Wednesday, June 15, 2011

An analysis of Tata Nano: Strategic Options Perspective

The Tata Nano is an inexpensive, rear-engined, four-passenger city car built by the Indian company Tata Motors and is aimed primarily at the Indian domestic market. (Click here for specification) (1). With a price tag of around $2,500.00, Financial Times calls Nano, “a triumph of homegrown engineering. The Nano encapsulates the dream of millions of Indians groping for a shot at urban prosperity.” The total sales of Tata Nano cars from July 2009, when the company started delivery, to the end of April 2011 is 110,794. (2). Analysis of Nano is especially intriguing because the automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 17.5 million vehicles (including 2 wheeled and 4 wheeled) and exports about 2.33 million every year (3). It is the world's second largest manufacturer of motorcycles, with annual sales exceeding 8.5 million in 2009 (4). Tata’s vision, therefore, is to provide affordable cars that can replace motorcycles and Nano to symbolize India’s uprising.

Is Tata Nano a Blue Ocean Strategy (BOS)?

According to Kim and Mauborgne, in a Blue Ocean Strategy, one creates uncontested markets space where the competition is irrelevant, invents and captures new demand, and offers customers a leap in value while also streamlining the cost. Key features of BOS that the authors claim are i) it’s not about technology innovation, ii) it doesn’t have to a venture into a new arena, iii) it never use the competition as benchmark, and iv) its reduces the cost while also offering customers more value.

Comparing the features with Tata Nano

With an introduction of Nano, Tata invented a new industry that combined elements from traditional auto industry with the elements drawn from contemporary needs. Nano is not a technological innovation; instead it is a combination of consumer’s demand and production efficiency. In order words, the rapidly rising Indian middle class group has huge appetite for urban vehicle other than motorcycle. With few modifications in its features such as 623cc engine with only 2 cylinders ,one windscreen wiper instead of the usual pair, non-power steering feature due to its light weight, and absence of radio or CD player or air conditioning, Nano meets Indian consumers’ demand. Amidst a highly competitive Indian automobile industry, wherein automakers are fighting for market share with safety features and other additional features, Nano created its own market offering only basic features yet a modern four wheel automobile. Using readily available low-cost Indian labor, Tata Motors is recording profits after tax of about 6% to 11% despite having material cost of about 80% (5). With over 300 distribution centers around the country, Tata uses its logistics more efficiently than its rivals Ford, Maruti-Suzuki, Mahindra and Mahindra, etc.

Low-Cost Leadership is Nano’s yet another features. Tata makes product differentiation by claiming Nano, “the cheapest car in the world” and with $2,500 price tag, it is already a low-cost leader in the market. Regarding its product design, its sleek look which is more attractive than other smaller cars - Maruti-Suzuki 800 and Ford Fiesta – is holding it’s forth. Nano continuous to make improvement in its operating efficiency – i) Efficiency factor - Improve labor productivity, labor flexibility, and capital efficiency, ii) Resource Availability - Quality manpower availability, infrastructure improvements, and raw material availability, iii) Effective cost controls - Close relationship with supplies and goods distribution channels. The supply chain of Tata Motors is very similar to the supply chain of the automotive industry in Europe and America.

Looking ahead

Tata created a blue ocean within its core businesses. This blue ocean will possibly create its own brand. Instead of trying to beat the competition and steal a share of existing demand from other automakers, Tata Motors reconstructed the industry boundaries of cars to create a blue ocean. It found and developed markets where there is little or no competition and only time will reveal if Tata Motors will exploit and protect its blue oceans.

Works Cited

1 comment:

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