The transformation of Tata Motors into a highly successful, well-diversified, and globally ambitious automobile giant represents one of India’s most remarkable corporate-success stories in recent times.

Six years ago, after a decade of strong revenue and margin growth, Tata Motors plunged into an unprecedented crisis when demand for its trucks suddenly collapsed. The lost sales—compounded by heavy investment for its entry into the passenger car business, the cost of complying with new emissions standards, and an increasing threat from overseas competitors—caused Tata Motors to shock the markets with a 5 billion rupee ($110 million) loss for the fiscal year ending March 2001.

Drastic action was required. Over the next two years, the company shaved around 8 billion rupees from its cost base and nursed itself back to corporate health. Even while keeping a tight grip on costs, Tata Motors moved to the offensive by refocusing its investments on less cyclical products, including light commercial vehicles, buses, and spare parts; making a successful entry into passenger cars; and responding to opportunities presented by favorable social and economic trends. These included the new mobility of young Indians, the government’s substantial road-building program, and generally buoyant GDP growth.

Today Tata Motors ranks as...