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 ganization 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
technologies*partly guided by environmental legislation*in 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 &
