Tata's Nano: An Ingenious Coup
The media have been going gaga over Tata, more specifically over Indian automaker Tata Motors' new Nano, the "one lakh" (100,000 rupees, or approximately $2,500 U.S.) car.
Ralph Kinney Bennett, for example, a longtime car buff, classic Cadillac collector, and for many years a senior magazine editor, hails the new four-door compact sedan as "the next Model T Ford or Volkswagen Beetle." The Model T, of course, introduced in 1908—exactly 100 years ago—became what auto historians see as "the archetype of the American mass-produced gasoline automobile."
Writing in the January/February issue of The American, a magazine for U.S. business and opinion leaders published by the American Enterprise Institute, Bennett says, "…the people at Tata know something that others seem to have forgotten. They have proven adept at learning not just the needs but the hopes and desires of their customer base."
Filling a Need Profitably
Don't forget, Bennett reminds us, Tata already has proven that it's a first-rate innovator, designing and building the Ace, a durable, low-cost half-ton pickup truck that sells in India for just over $5,000. While Bennett seems to understand that Tata's new "people's car" is an example of corporate ingenuity at its best, other journalists have missed this bigger point, focusing instead on whether the company can meet its cost target. Or whether the new vehicle could possibly meet U.S. and European environmental and safety standards.
Who cares? These things are beside the point. What does matter is that a highly creative company—in this case a company native to one of the world's rapidly developing economies (RDEs)—recognized a need and saw an opportunity to fill it profitably. Today's global leaders, whether from North America, Europe, or elsewhere, better take note.
Innovation, of course, is the engine that drives business. Any business that doesn't innovate—with new products, processes, financing arrangements, new ways of thinking about customers, new ways to deliver goods and services to market—probably won't prosper.
R&D Isn't Everything
As we point out in our upcoming book, Globality: Competing with Everyone from Everywhere for Everything, innovation takes many forms. While very important, research and development activities are just one part of the equation.
If one looks only at R&D expenditures, most RDE-based companies would appear to be severely handicapped. For example, while ZTE, a leading Chinese telecom equipment manufacturer, spent a reported $360 million in 2006—or 12% of its $3 billion in revenues—on R&D, Motorola (MOT) that year spent nearly 10 times the amount. Indeed, Motorola's 2006 R&D spending exceeded ZTE's total revenues.
Similarly, while Ranbaxy Laboratories, a leading Indian pharmaceutical company, spent a reported $87 million on R&D in 2006, GlaxoSmithKline in 2004 spent some 60 times that amount: approximately $5.2 billion.
Western Companies Must Embrace Ingenuity
R&D expenditures are simply inputs, of course. To measure R&D prowess one also needs to look at the results of these expenditures. And there are few better measures of that than new patents. And here, too, RDE-based companies would appear to be at a huge disadvantage. As we note in Globality, from 1999 to 2003, companies based in China, India, Russia, Brazil, and Mexico—the five fastest-growing RDEs—were granted 3,900 U.S. patents. But during that same period of time, U.S. companies were granted 399,000 patents: 100 times the number.
Do U.S. and other Western companies feel threatened by Tata and other RDE challengers? In most cases, probably not. But perhaps they should.
The reason they should is because many RDE challengers seem to be bringing something extra to the game, and it's not just low wages. It's ingenuity, a key and often overlooked component of innovation. Western companies need to embrace ingenuity and throw away the calculator that calibrates innovative success simply with R&D expenditures.
No Need to Reinvent the Wheel Every Time
Random House Webster's Dictionary describes ingenuity as "the quality of being cleverly inventive or resourceful." As an adjective the word is "ingenious." Think of the word's root: "genius." It is widely recognized (only in retrospect, in many cases) that the most successful companies in the world have a certain genius about them. This will always be true, whether they are rapidly-growing RDE challengers or well-established incumbents.
Like successful entrepreneurs, these companies are cleverly inventive and resourceful. They are facile and fast. They know how to make do with less. They routinely do what others only talk about: think outside the box. And they understand that you don't have to reinvent the wheel all the time. You can be successful by borrowing and adapting somebody else's ideas (business models, technologies, and so forth).
We're not talking about pirating or intellectual-property theft, though that certainly takes place. We're talking about doing what somebody else is doing with a certain clever twist that makes the activity uniquely yours. As Bennett notes in his article about Tata, companies with that something extra in their genetic makeup also seem to be good listeners.
Embraer Listened to Its Customers
While designing its new E-170 regional jet, which incorporates a new "double bubble" configuration, Brazil's Embraer (ERJ) shared its design ideas with airline companies around the world, soliciting and incorporating their feedback. More than 40 airlines responded. The company listened. Not surprisingly, the new E-170, which combines the economy of a regional jet with the comfort of a larger commercial aircraft, has been a huge success.
Whether adapting or starting from scratch, the top RDE challengers also have other common traits: extraordinary curiosity, the willingness—even eagerness—to try new things, and the ability and creativity to change what they are doing at remarkable speed until they are confident they have it right. As Embraer President and CEO Frederico Curado told us, "The real issue is the ability to develop a product in a very short time in a very efficient way…that meets the customer's needs."
Today, when we think of innovation, we usually think of the great U.S., European and Japanese multinationals, with their huge R&D budgets and long lists of patents and successful products. And that may be as it should today. In the future, however, R&D success will not alone be enough. The future belongs to those who innovate with ingenuity.
To remain on top, today's global leaders will need to borrow a page from Tata, Embraer, and other challengers. They'll have to become faster, smarter, and more adaptable, in many cases more like their entrepreneurial former selves.
I'm also gaga over Tata. But to me, it's not about the Nano; it's about the extraordinary company that conceived and found a way to build such a car.