The pace of change at Tata Motors is breathtaking. The launch of the world's lowest-cost car one month, agreement on the acquisition of two of the most upmarket brands less than three months later, the imminent launch of a world truck out of Korea, expansion in the capacities of three existing plants and building four spanking new plants at new locations — it's all happening more or less at the same time.
When Tata Sons' Chairman Ratan Tata launched his dream low-priced car at the Auto Expo 2008 in New Delhi in January 2008, it changed forever the rules of the auto industry. Time magazine acknowledged this by including the Nano in a list of "The dozen most important cars of all time starting from 1908 to the present", along with legendary cars like the Ford Model T, the Volkswagen Beetle, Chevy Belair, Toyota Corolla, the Mini and the Honda Civic.
Tata Motors had achieved what other auto companies had not even dared to contemplate. The Nano has now become an inspiration for innovation in designing products for the masses.
In comparison to the slow pace of growth for over three decades, constrained by the licensing regime, what is happening today is explosive. It is all the more remarkable because it has happened in the face of many odds, one of the main weaknesses being the company's lack of preparedness for global competition. The company has taken some hard knocks and then raised itself by the bootstraps to get where it has today.
At the beginning of the 1990s, that is, around the time when the Indian government scrapped the licence raj and began opening up the economy, Tata Motors was in a very vulnerable position. Its only business was trucks, and the trucks it made had had little infusion of technology for some time.
Foreign entrants with deep pockets could have made inroads into Tata Motors territory; and the Indian company did not have the wherewithal to make a dent in markets outside India.
To make matters worse, the scope for growth in India was then limited as Tata Motors already had an overwhelming share of the commercial vehicles market, which is subject to the vicissitudes of business cycles. It had to break out of this trap.
When Mr Tata suggested a way out -- make cars -- many analysts got all set to write off Tata Motors because they thought a truck maker could not and should not make a car. Today, after the resounding success of the Indica and two other cars on the Indica platform, nobody questions Tata Motors' ability to compete in the car market.
The company's recent successes have not been fortuitous. They have been built on the foundation of engineering talent that was systematically built over the decades, and a determination to do whatever it takes to be among the top in the global market.
The challenges of the past decade have been very different from those of the earlier years. Since the 1990s, when the Indian market was opened wide for investment, about a dozen global automotive companies have driven into India; most of them launched their cars before Tata Motors could introduce the Indica, its first passenger car, in 1999. Volvo has introduced its trucks here, and it is only a matter of time before other global truck makers enter the attractive Indian market.
The going really got tough, and very rough, for Tata Motors at the turn of the century. In 2000-01, the company made a whopping loss of Rs500 crore, the biggest ever for an Indian company. Everyone was shaken up, and that perhaps was the best thing that could have happened to Tata Motors.
As the company's current managing director Ravi Kant (then head of the commercial vehicles business), says, "The company could have sunk under the weight of the loss or it could have pulled up its socks and rejuvenated itself. We chose to do the latter."
"It wasn't easy. People here were very proud, even a bit arrogant, which happens with successful organisations, Mr Kant recalls. The big loss dented our pride, it punched a hole in the arrogance and complacency, and a formal strategy and a business plan were chalked out for the next five years." The vision came from Mr Tata.
The commercial vehicles market was changing dramatically, and the company had noticed. We had products which were very good for yesterday's market, but poor for tomorrow's market, according to Mr Kant. Many things had to be done and done quickly. The bleeding had to be stopped by cutting costs; existing products had to be upgraded; and new, international class products had to be introduced.
People at the top, including Mr Kant, PM Telang, executive director, commercial vehicles, Rajiv Dube, president, passenger cars, CFO C Ramakrishnan, and many others across the organisation contributed to the strategising and joined in the implementation of the company's ambitious plans.
After much soul-searching, brainstorming and cost-cutting, every aspect of cost fixed, variable, interest, employee costs was re-examined and reworked. The company managed to reduce the breakeven point in its commercial vehicles' operations from 60 to 65 per cent capacity utilisation to less than 40 per cent. In two years, the company made a handsome profit. Today, some analysts are raising red flags about the possible adverse impact on earnings of the acquisition by the company of the Jaguar and Land Rover (JLR) operations from Ford Motor Company. But nobody questions the company's credentials to make cars.
The JLR acquisition too needs to be seen not merely in terms of the prospective cash it will generate over the years (which is, of course, important) but also from the point of view of the substantial intangible benefits it will bring to Tata Motors, the most important of which will be the opportunity to transform itself into an advanced automotive business with global competencies.
Look at it this way, and you see no contradiction in the company's trying to straddle an entire industry, from its humble small cars, including the Indica and the Nano to the sophisticated Jaguar and Land Rover global brands. It is a mistake to see the strategy as one of making products for diametrically opposed market segments; what the company is doing is building the competencies to offer products in a wide range of the market. The high-end acquisition may be the most glamorous event yet; but the action thrust of the future will have to come in the mass markets and in new areas like alternative fuel vehicles.
In today's world companies have to keep running to stay in the same place. To grow, they have to do much more.
Grab the global opportunity
Being confined to the Indian market was not what Mr Tata had in mind when he defined the strategy for Tata Motors. His view: if you have to be competitive in India, you have to be competitive in the world. Otherwise, the Indian advantage will get eroded one day as foreign companies expand their presence in India. That is how global companies think and work.
Tata Motors has exported small numbers of commercial vehicles for many years. The destinations were mainly developing countries. Breaking into the large and lucrative developed country markets needed a different approach. It needed acquisition of new technologies and production facilities.
The breakthrough came in March 2004, when Tata Motors acquired the truck division of Korea's troubled Daewoo Commercial Vehicle Company. This was not planned; but the opportunity presented itself, and the company grabbed it with both hands.
The acquisition has given the Indian company a large commercial vehicles operation in the developed Korean market, with a strong potential for export. "This acquisition was a first for Tata Motors. Though there were many challenges of geography, culture and language, we have been able to keep each others identity and learn from each other," says Mr Kant. "This has helped us improve domestic market share, exports and top line profits."
The Korean unit got much-needed financial stability, and Tata Motors moved one step further towards becoming a global automotive company. Mr Kant explains: "We had been planning for some time to make trucks for the international market. But when our acquisition of the Daewoo Commercial Vehicles operations happened, we decided to build the world truck in combination with the Korean unit. Now we will have a better truck, and it will hit the market earlier than would have been possible had we done it all by ourselves." This product will be launched later in 2008.
The Ace trumps
Meanwhile, the Indian commercial vehicles market was bursting with new opportunities. The government's highway and rural road expansion programmes have opened up a new scenario. The Tata Motors team studied the market, talked to customers and dealers, and did some heavy brainstorming and gained some vital insights into how the company could benefit from the trends in the infrastructure and the economy.
As the road network expanded, the company realised that massive new demand would be created for smaller trucks to act as feeders plying between villages and small towns. Ten one-tonne vehicles could split the cargo of a 10-tonner and carry it to 10 different final destinations. Conversely, ten such small cargo vehicles could bring produce from villages to towns, where they could be consolidated on bigger trucks for further movement. With more roads capable of carrying motor vehicular traffic, passenger demand for vehicles would also rise rapidly.
That is how the idea of the Ace mini-truck originated. The Ace was launched in 2005, and has become a big hit. Tata Motors is expanding its capacity to make this mini-truck by building a huge, 250,000-vehicles a year capacity plant. The company expects to export substantial numbers of this vehicle. The company also expects big growth in the bus market. So it has acquired a stake in bus maker Hispano Carrocera of Spain and signed a collaboration agreement with Marco Polo of Brazil. Now it is building a plant in Dharwad in Karnataka to make buses in collaboration with the Brazilian company.
Mega opportunity with the Nano
Perhaps the most exciting developments in the near future will happen around the Nano, which has catapulted Tata Motors into the global limelight. Driven by Chairman Ratan Tata's vision of a safer transport for middle class families, which have until now depended on two-wheelers, the Nano was the biggest challenge before the company. The Chairman kept a high level of involvement with the project, guiding and goading the team to achieve what at first seemed unachievable.
A large cross-functional team was assigned the task of designing the car. Its first brief in 2003 was to create a very low-cost, four-wheel vehicle; it was not even defined as a car. The imperative was the cost (Rs1 lakh, at a time when the smallest car cost double that price), and no compromises on aesthetics, value to the customer, or safety and environment issues.
The team, a mixture of the experienced and the young, was given a free hand and asked to work without fear of failure; and it displayed an amazing amount of ingenuity. Everything was questioned, and every part was designed upward from a zero base. No vendor could supply an engine within the budget, so the team developed an engine in-house. They managed to slash costs across the board and also ensured that the car did not look boxy or ordinary. The interiors had to be roomy and comfortable and the car had to look stylish and it has achieved that effect.
The team worked closely with every department concerned and with vendors to assure component quality and price. The car went through all required safety testing, and testing for conformity with environment norms, including Bharat Stage VI and Euro VI. The focus now is to get the plants ready and to ensure a fast ramp-up.
Stress on the future
All this activity has brought with it a tremendous amount of stress and pressure. But there is a palpable sense of satisfaction and pride at Tata Motors. Not only have they achieved something; the whole world has acknowledged it.
That does not mean the job is done. As Girish Wagh, who heads the 500-strong Nano team, says, "While we are happy and proud at the reception received by the Nano, we know that we have a long road ahead."
The Nano is only one part of the journey Tata Motors has embarked on. The road will take Tata Motors deeper into India's heartland. At the other end, it will take it across international borders and into new technologies, ventures and relationships. Senior managers are confident of attaining the company's objectives and who can question them now? Their recent track record speaks for them.