevitability of increased GDP, theachievement of certain levels of car ownership, and the development of markets. However, they havelargely ignored such social and environmental constraints as national differences in market structures andwhether continued growth in a nation’s automotive industry is necessary for the promotion of social
ends.
Therefore, in addition to gaining an understanding of changes in production, transportation, andconsumption through the development of automotive industries in emerging nations, this paper will
examine social reforms that have changed lifestyles of the people of these countries. In other words, thispaper will seek to reveal the existence of common historical traits in the different phases of thedevelopment of automobile markets as a country moves toward motorization i.e., social spread of
automobiles.
This paper will then consider a cross-sectional examination of the BRIC nations to explore the factorsthat have led to their economic growth in the 2000s, with an attempt to reveal the specific characteristics
and market structure of the Indian automobile market in particular.
Finally, we will investigate the case of the TATA “NANO” small car, which has gained popularity
because of its extremely low price. This is an example of destructive innovation. This paper will
investigate measures intended to promote this kind of innovation through destructive technology andthose that fit the development phases of the market.

2. Presence of Market Development Phases: Lessons from the History of Motorization in Japan
Since 2000, emerging nations have garnered attention because of the rapid growth of their markets.
Why this growth occurred and how much further these markets can grow in a stable and sustainable way
are vital questions that cannot be avoided by any company that seeks to develop a market or conduct
product planning. In terms of the automotive industry, the motorization of Japan is a helpful case study
for considering these issues. Within the motorization of Japan that began in the 1960s, as the overall3market for automobiles expanded, a shift from demand for commercial vehicles to that for passenger
vehicles occurred. In addition, the demand for passenger vehicles changed in terms of use, such as fromluxury items for the wealthy or other applications such as rentals and taxis, to being a household
necessity or consumer good. This was the so-called “my car” boom.
The purchase of first cars by consumers at this time resulted in massive demand characterized by along period of continuous high growth. An increase in the overall ratio of car ownership also occurred.
Comparing annual sales volume to previous years with the ratio of passenger vehicle sales as aproportion of the annual automobile sales volume, it is possible to quantify and compare the social
phenomenon of motorization. In this paper, the latter will define the “passenger vehicle rate.”
Since the rate of private automobile ownership generally increases during the process of motorization,
this data can be used to verify the passenger vehicle rate. Motorization is a complex social phenomenon
that occurs against a historical background which includes the specific constraints of resources and legal
systems within the country, making overall comparisons difficult. However, examining the typicallyassociated general and broad phenomena can be useful in assessing the development phases of various
countries.

Figure 2: Growing stage of Japanese automobile industry

Note:Passenger Car Ratio = Annal Passenger Car Sales / Annal Motor Vehicle Sales
Source: JAMA.

4

Figure 2 shows the postwar development of the Japanese automotive industry in three phases. These
are the “motorization or high growth period” (1955–1973), the “stable growth period” (1974–1990) and“maturity” (1991–present). During the “motorization or high growth period,” 1) as the market expands,
2) the “passenger vehicle rate” typically describes an increasing curve. Further, 3) the ratio of passenger
vehicles as a proportion of total vehicle ownership also increases, showing a structural change whereby
passenger vehicles become mainstream. In addition, 4) individual demand as a proportion of total
demand for vehicles increases. We will now verify this using data. Between 1955 and 1973, annual
registrations of new vehicles in Japan increased from 64,530 vehicles per year to 4,949,078 vehicles per
year. With the exception of the effects of the dollar and oil shocks in the early 1970s, most years saw
double-digit growth. At the same time, the “passenger vehicle rate” increased from around 30% toaround 60%, confirming a typical “motorization” shift of demand from commercial vehicle to passenger
vehicles. Similar shift can be seen from the changes to the proportion of passenger vehicles owned tototal automobile ownership. Around 1950, the number of passenger vehicles as a portion of total
automobiles was only 18.89%. This increased to 57.90% by 1973, signaling the existence of a boom inpassenger vehicles. The demand for individual vehicles as a proportion of total demand for automobiles
was only 14% in 1962, but this reached 39% in 1967 and 50.6% in 19702.
The characteristics of the “stable growth period” include 1) stable market expansion while achieving
its peak, and 2) at the same time, stable “passenger vehicle rates” at a certain level. These two points aremarkedly different from the “motorization” phase. Figure 2 shows that between 1974 and 1990, thepassenger vehicle rate in Japan remained consistent at around 60%. The stable “passenger vehicle rate”
in contrast to the demand for “popular entry level vehicles” during the period of “motorization” showsthat there has been a shift in alternative demand as the market competes for replacement or additionalpurchases. As a result, while the total market grows more slowly than during the motorization phase, thedomestic market approaches its maximum scale.
During the period of “maturity,” 1) the market begins to shrink, and 2) the “passenger vehicle rate”
once again increases. The effects of various population, environmental, and economic issues in Japan
have caused the market to shrink. The resulting slump in demand for commercial vehicles conversely
has pushed the “passenger vehicle rate” upwards. Since its peak of 21,323,397 vehicles in 1991, truckownership in Japan has been decreasing through 2010, at a negative compound average growth rate
(CAGR) of 1.65%. Similarly, bus ownership has decreased from a peak of 248,624 vehicles in 1992,
with a negative CAGR of 0.47% through 2010. Conversely, the passenger vehicle category has seenannual growth rate of 2.47%, from 34,924,172 vehicles in 1990 to 58,347,929 vehicles in 2010. This isthe background behind the increased passenger vehicle rate.

53. Development Phases in Emerging Nations: How to View Growth in the 2000s
Based on the heuristics for development phases of the Japanese automotive market presented in theprevious section, this section will identify the development phases of emerging markets.
Figure 3 summarizes the annual sales of new vehicles or new vehicle registrations, and thecomparative passenger vehicle rates year on year for BRICs nations.
First, looking at the increase in the passenger vehicle rate, Brazil experienced motorization at about
the same time as Japan (1957–1971). In 1957, annual registrations for new vehicles in Brazil were only
30,977 vehicles, for a passenger vehicle rate of 3.78%. By 1971, annual registrations for new vehicles
were at 509,623 vehicles, a passenger vehicle rate of 77.56%. The annual CAGR during this period was
20.53%, accomplishing high growth along with the progress of motorization. Affected by a debt crisis,
the Brazilian economy entered a period of long term instability in 1971, producing a prolonged slump in
the market for automobiles. Still, in the 2000s, the passenger vehicle rate had been stable at 80%,
showing that the domestic market is once again in a cycle of expansion. In other words, despite reduced
demand due to economic cycles, the stable growth period in recent years has basically been characterized
by an expanding trend.
The passenger vehicle rate in China also increased from 29.54% in 2000 to 76.17% in 2010. During
this period, annual sales of automobiles have rapidly expanded from 2,106,402 to 18,346,516 vehicles.
In terms of automobile ownership, in 1990, 5.54 million vehicles were owned publicly in China, with
only 820,000 under private ownership. Freight vehicles were 520,000, or more than half of the privately
owned vehicles, implying that only 240,000 vehicles were used for transporting people. The vast
majority of privately owned passenger vehicles were commercial vehicles such as buses and minivans;
this meant that there were virtually no privately owned family vehicles. By 2000, automobile ownershipin China was at 16,089,100 vehicles, of which 38.87%, or 6,253,300 vehicles, were privately owned.
Even at this time, privately owned passenger vehicles had increased to 3,650,900 vehicles, only 22.69%
of all vehicles3. But by 2009, private automobile ownership in China had expanded to 62,806,086
vehicles, a rate of individual ownership of 72.84%. In addition, the number of individually owned
passenger vehicles increased to 37,396,495 vehicles, or 59.54% of the total. The market boom for private
vehicle ownership in China began in 1990, and continued in earnest through the 2000s. In other words,
consumer demand has become a major force with the rise of motorization in China since 2000. In recent
years, the passenger vehicle rate in China has continued to show an increasing trend, suggesting that
China is still in the midst of the motorization phase.

6Figure 3: Market Life-cycle of BRICs’ Automobile Markets (1956 ~ 2010)

Note:
1, Passenger car ratio means the share of passenger car in annual auto sales
2, YOY rate means year-over-year growth rate
3, Chinese auto sales (Until 1994) = Chinese auto production + auto import - auto export
Source: JAMA, CATARC, ANFAVEA, SIMA, AEB, WardsAuto.com, OICA, Ireland, et al. (2006).

7

Furthermore, from the 1990s to 2000s, the passenger vehicle rate in Russia was observed to increase.
Although insufficiencies in data make complete analysis difficult, the reason for the increase in thepassenger vehicle rate in the 1990s was an observed decrease in the number of new car sales, precluding
the possibility that this was a period of motorization. With the breakup of the Soviet Union in December
1991, the new Russia entered a period of long-term economic instability. With stagnating economic
activity, demand for capital goods such as commercial vehicles immediately began to follow a
downward trend. The market for new cars decreased from 1,375,047 vehicles in 1992 to 951,038
vehicles in 1996, while the passenger vehicle rate increased from 55.16% to 81.72%. This increase wasbelieved to be due to the apparent increase in demand for passenger vehicles compared with the decreasein demand for commercial vehicles.
Finally, we now look at India. The passenger vehicle rate in India increased between 1980 and 2000.
Full analysis of India’s automotive industry before 1980 is not possible because of data limitations, but
over the 20 years between 1980 and 2000, the passenger vehicle rate increased from 41.23% to 83.49%,
while sales of new vehicles in India increased at an average annual rate of 9.30%, growing from 127,763
to 827,145. Thus, motorization progressed in India through the 1980s and 1990s, and is considered tohave entered a stable growth period since the 2000s4.
Table 1 shows preliminary results with reference to the historical experience of motorization in Japanas a guide to the development phases of automobile markets in BRICs markets since 2000. From thistable, we can compare the automobile markets in BRICs nations across their phases of development,even the position of India. On the basis of this, we will examine the Indian automobile market in greater
detail in the following section.

Table 1: Growing stage of BRICs’ automobile markets, basing on Japanese experience (2000~)
Passenger Car Ratio
Rapid increasing
Two digits
growing mainly

StableRapid Growing(Motorization) Stage―(China)Market Extending

One digits―

Stable Growing Stage(Brazil, India)

growing mainly―

Minus growing

Maturing Stage(Japan)Note: Due to the lack of Russian data needed, we keep the classification of Russia in above table.
Source: Author.

8

4. Market Structure of the Indian Automotive Market in the Stable Growth Period
4.1 Analysis of Market Growth Factors since 2000
Population of India in 2009 was 1.155 billion, making it the second most populated country in theworld after China. Under economic reforms between 1960 and 1990, import substitution
industrialization policy has resulted in an average annual economic growth rate of 7.22%. In 1991,
triggered by an earlier balance of payments crisis, India shifted to a New Economic Policy that
implemented economic reforms focused mainly on deregulation and foreign investment. As a result,India experienced high growth, achieving an average annual growth rate of 9% through 2009. In
particular, between the late 1980s and 2002, India experienced an era of economic growth fueled by the
IT services industry. From 2003, growth was generated by the “double engine” of IT services andmanufacturing industries, in two separate stages of growth5. Indeed, compared to the figure of 5.48%
achieved in the period driven by IT services (1991–2002), the annual average growth rate in GDP was
12%6. The largest factor behind these economic growth factors has been the rise of the middle class inIndian society.
Based on prices and exchange rates in 2001, the middle class was defined as households with anannual income of 200,000 to 1 million rupees (USD$4,000–$21,000). The proportion of households inthis class was 2.7% in 1995, and increased to 5.7% in 2001 before jumping to 13% in 2009, representing
about 150 million people.
Most of India’s middle class are in their 30s and 40s; many have degrees or MBAs and are
professionals earning monthly salaries of between 30,000 and 50,000 rupees. In addition, withwell-developed financial products in India, it is possible to buy a car with a 6 year loan. Small cars canbe purchased for 300,000–400,000 rupees, permitting an increasing number of new buyers7.
Sixty percent of passenger vehicle and air conditioner sales and 25% of TV, refrigerator, andmotorcycle sales in the Indian market today are made to the middle class8. It is no exaggeration tosuggest that growth in the Indian automobile market after 2000 has been mainly because of the middle
class.

4.2 Competitive Market Structure
Figure 4 shows the competitive structure of the Indian automotive market in 2010. In the Indianpassenger vehicle market, the segment for economy vehicles costing less than 5 Lakh, or 500,000 rupees(about 810,000 yen) makes up about 80% of the total market. As mentioned above, there has been asignificant rise in the middle class, but as can be seen from the definition of middle class, theirpurchasing power is around the $10,000 mark, implying that compact economy cars have become
mainstream within the market structure. The presence of Maruti Suzuki, which has a share of around45%, is enormous. But the existence of Hyundai cannot be ignored either as they closely follow Maruti
Suzuki. The top three companies, including TATA Motors, combine to make up 70% of total vehicle

9

sales. Although the number of vehicles sold is the smallest among BRICs nations, a characteristic
oligopolistic market structure has been formed. Another feature is that in the volume zone of 500,000
rupees or below, the presence of Japanese vehicles other than Suzuki is at the highest level among the
BRICs nations. The Nissan Micra and Toyota Etios have both successfully entered the market, showing apattern in India of a strategy for entry into emerging markets. The Etios in particular was introduced
specifically in 2010 as an entry level model for emerging nations, and as a measure to address the middle
class in India together with the rest of Toyota’s global product lineup. Expectations are high as thisprogress extends to the overall product strategies of Japanese automakers in emerging markets.

10Figure 4: Competition Structure of Indian Passenger Car Market in 2000 FY‘0000 Units

Rs Lakh

Source: SIAM, “OVERDRIVE”, NOV 2010, pp.242-258.

11

5. Analysis of the TATA “NANO” Market Strategy: Who is Buying the “NANO”?9
5.1 NANO Development Process: Challenging the Great DreamThe development of the “NANO” resulted from a project inaugurated by the strong leadership of Mr.
Ratan Tata, Chairman of the Tata Group. This was said to have begun with Mr. Tata witnessing a sceneof “a family of four riding on a single motorcycle in the rain.”10 After this, based on a vision built on the
keywords “people’s car,” “affordable,” and “basic safety requirements” (an affordable car for the people,
with basic safety performance), surveys were conducted on 1500–1600 people of various income groups
from various regions in order to extract clear customer needs. Some of the key areas were 1) safety(ensure all-weather visibility, monocoque construction), 2) comfort (ensure head and foot room,
instrument panel placed in the center of the dashboard), 3) environmental performance (less emissions
compared with those of motorcycles), and 4) cost (low initial costs, fuel economy, low maintenancecosts). All this was to achieve the dream of the One-Lakh Car (or 100,000 rupee).
Because of the large number of innovative design goals, 500 young employees (average age of 30–32
years) were gathered together in the development department in order to leave behind any past baggage,and teams were formed around the keywords of the “Purist” team (pursuing precision and accuracy), the“Scale” team (planning activities), and the “Empowerment” team (granting authority). With the idea thatpast experience would lead backwards, a 36-year-old engineer was appointed as project leader,prejudices were dispelled, and a youthful development atmosphere was established where change was
accepted. Furthermore, with a spirit of no fear of failure, flexible communication was urged in order togo beyond the boundaries of teams and challenge each other.
An Italian design company was commissioned to create the exterior design. Once the design was
confirmed in 2006, most other structural design work, including simulations, was performed in house.
Meanwhile, Chief Executive Mr. Tata visited the development sites every two weeks, showing strong
interest in the development process and always checking to ensure that they were heading toward therealization of the dream. Members of the development team later said that his support had been an
essential element in the success of the project.
Moreover, from the first stage of the concept study, many suppliers were involved in the development
project. The performance of joint simulations was another important factor in the successful
development of the NANO. In addition, the requirements of multiple suppliers were included in thesetting of goals at the concept stage. Some suppliers came up with good ideas to resolve legal issues, andothers had good ideas on cost reduction. TATA also called these suppliers together for direct discussions.
Parts were then ordered by presenting final proposals that summarized the proposals of various suppliers
themselves. About 100 suppliers were involved in the overall development of the NANO, with about
90% of these being local Indian suppliers. Naturally, important parts had a two-company orderingsystem, with other parts generally ordered from only one company. For TATA, which had little
experience in successfully incorporating tacit knowledge and external resources into development

12

projects for vehicle design, this heavy supplier involvement played a complementary role in terms oforganizational capability that was lacking in vehicle development. At the same time, the united force of
the industry that involved a large number of local suppliers saying that “if TATA is going to move ahead,
we will provide our unconditional support,” is another major factor that cannot be dismissed in terms of
the successful development of the NANO.
The development of the NANO design built on the “INDICA” design experience, including the twoyears’ freeze from design completion to the first unit coming off the production line. The NANO added
two years to this. The NANO was radical from a product design perspective, and the development of the
production line was also radical in terms of its zero-base design. With the need to select people qualified
for these processes, it took a total of four years from development to production preparation.
The final product placed high emphasis on costs, with its egg-shaped body and two-cylinder, 624-cc
aluminum installed engine, but its light body was designed to bring out power. This size of car typicallyweighs 1000 kg. However, utilizing all available knowledge achieved a weight of 600 kg. The number ofparts was also reduced by about 15% compared with that of the “INDICA.”The total length of 3,099 mm is relatively short compared to other small cars of the same grade, but
by placing the engine above the rear wheel the NANO achieves a cabin space as large as the “INDICA,”
the largest in this segment. In terms of emission standards, the framework has been established for future
fuel competitiveness, with Bharat Stage (BS) II through Bharat Stage (BS) IV specifications available. In
addition, to be prepared for diverse needs, STD (for BSII, BSIII, and BSIV), CX (for BSII, BSIII, andBSIV, with air conditioner), and LX (for BSIII and BSIV with air conditioning and power windows)
specifications (6 color, 3 specs) also were prepared.
Clearly defined customers, the identification of potential needs thoroughly reflected throughout thedevelopment process, a “simple and stupid” approach that looked at things from the perspective ofchildren, the three pillars of strong leadership, a strong team, and strong support to realize thedevelopment, were the factors of success for this low-cost innovation. In this sense, the NANO is itself agreat dream, and also a great “innovation.”

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Figure 5: Production and Sales of TATA「NANO」(Units)
12000
10000
8000
6000
4000
2000

Jul-09
Aug
Sep
Oct
Nov
Dec
Jan-10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan-11
Feb
Mar
Apr
May
Jun
Jul
Aug

0

Production

Sales

Source: ACMA.

5.2 NANO Sales Status: Why has the Great Dream not quite Taken Off?
It was a long road from TATA Motors’ first announcement of the “One-Lakh Car” in 2003 to theannouncement of the NANO in January 2008 and through the eventual delivery of the vehicle in July
2009. Meanwhile the scale of the dream and the inexpensiveness surprised many, garnering significant
expectations. Still, as shown in Figure 5, sales have not actually taken off since the car’s release. First, a
succession of combustion accidents after its release in 2010 deeply wounded the NANO’s brand image,resulting in a serious slump in sales. To overcome this situation, TATA launched the “Tata Nano
Happiness Guarantee” initiative in December 2010, whereby the company extended its manufacturer’s
warranty to four years or 60,000 km and provided a daily use maintenance service for 99 rupees permonth.
In addition, special financial products have been made available for all TATA Group employees’ use.
Interest on loans was held at 2% until January 2011, before increasing to 5% from February 2011. Given
that interest rates available externally are at 11%, these financial products are still attractive. The loans
are structured in 3-, 4-, 5-, and 10-year plans. If 2% interest was applied to a 4-year loan, employees
would pay a total of 6,000 rupees in interest, and for a 5-year loan, this figure would be only 8,000
rupees. For full-time TATA Motors employees whose average monthly salary is 25,000 rupees, this is anamount that they can afford to pay. At the Pune TATA dealer that the author investigated,
low-interest-rate loans made it possible for the sale of 2,000 NANO cars during January 201111. This
figure was equal to about a third of national NANO sales for the month. Of the 2,000 vehicles sold,about 1,400 were purchased by TATA Motors’ employees, with the remaining 600 vehicles purchased by
TATA Motors related groups. This gives a glimpse of the potential of low-interest-rate financial
instruments.

14

Owing to management-initiated extended manufacturer warranties, new maintenance contracts, andthe provision of low-interest-rate loans to group employees, NANO sales began to show some recovery
from December 2010. However, after reaching a peak of 10,012 vehicles sales in April 2011, sales of the
NANO have again decreased. Therefore, the question arises why has the NANO not taken off. This
paper seeks to analyze this question in terms of compatibility between the product strategy and thedevelopment phase.
As can be seen in Table 2, the catchphrase of the “One-Lakh Car” in relation to the “NANO”
certainly swept the world, but the actual delivery price is more than 1.5–2 times the initially envisioned
price. According to the sales conditions at the first TATA Motors dealer at the home base in Pune, theproportion of NANO sales of the cheapest STD model without air conditioning was just 10%, theproportion of CX models with air conditioning was 20%, and the proportion of fully equipped LX
models with features such as air conditioning, power windows, and central locking was 70%. Of course,
the sales conditions of only a single dealer lack persuasive power, but there are several points that canhelp in the understanding of the NANO sales slump. While 80% of NANO purchasers at this store wereend users and first-car buyers, the market reaction was such that the highest seller was not the cheapest
STD model as expected, but the most expensive LX luxury model. Furthermore, those who purchased
the LX model were not the “motorcycle families” as expected, but mostly middle class families. This
sales situation is different from the great dream that had been entrusted to the NANO. This situationsuggests that the products are being sold to a market different from that envisioned in the scenarios
clearly defined in the product planning stages.

15

Table 2: NANO Price List as on 10.12.2010 (Unit: Rupee)

METALIC COLOURNON METALIC COLOUR
With OCTROI (2%)

NANO-CX

NANO-LX

NANO-STD

BSⅡ

BSⅢ

BSⅣ

BSⅢ

BSⅣ

BSⅡ

EX-Showroom Price

160060172937174546

196218

197975

Registration Charges

11879

12781

12893

13743

Insurance Charges

4769

5064

5101

Logistic Charges

2330

2330

On Road Price

179038193112NANO-CX

BSⅢ

BSⅣ

BSⅡ

BSⅢ

BSⅣ

131535143546

144869157000169784

171363

14533

10057

10057

10816

11893

11893

12670

5598

5638

4114

4390

4420

4699

4992

5028

2330

2330

2330

2330

2330

2330

2330

2330

2330

194870217889220476 (Highest)

148036 (Lowest)

160323

162435175922

188999191391

Source: Pamphlet information at Tata Nano dealer.

16

Traditionally, in the automotive industry, when the prices of entry level cars reach the average annual
income, vehicles begin to become mainstream. This was one aspect of the attempt to introduce the
NANO at a level fitting the annual income of the motorcycle family. However, in the stable growthphase, where demand is led by replacement purchases and upgrades, there is an increase in demand forused cars of good quality and low price. For entry level cars there may be a shift from new cars to usedcars. In this case the NANO STD and NANO CX are in the position of competing with foreign-madeused cars. Compared with the motorization phase, where the need for ownership is growing, the stable
growth phase, which is focused on buying for replacement or upgradation, sees the needs of theconsumer diversify and advance. In this phase, the simpler design and cost reductions of the NANO STD
and CX can be comparative disadvantages.
Furthermore, the NANO targets homes where motorcycles are used as family cars. But in thesehomes the motorcycle is an important possession that is maintained for life. In regular Indian homes,
where things are treated as important possessions, the sense of “value for money” is strong; in manycases, they will not make a purchase simply because something is cheap. In the stable growth phase,
there is a somewhat well-established market for used vehicles. The practice of evaluating products basedon durability and the residual value of used cars becomes more established. In the used-car market,
three-year-old Toyota products depreciate by about 30%–40%, while TATA products depreciate by 60%.
In other words, word that TATA products hold only 40% of their value after they have been used for 3
years can inhibit purchases by families that value “value for money,” the NANO’s target market12.
Finally, as automobiles become more widespread, income conditions become the only prerequisite
for purchase. The condition of complementary goods for automobile products also can influence theoverall spread of automobiles. For example, the price of gasoline can be a limiting factor. Gasoline in
India as of January 2011 was 60 rupees per liter. The fuel efficiency of the NANO if used for regular citydriving is about 4.55 liters per 100 km. Using one to commute 50 km per day would result in an annual
gasoline cost of 49,000 rupees. For a home with an annual income of just 100,000 rupees, gasoline costs
would make up about half of their annual income. So even if they could afford to buy a NANO, theymight not be able to afford to operate it.

6. Conclusion: What is the Essence of Growth?
From the perspective of the experiences of countries with motorization, we can infer that the spreadof automotive products has the power to not only contribute to economic growth but also to makefundamental changes to the social environment and lifestyles of people of a country. If the spread of
automotive products has the power to change a country’s social environment and its people’s lifestyles, italso has the power to define them. The spread of automotive products is affected by both internalindustry factors and external environmental factors. Studies thus far have not mentioned the defining
aspect of market development phases, and in many cases seem to have focused on simple scenarios such17

as increased income naturally leads to the spread of automobiles. This paper has investigated thecorrelation between the development phases of the automotive market and the spread of automobiles. It
then has analyzed the market conditions of BRICs and the automotive market structure in India.
In addition, from this perspective, we have introduced and interpreted the TATA NANO project. The
TATA NANO began with Mr. Ratan Tata’s dream, and there is no doubt that customer needs were clearly
defined from the beginning, knowledge was gathered domestically and from overseas, product planningand development techniques were established, and the Indian auto industry came together to create aninnovative product. However, given the conditions two years after the launch, the scenario is different
from that initially planned. The actual market conditions, where middle class buyers are acquiring theirfirst cars and the wealthy are buying second cars, suggest that the market already is in a stable growthphase. This differs greatly from the original plans. Given the magnitude of population in India, the low
automobile ownership rate, and the potential for high economic growth, it is easy to understand that theoriginal market intentions, and thus, the needed growth cannot always be secured. Rather, what reallyrelates to true business growth is an understanding of factors such as the differences in the developmental
phases of markets, changes in the driving forces of economic growth, emergence of new demographics,
input of resources that match the patterns of consumer behavior, and achievement of complementary
goods. Since 2000, the Indian automotive market has moved from the motorization phase to thebeginning of the stable growth phase. In the future, we expect many more twists and turns as the market
grows toward saturation, following a sustainable expansion process. In the automotive market in Japan,
the stable growth phase between 1974 and 1990 saw the domestic market almost double, and hence, we
can infer that the growth rate in India over the stable growth phase will not be small. This will depend
though on not being drawn in by surface issues, and will require product strategies that are appropriate
for the development phase of the market. This is a point that needs to be considered by not only local
Indian companies but also foreign corporations.

【References】
Asian Development Bank
2011.

Key

Indicators

for

Asia

and

the

Pacific2011,(http://www.adb.org/documents/books/key_indicators/2011/pdf/IND.pdf), Accessed November 8, 2011.
Freiberg, Kevin, Freiberg, Jackie, and Dunston, Dain.
2011. Nanovation: How a Little Car Can Teach the World to Think Big and Act Bold, Thomas
Nelson.
Freyssenet, Michel
2007. “The world automobile production by continent and by some countries, 1898-2010”(http://freyssenet.com/?q=en/node/654), Accessed August 25, 2011.

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Ireland, R. Duane, Hoskisson, Robert E., Hitt, Michael A..
2006. Understanding Business Strategy: concepts and cases, South-Western.
O’Neill, Jim.
2001. “Building Better Global Economic BRICs,” Global Economics Paper No: 66, Goldman Sachs,(http://www2.goldmansachs.com/our-thinking/brics/brics-reports-pdfs/build-better-brics.pdf), 21 Mar
2011 observed.
Scotiabank Group
2011 “On the road to record global car sales in 2011— gains to accelerate in the second half of theyear”, Global Auto Report, (http://www.scotiacapital.com/English/bns_econ/bns_auto.pdf), 9 Sep 2011
observed.
1

In recent years, discussions concerning “emerging nations” have still lacked a precise definition, with a mainly emotionalrecognition based on countries that showed a high growth rate. In this paper, to further these discussions, we will define
emerging nations as nations or economic zones that have potential for economic growth and for a long-term sustained
national economy, taking into account stability, the scale of population, and economic size, as well as modernization andindustrialization. Here, the reason for equating industrialization with economic development is to focus on thetransformation of economic structure and social change. This is to distinguish from resource-rich countries.
2
See “The Advent of Motorization in Japan” (http://www.erca.go.jp/taiki/siryou/pdf/W_A_007.pdf) for moredetails on increasing consumer demand. Other data is based on JAMA data as calculated by the author. All analyses are
conducted by the author.
3
Statistics for 2000 calculates passenger vehicles and buses together as “customer vehicles.” Thus, the figure of 3,650,900
includes large and medium-sized buses and other commercial vehicles. Hence, the actual rate for the private ownership ofpassenger vehicles would have been even lower than 22.69%.
4
At the same time, passenger cars as a proportion of vehicle ownership in India are at about 69% as of 2004, reaching astable level. This figure was 41.92% in 2002, 62.36% in 2003, 68.02% in 2004, 70.58% in 2005, 69.51% in 2006, 69.95%
in 2007, and 69.69% in 2008.
5
The annual ratio of service industry’s value added and industrial value added increased from 1.63 times in 1989 to a peakof 2.01 times in 2003, before remaining steady at 1.8 times after that. In other words, from 2003, it is possible to observe
the rise of the manufacturing industry within the Indian economic structure.
6
With a base of 100 in 1993, the manufacturing production index for 1994–2009 was at 109.1, 124.5, 133.6, 142.5, 148.8,
159.4, 167.9, 172.7, 183.1, 196.6 (2003), 214.6, 234.2, 263.5, 287.2, 295.1, and 327.3, suggesting that it has been strong
since 2003. Data courtesy: The Ministry of Statistics and Programme Implementation。
7
According to interviews with Hyundai dealers in a survey conducted in February 2011 in India.
8
According to National Council of Applied Economic Research.
9
Unless otherwise specifically described in this section, this is based on interviews conducted by the author in February
2011 with TATA Motors, TATA Motors Engineering Research Centre, TATA Motors Dealers, TCS, TATA “NANO”
Suppliers, Hyundai Motors (India), and Hyundai dealers. Analysis is of course by the author.
10
See Kevin et al. (2011) for details.
11This same dealer sold only 1,000 “NANO” for all of 2009, showing the effects of the low-interest-rate loans.
12
Of course, to provide existing passenger vehicles such as “INDICA” and “NANO” a TATA dealer market must be
constructed in urban areas, with the challenge of covering the potential buyers of the “NANO.” Because of the limitation of
the scope of this paper, this will be considered in a related study.

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