Thursday, January 10, 2008

Innovation in India


Pretty soon it will be as difficult for American car companies to sell their cars in India as it is right now for U.S. aerospace concerns to sell small jets in, say, Brazil.

This cheerful news arrives courtesy “How to Build a $2,500 Car” in Tuesday’s Times, which details Tata Motors’ efforts to build an Indian volkswagen. It’s being introduced in India today, but the Times ran a preview: 30-35 hp, belt-driven transmission, low-speed bearings, tiny trunk—and no radio, power steering, power windows or air-conditioning.

Cries of heresy! would ring out in the West for Tata’s as-yet-unnamed car—but it’s set to be India’s Model T Ford nonetheless:

... Tata is not looking to ply California’s highways. Instead, the company wants to provide four-wheel transportation for the first time to people accustomed to getting around on two, including hundreds of millions of Indians and others in the developing world. ...

“It’s basically throwing out everything the auto industry had thought about cost structures in the past and taking out a clean sheet of paper and asking, ‘What’s possible?’” said Daryl T. Rolley, head of North American and Asian operations for Ariba, which sources parts for Tata, BMW, Toyota and other carmakers. “In the next five to 10 years, the whole auto industry is going to be flipped upside down.”

Not only is the car inexpensive to produce, designing it has upstream effects that benefit the rest of Tata’s and other manufacturers’ lines:

Manufacturers are searching for ways to make small cars for the middle class in India and China; to produce small cars for their own markets, hurt by rising gas prices; and to improve the profit of existing larger cars. Tata’s car would be mined for applicable lessons, Mr. Rolley said, predicting that more would be designed with cost in mind.

Tata understands its market deeply and decided to innovate down to India’s mass market rather than up to its elites. Hopefully Ford and other U.S. auto manufacturers—sorry, I mean “the other U.S. auto manufacturer”—can take Tata’s lessons as a spur to their own innovation, particularly since the developing world can’t afford most of what they and other First World manufacturers sell.

As the Times drily notes, the cost of the Tata “People’s Car” is “as little as the equivalent of $2,500, or about the price of the optional DVD player on the Lexus LX 470 sport utility vehicle.”


Lois said...

Interesting post Paul! Not only does Tata understand its market, it has also given new insight on low-cost production.

I believe they call it 'Innovation around cost'.

I read that they're planning to export the car to other emerging markets too.

TylerD said...

Not sure if this is propaganda, but I hear these cheap cars are an environmental disaster on wheels. They run on what's essentially a glorified, exhaust-belching lawn mower engine and will put hundreds of millions more people on the road. Come to think of it...time to open drive-through fast-food restauraunts across the Subcontinent! "Do you want samosas with that?"

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