ICFAI UNIVERSITY, DEHRADUN

ASSIGNMENT – I
Swati Roy
1. Name

2. IUD Number 0901203127

3. Enrollment Number 09BS0003127

4. Course Code SLGM 611

5. Course Title Business Strategy-I

6. Name of Faculty Prof. Surjya Brat

Semester
7. III (Class of 2011)
D
8. Section

Description of the ANALYZING TATA NANO USING THE PORTERS 5 FORCES MODEL
9. assignment

10. Date Of Submission 21st July, 2010

Student Signature Faculty Signature

 ANALYZING TATA NANO USING THE PORTERS 5 FORCES MODEL
OBJECTIVE: - To analyze Tata Nano using the porters 5 forces model.

METHODOLOGY: - Doing an analysis of the market and analyzing the challenges and
strategies for successful selling through Tata Nano using the porters 5 forces model.

WHAT IS PORTERS 5 FORCES MODEL:-

THREAT OF NEW ENTRANTS

BERGAINING RIVALRY AMONG

BERGAINING POWER
POWER OF COMPETIMNG FIRMS
OF THE BUYER
SUPPLIER

THREAT OF SUBSTITUTE
PRODUCT

THREAT OF NEW ENTRANTS:-

 Economies of Scale
 Product Differentiation
 Capital Requirements
 Switching Costs
 Access to Distribution Channels
 Cost Disadvantages Independent of Scale
 Government Policy
 Expected Retaliation

BARGAINING POWER OF SUPPLIERS:-

 Supplier industry is dominated by a few firms

 Suppliers’ products have few substitutes
  Buyer is not an important customer to supplier
 Suppliers’ product is an important input to buyers’ product
 Suppliers’ products are differentiated
 Suppliers’ products have high switching costs
 Supplier poses credible threat of forward integration
 Powerful suppliers can squeeze industry profitability if firms are unable to recover cost
increases

BARGAINING POWER OF BUYERS:-

 Buyers are concentrated or purchases are large relative to seller’s sales

 Purchase accounts for a significant fraction of supplier’s sales
 Products are undifferentiated
 Buyers face few switching costs
 Buyers’ industry earns low profits
 Buyer presents a credible threat of backward integration
 Product unimportant to quality
 Buyer has full information

THREAT OF SUBSTITUTE PRODUCTS:-

 Products with improving price/performance tradeoffs relative to present industry products

 Electronic security systems in place of security guards
 Fax machines in place of overnight mail delivery

RIVALRY AMONG EXISTING COMPETITORS:-

 Jockeying for strategic position

 Using price competition
 Staging advertising battles
 Increasing consumer warranties or service
 Making new product introductions
 Occurs when a firm is pressured or sees an opportunity
 Price competition often leaves the entire industry worse off
 Advertising battles may increase total industry demand, but may be costly to smaller
competitors.
 INTRODUCTION TO TATA NANO:-

The introduction of the Nano received media attention due to its targeted low price. The
Financial Times reported. If ever there were a symbol of India’s ambitions to become a modern
nation, it would surely be the Nano, the tiny car with the even tinier price-tag. A triumph of
homegrown engineering, the $2,200 (€1,490, £1,186) Nano encapsulates the dream of millions
of Indians groping for a shot at urban prosperity. The car is expected to boost the Indian
economy, create entrepreneurial-opportunities across India, as well as expand the Indian car
market by 65%. The car was envisioned by Ratan Tata, Chairman of the Tata Group and Tata
Motors, who has described it as an eco-friendly "people's car". Nano has been greatly
appreciated by many sources and the media for its low-cost and eco-friendly initiatives which
include using compressed-air as fuel and an electric-version (E-Nano). Tata Group is expected to
mass-manufacture the Nano, particularly the electric-version, and, besides selling them in India,
to also export them worldwide.

Critics of the car have questioned its safety in India (where reportedly 90,000 people are killed in
road-accidents every year, and have also criticized the pollution that it would cause (including
criticism by Intergovernmental Panel on Climate Change chairman Rajendra Pachauri. However,
Tata Motors has promised that it would definitely release Nano's eco-friendly models alongside
the gasoline-model.

The Nano was originally to have been manufactured at a new factory in Singur, West Bengal, but
increasingly violent protests forced Tata to pull out October 2008. (See Singur factory pullout
below.) . The Tata Motors plant spread over an area of 725 acres inaugurated on 2nd June 2010
in Sanand (Gujurat) with a capacity of 250,000 cars per annum is the main venue for Nano
production, however at present it will be supplemented from its plant at Pantnagar (Uttarakhand).

Tata Nano is a rear-engined, four-passenger city car built by Tata Motors, aimed primarily at the
Indian market. It is the cheapest car in the world today. The car has a fuel efficiency of around
26 kilometers per litre (73 mpg- 61 mpg-US) on the highway and around 22 kilometers per litre
(62 mpg; 52 mpg) in the city. It debuted at the 9th annual Auto Expo on January 11, 2008, at
Pragati Maidan in New Delhi, India. The Nano had its commercial launch on March 23, 2009,
and a booking period from April 9 to April 25, generating more than 200,000 bookings for the
car. The cars started to be delivered to customers after July 17, 2009, with a starting price of Rs
100,000.

The auto manufacturing industry is considered to be highly capital intensive and labour

intensive. The major costs for producing and selling automobiles includes labour, material and
advertising. There are other developments in the automobile industry that you must consider
when analyzing an automobile company.
 APPLYING PORTER’S FIVE FORCE MODEL TO TATA NANO

(1) THREAT OF NEW ENTRANTS: -Indian compact car market seems to be getting hotter, with
not only better car models, but also the intensity of the competition in the segment. The market
which is growing at 20-25% annually is attracting international player like Volkswagen, Toyota,
Nissan and Ford, all of whom are expected to come up with a number of new launches in this
segment of the Indian car market. The new players plan to differentiate their products through
competitive pricing and additional features like added space, fuel efficiency and better
performance. It seems like competition is set to go to a whole new level for existing players in
the market.

The way in which Nano is produce such a methods will lead to even more new manufacturing
innovations to offer affordable cars to consumers. New entrants in this category need to address
various challenges such as inflation, low-price barriers, substantial changes in raw material
prices, and government regulations, for example vehicles above 650cc pay excise taxes in India,
but with 624cc engine, the Nano is exempt.  Achieving a US$2,500 will be difficult for any
carmaker, but going forward more automakers will develop low cost cars. It takes 4 to 5 years
and a huge investment for a car maker to design and build a low cost car, which itself has low
margins. So, there is threat of new entrant to Nano in the long run.

(2) RIVALRY AMONG EXISTING FIRMS: - The small car market in India is very
competitive with players like Maruti Suzuki, Tata Motors, Hyundai etc. which was pretty much
dominated by Maruti. But with launch of Nano the 1 lakh car the whole momentum of the
market has shifted. Maruti is planning to first slash the price of its best-selling model 800cc Alto
which is priced at Rs2.3 lakh. And the price change would be effective only from 2010 once Tata
Motors begins rolling out Nano from its Sanand plant in Gujarat in big number.

The Nano is alleged to have severely affected the used car market in India, as many Indians opt
to wait for the Nano's release rather than buying used cars, such as the Maruti 800, which is
considered as the Nano's nearest competitor. Sales of new Maruti 800s have dropped by 20%,
and used ones by 30% following the unveiling of the Nano. As one automotive journalist
summarizes; “People are asking themselves—and us—why they should pay, say, 250,000
Rupees for a Maruti Alto, when they can wait and get a brand new Nano for less in a few
months’ time, a car that is actually bigger. The launch of Tata Nano is expected to diminish the
sales of the used cars under Rs. 1 Lakh - 2 Lakhs range and also the sales of the other entry level
cars like Maruti 800, Alto, Chevrolet Spark etc. Some companies such as Bajaj is working on a
much less priced car and companies such as Maruti will think of reducing the price of their small
cars. A source in the automobile industry with direct knowledge of the plans said Alto will have
a stripped down version (i.e. basic) to compete with Tata Motors’ small car Nano. It shows there
is threat of rivalry for Nano car.
(3) THREAT OF SUBSTITUTES:- The threat of substitute for Nano car is that of electric car,
the new entrant in the small car sector is the Morbi-based world famous clock-maker Ajanta
group. The company is planning to manufacture an electric car at its unit at Kutch district and
market it at a price lower than Rs 1-lakh Nano. The company is already manufacturing electric
scooters and bikes under ‘Oreva' brand. Production of electric car is not difficult for them as the
technology is almost similar and 70 per cent of its parts can be produced in-house, giving them
an edge over the vehicle's pricing. The Ajanta group is serious in its attempt to keep the basic
price of the proposed car as low as Rs 85,000.

At present, in the electric car segment only Reva car is available in India. Another player in the
small car segment, the Rajkot-based Field Marshal group, is in negotiations with Australian
company Farnow Technologies for a joint venture for a low cost electric car. Tata itself is
believed to be making an electric version of the Nano, called the E-Nano which might well turn
out to be the "world's cheapest electric car" which is more eco-friendly. It's supposed to be as
cheap as the conventional gasoline version. Economic Times reported that the "electric Nano"
would still make good sense for economic, clean and green personal mobility in countries around
the world. Since two-wheeler owners are used to getting 60-70 km per litre, as compared to the
Nano's 20+, the cost of ownership of a Nano is likely to be far higher than that of a two-wheeler.
So there is a high threat of substitutes for Nano as electric cars trying to keep prices lower, less
cost of running as a product differentiation.

(4) THREAT OF BARGAINING POWER OF BUYER: - Tata Motors has to work out their
strategies to meet the challenges of sales and after-sales. The first is to meet the high demand that
is likely to get created. As there would be many first-time customers, the sales force will have to
advise them on issues like running and maintenance of the car. Further, the Indian consumer is
very discerning and the product and after-sales service quality will need to live up to the
consumers' expectations for the Nano to be successful. As the Nano car is made for lower
income group people we can say there is no power in the hands of buyer at present as only Nano
is available in Indian market but soon there will be cheaper car in the Indian market and buyers
will have power to switch to other cars.

(5) THREAT OF BARGAINING POWER OF SUPPLIER: - For Nano about 60 suppliers

collectively spent about Rs. 500 crores ($112.7 million) to locate on the Singur complex.
Suppliers have said that they have the capacity in existing plants to be part of the Tata Nano
launch, if the Tata plant moves to Pantnagar, or even Pune. Other suppliers are willing to stay,
put and use their sheds as warehouses to store the components. The company said most of its
vendor relationships are covered by a “bill marketing” system, where Tata’s bank makes
payments to the vendors, and Tata Motors pays the bank. Tata Motors had set up a so-called
suppliers’ council to address several issues, including delayed payments that were causing
friction between the auto maker and its parts’ suppliers. Rather than a threat to Nano, suppliers
were supporting Tata Motors for launch of Nano and there are overall thousands of suppliers to
TATA Motors.