Case Study Analysis : TATA NANO

What does this picture, brings to your mind..??

His Vision..will it be a reality..?

“To make, a common man drive safe, along with his family, within his budgets”

About TATA’s• A diverse conglomerate with presence in Steel to FMCG• 96 companies, 6 continents• Presence in: heavy engineering, energy, IT/ITES, communications, consumer products, chemicals • Started as TELCO in 1945: A train manufacturer• TATA Mercedes-Benz trucks unveiled in 1954• Entered passenger vehicle segment in 1990, with launch of ‘Sierra’ (SUV)• India’s car-Indica launched in 1998• Indigenously developed mini truck TATA-Ace in 2005• Made the world’s biggest automobile acquisition of JLR brands from Ford motor Co.• Currently world’s 6th largest auto maker • Listed in BSE & NYSE

Year 2003: Rattan Tata visits Geneva motor show – identifies the market potential for a small peoples car, in the lower middle class segment.

Instruction given to the engineering & design team of TATA motors, back home in India, to develop a small, fuel efficient, car within a unit price of $ 2500 ( approx. 1 L Rs. ).

Market research, feasibility analysis done on the project.

Talks with Buddhadeb veteran leader from the W.Bengal, identifies Singur as a possible location.

Just before the launch, compelled to shift manufacturing to Sanand in Gujarat, amid political turmoil.

Year 2008: Launched NANO- India’s small wonder to the world.

Media praises TATA’s for the launch of ‘World’s cheapest car’.

NANO : ‘The World’s cheapest car’

TATA’s Go to Market strategy Goal to sell 1M units annually

TG : Middle class Indian families & college going students

People who want to shift from two wheeler to four wheeler for family travel

Major competitor : Maruti 800 , Alto

Head on collision with India’s thriving second hand car market

Product USP’s

Safety & Comfort The 1L. Car

Fuel efficiency Best car suited for Indian roads & climate

Competitor Analysis Main Competitor : Maruti 800, Maruti Alto. Maruti has the ‘Early mover advantage’ Maruti’s Goodwill as a common man’s car give them the market leadership position Maruti-Suzuki have twice the no. of dealers than TATA Motors Renault-Nissan JV is already in talks for producing a small car Nissan, Bajaj, Hyundai also are on the path to produce a low priced car for middle class segment . Organized & unorganized second hand car marketing companies like ‘Mahindra First choice’, ‘Maruti True Value’, etc

SWOT AnalysisStrengths

Technical know how to develop cars through various JV’s including Daimler, JLR Acquisition

The cheapest car tag

Cost optimized production through the outsourcing model

Efficient utilization of labor

NANO has 21 % more interior space than Maruti 800 ,Alto.

Goodwill for TATA’s among the Indians

Sanand plant is easily accessible by rail, road and near to Jamnagar port

The fuel efficient car

Have cleared all environmental and safety tests

TATA’s strength of managing & turning around companies

Streamlined modular function

Weakness

Poor dealer network of TATA Motors compared to Maruti-Suzuki A unique distribution channel for rural areas is missing Poor dealer margins of just 1 % ( J.D.Power, A.T.Kearney studies) Variable cost of maintenance for Nano is much higher than a two wheeler Indians are always cost conscious, there will be a space for two wheeler in their minds How much will a customer forgo for $ 2500 ? Air-conditioning ? Power steering ? Power windows ? Dual windshield wipers ? Shifting of manufacturing from Singur to Sanand cost TATA’s additional inventory Production cut down to 10,000 units from the expected 40,000 during first few months Could have achieved the economies of scale Dealer margins for spare parts & servicing are much lower than other competitors Perception among customers that ‘cheap price means poor quality’ & ‘Dumping down engineering’

Opportunities

• India: World’s third largest economy by 2020• 2nd largest automobile market after China• Growing Indian Middle class• More than 60 % of Indian’s still don’t own a car• C.A.G.R : 25 %• 30 % export growth annually• A younger Indian demography : 65 % of Indians are under the age group of 25-55 yrs.• Only 25/1000 people owns an automobile• A big gap exists btw the % of market share btw major two players (ref: table 2)• Cheap availability of Indian talent• India’s second position in the two wheeler segment• 10 % two wheeler customers = 50 % share of car market• India’s growing second hand car market• ‘Kit car concept’ : ease of assembly, satellite assembly operations.• CRISIL report : NANO could increase the no. of house holds who could afford a car in India by 65%, Brings down the cost of entry of ownership of car by 30 %

Threats Diminishing Goodwill Sales satisfaction index ranked company below average Reduced PR due to Fire accidents People’s car an environmental nightmare : Thomas Fredman , GREENPEACE reports Continued downturn of stock prices for TATA motors since launch of NANO Rickshaw drivers legal suit to enable them drive NANO under their existing license Almost 90 % of the parts are outsourced, 75 % were single sourced Cost of materials escalated from 13 % to 23 % since launch. Threat of new products from Bajaj, M & M-Reva, Renault, Nissan. Goal of selling 1 M cars annually a distant dream. Extended break-even time Trade union issues/political issues/Legal battles.

PEST ANALYSIS

Political Close watch of political climate across geographies Laws and regulations in various countries : Commerce, trade, labor, etc Regional, national, local political scenarios

Economic Have operations in various economies around the world Sound presence in EU Have capability to gather information and act according to the Economic scenario(ex: Aluminum industry in Kenya Vs. Engine prices)Monitor's currency fluctuations closely

Social

Beliefs , opinions & general attitude of all stakeholders Culture & attitude of people determines the future of a company Ex: Daewoo motor co. Take over : retained all Korean employees & Korean Management JLR deal : retained 80 % of EU employees & dealers

Technological

Have sound technical know-how Indigenously developed NANO, INDICA, TATA-ACE, Commercial vehicles Sound understanding of customer needs & converting them to R & D R & D team includes more than 1400 scientists & engineers Receptive to: change-adapt-evolve-stay competitive

Analysis based on Porter’s 5 Forces

Source :http://en.wikipedia.org/wiki/File:Porters_five_forces.PNG

Competitive rivalry within industry

• Maruti 800 (rural areas only)• Maruti alto• M & M Reva

Bargaining power of suppliers

• 90 % of parts are outsourced• 75 % from a single vendor

Bargaining power of customers

• The least price.• But TATA’s need to hang on with the promise

Threat of new entrants

• Bajaj-Renault JV• M & M–Reva acquisition• More upcoming small car ventures

Threat of substitute products

• Second hand cars• Organized second hand car market