International market selection with the world’s cheapest car free essay sample

The majority of growth in the global automobile indus- try in the coming decade will come from emerging economies such as India, China and Eastern Europe, and the largest contribution to growth of auto markets in these countries will be the fast-growing small car segment. The increasing disposable income of the middle-class population is the key driver of small car markets in developing nations. However, in developed regions like the US and western Europe, stringent environmental standards are increasing the need for more fuel-efficient cars. Tata Motors Indian conglomerate Tata Group (www. tata. com) employs nearly 300,000 people in 85 countries and is India’s largest conglomerate company, with revenues in 2006–07 equivalent to US$28 billion (equal to 3. 2 per cent of India’s GDP), and a market capitalization of US$73 billion at the end of 2007. The Tata Group comprises 98 companies in seven business sectors. One of the companies in the Tata Group is Tata Motors. Tata Motors is gearing up for the global market as one of India’s largest automobile makers, manufacturers of buses, commercial trucks and tractor-trailers, passenger cars (Indica, Indigo, Safari, Sumo and the ultra-cheap Nano), light commercial vehicles and utility vehicles. The company sells its cars primarily in India, but about 20 per cent of sales comes from other Asian countries and Africa, Aus- tralia, Europe, the Middle East and South America. In 2008 Tata Motors bought the Jaguar and Land Rover brands from Ford for about US$2. 3 billion. Tata Motors has a workforce of 22,000 employees working in its three plants and other regional offices across the country. Tata Motors has a lower than 20 per cent share of the Indian passenger car market and has recently been suffering a sales slump. In 2007 the company produced 237,343 cars and more than 300,000 buses and trucks. Outside India Tata Motor is selling only a few cars so their international marketing expe- rience is weak. They do, however, have some distinct advantages in comparison to other multinational company competitors. There is definite cost advantage as labour cost is 8–9 per cent of sales against 30– 35 per cent in developed economies. Tata Motors have extensive backward and forward linkages and it is strongly interwoven with machine tools and metals sectors from other parts of the Tata Group. There are favourable government polices and regulations to boost the auto industry including incentives for RD. The acquisitions of Jaguar and Land Rover created financial pressure for Tata Motors, with the company stating that it wanted to spend some US$1. 5 billion over the next four years to expand the facilities manufacturing the luxury brands. In addition to giving Tata a globally recognizable product, the Land Rover and Jaguar deal also gives them an entry into the US. Through a deal with Fiat, Tata is already distributing the Italian cars in India and may expand the offering into South America, a Fiat stronghold. CHAPTER 8 THE INTERNATIONAL MARKET SELECTION PROCESS 287 The alternative for Tata Nano  © david pearson/Alamy. Development of Tata Nano In 2008 Tata unveiled the Nano, the cheapest car in the world, at the Auto Expo in New Delhi. The car seats up to five people, gets up to 55 miles to the gallon, and sells for about US$2,230. At first the Nano will be sold only in India, but Tata hopes to export them after a few initial years of production; the Nano might be exported to Europe as early as 2012. First shipments to Indian customers are expected in mid-2009. Tata Nano started with the vision of Ratan Tata, chairman of Tata Motors’ parent, Tata Group, to create an ultra low-cost car for a new category of Indian consumer: someone who couldn’t afford the US$5,000 sticker price of what was then adding a margin. Rather it set US$2,500 as the price that it thought customers could pay and then worked back, with the help of partners willing to take on a challenge, to build a US$2,500 car that would reward all involved with a small profit. The Nano engineers and partners didn’t simply strip features out of an existing car – the tack Renault took with its Dacia Logan, which sells in India for roughly US$10,000. Instead, they looked at their target customers’ lives for cost-cutting ideas. So, for instance, the Nano has a smaller engine than other cars because more horsepower would be wasted in India’s jam-packed cities, where the average speed is 10 to 20 miles per hour. The Nano aims to bring the joys of motoring to millions of Indians, doing for the subcontinent what the Volkswagen Beetle did for Germany and the Mini for Britain. But the plan has horrified environ- mentalists who fear that the demand from India’s aspirational and increasingly middle-class population – now numbering 50 million in a country with a total 1. 1 billion people – for more cars will add to pollution and global warming. The global automotive industry and the current crises In 2007, a total of 71. 9 million new automobiles were sold worldwide: 22. 9 million in Europe, 21. 4 million in Asia-Pacific, 19. 4 million in USA and Canada, 4. 4 million in Latin America, 2. 4 million in the Middle East and 1. 4 million in Africa. The markets in North America and Japan were stagnant, while those in South America and Asia grew strongly. Of the major then the cheapest car on the market and instead drove his family around on a US$1,000 motorcycle. Many drivers in India can only afford motorcycles and it is fairly common to see an Indian family of four using a motorcycle to get around (see Photo 1). In India alone there are 50 to 100 million people caught in that auto- motive chasm. Until now none of the Indian automakers have focused on that segment, and in this respect the Nano is a great example of the blue ocean strategy. The customer was ever-present in the development of the Nano. Tata didn’t set the price of the Nano by calculating the cost of production and Tata Nano