Competition and Corporate StrateCompetition and Corporate Strategy with special reference to Suzugy with special reference to Suzuki Motor Corporation and Maruti ki Motor Corporation and Maruti

Udyog Ltd.Udyog Ltd.

Etsuro ISHIGAMIEtsuro ISHIGAMI

Fukuoka UniversityFukuoka University

ContentsContents

• ““Maruti Revolution” and Some Issues up Maruti Revolution” and Some Issues up to the mid-1990sto the mid-1990s

•From the end of 1990s onwards: CompetFrom the end of 1990s onwards: Competition and Corporate Strategy of Suzuki=Mition and Corporate Strategy of Suzuki=Marutiaruti

• Is Maruti the goose laying the golden eggIs Maruti the goose laying the golden eggs to Suzuki? Some Financial Parameterss to Suzuki? Some Financial Parameters

Production of Vehicles (Passgr. & Comm.): Production of Vehicles (Passgr. & Comm.): MManufacturer-wise 2003CYanufacturer-wise 2003CY Maruti Udyog 437,347 (Maruti Udyog 437,347 ( ＋＋ 23%) 37.3%23%) 37.3%Tata Motors 288,998 (Tata Motors 288,998 ( ＋＋ 37%) 24.6%37%) 24.6%Hyundai M. I. 153,747 (Hyundai M. I. 153,747 ( ＋＋ 42%) 13.1%42%) 13.1%Mahindra & Ma. 94,782 (Mahindra & Ma. 94,782 ( ＋＋ 31%) 8.1%31%) 8.1%Ashok Leyland 45,122 (Ashok Leyland 45,122 ( ＋＋ 38%) 3.8%38%) 3.8%Toyota Kirloskar. 37,481 (Toyota Kirloskar. 37,481 ( ＋＋ 44%) 3.2%44%) 3.2%Ford India 18,790 (Ford India 18,790 ( ＋＋ 22%) 1.8%22%) 1.8%Honda Siel Cars 15,737 (Honda Siel Cars 15,737 ( ＋＋ 19%) 1.3%19%) 1.3%Hindustan M. 15,654 (Hindustan M. 15,654 ( －－ 33%) 33%) 　　 　　 1.3%1.3%Eicher Motors 13,965 (Eicher Motors 13,965 ( ＋＋ 12%) 1.2%12%) 1.2%

Total 1,172,668 100.0%Total 1,172,668 100.0%

History: MilestonesHistory: Milestones1983 Started Production, launched Maruti 8001983 Started Production, launched Maruti 8001984 Installed Capacity reached 40000 units, l1984 Installed Capacity reached 40000 units, l

aunched Omni aunched Omni 1985 Launched Gypsy1985 Launched Gypsy

1986 Produced 100,000 units since commencement 1986 Produced 100,000 units since commencement of productionof production

1987 Exported first lot of 500 cars to Hungary1987 Exported first lot of 500 cars to Hungary1988 Reached installed capacity of 100,000 units1988 Reached installed capacity of 100,000 units1990 Launched Sedan Maruti 10001990 Launched Sedan Maruti 10001991 Cumulative indigenisation of 65% for all units1991 Cumulative indigenisation of 65% for all units

1992 SMC increased its stake in Maruti to 50%1992 SMC increased its stake in Maruti to 50%1993 Launched Zen1993 Launched Zen1994 Launched Esteem; Produced 1 million vehicles 1994 Launched Esteem; Produced 1 million vehicles

since commencement of productionsince commencement of production1995 Plant 2 became operational, installed capacity 1995 Plant 2 became operational, installed capacity

to 200,000 unitsto 200,000 units1997 Produced 2 million units since the commence1997 Produced 2 million units since the commence

ment of productionment of production1999 Plant 3 and new press, paint and assembly sh1999 Plant 3 and new press, paint and assembly sh

ops became operational;ops became operational; installed capacity increased to 350,000 units;installed capacity increased to 350,000 units; Launched Baleno and Wagon RLaunched Baleno and Wagon R

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

2001 Launched Versa; Launched new business: Tr2001 Launched Versa; Launched new business: True Value, Maruti Finance, Maruti Insurance and Nue Value, Maruti Finance, Maruti Insurance and N2N2N

2002 SMC assumes Management control2002 SMC assumes Management control2003 Entered into Partnership with State Bank of I2003 Entered into Partnership with State Bank of I

ndia; Production of 4 million vehicle;ndia; Production of 4 million vehicle; Launched Grand Vitara XL-7;Launched Grand Vitara XL-7; Listed on BSE and NSE after a Public Issue oversListed on BSE and NSE after a Public Issue overs

ubscribed 10 times;ubscribed 10 times; Upgraded Wagon R and ZenUpgraded 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 plantExploring the feasibility of setting up new plant

20042004#SMC announced to set up a join venture with MUL #SMC announced to set up a join venture with MUL

to build a manufacturing facility with an annual prto build a manufacturing facility with an annual production capacity of 250,000, first car by early 2oduction capacity of 250,000, first car by early 2007; also to set up a new two-wheeler manufact007; also to set up a new two-wheeler manufacturing facility both at Haryana stateuring facility both at Haryana state

#SMC announced MUL to become SMC’s R & D Ce#SMC announced MUL to become SMC’s R & D Ce

ntre in Asia by 2007, to work out a new model fontre in Asia by 2007, to work out a new model for Zen for exportr Zen for export

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

Operations: Some indicatorsOperations: Some indicators““Challenge 50” (’01-’02~’04-’05)Challenge 50” (’01-’02~’04-’05) #50 % Increase of #50 % Increase of ProductivityProductivity by ’03-’04. 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, SMC11 hours at Kosai I plant, SMC #Reduction of #Reduction of Inventory Inventory holding period from 30 days in ’02-’holding period from 30 days in ’02-’

03 to 19 days in ’03-’04;03 to 19 days in ’03-’04; ##Supplier ManagementSupplier Management: MUL has reduced its vendor base fr: MUL has reduced its vendor base fr

om over 350 in ’01-’02 to around 220 at the end of ’03-’0om over 350 in ’01-’02 to around 220 at the end of ’03-’04. It helped MUL enhance supply chain efficiencies by low4. It helped MUL enhance supply chain efficiencies by lowering the time and costs involved in dealing with more venering the time and costs involved in dealing with more vendors.dors.

#Local Contents (March 2004.)#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):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 primIn its early days, the Maruti R & D centre was prim

arily involved in providing technical assistance to arily involved in providing technical assistance to local component manufacturers, Over the years, tlocal component manufacturers, Over the years, the centre has developed capabilities for face lifts he centre has developed capabilities for face lifts and body changes of current models…….All modand body changes of current models…….All modifications done on the new Zen model introduced ifications done on the new Zen model introduced by the company 2003-04 were carried out in-houby the company 2003-04 were carried out in-house by the R & D team. The dies for the new body se by the R & D team. The dies for the new body panels were developed in-house die shop for the panels were developed in-house die shop for the first time.”first time.”

Suzuki-GM Strategic AllianceSuzuki-GM Strategic Alliance• 08/1981 Business 08/1981 Business

PartnershipPartnership

• 09/2000 GM’s 20.3%09/2000 GM’s 20.3%

Equity Participation in Equity Participation in SMCSMC

04/2003 SMC-Fiat04/2003 SMC-Fiat agreement for joint agreement for joint development of a new SUV development of a new SUV based on SMC’s A-Segment based on SMC’s A-Segment Platform: both gasoline and Platform: both gasoline and diesel engine version. diesel engine version. Production will start during Production will start during 2005 at Magyar Suzuki in 2005 at Magyar Suzuki in Hungary to be sold at both Hungary to be sold at both Suzuki and Fiat dealers Suzuki and Fiat dealers under each company’s own under each company’s own brand.brand.

• 06/2003 Magyar Suz06/2003 Magyar Suzuki started an OEM suuki started an OEM supply of the new G3X Jpply of the new G3X Justy to Subaru Europe usty to Subaru Europe N.V./ S.A.N.V./ S.A.

• 08/2003 Suzuki bega08/2003 Suzuki began cars made by GM-Dn cars made by GM-Daewoo Auto & Tech. at aewoo Auto & Tech. at AmericaAmerica

• 03/2004 Chevrolet As03/2004 Chevrolet Astro manfed. At Kosai stro manfed. At Kosai sold in Japan old in Japan

Maruti Revolution(1) Humphery et al. [19Maruti Revolution(1) Humphery et al. [1999]99]•Production of a relatively modern smalProduction of a relatively modern smal

l car design: fuel-efficient, cheap and l car design: fuel-efficient, cheap and qualityquality

•Location away from established industLocation away from established industries areas: a green field site at Gurgaries areas: a green field site at Gurgaonon

•Achievement of scale economicsAchievement of scale economics•Development of a suppliers networkDevelopment of a suppliers network

(2)High Evaluation for Transplant:(2)High Evaluation for Transplant:Mohanty, Sahu and Pati[1994]Mohanty, Sahu and Pati[1994]• Factory Layout, similar pattern of SuzukiFactory Layout, similar pattern of Suzuki• Machinery and Equipment identicalMachinery and Equipment identical• Follow Suzuki’s Organisation structureFollow Suzuki’s Organisation structure• Quality Circle introducedQuality Circle introduced• Employees informed about quality and prodEmployees informed about quality and prod

uctivity; the sense of commitmentuctivity; the sense of commitment• Feeling of Oneness Feeling of Oneness • People sent Japan and Japanese experts cPeople sent Japan and Japanese experts c

alled to do actual work up to two yearsalled to do actual work up to two years

Balance Sheet 2003-04 (Rs. mBalance Sheet 2003-04 (Rs. mn)n)

Sources of FundSources of FundShare Capital 1,445Share Capital 1,445Reserve & surplus 34,467Reserve & surplus 34,467 35,91235,912

Loans Loans 3,1193,119

Deferred Tax Deferred Tax 1,8331,833

Total Total 40,86440,864

Application of FundApplication of FundFixed AssetFixed Asset Gross Block 45,667Gross Block 45,667 Less Acc.Depr. 27,359Less Acc.Depr. 27,359 (Plus Cap.WIP) (Plus Cap.WIP) 19,05719,057Investment Investment 16,77316,773Current Asset, Loans & AdvCurrent Asset, Loans & Adv

ances 20,189ances 20,189 Less Current Liabilities & PLess Current Liabilities & P

rovisions 15,318rovisions 15,318Net Current Assets Net Current Assets 4,8714,871 40,86440,864

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

IncomeIncome

Gross Sales 112,840Gross Sales 112,840

Less Excise Duty 19,384Less Excise Duty 19,384

Net Sale 93,456Net Sale 93,456

Income from Service 278Income from Service 278

Other Income 3,776Other Income 3,776

Total Total 97,51097,510

Expenditure (main items)Expenditure (main items)Raw Materials & Components 66,349 *(/Net Sales)Raw Materials & Components 66,349 *(/Net Sales)Purchase of Traded Goods 3,512Purchase of Traded Goods 3,512Consumption of Stores 536 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%)Employees Remuneration & Bnft.2,975 ( 3.2%)Mnfg. & Admn. Expenses 3,735 (4.0%)Mnfg. & Admn. Expenses 3,735 (4.0%)Selling & Distribution Expenses 6,662 (7.1%)Selling & Distribution Expenses 6,662 (7.1%)Financial Expenses 457Financial Expenses 457Depreciation 4,949 (5.3%)Depreciation 4,949 (5.3%)Total 89,812Total 89,812Profit before Tax 7,698Profit before Tax 7,698Profit after Tax 5,421 (5.8%)Profit after Tax 5,421 (5.8%)