Dec 31

Tata Motors´ Innovation Strategy: Disruptive Innovation „People´s Car (Volkswagen)“

India´s car manufacturer Tata Motors is about to revolutionize the global car market with its disruptive innovation strategy. At the Delhi Motor Show, which will start on January 10, Tata Motors will present its disruptive innovation named „People´s Car (Volkswagen !)“ or „One-Lakh-Car“. As of autumn 2008 this innovation is planned to be produced in India. One Lakh is equivalent to 100.000 IndianRupees. The „People´s Car (Volkswagen)“ therefore corresponds to a  “Two-Thousand-Euro-Car“.

Tata´s disruptive Innovation of the „People´s Car“ will turn the automobile market on its head, and will result in a paradigm shift. As many other disruptive innovations (the term was coined by Clayton Christensen) Tata´s innovation consciously sacrifices some performance in order to be able to radically reduce the costs and the selling price. According to available information, the car, on the one hand, will have four seats and four doors but, on the other hand, it will be only propelled by a 660 ccm rear-mounted diesel engine with 30 horsepower. The maximum speed is said to be 64 kilometers per hour.

The target group of Tata´s disruptive innovation of the “One-Lakh-Car” are not the already existing car drivers. It  is rather the millions of Indian motor bike and motor scooter drivers, to which, however, the drivers of three-wheeled cars can be added, that Tata´s innovation strategy targets. While each year 6.5 million motor bikes and motor scooters are sold in India, up to now only 1.3 million cars are purchased every year. The conversion of motor bike and motor scooter drivers into car drivers therefore represents a huge market potential.

It is estimated that out of India´s present population of more than 1.1 billion people more than 400 thousand qualify for the target group of a low-price innovation strategy and as a potential buyer of a low-price car. The determining factor for the conversion success is the price point. With only one Lakh Tata´s disruptive innovation will cost about double the price of an Indian motor scooter. This should enable Tata to win over a large part of the price sensitive motor bike and motor scooter drivers, who so far could not afford a car, for the “People´s Car”. With its four wheels and the protecting body, this disruptive innovation will open up a totally new world of safety and comfort for the Indians that have driven motor bikes and scooters so far. This is how Tata´s CEO Ratan Tata explains his innovation strategy.

In the first five years Tata Motors plans to sell 2 million „People´s Cars“. Apart from selling the car in India, an export of this innovation to emerging countries such as Thailand and Bangladesh is envisioned.

Tata Motors as a company up to now is the no.2 in the Indian passenger car market (but it is the no.1 in the Indian truck market). Tata´s main rival, market leader Maruti Suzuki, of which 54% is owned by the Japanese Suzuki Motor Company, is casting doubts on Tata´s innovation strategy and about the feasibility of producing an innovative car for one Lakh only that meets the Indian safety and emission standards. This doubt could turn out to be an error with grave consequences.

Tata Motors is giving reassurances that its “People´s Car” will comply with the Indian safety and emission standards that understandably at this moment are not yet as stringent as the German ones. Tata is the only Indian car producer with a certified crash-test facility. In order to reduce the cost of this innovation, the “One-Lak-Car” will use more plastic parts, which are glued together rather than welded, than is usual in the car industry. The first factory for the “One-Lakh-Car” has already been built in Singpur in West Bengal. The innovative car will be assembled in further three satellite plants which will also sell and service the cars, if needed, in order to save the trade margin of the intermediaries.

In its innovation strategy, Tata Motors makes use of a network of European partners such as BASF, which supplies plastic components, or Fiat, which helps Tata with its design. Concerning design:  this in the past was often a weakness of products from emerging countries. In its design, Tata relies on the help of such renowned Italian design firms as I.D.E.A. and Stile Bertone, respectively. Tata has already sufficiently proven in the past that it knows how to design likeable cars.


Picture: Tata Motors´ compact car Indica, originally introduced in India in 1996, the market-leading passenger car

Maruti Suzuki´s doubts may actually be rather tactically motivated. Also at the Delhi Motor Show, Suzuki will present an innovation of its own of a low-cost car with the code name „A-Star“. In Suzuki´s global innovation management plan, India in the future is planned to play the role of an innovation centre for low-cost vehicles.

Renault and Nissan as well intend to make India their innovation centre for low-cost cars. Other industries and companies such as the innovation machine GE or SAP or, respectively, the innovation machine Cisco have already made the experience that India is an interesting location for an innovation centre for disruptive innovations.

And what is the innovation strategy of the German car manufaturers, above all of Volkswagen ? They know that without any arrogance they have to take Tata Motors seriously as a new important global competitor. Because as far as offering a transport solution to the billions of potential low-cost car customers in the emerging and developing countries of this world is concerned, Tata Motors with its Indian innovation centre and its disruptive innovation “One-Lakh-Car” is the first mover and has a leg up. India more and more becomes the leading choice for placing an innovation centre that shall be globally responsible for low-cost cars. It can be safely assumed that the Indian employees who are heavily influenced by daily experiences of scarcity and penury will bring along a big amount of creativity and innovation that will benefit the development of disruptive low-cost cars.

In the meantime, Tata Motors is very active at the other end of the car price scale. It is being viewed as the leading candidate for acquring the Jaguar and Land Rover businesses that Ford wants to divest itself of.

(c) Rolf-Christian Wentz