MMRCDISCUSSION PAPER SERIES
No. 280

Low-cost disruptive innovation by an Indian
automobile manufacturer
Chaisung Lim
Miller School of MOT, Konkuk University
Seokhee Han
Dassault Systemes Korea
Hiroshi Ito
MMRC, The University of Tokyo
October 2009

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

Low-cost disruptive innovation by an Indian
automobile manufacturer
Chaisung Lim*
Miller School of MOT, Konkuk University 1 Hwayang-dong, Gwangjin-gu, Seoul 143–701, Korea
E-mail: edisonfoot@gmail.com
Fax: 82-2-450-4141*Corresponding author

Seokhee Han
Dassault Systemes Korea, 15 floor, Mapo Tower Building, 418, Mapo dong, Mapo Ku, Seoul, 121–050, Korea
E-mail: Seokhee.HAN@3ds.com

Hiroshi Ito
MMRC, The University of Tokyo, 3-3-34 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan
E-mail: h-ito@iris.ocn.ne.jp

Abstract: This is an exploratory study examining the application of the lean principle applied productdevelopment (PD), for the BOP market, aiming at new market disruption in a developing country using a casestudy approach. The selected case is Nano of Tata Motor Limited(TML), the cheapest car in the world. The
bottom of the pyramid (BOP) market (i.e., low income market) calls for a bottom up approach in delivering new
products and services, respecting the value and affordability condition of the BOP customers. This study
explores the LAPD(lean principle applied product development) process of a developing country firm in the
BOP business model aiming at new market disruption. The LAPD process is a reverse exploratory process ofreaching product concept, starting from a base product model, and the subsequent process of design iteration fora drastic cost reduction while maintaining essential performance appreciated by customers. The LAPD process
is implemented with utilization of external sources of knowledge and utilization of the digital technology that
support the PD process in order to complement the weakness of technological capability. This paper will also
discuss key implications of study findings.

Keywords: Digital Technology Supporting Product Development, Lean Design, Lean Product Development,
Disruptive Innovation, Low-Cost Innovation, Catching-Up Strategy, Product Development, Automobile, Bottomof the Pyramid11. Introduction
The prior literature on the East Asian Newly Industrialized Economies (NIEs) after theWorld War II has revealed that the NIEs could catch up with advanced countries through theirinvestment in the assimilation and adaptation of the technologies developed by advanced
countries (Shin, 1996; OECD, 1992; Dahlman, Westphal, & Kim, 1985; Lee et al., 1988; Bell& Pavitt, 1992; Kim 1980&1997; Collins and Bosworth 1996; Wong et al. 2003) and bycreating knowledge for taking advantage of new business and technological opportunities
abroad (Amsden, 1989; Amsden & Chu, 2003; Kim, 1997, 2002; Ernst, 2002; Mathews,
2005; Lee & Lim, 2001; Lall, 1992, 1998; Hung 2002; Mu & Lee 2005; Ernst & O’Conner,
1989; Hobday, 1995; Lee & Lim, 2001; Lee, Lim & Song; Albert 1998; Amsden and Chu
2003; Breznitz 2005; Hung 2002; Mattews 2005). This catch up process has been achieved
through the NIEs’ participation in the global division of labor through OEM-ODM (OriginalEquipment Manufacturer-Original Design Manufacturer) production and export (Hobday,
1995; Ernst, 2002). The source of the competitiveness of firms in the NIEs lies in producing
products cheaper than those in advanced countries. The main mode of PD has been imitative
PD through coping, modifying available product designs, and commercializing quickly the
emerging technologies from abroad. Lacking technological capability, firms from the NIEs
rely on foreign suppliers for core components or materials of advanced technology and forthe architecture or the technological platform of a product. As the technological capability ofadvanced firms in the NIEs approach that of advanced countries, the firms make a challenge
to develop the components or materials which have been supplied by the foreign suppliers(Kim 1980; Lee et al 1988; Kim 1997; Hung 2002; Mattews 2005; Wong et al. 2005; Hobday1995).
China and India have made remarkable achievements in industrial growth over the last 10
years. The most salient feature of the two economies is the size of the economy. The hugeeconomies with fast economic growth have created immense market opportunities which are
far greater than those of Korea and Taiwan who experienced similar fast economic growth.
Even the lower end markets in China and India can create business opportunities. This paper
examines a low cost disruptive innovation by an Indian manufacturer. The low cost
innovation here refers to the innovation of making a product deliverable to low income
customers at cheap cost who could not previously afford to buy. This innovation creates a
new market causing disruptions in the existing competitive map.
Prahalad’s (2005) book (The Fortune at the Bottom of the Pyramid) emphasized the2

important business opportunities at the lower end (The Bottom of the Pyramid, from here
BOP) of the market in low income countries such as China, India, and Brazil. Prahalad (2004,p.4) showed that the number of people with a purchasing parity power of $1500 (USD) per
year had reached 4 billion. Prahalad argued that firms need a different approach from theexisting dominant approach in order to capture BOP market opportunities. Prahalad further
argued that the existing approach of modifying existing products, services, and management
styles are likely to fail (top down approach), while developing products and services
specifically targeted at the BOP customers are desirable (bottom up approach) (Prahald 2005,p.48). The bottom up approach calls for new-to-the-world products, different from any
product currently available in the global market. Multinational firms with rich experience indeveloping original products may be able to readily adopt this approach, whereas firms fromdeveloping countries may not have the experience necessary to bring such products to themarket.
If the PD for BOP customers is defined as developing new-to-the-world product throughthe bottom up approach, then thereby creating a new market, then the PD is the process
making a contribution to new market disruption. Christensen and Raynor referred to newmarket disruption where a firm disrupts the competitive environment by offering an
innovative, simple-to-use product to potential customers at prices so affordable that a whole
new population of people begin buying and using the product (Christensen and Raynor 2003,
p. 45).
Kim and Mauborgne (1999) argued that in creating a new business model with a new idea,
setting price first is important to capture the mass market. In capturing the mass market, it isargued that, instead of targeting novelty-seeking, price-insensitive customers at the launchand subsequently decreasing prices overtime to attract mainstream buyers, setting a strategic
price point from the beginning to attract a large pool of customers is important (Kim andMauborgne, 2000). When a company plans to create a new business model by developing a
product for a candidate BOP market, this setting a strategic price point to attract a pool ofcustomers large enough to guarantee profits in spite of the low price is a challenging task.
In order to offer a “cheap” price product for the BOP market, a company should be able toproduce a product at ”cheap” cost. This requires a PD approach in which a drastic reduction
in total cost can be achieved. The lean principle applied PD (LAPD), which aims to reduce
total cost, could offer much value to the advancement of the PD for the BOP market. To
examine LAPD approach more closely, the lean principle itself must be first discussed. The
3

lean principle, which was coined by Womack and Jones (1996), includes defining value fromthe perspective of customers and eliminating waste and non-value adding activities. The
concept of ”lean” has been applied to eliminate factory wastage in the factory. The applicationof the lean principle has been recently extended to the PD area. The lean design approachspread in the 2000s (Anderson, 2006). However, because PD activities are different fromthose activities in manufacturing, it is difficult to define non-value adding activities. The PD
process is defined as the creative and iterative process of finding solutions, while the
manufacturing

process

isarepetitive

process

implementing

plannedworking

processes(Nightingale 2000, Thomke and Fujimoto 2000). In the PD process, a productdeveloper frequently gets a result (“problem” or ”error,” according to Thomke and Fujimoto(2000)) different from the expected result, allowing the developer obtain new informationthat may be useful for further problem solving process in PD. Seemingly non-value adding
activities such as “problem” or “error” are an inevitable part of any PD process.
Baines et al. (2006) reviewed literature on the application of the lean principle in PD (keypapers between 1999 and 2005). They summarized their review by proposing that the conceptof lean has been applied beneficially in PD. However, the concept of lean needs to be applied
carefully. Baines at al found that the definition of lean is drifting. They also proposed that its
value in the PD process needs to be precisely defined, as it is not necessarily the same as its
value in production operations. All of this shows that the LAPD in advanced countries arestill in an inception stage. Mascitelli (2007, p.7) argued that the LAPD should address thedimension of (i) yielding products that respond to a market need, (ii) reducing integrated cost
applying Toyota’s 3 P processes, design for six sigma, design for manufacturing andassembly, and value engineering, and(iii) time to market. The application of theinterrelated techniques as elements of a coherent whole was emphasized in Karlsson andAhlstrom (Karlsson & Ahlstrom, 1996).
From prior literature, it could be proposed that the LAPD (i) is the PD where value isdefined from the perspective of the customer and an emphasis is placed on the elimination ofwaste and non-value adding activities and (ii) aims at a total integrated cost through theapplication of available techniques at the PD stage. Because the PD for the BOP market calls
for a drastic reduction in total cost of the product, the LAPD approach, which aims at a total
integrated cost, could be a useful approach. In order to reduce total cost, the elimination of
non-value adding activities is essential. The LAPD approach shares commonality with thefourth principle of the twelve principle of innovation for the BOP: “all innovations must4

focus on conserving resources: eliminate, reduce and recycle” (Prahalad 2006, p. 26). The
first principle (“… Serving the BOP market is not just about lower prices. It is about creatinga new price-performance envelope”) shares commonality with the LAPD where customer
value is respected. “Price-performance envelope” reflect the value appreciated by customers.
Even though there might be possibilities that the LAPD could be applied to PD for the
BOP market, it is still unclear as to whether firms from developing countries could achieve
such an endeavor. The LAPD is still in its inception stage, even in advanced countries. The
LAPD process is an advanced process of PD which firms from advanced countries with fullfledged PD capabilities pursue. Firms in developing countries are less likely to have thenecessary PD capabilities for developing original products for the BOP market.
This study explores the LAPD process which would be common to the developing country
firm who is weak in technological capability and who have to develop new-to-the world
product for the BOM market for the creation of a new market.
The LDPD process for the BOP market is targeted at developing a product with a lower
performance in that in other market. In a diagram (Figure 1) modifying Browning’s(Browning 2002, p.55), customer value is equated only with technical performance (as design
engineers sometimes do). Then value is a function of performance and affordability (Lines 1
and 2). As money is invested in the PD, performance increases over curve 1. On the other
hand, affordability decreases over line 2 as money is invested in the PD processes. Line 2
denotes the affordability of average income customers in advanced countries. Line 3 denotes
the affordability of the BOP customers in developing countries. Affordability starts todecrease in the lower level of PD investment than line 2.

5

Figure 1 Value to customer of a product and the Total Cost of a Product1. Prod u ct
Perfo rm ance Line

t
c
u
d
o
r
P
a
f
o
r
e
m
o
t
s
u
C
o
t
e
u
l
a
V

2. Affo rd ab ility lin eof averag e Inco m ecusto m e r in A. C.

3. Affo rd ab ility lin e of low inco m ecusto m e r in D. C.
Total Cost for Developing & Manufacturing a ProductSource: Browning et al (2002, p.55 modified)

Therefore, this implies that product performance required by the BOP customers is lower
than that by the average income customers in advanced countries. This further suggests that acompany does not have to invest as much money in developing new-to-the-world product. If
the required capability for developing a product of required performance by the BOP
customers is not far from the existing capability of a firm wishing to develop the product, thedeveloping country firm could take up the challenge to develop the new-to-the-world product.
The biggest challenge for the firm would be that the firm does not have adequate experiencein developing new-to-the-world product.
Prior literature on the accumulation of technological capability by developing countries
shows that, when making a challenge to make new high value added product, firms fromdeveloping countries are expected to create new technological capability by acquisition of
external resources or by obtaining access to external technical information and support (fromforeign technology sources, local firms and consultants, among others) (Katz 1987; Lall 1992,
Kim 1980&1997; Liu 2005; Lee et al. 1988; Zhouying ,2005; Zhu and Chen 2006 ). They
also access appropriate "embodied technology" in the form of capital goods (Lall, 1992; Belland Pavitt 1993; Ernst Mytelka Ganiatos, 1994; Ernst, 1994). The capital goods enable a6

company to improve efficiency of ‘doing things’ through the capital goods embodying
accumulated knowledge of ‘doing things (Rosenberg 1976; Abramobitz 1986). This study
shall investigate the above mentioned methods in its exploration of the PD process.
This study explores, through a case study, how the LAPD process is being applied by afirm from a developing country and examines how the firm could implement the LAPD
process through the above mentioned methods to complement the weakness of technologicalcapability. This LAPD process could be the process differentiating the process from that inadvanced country. At empirical investigation, it was difficult to find a suitable case for thisstudy as it required a case of applying the LAPD process for the BOP market with empiricaldetails. This study found Tata Motors Limited (TML)’s Nano, the world’s cheapest car, as asuitable case. However the product in question had yet to be launched in the market by thetime of this study was designed. Therefore, this study focuses on the examination of its
business model which are regarded as a successful business model(Johnson et al. 2008);
Meredith 2007; Kripalani 2008a & 2008b). In the following section, the framework ofinvestigating an exploratory case is introduced.

2. The framework for investigating LAPD
This study analyzes the LAPD as the PD process within a BOP business model aiming at
new market disruption. The concept of a business model adopted here is the one developed
by Johnson, Christensen, and Kagermann (2008) which captures the essential features of themodel of creating new business. According to Johnson et al., a business model consists ofcustomer value proposition, profit formula, processes and resources which cover thecondition of meeting customer demands (customer value proposition), securing profit out of
the business (profit formula), the process of doing businesses (processes), and the inputs tothe business activities for creating value (resources). In this paper, the discussion on thebusiness model is confined to those relevant to the product development process, especially
LAPD.

7

Table 1 BOP business model aiming at new market disruption-for developing country
firm
Factors Definition
Definition for BOP market for newmarket disruption
Customer
Value
proposition
ProfitformulaProcessesValue to be achieved forcustomer satisfaction

Revenue model : How much money
can be made?
 price x volume
Cost structure model
Margin model
operationalandmanagerial processes fordelivering value:
processes also include a
company’s rules, metrics,
andnorms(Christensen,2008)








Resources

People,technology,
products,
facilities,
equipment, channels, andbrand required to deliver
the value proposition to
the targeted customer.

Value to be achieved for low income
customer satisfaction

Revenue model : How much money can bemade?
 price x volume
 Low Cost structure model Margin model operationalandmanagerial
processes for delivering value- LAPD process to meet customer value
proposition at affordable cost
- processes of overcoming weaknesses ofskills of human resources: processes ofutilizing external resources, processesof utilizing digital technology forsupporting PD
 People,technology,
products,
facilities, equipment, channels, andbrand required to deliver the value
proposition to the targeted customer.
 People lack skills required for PD

The BOP business model aiming at new market disruption is the following. The customer
value proposition is the way companies provide value to customers by helping customers tocomplete an important job(Johnson et al. 2008). The job is a fundamental problem in a given
situation(Johnson et al. 2008). The business model has a customer value proposition offering
a valuable product to potential BOP customers. The targeted performance for delivering
customer value is not as high as the comparable ones in advanced countries. In terms of the
profit formula of the model, the business model has the price set to capture a market large
enough to generate profit(Johnson et al. 2008). The price needs to be set low enough toprovide affordability to low income customers. The cost structure needs to be the low cost
structure generating profits in spite of thinner gross margins resulting from low price. This
study presumes that the cost structure is shaped in the PD phase which determines thematerial, components, and architecture of products and the process of manufacturing products.
In the model, the operational and managerial processes include marketing and manufacturing8

processes(Johnson et al. 2008). In this paper, the operational and managerial processes arefocused on the PD process because the focus of the analysis is on the LAPD process. The
LAPD process in the PD for BOP market, aiming at new market disruption, which can beconjectured from existing literature, is the following: the process of developing products
targeted at the BOP customers is not the process of modifying existing products (top down
approach)(Prahald 2005, p.48), but the process of developing new-to-the-world product by
understanding the characteristics and requirements by the low income customers (bottom up
approach).
However the PD process is not the same as making a product from scratch. The PD process is
a process making “something in existing market, unaffordable to the BOP customers”
affordable to the BOP customers. Therefore the starting point of the PD process is a productalready existing but “expensive”, thus being required to be “reborn.” This product here iscalled a base model product. Another starting point is a strategic “cheap” price (cost) which
would result in a large enough customer-base (Kim & Mauborgne, 1999). Since only a thin
margin can be gained from selling a “cheap” product, setting a strategic “cheap” price forsecuring a large pool of customers that can still generate enough profit becomes important.
The price determines the target cost of the product. The process of reducing cost to meet thestrategic price needs to be implemented while respecting minimum performance requirements
satisfying customer needs.
Given the base model(Cb/Pb) and the target price(cost)(Ct) and the target performance(minimum performance requirements)(Pt), The PD process starts by analyzing an existingbase model product for drastic cost reduction. This is a reverse PD process to explore theproduct concept. After the reverse exploration, a product concept is reached. Then thesequential process of design iteration begins. The PD process follows an iterative process of
pursuing target cost and target performance(Ct/Pt). The example of the iterative process could
be the one suggested by Thomke and Fujimo (2000). They suggests that the PD process starts
from problem recognition and goal definition and undergoes the following iterative steps: (i)design step which is an iterative process of experimental search through the alternatives thatare designed (ii) build-prototype-model stage when a prototype of a model is made (iii) teststage when the alternatives are tested against an array of requirements and constraints (iv)analyze and evaluate stage when test outcomes are analyzed and evaluated9Figure 2 the framework on the LAPD process in a developing country firm

For a typical firm from a developing country, there is the LAPD process common to the firm
who is weak in technological capability. Employees have the limited experience ofdeveloping products. The employees generally lack the skills necessary to implement
necessary processes for developing new-to-the-world product such as capturing market
demand, exploring and defining product concept, and performing design iterations from basic
to final product designs. Therefore the LAPD’s process of developing new-to-the-world
product includes the process of utilizing external resources and “embodied technology” ashave been discussed in the literature session as have been discussed in the literature review.
The most influential “embodied technology” supporting the PD process are the digitaltechnology, which include 3D CAD, CAE, simulations, and product life cycle
management(PLM) tools. The technology automates some of the PD process and reduces
trials and errors in the PD processes through the visualization and digital simulation andanalysis of the impact of design changes. It has been revealed that there has been tremendous
progress in the area of the digital technology for the PD process over the last two decades(Baba and Nobeoka, 1998; Dodgson et al., 2005; Thomke & Fujimoto, 2000; Jennifer…).
10

Therefore, the useful available technology for complementing the weakness of PD capability
for firms from developing countries can be the digital technology that can support the PD
process. In summary, in the LAPD process for BOP market, aiming at new market disruption,
there is a process of designing products pursuing Ct/Pt starting from Cb/Pb and also a processof complementing the weakness of the PD capability through getting access to externalsources and also through the use of the digital technology.

3. Research Methodology
This study adopts the case study approach as a research methodology. The case study
approach was adopted because the focus of the study is an identification of an exploratory
case and building the framework of an explanation of the case. A case study approach can fall
into the trap of detailed specificity. In order to overcome this problem, the authors used aframework-case iteration process. The framework was set up as a result of logical conjecturesand literature review on the LAPD, disruptive innovation, the BOP business, and theaccumulation of technological capability by firms from developing countries.
After an initial framework was established, it was tested for robustness to determine if it
could successfully provide a logical explanation of the case. If the framework was not robust
enough, it was modified. The framework and the case description had evolved through thisframework-case iteration.
The analysis method included analysis of text data which can be divided into two groups.
One is the most valuable text which include interviewed sentences that had appeared in themass media. The interviewed text in the media is accepted as credible data, almost equivalent
to direct interviews, as it is presumed that interviewed sentences cannot be released without
the consent of interviewees. The other text data are those written by the reporters representing
the media. Texts by reporters are regarded as credible only if the text data are concreteenough to reflect an objective situation and if such data can be checked through a comparison
with the real data or other reported texts in the media. Other data sources for the study are asin Table 2.

11

Table 2 Data Sources for the study
Period forCollection

Location

Nov. 2006

Japan

Oct. 2008

USA

Oct. 2008

Japan

Oct. 2008~
Jan. 2009

USA & Korea

Jan. 3, 2009~
Jan. 29, 2009

India

An Engineer from TATA group's consulting company

Document fromInternet

Nov.
2008~Jan.
2009

Korea

75 press articles and 6 articles on the CEO available on
the company website.

Patent dataNov.
2008~Jan.
2009

USPTO,WIPO website

Patents granted (US) or data on patents filed (WIPO)

Interview

2003-2007

India

Type of Data
Proceeding atconference
Proceeding atconference
Proceeding atconference
Interview by Email
SurveyInterview by EMail

Major content
Presentation for TML's Digital Engineering
Implementation for manufacturing and production
TATA Technologies' presentation for TML's digitalengineering activities for NANO.
TATA Technologies' presentation for TML's digitalengineering activities for NANO.
Lean Design activity contribution for NANO by an
USA consulting firm

Visit to TML 3 times, Visit to 30 suppliers (2-3 times
visit for each supplier)

4. TML history
TML, which was founded in 1945, is currently the largest Auto OEM in India with 22,000
employees and is ranked first in terms of the commercial vehicles market share and second interms of the passenger car vehicles market share according to Rajuorka et al. (2006). TML
produced India’s first indigenous car, INDICA, in 1999 (Rajurkar et al., 2006). It also
expanded to a similar series of models such as INDIGO, launched in 2002, and INDIGOMarina in 2004 (Rajurkar et al., 2006). Prior to launching the INDICA, TML also produced
Multi Purposed Vehicles (MPV) or Sport Utility Vehicles such as TML SIERRA, TML
ESTATE, TML SUMO, and TML SAFARI, all of which were either copied or imitatedmodels of other companies. When the company developed INDIGO, the style design was
done by the Institute of Development in Automotive Engineering (IDAE), its engine waspurchased from a foreign company, its transmission and body were the result of in-house
work partly using other firms’ parts, and the chasis was from originally designed parts. The
PD was basically a modified version of foreign products
With NANO, however, the company developed original engine, transmission, body, andchasis, while relying on a style design that was done in part by IDAE. The PD process took
four years (2003-2007) with 500 researchers in its engineering research center. The NANO
12

had started selling in July 2009, resulting in 100,000 customers on its waiting list (Nair 2009).

Figure 3: The curve of accumulation of technological capability

２００２
Auto Policy

Integration index

Nano

Open market
Era of JV
Prod. of UV

Closed market

Prod. of PV

Production of truckCKD D.B

1960

1970

1980

1990

2000

2010

Source: Interview of TML.

5. BOP business model aiming at market disruption
Based on the framework discussed, the followings discuss the BOP business model aiming
at new market disruption.
5.1 Customer Value proposition
The Customer Value proposition of Tata NANO is offering a safe, four-wheeled vehicle to
the BOP customer (e.g., an entire family traveling on a motorcycle). “I observed families
riding on two-wheelers, the father driving the scooter, his young kid standing in front of him,
his wife …holding a little baby. It led me to wonder whether one could conceive of a safe,
affordable, all-weather form of transport for such a family “ (Interviewed sentence of Tata
Group Chief Ratan Tata in the Indian Express [2008]).

13

5.2 Revenue model
The price of the car at the beginning of the project was set at $2500 ( Rs100,000)(Narayanan 2008). The price was set to secure a large enough pool of customers to generate
profit. The target customers have been those potential customers who have not been using thecar, motor bike riders and three wheeler users.
The car is offered at a price that is roughly 60% more expensive than the most expensive
motor bike sold in INDICA and less than half the price of the cheapest car in India. In 2006, 7
million scooters and motorcycles were sold in India, typically for approximately $675 to
1,600 (Meredith, 2007). The car to be offered needed to have a much higher levels of safety,
speed, and comfort as compared to motor mikes (Tata Motors, 2008a). In terms of the breakeven point, the median value of the 6 analysis by livemint.com indicated that the break-evenpoint is 390,000 units per year in terms of earnings before interest, taxes, depreciation, andamortization (Krishnan 2008). Considering that the size of the target market (7 million unit
annual sales) and the break even point(390,000 units) of the NANO, the revenue model isbased on reasonable conjectures.
Cost structure is can be assumed to be shaped by product design and manufacturing
process design. The characteristic feature of the car design is the following. The car is acompact, rear wheel drive car with a 2 cylinder engine with a capacity of 623CC. NANO’s
product design illustrates how cost reductions can be achieved during the productdevelopment stage. The ways NANO achieved cost reductions were through smaller size ofthe car and components (material cost savings), material substitution (e.g. engineering
plastics), 2 cylinder engine, simplified component and design, simplified manufacturing
process. The following is the nested system of product architecture that provides a roughpicture of NANO’s product design (see Figure 4). This aspect is further discussed in thefollowings.

\
14

Figure 4 A Nested system of Product Architecture

5.3 Resources
TML was weak in technological capability, especially the product development capability.
TML did not have enough resources to develop NANO as the cheapest car in the world.
When the project was initiated (as an advanced engineering project) in 2003, the average ageof the project team members was between 25 and 30 (Kripalani, 2008). G.A. Wagh, whobecame the leader of the project team of 500 engineers between 2005 and 2008 was 37 years
old in 2008 (TML, 2008b; Agrawal & Wadia, 2008). He was experienced in developing the
Ace truck, which began in 2000 and was rolled out in 2005. This indicates that thedevelopment team did not possess adequate experience in developing various cars and did nothave any experience necessary for the development of new-to-the-world car that would create
a new market. Patent data shown in Table 3 clearly imply that TML’s human resource was notcomparable to other companies.

Table 3 Comparison of US patents granted and PTC patents filed

USPTO

TML

SuzukiHyundaiToyota

GM

0

599

1358

10,096

10,624

Note: Searched with assignee name “General Motors,” “Hyundai Motors,” “Toyota Jidosha,” and “Suzuki Motors.”
Source: Patents granted in the US Patent office(http://www.uspto.gov), accessed on January 8, 2009.

15

5.4. Processes
This paper limits its process-related discussion to the PD process. The PD process has to be
the LAPD in order to reduce cost to the “cheap” level. Because of the weakness in its
technological capability, there is a PD process for utilizing external resources and utilizationof the digital technology. Further discussions on the process are as in the following section.

6. LAPD process
In 2003, when a project was started as an advanced engineering project, the objective wasto develop a car that would be “ultra cheap”. The commercial project for the car was initiatedin 2005. The team was given a base model product and the target price of $2500 andminimum requirements of performance. This investigative process was guided by the threeparameters given by the CEO: acceptable cost ($2,500 price level), acceptable performanceand regulatory compliance (safety and environmental regulation) (Times of India, 2008;
Narayanan, 2008). The project was to develop a product similar to Maruti 800. "We took thestandard Maruti 800 as the base model and worked backwards on how we can reduce costs.”(interviewed sentences by Ratan Tata-The group Chief [Indian Express 2008]). Given Maruti
800 as the base model, every assumption about its material, design, and manufacturing wasquestioned in order to drastically reduce its cost.
The LAPD process is initially a reverse process of exploring a given product concept toachieve a drastic reduction in cost while keeping the essential performance. NANO’s initial
product concept had ranged from a car made mainly with engineering plastics and raw
materials to a four-wheel version of the auto-rickshaw (interviewed sentence of Ratan Tata in
Narayanan [2008]). Also considered were a door-less car with a bar as a safety measure and a
car with soft doors in vinyl with plastic windows and a cloth roof with two big doors(Agrawal and Wadia 2008). After the concept had been decided, there had been significant
design changes which influenced the overall structure and shape of the car. According to G.A.
Wagh, "The entire body was designed twice while the engine was designed thrice," before thestyle of the car was fixed (Gopalan and Mitra (2008). The three parameters were applied tothe entire process. With only three parameters to guide them, the engineers kept experiencing
failures (Narayanan 2008). Tata Motors’ chief executive Ravi Kant said, "Every day weinvite people to come and examine the car and ask: ‘How can we make more savings?’”(Kripalani, 2008).
16

To explain the process of pursuing Ct/Pt in figure 2, NANO’s engine can serve as an
example. In order to reduce the cost of the car, instead of a 4 cylinder engine, the purchase ofa 2 cylinder engine by a foreign maker was planned (pursuit of Ci/Pi≒Ct/Pt). This plan isrational because the foreign maker has been producing the 2 cylinder engine with economies
of scale. But the performance of the purchased 2 cylinder engine was not good enough(Pi<Pt). The first engine was a 540 CC engine that, when fitted on the prototype, lacked thenecessary power (Kripalani 2008a). Therefore the R&D for improving the 2 cylinder engine
was pursued in order to raise its performance (Pi≥Pt) in 2005, and the team finally succeeded.
The number of components such as sparkplugs, piston ring, injector, and engine plug werereduced by using the 2 cylinder engine.
The successful development of the 2 Cylinder engine provided a major momentum in thedecision regarding the architecture of the car. After the successful development of the engine,the car’s architecture was shaped as a rear engine car. By placing the engine below the rearseat, a spacious interior space could be secured in spite of the small length of the car (Pi>Pt).
"The decision to make it a rear engine driven was precisely to reduce the length of the car."(The Indian Express 2008). The reduction in the length of the car reduced the amount of
required steel sheet (Ci/Pi reduced). In comparison with a front engine loaded car, a rear
mounted engine car would see a reduction in cost for equal speed joint, steering system, anddrive shaft joints(removed) (Ci/Pi reduced)(The times of India 2008; Ito 2008). Because of
the use of the 2 cylinder engine, there was an R&D needed to develop proper balance shift to
reduce vibrations (Ito 2008) (to solve problem of Pi<Pt).
The process of reducing cost while maintaining minimum required performance (Ci/Pi≒
Ct/Pt) can be pursued through design simplification as the above example illustrates. The
statement of R. Kant, Managing Director, reflects TML’s design strategy: “The lean design
strategy has helped minimize weight.”(Financial Express, 2008). According to N.K. Jain,
Deputy General Manager at Engineering Research Centre(ERC) of TML, the company“focused on simple designs and tried to incorporate innovations in that" (Agrawal and Wadia
2008). The elimination of components were made possible by the elimination (and fusion) of
various functions. Ito’s report(2008) introduced detailed cases where various components
were made unnecessary through the elimination of function, such as air conditioning, power
steering, airbags, disc breaks, central lock, power door, and brake booster (Ito 2008). In
addition, reductions in components were made through integrated forging (integration ofcomponents). For example, 100 units of metal fasteners were reduced (Ito 2008). Ito reported
17that value engineering and analysis were applied in the reduction of the number ofcomponents to reduce cost. Furthermore, the process of reducing cost while maintaining
minimum required performance also led to the reduction in the size of components. For
example, NANO’s steering system is 10 kg, while INDICA’s is 15 kg (Ito 2008).
PD activities are stretched to reduce cost in manufacturing. According to V.
Suhasrabuddhey, divisional manager, Small Car Project Office, they did an exercise called
the design for manufacturing and assembling whereby the design efficiency of each of theassemblies was examined(Agrawal and Wadia, 2008). Some of the car’s design, even though the
car’s design is basically an integral design, was made modular, so that the car could be built
and shipped in segments to be assembled in different locations (Hagel and Brown 2008). This
also implies that the PD process had considered cost reductions for the manufacturing process.
The lean design principle was stretched to vendor management. At an early stage of making a
prototype of NANO, Ratan Tata called a meeting of his top parts suppliers and, after showing
them the early but flawed prototypes, asked them to help in developing an “ultra cheap” car(Kripalani 2008a). The suppliers participated in developing components with reduced cost at
an early stage of product development. It is known that value analysis and value engineering
had been diffused to the major suppliers in India (Ito 2008). V. Suhasrabuddhey, divisional
manager, Small Car Project Office, mentioned the suppliers’ participation in the LAPD:''Basically this means determining how many useful parts there are in the design. We
involved the suppliers also in this exercise and they realized that some functions could be
integrated in parts. That is how we got some cost benefit" (Interviewed sentence in Agrawal
and Wadia[2008]).
The PD process was supported by a foreign lean design consulting company (for further
detail, see section 7.2.A). All of the above explains how the LAPD process had been achieved
at TML. The following section provides a discussion on how the LAPD process is
implemented through reliance on external sources and “embodied technology” forcomplementing weakness of product development capability.

7 The PD process relying on external sources and “embodied technology”
7.1 PD process relying on external sources I: a world class engineering and design
company
The NANO development project was achieved in close cooperation with INCAT. INCAT isan operating company of Tata Technology Limited(TTL). INCAT’s services include productdesign, analysis and production engineering, and product-centric IT services including IT
18

services on the digital tools supporting product development. It has a cooperative relationshipwith Dassault system, UGS, and Autodesk: companies that provide PD digital technology. Its
customers have been the world’s premier automotive, aerospace and consumer durable
manufacturers (USSEC 2008). The company was a British engineering company until 2005,
when it was acquired by Tata group. Its employees number 3000 globally, and it hasengineering centers in North America, Europe, India, and Thailand. (USSEC, 2008). INCAT
has been involved with the development of the NANO from the start. According to W. Harris,
the CEO of INCAT, INCAT had been the "front and center" in the engineering anddevelopment of NANO (Interviewed sentence in Teece (2008). INCAT had worked with "asignificant number" of NANO's suppliers (Teece 2008). Harris made the following statement:“All of us at INCAT are proud of this historical achievement by our colleagues at Tata Motors,
and pleased to have played a part in making it real.” (Anand, 2008). Table 4 shows theidentifiable case of INCAT’s involvement on the NANO project from a newspaper article(Agrawal and Wadia, 2008). DELMIA(digital manufacturing software) user conference
presentation by INCAT also shows that INCAT had participated in supporting TML’s NANO
project in the digital manufacturing software (Khedkar [2008]). Considering that INCAT had
been a British engineering company, the involvement of INCAT in the TML NANO project
could be regarded as a transfer of technological capability accumulated in advanced countries.

Table 4 The INCAT member participants of the projectName
N. A Jadhav
RG Rajhans

Job
Industrial designer who has been working on the project from theinception to the end of the project
Project manager, Body Systems Engineering Automation, didsimulations for safety testing
Source: Agrawal and Wadia(2008)

This involvement of INCAT was made possible under the support policy at Tata Group level.
There has been involvement of human resources of Tata Group in the Tata Motor project. The
available text in newspapers supports the Tata group’s involvement. Gopalan and Mitra(2008) report that some Tata group companies had provided resources for the NANO project.
Talgeri (2008) estimated that the sheer number of automotive engineers and designers in the
Tata group had reached about 8,000, including Jaguar’s 3,500 engineers (acquired in 2008).
This number is already higher than some of the world’s largest engineering and design firms,

19such as the EDAG (5,500 employees) and the Ingenieurgesellschaft Auto und Verkehr
GMBH (3,700 employees). The Tata group has made its group companies (Talgeri 2008)transfer skills and cross-pollinate ideas. For instance, an exchange program required 200 Tata
Motors engineers from the group’s Europe technical centre to work at the Pune center. Talgeri(2008) reported that about 20-30% of these engineers have been staying in India on a fulltime basis.
All of this shows that the involvement of INCAT into the Tata NANO’s development
project was made possible under the strategy of the Tata group for utilization of foreign
engineers and designers. All of this reveals that PD process has been implemented with theworld class engineering and design company, INCAT, who could complement the weakness
in technological capability.

7.2 PD process relying on external sources II: a world class engineering and design
company
A. Foreign lean design strategy company
TML had interacted with a U.S. consulting company for applying the LAPD process. The
company was involved with TML on the requested designs across the entire design of the car.
It provided consulting service analyzing component designs such as engines and the entire
interior and achieved a cost reduction of over $***/vehicle. The consulting company
emphasizes the lean design strategy reducing cost of total cost by analyzing the impacts ofthe product design into the total manufacturing costs and reducing low value added designs
according to the interview of CEO and the company’s web site and the CEO’s short article( Interview on June 2 of 2009).
B. Supplier
TML had relied on competent independent suppliers, including multinational corporations,who have had rich experience working in India and with domestic companies for thecooperative development of components(see the following table for the list of suppoiers
participated in the cooperative development project. As have been discussed above, they had
been involved in developing cost-reduced-components since the early stages of the productdevelopment.

20

Table 5 Suppliers involved in the PD project
External
suppliers

Business Field

Components

Services

SourceAgrawal and
Wadia (2008),
Anand (2008)
Mitra (2008)

TTL INCAT*

Consulting

N/A

PLM, Product Design
and Engineering

Dassault
Systemes(French) and
SIEMENS PLM(German)Bosch(German)Software andconsulting

N/A

PLM, Digital
Innovation
Technology,
Industrial Knowledge

Engine’s Multipoint fuellingsystems and also
electronic
management
systems
Steering, gears,
columns, and seat
belts

N/A

The Times of India(2008)

N/A

Economic Times(2008 b)Rane Group(Indian?)Component maker

Component maker

Italy's Instituteof Development

Styling Design

N/A

Styling

Tata (2008),
Narayanan (2008)

US Consulting
Company

Lean design
Consulting

N/A

Lean Design andEngineering

Interview

Sona
Koyo(German)
and Rane Group
Emcon
technologies(US)
MRF Tyres(Indian)Component makerhollow steering
shaftsN/A

Component makerexhaust system

N/A

Component maker

N/A

N/A

Lumax Lighting(US)

Component makertyres to bear
extra weight onrear wheels
tail light fixtures

GKN
(UK)

Component maker

Driveshafts

Narayanan (2008)

Narayanan (2008)
Gopalan and Mitra(2008)N/A
The Times of India(2008)

Note: 1 *Tata group firm,
2 ( ) country of origin of the company

The number of direct suppliers was confined to 100, and Tata relied on these 100
companies for managing the second and third level suppliers in the reduction of component
cost (Ito 2008). According to the interview result of suppliers, the share of components
outsourced are estimated to be around 85 % in terms of the cost of components.

7.3 Utilizing “embodied technology”: the digital technology.
According to its company report, TML has a strategy of active utilization of the digitaltechnology that supports the PD process. TML’s annual report to the United States Securities
and Exchange Commission (USSEC 2008, p. 20) states the following: “we have aligned our21end-to-end digital PD objectives… with our business goals and have made significant
investments to enhance the digital PD capabilities especially in the areas of PD throughComputer Aided Design(CAD)/Computer Aided Manufacturing(CAE)/Computer Aided
Engineering(CAE)/Knowledge Based Engineering/Product Data Management.” The reportfurther states that the ERC is “equipped with computer-aided design, manufacture andengineering tools, designed to create a digital PD environment and virtual testing andvalidation.” The digital technology used by TML made it possible for TML to design with 3
D CAD, build prototype digitally, perform certain tests including simulations, and evaluation
results. To take an example of the digital technology, 3 D CAD designing is implemented
with CATIA, digital prototyping with CATIA, and simulations and validation of designs withDELMIA. According to an engineer from a consulting company that had advised Tata on theuse of the digital technology(email interview on 15 January, 2009), NANO is more advanced
than INDICA or INDIGO in terms of CAE, digital mockup, digital validation for final
assembly, digital validation for body, and digital factory modeling.
The identifiable texts on Tata’s use of the digital technology are as the following. Testing
had been made possible with the digital technology. Rajurkar, General Manager ofTechnology & Production Services, made the following statement: “Earlier, only after we had
made prototypes did we realize that we had overlooked some practical problems. … But it
was too late to do anything then. Now, we are able to figure out such problems at the desktop
and take corrective measures.” According to Rajurkar, this simulation saved “a large numberof prototypes” in the testing of new products(Interviewed sentence in Trivedi[2008]).
According to T.N. Umamaheshwaran, CTO(engineering automation, “We can’t imagine what
would take place at a new plant, if we did not have DM[digital manufacturing] tools. Twoyears before the first stone of a plant is laid, we already start working on it…. You cansimulate all the operations even before the first of machines are installed” (interviewed
sentences in Trivedi[2008]).
All of the above discussions shows that the digital technology was used in the design
iteration process of the LAPD: design-building prototype-test stage work has been supportedby the digital technology. All of the discussions in section 7.3 show that the PD process in
TML’s NANO development was supported by the digital technology under the strategy ofutilization of the digital tools.

228. Conclusion
This study explores the LAPD in the context of developing countries. Although it mightseem too early to apply the LAPD approach, which is at an early stage of adoption even inadvanced countries, into the PD process in developing countries, there is one area where thisapproach may be appropriate. That is the PD for the BOP market, aiming at new market
disruption.
The BOP market calls for a bottom up approach in delivering “new the world” products orservices, respecting the value and affordability condition of the BOP customers. For a firmfrom a developing country, developing an original product for the BOP market using abottom up approach may be unreachable due to its currently weak PD capability. This study
explores how the lean principle applied the PD process has worked in developing countries
and how this is being made possible in spite of the weakness in PD capabilities.
The PD process starts from a base model, an existing available product whichis ”expensive” and which needs to be “reborn” to be made affordable to the BOP customers.
Starting from a target price and target performance(minimum performance requirements) thatare acceptable to the BOP customers, the process undergoes a reverse exploratory process offixing product concept, achieving a drastic cost reduction. Then, through sequential design
iterations that take a fixed product concept to the final product, the target cost andperformance can be achieved. Because the BOP customers do not require their products to be
as sophisticated as the ones offered in advanced countries, firms from developing countries
can focus on developing original products for the BOP market in spite of their weak PD
capabilities. In order to complement their weakness, the BOP firms can utilize externalsources of knowledge and the digital technology that supports the PD process.
The case study’s result shows that the LAPD process for the BOM market was found in theautomobile industry, where sophisticated technological capability is required. The result
implies that the LAPD could be applied to other industries that require a similar, or lower,
level of technological capabilities in PD activities.
This study contributes to the discussion on the BOP business model and disruptive
innovation in that it provides a framework for explaining how a firm from a developing
country could develop products for the BOP market, aiming at new market disruption, despite
their relative weakness in PD capability.
This study also contributes to the discussion on the theory of technology catch-up of
developing countries. Most of the technology-oriented views explaining how developing
23

countries catch up with advanced countries focus on how they assimilate and adapt
technologies from advanced countries (Bae, 1997; L. Kim, 1980; Lee et al.,1988; Utterback& Abernathy, 1975; Vernon, 1966; Lall, 1992, 1998) and how they actively utilize emerging
technological opportunities from abroad (Mathews, 2001, 2002, 2003; Yusuf, 2003; Lee &Lim, 2001). A common view held by these studies is that the firms from developing countries
shift from imitating foreign goods to developing a new-to-the-world product as theirtechnological capabilities are accumulated. An ability to develop the new-to-the-world
product implies an ability to develop products that can be sold in advanced countries. If a
company builds a capability to develop the original product, the company has thetechnological capability necessary to become a global player. This study suggests anothercategory of new-to-the-world product. This refers to the original product for the BOP market
that can cause new market disruption. Because the performance of the product required for
BOP market does not have to be as sophisticated product as the one offered in advanced
countries, a developing country firm can make a challenge to develop new-to-the-world
product for the BOP market, even if they lack fully developed PD capability, even though thecompany needs to find the ways to complement the weakness of the capability. As TML is
expected to advance their technological capability through both developing products for BOP
markets and products for non-BOP markets, the developing country firm can now haveanother path of accumulating technological capability: developing new-to-the-world products
for BOP market. Further research on this topic is warranted to shed additional light on thetheory of technology catch up and the strategies employed by the firms to close technological
gaps with their counterparts in advanced countries.
This study is an exploratory case study examining an innovative new-to-the-world
product development case. Therefore the analysis is confined to one case. However theconclusion drawn out of one case can be a misleading one. Tata Motors’ NANO may havesome exceptional unique features. For example, TML’s NANO PD process was supported inpart by INCAT and presumably some other firms under the Tata Goup. However, TML was
the focus on this study. The Tata group can be an exceptional group that has acquired
excellent global standard design and engineering resources within the group. It may bedifficult for other firms in developing countries to obtain access to highly qualified humanresources such as INCAT without the support of a large conglomerate like the Tata Group. As
such, additional developing country case studies on the LAPD process for the BOP market
may be needed to corroborate the finding of this study. In addition, this study had not24

investigated the organizational capability of TML in explaining the LAPD process for the
BOP market as new market disruption. In TML’s challenge to develop a new-to-the-world
product, there could have been immense changes in processes and organizational structuresand features. The empirical research on this aspect is expected to reveal further progressive
results on management of LAPD for BOM market, aiming at new market disruption.

Acknowledgement
Authors are grateful for the comments during KOSIME conference at Jeju on June 2009 and
JAFEE at Okayama University on April 2009. They are also grateful to Professor Takahiro
Fujimoto at Tokyo University and Jidae Kim at Chungnam University for insightfulcomments.

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