Competition and Corporate Strategy with special reference to Suzuki Motor Corporation and Maruti Udyog Ltd. Etsuro ISHIGAMI Fukuoka University

Contents “ Maruti Revolution ” and Some Issues up to the mid-1990s “ Maruti Revolution ” and Some Issues up to the mid-1990s From the end of 1990s onwards: Competition and Corporate Strategy of Suzuki=Maruti 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 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, %

History: Milestones 1983 Started Production, launched Maruti Installed Capacity reached 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 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; installed capacity increased to 350,000 units; Launched Baleno and Wagon R 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; Launched Grand Vitara XL-7; Listed on BSE and NSE after a Public Issue oversubscribed 10 times; Listed on BSE and NSE after a Public Issue oversubscribed 10 times; Upgraded Wagon R and Zen Upgraded Wagon R and Zen Sold its Record 472,000 units, and Exported Sold its Record 472,000 units, and Exported 51,175 units ( ’ 03- ’ 04) 51,175 units ( ’ 03- ’ 04) Exploring the feasibility of setting up new plant 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. #50 % Increase of Productivity by ’ 03- ’ 04. cf. 20 hours per vehicle to complete at MUL plant: cf. 20 hours per vehicle to complete at MUL plant: 11 hours at Kosai I plant, SMC 11 hours at Kosai I plant, SMC #Reduction of Inventory holding period from 30 days in ’ 02- ’ 03 to 19 days in ’ 03- ’ 04; #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. #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% Maruti 800, Omni, Alto, Wagon R, Zen, Esteem > 90% Baleno, Versa, Gypsy: 70~85% Baleno, Versa, Gypsy: 70~85%

#Research and Development (R & D): Rs 396 mn., 0.42 %(!!) as of net sales ( ’ 03-04) 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 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 08/1981 Business Partnership 09/2000 GM ’ s 20.3% 09/2000 GM ’ s 20.3% Equity Participation in SMC 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. 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. 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 08/2003 Suzuki began cars made by GM- Daewoo Auto & Tech. at America 03/2004 Chevrolet Astro manfed. At Kosai sold in Japan 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 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 Location away from established industries areas: a green field site at Gurgaon Achievement of scale economics Achievement of scale economics Development of a suppliers network Development of a suppliers network

(2)High Evaluation for Transplant: Mohanty, Sahu and Pati[1994] Factory Layout, similar pattern of Suzuki Factory Layout, similar pattern of Suzuki Machinery and Equipment identical Machinery and Equipment identical Follow Suzuki ’ s Organisation structure Follow Suzuki ’ s Organisation structure Quality Circle introduced Quality Circle introduced Employees informed about quality and productivity; the sense of commitment Employees informed about quality and productivity; the sense of commitment Feeling of Oneness Feeling of Oneness People sent Japan and Japanese experts called to do actual work up to two years People sent Japan and Japanese experts called to do actual work up to two years

Balance Sheet (Rs. mn) Sources of Fund Share Capital 1,445 Reserve & surplus 34,467 35,912 35,912 Loans 3,119 Deferred Tax 1,833 Total 40,864 Application of Fund Fixed Asset Gross Block 45,667 Gross Block 45,667 Less Acc.Depr. 27,359 Less Acc.Depr. 27,359 (Plus Cap.WIP) 19,057 (Plus Cap.WIP) 19,057 Investment 16,773 Current Asset, Loans & Advances 20,189 Less Current Liabilities & Provisions 15,318 Less Current Liabilities & Provisions 15,318 Net Current Assets 4,871 40,864 40,864

Profit and Loss Account (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%) (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%)