The Indian Economy Blog

October 27, 2005

McKinsey Quarterly Interviews Ratan Tata

Filed under: Business — Reuben Abraham @ 9:58 pm

A couple days back, Yazad had linked to a Newsweek profile of the Tata Group, describing them as a kinder, gentler, multi-national. The McKinsey Quarterly picks up on the same theme in this interview with Ratan Tata.

On the economics of the people’s car.

Today we’re producing a $7,000 car, the Indica. Here we’re talking about a $2,200 car, which will be smaller and will be produced in larger volumes, with all the high-volume parts manufactured in one plant. We’re also looking at more use of plastics on the body and at a very low-cost assembly operation, with some use of modern-day adhesives instead of welding. But the car is in every way a car, with an engine, a suspension, and a steering system designed for its size. We will meet all the emissions requirements. We now have some issues concerning safety, mainly because of the car’s modest size, but we will resolve them before the car reaches the market, in about three years’ time.

In addition—and this again touches on the social dimension—we’re looking at small satellite units, with very low breakeven points, where some of the cars could be assembled, sold, and serviced. We would encourage local entrepreneurs to invest in these units, and we would train these entrepreneurs to assemble the fully knocked-down or semi-knocked-down components that we would send to them, and they would also sell the assembled vehicles and arrange for their servicing. This approach would replace the dealer, and therefore the dealer’s margin, with an assembly-cum-retail operation that would be combined with very low-cost service facilities.

On the budget hotel chain

It’s exactly the same as the philosophy for the car, and it’s a philosophy that’s also being thrown out as a challenge to our watch company—why can’t we produce a watch at a much lower price to go on everyone’s wrist? The mandate has gone out to our people that we now really need to look seriously at the needs of the larger part of the Indian income pyramid, where most consumers can be found.3 If we don’t do that, I think the Chinese will come and do it for us.

Why Tata has not entered China in a big way

We haven’t found what we can do as yet in China. It’s been very difficult to understand the market, at least for me. It is a market that seems, on the one hand, subservient to international brands and, on the other, very price conscious and very willing to buy unbranded products or local brands. It’s pricing isn’t fully comprehensible. In Beijing, you know, I was taken to some little alley where watches and clothing were sold. The watches were extremely attractive and very similar to known brands, but some had stopwatch buttons that didn’t work. So I don’t really understand the Chinese market. But if we could identify the right product, I think we would move in there.

On the roadblocks to industry in India

In some areas, rules and laws are more investor friendly in India than they are in some other countries, and in some areas they are less so. Most investors today cite caps on foreign investments as a deterrent. But there are sectors where even 100 percent is permitted, and you don’t see people rushing in there. India has an impeccable record of repatriation of profits, so it’s not that, either. But a new investor looking at India does run up against different ministries, with each one seeming to have a different angle on the investment and throwing up roadblocks. So companies don’t really come in as they do in China or Singapore, where they get clearance and are free to start their operations quickly. And once investors are in India, they quite often find that one bureaucrat interprets the law differently from another bureaucrat. All of us in India live with this. You can have an excise official in Maharashtra who takes a different view of the duty structure than an excise person in Bihar does. You’ll go to court and fight that, but you’re used to it. But a US, European, or Japanese company finds this terribly debilitating and gets all upset over it.


  1. “Today we’re producing a $7,000 car, the Indica. Here we’re talking about a $2,200 car, which will be smaller and will be produced in larger volumes, ”

    1. Is it going to be smaller than Indica ? ;-)

    2. I have hearing this 1 Lakh car for a long time now..

    Comment by Navin — October 28, 2005 @ 12:30 pm

  2. “We now have some issues concerning safety, mainly because of the car’s modest size…”

    It does look like it will be smaller. However, it is true that we’ve heard of this 1 lakh car for quite a while now. What is not clear is that if they plan to release the car after another 3 years, are they going to take inflation into account or are they going to stick with the 1 Lak figure…

    Comment by Parijat Garg — October 29, 2005 @ 1:02 am

  3. I have hearing this 1 Lakh car for a long time now..

    You never seen it? I’ve seen it in a couple of ‘The Flintstones’ episodes ;)

    Comment by Abhi — October 30, 2005 @ 12:32 am

  4. Parijit,
    I think they are covering the inflation by displacing the 1 Lakh figure with a $2,200 . ;-)

    Oh the Flintstones car ? Excellent.

    Is this car promise like the Atal Behari Vajpayees promise to land a man on the moon in 15 years ??

    Comment by Navin — October 30, 2005 @ 7:46 am

  5. It is possible, if you team up with right people with right skills.In terms of engine it can be a 2 cylinder engine with battery powered hybrid with electric transmission can get you car with 1 lakh proice tag.For safety you can have a all round air bag.

    Comment by GIJO MATHEW — June 25, 2006 @ 7:56 pm

  6. I guess we should be supportive to TATA group as they have lived up to the commitments and are trying to give Indians an affordable car.

    Comment by Guruprasad — June 29, 2006 @ 2:34 pm

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