Capability building through innovation for unserved lower end mega markets

•This study shows how a developing country firm could build capability through innovation for unserved lower end mega markets.•We investigated Tata Motors' Nano as an exploratory case of innovation for the unserved markets.•Tata Motors could build innovation capability through creating processes overcoming ‘the deficiency problem’ in both internal and external resources.•The Nano case reveals a path to building innovation capability that has not previously been observed.

Although product innovation for unserved lower end mega markets in large developing countries has been recognized as an opportunity for improving the competitiveness of local firms, limited research has been conducted that explicitly explores how innovation capabilities can be built for these markets. This study investigates Tata Motors' Nano as an exploratory case of building innovation capabilities. This paper shows that the building of innovation capability could be achieved through creating a process that overcomes ‘the deficiency problem’ in generating radically cheap priced original products.The study's contribution to the literature is that it addresses issues of building local firms' innovation capabilities through creating original products for the unserved lower end market, in which advanced country firms have limited experience.Nano, as an unprecedented innovation in the automobile industry, reveals a path to building innovation capability that has not previously been observed. We show that detailed processes involved in generating an original product for the lower end market provide insights on the strategy in terms of target price setting, initiating innovation process overcoming ‘the deficiency problem’, and creation of complementary resources.