To: Mr. Ratan Tata, Chairman TATA Group of companies, India From: ————————————————- Date: Fall 2008 The issue that TATA Motors Inc. is facing right now is to predict the viability of the Project Nano. Also, TATA Motors Inc. wants to know what other steps it can adopt to improve the chances of success for its newest venture- The Nano. Overview TATA Motors Inc. , part of one of the most respected Business Houses in India-TATA Sons INC. , is currently in a phase of producing the world’s cheapest car-TATA NANO.
The company has made efforts in manufacturing a cheap car priced at around USD 2200 (INR 100000-Approximately) while still not forgoing the quality and environmental efficiency of the vehicle. Viability The step taken by TATA Motors to produce a car that would be the cheapest in the world was taken as one of the pivotal decisions in the history of car manufacturing for the past century by strategists. TATA Motors wanted to manufacture a car that would resolve the problems of the ever-growing middle class population in emerging economies specifically India.
The company wanted to compete on the low cost segment and also, with 2 and 3 wheelers in the segment. TATA Motors applied the strategy of vertical integration for the process of manufacturing and assembling the car TATA Nano. This process has helped to reduce the costs greatly and has also, managed to keep up with the modern environmental standards. TATA Motors has also made sure that the new car has passed all passenger safety related tests. TATA Motors faces little direct competition.
The closest competition to Nano is a car called Sitara, in Pakistan which is cheaper than the Nano but does not have the necessary infrastructure that the small car consumer section demands. Further, the Indian Import duty structure which levies an import duty of around 120% on cars imported from foreign nations makes it impossible for Sitara to compete with Nano in India. TATA Motors currently does not face a huge competition from other players in the low cost segment as all other cars in this segment are priced relatively higher.
This is a distinct advantage for TATA Motors as it will take considerable time for its competition to bring to the market a car that is priced as low as the Nano. Also, TATA Group of companies has been seen as one of the most trusted brand in India furthering the advantage for TATA Motors. TATA Motors are predicting a Gross profit of 5. 5% per NANO. The company has managed to not only break-even per car but also make a profit on the world’s cheapest car and thus, this shows a strong sign of viability (Appendix 1). TATA Motors is planning to mass sell its cars and thus, increase its profits on volume based production.
TATA Motors has a plan to sell around 1 million cars in the beginning. The company has managed to increase employment and thus, is also helping the community as a whole. TATA Motors has a very big market as the market for small cars is growing not only in emerging economies but also, in the more developed economies. The customers around the world are buying more cars that are priced lower than ever before. This makes the future of Nano a lot more viable as it has a distinct first-mover advantage in the segment. Steps
TATA Motors can take the following steps to improve the chances of success on its venture TATA NANO: * TATA can launch its Nano in other developing economies like China, Argentina, South Africa and Brazil where there is a newly created middle class population that is very sensitive to price. * TATA should tie up with other companies that have a stronger and larger network of distribution centers in India and other places around the world. TATA can tie up with Maruti Suzuki and thereby gain from the large network of outlets that Maruti Suzuki has built up in India. As the world starts adopting the small car model, TATA Motors can be prepared by completing all safety and environmental tests which will help it to launch the NANO even in the developed economies around the world. * It can increase the price on NANO in the developed economies and use part of these higher profits towards sustainability, thus, improving its brand presence and also achieving its intent towards society. * TATA can extend the credit period of its suppliers by using its highly respected brand name and thus, reduce costs and so, improve its margins. TATA should make sure that it has a strong distribution and order placement system which makes it easier for its customers to place and receive orders. * TATA should predict the demand for the NANO which is to be very high and be prepared for mass production and utilize its highly sophisticated manufacturing process to the fullest. * TATA Motors has a distinct advantage in entering the tourist car/Taxi-car segment in India as the old tourist vehicle/Taxi-Car: the Fiat 1100D is no longer in production and the other alternatives are priced at a very high rate as compared to the NANO. TATA has an advantage in entering the auto rickshaw/Tuk-Tuk segment in developing economies like India, Thailand, Cuba, China, Vietnam, Sri-Lanka and Pakistan as the cost of these vehicles is around the cost of TATA NANO but these vehicles are only 3-wheelers and thus, occupy lesser people per vehicle. Conclusion TATA NANO is a project that will surely be viable in the longer run. Further, it will be a project that will embark India as the biggest producer of small cars in the world. Word Count: 999
Appendix 1. Production Cost NANO Particulars| Cost (INR)| Engine and Transmission| 30000| Body Shell| 9000| Electricals| 9000| Suspension and Wheels| 11000| Interiors| 7500| Post-Manufacturing Tax| 24000| Sales Tax| 4000| Gross Profit| 5500| Sales Price| 100000| 2. Competition Brand| Company| Price (INR)| NANO| TATA| 100000| Citroen CI| Citroen| 513105-667155| Sitara| Habib Motors| 92345| Smart Forfour| Daimler-Chrysler| 576305-1358405| Oka City| Kamaz| 351560| Aixam 751| Aixam Mega| 456456-543400|
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