Saturday, August 3, 2013

Bajaj Quadricycle RE 60 and Tata Nano: Lessons of Technology-Business Nexus

Bajaj Auto Limited (Bajaj), India’s largest two-wheeler manufacturer, has secured limited Government approvals for its quadricycle, code named RE 60. The four-wheeler RE 60 vehicle is powered by a water-cooled, 216-cc, single-cylinder engine which can develop 20 HP. This is about 40 percent more than the power generated by 175 cc powered three-wheeler and about the same in power as 200 cc powered three-wheeler, historically manufactured by Bajaj in India for domestic and export markets. RE 60 sports a metal-polymer monocoque body and weighs 400 kg, has a turning radius of 3.5 meter and can reach a top speed of 70 kmph. It can seat the driver and three passengers and run 35 kilometers on a liter of petrol. Lest RE 60 should be misunderstood as a mini-car like Tata Nano, it is not so as it is just half as powered as Nano. Tata Nano is powered by an air-cooled two-cylinder engine which produces 37 HP. It has an all-metal body and weighs 635 Kg.

Bajaj has positioned RE60 quadricycle as an alternative to its three-wheeler. RE 60 has four wheels instead of three wheels that Bajaj’s all-pervasive three wheeler of India has. RE 60 is intended by Bajaj to eat into Bajaj’s own market for three wheelers, of which Bajaj is, undoubtedly, the world’s largest manufacturer. The company sells approximately 225,000 three-wheelers per annum and records growth rate of around 11 to 12 percent on a compounded basis, according to the statistics of Society of Indian Automobile Manufacturers (SIAM). Analysts expect Bajaj’s quadricycle to be priced anywhere between Rs 1.5 lakh (USD 2500) and Rs 2 lakh (USD 3300) while a Bajaj three-wheeler auto rickshaw’s ex-showroom price in Delhi is Rs 1.35 lakh (USD 2250). Having invested Rs 550 crore (USD 92 million) in developing the platform and creating the capacity to produce 5,000 of the vehicles every month, the price is nearly that of India’s cheapest and proper mini-car, Nano at Rs 2 lakhs (USD 3300).
Industry response
The Indian car and other two-wheeler manufacturers have taken up cudgels against RE 60 quadricycle on the grounds that it is unsafe compared to a passenger car. They want the Indian government to lay down norms as stringent as those applicable to cars. Bajaj, on the other hand, maintains that the RE 60 is not a car and would not compete in the car market. Bajaj has been seeking less stringent safety standards for the vehicle on the basis that the quadricycle with doors and seat belts, et al, is a safer and more stable alternative to three-wheeler. It has a seating capacity of four passengers, with owner-chauffeur possibility as opposed to three wheeler carrying capacity of only three passengers (that too tightly packed) with sole chauffeur mode. RE 60 has also a better ground clearance compared to the three-wheeler. It is noteworthy that RE 60 has the lowest carbon emissions, better than a three-wheeler or a Nano.  
To be sure, the concept of a quadricycle is not new. It has always been there in the European Union; however, only 23,800 quadricycles were sold in Europe in 2011. The three main traditional markets for quadricycles, France, Italy and Spain, have seen their sales fall from a high of 29,000 in 2007 to just 18,000 in 2011. The vehicles are used either by the elderly or those not old enough to qualify for regular driving licenses. They are also used as golf carts and recreation vehicles. That said, such use which may be well suited to the European road conditions, regulated traffic intensity, and driving discipline may not be appropriate in India given that those factors are much worse in India. Just because quadricycle is a convenient mode for select applications in Europe it need not be so in India.   
European regulations
Quadricycles are European categories of four-wheeled microcars defined by limitations in terms of weight, power and speed. Two categories are defined: (a) Light quadricycles, category L6e and (b) Heavy quadricycles, category L7e.  Light quadricycles (L6e) are defined by Framework Directive 2002/24/EC as: "motor vehicles with four wheels (...) whose unladen mass is not more than 350 kg, not including the mass of the batteries in case of electric vehicles, whose maximum design speed is
not more than 45 km/h, and (1)whose engine cylinder capacity does not exceed 50 cm3 for spark (positive) ignition engines, or (2)whose maximum net power output does not exceed 4 kW in the case of other (e.g. diesel fuelled) internal combustion engines, or (3) whose maximum continuous rated power does not exceed 4 kW in the case of an electric motor.

These vehicles shall fulfill the technical requirements applicable to three-wheel mopeds of category L2e unless specified differently in any of the separate directives. Therefore, in many European countries such as France, Italy, Belgium and the Netherlands, light quadricycles can be driven without a full motor car (category B) or motorcycle (category A) driver’s license, and in some countries without any license at all (being vehicules sans permis). However, in more recent years there has usually been at least a requirement to obtain a basic road safety certificate (e.g. BSR and ASSR1 in France, analogous to CBT in the UK) along with at least a provisional A1/B1 class license, meaning only older drivers (typically those who came of legal driving age before 1998) retain permission to literally drive such vehicles "without a licence".

Quadricycles (L7e), also referred to as Heavy quadricycles, are defined by Framework Directive 2002/24/EC as motor vehicles with four wheels other than those referred to (as light quadricycles), whose unladen mass is not more than 400 kg (category L7e) (550 kg for vehicles intended for carrying goods), not including the mass of batteries in the case of electric vehicles, with a design payload not more than 200 kg (passenger) or 1000 kg (goods), and whose maximum net engine power does not exceed 15 kW. These vehicles shall be considered to be motor tricycles and shall fulfill the technical requirements applicable to motor tricycles of category L5e unless specified differently in any of the separate Directives. Bajaj RE 60 quadricycle falls under this category. The European regulations also illustrate the tenuousness of quadricycle definition and compliance requirements.

France was the first country to define technical standards and traffic rules for quadricycles. The French ministerial decree of May 29, 1986 legally defined the quadricycle as a vehicle included in the moped category, equipped with four wheels and a body. In 1992, the European Union published Directive 92/61/EEC which considered that quadricycles fell into the same category as mopeds. Framework Directive 2002/24/EC then refined this definition by distinguishing between light and heavy quadricycles (L6e and L7e categories). The European Commission  was set to revise this 2002/24EC directive in order to simplify legislation, to improve road safety and to set new standards for gaseous emissions. Furthermore, Directive 2006/126 (3rd Driving Licence Directive) establishes a common framework for light quadricycles driving licences. It imposes the same requirements for light quadricycles as for mopeds, including the driving age, for which it recommends 16 years as a minimum. The transposition deadline of the directive was 19 January 2011.

Unlearning Nano?

As we consider Bajaj Auto’s initiative to indigenously design, develop, manufacture and commercialize its RE 60 quadricycle, several issues of strategic technical and business considerations arise. The first and foremost is whether the lessons of Nano have been learnt by Bajaj. As we know, Nano was a socially relevant innovative design initiative by Ratan Tata to replace the risky family travel on two-wheelers by a relatively safer, elegant and affordable small car full family travel through Nano small car. Unfortunately, the technical sensation and social initiative that Nano represented did not translate itself into enthusiastic acceptance by the target customer-families. The reason, probably, has been that the typical two-wheeler user nurtured a dream, and even esteem value, in terms of catapulting to a full-fledged “middle class” car than graduating to a specially designed low-end transport solution that Nano represented.   

Bajaj must keep in mind that the auto-rickshaw owner/driver of India may similarly consider catapulting into a full-fledged taxi through an Indica or sedan (or even a Nano) as his dream and of greater esteem value than just graduating into the quadricycle of a boxy design that could be as costly as a Nano but not as safe and powerful as a passenger car. This threat is indeed real, given that the Indian market is flooded by several attractive models of entry and mid level small cars, hatchbacks and sedans. The design concept of RE 60 which probably originated seven to eight years ago is now far less relevant in the rapidly maturing Indian automobile market and rapidly upgrading social stratification. This example points to the need for business strategists to continuously validate what originally start out as innovative design concepts in terms of market relevance in rapidly changing environments.
Enduring design innovation

One way to insulate a company’s efforts from environmental volatility is by developing designs that are enduringly innovative. In the context of contemporary designs that are prevalent and are on the anvil in the Indian automobile industry, RE 60 is spookily designed to say the least. A three-wheeler loyalist may find the well-tested three-wheeler design more elegant compared to RE 60 to which the term contraption more appropriately fits. One may compare RE 60 design effort with the new Nissan Datsun entry level car, also designed and developed in India, and conclude that the latter is miles ahead in terms of design elegance and integrity. Design innovation must be durable and sustainable, capable of successfully piloting through at least the full design-manufacturing-commercialization cycle, besides offering the basic platform for launching successive generational improvements.

The other approach of design innovation involves an integrated value proposition rather than a hotchpotch of incremental benefits in different performance components. Seat belts and doors, addition of a wheel,  marginal improvements in torque and horse power, and increased ground clearance need not necessarily add up to becoming a radically new value proposition for the Indian automobile user, as a Maruti 800 car or a Toyota Innova multi-utility vehicle represented at their respective times of entry into the market. Bajaj must really reevaluate whether RE 60 offers such a value upgrade. Even as a low cost safe mini-public transport solution, other options such as Tata Ace and Magic passenger variants are available for the three-wheeler operators and users alike.

Strategy-technology nexus

There are several strategic pointers that could arise from RE 60 strategy of Bajaj, when fully executed (based on the author’s analysis of possible future outcomes as well). Fundamentally, technological innovation and business inventiveness must go hand in hand for strategic success. Secondly, it would be impossible to create new markets without a deft combination of product innovation and market positioning. Thirdly, incremental product enhancement may help in life cycle management but certainly not enable new product entry and market growth. Fourthly, product innovations should be sufficiently innovative to form the market and create a product family base. Fifthly, strategic plans of business must integrate technology plans that enable sustainable and durable product innovation. Sixthly, new product introductions must aim at creating a total value proposition of distinctive functionality. Seventhly, any product introductions which are based on tenuous regulatory options could face the risks of policy vagaries and industry collectivism.

Business strategists would do well to keep the above perspectives in mind as they develop business plans that are dependent on product enhancements and new product introductions. Product functionality and market segmentation would carry a nexus that would be difficult to perceive at the time of product conceptualization but could become patent as products and markets evolve. Repositioning of products could even be an option to consider as a retrospective strategy relevant for a new product-market equation. For example, Tata Nano mini-car could well turn out to be a better upgrade option vis-à-vis a three-wheeler than RE 60 as a quadricycle would. Probably, the marketers of Nano would find a final winning proposition from a stuck-in-the-middle RE 60 quadricycle, with Nano emerging as an effective, flexible and safe family transport solution!    

Posted by Dr CB Rao on August 3, 2013








Unknown said...

Nice one about 3 wheeler manufacturers!

Unknown said...

Thanks for the lovely post about 3 wheeler manufacturers!

The Geeks said...

hi..Im student from Informatics engineering, this article is very informative, thanks for sharing :)

Madhavi said...

Perfect post about 3 wheeler manufaturers!

Unknown said...

Nice one about 3 wheeler

Unknown said...

I am glad to visit your blog. I am happy to find your distinguished way of writing the post. Thanks for posting. . .
international movers in kolkata.

Unknown said...

Great site list! Public interest for 3 wheeler manufacturing's has been increasing and in turn the number is increasing in the market of manufacturing new vehicles!!

Unknown said...

Very informative post on 3 wheeler manufacturers. Thanks for sharing.