Compiled Final

8/8/2019 Compiled Final

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BLUE OCEAN

In todays 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

offerings utility minus its price, and because value to the company is generated from the

offerings price minus its cost, value innovation is achieved only when the whole system of

utility, price and cost is aligned

y 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 thesimultaneous pursuit of differentiation and low cost.

y 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 Motors 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 worlds 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 Druckers Management



by Objectives and Porters 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 valueHollow 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 timesno 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 forhorse-

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.





Brand Recognition

y Supplier reactions when Tata asked for supplies on a low cost car.

Other Positive Factors

y Independence of decision making to BOSCH. No specs provided.

y No defined deadlines to meet unlike other projects where layouts and targets are

clearly defined

y Negotiations at the lowest levels.

y Distribution and booking through non traditional channels

y Advertising through ticker banners, ticker tapes etc. Making Nano as a generic word

for anything small

y 100% booking amount upfront with 55000 customers willing to retain their

investment in the brand.

y More bookings for high end variants rather than the simple 1 lakh car

y Major bookings outside the 5 metros

y 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 :

y hollow steering column, 10% fewer components

y 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

y Global Strategies for taking the car to US.

y 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

y Market leader in Automobile Industry

y Involvement of top management directly

y Employee productivity percentage is higher.

y Low price car- the least ownership cost per person, even lower than a two wheeler

y low fuel consumption

y Style and eco-friendly: car with minimum no of footprints

y Supply chain

y Learning from the Ace

y Dedicated R&D team-strong focus

y Expansion strategy.



y Tata Nano hype-saved on advertising cost

y Leveraging the Tata name-helpful in relocating, ease of getting suppliers

y First mover advantage- Blue Ocean

y Parking space

y Customer perceived value: Feel like a brand ambassador, social status

y Interim plant in uttrakhand

Weakness

y Compromise on quality- manual steering, no airbag, weak brakes, plastic adhesive

instead of welding

y Low capacity, not being able to able to meet the orders

y Problems with relocation-problems in Singur for land acquisition

y Lesser on power

y Lacking a distribution model led to increase in costs

y Only 3.35 of Tata cars are exported, to will require tweaking the model too much to

meet international standardsy Time value of money keeps increasing, therefore the claim 1 lakh car becomes

hollow

Opportunity

y Markets they can expand to- after car markets, cabs

y Breaking down the distribution-disassembled kit

y 50% customers ordered the LX version, build on it and increase the comfort quotient

y Targeting the two-wheeler segment, 2nd car owners and

Threats

y Traffic congestion

y Costs may increase in future

y Competition- Renault Bajaj and Maruti Cervo

y Bad impression due to late delivery

y Security standards may falter and create problems

y Over/under estimation of capacity

STP

Segmentation

y Creation of a new segment

y 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



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Strategy

Global : apply Ansoff: Existing product and new product

PORTERS FIVE FORCE MODEL

1. Threat of New Entrants:y Market growth rate of 20-25 % so new international players like Volkswagen,

Toyota, Nissan and Ford.

y New players plan to differentiate their products through competitive pricing and

additional features like added space, fuel efficiency and better performance

y 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

y 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:y Maruti is planning to first slash the price of its best-selling model 800cc Alto

which is priced at Rs2.3 lakh

y 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

y 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:

y 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 A janta group.Planning to launch an electric car at RS 85000

y 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

y 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

y 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.

y 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

y Tata Motors has to work out their strategies to meet the challenges of sales and

after-sales

y Meet high demand and advise first time users about running and maintenance

of the car

y after-sales service quality will need to live up to the consumers' expectations



y 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

y 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 bepart 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.

y The company said most of its vendor relationships are covered by a bill

marketing system, where Tatas bank makes payments to the vendors, and Tata

Motors pays the bank.

y 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.

y 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?

y In the next couple of years, more than a million of Nanos are expected to be on the

road. In the wake of more competition more cars will come on roads and lead to

congestion.

y 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.

y a car leaves twice the harmful particulate matter compared to a two-wheeler and

four times more compared to a bus or a truck.

y 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?

y 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.

y 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 f irst 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 buildconsumer loyalty.

TATA MOTORS STRATEGYWRT NANO

Tata Motors, for example, used this approach to develop the Nano, the worlds least

expensive automobile, by adhering to four guidelines.

1. Cooperate with suppliers. Tata began the development processwith 600 closely

integrated suppliers; only 100 remain. Independent suppliers provide 80 percent of the

Nanos 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 andencouraging 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 cars 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 innovativeto 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 Fords apocryphally

attributed any-color-so-long-as-its-black approach, the Nano offers consumers few

options, and only a few have any impact on the manufacturing process. The Nanos

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 whileefficiency 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

Its an obvious question: Will the ULCC segment target consumers in the worlds two most

affluent markets, Europe and North America? The answertwo answers, actuallyis not so

obvious. We believe European consumers can expect to see an ultra-low-cost car entry, butnot 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 cars 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 NorthAmerican 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$5,000results in a North

American or European sales price of more than $9,000.



Introduction

y Wide 4 y touted as the cheapest car in the world, the Nano was scheduled to be

available in Septe 5 ber 2008 6

y In addition to paying (Indian rupees 7 INR1 lakhe 8 uivalent to INR100,000buyers

would also have to pay 12 9 5@

value-added tax along with charges such as road and

transportation taxes 9

y It displaced Maruti Udyogs Maruti 800 as the worlds s A allest car, yet its seating

room was 21B

greater than the 800s

Used cars

y In the months leading up to the Nanos highly touted launch, used car sales in India

had fallen considerably C The price of a used Maruti 800arguably the Nanos closest

competitorf ell 30D

,

y Just months before the Nanos launch, rickshaw drivers had begun filing petitions

through their union re E uesting that they be allowed to drive the Nano under their

existing threewheeler permits F

y 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 f ew months of production.

In all, 90G

of the Nanos components were outsourced, and about 75G

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 30G

, 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'tRatan 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 isnot 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 thanthe 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 wouldbe 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). whichis 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 onproducing $2500 cars. - 2 wheelers waiting for first reactions.

Q1. Discuss the changes in manufacturing strategy that the TATAs 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 establishedmarket, with an accepted technology will have different manufacturing needs than a new

product with a new technology in the market.

Tatas 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 Indias manufacturing practices. Thats

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 peoples 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

Nanos 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 producers 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 Tatas 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, specif ically 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 anautomobile 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 peoples 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 vehicles 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 morereliable 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 asmall car that is affordable to more middle-class consumers in emerging markets.

Documents

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