Wednesday, September 4, 2013

Tata Nano - Innovation or Simply Cost Cutting?

The Tata Nano was introduced with great fanfare in 2008.  Touting the low cost of this once symbol of luxury, Tata Motors promised to increase accessibility and spread profits throughout the supply chain.  Tata's supply chain goal was to increase participation through diverse channels and create 'skin in the game' for manufacturers, product developers, distributors and end-customers.

Five years later, the once promising dream seems to have faded a bit.  Annual sales are disappointing and profits are down.  One main reason for this may actually be the lack of innovation in the supply chain.  As indicated by Hagel and Brown, the number of parts that Tata filed in connection with the Nano's development was a mere 34 as compared to GM's 280 patents.  Hagel and Brown seem to discount this statistic as an obstacle to creating the cheaply priced car.  Instead, the 'Gandhian' principal of development is touted as an innovation that Tata embraced in order to secure the dream.  In fact, the Gandhian principal of development is nothing more than simple cost cutting.

It seems that Tata pursued a development approach in which they squeezed their supply chain to cut profits of all involved.  Rather than pursue true innovation, which would have resulted in higher patents, they tried to acquire all parts needed by simply finding low cos alternatives.  This resulted in low quality and consumer satisfaction.  Indian manufacturers are already at a disadvantage because of the numerous issues inherent in the Indian business landscape.  Issues related to political unrest, cultural sensitivity, religious fragmentation and social concerns create obstacles for any business.  This case was no different.

Even before the Nano went into production, manufacturing plants had to be relocated due to political protests and cultural concerns.  To compete, Indian manufacturers must innovate within the supply chain, rather than simply squeeze suppliers out of profits.

The Nano is currently being retooled to address issues of safety.  Improving and innovating within the supply chain process may reduce the cost.  This would be preferable to a strategy of simple cost cutting.  It may even allow Tata to offer more options without compromising the affordable nature of the car.        

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