Wednesday, January 16, 2008

Can Rochester ride the People's Car?

Ratan Tata, Chairman, Tata Group unveiled his company's new "Nano" dubbed the People's car at the 9th Auto Expo in New Delhi, India recently. Priced at $ 2500 (yes, that's just 2 zeroes after the 25) it will be the cheapest car in the market (anywhere in the world). He was motivated to develop this car by a sight very common on Indian roads: entire families riding two wheelers- one kid perched behind the handle bars, the mother riding pillion with a kid clutched in her arms and maybe another one tucked between her and the father driving the bike. He thought he should build a safer vehicle for people who can just afford a two wheeler. Tata realizes the concern of some environmentalists that the popularity of this car can increase crowding and pollution, he does believe that "India desperately needs a mass transit system" but also asks "should (ordinary Indians) be denied the right to individual forms of transport, the right to safety?"

Reactions in the US to this car were as expected - questions about safety, emission standards, fodder for jokes on the late night shows and some smart quips even on regular News shows. However, most people seemed to have missed a point. This car , its pricing and potential success validates the hypothesis proposed by the renowned management guru C.K. Prahalad that there is a "Fortune at the Bottom of the Pyramid"- there is money to be made, sizable amounts of it by making low priced products for the low income segment of the world's population. Another Indian company Bajaj proposes to launch a car in the same price range and Renault's Carlos Ghosn is also talking about launching a $3000 car. With the projected millions of units sale (Car penetration in India is just seven per 1,000 people compared to 550 per 1,000 in countries such as Germany and around 800 per 1000 in the US), even at these low prices the market size is of many Billion dollars. Even if we do not buy this car we can be supplying technology, expertise, components etc to the makers of these cars and their vendors.

Business associations in Rochester and other similar cities should be deliberating on how US companies can leverage their strengths to join this revolution being unleashed in the far hitherto considered to be impoverished parts of the globe. Some may think that Rochester since it does not have a strong automotive manufacturing base (except for Delphi) may not have a role to play. How about some out-of-the-box thinking. Making a car at this price has required a paradigm change. I would think that all manufacturers in sectors like sheet metal working, injection molding, induction welding, composite materials, paints and adhesives etc. can benefit. Vendors in India would be on the lookout for expertise, technical collaboration, products etc. as they try to ramp up their production to meet the new demand. There is definitely an expertise in these areas in Rochester given the supplier base for Xerox, Kodak and their spin-off's. The need is for a systematic evaluation of the opportunity and identifying proper matches for interested Rochester area manufacturers. RBA or some other industry group should take the lead with this. Their role should expand from attracting investors here to exploiting opportunities elsewhere. Both approaches bring jobs and money to the local economy.

We can choose to ride the people’s car wave or just watch as the world drives by in it.

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