Thinking small makes car a big success
After introducing its now famous so-called $2500 car, the Nano, to the streets of its home country, India's Tata group is preparing to take the stylish little four-seat bubble of steel and glass to the world market.
After introducing its now famous so-called $2500 car, the Nano, to the streets of its home country, India's Tata group is preparing to take the stylish little four-seat bubble of steel and glass to the world market.Within two to three years, says the group's chairman, Ratan Tata, the company will launch a vamped-up, slightly wider version of the Nano in the United States, fitted with modern safety features such as an advanced braking system. An electric version may come even sooner. "It will be a full car," Tata says. "$7000 is still an attractive price."While bringing compact size and value to mature Western markets, Tata is also taking luxury motoring east. It is discussing a joint venture to manufacture Jaguar sedans and Range Rover SUVs in China, already the second-biggest market for these top-end brands acquired from Ford four years ago.But the ability to think small may turn out to be Tata's unique selling point, even though it's one of the biggest business groups in a country destined to be among the biggest forces in the global economy.Indeed, thinking small is helping the whole country leap ahead, as in the ultra-cheap packages that have put mobile phones in the hands of small farmers and street peddlers, and the newly-developed $35 tablet computer, the Akaash (meaning "sky"), that the government plans to hand out to school students.Bringing his baby, the Nano, into the world has been a fraught process, however, as Ratan Tata outlined in a talk with the Herald in his office at Bombay House, headquarters of the group founded by his great-great-grandfather, Jamshedji Tata, in 1868.When announced in 2008, the Nano created a worldwide buzz of anticipation. With pared-down design and powered by a 624cc motor, the car promised comfortable driving at a base price of one lakh (100,000) rupees (then about $2500), immediately bridging the gap between the scooters on which families often perch and safer four-wheel personal transport.Then the troubles started. The factory site Tata had negotiated with the then Marxist government in West Bengal state was hit with local unrest stirred by the then opposition leader, Mamata Bannerjee, alleging the land had been stolen from local farmers for inadequate compensation.With the plant 85 per cent completed, the campaign got very nasty. The compound walls were repeatedly broken down, construction steel looted, and workers beaten up by hired toughs."Weeks away from delivering the first car, we decided to pull out," Tata said. In a midnight operation, the company packed up the dies and tools for the Nano and drove them out. "The same people who had tried to stop us setting up then tried to stop us leaving," Tata said.Production was shifted to a new site in Gujarat, the state on on the opposite side of India noted for its pro-industry government, but a year was lost.Interest in the first run of 100,000 cars was so intense that Tata Motors took pre-production orders, and ran a lottery to prioritise deliveries. Then a new problem emerged: a series of seemingly spontaneous fires in Nano cars as they were running - only seven cases of the 100,000, but setting off a bout of negative publicity.A puzzled and worried Tata acquired all seven burnt-out cars and brought them back for forensic examination by British experts trained by Scotland Yard. In five of the cases, Tata said, the forensic specialists found traces of oily rags placed on the catalytic converters in the exhaust systems, parts that heat to 600 degrees centigrade and where a piece of cloth would be certain to generate fires that would engulf fuel lines.Who would want to sabotage the Nano launch is unclear, as there is still no direct competitor in the Indian market, but the fires have stopped, and Tata have cleared up other small technical faults. Sales that dipped to a low of 500 a month are now back between 9000 and 10,000 cars a month.The company is also combating the widespread reference to the Nano as "the poor man's car" - a turn-off to aspirational buyers. Indeed, it is not uncommon in Mumbai to see owners sitting in the back seat, with a chauffeur at the wheel.Consolidating the Nano's place in the market will be one of the final tasks for Ratan Tata as he prepares to hand over the chairmanship of Tata Sons, the holding company, next year when he turns 75.His successor is Cyrus Mistry, 43, who is already a director, by virtue of the 18.4 per cent stake built up by his father, the founder of the Shapoorji Pallonji construction group. Although not a Tata, the younger Mistry belongs to the same religious community of Parsis, descended from Zoroastrians who fled Persia more than a thousand years ago.With a smile, Tata says he is a victim of the retirement policies he himself introduced when he took over as chairman and chief executive from his 90-year-old uncle, the late J.R.D. Tata, in 1991. That came after a long apprenticeship that included a year in Sydney in 1971, pursuing a joint venture with former wool broker Dalgety's.Ratan Tata took over as India was making a decisive switch from command economics to market-based policies, creating an environment for which India's leading business house suddenly looked woefully handicapped.As a result of previous government policies designed to limit corporate power and market share, business operations were spread over dozens of group companies in wildly diverse sectors, many making little or no profit.The parent company's equity was generally so low the group chairman relied as much on the persuasive powers of the Tata name, renowned across India for ethical practices and sober management, as on his voting power.Ratan Tata recognised the group needed to concentrate on its more profitable activities, and deepen the Tata brand. But he faced an elderly board, some of whom used to nod off in meetings, as well as long-entrenched satraps running group companies."The reaction was that we have been doing it this way for over 100 years and we should never change," Tata recalled. His answer, helping to unlock change, was an official retirement policy at age 65 for executive directors and 75 for non-executive directors.Today Tata runs a more focused group that has grown from combined revenue of $US5 billion in 1991 to an expected $US100 billion in the current year ending March 31. The mainstay businesses are the software arm Tata Consultancy Services, Tata Steel, and Tata Motors, which together contribute about 90 per cent of total group profits.Among the activities dropped were cosmetics, soaps, publishing, cement, textiles, and joint ventures making personal computers and process controls. Tea gardens in Assam and South India have been sold to new companies majority-owned by staff.New activities include telecoms, passenger cars, and advanced materials. Croma, a chain of specialist retail stores selling personal electronic gadgets, is doing "phenomenally well," Tata said. "It's doing better than anything we ever imagined."Although India's growth has slowed recently, the urban middle class is flush with cash, spending big. "There's an astonishing demand for consumer goods, apparel, luxury goods, jewellery, domestic appliances, and real estate," Tata said.Foreign investment in this sector is intensely political, with local shopkeepers and politicians resisting entry of foreign retail chains. Last November, the Manmohan Singh government announced an opening, only to be forced into a reversal within days.Tata's expansion overseas, decided on during a slump in India, has also had its problems. The policy was to acquire natural resources, which it has done in potash and other commodities, and in acquisitions related to the group's Indian businesses, such as buying the famous Tetley tea brand.In the middle of last decade, Tata made two big acquisitions, the British steel maker Corus and Jaguar-Land Rover. "Having acquired the two companies, we had the global meltdown, which had the world turning against us and saying how stupid we'd been," Tata said. "It was perhaps the worst period in Tata's history."The British car maker started turning in huge losses. Jaguar had not introduced new products for 10 years, and SUVs like those made by Land Rover were suddenly regarded as antisocial. "It was just sucking in cash," Tata said. "The banking system disappeared and with the three US auto makers on life support, no bank wanted to talk to you about the automotive sector."With support from the State Bank of India, the country's biggest commercial bank, for the Tata balance sheet, the company managed to keep Jaguar-Land Rover afloat until the new Jaguar XF and XJ sedans and a redesigned Range Rover could be brought onto the market.Sales have risen 40 per cent in the past two years, with China a very strong market and SUVs back in fashion. "Today it's as profitable if not more than profitable as the parent company, Tata Motors," Tata said. New products are on the way, including an "entry level" Jaguar, a Jaguar roadster to revive the old linkage of the brand with motor sports, and a crossover sedan-SUV.It will be hard for Ratan Tata to step aside from all this. Though he will stay as chairman of the Tata charitable trust which owns 65 per cent of Tata Sons, he says he will quit all boards and leave the building next year to clear the way for Mistry, whose "balanced" views he appreciates. "The one thing I don't want to do is to be a shadow looking over his shoulder," Tata said.