Developing Car for Emerging Markets – Case Tata Nano

Bachelor’s Thesis, Aalto University of Science and Technology, April 16 2010
Auton suunnitteluprosessi kehittyville markkinoille myytäessä – Case Tata Nano by Justus Reinikainen (English translation available)

Summary:

This thesis dealt with the Indian Tata Motors’ biggest successes, the world’s cheapest car, Tata Nano. The car is sold in India for about 100 000 rupees, or about U.S. $ 2,500 The thesis focused mainly on the Nano’s cost cutting methods and target markets.

Customer-oriented design was very important while developing Nano because the car was designed for a challenging and demanding customer group, the world’s poorest, the so called bottom of the pyramid (BoP). BoP-market has huge market potential, since it comprises about 2.5 billion people.

Nano’s target group is primarily India’s and other developing countries’ 2 – and 3-wheel-vehicle owners. The whole idea of creating Tata Nano occurred when Tata’s chairman wanted to create a cheap, safe and comfortable, all-weather vehicle for 2 – and 3-wheeler’s owners.

The development of the car required lots of cost-cutting measures. The car was designed to include only the most essential parts, making it very light and cheap to produce. Still, the aim was to maintain comfort and safety.

The most important cost-cutting method during Nano’s development was Tata Motors’ new supply chain management method, which Tata introduced at the beginning of the millennium while developing Tata Motors’ first light commercial vehicle model. In traditional design method, a company gives the technical specs of a part to the subcontractor. However, Tata Motors together with Ariba Technologies used the method in which the contractors were given only the output of the part they wanted to produce. For example: windscreen wiper has to wipe the windshield. Subsequently, sub-contractors provided their own solutions for producing the part to Tata Motors and Tata together with Ariba compared the cost-effectiveness of solutions of different subcontractors. Thus, sub-contractors were competed and Tata Motors received the cheapest possible component.

Nano’s distributed assembly method will also create significant savings. The parts of Nanos are sent to independent local assembly stations near the end user which will assemble the cars and sell them to the end user. Due that, cars can be sold with a lower price because there is no intermediaries in the distribution chain. The cargo costs will be lower too.

India is the cheapest country in the world to produce steel. Producing aluminum is very cheap too. A great part of Nano’s price consists of material costs so low material costs are a significant benefit in producing Nano’s. Cheap price and good availability of labor has also contributed the development of Nano.

Tata Nano’s design process took four years and the first car was sold one and a half years after the end of the design. The car is available in three basic versions, all with different features and prices. There will be also upgraded versions for European and American markets too. Tata Motors will also begin selling Nano’s with various alternative energy sources, such as the electric model.

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