Suzuki drives Indias car manufacturing story

Maruti marks the triumph of a carefully thought out strategy

THE HINDU Business Line

February 9, 2017

With a current market share of around 50 per cent, which is close to its historic highs
despite a dramatic increase of competition over the last decade, Maruti-Suzuki has
defined mobility for Indians since its market entry in the 1980s. Its relentless pursuit
of a volume up, cost down strategy has created a virtuous cycle that continues to
create sustainable competitive advantage.

Maruti Udyog, the precursor to todays Maruti-Suzuki, was founded in 1981 to provide
affordable mobility to Indias masses. V Krishnamurthy, who was in charge of the
company, knew that this mission could only succeed with the right partner and this is
where Suzuki seemed to fit in well.

Osamu Suzuki was a man of action and was unfazed by the challenges that India
had to offer. Taking a minority stake of 26 per cent in a public sector undertaking did
not give Suzuki the kind of management control that it would have liked. Operating
under the Licence Raj would imply limitations on the number of vehicles that could be
sold and potentially affect breakeven calculations. In short, the odds seemed to be
fully stacked against this JV.

Yet, Maruti not only survived but thrived. From day one we had a very successful
blend of Indian and Japanese ways of doing things, observes Rahul Bharti, Vice-
President, Corporate Planning. We were impressed with the minute detail-orientation
of the Japanese. Their way of observing customers in detail, identifying their needs
and then aligning the whole value chain to deliver this need at an appropriate value
was impressive.

Guiding principle

Osamu Suzuki as well as the Indian and Japanese management teams played a key
role in this. With Suzukis conviction that cleanliness would drive effectiveness, he
and his team drove down 5S principles in the organisation.

Suzuki would personally inspect the factory as well as offices, open drawers and
check corners for signs of inefficiency and waste. He worried about the width of
alleys and the distance between supervisors and their employees, all in the interest
of ensuring fast and open information flow.

Supervisors were expected to be accessible to their employees, to not intimidate

them but to recognise that every employee is equal in the aspiration to make their
company excel. Open offices, one uniform, a common canteen for everyone from
sweeper to Managing Director all these ideas helped to reinforce the common
responsibility of Maruti employees to work for the well-being of their company.

Suzukis conviction of smaller, lighter, lesser and more beautiful became inculcated
in Marutis DNA and is relentlessly applied to everything that the company does,
whether it is products, machines, or head quarter documents. One of the major
initiatives launched in this context was the 1 component, 1 gram, 1 yen initiative.

Osamu challenged the organisation to go through all vehicles and identify cost
improvements to the tune of at least 1 as well as weight reduction to the tune of at
least one gram. The impact of the initiative was enormous. The campaign mobilised
an army of about 6,000 employees and several thousand vendor employees and
generated a meaningful weight reduction per vehicle.

More importantly, it also drove the smaller, lighter, lesser, and more beautiful
philosophy across the extended company. Marutis DNA was aligned to this motto
and this alignment is one of the major reasons for its continued success.

Exchange programmes

Driving home adherence to standards and a structured, continuous improvement of

standards via kaizen amounted to a dramatic cultural exchange programme. A major
part in this effort was to not only impart training by Japanese expats in India, but also
to send hundreds of employees into Japanese factories, work there and experience
management principles such as 3G, 3K, 3M and 5S.

While the company was changing the way India manufactured goods within its walls,
the constraints of the phased manufacturing programme(commitments on
localisation), made it necessary to develop a local vendor base as well. Here the
company applied an interesting balance between handholding and leveraging
competition. Models of support for suppliers included a one-time sale of technology,
technology collaborations, joint ventures and 100 per cent subsidiaries.

Quality of components tended to improve with increased cooperation between OEM

and supplier. More than 125 foreign suppliers (Japanese, European and American, in
order of relevance) were brought into the country by Suzuki and Maruti supported
them in project management, feasibility studies, sample validation and hand-over.

For suppliers, as for dealers, Maruti believes in being financially responsible. Hence,
efforts to convince suppliers to show profits on their books rather than try to evade
taxes were pushed. Displaying real profits in books would enable loans at lower rates
and higher valuations, and hence create more value than potential tax savings.
Many of the suppliers who decided to accept these management practices were able
to grow into $1 billion plus companies themselves either in turnover or market cap.
Tier 1 suppliers were also strongly encouraged to share these learnings with their
own base to ensure development of a quality ecosystem.

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Challenges ahead

Marutis way forward remains challenging. The company will have to work hard not to
fall victim to its own success. Since most of the present older generation has driven it
at some stage in their life, new products will have to help the company shed the
daddys car image. Also, as India becomes more affluent, the company needs to
graduate from the small car segments into the medium and potentially large ones.
The transition from a value to a life-style oriented brand has been difficult for Suzuki
globally. India may just be the market in which it finally cracks the code.

Wilfried Aulbur is Managing Partner, Roland Berger, and author of the recently
released Riding the Tiger