CASE STudy 8.1
Tata Nano: international market selection with the world’s cheapest car
The majority of growth in the global automobile
industry in the coming decade will come from emerging economies such as India, China and eastern
Europe, and the largest contribution to growth of car
markets in these countries will be the fast-growing
small car segment. The increasing disposable
income of the middle-class population is the key
driver of small car markets in developing nations.
however, in developed regions like the US and
western Europe, stringent environmental standards
are increasing the need for more fuel-efficient cars.
Tata Motors
In 2012, the Indian Tata Motor Group (www.tata.
com) employed nearly 455,000 people in 85 countries and was India’s largest conglomerate company,
with revenues in 2011–12 equivalent to US$100 billion (equal to 5 per cent of India’s gDP). The Tata
Group comprises nearly 100 companies in seven
business sectors.
one of the companies in the Tata Group is Tata
Motors. Tata Motors is gearing up for the global
market as one of India’s largest automobile makers,
manufacturers of buses, commercial trucks and
tractor-trailers, passenger cars (Indica, Indigo,
Safari, Sumo and the ultra-cheap Nano), light commercial vehicles and utility vehicles. The company
sells its cars primarily in India, but about 20 per cent
of sales come from other Asian countries and Africa,
Australia, Europe, the Middle East and South
America. In 2008, Tata Motors bought the Jaguar
and Land rover brands from Ford for about US$2.3
billion. Tata Motors has a workforce of 22,000
employees working in its three plants and other
regional offices across the country.
Tata Motors has a lower than 20 per cent share of
the Indian passenger car market and has recently
been suffering a sales slump. In 2012, the company
produced 250,000 cars and more than 300,000
buses and trucks. outside India, Tata Motors sells
only a few cars, so their international marketing experience is weak.
They do, however, have some distinct advantages
in comparison to other multinational company competitors. There is definite cost advantage as labour
cost is 8–9 per cent of sales compared with 30–35
per cent in developed economies. Tata Motors has
extensive backward and forward linkages and it is
strongly interwoven with machine tools and metals
sectors from other parts of the Tata Group. There
are favourable government polices and regulations
to boost the car industry, including incentives for
r&D.
The acquisition of Jaguar and Land rover created
financial pressure for Tata Motors, with the company
stating that it wanted to spend some US$1.5 billion
over the following four years to expand the facilities
manufacturing the luxury brands. In addition to giving
Tata a globally recognizable product, the Land RoverCHAPTER 8 ThE INTErNATIoNAL MArkET SELECTIoN ProCESS 309
and Jaguar deal also gave them an entry into the US.
Through a deal with Fiat, Tata is already distributing
the Italian cars in India and may expand the offering
into South America, a Fiat stronghold.
development of Tata Nano
In 2008, Tata unveiled the Nano, the cheapest car in
the world, at the Auto Expo in New Delhi. The car
seats up to five people, gets up to 55 miles to the
gallon, and sells for about US$2,230. At first the
Nano was sold only in India, but Tata hoped to export
them after a few initial years of production; the Nano
might also be exported to Europe in the future. First
shipments to Indian customers took place at the start
of 2010.
Tata Nano started with the vision of
ratan Tata, the chairman of Tata
Motors’ parent, the Tata Group, to create an ultra-low-cost car for a new
category of Indian consumer: someone who couldn’t afford the US$5,000
sticker price of what was then the
cheapest car on the market and
instead drove his family around on a
US$1,000 motorcycle. Many drivers in
India can only afford motorcycles and
it is fairly common to see an Indian
family of four using a motorcycle to get
around.
In India alone there are 50–100 million people caught in that automotive
chasm. Until now none of the Indian
car makers has focused on this
segment, and in this respect the Nano is a great
example of the blue ocean strategy.
The customer was ever-present in the development of the Nano. Tata didn’t set the price by calculating the cost of production and then adding a
margin; rather it set US$2,500 as the price that it
thought customers could pay and then worked back,
with the help of partners willing to take on a challenge, to build a US$2,500 car that would reward all
involved with a small profit.
The Nano engineers and partners didn’t simply
strip features out of an existing car – the tack renault
took with its Dacia Logan, which sells in India for
roughly US$10,000. Instead, they looked at their
target customers’ lives for cost-cutting ideas. So, for
instance, the Nano has a smaller engine than other
cars because more horsepower would be wasted in
India’s jam-packed cities, where the average speed
is 10–20 miles per hour.
The Nano aims to bring the joys of motoring to
millions of Indians, doing for the subcontinent what
the Volkswagen Beetle did for Germany and the Mini
for Britain. But the plan horrified environmentalists
who fear that the demand from India’s aspirational
and increasingly middle-class population – now numbering 50 million in a country with a total 1.1 billion
people – for more cars would add to pollution and
global warming.
The global automotive industry
In 2012, the worldwide production of passenger
cars was 81 million cars. The distribution by country
was as shown in Table 1.
The alternative to the Tata Nano
Source: David Pearson/Alamy.
Tata Nano
Source: P Cox/Alamy.310 PART II DECIDING WhICh MArkETS To ENTEr
Segmentation of the global low-cost
car (LCC) market
There is no doubt that the competitive landscape for
the global car market has been altered dramatically
and permanently. oxyer et al. (2008) forecasted that
the global low-cost market (defined as ultra-low-cost
+ regular low-cost car market in Figure 1 ) is
expected to grow from 2 million cars in 2008 to 17.5
million cars in 2020.
Moreover, the huge potential of this market is
attracting the attention of manufacturers and vendors worldwide, with a number of global players
recently entering the LCC sector. There is no doubt
that first movers will have the opportunity to capture
market share and build consumer loyalty. The
dynamic and powerful ultra-low-cost car (ULCC)
market is forcing car manufacturers to rethink their
strategies. It is indisputable that using traditional
design, manufacturing and distribution approaches
to achieve ULCC entry prices below US$3,500 will
be a difficult task. A low price point and low profit
margins – estimated at around 3 per cent at the base
model levels – will provide tough competition in the
ULCC market.
Table 1 Global distribution of passenger cars,
2012
Country 2012
(millions of cars produced)
US and Canada 17
Western Europe 13
Eastern Europe 5
Japan 5
China 19
korea 2
India 3
Brazil/argentina 4
other 13
World total 81
Figure 1 Segmentation of the low-cost car market
Source: Oxyer et al. (2008).CHAPTER 8 ThE INTErNATIoNAL MArkET SELECTIoN ProCESS 311
Two of the most promising markets for Tata Nano
are characterized in India and in China and Japan,
which are expected to account for about 60–70 per
cent of the future ULCC production and demand.
India
India is likely to evolve into a global hub for small car
manufacturing. Currently it is one of the largest producers of small cars, with the small car segment
accounting for about three-quarters of the Indian car
market. The fast-growing small car market has
encouraged several global car companies (renault
Nissan, Toyota, Hyundai) to announce plans for the
launch of small cars in India. With the launch of Tata
Nano, the stage is set for around a dozen new small
and compact cars to be launched in India in the next
two years.
In 2012, Maruti Suzuki India, the largest passenger car manufacturer in India, had more than a 60
per cent share of the domestic small car segment.
The implication of the impending advent of an
inexpensive passenger car such as the Nano on
urban transport in India has to be seen in the context
of overall trends in motorization in the country. By the
end of 2012, India was home to nearly 50 million
passenger cars. In 2012, around 3 million new passenger cars were sold on the Indian market. This
figure was expected to increase to 4 million cars in
2015. Compare this with the fact that in 2012 alone
nearly 10 million two-wheeler motorcycles were sold
in India.
China and Japan
Small car demand in China is expected to increase
in the long term. however, the narrow price gap
between the small car and medium car segments
has made medium-segment cars a more attractive
choice for consumers.
Mini-cars account for more than one-third of the
total volume sales in the Japanese auto market.
Suzuki and Daihatsu are the market leaders in the
small car market in Japan. A large number of Japanese consumers are moving from luxury cars to minicars due to environmental standards and increasing
gas prices.
The Tata Nano business model
Tata began the development process with 600
closely integrated suppliers, only 100 of which
remain. Independent suppliers provide 80 per cent
of the Nano’s components, and 97 per cent of the
vehicle is sourced in India. Suppliers such as Bosch
worked with Tata and employed Indian engineers
with motorcycle, rather than automobile, design
experience to craft innovative low-cost components.
reduce the number and complexity of parts
By focusing on the essentials and encouraging creativity in making components smaller, lighter and
cheaper, Tata avoided engineering non-functional,
non-essential parts. Bosch, for example, adapted a
smaller and lighter motorcycle starter for use in the
Nano.
European suppliers with production capacity in
India had a big advantage over rivals when Tata
Motors started to look for partners for its Nano.
one reason the Nano is the cheapest car in the
world is because 97 per cent of its parts are locally
sourced. It is impossible to deliver a low-cost component out of western Europe to a different place in
the world.
half of the 100 vendors for the project are located
with Tata in a 142-hectare vendor park in Singur next
to the new plant that will produce the Nano. Singur is
a suburb of Calcutta in eastern India. here are some
European suppliers with key parts on the Nano:
Most of these suppliers can only be profitable on
Nano parts because they produce high-volume parts
in a low-wage country like India, where they also
conduct some research and development.
Standardize at every stage of the value chain
Similar to henry Ford’s ‘any colour so long as it’s
black’ approach, the Nano offers consumers few
options, and only a few have any impact on the
manufacturing process.
The Nano’s distribution model for India is also
new. The company mobilizes large numbers of third
Seat belts Autoliv
hVAC Behr
Starter motor, engine-control
module, injectors, sensors
Bosch
Transmission speed sensors,
fuel-level sensor, fuel pump
Continental
Fuel filter, air cleaner Mahle
glazings Saint-Gobain
Speed sensors TT Electronics
Clutches Valeo312 Part II DeciDing Which Markets to enter
parties to reach remote rural consumers, tailor the
products and services to serve their needs, and add
value to the core product or service through ancillary
services. For example, one plant produces vehicle
modules that are then sent to a number of strategically positioned satellite mini-factories, where the
Nano is assembled and delivered to the buyer. A
central warehouse stocks spare parts and
accessories.
Export of Tata Nano to Europe and/or
North America
There are two clear barriers for Tata Nano when
considering these two regions:
● Emission standards. Western Europe, Japan and
North America established emissions standards
more than a decade ago. Emerging markets such
as China and India are adopting European standards, but with a five- to seven-year lag. Cars in the
lightweight low-cost car segment, with their small
engines and modest fuel consumption, will meet
current emissions standards.
● Safety regulations. North America and Europe
have similar government-developed safety regulations with respect to seat belts, rollover and rear-,
side- and frontal-protection standards. In developing countries, the standards are lower, and ultralow-cost cars will encounter few, if any, difficulties
in meeting those standards. As European and
The actual price that the private car buyer pays
could be substantially higher in heavily taxed countries such as Denmark.
Competition
The five cheapest cars in the world at the beginning
of 2012 were:
Tata Nano uS$
Base price 2,500
+ Conversion (cost for fitting to
emission standard and safety regulations)
500
+ Logistics costs 375
+ Marketing 125
+ Manufacturer profit 105
+ Dealership profit 108
+ Import tariffs 93
Expected MSrP (manufacturer’s
suggested retail price)
3,806
+ Sales tax 400
Total costs 4,206
North American governments continue to establish
higher standards, there will be compliance issues.
As a consequence of these and other barriers
(tariffs), the US$2,500 target base price of Nano for
the Indian market can jump to nearly double the price
in a European country:
There are now several competitors on their way
into the ULLC market:
renault-Dacia Logan
Between 2004 and 2012, renault sold 450,000 of
the bare bones US$7,200 (€4,969) Logan sedan.
The price tag of this stripped-down family car is
almost half the cost of competing sedans.
No. Model Producer Price uS$/€
1 Nano Tata Motors in India 2,500/1,688
2 QQ3 Chery Automobiles in China 5,000/1,726
3 M800 Suzuki-Maruti in India 5,200/3,451
4 Merrie Star Geely Automobiles in China 5,500/3,796
5 S-rV mini SUV Geely Automobiles in China 5,780/3,989
Source: based on www.timesonline.co.uk.
hyundai
hyundai Motors is also working on development of
an ultra-cheap car that will compete against the
Nano. hyundai is the second-largest car manufacturer in India. Currently, hyundai is the biggest
rival of Indian car market leader, Maruti Suzuki
India.CHAPTER 8 ThE INTErNATIoNAL MArkET SELECTIoN ProCESS 313
VW
VW also plans to launch a low-cost car called Up! in
both India and russia. The low-cost car, which will
share some of the components of VW’s compact
Polo, is designed to be an affordable car for developing countries.
Toyota
Toyota also has plans for entering the Indian LCC
market. Their new 35-billion-yen (US$343 million)
production facility, located on the outskirts of the
southern city of Bangalore, started production in
2010 with an initial capacity of 100,000 units a year.
The unit price was around US$6,000. That will not
immediately compete with Tata Motor’s US$2,500
People’s cars, although in the future Toyota may jump
into the LCC market using Daihatsu’s know-how.
Toyota holds a 16 per cent share of the US car
market, but its sales in emerging markets remain
small (e.g. its market share in India is 3 per cent).
QuESTIONS
In the first full year (2010–11), Tata Nano sold
around 70,000 cars. This figure increased slightly to
around 80,000 cars in 2011–12 but since 2012 the
sales of Tata Nano have decreased. In 2012–13
sales fell to 54,000 cars, in 2013–14 they fell to
21,000 cars, and in 2014–15 they fell to 17,000
cars. The production capacity in the Indian factories
is around 300,000 Nano cars per year. So far, the
Nano has been sold largely to the Indian market.
only a small percentage of the production has gone
for export. But now the Global Marketing Manager of
Tata Nano has contacted you, as an international
marketing expert, in order to expand the international
sales of Tata Nano.
1. What could be the main reasons for Tata Motors
entering the global ultra-low-cost car market?
2. What are the competitive advantages that Tato
Motors would enjoy with the Nano in emerging
markets?
3. Which screening criteria would you suggest for
Tata Nano’s IMS process?
4. Which world regions and specific countries would
you suggest Tata Nano should enter after India
and China?