It's hard to think of a product out of emerging Asia that has created as much buzz as the one-lakh car. Tata Motors' new offering - to sell for less that one lakh, or 100,000 rupees - is to be unveiled in New Delhi tomorrow. At the equivalent of $2,500 (U.S.), it will be the cheapest car in the world, costing less than half the amount of the least expensive car on the Indian market today.
As the day of the unveiling approaches, the Indian and international press have been aflutter with speculation about the nature of this exotic little creature. What will it look like (a cute rounded jellybean, says one report)? What will it be called (its nickname is the "People's Car," but Tata has kept the official name secret)? Will it really have a sticker price of less than one lakh (yes, it seems)?
Before it is even launched, the car has given rise to a host of imitators. Volkswagen, Honda, Fiat, Nissan and Toyota all have plans to produce an ultracheap car - no wonder, given that worldwide demand for small cars is expected to grow by nearly a third over the next six years to 27 million a year.
But this is not just a nifty new vehicle that is leading a trend in the global auto market. It's a sign of a whole new approach to doing new business in developing countries - an approach that is being pioneered in India. In the past, companies in emerging economies like India's grew by selling cheap goods to rich countries: blue jeans, tools, children's toys. As they grew more sophisticated, they would begin selling more complex products like computers and machinery.
All of this is happening in India, of course, as it has happened in China. But rather than just cater to the needs of rich countries, Tata and other Indian companies are striving to sell to the Indian masses, too - people with big dreams but modest means.
The one-lakh car is aimed squarely at India's emerging middle class. The target buyer is a struggling family with a television, a fridge and a cellphone or three, but not quite enough money to make the key jump from two wheels (motor scooter) to four (automobile). To them, the one-lakh car is intended to be both a cheap, reliable (and, with more protection than a scooter, relatively safe) means of transport, but also a symbol of arrival. With a potential market of 300 million middle-class Indians, in a country that buys one million new cars a year, it seems like a sure hit.
Other companies are aiming at the broader masses, the 700 million or so who are still poor. They obviously spend less than the middle class, but, then again, there are more of them, so taken together they are a potentially rich market. Indian companies are trying to reach them with cheap, reliable, innovative products that may help relieve their daily struggle.
PC maker Novatium is offering cheap Internet access through home monitors that hook up to the company's central servers at a low monthly cost, freeing consumers from buying a computer that may become obsolete before they pay it off. Another computer maker, HCL, is selling a computer that runs on a battery that can be recharged by pedalling a bicycle.
In health care, the renowned Aravind Eye Care system based in the southern city of Madurai offers cataract operations for $50 to $300 a month, a fraction of the $2,000 or more it would cost in the United States. It performed 200,000 procedures last year.
In banking, companies such as ICICI Bank, Bharti Airtel and HDFC Bank are moving beyond the relatively prosperous cities to offer cheap financial services to rural villagers, 70 per cent of whom have no bank account. ICICI sells personal accident insurance for $2 a year. In hygiene products, companies have reached poorer consumers by selling shampoo in small sachets that make them more tempting to those who hesitate to buy a whole bottle.
Foreign companies, too, have learned to adapt to the Indian reality of rising consumerism but masses of hard-pressed consumers. South Korea's Samsung makes a washing machine specially programmed to resume washing after a power cut, a big selling point in a country where power cuts are routine. It also has a special cycle that won't spin delicate saris into knots.
The low-cost innovation being pioneered by Tata and others could become a big competitive advantage for India as it emerges as a major international economy. About four billion of the world's people are still poor. By one estimate they could be a market worth $13.75-trillion a year if companies try hard enough to make useful things that they can buy for cheap.
Tata's car reportedly has no tachometer, no power steering or power windows and no air conditioning. It's steering column is hollowed out to save on metal. It has just one windshield wiper. With cash-strapped Indian consumers, it's likely to be a big hit.
© The Globe and Mail
