Synopsis on MARUTI Udyog Limited (Mul)Maruti Suzuki is one of
India's leading automobile manufacturers and the market leader in
the car segment, both in terms of volume of vehicles sold and
revenue earned. Until recently, 18.28% of the company was owned by
the Indian Government, and 54.2% by Suzuki of Japan. The Indian
government held an initial public offering of 25% of the company in
June 2003. As of 10 May 2007, Govt. of India sold its complete
share to Indian financial institutions. With this, Govt. of India
no longer has stake in Maruti Udyog. Maruti Udyog Limited (MUL) was
established in February 1981, though the actual production
commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei
car which at the time was the only modern car available in India,
its' only competitors- the Hindustan Ambassador and Premier Padmini
were both around 25 years out of date at that point. Through 2004,
Maruti has produced over 5 Million vehicles. Marutis are sold in
India and various several other countries, depending upon export
orders. Models similar to Marutis (but not manufactured by Maruti
Udyog) are sold by Suzuki and manufactured in Pakistan and other
South Asian countries. The company annually exports more than
50,000 cars and has an extremely large domestic market in India
selling over 730,000 cars annually. Maruti 800, till 2004, was the
India's largest selling compact car ever since it was launched in
1983. More than a million units of this car have been sold
worldwide so far. Currently, Maruti Alto tops the sales charts and
Maruti Swift is the largest selling in A2 segment. Due to the large
number of Maruti 800s sold in the Indian market, the term "Maruti"
is commonly used to refer to this compact car model. Till recently
the term "Maruti", in popular Indian culture, was associated to the
Maruti 800 model. Maruti Suzuki India Limited, a subsidiary of
Suzuki Motor Corporation of Japan, has been the leader of the
Indian car market for over two decades.
Its manufacturing facilities are located at two facilities
Gurgaon and Manesar south of New Delhi. Marutis Gurgaon facility
has an installed capacity of 350,000 units per annum. The Manesar
facilities, launched in February 2007 comprise a vehicle assembly
plant with a capacity of 100,000 units per year and a Diesel Engine
plant with an annual capacity of 100,000 engines and transmissions.
Manesar and Gurgaon facilities have a combined capability to
produce over 700,000 units annually. More than half the cars sold
in India are Maruti cars. The company is a subsidiary of Suzuki
Motor Corporation, Japan, which owns 54.2 per cent of Maruti. The
rest is owned by the public and financial institutions. It is
listed on the Bombay Stock Exchange and National Stock Exchange in
India. During 2007-08, Maruti Suzuki sold 764,842 cars, of which
53,024 were exported. In all, over six million Maruti cars are on
Indian roads since the first car was rolled out on 14 December
1983. Maruti Suzuki offers 15 models, Maruti 800, Omni,Esteem,
Baleno, Alto, Versa, Ritz, Gypsy, A Star, Wagon R, Zen Estilo,
Swift, Swift Dzire, SX4, and Grand Vitara. Swift, Swift dzire, A
star and SX4 are maufactured in Manesar, Grand Vitara is imported
from Japan as a completely built unit (CBU), remaining all models
are manufactured in Maruti Suzuki's Gurgaon Plant. Suzuki Motor
Corporation, the parent company, is a global leader in mini and
compact cars for three decades. Suzukis technical superiority lies
in its ability to pack power and performance into a compact,
lightweight engine that is clean and fuel efficient. Maruti is
clearly an employer of choice for automotive engineers and young
managers from across the country. Nearly 75,000 people are employed
directly by Maruti and its partners.
The company vouches for customer satisfaction. For its sincere
efforts it has been rated (by customers)first in customer
satisfaction among all car makers in India for nine years in a row
in annual survey by J D Power Asia Pacific. Maruti Suzuki was born
as a government company, with Suzuki as a minor partner to make a
people's car for middle class India. Over the years, the product
range has widened, ownership has changed hands and the customer has
evolved. What remains unchanged, then and now, is Marutis mission
to motorise India.
Partner for the joint venturePressure started mounting on Indira
and Sanjay Gandhi to share the details of the progress on the
Maruti Project. Since country's resources were made available by
mother to her son's pet project. A delegation of Indian technocrats
was assigned to hunt a collaborator for the project. Initial rounds
of discussion were held with the giants of the automobile industry
in Japan including Toyota, Nissan and Honda. Suzuki Motor
Corporation was at that time a small player in the four wheeler
automobile sector and had major share in the two wheeler segment.
Suzuki's bid was considered negligible. In the initial rounds of
discussion the giants had their bosses present and in the later
rounds related to the technical discussions executives of these
automobile giants were present. Osamu Suzuki, Chairman and CEO of
the company ensured that he was present in all the rounds of
discussion. Osamu in an article writes that it subtly massaged
their (Indian delegation) egos and also convinced them about the
sincerity of Suzuki's bid. In the initial days Suzuki took all
steps to ensure the government about its sincerity on the
project.
Suzuki in return received a lot of help from the government in
such matters as import clearances for manufacturing equipment
(against the wishes of the Indian machine tool industry then and
its own socialistic ideology), land purchase at government prices
for setting up the factory Gurgaon and reduced or removal of excise
tariffs. This helped Suzuki conscientiously nurse Maruti through
its infancy to become one of its flagship ventures.
Joint venture related issuesMaruti Suzuki's A-Star vehicle
during its unveiling in Pragati Maidan, Delhi. A-Star, Suzuki's
fifth global car model, was designed and is made only in India.
Besides being Suzuki's largest subsidiary in terms of car sales,
Maruti Suzuki is also Suzuki's leading research and development arm
outside Japan Relationship between the Government of India, under
the United Front (India) coalition and Suzuki Motor Corporation
over the joint venture was a point of heated debate in the Indian
media till Suzuki Motor Corporation gained the controlling stake.
This highly profitable joint venture that had a near monopolistic
trade in the Indian automobile market and the nature of the
partnership built up till then was the underlying reason for most
issues. The success of the joint venture led Suzuki to increase its
equity from 26% to 40% in 1987, and further to 50% in 1992. In 1982
both the venture partners had entered into an agreement to nominate
their candidate for the post of Managing Director and every
Managing Director will have a tenure of five year.
Initially R.C.Bhargava, was the managing director of the company
since the inception of the joint venture. Till today he is regarded
as instrumental for the success of Maruti Udyog. Joining in 1982 he
held several key positions in the company before heading the
company as Managing Director. Currently he is on the Board of
Directors. After completing his five year tenure, Mr. Bhargava
later assumed the office of Part-Time Chairman. The Government
nominated Mr. S.S.L.N. Bhaskarudu as the Managing Director on 27
August 1997. Mr. Bhaskarudu had joined Maruti in 1983 after
spending 21 years in the Public sector undertaking Bharat Heavy
Electricals Limited as General Manager. Later in 1987 he was
promoted as Chief General Manager, 1988 as Director, Productions
and Projects, 1989 Director, Materials and in 1993 as Joint
Managing Director. The Suzuki Motor corporation didn't attend the
Annual General Meeting of the Board with the reason of it being
called on a short notice Later Suzuki Motor Corporation went on
record to state that Mr. Bhaskarudu was "incompetent" and wanted
someone else. However, the Ministry of Industries, Government of
India refuted the charges. Media stated from the Maruti sources
that Bhaskarudu was interested to indigenise most of components for
the models including gear boxes especially for Maruti 800. Suzuki
also felt that Bhaskarudu was a proxy for the Government and would
not let it increase its stake in the venture If Maruti would have
been able to indigenise gear boxes then Maruti would have been able
to manufacture all the models without the technical assistance from
Suzuki. Till today the issue of localization of gear boxes is
highlighted in the press The relation strained when Suzuki Motor
Corporation moved to Delhi High Court to bring a stay order against
the appointment of Mr. Bhaskarudu. The issue was resolved in an
out-of-court settlement and both the parties agreed that R S S L N
Bhaskarudu would serve up to 31 December 1999, and from 1 January
2000, Jagdish Khattar , Executive Director of Maruti Udyog Limited
would assume charges as the Managing Director Many politicians
believed, and had stated in parliament that the Suzuki Motor
Corporation is unwilling to localize manufacturing and reduce
imports. This remains true, even today the gear boxes are still
imported from Japan and are assembled at the Gurgaon facility.
Industrial relationsFor most of its history, Maruti Udyog had
relatively few problems with its labour force. Its emphasis of a
Japanese work culture and the modern manufacturing process, first
instituted in Japan in the 1970s, was accepted by the workforce of
the company without any difficulty. But with the change in
management in 1997, when it became predominantly government
controlled for a while, and the conflict between the United Front
Government and Suzuki may have been the cause of unrest among
employees. A major row broke out in September 2000 when employees
of Maruti Udyog Ltd (MUL) went on an indefinite strike, demanding
among other things, revision of the incentive scheme offered and
implementation of a pension scheme. Employees struck work for six
hours in October 2000, irked over the suspension of nine employees,
going on a six-hour tools-down strike at its Gurgaon plant,
demanding revision of the incentive-linked pay and threatened to
fast to death if the suspended employees were not reinstated. About
this time, the NDA government, following a disinvestments policy,
proposed to sell part of its stake in Maruti in a public offering.
The Staff union opposed this selloff plan on the grounds that the
company will lose a major business advantage of being subsidised by
the Government. The standoff with the management continued to
December with a proposal by the management to end the two-month
long agitation rejected with a demand for reinstatement of 92
dismissed workers, with four MUL employees going on a
fast-unto-death. In December the company's shareholders met in New
Delhi in an AGM that lasted 30 minutes. At the same time around
1500 plant workers from the MUL's Gurgaon facility were agitating
outside the company's corporate office demanding commencement of
production linked incentives, a better pension scheme and other
benefits. The management has refused to pass on the benefits citing
increased competition and lower margins.
Current sales of automobiles1. Maruti 800: Launched - 1983 2.
Maruti Omni: Launched - 1984 3. Maruti Gypsy: Launched - 1985 4.
Maruti Alto: Launched - 2000 5. Maruti Wagon-R: Launched - 2002 6.
Maruti Versa: Launched - 2003 7. Maruti Grand Vitara Launched -
2004 8. Maruti Suzuki Swift: Launched - 2005 9. Maruti Suzuki SX4:
Launched - 2007 10. Maruti Swift Dzire: Launched - 2008 11. Maruti
Suzuki A-STAR: Launched - 2008 12. Maruti Suzuki Ritz: Launched -
2009 13. Maruti Suzuki Estilo: Launched - 2009
Authorized service stations
Maruti is one of the companies in India which has unparalleled
service network. To ensure the vehicles sold by them are serviced
properly, Maruti has 2628 listed Authorized service stations and 30
Express Service Stations on 30 highways across India. Service is a
major revenue generator of the company. Most of the service
stations are managed on franchise basis, where Maruti trains the
local staff. Other automobile companies have not been able to match
this benchmark set by Maruti. The Express Service stations help
many stranded vehicles on the highways by sending across their
repair man to the vehicle.
Maruti insurance
Launched in 2002 Maruti provides vehicle insurance to its
customers with the help of the National Insurance Company, Bajaj
Allianz, New India Assurance and Royal Sundaram. The service was
set up the company with the inception of two subsidiaries Maruti
Insurance Distributors Services Pvt. Ltd and Maruti Insurance
Brokers Pvt. Limited. This service started as a benefit or value
addition to customers and was able to ramp up easily. By December
2005 they were able to sell more than two million insurance
policies since its inception[Maruti Finance
To promote its bottom line growth, Maruti launched Maruti
Finance in January 2002. Prior to the start of this service Maruti
had started two joint ventures Citicorp Maruti and Maruti
Countrywide with Citi Group and GE Countrywide respectively to
assist its client in securing loan. Maruti tied up with ABN Amro
Bank, HDFC Bank, ICICI Limited, Kotak Mahindra, Standard Chartered
Bank, and Sundaram to start this venture including its strategic
partners in car finance. Again the company entered into a strategic
partnership with SBI in March 2003. Since March 2003, Maruti has
sold over 12,000 vehicles through SBI-Maruti Finance. SBIMaruti
Finance is currently available in 166 cities across India. "Maruti
Finance marks the coming together of the biggest players in the car
finance business. They are the benchmarks in quality and
efficiency. Combined with Maruti volumes and networked dealerships,
this will enable Maruti Finance to offer superior service and
competitive rates in the marketplace". Jagdish Khattar, Managing
director of Maruti Udyog Limited in a press conference announcing
the launch of Maruti Finance on 7 January 2002
Citicorp Maruti Finance Limited is a joint venture between
Citicorp Finance India and Maruti Udyog Limited its primary
business stated by the company is "hire-purchase financing of
Maruti vehicles". Citi Finance India Limited is a wholly owned
subsidiary of Citibank Overseas Investment Corporation, Delaware,
which in turn is a 100% wholly owned subsidiary of Citibank N.A.
Citi Finance India Limited holds 74% of the stake and Maruti Udyog
holds the remaining 26%. GE Capital, HDFC and Maruti Udyog Limited
came together in 1995 to form Maruti Countrywide. Maruti claims
that its finance program offers most competitive interest rates to
its customers, which are lower by 0.25% to 0.5% from the market
rates.maruti is the best car in the world
Accessories
India's Corps of Military Police personnel patrolling the Wagah
border crossing in the Punjab in a Maruti Gypsy. Many of the auto
component companies other than Maruti Udyog started to offer
components and accessories that were compatible. This caused a
serious threat and loss of revenue to Maruti. Maruti started a new
initiative under the brand name Maruti Genuine Accessories to offer
accessories like alloy wheels, body cover, carpets, door visors,
fog lamps, stereo systems, seat covers and other car care products.
These products are sold through dealer outlets and authorized
service stations throughout India.
Maruti Driving School
A Maruti Driving School in Chennai As part of its corporate
social responsibility Maruti Udyog launched the Maruti Driving
School in Delhi. Later the services were extended to other cities
of India as well. These schools are modelled on international
standards, where learners go through classroom and practical
sessions. Many international practices like road behaviour and
attitudes are also taught in these schools. Before driving actual
vehicles participants are trained on simulators. "We are very
concerned about mounting deaths on Indian roads. These can be
brought down if government, industry and the voluntary sector work
together in an integrated manner. But we felt that Maruti should
first do something in this regard and hence this initiative of
Maruti Driving Schools." Jagdish Khattar, at the launch ceremony of
Maruti Driving School, Bangalore
ExportsMaruti Suzuki has helped India emerge as the fourth
largest exporter of automobiles in Asia. Shown here is Maruti Gypsy
in Malta. Maruti Exports Limited is the subsidiary of Maruti Udyog
Limited with its major focus on exports and it does not operate in
the domestic Indian market. The first commercial consignment of 480
cars were sent to Hungary. By sending a consignment of 571 cars to
the same country Maruti crossed the benchmark of 300,000 cars.
Since its inception export was one of the aspects government was
keen to encourage. Every political party expected Maruti to earn
foreign currency. Angola, Benin, Dijibouti, Ethiopia, Europe,
Kenya, Morocco, Sri Lanka, Uganda, Chile, Guatemala, Costa Rica and
El Salvador are some of the markets served by Maruti Export.
Equity Research Report of MUL
As well as Analysis Maruti Suzuki India Ltd Company Snapshot
Business Description: Maruti Suzuki India Ltd. The Group's
principal activity is to manufacture, purchase and sale of Maruti
Vehicle and Spare parts. The Group is a subsidiary of Suzuki Motor
Corporation. The other activities of the Group comprises of
facilitation of Pre-Owned Cars, Fleet Management and Car
Financing.The Group also provides services like framing of
customized car policies, economical leasing of cars, maintenance
management, registration and insurance management, emergency
assistance and accident management. The product range includes ten
basic models with more than 50 variants. The Groups operations are
in 1200 towns and cities with 2628 workshops and also exports cars
to other countries.
Stock Data: Current Price (10/23/2009):(Figures in Indian
Rupees)
Recent Stock Performance:
1,517.35
1 Week 4 Weeks
0.1% 10.1%
13 Weeks 52 Weeks
-7.5% 184.4%
Maruti Suzuki India Ltd Key Data: Ticker: 532500 Country:
INDIA
Exchanges:
BOM
Major Industry:
Automotive Diversified Automotive Mfrs.
Sub Industry:
2009 Sales
206,638,000,000 (Year Ending Jan 2010). Indian Rupees March
Ordinary
Employees:
7,159
Currency: Fiscal Yr Ends: Share Type:
Market Cap: Shares Outstanding: Closely Held Shares:
438,377,679,541 288,910,060 156,618,440
MARUTI UDYOG LIMITED Managing competition successfully Maruti
Udyog Limited (MUL) was established in Feb 1981 through an Act of
Parliament, to meet the growing demand of a personal mode of
transport caused by the lack of an efficient public transport
system. It was established with the objectives of - modernizing the
Indian automobile industry, producing fuel efficient vehicles to
conserve scarce resources and producing indigenous utility cars for
the growing needs of the Indian population. A license and a Joint
Venture agreement were signed with the Suzuki Motor Company of
Japan in Oct 1983, by which Suzuki acquired 26% of the equity and
agreed to provide the latest technology as well as Japanese
management practices. Suzuki was preferred for the joint venture
because of its track record in manufacturing and selling small cars
all over the world. There was an option in the agreement to raise
Suzukis equity to 40%, which it exercised in 1987. Five years
later, in 1992, Suzuki further increased its equity to 50% turning
Maruti into a non-government organization managed on the lines of
Japanese management practices. Maruti created history by going into
production in a record 13 months. Maruti is the highest volume car
manufacturer in Asia, outside Japan and Korea, having produced over
5 million vehicles by May 2005. Maruti is one of the most
successful automobile joint ventures, and has made profits every
year since inception till 2000-01. In 2000-01, although Maruti
generated operating profits on an income of Rs 92.5 billion, high
depreciation on new model launches resulted in a book loss.
COMPANY HISTORY AND BACKGROUND The Evolution Marutis history of
evolution can be examined in four phases: two phases during
pre-liberalization period (1983-86, 1986-1992) and two phases
during post-liberalization period (1992-97, 1997-2002), followed by
the full privatization of Maruti in June 2003 with the launch of an
initial public offering (IPO).The first phase started when Maruti
rolled out its first car in December 1983. During the initial years
Maruti had 883 employees, a capital of Rs. 607 mn and profit of Rs.
17 mn without any tax obligation. From such a modest start the
company in just about a decade (beginning of second phase in 1992)
had turned itself into an automobile giant capturing about 80% of
the market share in India. Employees grew to 2000 (end of first
phase 1986), 3900 (end of second phase 1992) and 5700 in 1999. The
profit after tax increased from Rs 18.67 mn in 1984 to Rs. 6854.54
mn in 1998 but started declining during 1997-2001. During the
pre-liberalization period (1983-1992) a major source of Marutis
strength was the wholehearted willingness of the Government of
India to subscribe to Suzukis technology and the principles and
practices of Japanese management. Large number of Indian managers,
supervisors and workers were regularly sent to the Suzuki plants in
Japan for training. Batches of Japanese personnel came over to
Maruti to train, supervise and manage. Marutis style of management
was essentially to follow Japanese management practices. The Path
to Success for Maruti was as follows: (a) teamwork and recognition
that each employees future growth and prosperity is totally
dependent on the companys growth and prosperity (b) strict work
discipline for individuals and the organization (c) constant
efforts to increase the productivity of labor and capital (d)
steady improvements in quality and reduction in costs (e) customer
orientation (f) long-term objectives and policies with the
confidence to realize the goals (g) respect of law, ethics and
human beings. The path to success translated into practices that
Marutis culture approximated from the Japanese management
practices.
Maruti adopted the norm of wearing a uniform of the same color
and quality of the fabric for all its employees thus giving an
identity. All the employees ate in the same canteen. They commuted
in the same buses without any discrimination in seating
arrangements. Employees reported early in shifts so that there were
no time loss in-between shifts. Attendance approximated around
94-95%. The plant had an open office system and practiced
on-the-job training, quality circles, kaizen activities, teamwork
and job- rotation. Near-total transparency was introduced in the
decision making process. There were laid-down norms, principles and
procedures for group decision making. These practices were unheard
of in other Indian organizations but they worked well in Maruti.
During the pre- liberalization period the focus was solely on
production. Employees were handsomely rewarded with increasing
bonus as Maruti produced more and sold more in a sellers market
commanding an almost monopoly situation.
INDUSTRY ANALYSIS GLOBAL FOUR WHEELER INDUSTRY Evolution The
automobile industry has undergone significant changes since Henry
Ford first introduced the assembly line technique for the mass
production of cars. Production concepts, processes and the
associated technologies have changed dramatically since the first
cars were built. Some 70 years ago, car assembly was primarily
manual work. Today, the process of car assembly is almost fully
automated. In the old days, firms attached importance to the
production of virtually every part in a single plant, while today,
carmakers concentrate on only a few specific production stages
(i.e. car assembly). Parts and module production, services and
related activities have been shifted to other, specialised firms
(outsourcing of production steps).Since the 1980s, it has become
clear that further productivity gains to retain competitiveness can
be possible only by outsourcing and securing greater flexibility.
For example, firms, especially small car producers whose markets
have been threatened by imports, have diversified their production
programmes (e.g. by building off-road cars or convertibles) thereby
introducing greater flexibility in the production process. Also,
firms and their production have become more internationalized in
lieu of outsourcing.
Current Scenario The global passenger car industry has been
facing the problem of excess capacity for quite some time now. For
the year 2002, the global capacity in the automotive industry was
75 million units a year, against production of only 56 million
units (excess capacity estimated at 25%). Efforts to shore up
capacity utilization have prompted severe price competition, thus
affecting margins and forcing fundamental changes in the industry.
The pressure on sales and margins is driving players to emerging
markets in pursuit of better growth opportunities and/or access to
low-cost manufacturing bases. The concept of selling in the
passenger car industry is changing from original sales towards
lifecycle value generation, encompassing financing, repairs &
maintenance, cleaning, provision of accessories, and so on. Vehicle
manufacturers are moving into completely new materials and
technologiespartly guided by environmental legislationin striving
to come up with radically different products. Some of these new
technologies involve parts that can be bolted on to an existing
vehicle with relatively few implications for the rest of the
vehicle. Others are much more fundamental, and are likely to have a
profound impact throughout the supply chain. The examples include
battery, electric or hybrid power trains, and alternatives to the
all-steel body. Carmakers are increasingly outsourcing component
production, and focusing on product design, brand management and
consumer care, in contrast to the traditional emphasis on
manufacturing and engineering. The increasing need to attain global
scales underscores the importance of platform sharing among
carmakers. All original equipment manufacturers (OEMs) are trying
to reduce the number of vehicle
platforms, but raise the number of models produced from each
platform. This means producing a number of seemingly distinct
models from a common platform. As in manufacturing, distribution in
the automobile industry is undergoing significant changes,
involving Internet use, retailer consolidation, and unbundling of
services provided by retailers.
INDIAN FOUR WHEELER INDUSTRY Evolution The Indian automobile
industry developed within the broader context of import
substitution during the 1950s. The distinctive feature of the
automobile industry in India was that in line with the overall
policy of State intervention in the economy, vehicle production was
closely regulated by an industrial licensing system till the early
1980s that controlled output, models and prices. The cars were
built mostly by two companies, Premier Automobiles Limited and HM.
However, the Indian market got transformed after 1983 following the
relaxation of the licensing policy and the entry of MUL into the
car market. In 1991, car imports were insignificant, while
component imports were equivalent to 20% of the domestic
production, largely because of the continuing import of parts by
MUL. The liberalization of the Indian automotive industry that
began in the early 1990s was directed at dismantling the system of
controls over investment and production, rather than at promoting
foreign trade. Multinational companies were allowed to invest in
the assembly sector for the first time, and car production was no
longer constrained by the licensing system. However, QRs on
built-up vehicles remained and foreign assemblers were obliged to
meet local content requirements even as export targets were agreed
with the Government to maintain foreign exchange neutrality. The
new policy regime and large potential demand led to inflows of
foreign direct investment (FDI) by the mid-1990s. By the end of
1997, Daewoo, Ford India, GM, DaimlerChrysler and Peugeot had
started assembly operations in India. They were followed by Honda,
HMIL, and Mitsubishi. Current Scenario Major Players
Bajaj Tempo Limited, DaimlerChrysler India Private Limited, Fiat
India Automotive Private Limited, Ford India Limited, General
Motors India Limited, Hindustan Motors Limited, Honda Siel Cars
India Limited, Hyundai Motor India Limited, Mahindra & Mahindra
Limited, Maruti Udyog Limited, Skoda Auto India Limited, Tata
Motors Limited, Toyota Kirloskar Motors Limited.
Current scenario in Passenger Car Category The dominant basis of
competition in the Indian passenger car industry has changed from
price to price-value, especially in the passenger car segment.
While the Indian market remains price sensitive, the stranglehold
of Economy models has been slackening, giving way to higher-priced
products that better meet customer needs. Additionally, a dominant
trend in the Indian passenger car segment is the increasing
fragmentation of the market into sub-segments, reflecting the
increasing sophistication of the Indian consumer. With the launch
of new models from FY2000 onwards, the market for MUVs has been
redefined in India, especially at the upper-end. Currently, the
higher-end MUVs, commonly known as Sports Utility Vehicles (SUVs),
occupy a niche in the urban market, having successfully shaken off
the tag of commercial vehicles attached to all MUVs till recently.
Domestic car manufacturers are now venturing into areas such as car
financing, leasing and fleet management, and used-car
reconditioning/sales, to complement their mainstay-business of
selling new cars.
COMPETITIVE FORCES IN INDIAN PASSENGER CAR MARKET Critical
Issues and Future Trends The critical issue facing the Indian
passenger car industry is the attainment of break-even volumes.
This is related to the quantum of investments made by the players
in capacity creation and the selling price of the car. The amount
of investment in capacities by passenger car manufacturers in turn
depends on the production Threat from the new players:
Increasing
Most of the major global players are present in the Indian
market; few more are expected to enter. Financial strength assumes
importance as high are required for building capacity and
maintaining adequacy of working capital.
Access to distribution network is important. Lower tariffs in
post WTO may expose Indian companies to threat of imports. Rivalry
within the industry: High There is keen competition in select
segments. (compact and mid size segments). New multinational
players may enter the market.
Market strength of suppliers: Low A large number of automotive
components suppliers. Automotive players are rationalizing their
vendor base to achieve consistency in quality. Market strength of
consumers: Increasing Increased awareness among consumers has
increased expectations. Thus the ability to innovate is critical.
Product differentiation via new features, improved performance and
after-sales support is critical. Increased competitive intensity
has limited the pricing power of manufacturers. Threat from
substitutes: Low to medium With consumer preferences changing,
inter product substitution is taking place (Mini cars are being
replaced by compact or mid sized cars).Setting up integrated
manufacturing facilities may require higher
capital investments than establishing assembly facilities for
semi knocked down kits or complete knocked down kits.
In recent years, even though the ratio of sales to capacity (an
important indicator of the ability to reach break-even volumes) of
the domestic car manufacturers have improved, it is still low for
quite a few car manufacturers in India. India is also likely to
increasingly serve as the sourcing base for global automotive
companies, and automotive exports are likely to gain increasing
importance over the medium term. However, the growth rates are
likely to vary across segments. Although the Mini segment is
expected to sustain volumes, it is likely to continue losing market
share; growth in the medium term is expected to be led largely by
the Compact and Mid-range segments. Additionally, in terms of
engine capacity, the Indian passenger car market is moving towards
cars of higher capacity. This apart, competition is likely to
intensify in the SUV segment in India following the launch of new
models at competitive prices.
COMPETITOR ANALYSIS HYUNDAI MOTOR INDIA LIMITED Hyundai Motor
India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company, South Korea and is the second largest and the fastest
growing car manufacturer in India . HMIL presently markets over 25
variants of passenger cars in six segments. The Santro in the B
segment, and Getz in the B+ segment. HYUNDAI SANTRO We are mainly
going to concentrate on the various marketing and positioning
strategies of Hyundai Santro as against that of Maruti Zen and Alto
and Hyundai Getz as against Maruti Swift.
POSITIONING OF SANTRO The old positioning of the Santro was that
pf a family car, this positioning strategy was changed in around
2002 and Santro was repositioned as to that of a smart car for
young people.
The target age group for the car had now shifted from 30-35
years to 2530 years. The repositioning followed the face-lifts the
car has been getting from time to time in the form of engine
upgradation, new power steering, automatic transmission, etc, to
keep the excitement around it alive in the highly competitive small
car market. The repositioning also comes ahead of the possible
launch of a new design Santro, and the super B-segment car Getz,
sometime in 2003. The Santro was given a fresh new positioning from
a complete family car to a sunshine car denoting a fresh new
attitude and a changing your life positioning.As the average age of
a car owner has declined from around 30-35 three years ago to
25-30, primarily because of changing lifestyles, cheap and easily
available finance, etc. the company thought that instead of
promoting the Santro as a family car, it should be promoted as a
car that can change the life of a young person since many of the
buyers were young buyers. HYUNDAIS PRICING STRATEGY With the launch
of Maruti Swift recently a price war was expected to kick in .
Immediately after maruti raised prices on its debutante Hyundai
Motor India hit back with a Rs 16,000-19,000 markdown on three new
variants of Santro Xing. The company has introduced the XK and XL
variants at a lower tag of Rs 3,26,999 and Rs .3,45,999
respectively.The new price variants are likely to give Marutis
existing B-segment models, Zen and WagonR a run for their money.
Hyundai has also launched a new non-AC variant of the Santro at Rs
2.79 lakh, a tad higher than what the existing non-Ac Santro costs.
The next offensive is due from Maruti. With the Santros new price
positioning, Zen and particularly WagonR may be due for a
correction, or at least a limited-period subvention. If that
happens the domino effect will kick in across the B-segment.
Hyundai is positioning its new variants on the tech platform.
Strapped with 1.1 litre engine with eRLX Active Intelligence
technology, the new variants also come with new colour-coordinated
interiors, a new front grill and a 4-speed AC blower that makes the
air conditioning more efficient.
TATA MOTORS Established in 1945, Tata Motors is India's largest
and only fully integrated automobile company. Tata Motors began
manufacturing commercial vehicles in 1954 with a 15-year
collaboration agreement with Daimler Benz of Germany. TATA INDICA
Tata motors flagship brand The company's passenger car range
comprises the hatchback Indica, the Indigo sedan and the Marina,
its station wagon variant, in petrol and diesel versions.The Tata
Indica, India's first indigenously designed and manufactured car,
was launched by Tata Motors in 1999 as part of its ongoing effort
towards giving India transport solutions that were designed for
Indian conditions. Currently, the company's passenger cars and
multi-utility vehicles have a 16-per cent market share. POSITIONING
OF INDICA Tata has positioned Indica as `more car per car'. The new
car offers more space, more style, more power and more options.
Emphasizing the delivery of world class quality. They have tried to
redefine the small car market as it has been understood in
India.True to its "More car per car" positioning, the Indica CNG
offers all the core benefits of the Indica combined with the
advantage of CNG. One of the most popular advertisements on
television currently, is the one where the guy portrayed as the
loveable liar, gets socked everytime he lies ; but not when he
speaks about the Indica thus implying- must be true. Elaborating on
the campaign, the new ad was launched with the intention of giving
the Indica V2 brand a touch of youthfulness. TATAS PRICING
STRATEGY
After the price war being triggered off by Hyundai being the
first company to introduce what came to be known as, pricing based
on customer's value perceptions , all others followed suit.Telco's
Indica came in the range of Rs 2.56 lakh to Rs 3.88 lakh with 4
models.
The price-points in the car market were replaced by price-bands.
The width of a price-band was a function of the size of the segment
being targeted besides the intensity of competition. The thumb rule
being 'the higher the intensity, the wider the price-band.' KEY
STRATEGIC INITIATIVES BY MARUTI A) TURNAROUND STRATEGIES MARUTI
FOLLOWED Maruti was the undisputed leader in the automobile
utility-car segment sector, controlling about 84% of the market
till 1998. With increasing competition from local players like
Telco, Hindustan Motors, Mahindra & Mahindra and foreign
players like Daewoo, PAL, Toyota, Ford, Mitsubishi, GM, the whole
auto industry structure in India has changed in the last seven
years and resulted in the declining profits and market share for
Maruti. At the same time the Indian government permitted foreign
car producers to invest in the automobile sector and hold majority
stakes. In the wake of its diminishing profits and loss of market
share, Maruti initiated strategic responses to cope with Indias
liberalization process and began to redesign itself to face
competition in the Indian market. Consultancy firms such as AT
Kearney & McKinsey, together with an internationally reputed OD
consultant, Dr. Athreya, have been consulted on modes of strategy
and organization development during the redesign process. The
redesign process saw Maruti complete a Rs. 4000 mn expansion
project which increased the total production capacity to over
3,70,000 vehicles per annum. Maruti executed a plan to launch new
models for different segments of the market. In its redesign plan,
Maruti, launches a new model every year, reduce production costs by
achieving 85-90% indigenization for new models, revamp marketing by
increasing the dealer network from 150 to 300 and focus on bulk
institutional sales, bring down number of vendors and introduce
competitive bidding. Together with the redesign plan, there has
been a shift in business focus of Maruti. When Maruti commanded the
largest market share, business focus was to sell what we
produce.
The earlier focus of the whole organization was "production,
production and production" but now the focus has shifted to
"marketing and customer focus". This can be observed from the
changes in mission statement of the organization: 1984: "Fuel
efficient vehicle with latest technology". 1987: "Leader in
domestic market and be among global players in the overseas
market". 1997: "Creating customer delight and shareholders wealth".
Focus on customer care has become a key element for Maruti.
Increasing Maruti service stations with the scope of one Maruti
service station every 25 km on a highway. To increase its market
share, Maruti launched new car models, concentrated on marketing
and institutional sales. Institutional sales, which currently
contributes to 7-8% of Marutis total sales. Cost reduction and
increasing operating efficiency were another redesign variable.
Cost reduction is being achieved by reaching an indigenization
level of 85-90 percent for all the models. This would save foreign
currency and also stabilize prices that fluctuate with exchange
rates. However, change in the mindset was not as fast as required
by the market. Maruti planned to reduce costs, increase
productivity, quality and upgrade its technology (Euro I&II,
MPFI). In addition, it followed a high volume production of about
400,000 vehicles / year, which entailed a smooth relationship
between the workers and the managers. Post 1999, the market
structure changed drastically. Just before this change, Maruti had
wasted two crucial years (1996-1998) due to governmental
interventions and negotiation with Suzuki of Japan about the
break-up of the share holding pattern of the company. There was a
change in leadership, Mr. Sato of Suzuki became the Chairman in
June 1998, and the new Mr.J. Khatter was appointed as the new Joint
MD.
Khatter was a believer in consensus decision making and
participative style of management.As a result of the internal
turmoil and the changes in the external environment, Maruti faced a
depleting market share, reducing profits, and increase in inventory
levels, which it had not faced in the last 18 years.
After their fall in market share they redesigned their
strategies and through their parent company Suzuki they learned a
lot.The organizational learning of Maruti was moderately
successful, the cost was relatively inexpensive as Maruti had its
strong Japanese practices to fall back upon. With the program of
organizational redesign, rationalization of cost and enhanced
productivity, Maruti bounced back to competition with 50.8% market
share and 40% rise in profit for the FY2002-2003. B) CURRENT
STRATEGIES FOLLOWED BY MUL I. PRICING STRATEGY - CATERING TO ALL
SEGMENTS
Maruti caters to all segment and has a product offering at all
price points. It has a car priced at Rs.1,87,000.00 which is the
lowest offer on road. Maruti gets 70% business from repeat buyers
who earlier had owned a Maruti car. Their pricing strategy is to
provide an option to every customer looking for up gradation in his
car. Their sole motive of having so many product offering is to be
in the consideration set of every passenger car customer in India.
Here is how every price point is covered. II. OFFERING ONE STOP
SHOP TO CUSTOMERS OR CREATING DIFFERENT REVENUE STREAMS Maruti has
successfully developed different revenue streams without making
huge investments in the form of MDS, N2N, Maruti Insurance and
Maruti Finance. These help them in making the customer experience
hassle free and helps building customer satisfaction. Maruti
Finance: In a market where more than 80% of cars are financed,
Maruti has strategically entered into this and has successfully
created a revenue stream for Maruti. This has been found to be a
major driver in converting a Maruti car sale in certain cases.
Finance is one of the major decision drivers in car purchase.
Maruti has tied up with 8 finance companies to form a consortium.
This consortium comprises Citicorp
Maruti, Maruti Countrywide, ICICI Bank, HDFC Bank, Kotak
Mahindra, Sundaram Finance, Bank of Punjab and IndusInd Bank Ltd.(
erstwhileAshok Leyland Finance).
Maruti Insurance : Insurance being a major concern of car
owners. Maruti has brought all car insurance needs under one roof.
Maruti has tied up with National Insurance Company, Bajaj Allianz,
New India Assurance and Royal Sundaram to bring this service for
its customers. From identifying the most suitable car coverage to
virtually hassle-free claim assistance it's your dealer who takes
care of everything. Maruti Insurance is a hassle-free way for
customers to have their cars repaired and claims processed at any
Maruti dealer workshop in India. True Value Initiative to capture
used car market Another significant development is MUL's entry into
the used car market in 2001, allowing customers to bring their
vehicle to a 'Maruti True Value' outlet and exchange it for a new
car, by paying the difference. They are offered loyalty discounts
in return.This helps them retain the customer. With Maruti True
Value customer has a trusted name to entrust in a highly
unorganized market and where cheating is rampant and the biggest
concern in biggest driver of sale is trust. Maruti knows its
strength in Indian market and has filled this gap of providing
trust in Indian used car market. Maruti has created a system where
dealers pick up used cars, recondition them, give them a fresh
warranty, and sell them again. All investments for True Value are
made by dealers. Maruti has build up a strong network of 172
showrooms across the nation. The used car market has a huge
potential in India. The used car market in developed markets was
2-3 times as large as the new car market. N2N: Car maintenance is a
time-consuming process, especially if you own a fleet. Marutis N2N
Fleet Management Solutions for companies, takes care of the A-Z of
automobile problems. Services include end-toend backups/solutions
across the vehicles life: Leasing, Maintenance, Convenience
services and Remarketing. Maruti Driving School (MDS): Maruti has
established this with the goal to capture the market where there is
inhibition in buying cars due to inability to drive the car. This
brings that customer to Maruti showroom and Maruti ends up creating
a customer.
III. REPOSITIONING OF MARUTI PRODUCTS Whenever a brand has grown
old or its sales start dipping Maruti makes some facelifts in the
models. Other changes have been made from time to time based on
market responses or consumer feedbacks or the competitor moves.
Here are the certain changes observed in different models of
Maruti. Omni has been given a major facelift in terms of interiors
and exteriors two months back. A new variant called Omni Cargo,
which has been positioned as a vehicle for transporting cargo and
meant for small traders. It has received a very good response from
market. A variant with LPG is receiving a very good response from
customers who look for low cost of running. Versa prices have been
slashed and right now the lowest variant starts at 3.3 lacs. They
decreased the engine power from 1600cc to 1300cc and modified it
again considering consumers perception. This was a result of
intensive survey done all across the nation regarding the consumer
perception of Versa. Esteem has gone through three facelifts. A new
look last year has helped boost up the waning sales of Esteem.
Baleno was launched in 1999 at 7.2 lacs. In 2002 they slashed
prices to 6.4 lacs. In 2003 they launched a lower variant as Baleno
LXi at 5.46 lacs. This was to reduce the price and attract
customers. Wagon-R was perceived as dull boxy car when it was
launched. This made it a big failure on launch. Then further
modifications in engine to increase performance and a facelift in
the form of sporty looking grills on the roof. Now its of the most
successful models in Maruti stable. Zen has been modified four
times till date. They had come up with a limited period variant
called Zen Classic. That was limited period offer to boost short
term sales.
Maruti 800 has so far been facelifted two times. Once it came
with MPFi technology and other time it came up with changes in
front grill, head light, rear lights and with round curves all
around.
IV. CUSTOMER CENTRIC APPROACH Marutis customer centricity is
very much exemplified by the five times consecutive wins at J D
Power CSI Awards. Focus on customer satisfaction is what Maruti
lives with. Maruti has successfully shed off the public- sector
laid back attitude image and has inculcated the customer-friendly
approach in its organization culture. The customer centric attitude
is imbibed in its employees. Maruti dealers and employees are
answerable to even a single customer complain. There are instances
of cancellation of dealerships based on customer feedback. Maruti
has taken a number of initiatives to serve customer well. They have
even changed their showroom layout so that customer has to walk
minimum in the showroom and there are norms for service times and
delivery of vehicles. The Dealer Sales Executive, who is the first
interaction medium with the Maruti customer when the customer walks
in Maruti showroom, is trained on greeting etiquettes. Maruti has
proper customer complain handling cell under the CRM department.
The Maruti call center is another effort which brings Maruti closer
to its customer. Their Market Research department remains on its
toes to study the changing consumer behaviour and market
needs.Maruti enjoys seventy percent repeat buyers which further
bolsters their claim of being customer friendly. Maruti is
investing a lot of money and effort in building customer loyalty
programmes. V. COMMITTED TO MOTORIZING INDIA Maruti is committed to
motorizing India. Maruti is right now working towards making things
simple for Indian consumers to upgrade from twowheelers to the car.
Towards this end, Maruti partnerships with State Bank of India and
its Associate Banks took organized finance to small towns to enable
people to buy Maruti cars. Rs. 2599 scheme was one of the outcomes
of this effort.
Maruti expects the compact cars, which currently constitute
around 80% of the market, to be the engine of growth in the
future.
Robust economic growth, favorable regulatory framework,
affordable finance and improvements in infrastructure favor growth
of the passenger vehicles segment. The low penetration levels at 7
per thousand and rising income levels will augur well for the auto
industry. Maruti is busy fine-tuning another innovation. While
researching they found that rural people had strange notions about
a car - that the EMI (equated monthly instalments) would range
between Rs 4,000 and Rs 5,000. That, plus another Rs 1,500-2,000
for monthly maintenance, another Rs 1,000 for fuel (would be the
cost of using the car). To counter that apprehension, the company
is working on a novel idea. Control over the fuel bill is in the
consumer's hands. But, maintenance need not be. Says Khattar: "What
the company is doing now is saying how much you spend on fuel is in
your hands anyway. As far as the maintenance cost is concerned, if
you want it that way, we will charge a little extra in the EMI and
offer free maintenance." VI. DISINVESTMENT AND IPO OF MARUTI UDYOG
LIMITED It was a long and tough journey, but a rewarding one at the
end. A reward worth Rs 2,424 crore, making it the biggest
privatization in India till date. The size of Marutis sell- off
deal is proof of its success. On the investment of Rs 66 crore it
made in 1982, when Maruti Udyog Limited (MUL) was formally set up,
the sale represents a staggering return of 35 times The best part
of the deal is the Rs 1,000 crore control premium the Government
has been able to extract from Suzuki Motor Corporation for
relinquishing its hold over Indias largest car company. Now looking
at the strategy point of it for Suzuki, of course, complete control
of MUL means a lot. Maruti is its most profitable and the largest
car company outside Japan. Suzuki will now be in the drivers seat
and will not have to mind the whims and fancies of ministers and
bureaucrats. Decisions will now become quicker. The response to
changing market conditions and technological needs will be faster,
says Jagdish Khattar, managing
director, MUL. After the disinvestment Suzuki became the
decision maker at MUL. They flowed fund in India for the major
revamp in MUL. Quoting from the report that appeared in The
Economic Times, 4th April 2005, -
The Indian car giant Maruti Udyog Limited has finalized its two
mega investment plans a new car plant and an engine and
transmission manufacturing plant. Both the projects will be
implemented by two different companies. At its meeting the
company's board approved a total investment of Rs3,271.9 crore for
these two ventures, which will be located in Haryana. The above
signifies when GOI was a major stakeholder in the MUL strategies
which lead to investment have had a bureaucracy factor in it but
after the disinvestment strategy followed is a TOP DOWN approach
with a fast implementation. Suzuki's proposed two-wheeler facility
in India, would start making motorcycles and scooters by the end of
2005 through a joint venture, in which Maruti has 51 per cent
stake. The two-wheeler unit will have a capacity of 250,000 units a
year. The disinvestment followed by IPO gives the insight in the
fact that now all the strategic decisions are taken by Maruti
Suzuki Corporation. Disinvestment had helped by removing the red
tape and bureaucracy factor from its strategic decision making
process. VII. REALISATION OF IMPORTANCE OF VEHICLE MAINTENANCE
SERVICES MARKET In the old days, the company's operations could be
boiled down to a simple three-box flowchart. Components came from
the 'vendors' to the 'factory' where they were assembled and then
sent out to the 'dealers'. In this scheme, you know where the
company's revenues come from. The new scheme is more complicated.
It revolves around the total lifetime value of a car. Work on this
began in 1999, when a MUL team, wondering about new revenue
streams, traveled across the world. Says R.S. Kalsi, general
manager (new business), MUL: "While car companies were moving
from
products to services, trying to capture more of the total
lifetime value of a car, MUL was just making and selling cars." If
a buyer spends Rs 100 on a car during its entire life, one-third of
that is spent on its purchase. Another third went into fuel.
And the final third went into maintenance. Earlier, Maruti was
getting only the first one-third of the overall stream. As the
Indian market matured, customers began to change cars faster. Says
Kalsi: "So the question was, if a car is going to see three users
in, say, a life span of 10 years, how can I make sure that it comes
back to me each time it changes hands ? So Maruti has changed gears
to take a big share of this final onethird spent on maintenance.
Maintenance market has a huge market potential. Even after having
fifty lakh vehicles on road Maruti is only catering to
approximately 20000 vehicles through its service stations everyday.
For this they are conducting free service workshops to encourage
consumers to come to their service stations. Maruti has increased
its authorized service stations to 1567 across 1036 cities. Every
regional office is having a separate services and maintenance
department which look after the growth of this revenue stream.
VIII. PLAYING ON COST LEADERSHIP Maruti is the price dictator in
Indian automobile industry. Its the low cost provider of car. The
lowest car on road is from Maruti stable i.e. Maruti 800. Maruti
achieves this through continuous improvements in operational
efficiency and productivity. The company has set itself (and its
vendors) the target of a 50% improvement in productivity and a 30%
reduction in costs in three years. The ability to keep lowering the
prices sets Maruti apart from other players in the league. Maruti
spread the overheads over a larger base. The impressive sales and
profits were the result of major efforts within the company. Maruti
also increased focus on vendor management. Maruti consolidated its
vendor base. This has provided its vendors with higher volumes and
higher efficiencies. Maruti does that by working with vendors,
assuring them that for every drop in price, volumes will go up.
Maruti is now encouraging its vendors to develop R&D capability
for
specialized components. Based upon such activities, product
competitiveness in the market will further increase.
Maruti also made strides in applying IT to manufacturing. A new
Vehicle Tracking System improved efficiency on the shop floor and
enhanced quality control. The e Nagare system, adopted from Suzuki
Motor Corporation, smoothened Marutis Just In Time operations. C)
MAJOR FUTURE STRATEGIES I. PHASING OUT ZEN IN 2007 The launch of
Swift and phasing out Zen is a strategic move. Alto was launched
keeping in mind that it will take over Maruti 800 market in future.
Perhaps being the flagship product phasing out of Maruti 800 faced
lots of resistance from dealers all over. Another reason behind not
phasing out Maruti 800 was the fear of brand shift of customers to
other competitors product. Swift was launched in May, 2005 in the
price band starting from 4 lacs. Before launch of Swift Maruti
management had decided that they will phase out Zen since it had
already came up with two modifications. The major reason behind
this decision was cannibalization of Wagon R and Swift due to
overlapping of price band. It is a rational decision to kill a
product before it starts facing the decline stage in product cycle.
Maruti is offering Rs. 3000.00 more margins to dealer on the sale
of Wagon-R as compared to Zen. This is to let dealer push Wagon R
instead of Zen. II. MARUTI PLANS FOR A BIG DIESEL FORAY The new car
manufacturing company, called Maruti Suzuki Automobiles India
Limited, will be a joint venture between Maruti Udyog and Suzuki
Motor Corporation holding a 70 per cent and 30 per cent stake
respectively. The Rs1,524.2 crore plant will have a capacity to
roll out 1 lakh cars per year with a capacity to scale up to 2.5
lakh units per annum. The new car manufacturing plant will begin
commercial production by the end of 2006.
Maruti would set up a diesel engine plant at Gurgaon in line
with its plan to become a major player in diesel vehicles in a
couple of years. This has been done in the wake of major
competition from Tata Indica and meets the growing demand of diesel
cars in India. While the annual growth in the diesel segment was 13
per cent in the last three years, it was 19-20 per cent in the
first quarter (April-June) of the current fiscal.
Maruti has currently an insignificant presence in diesel
vehicle. It will manufacture new generation CRDI (common rail
direct injection) engines in collaboration with Fiat-GM Opel and
engines will be of 1200 cc. The plant with a capacity to produce
one lakh diesel engines would be operational in 2006. At present,
Peugeot of France, supplies diesel engines for Maruti's Zen and
mid-sized Esteem models. This will further reduce the imported
component in Maruti vehicles, making them more competitive in the
Indian market. III. MARUTI PLANS FOR A NEW ENGINE AND TRANSMISSION
PLANT The engine and the transmission plant will be owned by Suzuki
Powertrain India Limited in which Suzuki Motor Corporation would
hold 51 per cent stake and Maruti Udyog holding the balance. The
ultimate total plant capacity would be three lakh diesel engines.
However, the initial production would be 1 lakh diesel engines,
20,000 petrol engines and 1.4 lakh transmission assemblies.
Investment in this facility will be Rs.1,747.7 crore. The
commercial production will start by the end of 2006. IV. INDIA AS
EXPORT HUB FOR MARUTI Three years back as an experiment, based on
the increasing design capabilities of suppliers in countries like
India, McKinsey did an exercise to figure out just how much money
could be saved if automobiles were to be made in overseas locations
like India, Mexico and South Africa -- an automobile BPO, so to
speak. The result was staggering: the industry stands to gain $ 150
billion annually in cost savings, and an additional $ 170 billion
annually in new revenues once demand shoots up following the drop
in prices, and the combination of which means a 25 per cent
increase in existing revenue levels.
According to the study, over 90 per cent of automobiles today
are sold in the countries they are made in, so there's a lot of
money to be made by shifting the production overseas.
Till recently, just 100,000 cars produced in low-cost countries
were exported to high-cost ones -- presumably this figure is going
up now that Altos from Maruti, Santros from Hyundai, Indicas from
Tata Motors, and Ikons from Ford, among others, are being regularly
exported out of India. Yet, as McKinsey points out, since it just
costs $ 500 and just three weeks (and both figures are falling) to
ship out a car to anywhere in the world, why produce cars in
high-wage islands? If a car was produced in India instead of in
Japan, the study says, it will cost 22-23 per cent less, after
factoring in higher import duties for components/steel, lower
levels of automation, and transport costs. In August, 2003 Maruti
crossed a milestone of exporting 300,000 vehicles since its first
export in 1986. Europe is the largest destination of Marutis
exports and coincidentally after the first commercial shipment of
480 units to Hungary in 1987, the 300,00 mark was crossed by the
shipment of 571 units to the same country. The top ten destination
of the cumulative exports have been Netherlands, Italy, Germany,
Chile, U.K., Hungary, Nepal, Greece, France and Poland in that
order. The Alto, which meets the Euro-3 norms, has been very
popular in Europe where a landmark 200,000 vehicle were exported
till March 2003. Even in the highly developed and competitive
markets of Netherlands, UK, Germany, France and Italy Maruti
vehicles have made a mark. Though the main market for the Maruti
vehicles is Europe, where it is selling over 70% of its exported
quantity, it is exporting in over 70 countries. Maruti has entered
some unconventional markets like Angola, Benin, Djibouti, Ethiopia,
Morocco, Uganda, Chile, Costa Rica and El Salvador. The Middle-East
region has also opened up and is showing good potential
for growth. Some markets in this region where Maruti is, are
Saudi Arabia, Kuwait, Bahrain, Qatar and UAE. The markets outside
of Europe that have large quantities, in the current year, are
Algeria, Saudi Arabia, Srilanka and Bangladesh. Maruti exported
more than 51,000 vehicles in 2003-04 which was 59% higher than last
year. In the financial year 2003-04 Maruti exports contributed to
more than 10% of total Maruti sales.
V. MARUTI EMERGING AS R&D HUB FOR SUZUKI MOTOR CORPORATION
Japanese auto major Suzuki is all set to convert Maruti Udyog Ltds
research and development (R&D) facility as its Asia hub by 2007
for the design and development of new compact cars, according to a
top official of the firm. The countrys leading car manufacturer
will make substantial investments to upgrade its research and
development centre at Gurgaon in Haryana for executing design and
development projects for Suzuki. This includes localisation,
modernisation and greater use of composite technologies in upcoming
models. The company will be hiring more software engineers and
technocrats to handle Suzukis R&D projects. Investment would be
more in terms of manpower than in infrastructure, which is already
in place. Apart from working on innovative features, the R&D
teams will focus on latest technologies using CAD-CAM tools to roll
out new models that will meet the needs of MULs diverse customers
in the future. The reasons as to why it can be good for R&D is
that Firstly the cost involved in R&D and infrastructure is low
in India as compared to other countries. Also the technical skills
are abundantly available; again at a cheaper cost. Secondly, India
is growing as an export hub along with the Indian market growing
aggressively into becoming an attractive one for investors.
Thirdly, Suzukis investment in India, is also important as it
has completely divested now as a result MUL will now become a 100%
subsidiary of Suzuki in the coming year.
KEY SUCCESS FACTORS (1)The Quality Advantage Maruti Suzuki
owners experience fewer problems with their vehicles than any other
car manufacturer in India (J.D. Power IQS Study 2004). The Alto was
chosen No.1 in the premium compact car segment and the Esteem in
the entry level mid - size car segment across 9 parameters. (2)A
Buying Experience Like No Other Maruti Suzuki has a sales network
of 307 state-of -the-art showrooms across 189 cities, with a
workforce of over 6000 trained sales personnel to guide MUL
customers in finding the right car. (3)Quality Service Across 1036
Cities In the J.D. Power CSI Study 2004, Maruti Suzuki scored the
highest across all 7 parameters: least problems experienced with
vehicle serviced, highest service quality, best in-service
experience, best service delivery, best service advisor experience,
most user-friendly service and best service initiation experience.
92% of Maruti Suzuki owners feel that work gets done right the
first time during service. The J.D. Power CSI study 2004 also
reveals that 97% of Maruti Suzuki owners would probably recommend
the same make of vehicle, while 90% owners would probably
repurchase the same make of vehicle.
(4)One Stop Shop At Maruti Suzuki, customers will find all car
related needs met under one roof. Whether it is easy finance,
insurance, fleet management services, exchange- Maruti Suzuki is
set to provide a single-window solution for all car related
needs.
(5) The Low Cost Maintenance Advantage The acquisition cost is
unfortunately not the only cost customers face when buying a car.
Although a car may be affordable to buy, it may not necessarily be
affordable to maintain, as some of its regularly used spare parts
may be priced quite steeply. Not so in the case of a Maruti Suzuki.
It is in the economy segment that the affordability of spares is
most competitive, and it is here where Maruti Suzuki shines.
(6)Lowest Cost of Ownership The highest satisfaction ratings with
regard to cost of ownership among all models are all Maruti Suzuki
vehicles: Zen, Wagon R, Esteem, Maruti 800, Alto and Omni. (7)
Technological Advantage It has introduced the superior 16 * 4
Hypertech engines across the entire Maruti Suzuki range. This new
technology harnesses the power of a brainy 16-bit computer to a
fuel-efficient 4-valve engine to create optimum engine delivery.
This means every Maruti Suzuki owner gets the ideal combination of
power and performance from his car. FUTURE CHALLENGES Maruti has
always been identified as a traditional carmaker producing
value-for-money cars and right now the biggest hurdle Maruti is
facing is to shed this image. Maruti wants to change it for a more
aggressive image. Maruti Baleno has failed due to one of the major
reasons being that customers could not identify Maruti with a car
as sophisticated as
Maruti Baleno. Maruti is looking forward to bring about a
perception change about the company and its cars. Maruti started
the exercise with the new-look Zen, and Suzuki's decision to pick
India as one of the first markets for this radically
different-looking car gave this endeavor a new thrust. Maruti has
also changed its logo at the front grill. It has replaced the
traditional Maruti logo on grill stylish M with S. The major thrust
in the facelift endeavour is with the launch of 1.3 litre Swift.
Its a style statement from Maruti to Indian market.
The next threat Maruti faces is the growing competition in
compact cars. Companies like Toyota, Ford, Honda and Fiat are
planning to come out with small segment cars in near future.Ford is
launching Focus and Fiesta, GM is launching Aveo in 2006, Chevrolet
is launching Spark in 2006, Hyundai is launching its new compact
car in 2006, Honda is launching Jazz in 2006, GM is has reduced
prices of its Corsa, Fiat is coming up with Panda and new Fiat
Palio, Skoda is launching Fabia. All this will pose a major threat
to Maruti leadership in compact cars. New emission norms like
Bharat Stage 3 which has come into effect from April 2005 has
increased car prices by Rs.20000 and Bharat Stage 4 which is coming
into force in 2007 will contribute in increasing car prices
further. This could be of concern to Maruti which is low cost
provider of passenger cars. Rise in petrol prices and growing
popularity of other substitute fuels like CNG will be another
threat to Maruti. There is also a threat to Suzuki from R&D
investment by Toyota and Honda in Hybrid cars. Hybrid cars could
run on both petrol and gaseous fuels. There is a threat to Maruti
models ageing. Maruti models like Maruti 800 which is in market for
the last twenty years and others like Zen and Esteem which have
also entered the decline phase are the other threats. Maruti is
planning phasing out Zen in 2007 and there were rumors of phasing
out Maruti 800 also. This all makes Suzuki to replace these brands
with new launches . As Swift and Wagon R are replacing the Zen
market. Maruti will have to keep on making modifications in its
present models or its models will face extinction.