This case has been developed by Prof P Bala Bhaskaran for class-room discussion.

Page 1


Tata Nano Changing the Business Model
Tata Nano is a classic example how business transformation has brought about redefinition in the
product specifications, redefinition of the market segment and opened up vistas of growth for the
company.

The commercial launch of Tata-Nano on 23
rd
march 2009 marked a new milestone in the history
of global auto industry. It was a peoples car primarily for the lower middle-class of India. Even
among the peoples cars that the world has seen till that time Tata-Nano stood out for its
smallness in terms of price-tag but not for its features. The basic model was priced at about INR
100,000 [less than US$2500] and by 2010 it was expected to revolutionize the automobile
markets in Asia and Africa.

Tata Motors
Tata Motors Ltd had its origin in Tata Engineering & Locomotives Company Ltd[TELCO],
established in 1945, by the House of Tatas. It was started as a locomotive manufacturing unit;
later in 1954 it collaborated with Daimler Benz-AG of Germany to make commercial vehicles.
TELCO became a great name for commercial vehicles in India and continued to do so for the
next four decades. The company realized the need to diversify into the passenger vehicle
segment; the market demand was found to be ripe for such a diversification. But the company
could not do so till the beginning of 1990s due to the controlled regime prevailing in the Indian
economy. Immediately after the economic liberalization of the Indian economy in 1991, TELCO
started working on passenger car project. The result was the launch of Tata Indica in 1998, the
first fully indigenous passenger car in India. Indica was an instant success in India; within a few
years, it was exported to UK and Italy.

In 2004 Tata Motors acquired the commercial vehicles division of Daewoo Motors, the second
largest truck manufacturer in South Korea. In 2005 it acquired 21% controlling interest in
Hispano Carrocera SA, a well-known Spanish bus and coach manufacturer. At about the same
time Tata Motors entered into a joint venture with Marcopolo of Brazil to introduce low-floor
buses in India. In 2007, Tata Motors acquired Jaguar Land Rover [JLR] business from Ford
Motors for a sum of US$ 2 billion. Another joint venture was formed with Fiat in Italy [2007]
and gained access to diesel engine technology.

Tata Motors emerged as the largest automobile manufacturer in India. In 2008 its sales turnover
was INR 35652 crores [US$ 8.8 billion at the prevailing exchange rates]. It had manufacturing
plants at Jamshedpur, Pune, Lucknow, Pantnagar and Dharwad. By 2008, there were 4 million
Tata vehicles on Indian roads.

Tata Motors had acquired foreign brands aggressively after the Indian economy was opened up.
It had operations in Spain, UK, Italy, South Korea, Thailand, Argentina and South Africa; it had
joint ventures or assembly operations in Kenya, Bangla Desh, Ukraine, Russia and Senegal.
Despite such global presence, bulk of its sales revenue came from Indian operations only.
Compared to other automobile MNCs, Tata Motors had significant competitive advantage in
terms of labour costs. Its labour costs accounted for 8-9 % of the sales compared to others who
had labour costs accounting for 30-35 % of sales revenues.
This case has been developed by Prof P Bala Bhaskaran for class-room discussion. Page 2


Enter Tata-Nano
The idea of Tata-Nano as the worlds cheapest production passenger car was conceived by Ratan
Tata, Chairman of Tata Motors Ltd, who got his inspiration from the dreams of the large number
of Indian families, who could not afford the passenger cars available in the market, tended to
transport their families precariously on 2-wheelers. The nano car was conceived as the lowest
production cost car so that it became affordable to this segment of the population. While
producing the lowest cost car, Ratan Tata did not want to compromise on the features; the
benchmark was Maruti-800. He perceived that to achieve the twin targets of keeping the cost
low and not compromising on features it will be necessary to rely on in-house engineering
expertise. Tata Motors had started working on these lines from 2003.

Tata Motors had succeeded earlier, in May 2005, in launching the smallest 4-wheeled truck, Tata
Ace, to the delight of the large number of Indian transporters and businessmen who were used to
the 3-wheeled auto-rickshaws for goods transportation. Small businessmen and small
transporters upgraded themselves to be owners and operators of Tata Ace, which gave them
better operational advantage and an enhanced social status at a marginally higher price. This
ensured a huge market demand for the Tata Ace. The experience of handling the technological
and marketing challenges of launching Tata Ace enabled Tata Motors to plan and execute the
product launch of Nano more precisely.

What are the success factors of Tata-Nano? In the first place the product caters to the dreams and
aspirations of a market segment that is huge in size in the Indian context. This ensures a huge
demand and hence scaling up of the production volumes is feasible; this ensures that the
developmental expenses can be distributed over a larger volume thus resulting in lower unit
costs. In the second place Tata Motors focused on technological and design issues in developing
a compact and effective model of the product. The company did lot of work in this area as can be
gauged from the fact that 34 patents have been filed for design-innovations. The company has
engaged well-known agencies from abroad in specific areas. For instance the basic design of the
car was developed by Institute of Development in Automotive Engineering [IDAE], Italy; Bosch
of Germany was engaged to make Fuel Injection system. Thirdly the company has achieved
better networking and supply chain management with its vendors to ensure far better economies
in assembly operations. Fourthly the company has tied up with State Bank of India to finance the
full purchase cost of the customers from the point of placing the order; this ensured significant
reduction in the working capital requirements and consequent reduction in interest costs to the
company.

The Outcome
Tata Motors have opened up a new market segment with a huge population. This mass market
will ensure sizeable domestic turnover in the years to come. There is scope for exports to the
underdeveloped countries in Asia, Africa and Latin America, where the aspiration levels are
similar to those of the Indian middle segment. The resulting volumes of sales would push up
Tata Motors to higher ranking among the global automobile giants.

The automobile and engineering industry in India would undergo a paradigm shift in
technological and commercial terms. There will be a technological revolution with increasing
This case has been developed by Prof P Bala Bhaskaran for class-room discussion. Page 3

number of competitors and increasing technological sophistication. It will throw up
entrepreneurial opportunities in a big way. Dedicated clusters and many newer towns will
emerge apart from the existing smaller towns getting a fillip in their businesses. Tata-Nano could
be a major trigger for the overall growth of the Indian economy.

The phenomenal increase in the number of vehicles on the Indian roads would have its impact on
the levels of pollution. This has been pointed out as a major drawback by critics of Tata-Nano.
Ratan Tata has thought of this aspect too. He has plans to introduce the electric version of the
product and developmental work was already on. He has also plans to launch another version
with compressed air as fuel. The company has engaged Moteur Development International,
France for this purpose. The basic model of Tata-Nano is already designed to comply with
Bharat Stage III and Euro IV emission standards making it an eco-friendly project.



1. Sirkin, Harold L(Feb14,2008): Tatas Nano: An Ingenious Coup.
(http://www.businessweek.com/globalbiz/content/feb2008/gb20080214_228455.htm
2. Sirkin, Harold, L, Bhattacharya, Arindam (June1,2007): India Moves Beyond the Back
Office.), Business Week,
http://www.businessweek.com/globalbiz/content/jun2007/gb20070601_51439.htm)
3. Prahlad CK (2005): Fortune at the Bottom of the Pyramid. Wharton School Publishing,
Pearson Education.
4. http://en.wikipedia.org/wiki/Tata_Nano
5. http://sfgate.comcgi-bin/articlecgi?f=/c/a/2009/03/30EDTK16PF.19.DTL
6. http://economictimes.indiatimes.com/articleshow/4289796.cms
7. http://www.theferrarigroup.com/blog1/?p=534