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Tata Nano – The People’s CarMaking the bet..
Carla Kingston
Marc Nisbet
Lindsey Fair
Otilia Vides-Alfaro
Overview of the People’s Car
•World's Cheapest Car
•Only made & sold in India currently
•Launched in 2009
•Designed and manufactured by Tata Motors
What makes it so cheap?
Other Tata Products
Tata's Market Share
Commercial Vehicles
Passenger Vehicles
PESTLE AnalysisPolitical •Tax reductions applied to the specific vehicle segments (utility vehicles and multi-purpose vehicles)
•The growth of exports in the industry are strong specifically in Asia and Africa
•FDI rules have been left quite open to allow business to prosper in the country
•Labour regulations should be closely monitored specifically if doing business with other countries (i.e. any acquisitions, joint ventures)
•Different parts or regions of India offer incentives such as tax and excise duty benefits
PESTLE AnalysisEconomic/Financial •Fastest automotive market in Asia
•Global recession had an impact on the industry and caused for funding to be limited, this would also have an impact on plants that have employees being represented by unions, and therefore eliminating jobs due to low productivity
•Pricing and currency would have an effect on the production of vehicles and would define on its worth of exporting to other countries
PESTLE AnalysisSocio-cultural •India’s population 1.14 billion
•The focus to shift on how to serve the bottom of the pyramid is quite crucial as they represent about 250to 300 million people of the Indian population
•By 2020 disposable income will grow significantly allowing the population to have a greater purchasing power
PESTLE AnalysisTechnological
•India has approximately 4 million vehicles on Indians roads, this shows that infrastructure is there and has a potential for the industry to grow.
•Qualified engineers in India have allowed the industry to focus on R&D initiatives and focus on how to build innovative products
Legal
•The end result of the production of a vehicle has to follow regulatory and safety requirements •In India, the requirement is to achieve Euro 4 emission regulation •Numerous patents related to 'small' car
PESTLE AnalysisEcological
•This industry is building vehicles that are environmentally friendly, which would mean that if a product is cheap it would not attain such requirements. Depending on the country, in this case India there is a specific environmental requirement, and if not will it meet the needs of other countries (the rest of Asia and Africa).
5 Forces Analysis
Threat of New Entrants
•Extremely High Risk in the ultra low cost car segment
Suzuki 800 is already on the marketFord will release at car for $7,600
Toyota will release a car for $10,826Hyundai will release a care for $3,700Dodge will release the Dodge Hornet
Renault Nissan will release a $3,000 car*everything can be duplicated
5 Forces Analysis
Bargaining Power of Buyers
•Moderate Risk
Buyers already forced the closer of one location due to uproar of farming community
With more options being released on the market the customers will have the power to insist on more value added options while going for
low pricing.
5 Forces Analysis
Threat of Substitutes
•Moderate Risk
Walking2 wheel vehicles
Car pooling/sharingAs India’s economy continues to grow a public transit
system may become an option
5 Forces Analysis
Bargaining Power of Suppliers
•High Risk
70% of the suppliers are local and can easily supply the same concept parts to the other manufacturers
Suppliers were heavily involved in the design process of the Tata Nano
Increased demand for parts may result in higher prices
5 Forces Analysis
Rivalry Among Existing Competitors
•Extremely High Risk
It appears that both Hyundai and Renault Nissan are in the same price bracket and making a play for the same target customers
With respect to the Tato Nano going to the US, in order to meet stronger regulations the price will increase and there is already a large supply
of low cost vehicles in the US.
Value Chain Analysis
Firm InfrastructureProduction and warehousing..
Human Resources
Technology
Operations
Lateral recruits + Ravi Kant - marketing
Tata owns tech companies + Strong focus on R&D (2000 engineers)
Strangle hold on inputs for their suppliers
InboundLogistics
Opportunity to learn to access b-o-p
Protected satey of suppliers
R & D
Development of unique drive train
Product
Two cylinder engine, drive train
Rear engine
MarCom
80% of segment chose higher end models of the Nano
Sales / Delivery
Customers pay upfront to book a Nano
Service
156,000Cars on back order
Lost ¼ sales
Profit?
Win-win relationship with suppliers
Cheapest location + supplier co-location
Building on success of ACE
Innovation culture – weekly meetings
Unique features
Cheapest of the low cost cars by 37%
Reliable + fuel efficient
Missed Segment needs
Shaky price point
Promo: 1 lahk promise220 M value
Pre-booking
Traditional delivery
Distributed manufacturing?
Poor response time to customer needs
Diversified Suppliers
Pricing Strategy
Cost Leadership StrategyTrade-Off Concept Strategy
Price Penetration Strategy (vs skimming)
Double the price ≠ Double the value
TOWSExternal Opportunities• recession / hard economic times• BRIC economy growth• demand for smaller cars (congestion and env’t)• growth of local car buying market• opportunity to expand model to other BRIC
economies
External Threats• fuel costs• recession / hard economic times• head hunters / poachers• volitality and pressure of competition high in
auto industry
Internal Strengths• able to up capacity in previous case so proven it’s doable (pg 4 of case)• brand strength / awareness = strong domestic player 64% market share in India, leader in commercial
market)• first to market advantage R & D (37 patents for Nano, over 3000 engineers)• supplier / partner relationships demand driven• large portfolio with global presence
Internal Weaknesses• Safety concerns• inability to produce products to meet
demand in timely manner • People don't want to buy 'worlds cheapest car, customers want
trendy
TOWS strategies
WO Mini-Maxi" Strategy •Minimize weaknesses, maximize opportunity•Form strategic alliances to ramp up production (W2) and address safety concerns simultaneously (W1)•Have first mover advantage but not able to capitalize on it, they have opportunity, so work on building capacity quickly (W2)•If they can do this, then quickly need to go to ST and minimize threat of competition•Keep low price point, same product focus, change positioning (O1, O3, W3)•seek potential other markets to 'try again' (O2, O4)
WT Mini-Mini" Strategy •If they're not careful they may need to fall toretrenchment strategy or merge so they canquickly change and expand to meet marketdemand / opportunity
Financial Analysis Mar-12 Mar-11 Mar-10 Mar-09 Mar-08
Short-Term Solvency
Current Ratio 0.51 1.02 0.53 1.47 0.44 0.91 0.44 1.51 0.64 0.91
Quick ratio 0.4 0.89 0.54 1.14 0.44 0.68 0.58 1.26 0.66 0.66
Long-Term Solvency
Debt Equity Ratio 0.57 0.07 0.8 0.02 1.12 0.07 1.06 0.07 0.8 0.11
Asset Management
Inventory Turnover Ratio 13.37 22.8 13.86 33.33 13.5 30.47 13.47 30.46 14.44 22.93
Profitabilty
Return On Capital 10.36 13.52 10.19 21.69 10.37 27.89 6.41 17.37 18.96 26.18
Market Value Measures
Earning per share 3.91 56.6 28.55 79.21 39.26 86.45 19.48 42.18 52.63 59.91
Source: http://www.moneycontrol.com Tata
Maruti Suzuki
Case Conclusions
1. Not what they thought. Value Erosion – Egotism & Growth for Growth sake.
2. Ramp Up NOW but unlikely...
3. Exit via merger but probably not viable.... so just....