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In-Depth Integrative Case 3.1

Tata Nano: The Peoples Car

Nano, Indias first Peoples car, may soon earn a place which is affordable and yet built to meet safety require-
in history alongside Fords Model T, Volkswagens Beetle, ments and emission norms, to be fuel efficient and low
and the British Motor Corp.s Mini, all of which made on emissions. We are happy to present the Peoples Car
automotive travel within reach of millions of customers to India and we hope it brings the joy, pride and utility
who had previously been locked out of the car market. In of owning a car to many families who need personal
January 2008 during Indias main auto show in New mobility.6
Delhi, Tata Motors introduced to the Indian public its Middle-class household incomes in India start at
ultra-cheap car Nano that was expected to retail for as roughly $6,000 a year, so a $3,000 car is the kind of
little as the equivalent of $2,500, or about the price of the innovation that could create millions of new drivers. Eight
optional DVD player on the Lexus LX 470 sport utility million Indians currently own cars, according to the
vehicle.1 This event had driven unprecedented public Mumbai-based credit-rating agency Crisil. Another 18mil-
attention, since Tatas new vehicle was projected to revo- lion have the means to buy one. However, the Nano could
lutionize the auto industry.2 increase that pool of potential auto owners by as much as
The emergence of Tata Motors on the global auto scene 65 percent, to 30 million. This goes beyond economics
marks the advent of India as a global center for small-car and class, says Ravi Kant, managing director of Tata
production and represents a victory for those who advo- Motors. This crosses the urban-rural divide. Now a car
cate making cheap goods for potential customers at the is within the reach of people who never imagined they
bottom of the pyramid in emerging markets. Most of would own a car. Its a triumph for our company. And for
all, the car could give millions of people now relegated India.7
to lesser means of transportation the chance to drive cars.3
In India, there were fewer than 10 cars for every thousand Designed with a Family in Mind
people in 2007, compared with 40 per thousand in China, Though Nanos design triggered different comments from
and 450 in the U.S. Far more middle-class Indians bought the publicsome people called it handsome;8 others
and transported their entire families on scooters.4 called it egg shaped9overall Tata Motors was very
According to some analysts, Tata Motors Chairman proud of the design, which was developed with a family
Ratan Tata hopes to use the Nano to become the Henry in mind.10 From Tatas perspective the new Nano addresses
Ford of emerging India, in part, by offering a car at a several key characteristics that Indian families would
fraction of the price of rival products. The company is prize in a car: low price, adequate comfort, fuel-efficiency,
gambling that its tiny price tag will make it appealing to and safety.
Indians who now drive motorcycles and scooters. According to Tata, Nano has a roomy passenger com-
While Indias population is more than 1 billion people, partment with generous leg space and head room, and it
only around 1 million passenger cars were sold in the can comfortably seat four persons. Four doors with high
country in 2007, one-tenth as many as in China. By con- seating position make ingress and egress easy. With a
trast, more than 7 million motorcycles and scooters were snub nose and a sloping roof, the worlds cheapest car can
sold. Mr. Tata said the tiny car is aimed at keeping the hold five peopleif they squeeze.11 Nanos dimensions
families of Indias growing middle class from having to are as follows: length of 3.1 meters, width of 1.5 meters,
travel with as many as four people on a scooter.5 and height of 1.6 meters. Tata suggests these compact
Speaking at the unveiling ceremony at the 9th Auto dimensions should allow the car to effortlessly maneuver
Expo in New Delhi, Ratan Tata said, I observed families on busy roads in cities as well as in rural areas. Its mono-
riding on two-wheelersthe father driving the scooter, volume design, with wheels at the corners and the power
his young kid standing in front of him, his wife seated train at the rear, enables it to combine both space and
behind him holding a little baby. It led me to wonder maneuverability.12 At 10 feet long, the Nano is about
whether one could conceive of a safe, affordable, all- 2 feet shorter than a Mini Cooper.13
weather form of transport for such a family. Tata Motors The car is available in both standard and deluxe ver-
engineers and designers gave their all for about four years sions. According to the company, both versions offer a
to realize this goal. Today, we indeed have a Peoples Car, wide range of body colors and other accessories so that
399
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400 Part 3 International Strategic Management

the car can be customized to an individuals prefer- December 2006 Tata earned $116 million on revenue of
ences.14 But reviewers called the basic version spare: $1.55 billion. Annual revenue grew to $5.2 billion for the
Theres no radio, no air bags, no passenger-side mirror, fiscal year ending in March 2006.20 Now Tata Motors
and only one windshield wiper. If you want air condition- Limited is Indias largest automobile company, with con-
ing to cope with Indias brutal summers, you need to get solidated revenues of Rs.70,938.85 crores (US$14 billion)
the deluxe version. in 20082009. It is the leader in commercial vehicles in
According to the company, Nano has a fuel-efficient each segment, and among the top three in passenger vehi-
engine powered by the lean design strategy that has helped cles with winning products in the compact, midsize car,
minimize weight, maximize performance per unit of and utility vehicle segments. The company is the worlds
energy consumed, and deliver higher fuel efficiency.15 The fourth largest truck manufacturer, and the worlds second
final design stands at 1,322 pounds, 528 pounds lighter largest bus manufacturer. The companys 24,000 employ-
than the flyweight Honda Insight. To power it, the engi- ees are guided by the vision to be best in the manner in
neers settled on a 33-horsepower, 623-cc, two-cylinder which we operate, best in the products we deliver, and
engine housed in the rear; to service it, the mechanic must best in our value system and ethics.21
remove a set of bolts in the 5.4-cubic-foot trunk. The pay- Established in 1945, Tata Motors presence cuts across
off: an uncommonly efficient 47 miles per gallon running the length and breadth of India. Over 4 million Tata vehicles
at top speed (65 mph). But that doesnt mean Nano own- ply on Indian roads, since they first rolled out in 1954. The
ers wont spend a lot of time pumping gasthe minuscule companys manufacturing base in India is spread across
tank holds just 3.9 gallons.16 Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow
According to the company, the Peoples Cars safety (Uttar Pradesh), Pantnagar (Uttarakhand), and Dharwad
performance exceeds current Indian regulatory require- (Karnataka). Following a strategic alliance with Fiat in
ments. With an all-sheet-metal body, it has a strong pas- 2005, it has set up an industrial joint venture with Fiat
senger compartment, with safety features such as crumple Group Automobiles at Ranjangaon (Maharashtra) to pro-
zones, intrusion-resistant doors, seat belts, strong seats and duce both Fiat and Tata cars and Fiat powertrains. The com-
anchorages, and the rear tailgate glass bonded to the body. pany is establishing a new plant at Sanand (Gujarat). The
Tubeless tires further enhance safety. Tata also placed companys dealership, sales, services, and spare parts net-
emphasis on environmental friendliness. According to a work comprises over 3,500 touch points; Tata Motors also
corporate press release the Peoples Cars tailpipe emission distributes and markets Fiat branded cars in India.22
performance exceeds regulatory requirements. In terms of Tata Motors has also emerged as an international auto-
overall pollutants, it has a lower pollution level than two- mobile company. Through subsidiaries and associate com-
wheelers being manufactured in India today.17 panies, Tata Motors has operations in the U.K., South
Korea, Thailand, and Spain. Among them is Jaguar Land
About Tata Motors Rover, a business comprising the two iconic British brands
Tata Motors is a part of the Tata Group. The Tata Group that was acquired in 2008. In 2004, it acquired the Dae-
is considered the General Electric of India, a sprawling woo Commercial Vehicles Company, South Koreas sec-
conglomerate with a commanding presence in media, tele- ond largest truck maker. The rechristened Tata Daewoo
com, outsourcing, retailing, and real estate. Started in Commercial Vehicles Company has launched several new
1868 as a textile wholesaler, the company branched out products in the Korean market, while also exporting these
into luxury hotels after, as legend has it, founder Jamsetji products to several international markets. Today two-
Tata was turned away from a posh establishment because thirds of heavy commercial vehicle exports out of South
of his skin color. In 1945, a few years before the British Korea are from Tata Daewoo.23
left India, Tata created Tata Motors and started producing In 2005, Tata Motors acquired a 21 percent stake in
locomotives and, eventually, autos. In 1998, Tata Motors Hispano Carrocera, a well regarded Spanish bus and coach
introduced the countrys first indigenously designed car. manufacturer, and subsequently the remaining stake in
The homegrown Indica, which now sells for around 2009. Hispanos presence is being expanded in other mar-
$6,000, became ubiquitous as a taxi.18 kets. In 2006, Tata Motors formed a joint venture with the
Meanwhile, the Tata Group has been expanding glob- Brazil-based Marcopolo, a global leader in body building
ally. It bought the tea company Tetley in 2000 and for buses and coaches, to manufacture fully built buses and
acquired Anglo-Dutch steel giant Corus in 2007. It main- coaches for India and select international markets. In 2006,
tains Tata Consultancy Services offices in 54 countries Tata Motors entered into joint venture with Thonburi
and owns hotels in Boston, New York, and San Francisco. Automotive Assembly Plant Company of Thailand to man-
In March 2008, Tata Motors bought Jaguar and Land ufacture and market the companys pickup vehicles in
Rover from the financially strangled Ford Motors.19 Thailand. The new plant of Tata Motors (Thailand) has
Tata Motors listed on the New York Stock Exchange begun production of the Xenon pickup truck, with the
in 2004. After thousands of changes, in the quarter ending Xenon having been launched in Thailand in 2008.24
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In-Depth Integrative Case 3.1 Tata Nano: The Peoples Car 401

Tata Motors is also expanding its international foot- Tata Motors Milestones
print, established through exports since 1961. The com- It has been a long and accelerating journey for Tata
panys commercial and passenger vehicles are already Motors until it became Indias leading automobile manu-
being marketed in several countries in Europe, Africa, the facturer. Here are some significant milestones in the com-
Middle East, South East Asia, South Asia, and South panys journey toward excellence and leadership:29
America. It has franchisee/joint venture assembly opera-
tions in Kenya, Bangladesh, Ukraine, Russia, Senegal, 1945 Tata Engineering and Locomotive Co. Ltd. was
and South Africa. Through its subsidiaries, the company established to manufacture locomotives and other
is engaged in engineering and automotive solutions, con- engineering products.
struction equipment manufacturing, automotive vehicle 1948 Steam road roller introduced in collaboration with
components manufacturing and supply chain activities, Marshall Sons (U.K.).
machine tools and factory automation solutions, high- 1954 Collaboration with Daimler Benz AG, West Germany,
precision tooling and plastic and electronic components for manufacture of medium commercial vehicles. The
for automotive and computer applications, and automotive first vehicle rolled out within 6 months of the contract.
retailing and service operations.25 1959 Research and Development Centre set up at Jamshedpur.
1961 Exports begin with the first truck being shipped to
The foundation of the companys growth over the last
Ceylon, now Sri Lanka.
50 years is a deep understanding of economic stimuli and 1966 Setting up of the Engineering Research Centre at
customer needs, and the ability to translate them into Pune to provide impetus to automobile Research
customer-desired offerings through leading-edge R&D. and Development.
With over 3,000 engineers and scientists, the companys 1971 Introduction of DI engines.
Engineering Research Centre, established in 1966, has 1977 First commercial vehicle manufactured in Pune.
enabled pioneering technologies and products. The com- 1983 Manufacture of Heavy Commercial Vehicle commences.
pany today has R&D centers in Pune, Jamshedpur, Lucknow, 1985 First hydraulic excavator produced with Hitachi
Dharwad in India, and in South Korea, Spain, and the U.K. collaboration.
It was Tata Motors which developed the first indigenously 1986 Production of first light commercial vehicle, Tata
developed Light Commercial Vehicle, Indias first Sports 407, indigenously designed, followed by Tata 608.
1989 Introduction of the Tatamobile 2063rd LCV model.
Utility Vehicle, and, in 1998, the Tata Indica, Indias first
1991 Launch of the 1st indigenous passenger car Tata Sierra.
fully indigenous passenger car. Within two years of TAC 20 crane produced.
launch, Tata Indica became Indias largest selling car in One millionth vehicle rolled out.
its segment. In 2005, Tata Motors created a new segment 1992 Launch of the Tata Estate.
by launching the Tata Ace, Indias first indigenously 1993 Joint venture agreement signed with Cummins
developed mini-truck. In January 2008, Tata Motors Engine Co. Inc. for the manufacture of high horse-
unveiled its Peoples Car, the Tata Nano, which was power and emission friendly diesel engines.
launched in India in March 2009.26 1994 Launch of Tata Sumothe multi utility vehicle.
Tata Motors is equally focused on environment- Launch of LPT 709a full forward control, light
friendly technologies in emissions and alternative fuels. commercial vehicle.
It has developed electric and hybrid vehicles both for Joint venture agreement signed with M/s Daimler-
Benz/Mercedes-Benz for manufacture of Mercedes
personal and public transportation. It has also been
Benz passenger cars in India.
implementing several environment-friendly technologies Joint venture agreement signed with Tata Holset
in manufacturing processes, significantly enhancing Ltd., U.K., for manufacturing turbochargers to be
resource conservation.27 used on Cummins engines.
Tata Motors is committed to improving the quality of 1995 Mercedes Benz car E220 launched.
life of communities by working on four thrust areas: 1996 Tata Sumo deluxe launched.
employability, education, health, and environment. The 1997 Tata Sierra Turbo launched.
firms activities touch the lives of more than a million 100,000th Tata Sumo rolled out.
citizens. Its support for education and employability is 1998 Tata SafariIndias first sports utility vehicle launched.
focused on youth and women, ranging from schools to 2 millionth vehicle rolled out.
technical education institutes, to actual facilitation of Indica, Indias first fully indigenous passenger car,
launched.
income generation. In health, Tatas intervention is in
1999 115,000 bookings for Indica registered against full
both preventive and curative health care. The goal of payment within a week.
environment protection is achieved through tree planta- Commercial production of Indica commences in
tions, conserving water and creating new water bodies, full swing.
and, last but not least, introducing appropriate technolo- 2000 First consignment of 160 Indicas shipped to Malta.
gies in Tata vehicles and operations for constantly Indica with Bharat Stage 2 (Euro II) compliant die-
enhancing environment care.28 sel engine launched.
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402 Part 3 International Strategic Management

Utility vehicles with Bharat 2 (Euro II) compliant Tata Motors launches Indica V2 Turbo Diesel.
engine launched. One millionth passenger car produced and sold.
Indica 2000 (Euro II) with multi point fuel injection Inauguration of new factory at Jamshedpur for
petrol engine launched. Novus.
Launch of CNG buses. Tata TL 4X4, Indias first Sports Utility Truck
Launch of 1109 vehiclean Intermediate commer- (SUT), is launched.
cial vehicle. Launch of Tata Novus.
2001 Indica V2 launched2nd generation Indica. Launch of Novus range of medium trucks in Korea,
100,000th Indica wheeled out. by Tata Daewoo Commercial Vehicle Co. (TDCV).
Launch of CNG Indica. 2006 Tata Motors vehicle sales in India cross four million
Launch of the Tata Safari EX. mark.
Indica V2 becomes Indias number one car in its Tata Motors unveils new long wheel base premium
segment. Indigo & X-over concept at Auto Expo 2006.
Exits joint venture with Daimler Chrysler. Indica V2 Xeta launched.
2002 Unveiling of the Tata Sedan at Auto Expo 2002. Passenger vehicle sales in India cross one-million
Petrol version of Indica V2 launched. mark.
Launch of the EX series in commercial vehicles. Tata Motors and Marcopolo, Brazil, announce joint
Launch of the Tata 207 DI. venture to manufacture fully built buses and coaches
200,000th Indica rolled out. for India and markets abroad.
500,000th passenger vehicle rolled out. Tata Motors first plant for small car to come up in
Launch of the Tata Sumo1 Series. West Bengal.
Launch of the Tata Indigo. Tata Motors extends CNG options on its hatchback
Tata Engineering signed a product agreement with and estate range.
MG Rover of the U.K. TDCV develops South Koreas first LNG-Powered
2003 Launch of the Tata Safari Limited Edition. Tractor-Trailer.
The Tata Indigo Station Wagon unveiled at the Tata Motors and Fiat Group announce three addi-
Geneva Motor Show. tional cooperation agreements.
On 29th July, J. R. D. Tatas birth anniversary, Tata Tata Motors introduces a new Indigo range.
Engineering becomes Tata Motors Limited. 2007 Construction of Small Car plant at Singur, West
3 millionth vehicle produced. Bengal, begins on January 21.
First CityRover rolled out. New 2007 Indica V2 range is launched.
135 PS Tata Safari EXi Petrol launched. Tata Motors launches the longwheel base Indigo
Tata SFC 407 EX Turbo launched. XL, Indias first stretch limousine.
2004 Tata Motors unveils new product range at Auto Common rail diesel (DICOR) engine extended to
Expo 04. Indigo sedan and estate range.
New Tata Indica V2 launched. Tata Motors and Thonburi Automotive Assembly
Tata Motors and Daewoo Commercial Vehicle Co. Plant Co. (Thonburi) announce formation of a joint
Ltd. sign investment agreement. venture company in Thailand to manufacture,
Indigo Advent unveiled at Geneva Motor Show. assemble, and market pickup trucks.
Tata Motors completes acquisition of Daewoo Com- Rollout of 100,000th Ace.
mercial Vehicle Company. Tata-Fiat plant at Ranjangaon inaugurated.
Tata LPT 909 EX launched. Launch of a new upgraded range of its entry level
Tata Daewoo Commercial Vehicle Co. Ltd. (TDCV) utility vehicle offering, the Tata Spacio.
launches the heavy duty truck NOVUS, in Korea. CRM-DMS initiative crosses the 1,000th location
Sumo Victa launched. milestone.
Indigo Marina launched. Launch of Magic, a comfortable, safe, four-wheeler
Tata Motors lists on the NYSE. public transportation mode, developed on the Ace
2005 Tata Motors rolls out the 500,000th passenger car platform.
from its Car Plant Facility in Pune. Launch of Winger, Indias only maxi-van.
The Tata Xover unveiled at the 75th Geneva Motor Fiat Group and Tata Motors announce establish-
Show. ment of Joint Venture in India.
Branded buses and coachesStarbus and Globus Launch of the Sumo Victa Turbo DI, the new
launched. upgraded range of its entry-level utility vehicle, the
Tata Motors acquires 21% stake in Hispano Carrocera Sumo Spacio.
SA, Spanish bus manufacturing company. Tata Motors launches Indica V2 Turbo with dual
Tata Ace, Indias first mini truck launched. airbags and ABS.
Tata Motors wins JRD QV award for business Launch of new Safari DICOR 2.2 VTT range, pow-
excellence. ered by a new 2.2 L Direct Injection Common Rail
The power packed Safari Dicor is launched. (DICOR) engine.
Introduction of Indigo SX series, luxury variant of Rollout of the one millionth passenger car off the
Tata Indigo. Indica platform.
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In-Depth Integrative Case 3.1 Tata Nano: The Peoples Car 403

2008 Ace plant at Pantnagar (Uttarakhand) begins More fundamentally, the engineers worked to do more
production. with less. Tata has been able to slash the price by asking
Indica Vista, the new generation Indica, is launched. his engineers and suppliers to redesign the many compo-
Tata Motors new plant for Nano to come up in nents to cut costs. The speedometer, for example, is in the
Gujarat.
center of the dashboard over the air vents, not behind the
Latest common rail diesel offering, the Indica V2
steering wheel, so the dashboard can be build with fewer
DICOR, launched.
Indigo CS (Compact Sedan), worlds first sub four- parts.32 To save $10, Tata engineers redesigned the sus-
metre sedan, launched. pension to eliminate actuators in the headlights, the level-
Launch of the new SumoSumo Grande, which ers that adjust the angle of the beam depending on how
combines the looks of an SUV with the comforts the car is loaded, according to Mr. Chaturvedi of Lumax.
of a family car. In lieu of the solid steel beam that typically connects
Tata Motors unveils its Peoples Car, Nano, at the steering wheels to axles, one supplier, Sona Koyo Steer-
ninth Auto Expo. ing Systems, used a hollow tube, said Kiran Deshmukh,
Xenon, 1-ton pickup truck, launched in Thailand. the chief operating officer of the company, which is based
Tata Motors signs definitive agreement with Ford in Delhi.33
Motor Company to purchase Jaguar and Land Rover.
Also, Nano is smaller in overall dimensions than the
Tata Motors completes acquisition of Jaguar Land
Suzuki Maruti, a similar but higher priced low-cost com-
Rover.
Tata Motors introduces new Super Milo range of petitor assembled in India, but it offers about 20 percent
buses. more seating capacity as a result of design choices such
Tata Motors is Official Vehicle Provider to Youth as putting the wheels at the extreme edges of the car. The
Baton Relay for The III Commonwealth Youth Nano is also much lighter than comparable models as a
Games, Pune 2008. result of a reduction in the amount of steel in the car
Indica Vista, the second generation Indica, is launched. (including the use of an aluminum engine) and the use of
Tata Motors launches passenger cars and the new lightweight steel where possible.34
pickup in D.R. Congo. However, Nano engineers and partners didnt simply
2009 Tata Motors begins distribution of Prima World truck. strip features out of an existing car to create a new low-
Tata Motors launches the next generation all-new
cost model, which most other manufacturers have done
Indigo MANZA.
when making affordable cars. Instead, they looked at their
FREELANDER 2 launched in India.
Tata Marcopolo Motors Dharwad plant begins target customers lives for cost-cutting ideas. So, for
production. instance, the Nano has a smaller engine than other cars
Tata Motors launches NanoThe Peoples Car. because more horsepower would be wasted in Indias jam-
Introduction of new world standard truck range. packed cities, where the average speed is 10 to 20 miles
Launch of premium luxury vehicles Jaguar XF, per hour.35 The car currently meets all Indian emission,
XFR, and XKR and Land Rover Discovery 3, Range pollution, and safety standards, although it only attains a
Rover Sport, and Range Rover from Jaguar and maximum speed of about 65 mph. The fuel efficiency is
Land Rover in India. also attractive to economy-driven consumersnearly
50 miles to the gallon.36
Secrets behind the Low Price Nano ultimately became a triumph of creativity and
How could Tata Motors make a car so inexpensively? It innovation. For example, Tata Motors has filed for 34 pat-
started by looking at everything from scratch, applying what ents associated with the design of the Nano, although some
some analysts have described as Gandhian engineering suggest that measuring progress solely by patent creation
principlesdeep frugality with a willingness to challenge misses a key dimension of innovation. Some of the most
conventional wisdom. A lot of features that Western con- valuable innovations take existing, patented components
sumers take for grantedair conditioning, power brakes, and remix them in ways that more effectively serve the
radios, etc.are missing from the entry-level model.30 needs of large numbers of customers. The most innovative
In order to succeed with building a low-cost affordable aspect of the Nano is its modular design. The Nano is
car, Tata Motors began by studying and trying to under- constructed of components that can be built and shipped
stand the customer. What do the customers need? What separately to be assembled in a variety of locations. In
do they really want? What can they afford? The customer effect, the Nano is being sold in kits that are distributed,
was ever-present in the development of the Nano. Tata assembled, and serviced by local entrepreneurs.37
didnt set the price of the Nano by calculating the cost of As Ratan Tata, chairman of the Tata group of compa-
production and then adding a margin. Rather it set $2,500 nies, observed in an interview with The Times of London:
as the price that it thought customers could pay and then A bunch of entrepreneurs could establish an assembly
worked backward, with the help of partners willing to take operation and Tata Motors would train their people, would
on a challenge, to build a $2,500 car that would reward oversee their quality assurance and they would become
all involved with a small profit.31 satellite assembly operations for us. So we would create
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404 Part 3 International Strategic Management

entrepreneurs across the country that would produce the Bengal state, to rally against the plant, reiterating their
car. We would produce the mass items and ship it to them claim that the land was forcibly taken from farmers and
as kits. That is my idea of dispersing wealth. The service that compensation was inadequate. The highway leading
person would be like an insurance agent who would be to Singur was blockaded and Tata Motors was forced to
trained, have a cell phone and scooter and would be evacuate employees from the plant site. In response, the
assigned to a set of customers.38 company threatened to walk out of West Bengal if the
This is part of a broader pattern of innovation emerging agitation was not quickly quelled.46
in India in a variety of markets, ranging from diesel According a statement released by Tata Motors in
engines and agricultural products to financial services. In September 2008, work on the factory was close to com-
fact, Tata envisions going even further, providing the tools pletion. Up to 4,000 workers, including several hundred
for local mechanics to assemble the car in existing auto young residents from around the [Singur] region were
shops or even in new garages created to cater to remote said to have been employed by the factory during its con-
rural customers.39 struction. But continuing the work with the ongoing pro-
tests proved too risky. Employees failed to show up for
Struggling with a Production Site work after threats from protestors. The protests also
In spite of Tatas great commitment to meet the transpor- snarled traffic in the region. Trucks loaded with food were
tation needs of the poor Indian population and its pledge left on highways, their contents rotting in the sun.47
that the price of the car would not exceed $2,500 equiva- Ratan Tata, chairman of the Tata Group and Tata
lent, the company experienced a major challenge due to Motors, expressed concern that the factory in Singur was
unexpected problems at Tatas proposed manufacturing at serious risk. Commenting on the situation, a Tata
plant in Singur, in the eastern state of West Bengal, India, Motors spokesperson said, The situation around the
that could have stopped the whole Nano project right at Nano plant continues to be hostile and intimidating. There
the start. is no way this plant could operate efficiently unless the
In May 2006 Tata Motors announced that it would be environment became congenial and supportive of the
manufacturing Nano in Singur, West Bengal, India.40 Tata project. We came to West Bengal hoping we could add
made plans to acquire the land and build the plant for the value, prosperity and create job opportunities in the
sole purpose of producing the Nano. The entire project, communities in the state.48
including the purchase of more than 600 acres of land, The dispute reflected a larger standoff between indus-
reportedly cost Tata Motors upwards of $350 million.41 try in India and farmers unwilling to part with land in a
The problems began immediately following Tatas pur- country where two-thirds of the billion-plus population
chase of the property from the West Bengal government.42 depends on agriculture. Unable to get satisfactory resolu-
Prior to the purchase, the government didnt actually own tion of the dispute, on September 2, 2008, Tata Motors
the land, but acquired it from local farmers by imposing announced that violent protests had forced it to suspend
the force of eminent domain.43 The Communist govern- all work at the plant. Tata Motors also said it was putting
ment of West Bengal was interested in bringing Tata Motors together a detailed plan for the relocation of the plant and
to its state since it saw the Nano project as key to rejuve- machinery, and was evaluating options for manufacturing
nating industries in West Bengal, a poor region that was the Nano at other company facilities.49
traditionally focused on farming. Trouble began after the By October, the Singur protests had grown in size and
government took over 1,000 acres (400 hectares) of farm- intensity. Highways surrounding the factory were at a
land for the factory. The government offered compensation, standstill, and workers were being threatened. Tata finally
but some farmers with smaller land holdings refused that abandoned the Singur factory, in which it had invested
compensation, demanding that land be given back to them. $350 million.50 However, by that time the company had
The disputed land measured about 400 acres.44 received an invitation from another state to relocate its
The protests hinged upon allegations that Tata forced Nano project. On October 7, 2008, the Gujarat government
farmers from their land and handed out payments that and Tata Motors signed a MoU (memorandum of under-
were a fraction of the lands value. Mamata Banerjee, the standing)51 in Ahmedabad, bringing the ambitious Nano
fiery chief of the Trinamool Congress, the West Bengali project to that state. Gujarat Chief Minister Narendra Modi
political party staging the protest, demanded that Tata announced allocation of 11,000 acres of land at Sanand
Motors return 400 acres of land surrounding the Nano fac- near Ahmedabad to Tata Motors. The state government
tory to these farmers. Tata Motors stated that this land was promised Tata various tax rebates and ready land along
necessary for 60 parts suppliers to the Nano. The company with connectivity to the national highway. In addition, the
argued that keeping parts suppliers close to the plant was company was assured that no bandh (bandh, originally a
vital to maintaining the Nanos extremely low cost.45 Hindi word meaning closed, is a form of protest used by
At the peak of the protests in September 2008, over political activists in some countries in South Asia like India
30,000 activists and farmers besieged Singur, in West and Nepal)52 or labor unrest would delay the project.53
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In-Depth Integrative Case 3.1 Tata Nano: The Peoples Car 405

Despite the Gujarat governments assurances regard- for the $2,500 Nano by a lottery, leaving the company
ing the safe and friendly business environment in its with at least a year of production as backlog.60
state, the relocation of the plant to a new state was not
painless. In December 2008, several farmers filed a case Global Race for Low-Cost Cars
against the local Indian government and Tata Motors, The Nano is part of a global race to lower the prices of
demanding better compensation for land sold to support entry-level cars for millions of new developing world con-
the Gujarat factory, India.54 Tata was pressured to find a sumers. As growth slows in developed markets in the
quick solution. Ultimately, it decided that Nano produc- West, auto makers are looking to tap the rapid growth in
tion would begin at Tatas existing factory in Pantnagar countries like India, China, and Brazil, where the lowest
in the northern state of Uttarakhand after receiving an priced cars are often the best sellers. Maruti Suzuki India
additional allotment of land from the Uttarakhand gov- Ltd., which is controlled by Japans Suzuki Motor Corp.,
ernment to expand the Pantnagar factory for Nano pro- has dominated the Indian market for decades; its least
duction. It became apparent that sales of the Nano in expensive model today sells for around $5,000.61
India, originally scheduled for October of 2008, would Now that Tata Motors has shown the way, competitors
not begin until next spring of 2009.55 are scrambling to offer their own budget vehicles. For
example, Ford Motor Co. announced plans to build a new
Nanos 2009 Launch small car in India that will have a sticker price as low as
Even though Tata was expected to solve the transportation $7,500. Nissan Motor Co. has plans for a $7,000 and then
problem for thousands of Indians, and Nanos launch was a $5,000 car in the next few years. German auto maker
a highly awaited public event, sales of the Nano were Volkswagen AG said it would also start to make small
delayed by at least six months after the land disputes.56 cars at a new plant in 2010.62 Hyundai has announced a
However, when Tata eventually announced Nanos 2009 $3,700 car. Renault-Nissan has teamed with Indian motor-
production plans, it quickly started generating the orders cycle maker Bajaj to put 400,000 of its own ultra-low-cost
at volumes that far exceeded expectations. As of May cars on the road by 2011. General Motors is rumored to
2009, according to Bloomberg analysts, Tata Motors had be working on a Nano-killer with Chinas Wuling Auto-
received 203,000 orders for its Nano, more than double motive. By 2020, millions of ultra-low-cost vehicles will
the initial sales plan. The company accepted the bookings crowd narrow alleyways throughout the world. Thus, what
between April 9 and April 25, amounting to almost happened in Bangalore would presage changes to come
25 billion rupees ($501 million), according to Tata Motors in Lagos, Rio de Janeiro, and Budapest.63
release. Deliveries were planned to start in July of 2009 The global market for the Nano and similarly low-
and were expected to be completed in the last quarter of priced cars could be immensethe World Bank counts
2010, according to the company.57 more than 800 million people who earn between $3,600
Surging demand from first-time buyers and motorcy- and $11,000 annually. In India, the new vehicle could
clists in India contrasted with plunging automobile sales change the taxi business overnight and energize a cadre
in the U.S. and Europe where job losses and economic of small-time entrepreneurs by providing new levels of
recession were keeping consumers away from showrooms. mobility, carrying capacity, and social status.64
The Nano has the potential to become a game-changer In spite of glamorous projections of high demand for
for Tata in the long run, said Gaurav Lohia, an analyst low-cost cars, some analysts pose serious concerns of the
at K.R. Choksey Shares & Securities Pvt. in Mumbai. overall profitability of budget car manufacturing. With the
Once you generate the volumes, you are the king.58 rising competition in the low-cost vehicle market, increas-
According to the Society of Indian Automobile Manu- ing cost pressure and small profit margins, will the new
facturers, the [Nano] bookings represented about 17 per- budget car models be able to recoup the R&D investment
cent of the 1.22 million passenger cars sold in India, and generate any profits? For example, on the eve of the
Asias fourth-largest automobile market, in the fiscal year Nano launch, Mr. Tata said in an interview that develop-
ended March. Maruti Suzuki India Ltd., maker of half the ing the new model cost between $380 million and $435
cars sold in the country, sold 636,707 units while Hyundai million. He said without a better idea of future input costs
Motor Co. sold 244,030 and Tata Motors sold 160,446.59 and demand, he could not predict how soon the project
Due to its manufacturing capacity constraints, Tata would turn a profit or what the profit margin on the cars
Motors would not be able to fill all the orders as quickly would be. Should steel prices continue to rise, prices may
as expected. The first Nanos were to roll out of the have to be adjusted.65
Pantnagar plant which could produce only 60,000 units a As long as the Nano runs as well as it looks and avoids
year. Annual output was projected to increase by a further major quality issues, Tata Motors should have no trouble
350,000 units when the facility at Sanand in western India selling it to hundreds of thousands of Indian families a
was completed at the end of 2009. Therefore, Tata Motors year, analysts say. Still, at such a low price it could take
announced that it would choose the first 100,000 customers a long time for Tata to recoup its investment in developing
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406 Part 3 International Strategic Management

the worlds cheapest car. With profit margins as low as competitive or better product that sells for 3035 percent
5 percent, it could take more than five years for the proj- lower prices than their own in these markets.69
ect to be in the black, estimated Vaishali Jajoo, senior
research analyst at Angel Broking in Mumbai. It depends Tata Touching U.S. Ground
on how the margins will be, and at this price they are Tata showcased its Nano in United States in January 2010
going to be very low, she said.66 at the Detroit auto show and generated its first feedback
However, although the competition in the low-cost from potential American customers. The comments ranged
vehicle market will remain fierce, Tata Motors now has a from highly skeptical to very optimistic. Some people said
significant benefit relative to its competitors, which is that Nano would have to go through many upgrades in
called in business language the first mover advantage. order to win the American consumer and in order to meet
Anil K. Gupta and Haiyan Wang, two experts on India the safety requirements. For example, in most American
and China, said in a BusinessWeek article that Tatas Nano cars, safety features alone cost more than $2,500, accord-
should be viewed as not just a product for an identified ing to Adrian Lund, president of the Insurance Institute
market need today but also as a platform for tomorrow. for Highway Safety in Arlington, VA.70
The key to leveraging any product or service as a platform As far as American consumer preferences are con-
for future growth is to treat it as a bundle of capabilities cerned, a U.S. Nano would also need to be nicer inside
instead of becoming overly constrained by its current fea- to be attractive to buyers, Tata representatives told Auto-
tures, branding, distribution channels, or targeted customers. blog Green. Reps from the blog drove the car around
Underlying capabilitieseither singly or in combination Judson College in Alabama and concluded that Tata will
can be leveraged across different markets far more easily need to significantly improve the comfort level in the car.
than is the case with end products or services (look at Students all asked where the iPod connector was and why
corporate intranet searches powered by Google). They can there werent any cupholders. Those sorts of features
also be upgraded and/or combined with new capabilities would be a part of the program if the car actually gets
to create entirely new products and services (this is how the official green light. Thankfully, Tata Motors designers
the iPod led to the iPhone/iPod Touch).67 have time to iron out these details, because any potential
According to Gupta and Wang, many companies over- U.S. launch is likely to be years away.71
look this aspect of global production and marketing. Tata Optimists suggest that there is a big segment of
Motors, on the other hand, shows a grasp of this concept American consumers for whom Nano will be a just good
in establishing the Nano as a platform for further growth. enough car since they do not need any fancy features.
While competitors are struggling to develop low-cost For example, Volkswagen built millions of Beetles for
models for the Indian market, Tata has now broadened its people who wanted a car for a simple reasonto avoid
plans and will bring its low budget car to other markets, walkingand this car became very successful on the mar-
including Europe and North America. As a start, it will ket since it resonated with the needs of a large consumer
begin selling its car in Nigeria in 2010. Tata is talking segment that was looking for this type of car. As inexpen-
about launching upgraded models of the car at about sive as Nano would be when entering the U.S. market, it
$8,000 in Europe by 2011 and in North America by 2012. might challenge not only new car models, but also the
(The Nano has already passed European crash-test safety used car markets, since the American consumer would
standards.) The company is reportedly also working on have the ability to buy a new Nano model for the price
hybrid and all-electric versions of the Nano.68 of a used car. This purchase alternative may be another
The entrance of Tatas Nano into European and U.S. benefit attracting the economy-driven consumers in the
markets may be potentially devastating to financially stran- U.S., especially in times of prolonged economic crisis and
gled automakers such as Ford and GM. As Gupta and Wang rising gasoline prices.72
have pointed out, viewed from the lens of underlying capa- After making a strong debut, in late 2010 Tata
bilities, the Nano is not just a particular type of car designed announced somewhat disappointing sales figures for the
for the peculiarities of the Indian market. It is also a bundle Nano. In November 2010, just 509 Nanos were sold,
of proprietary technologies, supplier relationships, and a despite brisk sales for more expensive cars. Mercedes
mindset that prizes frugal engineering. These capabilities, sells more than 500 cars a month in India. After selling
when applied to the needs of the rich European and North nearly 10,000 cars a month through the summer and early
American markets, could easily result in an upgraded car fall of 2010, sales dropped off when stories circulated that
that may sell for, say, $8,000 and give a competitor whose some Nanos had caught fire and other tales were related
product sells for $12,000 a run for its money. As global of poor service and performance.73 In an effort to coun-
auto companies look at the Nano, the question they should teract the disappointing sales, Tata announced it was
ask is not whether customers in the rich economies would launching distribution in six new provinces where the
care for such an inexpensive-but-simple car, but whether Nano had not yet been available. Tata also unveiled a new
Tata Motors could show up in their backyards with a finance scheme with 26 local banks with interest rates
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In-Depth Integrative Case 3.1 Tata Nano: The Peoples Car 407

tag? Do you think that the low price automatically

means poor quality? How did Tata Motors address
the quality issue while developing its budget car?
3. What caused delay in Nanos launch? What impor-
tant features of the Indian economic environment
were the key factors that caused the problem? What
does this story teach about risks of doing business
in India?
4. Would you agree that introduction of the Nano to
the world auto market will be setting new trends in
the auto industry, and possibly reshaping the indus-
try? What did Tata Motors teach other automakers
in terms of leadership and innovation?
5. Do you agree that there is a future for low budget
Source: Anugraph Adams. cars like Nano in other markets besides India? Do
you think Tata Motors is going in the right direction
by trying to develop its low cost Nano models
from between 8 percent and 20 percent.74 It is yet too
adapted to European and U.S. markets? How would
early to tell if these setbacks will halt the Nanos penetra-
you evaluate a likelihood of success of the Nano on
tion in India and around the world, or whether they are
the U.S. market? What should Tata Motors do to
simply the natural growing pains of a new approach to
win American consumers?
passenger vehicles that will continue to permeate global
markets for decades to come.

Questions for Review Source: This case was prepared by Tetyana Azarova of Villanova Uni-
versity under the supervision of Professor Jonathan Doh as the basis
1. What inspired Tata Motors to build the Nano? Why for class discussion. It is not intended to illustrate either effective or
was there a need for an inexpensive car in India? ineffective managerial capability or administrative responsibility.
2. What innovative steps did Tata undertake to design
the Nano in a way that would meet the $2,500 price