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India’s trump card: low-cost production and innovation Print E-mail
Written by Anand   
Wednesday, 12 March 2008
When Tata unveiled the one-lakh Nano ($2,500) in January this year, global automobile giants were forced to sit up and take notice of the Indian car manufacturer’s ability to design, develop and sell a compact car at the lowest possible cost. This comes at a time when the market for low-priced compact cars is on the rise worldwide.


India’s burgeoning car market generates hundreds of thousands of first-time car buyers every year. Over the next five years, economists predict that hundreds of millions of people in emerging markets such as India, China, Russia and Brazil will be looking for cars priced under $10,000.  In western countries, stricter emission norms and rising fuel prices are prompting many European customers to opt for small cars. The German automotive and industrial group, Bosch, says that low-cost vehicles priced at less than €7,000 (INR 429706) could reach a 13 per cent share of the world market in 2010.

Toyota, Renault/Nissan, Bajaj and other car majors are developing low-cost cars for this segment.

India has several advantages to offer international car manufacturers who wish to make the country their hub for producing compact cars. The country offers expertise, low production costs and millions of potential customers. 

India is able to offer world class engineering skills at cut prices.  An engineer whose services might cost INR 4.05 million (USD    
100 000) or more in the US will work for about INR 1.6 million (USD 40,000) in India. Daimler, GM, and Bosch have used this to their advantage and have R&D centers in Bangalore.

Much of India's low-cost production edge comes from cheap labour and a large part of the low-cost assembly in factories and plants is done through manual operations. However this situation is changing fast with companies wanting to increase productivity by automating their lines.

When designing the Nano, Tata was able to shave production costs with their "design to cost" strategy, by challenging its vendors to come up with supplies under pre-set price caps.   

According to Pawan Goenka, head of Mumbai-based Mahindra & Mahindra's automotive business, production costs are further reduced in India by keeping the systems and processes simple .This culture of frugality that pervades the Indian mindset has resulted in manufacturers spending perhaps a quarter of what an established western car maker such as Ford would have spent. Indians are able to build cheaper vehicle platforms by using a more conservative approach to model proliferation and Mahindra's Scorpio SUV is offered in just five options.

Japan’s Suzuki Motor Corporation and South Korea’s Hyundai use India as a manufacturing base for compact cars being sold on global markets.  Automobile manufacturers in India spend less on marketing their cars in India than they would for a vehicle in a developed market.

The drive to cut production costs did not start with the Tatas and their desire to fulfill the dreams of people who would never have come within reach of owning a car. Established carmakers like Toyota and Ford have been finding ways of saving costs in every part of the production process. Toyota is building a plant whose lines will be half the length of their predecessors, it will, however, be able to produce eight rather than three models. Toyota's Takaoka plant will use a welding system that slashes the costs of jigs and tooling, and a paint process that does away with the need to let the base coat dry.

Ford Motor's new Fiesta which was showcased at the Geneva show this week will be sold around the world with minimal tweaks to meet regional preferences. The car, produced by a single design team in Cologne, saved the company the costs of engineering separate cars for Europe, Asia, and North America.

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