Competition and Corporate Strategy with special reference to Suzuki

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Competition and Corporate

Strategy with special reference to

Suzuki Motor Corporation and

Maruti Udyog Ltd.

Etsuro ISHIGAMI

Fukuoka University

Contents

Maruti Revolution

up to the mid-1990s and Some Issues

From the end of 1990s onwards:

Competition and Corporate Strategy of Suzuki=Maruti

Is Maruti the goose laying the golden eggs to Suzuki? Some Financial

Parameters

Production of Vehicles (Passgr. & Comm.):

Manufacturer-wise 2003CY

Maruti Udyog 437,347 (

23%) 37.3%

Tata Motors 288,998 (

37%) 24.6%

Hyundai M. I. 153,747 (

42%) 13.1%

Mahindra & Ma. 94,782 (

31%) 8.1%

Ashok Leyland 45,122 (

38%) 3.8%

Toyota Kirloskar. 37,481 (

44%) 3.2%

Ford India 18,790 (

22%) 1.8%

Honda Siel Cars 15,737 (

19%) 1.3%

Hindustan M. 15,654 (

33%) 1.3%

Eicher Motors 13,965 (

12%) 1.2%

Total 1,172,668 100.0%

History: Milestones

1983 Started Production, launched Maruti 800

1984 Installed Capacity reached 40000 units, launched Omni

1985 Launched Gypsy

1986 Produced 100,000 units since commencement of production

1987 Exported first lot of 500 cars to Hungary

1988 Reached installed capacity of 100,000 units

1990 Launched Sedan Maruti 1000

1991 Cumulative indigenisation of 65% for all units

1992 SMC increased its stake in Maruti to 50%

1993 Launched Zen

1994 Launched Esteem; Produced 1 million vehicles since commencement of production

1995 Plant 2 became operational, installed capacity to 200,000 units

1997 Produced 2 million units since the commencement of production

1999 Plant 3 and new press, paint and assembly shops became operational; installed capacity increased to 350,000 units;

Launched Baleno and Wagon R

2000 Launched Alto and Altura; Produced 3 million vehicles since commencement

2001 Launched Versa; Launched new business:

True Value, Maruti Finance, Maruti Insurance and N2N

2002 SMC assumes Management control

2003 Entered into Partnership with State Bank of

India; Production of 4 million vehicle;

Launched Grand Vitara XL-7;

Listed on BSE and NSE after a Public Issue oversubscribed 10 times;

Upgraded Wagon R and Zen

Sold its Record 472,000 units, and Exported

51,175 units (

03-

04)

Exploring the feasibility of setting up new plant

2004

#SMC announced to set up a join venture with

MUL to build a manufacturing facility with an annual production capacity of 250,000, first car by early 2007; also to set up a new two-wheeler manufacturing facility both at Haryana state

#SMC announced MUL to become SMC

’ s R & D

Centre in Asia by 2007, to work out a new model for Zen for export

#To invest Rs 350 crore to set up a new diesel engine manufacturing facility with an annual production capacity of 100,000 by a licensing agreement with Fiat Auto and Adam Opel for 1.3 litre diesel engine

Operations: Some indicators

Challenge 50

(

01-

02~

04-

05)

#50 % Increase of Productivity by

03-

04.

cf. 20 hours per vehicle to complete at MUL plant:

11 hours at Kosai I plant, SMC

#Reduction of Inventory holding period from 30 days in

02-

03 to 19 days in

03-

04;

#Supplier Management: MUL has reduced its vendor base from over 350 in

01-

02 to around 220 at the end of

03-

04. It helped MUL enhance supply chain efficiencies by lowering the time and costs involved in dealing with more vendors.

#Local Contents (March 2004.)

Maruti 800, Omni, Alto, Wagon R, Zen, Esteem > 90%

Baleno, Versa, Gypsy: 70~85%

#Research and Development (R & D):

Rs 396 mn., 0.42 %(!!) as of net sales (

03-04)

In its early days, the Maruti R & D centre was primarily involved in providing technical assistance to local component manufacturers,

Over the years, the centre has developed capabilities for face lifts and body changes of current models

……

.All modifications done on the new Zen model introduced by the company

2003-04 were carried out in-house by the R & D team. The dies for the new body panels were developed in-house die shop for the first time.

Suzuki-GM Strategic Alliance

08/1981 Business

Partnership

09/2000 GM

’ s 20.3%

Equity Participation in SMC

04/2003 SMC-Fiat agreement for joint development of a new

SUV based on SMC

’ s A-

Segment Platform: both gasoline and diesel engine version. Production will start during 2005 at Magyar Suzuki in Hungary to be sold at both

Suzuki and Fiat dealers under each company

’ s own brand.

06/2003 Magyar

Suzuki started an

OEM supply of the new G3X Justy to

Subaru Europe N.V./

S.A.

08/2003 Suzuki began cars made by GM-

Daewoo Auto & Tech. at America

03/2004 Chevrolet

Astro manfed. At

Kosai sold in Japan

Maruti Revolution(1) Humphery et al.

[1999]

Production of a relatively modern small car design: fuel-efficient, cheap and quality

Location away from established industries areas: a green field site at

Gurgaon

Achievement of scale economics

Development of a suppliers network

(2)High Evaluation for Transplant:

Mohanty, Sahu and Pati[1994]

Factory Layout, similar pattern of Suzuki

Machinery and Equipment identical

Follow Suzuki

’ s Organisation structure

Quality Circle introduced

Employees informed about quality and productivity; the sense of commitment

Feeling of Oneness

People sent Japan and Japanese experts called to do actual work up to two years

Balance Sheet 2003-04 (Rs. mn)

Application of Fund

Sources of Fund

Fixed Asset

Share Capital 1,445

Gross Block 45,667

Reserve & surplus 34,467

Less Acc.Depr. 27,359

35,912

(Plus Cap.WIP) 19,057

Loans 3,119

Deferred Tax 1,833

Total 40,864

Investment 16,773

Current Asset, Loans &

Advances 20,189

Less Current Liabilities &

Provisions 15,318

Net Current Assets 4,871

40,864

Profit and Loss Account 2003-04 (Rs. Mn.)

Income

Gross Sales 112,840

Less Excise Duty 19,384

Net Sale 93,456

Income from Service 278

Other Income 3,776

Total 97,510

Expenditure (main items)

Raw Materials & Components 66,349 *(/Net Sales)

Purchase of Traded Goods 3,512

Consumption of Stores 536

(sub total three items 70,397 )---(75.3%)

Employees Remuneration & Bnft.2,975 ( 3.2%)

Mnfg. & Admn. Expenses 3,735 (4.0%)

Selling & Distribution Expenses 6,662 (7.1%)

Financial Expenses 457

Depreciation 4,949 (5.3%)

Total 89,812

Profit before Tax 7,698

Profit after Tax 5,421 (5.8%)

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