Tuesday, October 26, 2010

Nano Car: Is It Innovation?

Amongst the many genre of articles and books I read I usually keep away from one type by choice. I am intellectually uncomfortable with books or articles that talk about the end of American primacy. Its not because I find the topic disagreeable its just that often such books or articles are disappointing from the perspective of theory and logic. The latest is Time's cover story by Fareed Zakaria, "How to restore the American dream". The article, complete with a graphic depicting a toppled Statue of Liberty, gives some well reasoned cautioning about some challenges facing America today. Then Zakaria slides into tropes comparing China and India with America. Curiously Zakaria, just like the Economist did a few months back, cites the Tata Nano car as sign of innovation taking off in India. He writes:

"Two weeks ago, for example, I sat in a Nano, the revolutionary car being produced by Tata Motors in India. It's a nice, comfortable midgetmobile, much like Mercedes-Benz's Smart car, except that rather than costing $22,000, it costs about $2,400. Tata plans to bring it to the U.S. in two to three years. Properly equipped with air bags and other safety features, it will retail at $7,000. Leave aside the car itself, whose price will surely put a downward pressure on U.S. carmakers. Just think about car parts. Every part in the Nano is made to global standards but manufactured in India at about a tenth of what it would cost in America. When Ford orders its next set of car parts, will they be made in Michigan or Mumbai? "

Zakaria, a most respected columnist and commentator, is just fooling people here with a sleight of hand thats insulting. Comparing a no frills Nano (NO airbags, single windshield wiper, only one side rear view mirror, no air conditioner) with a Smart car that is laden with safety features and comfort features and THEN to cry foul on price is just intellectual chicanery. The Smart car comes with dual airbags, side curtain airbags, ABS, Acceleration Skid Control (ASC) etc etc. 

The crux of Zakaria's article was the threat to the middle class lifestyle in USA. Its unfortunate that he forgot to mention why American cars made in Detroit cost so much. Amongst other factors the one relevant  to us is the Auto Union contracts that ensure pay packages that would make our eyes pop, then add on the luxurious benefit, the almost near impossibility of firing a union worker and others. Compare that to a Nano assembly worker benefits I am sure the latter would not be thrilled. Note, this is not only for the car manufacturers, every ancillary unit related to car manufacturing is unionized and enjoy those benefits. So while Tata may yet pay a good wage the workers in ancillary industries, I am sure, slog at pitiful wages.

While some innovation did go into making the car, the design is not 100% Indian. The most important cost savings came from re-designing the conventional drive shaft by GKN involved drawing in Engineers from its Italian and German operations. Then of course there is the Wal-Mart philosophy of squeezing cost out of every supplier. Zakaria glides by all that.

Much of the cost comes from sheer "wage arbitration" of manufacturing in a country where regulations are lax concerning mandatory safety for the product, workers are ill-protected at work, related insurance costs are next-to-nothing. US car manufacturers have to abide by umpteen legislative mandates, workers are covered by exhaustive protections against injury by law (and the laws are enforced). Zakaria forgets to note that the average salary of IT workers have increased in quantum over 8 years. The labor costs for manufacturing are still depressed owing to multiple factors and that does give an undue advantage.

Would it better for a manufacturing employee to be working in USA or India? Only a fool would answer 'India'. The Nano is no industry re-defining innovation like Ipod. 

Thomas Friedman, endless cheerleader for India and China, had another perspective. In a country plagued by pathetic roadways, creaking infrastructure, very high road accident fatalities and above all high pollution, he felt that a "Nano car is the last thing India needs".

Also what Zakaria fails to mention is Ratan Tata's travails with Mamata Banerjee regarding his Singur factory. Something that could not have happened in US anyday, not even under the current closet-socialist Barack Obama. Unfair comparisons, unfair conclusions, plain intellectual dishonesty.


lawyer karthi said...
This comment has been removed by the author.
lawyer karthi said...

I think the point missed here is that innovation means using the available resources to the maximum advantage and come up with a game changing concept. Thats what Nano is all about. There are many places where The conditions, according to the author, that contributed to the low cost of Nano exist elsewhere too and in few places, still worse. No one had the vision to imagine such a thing.

Is there, anything that has been an innovation that contributes to daily life, in recent times, that can be claimed by the Americans as game changing as a Nano. It would be a big no.

The argument that the last thing that India needed is a Nano considering the conditions of road etc., are totally flawed because it is the American car makers who make a beeline to the very same India for selling their their expensive cars with features that would not work when it is required.

Infact, India needs a Nano than a American car because the replacement cost would be less and there would not be an unnecessary drain on the individual's purse and on the nation.

Finally, necessity is the mother of all inventions and innovations. I think the Americans had lost the sense of necessity and are in a wrap of a false sense of well being and a related superiority complex which is reflected in this post too.

Its better the Americans wake up now because the world needs them. After all, it is undoubtedly the Americans who innovated even the ways of innovating.