Tata's Nano: An Ingenious Coup

Critics who focus on cost, environmental, or safety aspects of the Indian automaker's "people's car" are missing the point

by Harold Sirkin

The media have been going gaga over Tata, more specifically over Indian automaker Tata Motors' new Nano, the "one lakh" (100,000 rupees, or approximately $2,500 U.S.) car.

Ralph Kinney Bennett, for example, a longtime car buff, classic Cadillac collector, and for many years a senior magazine editor, hails the new four-door compact sedan as "the next Model T Ford or Volkswagen Beetle." The Model T, of course, introduced in 1908—exactly 100 years ago—became what auto historians see as "the archetype of the American mass-produced gasoline automobile."

Writing in the January/February issue of The American, a magazine for U.S. business and opinion leaders published by the American Enterprise Institute, Bennett says, "…the people at Tata know something that others seem to have forgotten. They have proven adept at learning not just the needs but the hopes and desires of their customer base."

Filling a Need Profitably

Don't forget, Bennett reminds us, Tata already has proven that it's a first-rate innovator, designing and building the Ace, a durable, low-cost half-ton pickup truck that sells in India for just over $5,000. While Bennett seems to understand that Tata's new "people's car" is an example of corporate ingenuity at its best, other journalists have missed this bigger point, focusing instead on whether the company can meet its cost target. Or whether the new vehicle could possibly meet U.S. and European environmental and safety standards.

Who cares? These things are beside the point. What does matter is that a highly creative company—in this case a company native to one of the world's rapidly developing economies (RDEs)—recognized a need and saw an opportunity to fill it profitably. Today's global leaders, whether from North America, Europe, or elsewhere, better take note.

Innovation, of course, is the engine that drives business. Any business that doesn't innovate—with new products, processes, financing arrangements, new ways of thinking about customers, new ways to deliver goods and services to market—probably won't prosper.

R&D Isn't Everything

As we point out in our upcoming book, Globality: Competing with Everyone from Everywhere for Everything, innovation takes many forms. While very important, research and development activities are just one part of the equation.

If one looks only at R&D expenditures, most RDE-based companies would appear to be severely handicapped. For example, while ZTE, a leading Chinese telecom equipment manufacturer, spent a reported $360 million in 2006—or 12% of its $3 billion in revenues—on R&D, Motorola (MOT) that year spent nearly 10 times the amount. Indeed, Motorola's 2006 R&D spending exceeded ZTE's total revenues.

Similarly, while Ranbaxy Laboratories, a leading Indian pharmaceutical company, spent a reported $87 million on R&D in 2006, GlaxoSmithKline in 2004 spent some 60 times that amount: approximately $5.2 billion.

Western Companies Must Embrace Ingenuity

R&D expenditures are simply inputs, of course. To measure R&D prowess one also needs to look at the results of these expenditures. And there are few better measures of that than new patents. And here, too, RDE-based companies would appear to be at a huge disadvantage. As we note in Globality, from 1999 to 2003, companies based in China, India, Russia, Brazil, and Mexico—the five fastest-growing RDEs—were granted 3,900 U.S. patents. But during that same period of time, U.S. companies were granted 399,000 patents: 100 times the number.