04. a Dream Called Nano

8/6/2019 04. a Dream Called Nano

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Table of Contents

Sl . Topic Page No.1 INTRODUCTION

i. Execut ive Summary i i . Object ive of the Study i i i . Methodology iv. Lim itat ionsv. Scheme of Work

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5

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2 COST CONSCIOUSNESS

i. Introduct ion to Cost i i . Importance of Cost Consc iousness in Todays

World

i i i . Advantages of Observing Cost Consc iousnessiv. Are Ind ian Manufacturers Cost Consc ious?

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3 AUTOMOBILE INDUSTRY: THE COST EFFECT

i. Automobile Industry and Cost Cutt ingii . Overview of the Automobile Industry in Ind ia i i i . Key Players in the Ind ian Automobile Industry iv. Cost Consc iousness in Ind ian Automobile

Industry

v. Measures Adopted by Ind ian Automobile Manufacturers to Cut Co sts

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4 TATA NANO: A CASE STUDY IN COST CUTTING

i. TATA Motors The Ind ian Automobile Giant i i . TATA Motors Time li ne The Pre-Nano Era i i i . Cash ing In On a Huge Opportunity One Lakh

Car

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iv. The Dream Car TATA Nanov. NANO: How TATA Motors Cut Costsvi. Future Strategy to Ma inta in Costs

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5 THE IMPACT OF TATA NANOi. Nano s Contribut ion to TATA Motors and the

Ind ian Automobile Industry

i i . Impact Ana lysisii i. Rising Compet it ion forthe NANO

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6 CONCLUSION 49

7 BIBLIOGRAPHY 51


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CHAPTER 1:

INTRODUCTION


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Executive Summary

The outlay forany business venture is undoubted ly important but more so isthe consc iousness re lated to it not only to make the venture effect ive but

consc iously effect ive. Idea is to atta in leadersh ip not only by incurring

m inima l costs but a ls o reduce wastages resu lt ing in h igher product ivity,

profitabil ity and greatermarket share. Such measures in todays environment

dom inated by compet it ion on one hand and buyers market on the other are

not only imperative but arguably the essence forany business unit .

For th is paper, the study of cost consc iousness has been he lmed around the

Ind ian automobile industry, be ing the ninth largest in the world and ever

grow ing and in part icu lar the Tata Nano. At the outset, the p layers in the

market have been exam ined a long w ith the strategies observed for cost

cutting /consc iousness.

Thereafter, a deta i led attempt has been made to study the cost control

measures adopted by Tata Motors on its low priced car Tata Nano launched inInd ian markets during 2009 and how these measures are d ifferent from those

adopted by other car manufacturers. Last ly, an attempt has been made to

studythe effect iveness of these measures.

Conc lusive ly, it has been shown how these cost measures have given Tata

Motors and the Tata Nano the add it iona l benefit of greaterproduct ivity and

increase in market share resu lt ing in h igherprofits.


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Objective of the Study

The object ive of th is project is to h igh l ight the need for better cost consc iousness by manufacturers in todays h igh ly compet it ive world . With

increasing number of a lternat ives ava i lable to the buyer, it is necessary for

manufacturers to have the upper hand over compet itors in terms of

product ion costs.

Th is project a ims to study the measures adopted by p layers in the Ind ian

Automobile Industry. Focus has been la id on TATA Motors new sma l l car,

Nano and a study has been done on the measures taken to make the One

Lakh Car ava i lable to buyers.

The study a lso looks at how TATA Motors a ims to atta in greatermarket share

in the sma l l car segment w ith the Nano.


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Methodology

In the quest to study the importance of cost consc iousness amongmanufacturers , the case of TATA Motors Nano has been se lected to provide

an examp le for successfu l cost cutt ing measures.

The ma jorport ion of th is paper is based on data that is secondary in nature.

Secondary data has been collected through the follow ing ways:

1. Website of TATA Motors2.

Published financ ia l reports of TATA Motors

3. Various financ ia l newspapers4. Otherwebsites


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Limitations of the Study

The lim itat ions of the study have been noted as under:

1. L imited Time: Lim ited t ime was ava i lable wh i le conduct ing th i s project . 2. L imited Resources: There is lack of primary data due to lack of

resources.

3. Case Study: Only TATA Motors Nano has been considered as a case study .

4. Coverage: Some aspects may not have been covered in th is paperdueto lack of resources and t ime .


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Scheme of Work

The scheme of work that has been followed in th is project report is as

under:

1. Chapter 2 d iscusses the concept of cost and cost consc iousness. Ita lso d iscusses briefly the importance of cost consc iousness in

todays compet it ive world and the advantages of cost

consc iousness. Th is chaptera ls o addresses the quest ion whether or

not Ind ian manufacturers are cost consc ious.

2. Chapter 3 exp lores the re lat ionsh ip between the automobile industry and cost cutting. Th is chaptera ls o provides an overview of

the Ind ian automobile industry and ment ions the key p layers in the

industry . It d iscusses cost consc iousness in the context of the Ind ian

automobile industry and the measures adopted by Ind ian

automobile manufacturers to cut costs.

3. Chapter 4 provides an introduct ion to TATA Motors a long w ith a t ime l ine of a l l important events re lated to the company. It exp lo res

the opportunity ava i lable to TATA Motors to come up w ith the idea

of the Nano. Th is chapter provides a brief introduct ion to the car

and how TATA Motors cut its cost of produc ing the car. It a ls o

ment ions the strategies put in p lace to reduce costs in the future.

4. Chapter 5: The Impact of TATA Nano: the Nano's contribut ion toTATA Motors and the Ind ian automobile industry is exp lored in th i s

chapter. It h ighl ights the impact of the Nano on industry,

environment and the used carmarket . Th is chaptera ls o exp lo res the

increasing compet it ion forthe Nano in the ' low cost ' segment .


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5. Chapter 6: Conclusion: In th is chapter, various inferences have beendrawn from the study and have been put forward as conc lusions of

the project .


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CHAPTER 2:COST

CONSCIOUSNESS


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Introduction to Cost

Cost is the va lue of money that has been used up to produce someth ing, and hence is not ava i lable for use anymore . In business, the cost may be one of

acqu isit ion, in wh ich case the amount of money expended to acqu ire

someth ing is counted as cost . The acqu isit ion cost may be the sum of the

cost of product ion as incurred by the origina l producer, and further costs of

transact ion as incurred by the acqu irer over and above the price pa id to the

producer. Usua l ly, the price a lso inc ludes a mark-up for profit over the cost

of product ion.

Thus, costs are the monetary va lue of expend itures for supp l ies , services,

labour, products , equ ipment and other items purchased foruse by a business

or otheraccount ing ent ity .


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Importance of Cost Consciousness in Todays World

Cost Consc iousness is an important concept to be aware of and to be understood by a ll the persons in any organizat ion carrying out any econom ic

act ivity and w ith an a im to improving product ivity and profitabil ity of the

organizat ion. Most organizat ions focus on reduc ing the ir manufacturing

costs in orderto reduce operat iona l costs to ga in compet it ive advantage .

Th is is the reason why every bus iness f irm today is focused on how to

reduce cost and improve product ivity . Reduc ing overhead and

manufacturing costs are the techniques used on a greater extent and it

shows that ourmanufacturers are cost consc ious.

The econom ic se lect ion of manufacturing processes for the manufacture of a

product is cruc ia l in the h ighly compet it ive manufacturing environment . Since

the price ava i lable for a product is sole ly dependent on the competit ion, a

proper econom ic se lect ion of the manufacturing processes and tooling,

together w ith proper product design, materia ls se lect ion, and materia lshand l ing, he lps to ach ieve target costs. Unless target costs are ach ieved,

manufacturing wou ld not be compet it ive, and it wou ld be d ifficu lt for the

manufacturing unit to survive .


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Advantages of Observing Cost Consciousness

The advantages of observing cost consc iousness are as under:

1. The cost of act ivity w i l l be kept at m inimum .2. Savings derived by observance of cost consc iousness can be better

ut i l ized in otherareas where resources are requ ired .

3. Wastages of a l l kinds can be reduced .4. F inanc ia l d isc ip li ne thus set in w i l l keep the managers to constant ly

th ink of ach ieving h igherand h igher leve ls of economy in expend iture.

5. Cost of products w i l l become more compet it ive lead ing to betteroperat ing surp lus resu lt ing in generat ion of more interna l resources for

meet ing cap ita l expend iture w ithout resort ing to market borrow ings at

h igh rates of interest .

6. Organizat ion can quote compet it ive prices, wh ich he lp to cornergreatermarket share .

7. Workers and shareholders can derive better f inanc ia l benefits and better return on cap ita l emp loyed . Th is w i l l lead to harmonious

industria l re lat ions and boosts investorconfidence .

8. Economy of the country w i l l improve lead ing to overa l l econom ic deve lopment .


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Are Indian Manufacturers Cost Conscious?

Ind ian industry has entered an era in wh ich price increases are the last opt ion ow ing to the severe competit ion from globa l p layers follow ing the

globa li zat ion and li bera l izat ion polic ies. The opening up of the economy has

increased the compet it ion four-fold . The manufacturer is no longer the

price maker in the market; in fact hehas been forced to become a price-

taker. Moreover, companies cannot even afford to comprom ise on qua l ity .

The increasing price of raw materia ls is yet another important cha l lenge that

companies need to dea l w ith . Th is leve l of compet it ion doesnt even a l low a company to pass on the costs to its customers thereby forc ing firms to look

for otherways to ma inta in profit margins. Forth is , companies e itherneed to

increase market share substant ia l ly orreduce manufacturing costs. The latter

is a more feasible opt ion as penetrating compet itors market share and

acqu iring new customers is very d ifficu lt .

Th is scenario is not only be ing observed in Ind ia but a lso in otherparts of the

world . Weve seen many companies adopt ing aggressive cost cutt ing

strategies over the years. Moreover, companies wh ich have fa i led to

embrace/imp lement such measures have fa i led m iserably .


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CHAPTER 2:AUTOMOBILE

INDUSTRY:

THE COST EFFECT


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Automobile Industry and Cost Cutting

Japanese companies have been the p ioneers in imp lement ing cost cutt ingmeasures to the irmanufacturing units, espec ia lly through inventory control.

They invented systems like Kanban, Ka izen, Lean Product ion System, Just- in-

t ime etc . In fact these measures have been proven to be so effect ive that

companies world over have been try ing to emu late them in the ir respect ive

business doma ins.

The best examp le of a company imp lement ing cost cutt ing measures and

be ing extreme ly successfu l is Toyota . Toyota a lmost put the Big 3 US auto

manufacturers Ford, Genera l Motors and Chrysler out of business in the

early 1980 s by imp lement ing lean manufacturing methods to cut

manufacturing costs and improve qua li ty.

The Big 3 were forced to reduce the ir costs in order to susta in. Th is was

ach ieved by cutt ing down on costs at various leve ls of manufacturing. Today,

Genera l Motors (GM) is the worlds largest manufacturerof automobiles but in sp ite of sma l ler volumes Toyota is the most profitable automobile

manufacturer. Th is speaks volumes of the need for companies to be cost

consc ious.


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Overview of the Automobile Industry in India

The Ind ian Automobile Industry i s the ninth largest in the world . In the year2008 the Ind ian Automobile Industry recorded an annua l product ion of over

2.3 m i l l ion units and in 2009 Ind ia emerged as the fourth largest exporterof

automobiles in Asia, preceded only by Japan, South Korea and Tha i land .

Post independence, the automobile sector in Ind ia began to grow, but the

growth was ma inly driven by tractors , commercia l veh ic les and scooters. Cars

were st i ll a luxury unt i l Japanese manufacturers entered the Ind ian market

u lt imate ly lead ing to the establishment of Marut i Udyog. The Ind ian

government chose Suzuk i for its joint-venture to manufacture sma ll cars.

Follow ing the econom ic l ibera l izat ion in 1991 and the gradua l weakening of

the l icense ra j, a number of Ind ian and mu lt i -nat iona l carcompanies launched

the ir operat ions. Severa l Ind ian automobile manufacturers such as Tata

Motors, Marut i Suzuk i and Mah indra and Mah indra, expanded the irdomest ic

and internat iona l operat ions.

Post li bera l izat ion, the Ind ian automobile industry has demonstrated

susta ined growth as a resu lt of increased compet it iveness and re laxed

restrict ions. Ind ias robust econom ic growth led to the further expansion of

its domest ic market .

In February 2009 , month ly sa les of passenger cars in Ind ia exceeded 100000

units.


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Key Players in the Indian Automobile Industry

The ma jor p layers in the Ind ian automobile market are as under. They have been segregated into two groups:

1. Ind ian Automobile ManufacturersThe ma jor Ind ian manufacturers are :

i . Ashok Leyland i i . Ch inkara Motorsi i i . Force Motorsiv. Hindustan Motorsv. Mah indravi. Marut i Suzuk ivii. Prem ierv i i i . San Motorsix. Tata Motors

2. Mu lt i-nat iona l Automobile Manufacturers Manufacturing AutomobilesLoca ll y

The ma jormu lt i -nat iona l manufacturers are :

i . Aud ii i . BMWiii . Chevrolet iv. Fiat v. Ford vi. Honda vii. Hyunda iv i i i . Mercedes-Benz


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ix. Mitsubish ix . Renau lt x i . Skoda x i i . Toyota x i i i . Volkswagen


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Cost Consciousness in Indian Automobile Industry

Ind ian Consumers have trad it iona l ly been price sensit ive . Moreover, the irspend ing habits are qu ite d ifferent as compared to the peop le from the

European and Western countries. Th is is one of the most important

cha llenges companies face in the Ind ian markets. Ind ia is the second fastest

grow ing economy in the world and the per cap ita d isposable income of the

peop le is rising w ith t ime . Th is is the reason why a lo t of companies are

entering the Ind ian markets further increasing the preva i l ing cut-throat

compet it ion.

A car is a long cherished asset for most Ind ian consumers unlike the peop le

in the west . The consumer norma l ly buys a car and possesses it for a l ife-

t ime . Hence, they are very choosy wh i le purchasing it . In sp ite of th is, they

are not ready to pa y more for it . Automobile companies operat ing in Ind ia

have to thereby keep themse lves on the ir toes to meet the consumer

demands. Past data have shown that companies provid ing a durable carw ith

a lowerprice tag have done we ll .

The best example c it ing th is is the success of cars like Marut i 800 and

Hyunda i Santro. Marut i Udyog Lim ited (MUL) was established in February

1981 , though the actual product ion commenced in 1983. It was a joint venture

between MUL in Ind ia and Suzuki in Japan. Unt i l recent ly, 18.28% of the

company was owned by the Ind ian government, and 54.2% by Suzuk i of Japan.

The most important factor contribut ing to Marut is success was that a Japanese company he ld the ma jor port ion of the company thereby enabling

MUL to leverage Japanese technology and product ion methods to the fu llest .

As ment ioned earl ier, Japanese companies have been p ioneers in


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imp lement ing cost cutt ing strategies , he lp ing MUL to susta in in the market

at low costs.


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Measures Adopted by Indian Automobile Manufacturers to Cut

Costs

The car industry has benefited signif icant ly from the improvement in

processes and labour product ivity during the past 5 years. Ind ian

manufacturers are cont inu ing to pursue stringent cost product ion measures

to ward off pressures from rising competit ion. For instance, Marut i has

launched a new programme ca lled The Next Leap to cut costs and increase

product ivity over the next 3 years, wh ich w i ll a ls o app ly to the operat ions of

its component supp liers. Also, Tata Motors has undertaken a ma jor cost

reduct ion drive . It p lans to lowercost by Rs. 10 bil l ion over the next 3 years

through va lue engineering, e-sourc ing and globa l sourc ing , supp liers base

rat iona l izat ion, operat ing effic iency, subst itut ion of parts and d irect materia l

procuring.

The strategies adopted by various p layers to reduce costs are given be low :

1. Raw MaterialsRaw materia ls form the single largest component of costs, as they

account for 70-75 % of the net sa les of the car manufacturer. Hence,

most p layers concentrate of decreasing the cost of raw materia ls to

increase the ir operating margins. Some of the strategies be ing adopted

by manufacturers to reduce the cost of raw materia ls are :

i . Increasing the Indigenous Content in Cars: Most ma jor carmanufacturers in Ind ia are increasingly turning to loca l vendors

for outsourc ing components that used to be imported . Th is yie lds

savings on import dut ies and reduces the cost assoc iated w ith

management of exchange rate f luctuat ions and risks. For

instance, FORD Ind ia has started purchasing engines for its 1.3


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li tre and 1.6 l itre Ikon mode ls from Hindustan Motors Ltd . ,

thereby increasing the loca l content in the car by 75% to 90%.

Sim i larly, to increase the loca l izat ion leve l of its cars, Marut i

started sourc ing a lum inium parts for its engines and transm ission

systems from the a lum in ium foundry it has set up in a joint

venture w ith Suzuki Motors.

i i. Access to Better Technology (for parts and processes): Carmanufacturers currently outsource nearly 75 to 80 % of the ir

components from vendors. To reduce the cost of components

outsourced, many manufacturers have collaborated w ith vendors

by sharing advanced technology to improve product ionprocesses, wh ich w i l l resu lt in better qua l ity components and

reduce the cost of manufacture. The vendors pass on the

resu lt ing cost savings to the manufacturer. For instance, Marut i

has provided the technologica l expertise needed to reducewaste

in product ion processes to 13 of its vendors. As a resu lt, it ha s

ga ined from reduct ion in the cost of these components.

i i i .

Uses of common components: Many manufacturers have started using common components across d i fferent mode ls to save on

materia l costs. Some components that are used across various

mode ls are brake peda ls , seats, transm ission assemblies and

suspensions. Th is increases the volumes sourced from vendor,

who pass on the resu lt ing econom ies of sca le to the

manufacturer. Research est imates that if the volumes to the

vendors increase by 10 % due to commona li ty of components, the manufacturer can save approx imate ly 1 % in materia l costs.

Internat iona l ly, on an average, d ifferent mode ls produced on the

same p latform share around 60% of the components , provid ing

substant ia l cost savings to the manufacturer. For instance, use of


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common components by Tata Motors for its Ind ica, Ind igo and

Marina mode ls is one of the reasons for compet it ive pric ing and

the consequent strong sa les of these mode ls.

iv. Vendor Rationalization: Most carmanufacturers have undertakenvendor rat iona li zat ion, wh ich he lps increase the volumes of a

part icu lar component for a single vendor, who can then pass on

the resu ltant cost benefits to manufacturers. Research est imates

that i f vendor rat iona l izat ion brings about a 40-50% increase in a

vendors volumes, there can be a 3 - 4 % reduct ion in the cost of

components procured from that vendor. Most carmanufacturers

in Ind ia have begun rat iona l izing the ir vendor base to lowerprocurement costs. For instance, Marut i reduced its vendors

from 370 in 2001 -o2 to 217 in 2003-04. Sim i larly, Tata Motors has

dec ided to dea l only w ith Tier- I supp liers for Outsourced

components and assemblies. Accord ingly, it has cut down the

number of vendors from 1200 in 2000 -01 to around 700 in 2003-

04 .

Manufacturers are a ls o ty ing up w ith vendors manufacturingre lated components, wh ich are supp lied as sub- assemblies or

comp lete systems ,rather than purchasing re lated components

from d ifferent vendors and assembling them in-house . For

instance, at present, PSA Citroen of France sources around 50 %

of its supp lies ( inc lud ing many sub-assemblies) from 18 ma jor

component manufacturers. Th is increases the va lue of purchase,

giving the manufacturer greater bargaining power in terms ofpric ing. It a ls o reduces the add it iona l labour and overhead costs

involved in assembling the components into a sub-assembly .

v. Just-in-time Techniques and Electronic Procurement: The adopt ion of juts - in-t ime (JIT) techniques requ ires component


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supp liers to be located c lose to the manufacturing fac i l it ies of

automobile ma jors. Car manufacturers p lace orders for the

period ic requ irement of components w ith vendors, who then

supp ly accord ing to the given schedule, avoid ing inventory bu i ld-

up at the manufacturers end . For instance, a large number of

Marut i vendors are lo cated w ith in a 100 Km. rad ius of the p lant

and have the ir product ion systems a l igned w ith Marut is supp ly

needs.

Many manufacturers have a lso linked up the ir supp ly systems

w ith most of the ir vendors. As a resu lt, when stocks reach a pre-

determined re-order leve l, components are orderede lectr onica lly . Th is reduces the t ime and cost of purchasing

components and frees the work ing cap ita l t ied up in inventories.

vi. Joint Purchase of Components: In order to lower the cost ofcomponents , companies w ith a common management are mu l l ing

the common purchase of components from a set of vendors to

increase lo ca li zat ion and reduce costs. Manufacturers may a ls o

joint ly purchase components from a set of approved vendors toextract max imum advantage wh i le negot iat ing the purchase price

of components. Most automobile OEMs in Ind ia have started

negot iat ing w ith stee l manufacturing companies for the ir

vendors and the ir own requ irements. Th is gives them greater

barga ining power since h igher volumes offer a price advantage .

For instance, 3 re lated companies of Genera l Motors, name ly Fu j i

Heavy Industries (makers of the Subaru brand) , Isuzu Motors and Suzuk i Motors, joint ly purchase e lectr onic components , whee ls,

and glass sheets , a irbags, seat be lts and tyres to save on

procurement costs.


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vii. Local Sources for Global Markets: Loca l subsid iaries of globa lmanufacturers have ident if ied Ind ian vendors w ith a consistent

track record of superior qua li ty products to supp ly components

to the ir subsid iaries overseas at compet it ive prices. Since such

dea ls , resu lt in h igh volumes and export orders, the loca l

subsid iaries a lso negot iate prices for the purchase of

components for the domest ic market . For instance, Ford Motors

Ind ia is current ly export ing p last ic door trims, c locks, a ll oy

whee ls , brakes tubes, ny lon fue l l ines and power steering hoses

sourced from its various Ind ian vendors. It a ls o p lans to export

regu lators, steering columns, horns, chassis components, h inges, brackets, hoses, gearsh ift knobs and sma ller meta l parts to its

parent companys Ch inese p lant .

v i i i . Vendor Tiering: Most globa l and Ind ian carand UV manufacturersare adopt ing the concept of t ierisat ion of vendors. Aaccord ingly,

vendors are ranked on the basis of the va lue of the component or

technica l expertise needed to supp ly a comp lete sub-assembly as

aga inst ind ividua l components. Th is he lps auto manufacturerslower the ir inventory hold ing costs and reduces and reduces

add it iona l overhead costs.

2. Labour CostsAt present, labour costs account for 2 -3% of the net sa les of p layers.

Many manufacturers are like ly to reduce labourcosts by :

i . M

anpower Rationalization: Most car manufacturers outsourcecomp lete sub -assemblies from vendors , instead of sma l ler

components , making work ing in assembly operat ions redundant .

As a resu lt, manufacturers are forced to reduce manpower by

regu larly offering VRS and reta ining only the most product ive


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emp loyees. Companies are a lso ret iring older emp lo yees to

increase average product ivity .

i i . Increasing Productivity: Some companies are tak ing the init iat ive to increase the product ivity of the ir staff and thereby lowering

the cost of manufacture. For instance, Marut i Udyog has l inked

emp loyee incent ives to product ion and attendance . Th is resu lts

in lowerabsentee ism and increased product ivity foreach worker.


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CHAPTER 4:TATA NANO:

A CAS

ES

TUDY INCOST CUTTING


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these products to severa l internat iona l markets. Today two-th irds of heavy

commercia l veh ic le exports out of South Korea are from Tata Daewoo. In

2005 , Tata Motors acqu ired a 21% stake in Hispano Carrocera, a reputed

Spanish bus and coach manufacturer, and subsequent ly the rema ining stake

in 2009. Hispano's presence is be ing expanded in other markets. In 2006 ,

Tata Motors formed a joint venture w ith the Brazil-based Marcopolo , a globa l

leader in body-bu i ld ing for buses and coaches to manufacture fu lly-bu i lt

buses and coaches for Ind ia and se lect internat iona l markets. In 2006 , Tata

Motors entered into joint venture w ith Thonburi Automot ive Assembly Plant

Company of Tha i land to manufacture and market the company's p ickup

veh ic les in Tha i land . The new p lant of Tata Motors (Tha i land) has begunproduct ion of the Xenon p ickup truck, w ith the Xenon having been launched

in Tha i land in 2008.

Tata Motors is a ls o expand ing its internat iona l footprint, established through

exports since 1961. The company 's commerc ia l and passenger veh ic les are

a lready be ing marketed in severa l countries in Europe, Africa, the Midd le

East, South East Asia, South Asia and South America . It has franch isee / joint

venture assembly operat ions in Kenya, Bangladesh, Ukra ine, Russia, Senega l

and South Africa .

The foundat ion of the company 's growth over the last 50 years is a deep

understand ing of econom ic st imu l i and customer needs, and the abil ity to

translate them into customer-desired of ferings through lead ing edge R&D.

With over 3,000 engineers and sc ient ists, the company 's Engineering

Research Centre, established in 1966 , has enabled p ioneering technologiesand products. The company today has R&D centres in Pune, Jamshedpur,

Lucknow, Dharwad in Ind ia, and in South Korea, Spa in, and the UK. It was

Tata Motors, wh ich deve loped the first ind igenously deve loped Li ght

Commerc ia l Veh ic le, Ind ia 's first Sports Ut i l ity Veh ic le and, in 1998 , the Tata


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Ind ica, Ind ia 's first fu l ly ind igenous passenger car. With in two years of

launch, Tata Ind ica became Ind ia 's largest se l l ing car in its segment . In 2005 ,

Tata Motors created a new segment by launch ing the Tata Ace, Ind ia 's first

ind igenously deve loped m ini-truck.

In January 2008 , Tata Motors unve i led its Peop le 's Car, the Tata Nano , wh ich

Ind ia and the world have been look ing forward to. The Tata Nano has been

subsequent ly launched, as p lanned, in Ind ia in March 2009. A deve lopment,

wh ich signifies a f irst forthe globa l automobile industry, the Nano brings the

comfort and safety of a car w ith in the reach of thousands of fam i lies. The

standard version has been priced at Rs.100,000 (exc lud ing VAT and

transportation cost).

In May 2009, Tata Motors introduced ushered in a new era in the Ind ian

automobile industry, in keep ing w ith its p ioneering trad it ion, by unve i l ing its

new range of world standard trucks ca l led Prima . In the ir power, speed,

carrying capac ity, operating economy and trims , they w i l l introduce new

benchmarks in Ind ia and match the best in the world in performance at a

lower l ife-cycle cost .

Tata Motors is equa l ly focused on environment-friend ly technologies in

em issions and a lternat ive fue ls. It has deve loped e lectr ic and hybrid veh ic les

both for persona l and public transportat ion. It has a lso been imp lement ing

severa l environment-friend ly technologies in manufacturing processes,

significantly enhanc ing resource conservat ion

Through its subsid iaries, the company is engaged in engineering and

automot ive solut ions , construct ion equ ipment manufacturing , automot ive

veh ic le components manufacturing and supp ly cha in act ivit ies, mach ine tools

and factory automat ion solut ions, h igh-prec ision tooling and p last ic and


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e lectronic components for automot ive and computer app l icat ions, and

automot ive reta i l ing and service operat ions.

Tata Motors is comm itted to improving the qua li ty of l ife of communit ies by

working on four thrust areas emp loyabil ity, education, hea lth and

environment . The act ivit ies touch the l ives of more than a m i l l ion c it izens.

The company 's support on educat ion and emp loyabil ity is focused on youth

and women. They range from schools to technica l education inst itutes to

actual fac i l itat ion of income generat ion. In hea lth, the ir intervent ion is in

both prevent ive and curat ive hea lth care . The goa l of environment protect ion

is ach ieved through tree p lantat ion, conserving water and creat ing new

water bod ies and, last but not the least, by introduc ing appropriate

technologies in the ir veh ic les and operat ions for constant ly enhanc ing

environment care.


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Tata Motors Timeline: The Pre-NANO Era

The follow ing are the m i lestones ach ieved by Tata Motors overthe years:

1991

1. Launch of the 1st ind igenous passengercar Tata Sierra.

1992

1. Launch of the Tata Estate .

1993

1. Joint venture agreement signed w ith Cumm ins Engine Co. Inc . for the manufacture of h igh horsepowerand em ission friend ly d iese l engines.

1994

1. Launch of Tata Sumo - the mu lt i ut i l ity veh ic le .

1996

1. Tata Sumo de luxe launched .


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1997

1. Tata Sierra Turbo launched.2. 100,000th Tata Sumo rolled out .

1998

1. Tata Safari - Ind ia 's first sports ut i l ity veh ic le launched .2. 2 m i l l ionth veh ic les rolled out.3. Ind ica, Ind ia 's first fu lly ind igenous passengercar launched.

1999

1. Commerc ia l product ion of Ind ica commences in fu ll sw ing.

2001

1. Ind ica V2 launched - 2nd generat ion Ind ica .2. 100,000th Ind ica whee led out .3. Launch of CNG Ind ica .4. Launch of the Tata Safari EX.5. Ind ica V2 becomes Ind ia 's number one car in its segment .6. Ex its joint venture w ith Da im ler Chrysler.

2002

1. Unve i l ing of the Tata Sedan at Auto Expo 2002.2. Petrol version of Ind ica V2 launched .


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3. 2 ,00,00 0th Ind ica rolled out.4. 5 ,00,000th passenger veh ic le rolled out .5. Launch of the Tata Sumo'+' Series.6. Launch of the Tata Ind igo.

2003

1. Launch of the Tata Safari Lim ited Ed it ion.2. The Tata Ind igo Stat ion Wagon unve i led at the Geneva Motor Show.3. On 29th Ju ly, J. R. D. Tata 's birth anniversary, Tata Engineering

becomes Tata Motors Lim ited .

4. 3 m i l l ionth veh ic le produced .

2004

1. Tata Motors unve i ls new product range at Auto Expo '04.2. New Tata Ind ica V2 launched .3. Ind igo Advent unve i led at Geneva Motor Show.4. Tata Motors comp letes acqu isit ion of Daewoo Commerc ia l Veh ic le

Company .

5. Sumo Victa launched.6. Ind igo Marina launched.7. Tata Motors l ists on the NYSE .

2005

1. Introduct ion of Ind igo SX series - luxury variant of Tata Ind igo.2. Tata Motors launches Ind ica V2 Turbo Diese l.


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3. One m i l l ionth passengercarproduced and sold .

2006

1. Ind ica V2 Xeta launched .2. Passenger Veh ic le sa les in Ind ia cross one-m i l l ion mark.3. Tata Motors extends CNG opt ions on its hatchback and estate range .4. Tata Motors introduces a new Ind igo range .


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Financial Performance of TATA Motors

Overthe past five years, the company has been able to ach ieve h igher

returns in comparison to the rest of the industry and about the same returnon equ ity (ROE) as comparedto that of Marut i Suzuk i, its ma in compet itor.

Year 2004 2005 2006 2007 2008

TATA Motors 23.8% 23.5% 18.5% 19.8% 13.5%% ROE of TATA Motorscompared to industry

188.9% 297.5% 313.6% N/A N/A

Marut i Suzuki 15.2% 19.5% 21.8% 22.8% 20.6%Table 1: Return on Equity

TATA Motors has been fa irly eff ic ient at convert ing sa les into profits duringthe 2003 2007 t ime periods and ach ieved decent profit margins when

comparedto the rest of the industry . However, the margin d id drop sl ight ly

to 4% in 2007 from 5.5% a yearearlier.


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Cashing In On a Huge Opportunity One Lakh Car

The grow ing demand foreconomy-rangecars has compe l led manufacturers inthe Ind ian automot ive market to provide cars at every price point . Passenger

cars, espec ia lly those in segment 'B' (Rs. 3,00,000 to Rs.5 ,00 ,000) , are the

fastest se l l ing. Automobile manufacturers are a ls o current ly try ing to make

them affordable to segment A (be low Rs. 3,00,000) buyers. The Ind ian

automobile industry is expected to reach a tota l market of $15.73 bil l ion in

2010.

To cash in on the opportunit ies presented by th is expand ing end-usermarket,

automobile manufacturers in Ind ia introduced a p lethora of mode ls such as

Genera l Motors Corsa Sa i l, Chevrolet Optra, Hyunda i Santro Xing , and Toyota

Corolla and Camry in 2003.

A spate of mode l launches, an increase in the number of part ic ipants (both

domest ic and fore ign) , and the needs to counter the pressure on margins

forced automobile manufacturers to review the ir manufacturing processesand look for process changes for cutt ing costs. Hence, companies are

invest ing substant ia ll y in R&D and on improving overa l l eff ic iency, to

competemore effect ive ly and ach ieve substant ia l sa les.

Follow ing the increasing demands of a cheap passengercars, in 2003-04 , Mr.

Ratan Tata the Cha irman of the Tata Group prom ised the launch of a 1 Lakh

Car . Th is was in l ine w ith the strategy of offering cars at every price point

and at bringing two -whee ler owners into the 'potent ia l car buyer' category .

In the h igh ly compet it ive market, the increasing prices of raw-materia ls and

the grow ing rate of inflat ion; th is announcement was rather a very bold and

courageous one .


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The Dream Project TATA NANO

On the 10th of January 2008, Tata Group cha irman Mr. Ratan Tata unve i led the One Lakh Car christened NANO at the 9th Auto Expo in New De lh i .

The TATA Nano meets a l l current safety norms and a l l em ission criteria . The

pollut ion it causes is lower than 2 -whee lers. It is sma l ler than a Marut i, but

has 21 per cent more volume or space inside than the 800 and has a 624 -cc

petrol engine generat ing 33 bhp of power. It sports a 30- l itre fue l tank and 4 -

speed manua l gearsh i ft . The cara lso comes w ith a ircond it ioning , but has no

power steering. It a lso has front d isk and rear drum brakes and is expected

to give a m i leage of 23 km per l itre . The car's dashboard features just a

speedometer, fue l gauge, and oil l ight . The cardoes not have rec l ining seats

or rad io. The shock absorbers are basic . In short, the car consists of a l l the

features offered by othercars but fora price of only 1- lakh.


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NANO: How TATA Motors Cut Costs

With a price tag of 1 -Lakh ($2500), the NANO costs a lmost ha lf of the cheapest carava i lable anywhere around the world . So how has Tata managed

to launch a car at th is price? World-over, automobile companies have been

try ing to cut-costs to the max imum to reduce the price the end-user has to

pay . More often than not, automakers prefer to stay away from making sma l l

cars due to the fear of low-profit margins w ith cost pressures to ma inta in

suffic ient product qua l ity . There is a lso a h igh riskassoc iated w ith produc ing

cheapcars, due to the h igh investments and long t ime period for break-eventhus making the success of the mode l make or break the fortunes of a

company. Over the years Origina l Equ ipment Manufacturers (OEM) and

supp l iers have adopted various strategies to keep costs low such as

produc ing the car in countries w ith low labourcosts, adopt ing a h igh leve l of

carryover components or by decontent ing the veh ic le and offering a l l

add it iona l features as an opt ion. Lower profit margins are the sma llest part

of strategy . What is interest ing about the NANO more than its price-tag is the

way that each component in the carwas designed to cost and the innovat ion

in product,process and technology that has made th is car feasible .

The follow ing pages w i l l take you through the various ways by wh ich the

company has managed to reduce its manufacturing costs.

1. Low Cost through Innovation and Design: Design -to-cost is the most preva lent concept in bu i ld ing cars at a low cost today and is seen as a route to re invent the way cars are bu i lt w ith innovat ive ideas. The Tata

Nano uses a single w iper, has a rearengine layout for space and we ight

savings and has a two -cy li nder engine for lower cost and better fue l

effic iency .


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2. Low-cost Technologies The No Frills Features: Since, the target market is the typ ica l Ind ian m idd le-c lass fam i ly, Tata Nana has done

away w ith the add it iona l fril ls that a luxury or sem i - luxury cars usua l ly

offer such as a irbag , h igh-ended engine control units, ant i- lock brak ing

systems etc . Bosch has partnered w ith Tata in the deve lopment and

supp ly of custom ized fue l- inject ion system, brak ing systems and some

of the e lectronics forthe Tata Nano car.

3. Original Equipment Manufacturers (OEM) and Supplier Relationship: Tata d ivided the components into two types proprietarydesigns and

Tata Motors design. For proprietary design components, Tata went

w ith established supp l iers such as Bosch (wh ich supp lies the engine management system and has significant ly contributed to the future

d iese l engine). Bosch sp li t the deve lopment between its design centres

in Banga lore and Germany. Using loca l design capabil it ies was a cruc ia l

dec ision, as most globa l design centres were accustomed to designing

h igh-end systems, emp loy ing deve lopment staff at a signif icant ly

h igherwage leve ls .

For components and systems designed in-house, Tata Motors chose

supp liers w ith strong process capabil it ies who cou ld give va luable

suggest ions and improve on the designs. Nearly everyth ing has been

sourced loca lly and the Nano has 97% loca l content from day one .

Tatas supp l iers were an integra l part of not only the design and

deve lopment process , but a lso purchasing.

Wh i le Tata started work w ith 600 supp liers and a tota l of 1 ,800supp lier-part combinat ions, these were eventua l ly narrowed down to

100 supp l iers forthe p latform.

Hydro -form ing is used fora ll the Nano s tubu lar structures, resu lt ing in

we ight reduct ions and simp le product ion processes and stamp ing has


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been rep laced by rollform ing process. Roll form ing a l lows a common

tooling for a number of parts, fewer operat ions and better

product ivity . Tata not only worked on its own processes but a ls o

he lped its vendors innovate .

Cost saving was a lso ach ieved by using th innermateria ls wherever the

design a l lowed, so the bumpers are only 2.5mm th ick, aga inst 3mm on

the Tata Ind ica superm ini.

Ha lf of the 100 vendors for the project are co- locat ing w ith Tata . Tata

p lant . Instead of annua l contracts , Tata went w ith long term volume

contracts w ith its supp liers, driving down the costs even further. The

supp liers rece ived significant volume comm itments from Tata Motors,

w ith about 75% of the components be ing single-source and about 90%

of the tota l car be ing outsourced .

A three-sh i ft operat ion and consolidated purchasing w ith supp liers has

a ll owed fora furtherreduct ion in costs.


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Future Strategy to Maintain Costs

Tata wants to set up four p lants in d ifferent parts of Ind ia to se l l a m i l l ionunits per yeareventua ll y . With fourp lants in various locat ions, the company

a ims to save significant ly on logist ics and inter-state taxat ion.

With the Nano , Tata is a im ing for a less than 100 ppm re ject ion rate (better

than the ex ist ing Tata p lants) and a ten-fold improvement in warranty costs.


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CHAPTER 5:THE IMPACT OF

TATA NANO


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Nanos Contribution to TATA Motors and the Impact on the In dian

Automobile Industry

A lo t has been ta lked about how the Nano s add it ion to TATA Motors

product l ine w i l l influence the ir market share and profitability . A recent

studyconducted by German research firm CSM World Wide has pred icted that

the Nano w i l l prope l the company as the countrys biggest l ight veh ic le

manufacturerby 2013.

TATA motors wou ld roll out nearly 1.2 m i l l ion l ight veh ic les perannum in the

next five years, of wh ich the Nano wou ld contribute more than 50 percent .

The company is expected to se ll more than six lakh units of the Nano by 2013

and about two lakh units of l ight veh ic les more than Marut i Suzuki , wh ich is

the market leader in the low cost, sma l l car segment, by 2013.

Nano , be ing the least expensive car current ly ava i lable in the market, w i l l

a lso he lp in bringing in new buyers.

By 2013, Ind ia is expected to become the largest producerof l ight veh ic les in

the world . Ind ia may se ll around 45 lakh veh ic les per annum over the next

f ive years, contribut ing around 16.7 percent to the tota l globa l sa les.

Com ing to actua l f igures, TATA Motors has revea led that in the th ird quarter

of 2009-10, the product ion of Nano has been has been ramped up to 3,600

units per month. Nano has had a huge impact on the li ght veh ic les segment

w ith sa les of 17 ,537 units in 9 months follow ing the sa le of the first Nano.


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Impact Analysis

Impact on Indian Economy

CRISIL, a reputed rat ing agency has pred icted that the TATA Nano cou ld

expand the Ind ian carmarket by 65%. The low price makes the caraffordable

for fam i l ies w ith incomes of Rs 1 lakh per annum, the agency sa id . The

increase in the market is expected to push up car sa les by 20% over the

previous year. The consumer price of the car is approx imate ly Rs 1.3 lakh .

Th is brings down the cost of ownersh ip of an entry leve l car in Ind ia

by 30%.

Thus, the Ind ian Economy is expected to rema in strong and grow in 2008 and

beyond, desp ite the temporary financ ia l turmoil in the US , because the car

w i l l a lso lead to a boost in other sectors of the Ind ian Economy besides the

auto -market .

Impact on Environment

As the Nano was conce ived and designed around introduc ing the automobile

to a sector of the popu lat ion who are current ly using eco -friend ly

bicyc les and motorcyc les , environmenta li sts are concerned that its

extraord inari ly low price m ight lead to mass motorizat ion in countries

like Ind ia and therefore possibly aggravate pollut ion and globa l warm ing as

we l l as increase the demand for oil.

Ra jendra Pachauri , an Ind ian and cha irman of the Intergovernmenta l

Pane l on Climate Change, sa id he was "having nightmares" because of


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th is car and added that the carrepresents bankruptcy of Ind ia 's

environmenta l poli cy .

However, th is can change if eco -friend ly variants are manufactured, instead

of the convent iona l petrol and d iese l based versions.

Respond ing to the fears of environmenta l ists Ratan Tata has conce ived a

scheme to only offer the Nano to those ind ividua ls who do not have an

automobile a lready in crowded metropolitan c it ies like Mumba i . The Nano

w i l l a lso rep lace many overloaded and worn-out two -stroke pollut ing

veh ic les , both two and three-whee led .

Impact on Used Car Market

The Nano is a l leged to have severe ly affected the used carmarket in

Ind ia, as many Ind ians are opt ing for the Nano rather than buy ing used cars ,

such as the Marut i 800, wh ich is considered as the Nano's nearest

compet itor.

Sa les of new Maruti 800s have dropped by 20% , and used ones by 30%

follow ing the unve i l ing of the Nano.


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Increasing Competition for the Nano

Bajaj Auto

Ba ja j Auto says its $2 ,500 car, wh ich it is bu i ld ing w ith Renau lt and Nissan

Motor, w i l l a im at a fue l-effic iency of 30 km /l itre, or tw ice an average sma l l

car, and carbon d iox ide em issions of 100 gm/km.

The Ba ja j venture w i l l have an init ia l capacity of 400,000 units, wh i le

Tata expects eventua l demand of 1 m i l l ion Nanos.

Others

Riva l car makers inc lud ing Fiat, Genera l Motors, Ford Motor, Hyunda i

and Toyota Motor have a ll expressed interest in bu i ld ing a sma ll car

that is affordable to more m idd le-c lass consumers in emerging markets.

The bu lk of demand there is for sma l l cars because peop le are much more

sensit ive to fue l prices.

Honda and Toyota are lead ing the way on so ca lled c leaner gasoline-e lectr ic

hybrids , and some environmenta li sts argue gett ing prices down on these

technologies is where efforts shou ld be concentrated.

Inexpensive and eco-friend ly e lectr ic-cars like Tara Ti ny, Oreva Super (both

reported ly even cheaper than Tata Nano) and REVA pose even more

significant dangerto Nano.


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CHAPTER 6:

CONCLUSION


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Conclusion

After study ing the importance of cost consc iousness among manufacturers intodays world and the various cost cutt ing measures imp lemented by TATA

Motors, it can be conc luded that they have effic ient ly control led the ir

expend iture and have made product ion of the One Lakh Car possible .

TATA Motors have innovat ive ly designed the ir cost cutt ing strategies to

come up w ith the worlds cheapest car. It has opened up a new and

unexp lo red market for the company but it is yet to be seen how the Nano

actual ly affects the automobile industry in Ind ia and he lps TATA Motors ga in

a greater share in the market as only a few months have passed since the

Nano was made ava i lable in the market .

TATA Motors m ight have just paved the way for many more to follow in the

race to manufacture the cheapest car and it may be d ifficu lt for them to

susta in the success of the Nano , but they have sure ly proven that cost

consc iousness is vita l to the surviva l of any manufacturing unit in the compet it ive scenario of modern business.


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04. a Dream Called Nano

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