First-mover’s disadvantage

IIPM, GURGAON

Or call it the fast-follower’s gain. Many think that in the race to produce the world’s cheapest car, Tata Motors has a clear advantage; it’s the first to enter the fray, it has forced others to follow suit, and it will retain a dominant market share for a long time to come. It did it in the small diesel car category by being the first and ruling the roads for years. Even today, Indica is a big challenger to Maruti and Hyundai in the compact segment.

But then, think again, and think out of the box. Several studies have now proved that “there were plenty of industries, where the first movers got killed.” Richard B. Mckenzie of the University of California has shown that failure rates across traditional industries for first-moving pioneers were 71%, and they had a meagre market share of 6%. Even in the field of technology, where first-movers invariably have an edge, studies have shown that their success wasn’t dependent on technological progress; in fact, other factors played a larger role in determining their outcomes.

Here are a few examples of first-movers’ failures globally. On June 4, 1924, the ten millionth Model T Ford left the Highland Park factory. But, by 1926, the sales of this path-breaking model had plummeted, and it was out of production the next year. It was America’s first ever cheap car. In the 1960s, v Excel was the first patented spreadsheet software. But the market changed rapidly by the 1980s, and Lotus became the new spreadsheet standard. The same happened with CP/M, the first operating software that none of the readers may have even heard about. We have all been either ‘Gated” by Microsoft or ‘Linuxed’ by the free developers.

As a 2006 edit in 4Ps B&M read: “So which was the first company to introduce shaving blades? Not the current world leader Gillette, but the extinct Wilkinson Sword. Browsers? Obviously not Microsoft with their number one Internet Explorer, but the ‘over the hill’ Mosaic. Search engines?

Surprisingly, not Google, but the laggard Yahoo! Supermarkets? Not at all the giant Wal-Mart, but the King Kullen Grocery Company. The first liquid soap? A thoroughly unheard of Minnetonka. VCRs? You wouldn’t even have imagined the name of Ampex. The first hybrid car? Not Toyota with its world beating Prius, but Renault. The first computer? Neither HP, Apple, IBM, nor Dell; but Micro Instrumentation & Telemetry Systems (phew). Video games? Not the numero uno Sony, with its Playstation series, but the well-forgotten Atari….. Refrigerators, televisions, cell phones, cameras, banking, watches – the downfallen first movers’ list is never ending.”

In the small car space, there are several second and third-movers, who are gearing to steal the thunder, or rather the accelerator, from Tata. Skoda has launched Fabia, a premium model in the compact segment. Maruti Suzuki has showcased A-Star and Splash, which are likely to be priced between the Alto and Swift. Ford has decided to invest $500 million in India to launch a small car. And don’t forget about Bajaj Auto, Honda, Renault and Nissan, and many others, who have similar dreams.

Still we at 4Ps B&M think that Ratan Tata can easily shift into the fifth gear from here. It may take him a couple of years, but he will be way ahead of his competitors in this race to sell small cars in India and overseas markets. His first advantage is that he has created a new market, he has dared to tap into new set of consumers, decided to design, develop and manufacture a product for the ‘bottom of the pyramid’. He has opened the floodgates for millions to own and drive a car.

The second advantage that Tata Motors has is that he has managed to convert its engineering skills into making an innovative product(s). It has managed to slash costs that no one thought was possible. This was despite the fact that costs (including manpower) have risen tremendously ever since Tata conceived of his ‘dream’ project. The third advantage is that Tata Motors has forced other competitors to think differently. Now, firms can talk about a people’s car.

If Indica (diesel) changed the way an Indian consumer thought, the Nano will force him/her to act (and now buy). And if the Nano becomes a big hit, it will make Tata a global super hero.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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