BUS 675 – Strategic Management and Sustainability

Assignment Quiz

Submitted By
Zahra Zubair Huq
ID: 22364061

Submitted To
Dr. Nazmul Amin
Professor, MBA Program
BRAC University

Date of Submission
14/09/2024
 The Tata Nano: An Inspiration from an Indian Conglomerate

Introduction

The Tata Nano, launched in India in 2008 by Tata Motors is recognized as one of the most
audacious car ventures in the 21st century. The Nano was built to be one of the lowest priced
car models globally, to permanently address the issue of inadequate access to transportation
by a larger population of the car using public, especially in the developing world. Priced
attractively at $2,000, the Nano was targeted to become an affordable version to two-
wheelers as well as provide first-time car ownership for millions who could not afford a car
before.

With this aim in mind, Tata Nano had to be quite unique in its concept, strategy and approach
in respect to product development as well as the strategy with which it sought to
revolutionize the automobile industry. It captured many fundamental business and
management concerns such as the conceptualization of an inexpensive car model and how to
position the car in the market to achieve customer satisfaction.

The Nano’s development and subsequent market performance provide a rich context for
examining various business and management principles. Aimed and launched in the
timeframe that can be described as one of the most vibrant growth rates of car sales in India,
the car was ought to be that dream car for millions of middle-class families. This new venture
was undertaken by a famous Indian conglomerate Tata Motors who intended to democratize
car ownership and strengthen the company’s reputation as an affordable innovator in the car
industry.

However, despite the initial buzz, the Nano struggled to gain traction in the market and
eventually failed to meet sales expectations. Using majority of the information from the case
‘The Tata Nano’: An Inspiration from an Indian Conglomerate by Alam and Majumdar,
(2011), this writeup explores how external factors such as economic conditions, competition
and regulatory changes influenced the vehicle's design and market strategy. It also presents an
analysis of factors within the Tata Motors organisation which affected the ultimate success or
failure of the project. Through the analysis of the Tata Nano from its conception to its design
and outcomes, this writeup offers a holistic look on the challenges faced in launching a
revolutionary product in today’s highly competitive and dynamic environment. It serves as a
crucial learning tool for understanding both the potential and pitfalls of innovative business
strategies in the automotive sector and beyond.

Discussion and Explanation of the External and Internal Forces Influencing the Tata
Nano’s Design (Answer to Question 1)

Since the Tata Nano has been introduced as an ultra-low-cost car that was originally intended
to revolutionise the Indian automobile market, it is important to look into the internal and
external factors which influenced its product design. These external and internal forces
played a key role in shaping Tata Motors strategy to design a car that not only fit into its
affordability theme but also aligned with the market needs and the corporate strategy of the
company.

 External Force Analysis

A company’s external forces include all the relevant factors and influences outside the
company’s boundaries that may influence the decisions the company ultimately takes about
its direction, objectives, strategy and business model. Factors which influence the external
forces exerted on a company includes the following:

 The macro environment of a company

 The industry structure
 The competitors
 The critical success factors of a company.

In order to identify the external forces which influenced the Tata Nano design, I will look into
the macroenvironment of the Tata Nano and the industry structure of the automobile industry.
The rest of the factors forming part of the external environmental analysis will be discussed
later in the following questions.

 The Macro environment

The components of the macroenvironment consists of:

Economic Segment

The economic segment refers to the elements related to the economic environment in which a
company operates including factors such as inflation rates, interest rates, economic growth
and consumer purchasing power.
It was clear to Tata Motors that majority of the Indian population were not affluent and
therefore were in need for an affordable car. The affordability was then and has been till date
at the heart of Tata Nano as conceived by Tata Motors with a view to cater to the large bottom
of pyramid population in India. Given that the middle class was expanding in India and the
need for personal transportation was also growing at a tremendous rate, there was increasing
demand for an extremely economical vehicle. The Nano was available at a cost of around
$2000 to $3000. This price strategy was intended at reaching a new and young group of
common people who always wanted a car but could not afford one. Thus, it was affordable to
families who previously used motorcycle or public transport as a means of their day to day
transport.

Global Segment:

These factors include global market forces and competitive dynamics that may impact the
strategic decisions of a firm such as changing global conditions, other international rivals and
cross border policies on trade.

Globally, there was a rising focus towards cost efficient and environmentally friendly cars.
The quote, “This car will have a global demand” (Alam & Majumdar, 2011) demonstrates the
strategic plan to create a car not only for the local market but also for proving that Tata
Motors could come up with a unique concept in the worldwide context. Furthermore, the
global positioning quote indicates that due to increase in petrol prices, concern on availability
of petrol in the future and the debate on carbon emissions, the demand for small cars is
expected to rise. Therefore, this global positioning assisted Tata Motors to present what it was
capable of offering to the world, a car that was fit for low-income earners and a response to
the world’s need for small cars as opposed to highly petrol inclined cars. More and more
automobile ventures, both local and global were gradually focusing on the middle class. Tata
was planning to penetrate the car market and not just introduce its new car in the low-end
segment but actually bring a change in the lifestyle of millions of middle-class families in
India through what was referred to as ‘peoples’ car.’

Demographic Factors:
These are factors such as age, income, education and family-hood which defines the overall
population which may impact on the general market demand and consumer choices.

India’s population still has a large number of first time car buyers, a large number of people
who are young and are buying cars for the first time and families who are replacing their two-
wheelers with cars. The Nano was intended in reaching new segments, a small and cheap car
ideal for use in the urban and semi-urban settings where space is a premium. Due to its small
size the Nano was perfect for driving in the overcrowded urban areas where most inhabitants
reside and perform their business

Political and Legal Factors:

These include legislations and legal policy factors that exist in relation to business such as
taxation policies, labour relation laws, trade practices, environmental issues etc.

Tata Motors had to make certain that the Nano conforms with the existing laws on motor
vehicles in India particularly on emission standards. The ever-increasing focus of the
government in cutting down pollution as well as enhancing safety standards of the vehicles
posed a major challenge to Tata Motors whose aim was to ensure all these while keeping
costs as low as possible. Moreover, incentives for small, low emission vehicles encouraged
Tata Motors to develop the Tata Nano, hoping to align the low cost car with these political
and legal frameworks. Apart from the requirements of government policies on fuel efficiency
and safety standards, manufacturing of smaller, fuel efficient and environment friendly
vehicles increased consciousness about road safety throughout the years leading to a demand
for cars with more protection than the two wheeled motorcycles.

Technological Factors:

These factors refer to advancements and innovation in technology through big data analytics
and wireless communications which may affect the production systems, product design and
the overall level of competitiveness in the automobile industry.

To further bring down the cost of production Tata motors incorporated innovative
manufacturing strategies and cost-efficient materials in the design of the Nano. Some of the
technological factors that enabled the target of a low price range included the use of
lightweight materials and easy to use manufacturing technologies as noted in the case “in
some parts of the car, plastics and adhesives are used instead of metals and bolts”. The quote
“the Nano is also much lighter than comparable models as it uses lightweight steel where
possible in the body and has an aluminium engine” (Alam & Majumdar, 2011) shows that
through proper use of technology, Tata’s engineering team came up with methods of
production that would allow the Nano’s production on commercial scale but still offer all the
necessities of a car.

Sociocultural Factors:

These factors encompass societal norms, values and cultural practices that shape consumers’
behaviour and taste.

A major problem faced in the Indian cities include small roads and congestion of traffic.
These urban challenges of restricted traffic space and narrow parking area were considered
and solved by the small size of the Nano. Due to its small form, the Nano was especially
appropriate for densely populated areas, where large vehicles could have struggled.

 The Industry Structure

The next factor which comes under the external environment analysis is the analysis of the
industry environment. An industry is a group of organisations producing a product or service
which are close substitutes. The industry environment has a more direct effect on the
individual organisation. The Porter’s five forces model designed by Michael Porter aims to
provide a guideline to firms in analysing competitive forces in an industry environment. The
five forces are:

- Bargaining power of buyers

- Threat of substitute products or services
- Industry Rivalry
- Threat of new entrants
- Bargaining power of suppliers

Each of these forces have been discussed below in relation to Tata Nano. According to Porter,
the stronger each of these forces are, the more limited the ability of the company to raise
prices and earn higher profits.
Influence of Bargaining Power of Buyers on Tata Nano’s Design

The intended market for the Tata Nano was the low income or price sensitive consumers who
mostly relied upon motorcycles or used the public means of transport. These buyers however
are very price sensitive and tend to have a lot of bargaining power due to availability of
cheaper modes of transport. Therefore, in order to attract such customers, Tata Motors had to
make sure that the Nano brought enough of added value at a low price. The vehicle had to be
affordable and efficient enough to attract its intended customers and stand up to competition
that was already provided by low-cost modes of transport. So, the bargaining power of buyers
was a force that influenced the design of the Tata Nano and the strategy they adopted.
Strategy is defined as the competitive moves and business approaches the management
employs in running a company. Strategy defines the distinctive approach to competing and
the competitive advantage on which the business will be based on. Business level strategy is a
plan of action that focuses on the direct utilisation of resources, strengths and core
competencies in the search for sustainable competitive advantage over rivals in a particular
industry. Michael porter suggested three generic strategies a firm can use to overcome the
five forces and achieve competitive advantage. They are: Overall low cost leadership,
differentiation and Focus/Niche strategy. Tata Nano adopted the low cost strategy as they
aimed to be the industry’s low cost provider. The aim of the low cost strategy is to achieve
low costs relative to their rivals as well as finding way to drive cost out of the market year
after year. An advantage for the companies following the low cost strategy is that they are
less affected by bargaining power of buyers as they are the cheapest provider in the market.
Therefore, being a low cost provider was a strategy that shielded Tata Nano from bargaining
power of buyers.

Threat of Substitute Products or Services

Nano had a threat of being substituted by other forms of transport available such as two
wheelers, three wheelers as well as public transport. These substitutes were typically more
affordable and well adapted in the urban landscape which was the market the Nano was
designed for.
The existence of these substitutes posed a threatening competition to the business, a call that
made Tata Motors focus on specific attributes of the Nano such as safety, enclosed body and
the slightly extra comfort than offered by two-wheelers. Following the low-cost leadership,
the Nano had the ability to reduce price to compete with substitute products. However,
despite the Nano’s low price the company performed specific aspects so that consumers could
opt for it instead of other similar products.

Industry Rivalry

The competition in automobile industry is stiff with many participants manufacturing and
supplying various types of automobiles within different price segments. Tata Motors faced
competition from various automobile manufacturers; both Indian and foreign. To penetrate
this market, Tata Motors had the goal of establishing the Nano as a special kind of automobile
in the low-price category. So, Tata Nano followed the low-cost leadership strategy which
aims to be the low cost provider in the market. The low cost leadership strategy was an
advantage for the company as it provides protection from competitors through cost
advantage. Being a low-cost leader, Tata Nano could lower their prices and offer competitive
offerings in comparison to their rivals. Competition with other car makers especially those in
the same category or slightly higher priced with additional features posed a challenge to Tata
motors as they had to pay close attention to balance their costs, features and marketing
strategies.

Threat of New Entrants

The automotive industry on average is characterized by relatively high barriers to entry.

These include fixed initial capital investment requirement, customer loyalty to particular
brand and legal formalities. Tata Nano’s low cost leadership strategy placed them in an
advantageous position where the low cost and prices can be expected to act as a barrier to
entry. The Nano’s arrival into the market was aimed to redefine the market segment by
making automobiles affordable to a larger population. The concept was believed to target a
significant percentage of the growing middle income earners in the Indian market thus
discouraging potential entrants from targeting the same low cost segment.

Bargaining Power of Suppliers

The Tata Nano was developed with an aim of being as cheap as possible and this was
reflected with the type of design they used on this car with particular emphasis on the type of
material used and methods used in production. Tata Nano had to effectively manage their
relationship with their suppliers to ensure that they received low cost but quality inputs.

The company needed to maintain low production cost and this was possible by strict
negotiations with the suppliers to enable Tata Motors obtain better raw materials at cheaper
costs. Although the company had some bargaining power due to its large scale and focus on
cost-control, they still had to maintain quality relationship with suppliers to receive
specialised low cost inputs.

 Analysis of Internal Forces

While the global and domestic factors that moulded the Tata Nano have been analysed, it
would also be pertinent to understand the internal forces within Tata Motors which ensured
the Nano car became a reality. While external factors including the economic situation,
competition and rules or regulations created the conditions for the Nano, it was factors inside
the company, from vision to technology that determined the actual form and strategic choices
of the Nano. All these internal elements played a vital role in changing external opportunities
and threats into strategic plans and right solutions.

While examining the internal influences, it is important to consider things such as the
resources, capabilities and core competencies of the firm. Anything that is added to a firm’s
production process can be classed as a resource of the firm. There are tangible resources and
intangible resources. Tata’s most significant intangible resource was their innovation and
creativity. After observing the huge number of families driving two wheeled motors, the idea
came to Ratan Tata to create the world’s cheapest four wheeled vehicle. This innovative
resource was further enhanced when “Tata motors formed a large cross functional team with
a mixture of the experienced and the young” (Alam & Majumdar, 2011). The collaborative
work between Tata’s human resource was certainly an important resource which Tata was
effective in putting to productive use. This ability of putting the key resources into productive
use shows Tata’s capabilities. These resources and capabilities were supposed to act as a
source of competitive advantage over their rivals as stated in the case “Truly the development
of the Nano car has been the product of vision, teamwork, history, commitment and creative
collaboration… organisation” (Alam & Majumdar, 2011).

Cost-cutting and efficiency within Tata Motors

Tata Group’s engineering team was most concerned with balancing production cost without
compromising on safety and environment. The idea of building the “one lakh rupee” car or
$2,500 significantly influenced most of the design and engineering aspects such as use of
lightweight materials and fuel efficiency.
The reasons behind the failure of Tata Nano? Despite this, is it a very well-designed
vehicle? what are your thoughts on the issue? Explain. (Answer 2)

In order to identify the reasons behind the failure of the Tata Nano, it is important to carry out
a SWOT analysis. SWOT analysis is a framework used to evaluate a company’s competitive
position and develop strategic planning. SWOT analysis assesses internal and external factors
as well as current and future potentials. A SWOT analysis is designed to facilitate a realistic
fact based, data driven look at the strengths and weaknesses of an organisation, in its
initiatives or within its industry. The organisation needs to keep the analysis accurate by
avoiding preconceived beliefs or grey areas and instead focus on real life context.

 Strengths

In general, the strength of a company includes factors such as defining a powerful strategy to
achieve competitive advantage. We have already identified that Tata Nano was following the
cost leadership approach from the business level strategy. So, Tata Nano was aiming to
achieve sustainable competitive advantage by being the low cost provider in the market.
Besides business level strategy, we also have the corporate level strategy which is an action
taken to gain competitive advantage through the selection and management of a mix of
businesses competing in several industries or product markets. The corporate level strategy is
used to identify

- The businesses in which a firm should be involved in

- Value creating activities the firm should perform
- Methods to enter or exit business industries to maximise long run profitability.

A primary approach to corporate level strategy is to diversify a business as much as possible

to sustain competitive advantage. Diversification is a form of growth strategy. A growth
strategy involves a significant increase in performance objectives like sales or market share
beyond past level of performances. Diversification strategies are used to expand firm’s
operations by adding markets, products, services or stages of production to the existing
business. The main objective of diversification is to allow the company to enter lines of
businesses that are different from their current operations. Tata groups were following the
corporate level strategy accurately by diversification of their product line as mentioned in the
case by Alam & Mazumdar, (2011) that it has been very successful in diversifying its
activities into nonrelated sectors. This was certainly a strength of the company.

Cost Advantage: This was another strength of the Tata Nano as they grabbed the global
market’s attention as the world’s cheapest car, with a price tag of around $ 2000.

Engineering Achievement: Being a first-generation car, the Nano’s design and engineering
were innovative and the primary objective was to minimize the cost while not sacrificing
basic utility.

Compact Size: The Nano was mainly targeted at the urban and semi-urban markets that are
characterised by traffic congestions and narrow carriageway. As a result the compact size of
the Nano can certainly be considered as a strength because it is addressing an important
customer requirement.

High Fuel Efficiency: The vehicle was economical, thus attracting the consumers who are
conscious of their day to day expenditure in fuel consumption.

 Weaknesses

Perception of Quality: the idea of the Nano being the world’s “cheapest car” and the tag
“peoples’ car” being associated with it brought serious doubts into peoples’ mind regarding
the quality of the car.

Minimal Features: The vehicle’s simplistic and basic features and minimalistic design did
not meet the expectations of many buyers.

Safety Concerns: Some of the concerns with the use of this vehicle included issues and
concerns related to safety as well as the structural stability of the vehicle.

 Opportunities
Growing Middle Class: The emerging economies especially in the developing world whose
population was moving up the ladder of becoming middle income earners provided a good
market for affordable personal transport means.

Urban Mobility Solutions: The size of the Nano and its price could have been solution for
transportation problems like narrow roads and traffic congestions in large cities.

Potential for Export Markets: This means that the Nano could have reached out into other
emerging markets globally, with similar urban problems.

 Threats

Competition: One major concern was rivalry from the other Low-Cost vehicles and well
entrenched brands.

Economic Fluctuations: Possibility of sales being affected by cycles such as economic

downturn and fluctuations in buyers’ disposable income.

Regulatory Challenges: Regulatory changes related to safety and emissions could impact the
Nano’s compliance and cost.

Market Perception Issues: This is because there has always been a possibility that other
people and the media in general may give the Nano a bad publicity due to the car’s low price
and issues of safety.

Several strengths, weakness, opportunities and threats have been identified from the SWOT
analysis. Strengths that have been seen when analysing the Tata Nano include the innovative
pricing system and small size of the car, but the weaknesses include the quality, perception
and challenges with production of the car. Opportunities include the emerging middle income
population and transport in urban areas. Threats include competitors and fluctuation in
economic trends. This analysis gives a framework that may be utilized to explain the various
events that led to the Nano’s poor market performance with intent to help with similar
projects in the future.
  It was evident that Tata Nano was not able to achieve core competency from its
resources and capabilities. This was a cause which might have contributed to the
failure of the Tata Nano. Core competency is a management theory introduced by
C.K. Prahalad and Gary Hamel. It is a harmonised combination of multiple resources
and skills that distinguish a firm in the marketplace and are therefore the foundation
of companies’ competitiveness. In order to be considered as a core competency, every
resource and capability of the company needs to go through three tests. For a resource
or capability to be classed as core competency they must satisfy these three criteria as
follows:
- They must provide potential access to a wide variety of markets
- They should make a significant contribution to the perceived customer benefits of
the end product.
- The resource and capability must be difficult to imitate by competitors.

In the case of Tata Nano, the product did not make a significant contribution to the perceived
customer benefit as people visualised it as a cheap car with significant compromise in quality.
While the Nano was intended to attract middle class buyers, the significance and importance
of social status hugely impacted people’s thoughts on being associated with a “cheap car”.
Besides, the product was relatively easy to be imitated by competitors as the case by Alam &
Majumdar, (2011) mentions that their product is threatened by competition from other
competitors who are following their footsteps.

 Another important cause of their failure is the strategy that they implemented. A
company’s strategy is one of the most important factor that determine the company’s
success. Strategy is defined as the competitive moves and business approaches
management employs in running a company. As mentioned earlier, Tata Nano used
the overall cost leadership strategy to attain competitive advantage. The cost
leadership strategy is based on creating a low-cost position or achieving low cost
relative to rivals year after year. In order to achieve low-cost leadership, a firm must
attempt to cut costs through their entire value chain. A value chain is the sequence of
activities a firm undertakes to create value. There are primary activities and secondary
activities in the value chain. Primary activities are the supporting activities of the
value chain that refer to the physical creation of the product or service, the sale of the
 product and transfer to the buyer and its after sales services including inbound
logistics, outbound logistics, marketing and sales services. Support activities are
activities that either add value by themselves or add value through important
relationships both primary and other support activities including procurement
technology development, human resource management and general administration.
Therefore, by maintaining cost reduction through out the value chain, Tata Nano was
fulfilling the overall low cost leadership strategy effectively.

However, the issue came in when the Tata Nano was branded as the world’s cheapest car and
this caused wrong perception about the quality and status of the car. The substantial
difference in price of the Nano compared to the prices of other automobiles made the car
seem substandard. While the Nano aimed to provide an affordable entry into car ownership
for the masses, the price point led some consumers to question the vehicle’s reliability and
quality, making it less desirable compared to more expensive alternatives. The concentration
on the low price without considering other features such as safety or innovation discouraged a
segment of buyers who were ready to pay slightly more for a better quality car. Focusing only
on one or few parts of the value chain is a common pitfall of the low cost leadership that Tata
Nano tripped into.

 Lack of Conformity Between the Design and the Market Requirements

Another issue that affected Nano’s sales was that while the car’s design was as basic as
possible, in order to cut unnecessary production expenses it did not fulfil the expectations of
the potential buyer. The value and features expected by the buyers were not fully offered by
the Nano.

The manufacturer employed several techniques to keep costs low, including cutting down on
parts by:

- Using one windscreen wiper instead of two

- Removing airbags altogether
- Providing a thinner and lighter spare tire
- Making the fuel inlet only accessible through the front hood
- Adding only one wing mirror
In order to keep price at such a level that most other cars cannot compete with it led to
removal off many basic features that are normally associated with a standard car model.
Standard comforts and conveniences such as air conditioning and power operating windows
were missing and a number of buyers chose vehicles with better-equipped models at slightly
higher prices. Despite being cheaper compared to cars in the same class, its inability to offer
some kinds of features and additional comfort made it less appealing in a market where
consumers increasingly valued more feature-rich vehicles.

 Negative Publicity and Safety Concerns

Another problem that the Tata Nano encountered is media dissemination of negative images
such as safety hazards. Such publicity dampened the Nano’s image resulting in loss of
confidence from consumers and strained the market image of the vehicle in question.

 Environmental Concerns

There were many environmental concerns too for which Tata Nano faced controversy. The
cheap price of the Tata Nano made it easily accessible to the mass public which could lead to
excess pollution and global warming. As the case states, being a cheap car, the Nano lacked
the complex technology to maintain the required level of emission and as a result Nano’s
pollution rate was four or five times higher than other vehicles (Alam & Majumdar, 2011).
This kind of environmental concern and negative publicity about the Nano prevented many
people from wanting to purchase the Nano.

Well-Designed Vehicle?

Despite its failure, the Nano was an engineering accomplishment. It was able to achieve
demanding cost and performance targets and owing to its small size and light weight it was
very economical in terms of fuel consumption. From its inception, the design and
construction of the vehicle were designed with cost of operation and manoeuvrability in the
most congested parts of the world in mind. Nonetheless, key features and perceptions of
relatively higher quality were missing which overshadowed its design innovations.

My Thoughts:

The Tata Nano was a good innovation that was not well executed wholly and partially owing
to a reality check in the execution process. Although, it was devised to fit certain cost-targets,
the cost-led strategy negated the importance of developing an image that reflects the buyer’s
aspiration. Consumers not only purchase automobiles for functional needs but they also look
for psychological and prestige motives. The failure to balance affordability with these
features resulted in the downfall of Nano. In my opinion, the Nano should have adopted a
Focused/Niche cost leadership strategy. A focus strategy is an integrated set of actions
designed to produce or deliver goods or services that serve the needs of a particular
competitive segment. The Niche strategy involves concentrated attention on a narrow piece of
the market in order to serve niche buyers better than rivals. If Tata Nano adopted a focused
cost leadership strategy, they could have focused on a niche market where buyers have
distinctive preferences, special requirements or unique needs. In that way Tata Nano would
be able to target the low income group of people who are looking to own a car without being
too concerned about its features. Through targeting the middle income group of customers,
Tata Nano was offering their “cheap” product to those people who didn’t mind paying a little
more for a better quality car. In my opinion, by targeting the low income group unable to
afford quality features besides following the low cost leadership, Tata would have been able
to get popularity with their basic quality Nano.
Q3) What lesson can be learnt by competitors considering Tata Nano’s failure? Explain.

The Tata Nano case provides clear lessons for rivals and other organizations who plan on
doing similar projects. Therefore, examining the causes of Nano’s failure to capture the
market businesses can help others avoid such situations and come up with better strategies.
Here are key lessons and insights derived from the Tata Nano’s experience:

1. Branding and Market Perceptions

This means that the strategies used in development of the prices must correspond with the
market perception and the expectations that are held within the market.

One of the main insights that can be derived from Tata Nano’s failure is its branding issue and
its relation to consumers’ expectations. The Nano was branded as the ‘cheapest car’ and this
turned away potential buyers because people wanted to avoid the stigma of being associated
with a cheap item. Therefore, while branding, companies should be cautious to avoid
deterring consumers with the affordability aspect and make sure to mark affordability
positively as ‘value for money’ instead of ‘cheap’. For example, a company seeking to launch
a budget friendly version of a product should make sure that it does not offer a substandard
product and neither should it be associated with poor quality or have missing important
features. Therefore, today’s car manufacturers like Hyundai and Kia have been able to
manufacture inexpensive cars by balancing cost and quality.

2. Balance Cost and Value

Ensure that the cost cuts do not greatly reduce the customers’ perceptions of value. According
to research conducted, cutting features in an effort to reduce the price can be harmful for a
business. Due to the absence of such simple bodily comforts as power control of the windows
and air conditioning, the Nano was less appealing especially if one could get a car with better
features at a slightly higher price. The most important thing is to find that ‘sweet spot’, where
cost doesn’t exclude quality. But, to avoid under-cutting the perceived value of the product,
care must be taken not to allow cost-saving exercise to become fully dominant. For example,
automobile giants such as Toyota and Honda are able to provide competitive pricing for their
automobiles without sacrificing the quality and the features of the automobiles they produce.
As a result, there is no compromise in the quality of automobiles due to their cost restraints.

3. Understanding Consumer Aspirations:

In developing markets such as India, products must align with social trends and aspirations.
These consistencies can be summed into the fact that while the Nano was aimed at meeting
the needs of the low-budget customers, it did not account for the status symbol that
consumers expect from car ownership in India. Future companies should carry out detailed
market analysis so that product is not displeasing to the consumers due to its concentrating of
offering low prices at the expense of the other factors.

4. Competitors should carry out thorough analysis of the external environment of an

industry before bringing their product to the market. A company should perform the
following measures to carry out environmental analysis effectively:

- Environmental scanning: This entails monitoring the external environment of the

company in order to anticipate changes in the environment and identify those that
have already occurred. This alerts the organisation and enable it to recognise
emerging trends before competitors recognise them. It was important for Tata Nano
to understand the fact that the government were wanting to reduce the pollution
level and traffic in India. At this point of time, it was not a wise idea for Tata Nano
to come up with a cheap car which would be easily accessible to people. Due to
their lack of proper environmental analysis their product got into conflict with the
government’s motive of encouraging public transport.

- Environmental Monitoring: The evolution of environmental trends, event

sequences or activity streams is tracked by environmental monitoring. This makes it
possible for a business to assess how much environmental changes are altering the
competitive marketplace.
 - Competitive Intelligence: Competitive intelligence helps firms to define and
understand their industry and identify rival’s strengths and weaknesses. This
includes collecting data on competitors and interpreting such data. Alam &
Majumdar, (2011) says that in the future, Tata Motor’s growth may be threatened by
competition from other companies who are following the footsteps of Tata Motors.
This indicates that there is presence of huge pressure of substitute companies in the
industry. Therefore, other companies can take a lesson from Nano’s case that they
should plan ahead and identify how to differentiate their products from substitutes
and create value before entering the market.

- SWOT Analysis: companies should perform a SWOT Analysis before producing a

product in a market to understand about their strength, weaknesses, opportunities
and threat in comparison to their rivals.

- Environmental Forecasting: entails creating potential forecasts on the patterns,

extent, rate and severity of environmental change. Forecasting carries the risk that
managers may see uncertainty as either yes or no, missing the grey space between
the two.

- Scenario Analysis: This is a thorough method of environmental forecasting that

incorporates in-depth evaluations by specialists of internal environment factors such
as politics, technology, social trends and economics.
-

Therefore, from the failure of Tata Nano, other companies can learn the importance of
organisations to look externally in order to be able to sense in advance what is coming. This
ability is called perceptual acuity. This process involves three important tasks which are:

- scanning
- monitoring
- gathering competitive intelligence to be used to develop forecasts

5. Focus on Brand Positioning

Brand awareness strategy is another critical aspect that companies need to address. Branding
is the process of positioning a product in the perception of the target market.

The positioning strategy associated with the Nano as the “world’s cheapest car” created
unintentional perceptions about the car’s quality. It is important that competitors should be
very strategic in their choice of brand positioning that would reveal their strengths and
benefits in a way that is not coated with negatives. For example, car manufacturers such as
BMW and Mercedes Benz underline luxury and high performance for the brand, hence
aligning with the customers’ desire and dreams. Through learning these lessons from such
experiences, organizations can improve their survival rates in the prevailing business
environment.
Q4) How to diagnose the causes of poor performance? Discuss giving examples from
Tata group and Tata Nano.

In order to diagnose the causes of poor performance, companies can carry out competitor
analysis, identify the critical success factors or take a resource based view of the firm. Each
of these are explained below.

 Competitor Analysis:

Competitive analysis of rivals who sold cars with better features at slightly higher price could
have also pointed out the deficiencies of Tata Nano. It is important for companies to regularly
analyse competitors’ advantages and disadvantages and adapt their products in response.
Companies can do so by performing competitor intelligence. Competitor intelligence is the
ethical gathering of needed information and data that provides insights into the competitors.
In the case of Tata Nano, carrying out competitor analysis of their closest rivals like
Maruti800 and Bajaj Auto would be essential to identify the following information:

- Future objectives of the competitors like Maruti 800 and Bajaj Auto to identify what
strategies they are following.

- The competition's present strategy, or what the competitor is doing right now.

- The competitor's assumptions i.e. what the competitor thinks about their company
and the market.

- Competitor capabilities as well as the advantages and disadvantages of their

company.

However, it is crucial to make sure the company considers their competitors' strategic group
or strategic block while conducting competitor analysis. Groups of businesses within an
industry that have denser strategic links amongst one another than with other businesses in
the sector are known as strategic blocks. In an industry, a rival grouping that employs
comparable tactics that set them apart from other industry groupings is known as a strategic
group. For instance, the car sector has its share of strategic groupings. Porsche, Ferrari, and
Lamborghini are regarded as a strategic group. General Motors, Ford and Toyota are regarded
as a strategic group. Competitors who are far away are not seen as strategic group. As an
illustration, Ferrari and BMW are hardly viewed as rivals. Therefore, while doing competitor
analysis, companies must maintain their strategic groups to get correct results.

 Critical success factors:

Businesses need to assess what makes them successful. The elements that have a significant
impact on an industry member's capacity to thrive in the marketplace are known as critical
success factors. Product qualities, resources, competitive capabilities, competences and
business outcomes that make the difference between profit and loss are examples of critical
success factors. Three enquiries can be used to determine critical factors. They are:

1)What factors consumers use to compare different seller brands? What qualities do they
search for in a product?

2) What resources and competitive capabilities does a seller need to have to gain competitive
advantage

3) What does it take for sellers to achieve a sustainable competitive advantage.

In the case of Tata Nano and the automobile industry, consumers in general prefer long-
lasting, strong and well-built automobiles that can guarantee good performance in the long
run. Customers have high levels of expectation in safety, performance and durability of their
cars. Thus, Tata Nano not addressing these customer needs is among the reasons that led to
their poor performance.

 A resource based view of the firm (RBV)

Taking a resource-based view (RBV) of the firm can help diagnose the causes of poor
performance. According to the resource-based view of the company, a firm's competitive
advantages stem from its possession of strategic resources that are uncommon, valuable,
expensive to replicate, and expensive to substitute.

Two perspectives are combined in the RBV:

 1) The internal analysis of phenomena within a company
2) An external analysis of the industry and its competitive environment.

As a result, the RBV is a highly helpful framework for understanding why certain rivals
outperform others in terms of profitability. The RBV is useful in helping to establish
strategies for both individual companies and diversified enterprises since it shows how a
company's core capabilities may help it take advantage of new products and market
possibilities.

 Management of Brand Equity

Lastly, management of brand equity is an important strategy that assists automobile makers
differentiate their products. For those companies that have built a favourable brand image, it
means that those companies can well ask for high prices and retain customer loyalty.
Moreover, identifying customers’ needs and positioning the product as a unique consumable
good that can be customized either in design or buying options or even after sales service is a
critical factor. It has also been observed that companies that heavily invest in building a
relationship with the customers are likely to retain more clients in the market compared with
their rivals within the automobile manufacturing industry.

In conclusion, following the factors discussed above will allow companies like Tata Nano and
Tata Group to diagnose the causes of their poor performance.

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