Maruti Suzuki 291n5d

MARUTI SUZUKI INDIA Study of changing trends

Abhishek Kumar

Ankit Jain

Akhilesh Dwivedi

Harjot Siddhu

History:

Maruti Udyog Limited was established in February 1981 – named after the son of HanumanMarut- the GOD of the Wind. Since then, Maruti has truly created a sandstorm in the Indian Automotive world. Initially ed by late Sanjay Gandhi, Maruti Udyog started manufacturing cars from 1983 by borrowing the Japanese technology from its parent Suzuki motors. Originally, 74% of the company was owned by the Indian government, and 26% by Suzuki of Japan. In 1992 Suzuki increased its stake in Maruti to 50 percent, making the company a 50-50 JV with the Government of India, the other stake holder. In 1994 Maruti Suzuki produced its 1 millionth vehicle since the commencement of production, being the first company in India to do so. In 1998, the two millionth vehicle was produced. In 2000 Maruti became the first car company in India to launch a Call Center for internal and customer services. In 2001 Maruti True Value, selling and buying used Maruti Suzuki’s, was launched in Bangalore and Delhi, later in Mumbai and elsewhere. In 2002 two new subsidiaries were started: “Maruti Insurance Distributor Services” and “Maruti Insurance Brokers Limited”. Suzuki Motor Corporation increased its stake in Maruti to 54.2 percent. In 2003, the four millionth Maruti vehicle was built. Maruti Udyog Ltd was listed on BSE and NSE after a public issue, which oversubscribed tenfold. In 2006 Suzuki and Maruti set up another t venture, "Maruti Suzuki Automobiles India", to build two new manufacturing plants, one for vehicles and one for engines. In July 2007, the company changed their name from “Maruti Udyog Ltd” to “Maruti Suzuki India Ltd.” During the year 2009, the company raised its production capacity to a landmark 1 million cars. In April 2009, the company revealed new Ritz K12M engine at Gurgaon plant. In February 2012, Maruti Suzuki sold its ten millionth vehicle in India. Presently, Maruti Suzuki has two manufacturing facilities in India at Gurgaon and Manesar. Both manufacturing facilities have a combined production capacity of 14, 50,000 vehicles annually. Today Maruti Suzuki is India's Most Reputed and Trusted Car Company. Operations and history Maruti Suzuki is one of the pioneers of Automobiles in India especially in the enger car segment. Yet, right form its inception in February 1981, Maruti Suzuki has been surrounded by controversies and incidents that has resulted in organizational evolution of the company. The carnage on July 18th 2012 Manesar plant though is by far the biggest and most unfortunate incident in the company’s history. Maruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is India's largest enger car company, with close to 50% market share of the domestic car market. It was incepted as a government company, with Suzuki as a minor partner, to make a people's car for middle class India. Today, Maruti Suzuki has two plants in Haryana (with plans to open a new plant in Gujrat post Companies Act Amendment), and seven subsidiary companies, namely Maruti Insurance Business Agency Ltd, Maruti Insurance Distribution Services Ltd, Maruti Insurance Agency Solutions Ltd, Maruti Insurance Agency Network Ltd, Maruti Insurance Agency Services Ltd, Maruti Insurance Agency Logistics Ltd and True Value Solutions Ltd.

Technology: When Maruti started its operations, most parts were imported from Japan and assembled in India. Gradually the parts were made and procured locally from the domestic market, and today more ran 90% of the components are indigenous. Suzuki has a technological edge in manufacturing fuel efficient engines that are powerful yet lightweight. This makes the car lucrative to the Indian customer. Cost consciousness along with safety and quality are the factors which has propelled the company on Indian roads. Since its inception, the company has sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries. From a work culture pint of view, Maruti has inherited Japanese principles like common canteen, common uniform and open offices for everyone right from the MD to the workman. Environment of the company A: Maruti Suzuki’s environment did undergo significant changes due to the July 2012 incident. These changes in the company external environment can be analysed using following attributes: 1. 2. 3. 4.

Suppliers Rivalry from Competitors Government Policies Market and Economic trend.

Suppliers: The Company has a large supply chain comprising a base of 326 suppliers, including 18 t ventures. Due to increased complexity of supplier network, high volatile markets and unpredictable events, the supplier risk had increased. To mitigate the company from these risks and to enable proactive actions, following steps were taken:

1. Increased stress on procuring components locally to reduce the effects of currency fluctuations. 2. Constantly encouraging suppliers to establish manufacturing units within 100 km radius of the company. Suppliers faced financial, psychological and labour problems because of the July 2012 incident. The following are the details: 1. Many suppliers near Manesar were affected as Maruti didn’t buy parts from them. 2. Especially suppliers who manufactured auto parts for the Swift and DZire's diesel models were affected severely. 3. Fear and Labour unrest also became a major headache for suppliers as many had their factories in and around Manesar. Because of all these factors, suppliers would have felt the risk of associating with Maruti, and would have started taking risk mitigation steps. Rivalry from Competition: As such Auto mobile sector in India is immensely competitive. On top of it, whenever such an incident takes place, competitors try to make most of it. In

the wake of Manesar incident, rivalry from existing competition increased by couple of notches. Maruti not only lost financially, but also lost market share to other competitors. Due to Manesar incident Maruti suffered following losses:

Source – Economic Times As shown above the total order backcreased to 125,000 units because of the incident. In this scenario, it was estimated that 26,000-30,000 would-be customers would have opted for another brands. Hyundai, Toyota and Ford who were major competitors of Maruti in Diesel segment at that time pushed their sales aggressively. In fact Hyundai, shot off letters to its dealers to push sales of i20 and the sedan Verna. Telecalls and SMSes were used to push sales. They also offered higher incentives to agents selling both i20 and Verna. Toyota offered free accessories worth Rs 10,000 on diesel variants of Liva and Etios. Ford began offering Rs 3,000 discount on Figo, Swift's nearest rival. Market Situation and Economic Trends: During 2012, Maruti was facing troubles at all fronts. It all began in 2010-11 when volatility hit the global currency markets. Maruti used to import raw materials from Japan. The Japanese yen appreciated sharply against the U.S. dollar, as did the rupee. This extreme volatility in foreign exchange rates severely affected its margins. On top of it, there was a clear shift in demand away from Maruti’s core market i.e. petrol based cars. All this left the company reeling under severe sales and margin pressure. Its market share in 2011-12 fell to an all-time low of 38.3%, operating profit margins to 7.2% and net profit margin to 4.7%. Maruti was also caught on the wrong foot by the shift towards a preference for diesel cars in India. Diesel cars became more attractive, but manufacturing them was not Maruti’s forte. Only 17% of its cars until then had diesel engines. To complicate matters, parent Suzuki was not a diesel player either. Between 2011 and 2013 the gas-diesel ratio of cars sold in India changed from 64-to-36 to 42-to-58. While competitors such as Hyundai, Tata Motors and Ford sold diesel cars at a , Maruti struggled to sell its Gas based models.

The Manesar incident only worsened this market situation. Customers cancelled orders due to huge backlog. Profit margins eroded due to plant lockout. All in all this was worst market situation Maruti had faced and the changes in Indian economy and consumer preferences didn’t help either. Structure of this company. Incident at manesar on July 2012 shook the company. There were drastic changes in the organizational structure after the event. A snap shot of organizational structure before and after the incident is given below: Before the incident:

After the incident:

t Managing

Managing Director

(HR, finance,

Engineering

Marketing and sales

Quality assurance

Supply Chain

Production

Changes in the organizational structure post-strike and violence: In response to the violence that occurred in 2013, the company rejigged its organizational structure with all the

departments with ing roles, such as IT, HR, Finance and Business development roles such as marketing and sales to have matrix reporting as this would promote cross functional and cross vertical flexibility. All the departments now have direct reporting to the directors and the roles of three executives have been removed and this action has been taken to promote the transparency and to have the better control on the decisions to be made. Current Organizational structure: Maruti Suzuki has functional organizational structure with all the operations departments reporting directly to t managing director and and marketing divisions reporting to managing director and CEO and t managing director. Therefore it can be inferred that and business development departments have matrix reporting to promote cross functional culture. The functions are divided broadly on the basis of the activities such as engineering, quality assurance, supply chain and production and there is no clear cut segregation based on the product and the project. Hierarchical structure: The organizational structure of Maruti is flat with only 6 designations across all the functions which are as follows- workers and technicians, supervisors, executives, section managers, departmental managers and division managers. All the division managers report to the directors. Maruti Suzuki has majorly the mechanistic structure, however considering that the decision making is decentralised and is distributed across all the levels, it has the organic design as well. Also, Maruti displays one more characteristic of organic design, i.e. at the horizontal level, it has cross functional times and if required, department coordinators from each department to communicate the discuss the developments in their respective departments with each other, as this helps to promote the collaboration and better understanding of their projects and functions. The production occurs on the large scale and all the tasks are broken down into various specialised sub tasks and therefore all the employees have specific job descriptions. As Maruti Suzuki operates on such a large scale and considering the need of the industry, it is highly process driven, all the processes and procedures are highly standardised with each department and division having its own standard operating manual, to which all the employees are expected to adhere. All the manuals clearly define the scope of work and the work flows. Apart from this, company as a whole has its own standard operating procedure.

Organisation Culture Maruti’s work culture is closely coupled with Japanese culture. It follows command decision making system compared to most of it’s US or European Counterparts who prefer consensus based decision making model. What we observe here is tough-on-people and not-sotolerant culture when it comes to work force management. Whereas the Indian companies like TATA & Mahindra are far more tolerant and flexible in their approach. These differences show up into the day to day activities and relatively lesser strained worker-management relationship. While Indian companies were and still are preferred organizations to work with, Maruti has been losing popularity among the auto employers. Organisation Life Cycle Maruti Suzuki draws its cultural DNA from the Japanese parent company. Indian work culture is very different from that of the Japanese. The key differentiating factors are discipline, dedication, degree of perseverance, & punctuality. While a Japanese worker finds it perfectly fine to have 7 minutes break for tea, planned drinking water supply on work stations, or even just half an hour break for lunch; the same will find little acceptance and hardly any intrinsic approval from the individual psyche. A lot of the workers involved in the Manesar issue had actually worked hard to build the factory when the plant was in Greenfield stage. People might have accepted the norms at that point of time that, with time things will get more “liberated” in a manner of speaking. After years when the workers saw little change in the work culture and increasing pressure on productivity, they started Unions to have a say. With both organization and Unions maturing up, the tug of war got intense. Earlier also, there had been incidents of violence, which indicated the shimmering tension between the two sides. Given the incident of 2012, Maruti might do well to inculcate some of the Indian work culture aspects into the production line. In any case, a plant lock out will cost dearer than a little loss on productivity over the years. In return what Maruti can benefit upon is lifelong loyalty of workers and managers. With the stakes so high in India for the parent company, it might be pragmatic to rethink the organizational structure and cultural bindings. As we see Maruti Suzuki India, Functional structure is the way of operations. Now, after this 2012 Manesar fiasco, the structure has been tinkered a bit. Sales & marketing along with Finance & has been made a separate division with P&L responsibilities.

References: http://www.marutisuzuki.com/ http://www.business-standard.com/company/maruti-suzuki-5496/information/companyhistory https://en.wikipedia.org/wiki/Maruti_Suzuki http://profit.ndtv.com/stock/maruti-suzuki-india-ltd_maruti/reports https://www.youtube.com/watch?v=0hTo0TI9yLM Economic times Forbes India