Maruti Suzuki Case Study

Economics of Strategy – End Term Assignment

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INTRODUCTION

The history of Maruti began in 1970, with the launch of a private limited company named 'Maruti Technical Services Private Limited' (MTSPL). The initial purpose of the company was to come up with an indigenous motor car right from design to manufacturing & assembly. In February 1981 Maruti Udyog Limited was established. It all began with Maruti 800, improvising on the Suzuki Concept of Alto Kei. Maruti 800 then become the modern car of the era competing with the likes Hindustan Ambassador & Padmini Premier.

 It was in 1982 that Maruti entered into a Joint Venture it was signed between Maruti Udyog Ltd. and Suzuki of Japan. Initially, Maruti Suzuki mainly imported the cars, from December 1983 they started manufacturing the Maruti 800 & Maruti Van in Gurgaon.

The current production of cars is done at 2 plants- one in Gurgaon & another one in Manesar. While another plant is coming up in Gujarat. Maruti has a market share of almost 48% of the Indian passenger car markets.

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CURRENT STRATEGIC POSITIONING

Maruti Suzuki India Limited (MSIL), is a name which is a synonym for automobiles in India. MSIL has managed to customize its product offering to the ever changing needs of the Indian Consumer.  With close to 36 vehicle models launched in last 6 years, the success can be corresponded to core competencies which MSIL has managed to build up over the years right from 1982 to present day scenario. While many new players have entered the Indian Automobile sector, still it enjoys a healthy share of the Indian market, which is because of the fact that the size of pie has also increased at par or at a much faster rate in comparison to the players in the market.

If we look at what has been the contributing factors to able to meet the customer demands not for 1 year but for the last 34 years, constantly creating value for the customer & more than appropriate returns for the shareholders

• Strong Collaboration with Suzuki, the Japanese automobile company, which has lent the technology to support Maruti along this journey. The recently launched K-engine helps in improved mileage for its vehicles. Also this is helped in implementing the quality standards brought on board through Suzuki.
• Time to Market: Huge Product Base of 14 brands and over 150 variants, this couldn’t have been achieved without a low time to market. Also there were quick to incorporate the changes needed for the models after the initial base model launch.
• Strong Customer Base & Brand Image: For most of the people Maruti was the first 4-wheeler vehicle, the emotional connect has been constantly propelled by launching out exchange offers.
• Strong Dealer & Service Network: a well spread network of dealer & service provider. Apart from being well spread, it has ensured the quality of service offered is maintained, the customer satisfaction awards for the last 14 years in a row, is a testimony to the values held and implemented by the company. With the capability to service 40000 cars a day, through 33000 trained service professionals across 3060 nationwide service outlets. Also On-Road Support is provided by the company.
• Supplier Base & Confidence:  MSIL has a robust supply chain which has helped the company in implementing Just-In-Time Production, which helps in significant reduction for inventory levels. Also higher levels of localization meant low price models can be introduced.
• Implementation of Secondary Services: If we look at Maruti, they have been able to impart the skilful training to the Indian drivers through its Driving Schools. (“Maruti Driving School, Maruti Finance, N2N Fleet Management, Maruti True Value”.)

INDUSTRY STRUCTURE

The Indian automobile industry is a gigantic industry in the world. It accounts for 22% of the country's manufacturing GDP. A young population, growing middle class, and an increasing passion of the automotive firms in exploring the rural markets have made the passenger car segment the leader of the automotives market in India. The total passenger vehicle group has 14% of the market share. The Government of India fortifies foreign investment in the automobile sector and supports 100% FDI through the automatic path. Besides, the government also aims to promote India not only as a global manufacturing but also a research and development hub. It has set up National Automotive Board as well as National Automotive Testing and R&D Infrastructure Project (NATRiP) centres to act as facilitator between the Indian government and the automobile industry. Maruti Suzuki is expecting that Indian passenger car market would reach forty lakh units by 2020, up from twenty lakh units during the year 2014-2015. In order to keep pace with the flourishing demand, several automobile manufacturers have started investing heavily across different segments of the industry since the past few years. The industry has attracted foreign direct investment (FDI) worth US$14 billion during the period 2000 to 2015, as per the data provided by the Department of Industrial Policy and Promotion.

PORTERS’ 5 FORCES ANALYSIS FOR AUTOMOBILE INDUSTRY

If we look at the Porters 5 forces analysis for the Indian Automobile Industry.

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Industrial/Competitive Rivalry

• Industrial/Competitive rivalry has increased, post relaxation of many government restrictions to a great extent.
• Indian Automobile industry still has a lot potential to grow as it  is still in its nascent stage.
• A lot of foreign players like Hyundai, Volkswagen, Nissan, Renault have come up low-priced hatchback models intensifying the low cost vehicle rivalry.
• Also the foreign players have started tweaking their product offerings to match the Indian Consumer taste.

Bargaining Power of Suppliers

• The supplier base of Maruti is so huge & a lot suppliers want to be on the qualified supplier list of Maruti. Therefore, the bargaining power of suppliers is very low.
• Suppliers, in turn have gained so much with their association with Maruti that they are now more dependent on Maruti for their bread and butter.

Bargaining Power of Customers

• In a market, like India there is lot of bargaining power available to the customers as there are variety of products available in the same range - by different manufacturers
• It again depends on the market scenario as well.

Threat of New Entrants

• The threat of new entrants is generally medium because of the brand equity and capital intensive nature of the business.
• But considering India, foreign firms with capital have done pretty well.

Substitute Products

• The threat from substitute products continues to be low (at pricing at which Maruti sells its vehilces), with public transportation being under developed even in tier 2 cities.
• Changing travel patterns and the convenience give it an edge.

Factors driving growth of Automobile industry in India:-

• Rising disposable income levels for the middle class population.
• Strong FDI inflow in the automotives sector
• Capitalising on strong demand and product innovation
• India has a significant competitive advantage vis-à-vis peers.
• Boost to R&D in the auto components sector
• Emergence of large automotive clusters in the country
• Increasing investments by global car manufacturers
• Strong policy support has been crucial in developing the sector.
• Easier access to credit a key determinant of growth in automotive industry.

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MARUTI SUZUKI: Continues to remain the Market Leader

KEY SUCCESS FACTORS AND INTERNAL STRENGTHS

Owing to a strong GDP growth, the Indian automotive market offers immense opportunities due to increased urbanisation, an upward migration, an expanding middle class and availability of easy finance options. The potential for growth is enormous. Ever since globalisation in 1991, the entry of foreign players like Honda, Fiat, Mitsubishi and Toyota has increased the competition and given tough challenges to Maruti Suzuki. The company has been introducing new models and has upgraded its models as per the market demand. Inspite of so many private players in the market, Maruti Suzuki, in India, has around 37% of the automobile market, and the brand still has its own appeal.