Tucked away in a far corner of the 400-acre Tata Engineering and Locomotive Company (Telco) factory in Pune is its Engineering Research Centre (ERC). Here, a group of designers are working on a project which is classified 'Top Secret'. Their real work begins after the rest of their colleagues at the ERC leave for home. In the evening, when the office is nearly empty, they begin making conference calls to an auto design boutique in Italy with unfailing regularity. Elaborate drawings and notes are then exchanged over the Internet. It may seem like corporate espionage, but the veil of secrecy shrouding this project may not lift till sometime in 2006. That's when Telco will finally launch its new international range of trucks - dubbed internally as the trucks of the future - in China, Brazil, South Africa, Indonesia and a few more emerging markets.

The designs are, of course, still work-in-progress. Other than the first exclusive picture on our cover of just how the cab - the front portion of the truck - will look, the exact details of how India's biggest automaker plans to crack open international markets is known only to a few individuals inside the company. Needless to say, the implications are enormous for the Rs 10,837-crore auto giant. Despite being among the Top 10 truck and bus (commercial vehicle) manufacturers in the world, nearly all its revenues come from the domestic market.

Last year, Telco's global game plan for the Indica, its passenger car, fired public imagination in India. In December last year, the automaker announced that it had sewn up a smart arrangement with UK-based car company MG Rover to export 100,000 Indicas to Europe over the next five years. However, breaking into the commercial vehicle (CV) industry is an entirely different ball game. The size of the global commercial vehicle industry is just a quarter the size of the passenger car industry. Besides, unlike the fragmented car market, a few leading players in the CV business - Volvo, Scania, DaimlerChrysler, Paccar, Fiat-Iveco and Navistar - control nearly 60% of the industry. For the past few years, the auto industry has been going through a consolidation phase as the big boys have gone about buying out smaller regional and local players.

And Telco's relative lack of global experience isn't its only handicap. In terms of volumes, it is a tenth the size of DaimlerChrysler's truck business. Yet, Telco expects its new line of international trucks to contribute 25% to its overall CV business by the end of this decade. Assuming that the company maintains an annual growth rate of 13% over the next seven years, its international business could grow to Rs 4,000 crore. So what really does Telco have up its sleeve? We'll come to that in a bit.

First, lets touch upon an interesting discussion that's taking place in the auto world even as Telco begins its search for international markets. Recently, Graeme Maxton, the Asia-Pacific managing director of leading auto industry portal autopolis. com was in India. He told Businessworld that "the biggest gainer in the next eight years - those that will gain global marketshare - are mostly the small firms". "Telco is poised to gain the most," he added. Maxton's view challenges the conventional wisdom that the industry consolidation will see fewer and bigger auto companies emerging over the next decade or so.

Of course, Maxton's views may not go entirely unchallenged. But if the broad contours of its CV game plan are any evidence, there is, perhaps, reason to believe that Telco may have found a simple formula to compete against the big boys of the auto industry. Telco has decided to play to its key strengths. As things stand, it has two main weapons. One, its low-cost manufacturing system, which enables it to produce trucks at costs that are almost 25% less than those of its global competitors. Two, it believes that its knowledge and understanding of the cost-conscious Indian market can be easily replicated in other emerging markets of similar profile. Global majors like the Swedish companies Scania and Volvo, or German giant DaimlerChrysler have not demonstrated that sensitivity so far.

So if Telco pulls off its global gamble, it could position itself as a serious emerging market specialist. Ravi Kant, Telco's executive director in charge of the commercial vehicles business, says: "This will be the next big but obvious step in the evolution of the company. The new frontiers will make the company learn new skills to move forward." But that's not all. To gain scale, Kant says he has not ruled out acquisitions either. For instance, across several markets in south-east Asia, the company believes that it could make sense to buy out smaller companies that make light commercial vehicles. Their manufacturing capacities and distribution systems could be useful in growing Telco's business.

Ironically, even three years ago, not many inside Telco believed such a transformation could happen. The company was reeling under the biggest ever loss in its 58-year corporate history. In 2001, following a whopping Rs 500-crore loss, its stock price fell from Rs 563.75 in 1996 to Rs 58.85 in 2001.

The problems had to do with the way the commercial vehicles business was run in those days. In 1997, Telco had piled up huge stocks with its dealers on the eve of its GDR issue to jack up its turnover, and the products remained unsold even two years later. Telco sank into a financial quagmire, dealers were distraught and employee morale was low as stocks piled up in its factories. With its pipeline choked, Telco could not bring new products to the market. That allowed a nimbler competitor like Ashok Leyland to gnaw away at Telco's marketshare in the fast-growing segments like heavy trailer trucks. Coincidentally, the nascent Indica project, too, began to soak up the resources of the company. Says Kant, who joined in February 1999 from electronics multinational Philips: "In those days, it was a question of maintaining your sanity."

Fortunately for Telco, Kant managed to do that. In the next three years, he and his top team, consisting of executive director (finance) Pravin Kadle, senior vice-presidents P.M. Telang and A.P. Arya pushed through a dramatic transformation of Telco's CV business. "Telco grew up with the belief that it made the best trucks. That had to entirely demolished first," says Kant. It was back to the basics: Kant and his team vigourously attacked costs, cleaned up the supply chain, forced the hierarchy-conscious organisation to push forward its bright, young managers to positions of responsibility, galvanised the product development process and beefed up quality.

Kant now says he followed a broad telescopic strategy. In the first two years, between 2000 and 2002, he would concentrate on shaving off costs and improving quality. That made sense largely because the market was declining and there was no way of hiking prices. Now, in the next two-year phase (2002-04), the focus is on domestic marketing. In the last phase (2004-2006), the company would aggressively seek out foreign markets. The strategy was telescopic - since cost cutting would continue to extend through all the six years.

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