The announcement of the TATA Nano (commonly called the 1 lakh or $2500 car - http://tatanano.inservices.tatamotors.com/tatamotors/) has brought the concept of frugal engineering to the forefront. Business leaders like Ghosn the CEO of Renault and Nissan have adopted with good intention the theme of frugal engineering and evangelized India as a frugal engineering hub. Ghosn seems to focus on engineering with less. Ghosn says "Frugal engineering is achieving more with fewer resources. The cost of developing a product in the West is high since engineers there use more expensive tools. In India, they achieve a lot more with fewer resources," (http://www.dnaindia.com/report.asp?newsid=1130636)
The sentiment that frugal engineering is about engineering with less is wrong. Successful products including frugally engineered products always start with the customer. The customers in the developing world are demanding useful features that benefit them in improving their quality of life. If the Nano succeeds as many people expect, then it is because the Nano meets the needs of the customer within their budgetary constraints.
The danger from Ghosn’s interpretation is that companies will only look to designing or engineering products cheaper. This will lead to short term gains but will not address the challenges they will face in business from emerging markets.
Engineering teams in the developing world, working for local companies are addressing local needs. Often simple low cost solutions like the Nano will make a huge difference to the quality of life to a large number of people. There are a number of companies in developing countries that are successful, but not on the radar screens of large corporations who are perceived market leaders in their fields. Look at the Indian http://www.icsa-india.com/ in the infrastructure electronics space , the Chinese http://www.suntech-power.com/ in the solar energy space, the Malaysian http://www.agni-inc.com/ in the fuel cell space. These companies and many more initially cater to the developing world, which in effect forces them to frugally engineer products, they build tremendous mass – all under the radar of the established players, and then are in a position to be truly global companies. Ghosn and the like should be spending energy on understanding the customer needs in the developing world as opposed to just reducing the cost of engineering. On a parting note, I think the next phase of business success will entail the globalization of frugally engineered products. These products will initially be tremendously successful in the local developing markets, and then there will be enhancements to meet the needs of the customers in the developed world.
2 comments:
Mr. Ghosn listening to you?
http://www.forbes.com/markets/economy/2008/05/12/renault-bajaj-nissan-markets-equity-cx_vr_0512markets09.html
Let me just post the article:
Renault Gives Tata A Run For Its Money
Vidya Ram, 05.12.08, 9:35 AM ET
LONDON -
It was only a matter of time before India's Tata Motors saw competition against the bargain-basement car it unveiled in January.
On Monday, India's largest maker of motorcycles, Bajaj Auto (other-otc: BJAUF - news - people ), unveiled a joint venture with Renault and Nissan to produce a $2,500 car for the Indian market. Bajaj will own a 50.0% stake in the venture, while the rest will be split equally between Nissan and Renault.
The car, code-named ULC, will go on sale from 2011. Initial planned capacity will be 400,000 units a year, and though India will be the primary market, the companies said they would be looking at the potential for selling the car in other emerging markets.
A spokeswoman for Renault said the model would be a four-seater, family car with manual transition. "We are targeting new entrants onto the Indian auto market."
The ULC and Tata Motor's Nano, which is expected to go on sale in the second half of 2008, are targeting a gap in the Indian auto market for cheap cars. Though incomes are rising, cars are still out of reach for most of India's population. The cheapest car currently available in India is the Maruti 800, produced by Suzuki, which costs around 200,000 rupees ($4,767), while higher range motorbikes cost around 80,000 rupees ($1,907).
"The potential is huge," said Deepak Jain, an analyst at Anand Rathi Securities in Delhi. "There is a big market for a car which is positioned in the middle of this price range."
He said that while Tata Motors (nyse: TTM - news - people ) may have first mover advantage, the size of India's auto market meant there was still plenty of room for growth. While the market for motorcycles is gradually becoming saturated, there are just nine cars per thousand people in India, compared to 800 per thousand in the United States.
According to Pierre-Yves Quemener, an analyst at Landsbanki-Keplier equities in Paris, the market for low-cost cars in India is expected to increase from to around 15 million units in 2015, from 1 million, in 2008.
Renault already has a presence in India, where it produces the low-cost Logan sedan though a venture with automaker Mahinda & Mahindra.
Renault (other-otc: RNSDY - news - people ) shares fell 5.3%, to 66.47 euros ($102.71), on Monday afternoon in Paris, ahead of the release of affiliate Nissan's annual results on Tuesday.
Renault's shares have been rallying in recent weeks, but there is concern that the figures on Tuesday could disappoint. Bajaj closed down 2.6%, at 682.15 rupees ($16.26), in Mumbai, while Nissan closed down 1.6%, at 930 Japanese yen ($8.97), in Tokyo, on Monday.
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