Tata cost leadership

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A Presentation on

Prepared by:-

Mehul Rasadiya

Submitted to:-

K.K. Parekh Institute of Management Studies (Amreli)

Cost Leadership Strategy

Ms. Brinda Raycha

COST LEADERSHIP

Cost leadership is a concept developed by Michael Porter,

Used in business strategy.

It describes a way to establish the competitive advantage.

Cost leadership, in basic words, means the lowest cost of operation in the industry. The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience

A company could be the lowest cost producer, yet not offer the lowest-priced products or services.

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COST LEADERSHIP

An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers. Relatively standardized products Features acceptable to many customers Lowest competitive price

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COST LEADERSHIP

Cost saving actions required by this strategy: Building efficient scale facilities Tightly controlling production costs and overhead Minimizing costs of sales, R&D and service Building efficient manufacturing facilities Monitoring costs of activities provided by outsiders Simplifying production processes

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VALUE-CREATING ACTIVITIES FOR COST LEADERSHIP

Cost-effective MIS & Simplified planning Consistent policies & Effecting training Easy-to-use manufacturing technologies Finding low cost raw materials Monitor suppliers’ performances Economies of scale Efficient-scale facilities Effective delivery schedules Low-cost transportation Highly trained sales force Proper pricing

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COST LEADERSHIP STRATEGY: COMPETITORS

Threat of new entrants

Bargaining power of suppliers

Rivalry among

competing firms

Bargaining power of

buyers

Threat of substitute products

Rivalry with Existing Competitors

Due to cost leader’s advantageous position: Rivals hesitate to compete on basis of

price. Lack of price competition leads to

greater profits.

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COST LEADERSHIP STRATEGY: BUYERS



Rivalry among

competing firms

Bargaining power of

buyers


Bargaining Powerof Buyers

Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm.

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COST LEADERSHIP STRATEGY: SUPPLIERS



Rivalry among

competing firms

Bargaining power of

buyers


Bargaining Power of Suppliers Can mitigate suppliers’ power

by: Being able to absorb cost

increases due to low cost position.

Being able to make very large purchases, reducing chance of supplier using power.

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COST LEADERSHIP STRATEGY: NEW ENTRANTS



Rivalryamong

competing firms

Bargaining power of

buyers


The Threat of Potential Entrants Can frighten off new entrants

due to: Their need to enter on a large

scale in order to be cost competitive.

The time it takes to move down the learning curve.

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COST LEADERSHIP STRATEGY: SUBSTITUTES



Rivalryamong

competing firms

Bargaining power of

buyers


ProductSubstitutes

Cost leader is well positioned to: Make investments to be first to

create substitutes. Buy patents developed by

potential substitutes. Lower prices in order to

maintain value position.

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To develop TATA into a world class

Indian car brand for innovative

and superior value vehicles

VISION

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• To be the most admired multi-national

Indian

company producing vehicles that people

love to buy

• To create an organization that people

enjoy

working for doing business with and

investing in

Mission

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“I saw families ridding around on scooters with kids standing up and mother carrying a baby

and sitting Pillion and decided to do something about . It started as an quest for an

affordable transportation solutions.”

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Idea Generation Of Nano

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TATA’s NANO

Why

Nano ?

A Promise is

A Promise – Ratan Tata

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TATA Implemented Cost Leadership Strategy

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Innovation has been the hallmark in the mission for the Nano. It has focused on creating cost effective solutions. A new brand of innovation that makes more out of less.

34 patents have been filed.

Inexpensive solutions availing the existing infrastructure of Tata motors.

Modular design: Components in kit forms that can be easily shipped, assembled and serviced even by local entrepreneurs.

Light weight welded steel platform. Minimum use of steel to reduce weight.

Adoption of rear engine, rear wheel drive.

Elimination of propeller shaft.

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LOGISTICS & SUPPLY CHAIN MANAGEMENT

Mother plant

Manufacture the complete car.

Centralization of purchase .

97% parts locally sourced.

Only 20 companies to supply 70% of components.

Volume commitments. 75% from single source.

Half the vendors will be located near the mother plant.

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JOINT VENTURE

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SWOT Analysis of TATA Nano

HELPFUL HARMFUL

S W

TO20

STRENGTHSSTRENGTHS

Price

MileageStyle

Brand Name

First Innovation21

TATA Nano’s

WEAKNESSESWEAKNESSES

Fiber Body

Low Suspension

Light Weight

Not Suitable for Hilly Areas

Low Space 22

TATA Nano’s

OPPORTUNITIESOPPORTUNITIES

Bikers can motivated

Auto Rickshaw & Second hand market

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TATA Nano’s

!

!THREATSTHREATS

Other Competitors

New Regulations

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TATA Nano’s

TATA produce a Cheapest car Because.. Mother plant Manufacture the complete car. Having best engine technology (FIAT)



Rivalry among

competing firms

Bargaining power of

buyers


Rivalry with Existing Competitors

So no one Competitors are there

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No one other competitors are there because TATA is only one company which are providing cheapest car , so low bargaining power of buyers



Rivalry among

competing firms

Bargaining power of

buyers


Bargaining Powerof Buyers

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Low Bargaining power of Suppliers because…..

97% parts locally sourced. Only 20 companies to supply

70% of components.



Rivalry among

competing firms

Bargaining power of

buyers


Bargaining Power

of Suppliers

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Less possibility of threat of potential EntrantsThreat of new

entrants


Rivalryamong

competing firms

Bargaining power of

buyers


The Threat of Potential Entrants

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Bikes RickshawThreat of new

entrants


Rivalryamong

competing firms

Bargaining power of

buyers


ProductSubstitutes

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ON A THIN MARGIN

Tata’s will barely make any profit in the initial stage. A few experts also predict that they will loose money, as a one lakh car is not feasible.

A low profit model is not a major concern. The concern is to meet the sales target and economy of scale.

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Tata Motors launched the Ace truck in May 2005 for just above Rs 200,000.

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Also launched the cheapest water filter from Tata Chemicals. less than Rs 1000.

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TATA Motors announces that the small car

Will be produced in Singur in West Bengal.

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WHY TATA NANO PULLED OUT OF SINGUR?

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Political Battlefield

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LAND CONTROVERSY

Acquired Land

Compensation

Admitted Mistake

Misunderstanding36

CORPORATE RIVALRY ?

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DESTRUCTIVE POLITICS...

“I once mentioned that if somebody puts a gun to my head, you

either pull the trigger or take the gun away because I will not

move my head. I think Ms.Mamta Banerjee has pulled the

trigger,”

Ratan Tata

Chairman,Tata Motors Ltd.FRONT LINE ,Volume 25 - Issue 22 :: Oct. 25-Nov. 07, 2008. INDIA'S NATIONAL MAGAZINE38

FIGHT FOR NANO BEGINS – AGAIN

• Orissa offered land at Gopalpur

• Maharashtra, Andhra Pradesh, Uttarakhand also made an offer39

West Bengal’s loss another State’s gain

Karnataka 1st to offer

Gujarat offered 3 strategic locations

- Mundra in Kutch district

- Charodi in Sanand &

- Surat

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Winner - Gujarat

Reliable Infrastructure

Locations - Government owned land

Charodi and Chharal villages in Sanand the ultimate choice

“You are stupid if you are not in Gujarat” - Ratan Tata

Vibrant Gujrat

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BENEFITS TO Loan of Rs 9,570 crores

THE DEAL

Rs 2,900 cr. for Nano plant

Rs 6,670 cr. for Infrastructure development

Repayment of Rs 9,570 cr. loan @ 0.1% over 20 years42

THE SWEETNERS 100% exemption on electricity duty

Concessional power tariff

1,100 acre land comes cheap

No stamp duty, Registration and transfer charges

Payment for land in 8 equal annual instalments43

Benefits to Component manufacturers and Vendors

New Investment opportunities and positive sentiment in Gujarat

Benefit to Real estate market

Additional jobs and training opportunities

BENEFITS TO GUJARAT

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Vibrant Gujrat

Win-win situation45

Tata cost leadership

Business

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