BLUE OCEAN

In today’s overcrowded industries, competing head-on results in nothing but a bloody red
ocean of rivals fighting over a shrinking pool. Companies have long engaged in head-to-head
competition in search of sustained profitable growth, they have fought for competitive
advantage, battled for market share and struggled for differentiation. (Red Ocean)

Blue Ocean Strategy argues that tomorrows leading companies will succeed not by battling
competitors, but by creating “blue oceans” of uncontested market space, where competition
is rendered irrelevant of companies that made competition irrelevant in their industries to
elicit the strategic logic behind Blue Ocean Strategy.

Tata Nano – Tata Motors’ wildly successful four-passenger city vehicle has revolutionized
the Indian car market while proving that cheap does not always mean bad quality.
They were able to produce a quality product and value, innovate by focusing on creating a
leap of value for buyers and for the company and in this case, opened up new and
uncontested market space. Blue Ocean Strategy states that value to buyers comes from the
offering’s utility minus its price, and because value to the company is generated from the
offering’s price minus its cost, value innovation is achieved only when the whole system of
utility, price and cost is aligned
 As the leading automobile company in India Tata Motors achieved what is known as
the cornerstone of Blue Ocean Strategy – value innovation. Value innovation is the
simultaneous pursuit of differentiation and low cost.
 The Nano is the least expensive production car in the world priced just around USD
2,200.

Most families in India have two-wheeled vehicles and predominately drive in the city under
300 km. Recognizing the potential of the industry, Tata designed the Nano primarily for the
Indian market. In the efforts to make an affordable car Tata Motor’s eliminated many of the
non-essential features by not including airbags, air-conditioning, designing a rear-engine that
only has two cylinders, no power steering which is not necessary because the car is so light,
only using three lug nuts on the wheels instead of four, using only one windshield wiper
instead of two, reducing the amount of steel used in the design and depending on lower
priced Indian labor.  
 
As a result the reliable vehicle serves the functional purpose of transportation at an
affordable price – the world’s cheapest car.
Tata Nano project is testimony to the effectiveness of the Blue Ocean strategy when applied,
and how the Nano has carved out a new market segment for itself by lowering costs and
increasing the value on offer to the consumers. This kind of a strategy is a radical departure
from the traditional B-School indoctrination on its products. Dr.Bong listed all the major
management frameworks in the past (like the SWOT analysis, Peter Drucker’s Management
by Objectives and Porter’s five forces), which have all followed an almost military strategy of
defeating the competition. This school of thought aligns itself with the Red Ocean strategy,
where the term strategy is in itself synonymous with competition. But Red Ocean Strategies
often end in zero-sum games with major competitors getting the major market-share, while
smaller players are left to fight it out for the remaining share.

DESIGN

Rear wheel drive.

Taking risk on NVH(Noise Vibration Harshness)
Spacious interiors
Low foot print
Low weight
2 cylinder – 1 valve with 2 sprays- redesigned 3 times
No turbo charge, inter cooling, gasoline direct injection
543-586-624 cc engine- 650 cc tax in india
Cheapest engine in the world
Bench mark in c02 value
Hollow steering column
Height more than maruti
Horizontal rail seating mechanism
Euro 4 emission regulation achieved
Door handles 70% less than cheapest European cars’
Tubeless tires
Instrumental panel on dash board like bikes
Inexpensive brake drums
Lower trim levels
Body designed twice
Floor 10 times
wiper 11 times
no air conditioning in base model, no radio
sheet metal and plastic body
no air bag, manual steering
window by hand

Disruptive innovation
 innovations that improve a product or service in ways that the market does not expect,
typically by lowering price or designing for a different set of consumers.
Automobile was a transformational innovation, it was not a disruptive innovation, because
early automobiles were expensive luxury items that did not disrupt the market for horse-
drawn vehicles. 
Tata Motors revolutionized the global car market with its disruptive innovation strategy.
Tata´s disruptive Innovation of the “People´s Car” has turned the automobile market on its
head, and has resulted in a paradigm shift.
Tata´s used the innovation consciously and sacrificed some performance in order to be able
to radically reduce the costs and the selling price. According to available information the car
will have four seats and four doors but it will only be propelled by a 660 ccm rear-mounted
diesel engine with 30 horsepower. The maximum speed is said to be 64 kilometers per hour.
Targeting - The target group of Tata´s disruptive innovation of the “One-Lakh-Car” was not
the already existing car drivers but rather the millions of Indian motor bike and motor
scooter drivers who could not afford a car or would have to wait another 5-6 years to save
money to buy one.
While each year 6.5 million motor bikes and motor scooters are sold in India, up to now only
1.3 million cars are purchased every year. The conversion of motor bike and motor scooter
drivers into car drivers therefore represents a huge market potential.
With its four wheels and the protecting body, this disruptive innovation will open up a totally
new world of safety and comfort for the Indians that have driven motor bikes and scooters
so far. This is how Tata´s CEO Ratan Tata explains his innovation strategy.
INNOVATIVE MARKETING
The Rs 1 lakh car, which broke new ground in design, engineering and production processes,
will opt for "cost-effective and innovative use of media," say people with knowledge of the
Nano marketing strategy.
To make the car more easily accessible to people, the Tata Motors team will sell the Nano
not just through Tata car dealerships across the country, but also through conventional retail
outlets like Westside and Croma which will display the Nano and also take bookings. Also
available will be a whole range of Nano merchandise like baseball caps, T-shirts and key
chains, among others.

Advertising
The Nano's overall marketing strategy will use conventional media in an unconventional
manner. Unlike most small cars, (Nano won't be big on advertising. There will be no TV
campaign, only innovative use of print, radio and other media, particularly the web. The Tata
team is working on Nano news in papers, Nano breaks on radio, Nano appearing in the form
of messages or ticker news on TV, online Nano games, Nano chatrooms on the Net, Nano
pop- ups on major websites and Nano conversation on Facebook, Orkut and blogspaces).

According to people in the ad industry with direct knowledge of the Nano's marketing
strategy, the campaign will be cost-effective and innovative so that Nano becomes
synonymous with anything "small, cute and brief." "The idea is to make the Nano part of our
everyday lingo like 'see you after a nano,' it's a totally word-of-mouth campaign," said a
person familiar with the Nano marketing strategy.

Tata Nano – From Case

 Segmenting the ULC (Ultra Low Cost) Segment
 Targeting audience

Market competition: Maruti Cervo, Renault Nissan and Chrysler

Tata Branding
 Converting from TELCO to Tata Motors, became the first Indian industrial company
to be list its ADR shares on NYSE.
 Acquisition of Jaguar, Land Rover
 Distributor of fiat cars in India

Brand Positioning
 Targeting JLR in the premium and luxury car segments due to high price range.
Brand Recognition
 Supplier reactions when Tata asked for supplies on a low cost car.

Other Positive Factors

 Independence of decision making to BOSCH. No specs provided.
 No defined deadlines to meet unlike other projects where layouts and targets are
clearly defined
 Negotiations at the lowest levels.
 Distribution and booking through non traditional channels
 Advertising through ticker banners, ticker tapes etc. Making Nano as a generic word
for anything small
 100% booking amount upfront with 55000 customers willing to retain their
investment in the brand.
 More bookings for high end variants rather than the simple 1 lakh car
 Major bookings outside the 5 metros
 People waiting for word of mouth feedback. Hence, Expectations of even more
bookings in the next rounds

Innovation at work : reduced parametes to decrease complexity in design and hence cost.

Cost Cutting measures :

 hollow steering column, 10% fewer components
 Costing measures adjustments for adjusting prices to restrict the overall

High motivations for the teams: Visits by Ratan Tata himself for testing every month at Pune
plant.

Tata Singur controversy: Plant 95% complete, Rs 15bn at the site. Shifted to sanand in
Gujarat. Offered 75% relocation to suppliers

Market potential
 Global Strategies for taking the car to US.
 India as an emerging market for multiple players giving rise to market competition in
the near future. Renault Nissan , Ford, Toyota etc

GYM NOTES
Strength
 Market leader in Automobile Industry
 Involvement of top management directly
 Employee productivity percentage is higher.
 Low price car- the least ownership cost per person, even lower than a two wheeler
 low fuel consumption
 Style and eco-friendly: car with minimum no of footprints
 Supply chain
 Learning from the Ace
 Dedicated R&D team-strong focus
 Expansion strategy.
  Tata Nano hype-saved on advertising cost
 Leveraging the Tata name-helpful in relocating, ease of getting suppliers
 First mover advantage- Blue Ocean
 Parking space
 Customer perceived value: Feel like a brand ambassador, social status
 Interim plant in uttrakhand

Weakness
 Compromise on quality- manual steering, no airbag, weak brakes, plastic adhesive
instead of welding
 Low capacity, not being able to able to meet the orders
 Problems with relocation-problems in Singur for land acquisition
 Lesser on power
 Lacking a distribution model led to increase in costs
 Only 3.35 of Tata cars are exported, to will require tweaking the model too much to
meet international standards
 Time value of money keeps increasing, therefore the claim 1 lakh car becomes
hollow

Opportunity
 Markets they can expand to- after car markets, cabs
 Breaking down the distribution-disassembled kit
 50% customers ordered the LX version, build on it and increase the comfort quotient
 Targeting the two-wheeler segment, 2nd car owners and

Threats
 Traffic congestion
 Costs may increase in future
 Competition- Renault Bajaj and Maruti Cervo
 Bad impression due to late delivery
 Security standards may falter and create problems
 Over/under estimation of capacity

STP
Segmentation
 Creation of a new segment
 Those who want to upgrade from a two wheeler

Geo: Rural and Tier 2

Dem: Income level SEC B, family size-4
Behavioral: Eco friendly, user status
Psychological
Targeting
Executive, 2 wheeler segment, second car owners, low and middle income level
Positioning
People’s car , eco friendly, egalitarian,
Ansoff Model: Tata Motors

Porter's five forces is a framework for the industry analysis and business strategy
development

Suppliers:
The bargaining power of suppliers depends on the no of suppliers and .
It’s a high because 85% of component composition is outsourced and they have stiff
cost targets.
Bargaining power of customers:
The bargaining power is low for the moment but may increase in future as
competiotion increases
Threat of new entrants:
Very high
Threat of substitutes:
Two-wheelers (cost is still much lesser than the Nano)
Competitive rivalry
 Strategy
Global : apply Ansoff: Existing product and new product

PORTER’S FIVE FORCE MODEL

1. Threat of New Entrants:
 Market growth rate of 20-25 % so new international players like Volkswagen,
Toyota, Nissan and Ford.
 New players plan to differentiate their products through competitive pricing and
additional features like added space, fuel efficiency and better performance
 New entrants in this category need to address various challenges such as
inflation, low-price barriers, substantial changes in raw material prices, and
government regulations
 It takes 4 to 5 years and a huge investment for a car maker to design and build a
low cost car, which itself has low margins. So, there is threat of new entrant to
Nano in the long run.

2. Rivalry Among existing Firms:

 Maruti is planning to first slash the price of its best-selling model 800cc Alto
which is priced at Rs2.3 lakh
 The Nano is alleged to have severely affected the used car market in India, as
many Indians opt to wait for the Nano's release rather than buying used cars,
such as the Maruti 800
 Some companies such as Bajaj and Renault-Nissan is working on a much less
priced car and companies such as Maruti will think of reducing the price of their
small cars.

3. Threat of substitutes:
 The threat of substitute for Nano car is that of electric car, the new entrant in
the small car sector is the Morbi-based world famous clock- maker Ajanta group.
Planning to launch an electric car at RS 85000
 Another player in the small car segment, the Rajkot-based Field Marshal group,
is in negotiations with Australian company Farnow Technologies for a joint
venture for a low cost electric car
 Since two-wheeler owners are used to getting 60-70 km per litre, as compared
to the Nano's 20+, the cost of ownership of a Nano is likely to be far higher than
that of a two-wheeler
 One time investment of buying car can be done by the lower income group
people but it will be difficult for them to overcome maintenance cost and cost of
running i.e. fuel these people would like to remain in bike segment only.
 high threat of substitutes for Nano as electric cars trying to keep prices lower,
less cost of running as a product differentiation.

4. Threat of bargaining power of buyer

 Tata Motors has to work out their strategies to meet the challenges of sales and
after-sales
 Meet high demand and advise first time users about running and maintenance
of the car
 after-sales service quality will need to live up to the consumers' expectations
  With no alternative yet for lower income groups so buyer does not have any
power now but with the advent of new players and options in the market buyers
will have more power.

5. Threat of bargaining power of supplier

 For Nano about 60 suppliers spent about Rs. 500 crores to locate on the Singur
complex. Suppliers have said that they have the capacity in existing plants to be
part of the Tata Nano launch, if the Tata plant moves to Pantnagar, or even
Pune. Other suppliers are willing to stay, put and use their sheds as warehouses
to store the components.
 The company said most of its vendor relationships are covered by a “bill
marketing” system, where Tata’s bank makes payments to the vendors, and Tata
Motors pays the bank.
 Tata Motors had set up a so-called suppliers’ council to address several issues,
including delayed payments that were causing friction between the auto maker
and its parts’ suppliers.
 Rather than a threat to Nano, suppliers were supporting Tata Motors for launch of
Nano and there are overall thousands of suppliers to TATA Motors.

IS NANO A RISING THREAT?

 In the next couple of years, more than a million of Nano’s are expected to be on the
road. In the wake of more competition more cars will come on roads and lead to
congestion.
 Today, light duty vehicles account for more than 10 percent of global carbon
emissions. As Asia, where Tata Motors are aggressively promoting its Nano,
accounts more than 60 percent of the world's population, the contribution of carbon
emissions from light duty vehicles is set to increase swiftly.
 a car leaves twice the harmful particulate matter compared to a two-wheeler and
four times more compared to a bus or a truck.
 With increase in no of cars consumption of fuel will go up increasing fuel prices and
running nano will not be a cheaper option then.

WHAT SHOULD CAR MAKERS DO?

 New entrants in this category need to address various challenges such as inflation,
low-price barriers, substantial changes in raw material prices, and government
regulations, for example vehicles above 650cc pay excise taxes in India, but with
624cc engine, the Nano is exempt.
 It takes 4 to 5 years and a huge investment for a car maker to design and build a low
cost car, which itself has low margins. So the manufacturer should look for long term
investment and sustainability.

CASE ANALYSIS (FIGURES and STATS)

Why ULC should purchase NANO??
As per the details given in the exhibit 8 , we can see that even though the ownership cost
per kilometre(OC/Km) of executive bikes is less than nano, but nano is fulfilling the dreams
of large chunk of Indian population who cannot afford to buy a four wheeler.
Providing much needed safety, sense of ownership, increasing the social status .
Also when compared with 3wheeler passenger carrier , OC/Km of nan0 is marginally above
than 3wheeler. So it becomes a bigger incentive for 3wheeler buyers to go for tata nano.
Also the ownership cost per passenger per km (OC/P/Km) of tata nano is just half than the
two wheelers. So if the ULC have certain apprehensions about the long term benefit of tata
nano, they should understand the fact that tata nano is much cheaper investment than
2wheelers which is going to change their lifestyles.

Tata Nano- An option for 2nd car buyers:

Tata nano is a much better option, the OC/km of other car small cars is atleast 50% higher
than tata nano and OC/P/Km of nano is about half thn the other cars

The dynamic and powerful ultra-low-cost car market is forcing manufacturers and suppliers
to decide between two strategies.
The first is to preserve their brand and market positions and protect them against new
market entrants, current competition and future price pressures.Established suppliers opting
for this stance risk falling into the “low-cost trap” between manufacturers and their new
component standards and lower target prices. A new set of low-cost competitors will
emerge with the potential to enter mature markets and capture market share from the
domestic suppliers, forcing existing participants to protect their positions.
The other choice for manufacturers and suppliers is to participate to capture share in the
fastest growing segment of the industry and prosper by being leaders in developing the
market. We believe first movers will have the opportunity to capture market share and build
consumer loyalty.

TATA MOTORS STRATEGY WRT NANO

Tata Motors, for example, used this approach to develop the Nano, the world’s least
expensive automobile, by adhering to four guidelines.
1. Cooperate with suppliers. Tata began the development process with 600 closely
integrated suppliers; only 100 remain. Independent suppliers provide 80 percent of the
Nano’s components, and 97 percent 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.

2. 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. And the car’s wheels are attached with only
three lug nuts to reduce cost.

3. Invent rather than adapt. Tata encouraged its design and manufacturing suppliers to
be innovative—to redesign parts for a simple and less capital-intensive manufacturing
process, and develop new ways to sell and distribute the Nano. In fact, suppliers were
forbidden to adapt carry over parts from other Tata vehicles for use in the Nano, and in
some manufacturing operations, such as welding, engineers opted for cheaper manual
processes rather than automated ones.

4. Standardize at every stage of the value chain. Similar to Henry Ford’s apocryphally
attributed “any-color-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 reflects its innovative heritage, too. The company plans to mobilize large
numbers of third 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 will produce vehicle modules that are then sent to a number of
strategically positioned satellite mini-factories, where the Nano will be assembled and then
delivered to the buyer. A central warehouse will stock spare parts and accessories.

The clean-sheet approach offers another significant advantage: innovation in product

design, manufacturing and distribution. As innovative product designs make their way down
the segment tiers, manufacturing innovations will make their way up the same tiers. For
example, anti-lock braking systems and airbags will find their way into low-cost cars while
efficiency measures and cost improvements are transferred into more expensive vehicles. As
powerful a tool as the clean-sheet approach is, however, it does not assure success in the
marketplace. A product designed to minimums will be vulnerable to sharp increases in
commodity prices that slow the creation of new parts and threaten margins. The challenge
will be to further reduce the cost of a product when there is very little wiggle room to do so.

Success will be volume dependent, with margins held to the low single-digit range.

GLOBAL PERSPECTIVE
It’s an obvious question: Will the ULCC segment target consumers in the world’s two most
affluent markets, Europe and North America? The answer—two answers, actually—is not so
obvious. We believe European consumers can expect to see an ultra-low-cost car entry, but
not soon. North American consumers will probably not see any. The costs of regulatory
compliance and distribution could drive the sale price up 60 to 90 percent. Three
overarching factors will shape the ultra-low-cost car’s future in both markets:
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. Autos 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 ultra-low-cost cars will
encounter few, if any difficulties, in meeting those standards. As European and North
American governments continue to establish higher standards, there will be compliance
issues.
Distribution. Bringing a ULCC to the North American or European market will result in a
significant price increase. The $2,500 target base price of the Nano, for example, could jump
to more than $4,000, with conversions to meet government regulations. With logistics,
marketing and promotions, manufacturer-dealer profits, tariffs, account destination fees,
and taxes bumping the final cost upeven further. Applying the same percentage increases to
an ultra-low cost car at the highest price point in the category—$5,000—results in a North
American or European sales price of more than $9,000.
Introduction
 Widely touted as the cheapest car in the world, the Nano was scheduled to be
available in September 2008.
 In addition to paying (Indian rupees) INR1 lakh—equivalent to INR100,000—buyers
would also have to pay 12.5% value-added tax along with charges such as road and
transportation taxes.
 It displaced Maruti Udyog’s Maruti 800 as the world’s smallest car, yet its seating
room was 21% greater than the 800’s

Used cars
 In the months leading up to the Nano’s highly touted launch, used car sales in India
had fallen considerably. The price of a used Maruti 800—arguably the Nano’s closest
competitor—fell 30%,
 Just months before the Nano’s launch, rickshaw drivers had begun filing petitions
through their union requesting that they be allowed to drive the Nano under their
existing threewheeler permits.
 Tata elected to shift production to another facility, and to reduce its initial run from
40,000 to 10,000 cars per month during the first few months of production.

In all, 90% of the Nano’s components were outsourced, and about 75% were singlesourced.
“The on-road price for a Nano is expected to be in the region of [INR]1.3 lakh. This brings
down the cost of ownership of an entry-level car in India by 30%, making a new car
affordable to families with income level of [INR]2 lakh,
 Future Aspects:
Confidence in the Product
If Ratan Tata too were confident that Bajaj will not be able to make a car like the Nano with
the given sales, then why cash on sales now?
Wouldn't expanding now and letting the competitor fail when your product is high be a
better marketing strategy? I mean If Nano had moderate sales and not high in 2014, with
Bajaj(completely new in the car segment) coming with a new product which fails, wouldn't
Ratan Tata have an added advantage for people to go in for Nano then ?

I think a bigger threat to Nano should be the shortly coming Maruti Cervo because Maruti is
THE ONLY name that could compete with Tata when it comes to Indian manufactured cars.

Some things are made to stay for longer. Look at Maruti 800. It came into the market in 1984
and did not receive competition until the likes of Hyundai Santro stepped in by 1997-98
( market dominance for more than 12 years). What I mean to say is that if Tata does increase
the capacity and sales for now, what is the picture once competition steps in? Will it have
the same amount  of sales as it would achieve at this point of time? Definitely No.
Going by the growth rates, which will remain consistent for the entire market, what we are
looking at is the market share being divided in the coming years. So boosting sales now is
not a good long term sustainable option.

If we say that it increases its production at this point to meet the demand, we are restricting
the overall motive of bringing such an INDIAN PEOPLE's car into the market. I mean, are we
assuming that India will certainly become developed and income levels of people would
raise.. Nano targets people majorly in the segment who are willing to shell out some extra
bucks over buying a 2-wheeler automobile for themselves. Its not easy for people in rural /
sub-developed towns to jump from 1000$ 2 wheeler to a 5000$ car for comfort. The overall
motive still remains to be the Family car. 

As far as the expansion of the company is concerned, the company should slowly expand
while delivering products to the existing market. The supply should remain slightly less than
the demand to avoid excess stocks at the end. As long as Tata is certain to be a monopolistic
player, there is no worry for it to fear about customers switching to different brands.
However, the company should subsequently expand and enhance its production in case of
incoming strong rivals like Maruti.

B FILE
A.1)They have the capacity to increase the output to 350,000 with a
marginal investment
2)The total market initially was estimated at 1 million (assume that
this was in 2005)
3)The closest real competitor is Bajaj with the backing of Renault
Nissan, who is looking at 2012 to launch the product, given the
typical beaurocratic nature of the country, they wouldnt be able to
start bulk manufacturing anywhere before 2014 and by that time they
would most probably not able to deliver the vehicle even at $3000,
Tata could do it because they are too big a thing, Bajaj may not be
able to do that

4)Even if we consider that Bajaj starts bulk production in 2014 Tata

has 4 years to sell a hell lot of Nanos(4*350000), which is 1.4
million cars
5)Even if we consider that the demand grew thrice in the 9 years since
2005, the market left is only 1.6 million, for which Nano can give a
good competition for Bajaj

So bottom line is, stop expanding, try to make some cash, make hay
while the sun shines

B.I dont think we can say that Nano is a sucess with the customers. Yes
it did create a hype, but that is ONLY because of the price. While lot
of automobile critcs praise Nano big time, there is a lot of negative
reviews as well. So what if the product fails? because of quality
issues with Nano?

BTW was just doing some calculations and the results are extremely
optimistic.. ie, if you consider a 30% yoy increase in demand on the 1
million prediction in 2005, you will have a demand of about 13 million
by 2015. even if you tone it down to 20% yoy increase (which is
reasonable given the rate at which India is growing), the demand would
be around 6 million by 2015 .. This actually goes against my arguement
of no expansion though :D,

My point is Nano should sell continuously for a period of 6 months- 1

year at the current max installed capacity before they start
expansions, that will give a bigger sample and will give better
feedback on quality issues with the car

DINESH
by 2020 the growth estimate is around 8mn (exhibit 10) which is a huge figure if tata stays at .35mn
per annum.
considering a  short range i.e 2015 or something the market wud be 1.5mn (again exhibit 10). which
is also a huge amount. BUT TATA SHOULDNT EXPAND TO 1mn annual capacity... !!!
Y???

competetion from nissan-renault n bajaj, maruti, ford, toyota n others who r hugee... !! (though
bijo their market domination is less the engine n all r gr8 for ford n maruti) n maruti is hugggee. so
with these entrants tata will loose easily inspite of its price tag..!!??
Y?? coz if u look at the case there is a sentence where the analysis of 100000 orders tell that ppl r
ready to go for high end nano model by shelling out extra... i.e looking for comfort even in 100000
range...!!
n every where the numbers for ULV is given that is 2500-5000 i.e ppl wud opt for say 5000 car with
more comforts than nano for 2500 which lacks safety, excellence in engine n other compromises.
So nano with the other entrants will lose badly.

But what nano can do is... with a expansion in capacity from 350000 to about 5-7lacs can cater to
different models of nano ranging fom 2500-5000 with added features like ABS, Power
brakes/steering, hybrid tech n blah blah blah... so that it caters to the complete ULC segment
without losing out on its strong point i.e 2500 car...!!!

This is wat i decided to write. Supporting the claim with various data given in the exhibits behind
the case n few models here n there (in the so called marketing gas lang)
But just one point to make...50% of Tata Nano's customers were those who were buying
their second car. Because of that 50% of the sales were for higher end LX model. But Tata
Motors assumes (in the case) that the % of first time buyers who would shifting from 2
wheelers to 4 wheelers(Nano's actual target population) would increase when 2nd and 3rd
phases of orders are launched. Also by that time they assume that average disposable
income of an Indian consumer would increase. At that time focus should be more on
producing $2500 cars.  - 2 wheelers waiting for first reactions.

Q1. Discuss the changes in manufacturing strategy that the TATA’s are working on and
how will this changed strategy help in lowing the cost of the car?

Solution: - Key points to be discussed:-

1. What is a manufacturing strategy?
2. Defining various strategies Tata is working on to manufacture Nano
3. How these strategies influence the cost of the car.

A manufacturing strategy is defined by a pattern of decisions, both structural and

infrastructural, which determine the capability of a manufacturing system and specify how it
will operate to meet a set of manufacturing objectives which are consistent with overall
business objectives.
Manufacturing has now become a necessity for maintaining competitive pricing and
appropriate times to market. The company must decide what its manufacturing strategy will
be throughout the product life cycle. A product that will be sold into an already established
market, with an accepted technology will have different manufacturing needs than a new
product with a new technology in the market.

Tata’s Nano is a new product with a new technology which promises the market of an
efficient car with a very low cost. Let us see the Manufacturing stunts it has used to cut
down cost.

New Market Segment

What Tata is doing is creating a whole new segment and getting the first mover advantage.
They are making the maximum profits by penetrating in the mass market. They found
standardization is best way to make cars cheaper and assembled cheap units in their final
product which could therefore be afforded by middle class families.
Brand Image
Tata is taking the advantage of their brand image and has cut down on all gizmos in the car.
Take an example of cars made in 50's and 60's when cars were like bicycles... a means of
transportation and not a living room. They may also want to introduce version that has only
one bench seat instead of trying to create vehicle for six people.
Purchasing also plays a big role in cost control. They plan to introduce open and transparent
bidding process to avoid corruption in purchasing.

Usage of Composite material

There is more usage of plastic and composite materials which will cut down manufacturing
cost. Increased use of plastic components can reduce the overall weight of a car by as much
as 40 percent, which can go a long way in improving fuel efficiency. In addition, the cost of
tooling plastic is half that of a conventional metal-based tooling system.

Distributed manufacturing
A distributed manufacturing system refers to a control system, in which the controller
elements are not central in location but are distributed throughout the system with each
component sub-system controlled by one or more controllers. The entire system of
manufacturing is connected by networks for communication and monitoring. Tata Motors is
studying the possibility of letting local assemblers produce its low-cost small car, the Nano,
and selling it under their own brand. Tata is changing India’s manufacturing practices. That’s
because the auto maker is asking engineers and mechanics to join together to set up their
own assembly operations to build the Nano.
Tata not only will supply complete-knocked-down kits but also provide the entire assembly
plant, at what it says to be the most economical price. The auto maker will monitor the
quality and reliability of the assembly operation, taking full responsibility for product
liability. Using this strategy, Tata expects to make and sell 250,000 cars in the first year and
up to 1 million annually in the next three to four years.

Tata Motors is going all out to strengthen its distribution channels so that the people’s car
would be a success. It is being said that Tata Motors is going ahead with its distribution and
financing plans for the Nano car. Tata Motors is implementing a ‘hub-and-spoke’ model for
Nano’s distribution, which would mean that it would involve increasing dealership points as
well as adding sales and customer touch points. As per the plan, the Tata Nano dealers in the
cities would play the role of hubs. They in turn will undertake the effectiveness of other sales
and customer touch points, which would play the spokes. In terms of manufacturing strategy
- the possibility of the 1-lakh cars final assembly being done at the dealer point is truly path
breaking.

Economies of scale
Economies of scale are the cost advantages that a business obtains due to expansion. They
are factors that cause a producer’s average cost per unit to fall as scale is increased.
Economies of scale may be utilized by any size firm expanding its scale of operation.
The common ones are purchasing (bulk buying of materials through long-term contracts),
financial (obtaining lower-interest charges when borrowing from banks and having access to
a greater range of financial instruments), and marketing (spreading the cost of advertising
over a greater range of output in media markets). Each of these factors reduces the long run
average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve
down and to the right. Tata is counting on this economies of scale and "careful sourcing of
materials" to keep prices down.

Modifying the Traditional Pricing System

Tata is also working on the strategy of reducing costs and waste to improve profits by
implementing a new style of pricing than the traditional way of pricing of automobiles.
Traditional way: - (cost plus, cost price + a markup over cost price = SP and the markup is
their profit). Tata Nano strategy is cost minus (SP-cost = Profit). More cost reduction means
more profit. This means Tata’s will continue to squeeze suppliers.These unusual
manufacturing strategies will enable Tata to meet increasing demand. Thus all these
strategies contribute to the lowest possible price showcasing Nano - Small Car Big Dreams!

Q2. What kind of market structure is TATA facing, specifically in this 1 lakh car segment? If
you think there is any competition name the competitor.
Solution: - Key points to be discussed:-
1. Various market structures in brief
2. The kind of market structure Tata Nano is facing
3. Prevailing competition to Tata Nano

There are four basic types of market structures under traditional economic analysis which
are:-
The elements of Market Structure include the number and size distribution of firms, entry
conditions, and the extent of differentiation. The main criteria by which one can distinguish
between different market structures are: the number and size of producers and consumers
in the market, the type of goods and services being traded, and the degree to which
information can flow freely.
Automobile industry in itself is a differentiated oligopoly market. In differentiated oligopolies
companies attempt to differentiate their products from those of their competitors.
Essentially, Oligopolies have a few key players in an industry that can cooperate to
effectively form a monopoly or at least approach the level of a monopoly. Automobile
industry typically has barriers to entry which deter newcomers from starting up businesses,
keeping the market small. In the case of an automotive company, costs are a large barrier.
Who exactly has the money to throw around on a factory, national advertising, labor pool
with benefits, repair structures and mechanical warranties etc will jump in an automobile
industry.
But the case of Tata Nano is different in terms of its price. Currently it clearly enjoys clear
monopoly in the world market. Let us see how.
If there is a single seller in a certain industry and there are no close substitutes for the goods
being produced, then the market structure is that of a "pure monopoly". A monopoly should
be distinguished from a cartel in which several providers act together to coordinate services,
prices or sale of goods. Although there are innumerable small car manufacturers, currently
Tata Motors Ltd. long-awaited Nano the “people’s car” stands out as the only car
manufactured around the globe with the cheapest price. Tata says it has filed 34 global
patents for the vehicle’s platform.

A monopoly is said to be coercive when the monopoly firm actively prohibits competitors
from entering the field. Economic barriers include economies of scale, capital requirements,
cost advantages and technological superiority. Monopoly is the result of access to key
resources, which may be either natural resources or some patented process or special
knowledge. New firms cannot enter the industry without access to those resources. The
Nano technology which includes the above factors will make it difficult for new entrants. A
monopoly is a price maker as it holds a large amount of power over the price it charges. Tata
Nano is the only car in the world which has been priced with a starting rate of Rs.134000.00
for the Base model and Rs.160000.00 & Rs.185000.00 for the CX & LX model respectively.An
existing competitor is the Maruti 800 which is trusted and consumed by a big share of Indian
market. Although Nano is cheaper than the Maruti 800, its main competitor which is next
cheapest Indian car priced at 1,84,600.00 Rupees, Maruti 800 is the car which is around for
many years and is still going strong. Maruti Suzuki will most probably bring down the price
further to attract the customers. There are also rumors of Maruti Suzuki introducing a lower
priced version of Alto to counter Tata Nano. Customer votes say this car is much more
reliable than Nano as it is the best one can say for the city rides and easy to maintain in
traffic. But still Nano proves to be better. Nano is 8 percent smaller in exterior size and has
23 percent larger interior space in comparison to Maruti 800. Now news is spread about the
RENAULT YENI. RENAULT YENI will be launching in India in collaboration with Mahindra. This
Car is launching in India only for Rs 1, 30,000. Now how far this car proves to be a truth or a
myth depends. But if it is a truth than the competition for Nano from RENAULT YENI will be
much more than the Maruti 800. Besides rival car makers including Bajaj Auto, Fiat, General
Motors, Ford Motor, Hyundai and Toyota Motor have all expressed interest in building a
small car that is affordable to more middle-class consumers in emerging markets.