Maruti Suzuki Case

Presenters:
Shalinee Mattoo
Anirban Baidya
Dhiraj Shetty
Nilesh Pathak

Submitted to
Prof. Prashant Salwan
Professor of International Business
Indian Institute of Management, Indore

20th May 2010

 Table of Contents

STRATEGY OF INTERNATIONAL BUSINESS GLOBAL INTEGRATION WITH LOCAL

RESPONSES.....................................................................................................................2
1 BRIEF HISTORY OF MARUTI-SUZUKI INDIA LTD...............................................................2
2 PORTER’S FIVE FORCES MODEL...................................................................................3
3 VALUE CHAIN OF MARUTI SUZUKI.................................................................................8
3.1 PRIMARY ACTIVITIES AT MARUTI SUZUKI ARE:................................................................9
3.1.1 INBOUND LOGISTICS......................................................................................................9
3.1.2 OPERATIONS................................................................................................................10
3.1.3 OUTBOUND LOGISTICS................................................................................................12
3.1.4 MARKETING AND SALES.............................................................................................12
3.1.5 SERVICE.......................................................................................................................13
3.2 SECONDARY ACTIVITIES AT MARUTI SUZUKI ARE:.........................................................15
3.2.1 PROCUREMENT............................................................................................................15
3.2.2 TECHNOLOGY DEVELOPMENT.....................................................................................15
3.2.3 HUMAN RESOURCE MANAGEMENT.............................................................................17
3.2.4 FIRM INFRASTRUCTURE...............................................................................................17
3.3 INTERNATIONALIZATION OF VALUE CHAIN.....................................................................18
4 GLOBAL INTEGRATION VS LOCAL RESPONSES.............................................................19

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STRATEGY OF INTERNATIONAL BUSINESS GLOBAL INTEGRATION
WITH LOCAL RESPONSES

1 Brief History of Maruti-Suzuki India Ltd

Maruti Suzuki India Ltd., subsidiary of Suzuki Motor Corporation, formerly known as Maruti Udyog, is the
one of the oldest car manufacturers in India. The company has written 28 years old history in the rich
Indian heritage.

Maruti Udyog’s inception came in the country in 1981 under the provisions of the Indian Companies Act,
1956. During this era, scooters or two-wheelers had a long waiting as industrial production was low in
numbers. There were only two car models in the name of Indian car industry, Hindustan Ambassador and
PAL. Later, Maruti Suzuki made a successful move with its ever running Maruti 800 in 1983. With the
launch of Maruti 800, Indian manufacturing and car industry saw a new dawn .

There are four phases of Maruti-Suzuki’s growth in India:

1. The first phase to be identified starts with the foundation of Maruti by Sanjay Gandhi in 1976. The
phase comes to a close with the company’s failure and its conversion by an Act of the Indian
parliament into a Public Limited Company in the 1981.

2. The second phase commences with Suzuki’s involvement in Maruti in 1982 and last until 1992
when Maruti-Suzuki ceases to be a Government of Indian company. In this phase Maruti-Suzuki
could grow and acquired market dominance. Patronized by the Indian Government and supported
by Suzuki, Maruti-Suzuki was shielded from international competition and able to outperform
domestic competition.

3. The third phase commences in 1992 and ends in 2001. This phase is marked by emerging
international competition following comprehensive reforms and liberalization, conflict between the
JV partners and the company’s first labor unrest. In this phase the company’s governance
compromise is for the first time seriously challenged. At the end of this period Suzuki, after a long
battle for control, finally acquires the majority in the JV.

4. The forth and current phase lasts from the takeover by Suzuki in 2002 until the present day. In
the face of losing ground to competition and changing ownership Maruti-Suzuki adopts a stronger
market orientation. With the exponential growth of Indian Automotive industry, Suzuki had to face
several challenges to retain the No.1 position. Under the several external conditions the company
could sustain its No.1 position. We will be evaluating these external factors and the strategy and
the measures taken by Maruti-Suzuki management to encounter these external factors through
Five Forces Model.

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 2 Porter’s Five Forces Model

1 Firms in other in
other industries
offering substitute
products

Competitive pressure coming from the attempts of the

companies outside the industry to win buyers over to their
products

Rivalry among competitive Competitive

Competitive
Sellers. Competitive pressures
pressures
pressures created by stemming from
Suppliers of Raw stemming from Buyers
jockeying for better market buyer bargaining
Materials, buyer-supplier
power and
Components or other bargaining and position, increased sales, supplier-seller
supplier-seller and market shape, and
resource inputs collaboration
collaboration
competitive advantage

Competitive pressure coming from the threat of new

entry of new rivals

Potential New
Entrants

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After taking major stake of 54% and eventually rights to management for Maruti-Suzuki in 2002, Suzuki
Motor Corporation had several challenges, growth of the TATA Motors, Hyundai, rising costs of the raw
materials, recent labor unrest and instability of management during 1999-2001, rise of two wheeler
industry to name a few. With these challenges, Maruti-Suzuki started taking concrete steps to retain the
No.1 position. Thos steps are studied are taken referring Five Forces Model as above.

1. Rivalry among Competitive Sellers: With liberalization, average GDP growth of 7%, the buying power
of middle class group in India made the Indian automotive market very lucrative. During the phase of
1995-2000, Tata Motors, Hyundai, GM and Ford started entering 4-wheeler industry in big way in
different market segments, but mainly focusing on middle class, offering popularly known as B
segment. It has posted severe threat to Maruti Suzuki as A and B segment has been the bread and
butter models. Maruti-Suzuki started losing market shares (Annual Report 2004-05, P.25). Another
major worry was the sustenance of market in forthcoming years as the market was growing with
Diesel cars and Maruti-Suzuki did not have any successful car in their stable with diesel engine
offerings.

2. Buyers: “In recent years, there are clear trends that customer expectations from a car have evolved
considerably. Car customers now seek contemporary styling, international quality and latest features
that enhance their safety and convenience, while expecting performance and fuel efficiency, like their
parents did before them.” – Annual Report 2007-08. With the increased options and players, Indian
buyers started realizing the buying power they were getting in A & B segments. Though M800 was
only option around Rs.2.25 Lakhs in A segment, in B segment (or A2), buyers has an options like
TATA Indica, Hyundai Santro, Getz, Chevrolet Spark, Fiat Palio. Also, some of the offerings were in
Diesel and with most of the time, coupled with lucrative financing schemes. As the competition grew,
Maruti-Suzuki was at major risk of losing the customers based on buying options and the financing

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 options. Maruti-Suzuki had major challenge to retain the current customer base as well maintain its
No.1 position through capturing new buying group in the market.

3. Potential New Entrants: Not only the growth in Indian automotive industry but the stagnancy in US
and European markets started driving major players in USA and Europe to enter India. Players like
Volkswagen, Fiat had started building their facilities in 2005-06, offering the major threats to current
players including Maruti-Suzuki. Also, the current players had started expanding their product
portfolios, giving customers with various options and more buying power. TATA Motors was coming
up TATA Nano, with major threat to Maruti’s bread & butter model M800

4. Suppliers of Raw Materials, Components or other resource inputs: Being the No.1 player in Indian
market, Maruti-Suzuki had developed suppliers from scratch. With the rise of global automotive
players in India, the quality of the product has been the major challenge as Maruti-Suzuki’s products
were far from achieving the global mark. MUL's executive director (marketing), Jagdish Khattar, MD,
Maruti-Suzuki (2000-2007, once in his interview, told The Financial Express that Maruti sourced 75
per cent of its component requirement from vendors. "The quality of Maruti car is not up to the
international standards," admits Khattar. Maruti's component defect rate was as high as 30,000 parts
per million (PPM) as compared to 200 (PPM) for the developed countries.
Also, as another resource input the employees has been strength for Maruti-Suzuki. Development of
the employees to take on global competition was the major challenge for Maruti-Suzuki

5. Firms in other industries offering substitute products: M800 has been the greatest strength of Maruti-
Suzuki. The model was launched when 2 wheeler industries in India was not growing and not offering
the cost and fuel efficient solutions to Indian customers. With liberalization, 2-wheeler industry
outgrown and started offering very fuel-efficient solutions. It became major threat to M800 as
customers had choice to multiple options of 2-wheeler. Another aspect in substitute products, earlier
mentioned, as alternative fuel options. So far, petrol engines has been Maruti’s the major strength.
With competitors offering Diesel engines, Maruti-Suzuki had major challenge to retain its existing
customers and as well, grab the major pie in growing Indian automotive industry. Also, some of the
players started offering LPG, CNG solutions in their cars, which were very efficient and safe.

Maruti-Suzuki’s response:

1. New product introductions: “The Company's success in the market can be attributed, broadly,
to the new product design philosophy emerging from Suzuki Motor Corporation, a disciplined
approach to cost that enables more features at less price, and market initiatives. The new
design philosophy at Suzuki Motor Corporation, witnessed first in the Swift, is bold,
aggressive and distinctly European. This philosophy is reflected in the Group's other World
Strategic Models, such as SX4, Grand Vitara, A-Star and Splash. The success of the
Company's new models is an indication that this new design philosophy has been well
accepted by Indian customers. In addition, the Company's new models have consistently
offered more features than comparable competitor offerings, and are very competitively
priced. This has been made possible by a disciplined target cost approach towards new” –
Annual Report (2007-08).

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 Between, 2002 to till date, Maruti-Suzuki took aggressive steps in introducing the new
products in India. The models were focused on urban and semi-urban requirements Following
sequence of the introduction of new models clearly anecdotes the new product introduction
strategy of Maruti-Suzuki.

Year Models introduced

2002 WagonR Pride; Esteem Diesel. All other variants upgraded: Alto Spin LXi, with
electronic power steering; Special edition of Maruti 800, India’s first colour-
coordinated car

2003 New Suzuki Grand Vitra XL-7, Redesigned Zen, Upgraded WagonR

2004 Non-A/C Alto variant; New Esteem variant with minor alterations but at a lower
price, LPG variant of the Omni, new variant of Versa (5 seater), new variant of
Baleno LXi

2005 New version of Maruti 800; introduction of the Swift Petrol

2006 Zen Estilo, Swift D’zire Launched

2007 Swift Diesel, SX4 luxury sedan, Grand Vitara Launched, 2008 Launch of 5 th World
Strategic model, A-star

2009 Launch of RitZ,

2010 Launch New WagonR

2. 360 degree customer service: Maruti-Suzuki entered in various services related to automotive
industry to provide customers end-to-end solutions. Following are the services:

a. Maruti Finance: To promote its bottom line growth, Maruti Suzuki launched Maruti
Finance in January 2002. Maruti claims that its finance program offers most competitive
interest rates to its customers, which are lower by 0.25% to 0.5% from the market rates.
Recently, the Company signed agreements with six public sector banks, to help improve
retail finance availability.

b. Maruti True Value: According to a report by research firm Credit Analysis and Research
Ltd, the overall pre-owned car market in India was 1.5 million units in FY09 growing at
compound annual growth rate of 20%. Maruti-Suzuki tapped this market long-time in
2001. Currently, it is No.1 in pre-owned cars with more than 300 dealers in True Value. In
2008-09, the “TrueValue” helped to generate a sale of 104,550 new cars through
exchange or trade in.

c. Maruti Genuine Accessories: Many of the auto component companies other than Maruti
Suzuki started to offer components and accessories that were compatible. This caused a
serious threat and loss of revenue to Maruti Suzuki. Maruti Suzuki started a new initiative
under the brand name Maruti Genuine Accessories to offer accessories like alloy wheels,
body cover, carpets, door visors, fog lamps, stereo systems, seat covers and other car
care products. These products are sold through dealer outlets and authorized service

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 stations throughout India. The parts and accessories business served as a good cushion
to both revenues and profits. The total parts and accessories sales grew to 13% in 2008-
09 to Rs 10,858 Million

d. Maruti Driving School: Having started from Bangalore in March 2005, Maruti Driving
School has now spread its network throughout the country.
0neighbourhooddrivingtrainingschoolshavebeensetupin partnership with dealers in
various cities across the country. Recently, the Company has set up two institutes of
driving training in partnership with the Delhi Government.

Also, Marui-Suzuki took some of the initiatives like “Service at your Door Step through Maruti
Mobile Support”, Setting up "Express Service Bays" & "2 - Technician Bays", Car pick-up and
drop facility for Women customers, which helped the company in big way to get closer to
customer and boost the customer confidence in Maruti-Suzuki products.

3. Supplier Partner collaboration: Maruti-Suzuki started pushing its suppliers to acquire ISO
certifications. To support small and medium enterprises Maruti-Suzuki initiated a ‘cluster
approach’. The approach groups vendors together, trains them in quality management and
assists them in obtaining the ISO 9000 certification (Red Herring Prospectus, 2003). MUL has
reduced the number of vendors of components in India from 370 as of March 31, 2000 to
about 100 as in 2005. As of the same date, they had strategic equity interests through joint
venture agreements in their vendors, who together supply a substantial portion of the
purchases of components. A number of their vendors are their dedicated suppliers in that
they account for a majority of their turnover. Vendors located within a radius of 100 kilometers
from the facilities supply the majority of the components. The production systems of their
vendors are generally aligned to their needs for a reliable and timely supply of components
that meet the required quality standards. This has enabled MUL to increase the proportion of
locally sourced, lower cost components in their models, a concept refer to as localization.

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3 Value Chain of Maruti Suzuki

The term value chain was coined by Michael Porter. The value chain is a comprehensive set of activities
that are required to bring a product from a concept stage to marketing and consumption of end products.
In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. A
company is profitable if the value it commands exceeds the costs involved in creating the product.
Porter distinguishes between primary activities and support activities. Primary activities are directly
concerned with the creation or delivery of a product or service. Each of these primary activities is linked to
support activities which help to improve their effectiveness or efficiency.

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3.1 Primary activities at Maruti Suzuki are:

3.1.1 Inbound Logistics

Inbound Logistics i.e. the receiving and warehousing of raw materials, and their distribution to
manufacturing.

Maruti Suzuki’s inputs primarily comprise raw materials and purchased components. Raw material
includes rubber, glass, steel, plastic, aluminium. Tyres, windshields, and airbags are example of parts or
components. The company has implemented tierization of suppliers and Just In Time supply logistics.

Maruti Suzuki has embarked on a comprehensive supplier development program, which strongly draws
on Suzuki’s home practices. The company has instituted sustainable practices in it’s relationship with
vendors like communicating realistic volumes to avoid excess capacities and inventories and making
quick payments to facilitate healthy cash flows and financial discipline.

To reduce supply bottle necks, transport related uncertainties, high in-transit inventories (related to long
distance transport) and ultimately its total inventory levels, Maruti-Suzuki creates incentives for far away
suppliers to move near its plant. These incentives comprise: setting up a supplier park with excellent on-
site infrastructure; offering subsidized, well located and industrially developed land; sales tax
concessions; and reliable power supply generated by Maruti-Suzuki itself. Over 76% of the company’s
246 suppliers are located within 100 kms of radius. This has facilitated cost reduction in supply chain,
generating employment opportunities and promoted development of the local industry.

Maruti Suzuki played a particularly significant role in pushing local component suppliers to improve
quality, price, and delivery, and in forcing some of them to adopt just-in-time (JIT) principles. The JIT
system has evolved over the last 25 years in the company from monthly scheduling to daily scheduling of
parts order and finally, in 2003, to e-nagare system i.e. the release of schedules on hourly systems, a
practice that aids in maintaining less than two hours inventory of components within the company.

Maruti-Suzuki gets involved in establishing suppliers, founds supplier JVs with local suppliers and ask
Japanese suppliers to do the same. For instance, Maruti Suzuki formed a joint venture with 'Futaba
Industrial Co., Ltd.' (Futaba) for manufacture of Exhaust Systems Components (ESCs). Futaba is the
largest manufacturer of ESCs in Japan and has operations in many countries. This joint venture will
ensure supply of high quality ESCs to the Company. A Joint Venture Company was incorporated under
the name and style of 'FMI Automotive Components Limited’ with equity participation from Futaba and the
Company in the ratio of 51% and 49% respectively. The manufacturing facilities of these Joint Ventures
are located at 'Maruti Suzuki Suppliers Park' in IMT Manesar, Gurgaon, Haryana.

Major Maruti vendors are:

● Asahi India Glass ● Bharat Seats ● Caparo Maruti ● Climate Systems India ● Denso India

● J.J Impex (Delhi) ● Jay Bharat Maruti ● Krishna Maruti ● Machino Plastics

● Mark Auto Industries ● Mark Exhaust Systems

The Company worked hard along with its vendors on cost reduction initiatives. The key initiative was a
raw material yield improvement program with a micro focus on each component on the lines of Suzuki
philosophy. Called “One Component One Gram”, this program calls for weight reduction of one gram for

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every component. With this micro focus, the raw material yield improvement savings increased by a factor
of three in 2009 as compared to 2008.

The material cost to net sales reduced from 90% in 2000-01 to 79% in 2008-09, partly due to external
factors but largely due to cost reduction efforts.

3.1.2 Operations
Transform inputs into final product form through machining, packaging, assembly, equipment
maintenance, testing, printing and facility operations.

Production process at Maruti Suzuki:

Maruti Suzuki’s manufacturing facility consists of fully integrated plants with flexible assembly lines
located at Gurgaon. The scale and complexity of the Company's manufacturing operations have now
moved to a different league. The Company reached a capacity of one million cars annual production in
2008 and was also able to operate at this average rate in the month of March, 2009. The operations
comprise four car plants across two locations, two engine plants (including a diesel engine joint venture),
twelve models with more than two hundred variants.

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But the automation level at Maruti Suzuki plants is not as par with its parent company Suzuki Motor
Corporation. The reason might be availability of low cost labor.

Maruti Suzuki has implemented Production Management System, which is a strategy to achieve
Manufacturing Excellence evolved through participative approach

PM
S is

 A system which is people driven and ensures involvement of all levels ( Managers,
Executives, Supervisors )
     A system which ensures ownership
 A system which brings in standardization of systems & processes
 A system which ensures Sustainability

Maruti Production System or MPS draws learning's from its parent company Suzuki Motor Corporation's
concepts on `lean manufacturing' under Suzuki Production System i.e. SPS.

Setting trends in new products and achieving customer delight starts with Manufacturing Excellence and
Maruti's manufacturing excellence hinges around four important pillars-Cost, Quality, Safety and
Productivity.

Cost

Every employee working on the line is 'cost sensitive' and functions in capacity of a Cost Manager. He is
a key contributor in suggesting how to keep costs of production under control.

Maruti Suzuki initiated a programme called “Challenge 50:30” whereby cost was reduced by 30% and
productivity was improved by almost 50% during the 3 years ending March 2006.

Quality

A product of poor quality requires repeated inspections, entails wastage in terms of repairs and
replacements. "Do it right first time", is the principle followed to avoid wastage.

Safety

"Home or work place; Safety takes First Place". This has been the motto of the company where safety is
concerned.

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3.1.3 Outbound Logistics
Are the activities required to get the finished product to the customer, including collecting, storing,
physically distributing, material handling, delivery vehicle operation, order processing and scheduling.

The Company has jointly developed with the Indian Railways, special Auto Wagons, to support a high
capacity, high speed and safe car transportation system.

To support its export shipments, the Company commissioned a dedicated Roll-on Roll-off car terminal at
Mundra sea port in partnership with MPSEZL (Mundra Port and Special Economic Zone Limited). Built
with an initial investment of Rs 1 billion, of which the Company's share is 40%, the mega car terminal
houses a state-of-the-art 'Washing and Waxing Inspection' centre, a car stockyard and a parking area.

3.1.4 Marketing and Sales

Provide means by which buyers can purchase the product and inducing them to do so, such as
advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing.

Maruti’s marketing objective is to continually offer the customer new products and services that:

1. Reduce the customer’s cost of ownership of our cars; and

2. Anticipate and address the customer’s needs and preferences in all aspects and stages
of car ownership (MARUTI SUZUKI refers to this as the “360 degree customer
experience”

Maruti Suzuki has been aggressively cutting prices of its models. The rationale behind the price
cuts is the focus on offering new upgraded vehicles at a low price.

Maruti Suzuki offer a two-year warranty on all the vehicles at the time of sale. The dealers are required to
address any claim made by a customer, in accordance with practices and procedures prescribed by
MARUTI SUZUKI, under the provisions of the warranty in force at that time. The dealers subsequently
claim the warranty cost from MARUTI SUZUKI.MARUTI SUZUKI analyze warranty claims from dealers
and either claim the cost from the vendors, in the case of defective components, or bear the cost
ourselves, in the case of manufacturing defects.

MARUTI SUZUKI also offers an extended paid-warranty program marketed under the brand,
“Forever Yours” for the third and fourth year after purchase. The extended warranty program is
intended to maintain the dealer’s contact with the customer and increase the revenue generated
from sale of spares, accessories and automobile-related services. An effort is made during the
period of the extended warranty to encourage the customer to exchange his existing

Maruti car for a new Maruti car, or upgrade to a new Maruti car.

True Value Solutions Limited (TVSL), which was incorporated on January 14, 2002 as a wholly
owned subsidiary of Maruti, provides value-added services to owners and users of motor
vehicles on matters relating to manpower services with regard to recruitment, training and
development. The company also intends to promote the business in the areas of pre-owned
cars, lease and fleet management, finance and insurance.

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Sales network

MARUTI SUZUKI has the largest network of dealers amongst car manufacturers in India. Sales
network is linked with the MARUTI SUZUKI through the secure extranet based information
network. The sales of spares, accessories and Automobile related services such as insurance
and finance serve as additional sources of revenue for the dealers. The availability of these
related products and services at sales outlets also helps to attract customers to the outlets and
promotes sales of the cars. MARUTI SUZUKI dealers provide services to customers such as
predelivery inspection of vehicles, sales of cars, after sales service, supply of spare parts and
other services that promote sales of cars within the territory for which they are appointed.
Dealers are required to maintain their outlets in accordance with the specifications and employ
well trained sales staff. Agreements with the dealers are usually of five years. These
agreements are generally renewable for successive terms of three years, by mutual agreement.

The performance of the dealers is followed and improvements are suggested frequently. In
order to assist the dealers in enhancing their performance and capabilities, MARUTI SUZUKI
has introduced a concept of “Balanced Scorecard”. Using this tool, the performance of a
dealership in several areas of operations, including sales, service, spares and accessories,
financial management and management systems is measured. Dealers who perform well on the
“Balanced Scorecard” are reward with a cash payment at the end of the fiscal year. The
“Balanced Scorecard” serves as an effective incentive for dealers to enhance their performance.

There are more than 400 Maruti dealer workshops and more than 1,500 Maruti Authorized
Service Stations, covering more than 900 cities in India. In addition, 24-hour mobile service is
also offered under the brand “Maruti Onroad Service”. As a benchmark for dealers with respect
to service quality and infrastructure facilities, MARUTI SUZUKI has launched service stations
under the brand “Maruti Service Masters or MSMs. MARUTI SUZUKI also has service stations
on highways in India under the brand “Express Service Stations”. To promote sales of spare
parts and the availability of high quality, reliable spare parts for its products, spares are sold
under the brand name “Maruti Genuine Parts”, or MGP. These are distributed through the dealer
network and through the authorized sellers of the spare parts. Many of the Service Stations are
at remote locations where MARUTI SUZUKI does not have dealers. Some of these Service
Stations are integrated into the sales process in order to increase sales of the cars and related
products and services such as spares and accessories, insurance and financing.

The Sales & Marketing Strategy of Maruti Suzuki can be summarized as:

 Continually enhance their product range

 Increase reach and penetration
 Increase the availability of automobile finance
 Ensure repeat business by offering a “360 degree customer experience”
 Continually reduce costs across the value chain (through increase in levels of
localization and reduction in number of platforms).

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3.1.5 Service

Aims to enhance or maintain the value of the product, such as installation, repair, training, parts supply,
and product adjustment

Maruti Suzuki has the largest network of dealers and service centers amongst car manufacturers in India.
There are more than 400 Maruti dealer workshops and more than 1,500 Maruti Authorized Service
Stations, or MASSs, covering more than 900 cities in India.

In these competitive times the challenge is to keep inventing newer ways of doing things to keep the
customers in your fold.

Over the last few years, the company strengthened the existing practices and experimented with many
new initiatives by way of kaizens (continuous improvements) to delight its customers.

These initiatives ranged from product design and quality to network expansion, and included new service
programs to meet unsaid needs of customers.

Key Initiatives

Car pickup & delivery facility for women car owners

Setting up "Express Service Bays" & "2 - Technician Bays"

As the name suggests the company set out to delight its customers by offering them faster car service by
introducing new concepts such as Express Service Bays & 2- Technicians Bays.

These are done for customers who are hard pressed for time.

Mega Camps
The company aggressively conducts 'Mega Camps' throughout the country round the year.

Activities undertaken during a mega camp include complimentary car wash, AC & Pollution check up, oil
and fuel top ups, wheel alignments etc.

Service at your Door Step through Maruti Mobile Support

Another unique initiative is the door step service facility through Maruti Mobile Support.

Maruti Mobile Support is a first of its kind initiative and is expected not only to help the company reach out
customers in metro cities but also as a mean to reach semi urban /rural areas where setting up of new
workshop may not be viable.

Car Safety device: Immobilizer

The company used technology to meet customer needs and even delight them. Following feedback that
the company's cars were more prone to theft owing to their resale value, the company worked on an anti-
theft immobilizer or "I-Cats;" system for all its new cars.

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The company's effort of providing all car-related needs -- from learning to drive a car at Maruti Driving
Schools to car insurance, extended warranty and eventually exchanging the existing car for a new one -- 
under one roof at dealerships also enhances customer satisfaction.

3.2 Secondary activities at Maruti Suzuki are:

3.2.1 Procurement
The function of purchasing raw materials and other inputs used in the firm’s value creating activities.

About three fourth of the car, by value, is outsourced. Any improvement in the car in terms of technology
and design, quality or cost has to essentially include the Company's vendors and their support. In the
year 2007-08, the Company signed two joint venture agreements with global component manufacturers
for cost reduction through localization of components for Maruti Suzuki cars. The first was with Magneti
Marelli, aimed at the production of electronic control units (ECU) for diesel engines and the second with
Futaba Industrial Company, Japan for production of exhaust system parts. The Company is setting up a
Suppliers Park in Manesar, close to its car plant on an area of 100 acres for Just-In-Time supplies. Both
the above joint ventures are located in this Suppliers Park. An informal Suppliers' Club has been formed
by the Company's vendors and it gives a good forum for building personal relationships, understanding
key issues and exchanging best practices at the CEO level.

In the early eighties, the Company made significant efforts in trying to develop a component industry from
ground zero. Over the next two decades, about 110 foreign technology collaborations were facilitated and
Maruti Suzuki engineers worked closely with the vendors' engineers to enable to deliver cars which are
both high quality and cost competitive. Now, the relationship has matured and most direct vendors or Tier
1 vendors are competent enough to work on their improvement, but there is major scope for
modernization of some sections of Tier 2 vendors. The Company has identified this as an opportunity for
further quality, upgradation and cost reduction.

The second focus area for component cost reduction is raw material yield improvement across all
manufacturing processes, like sheet metal, castings, forgings and machining. Every component is studied
in detail and innovative ideas are tried, to reduce the input material weight for the same component
output. The total cost of raw material as a percentage of net sales ranges from 15% to 20%.

3.2.2 Technology Development

Technology development includes research and development, process automation, and other technology
development used to support the value chain.

Research & Development (R&D)

During 2008, the Company took decisive steps towards building design and development capability, in-
house. The number of engineers in R & D went up from 258, at the start of the year, to 398 engineers by
the end of the year. In line with this, the number of engineers will be scaled up to 1000 by 2010.

Specific areas in which R&D has been carried out by the company:

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  Building Full Mode Change Capability
 Vehicle Design and Development

Benefits derived as a result of above R&D

 Launch of SX4.
 Launch of Swift Minor.
 Launch of Swift DZire.
 Focused model cost down.

Technology absorption, adaptation and innovation

 Localization, development and testing of parts for existing and new models.
 Capabilities strengthened in component and vehicle evaluation, benchmarking and design
optimization.
 Capabilities being further strengthened in area of alternative fuels like Diesel, CNG and LPG.
 Value Analysis/Value Engineering (VA –VE) at the time of design and localization to maximize
cost benefit.
 Acquiring design and cost knowledge through teardown and benchmarking and using it in future
designs and cost reduction.
 Global sourcing and advanced sourcing to get the advanced technologies into India at lower
costs. (Efforts made towards technology absorption, adaptation and innovation by either local
vendors and helping world-leading component suppliers to set up shop in India).
 Design and development of electronic speedometers, keyless alarm controllers for enhancing
comfort and convenience.

Benefits derived from above efforts

 Indigenization of various vehicle aggregates at lower costs.
 Improvement and up-gradation of existing models for improved comfort, style and better value for
money.
 Continuous reduction in product cost through VA-VE.
 Compliance to new regulations. - Significant cost reduction of new model parts compared to
existing models, ensuring that the new models are profitable from day one.
 Significant cost reduction obtained in existing models.

Information Technology
In recent years, the Company has used IT to enhance interface with the customer. It has deployed a
world class Dealer Management Solution across its vast network of dealers throughout the country. The
solution has helped dealer managements to access a wide range of information about their operations, as
also customer satisfaction and feedback.

Information security continues to be a focus area and comprehensive security policy and procedures are
reviewed on regular basis. The Company got the ISO 27001 Certification renewed during the year.

The Company now has a world class data center. It incorporates best practices of data centre
infrastructure encompassing fire, flood & earthquake safety with multiple level of access control to ensure

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high availability & information security to the organization. A comprehensive set of operational policy &
procedures are in place to monitor the data center.

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3.2.3 Human Resource Management
Activities associated with recruiting, training, development and compensation of employees.

The Company's key strength is its human capital. The Company has, during 2007-08, spent about Rs.10
crores on training of its employees. The Company conducts programs such as "Bulandi" and "Chunauti"
for the workmen and technicians to enhance pride in being an employee of the Company and also to
create team synergy. At the middle management level, the focus of the programs is to inculcate
leadership qualities while at the Director level, one or more retreats take place so that the Directors can
unwind and take a detached view of self development and the organization.

The Company goes further and trains its dealers' and vendors' workforce. 3200 programs have been
conducted covering more than 13000 dealers' sales persons. The Company's "Maruti Centre of
Excellence" (MACE) is a team dedicated to the development of vendors' employees. In programs like
"Family Connect" and "Parivar Milan", family members of the employees are invited to interact with top
management to get a feel of the workplace and environment. The idea is to develop better understanding
and increase the support and co-operation for the employees from their families. The outbound training
programs (OBT) encourage learning while having fun. The training encourages team work and teams
come back fully motivated to face future challenges.

While training targets in terms of man days were exceeded, what is more important is that people
development initiatives in general were made more effective and relevant. There were customized
training programs in strategy and leadership for general managers. The Company introduced a program
enabling select employees to pursue higher education in management and technical fields. The policy of
a fast track for a small number of employees, introduced last year, also helped retention.

The Company strengthened the concept of Stay Interviews (as opposed to exit interviews), to understand
employee aspirations, delight factors and areas for improvement.

The Suggestions Scheme, which is as old as the Company, continued to make a significant contribution
to business performance. Employees implemented a record 108,885 suggestions during 2007-08, as
against 85,428 suggestions received previous year. This has lead to net savings of worth Rs. 666 million
in 2007-08 as against Rs. 509 million in 2006-07.

The number of employees increased from 5,521 employees (March 2007) to 7,090 (March 2008). Much
of this growth was accounted for by shop floor workers in line with capacity expansion at the Manesar
Plant.

Industrial Relations were cordial throughout the year and no man days were lost on account of strikes or
disruptions.

3.2.4 Firm Infrastructure

Firm infrastructure consists of general management, planning, finance, accounting, legal, government
affairs and quality management

Maruti Suzuki produces high quality products, some of which are been exported to various countries
including the Netherlands, Italy, Germany, the United Kingdom and Switzerland.

The Company has again been awarded ISO: 27001 Certification by STQC Directorate (Standardization,
Testing & Quality Certificate), Ministry of Communications and Information Technology, Government of
India after re-assessment. The Company is thus certified to meet international standards for maintaining
information security.

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Maruti Suzuki was certified with ISO: 9001:2000 in 2001 and aim to achieve the TS-16949 certification. In
addition, it had made the following improvements in terms of producing defect-free products:

• DFC OK: Maruti Suzuki’s Direct Final Check OK, or DFC OK percentage, which signifies the percentage
of vehicles that pass through the inspection stages as defect-free, improved from approximately 77% in
March 2002 to approximately 90% in March2004.

• Reduction in rejection: Maruti Suzuki’s in-process rejection cost per vehicle, computed as the ratio of (1)
the cost of components rejected due to defects arising during our production process, to (2) the number of
vehicles sold, declined by approximately 65% from fiscal 2002 to fiscal 2004.

• In house warranty: Maruti Suzuki’s in-house warranty costs per vehicle, computed as the ratio of (1) the
aggregate cost of components incurred by us to service warranty claims arising from operational defects
in our manufacturing lines, to (2) the numbers of vehicles sold in the fiscal year, declined by
approximately 85% between fiscal 2002 and fiscal 2004.

Another feather in Maruti Suzuki’s cap in the field of quality is its Press Shop & associated functions
certification for conformance to the requirements of TS16949 standard.

Kaizen
Maruti had adopted the Japanese management concept of Kaizen, or continuous improvement. The
Kaizen activities had resulted in the improvement of the in-house capabilities. For example, they had
manufactured 25 multi-axis robots and 16 multi-spot welders. Group discussions among employees in
different departments are conducted on a monthly basis in order to discuss and resolve problems relating
to their areas of operation, an activity referred as quality circle activity. Based on the belief that individuals
contribute to improvement in growth, there has been a suggestion scheme in which they promote
participation of all employees at all levels. The average number of suggestions made per employee has
improved by approximately 35% in fiscal 2004, when suggestion received were more than 80,000, as
compared to fiscal 2002. Some of the other improvements as a result of the Kaizen process have been
increased automation through automated material transport system.

3.3 Internationalization of value chain

Maruti Suzuki has expanded in the foreign markets. The export strategy of Maruti Suzuki is that it keeps
almost all value activities within India. Maruti Suzuki merely exports vehicles and sell them in the foreign
market. Maruti Suzuki uses its parent company Suzuki Motor Corporation’s distribution network wherever
available in the foreign market. Maruti Suzuki exported the first lot of 500 cars to Hungary in 1987.
Presently it exports to over 100 markets in Europe, Asia, Latin America, Africa and Oceania.

In 2008-09 Maruti Suzuki had signed contract with Nissan, who buys Maruti Suzuki’s “A-Star” car and
retail it in Europe under the brand name “Pixo”. This deal is expected to add upwards of 30,000 units in
export sale in the coming years. Maruti Suzuki has exported 53,000 cars in 2007-08 and the company
has set a target to export 200,000 cars annually by 2010-11.

To meet such specialized requirements, the Company entered into an agreement with Mundra Port and
Special Economic Zone Limited (MPSEZL) in 2008-09 to develop a mega car terminal at Mundra Port for
export of Company's products. This car export terminal offers a “Roll on, Roll off (RORO) berth which
speeds up the loading process and minimizes the chance of damage to cars.

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In a first of its kind initiative, the company in partnership with Indian Railways has developed double
decker rail wagons to transport export cars from Manesar manufacturing facility to Mundra Port.

This arrangement ensures availability of requisite infrastructure at the Port and export of products in an
efficient manner.

4 Global Integration Vs Local responses

Suzuki foray's into India can be categorised as somewhere between Global and Transnational. It would
be apt to say that the company started as a global player and is now moving towards becoming a
transnational. The history of Maruti Suzuki shows signs of a shift from a "Standardised and Goal
achievement oriented" organisation to the "Innovative/Creative and Entrepreneurially oriented"
organisation that it has become today

When Maruti Suzuki started, most of the features of Japanese management system such as Quality
Circles, employee participation in the production decision making, production incentives, company union,
and in-house were successfully transferred to the work culture of Maruti Suzuki. Suzuki Motors perceived
that the hierarchy system in the Indian society greatly influenced the work culture in most Indian factories
and it also faced similar problem in setting up a flat organization structure that would most benefit from
the introduction of its own management system that it practiced in Japan. It employed two methods to
overcome this problem.

First, it recruited fresh graduates from the technical/engineering colleges to fill up most of the middle and
lower level management positions. In fact, except for a few in the top management, who were transferred
from large public and private companies, most of the middle and lower level positions were filled by fresh
graduates. As the fresh graduates were not biased by any previous management styles, they could easily
be trained with the management style that Suzuki Motors introduced in the joint venture. The top
management from the Indian side also supported the introduction of Japanese style of management in
the factory.

Second, it undertook an extensive training program for the fresh recruits. Suzuki Motors deputed several
Japanese workers and executives in the Indian factory at Gurgoan, near New Delhi. As many as six to
seven employees of Suzuki Motors were deputed to work in the Indian factory. In addition, several Indian
employees from MUL were deputed to SMC's factory in Japan. This exchange process of employees
helped the smooth transfer of Japanese management systems to Maruti-Suzuki in India and has
increased the overall factory productivity. Most of the management systems of Suzuki Motors were
adapted in Maruti Udyog Limited.

Suzuki has focused on the lean production system where thrust is given on the reduction of inventory cost
and testing time. Globally, Suzuki pulls its supplier to be located near the plant. In India some suppliers
only assemble the final parts or modules at the plant located near to Maruti factory, but produce
components in relatively distant plants. Earlier, quality checks of all delivered components were done at
Maruti factory only. Under the current system, quality checking systems are installed at the suppliers end
and this generates reports which only go to Maruti electronically.

The first successfully model, Maruti 800, was introduced in 1983 with a 796 cc engine. It was based on
the Suzuki Alto. During the initial stage, majority of the car components were imported from developed
countries. At that moment it was the only modern car in India (as compared to its competitors Hindustan
Ambassador and Premier Padmini). Contrary, to the logic of most foreign automobile manufacturers,

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Suzuki Motor predicted Indian market potential to rise to 200,000 cars per annum by the year 2000. After
1991, Maruti Suzuki initiated strategic responses to cope with India's liberalisation process and began to
redesign itself (to be able to compete with the new automobile players coming to India).

In contrast to the above scenario, today, Saurabh Singh and Rajesh Kumar Gogu have helped in shaping
Suzuki Motor Corporations A-Star Concept car. The car almost changes the way the world's perception of
Indian auto designers. Maruti Suzuki India Ltds R&D team in Gurgaon have designed the concept car that
is being pitted as the global Indian car. The Concept A-Star is the first concept car in which designers
from Maruti Suzuki India's research-and-development division have been involved from the initial stage
for its styling.

Suzuki Motor Corporation (SMC) is pursuing a world strategy designed for long-term growth. Following
the launch of its acclaimed fourth world strategic model, the Splash (named Ritz in India), at the 2007
International Motor Show, the company developed the A-segment five-door hatchback reflecting a focus
on world-class environmental compatibility and comfort. It has a newly developed Euro 5-compliant 1.0-
litre aluminium petrol engine with C02 emissions lower than those of European competitors (target lower
than 1 O9gfkm).

Maruti Suzuki India, is now investing $310 million in a new research and development center in nearby
Rohtak. This new facility which will be Suzuki's first major R&D center outside Japan and is scheduled to
be completed by 2015. It will include test tracks, a crash-test facility, emissions labs, a wind tunnel and a
durability testing center. Eventually, Suzuki wants the Rohtak complex to serve as its global small-car
development hub.

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