India‐ Japan Partnership: Aspects of Japan’s Contribution to India’s Automobile Sector
Indo‐Japanese relations form one of the most rapidly developing partnerships in Asia. Underpinned by several historical as well as strategic and economic commonalities, both countries have steadily developed a robust partnership which they have called special strategic and global partnership. Though strategic aspects have become quite salient since 2000, the complementary economic relations form the bedrock of their partnership.
When Japan had launched its post‐war economic development programme in the 1950s, India’s supplies of iron ore were very crucial for the development of Japanese steel industry. In turn, by the second half of the fifties when India needed economic assistance for its own development, Japan in turn was ready to help India with its yen loans. In 1958 following Indian Prime Minister Jawaharlal Nehru’s visit to Japan, Tokyo extended its economic aid to India. In fact, it marked the starting point of Japan’s aid policy itself. Since then India has been one of the major recipients of Japan’ Official Development Assistance ( ODA ).Today even after a period of more than fifty years, Japan’s commitment to India’s economic progress has become deepened as exemplified in numerous projects such as metro railway systems in different major Indian cities, construction of Delhi‐
Mumbai Freight Corridor, Delhi‐Mumbai Industrial Corridor, Chennai‐Bengaluru Industrial Corridor, Mumbai‐Ahmedabad high speed rail system, transport
connectivity projects in the North East Indian states, telecommunication Projects, etc.(1)
The economic milieu in India‐Japanese relations is extremely favourable to the evolution of stronger and deeper interactions. The signing of the Comprehensive Economic Partnership Agreement ( CEPA ) in 2011 has already set the stage for a major breakthrough in our economic relations. It is one of the most comprehensive agreements dealing not only with trade, but also with services, investment and tariffs. However, it has to be admitted that the full potential of the CEPA has not yet been realized. For one thing, the volume of bilateral trade has not witnessed the kind of growth expected. It has in fact declined in 2013‐14 to $15.8 billion from the earlier figure of $16.8 billion for the year 2012‐13. ( 2 ) In other words, the CEPA is yet to bring the expected dividends in trade and investment. In fact, the same phenomenon has also been witnessed in the case of India‐South Korea relations. A similar partnership agreement was signed between them even earlier without producing an increase in the volume of bilateral trade.
Efforts should therefore be taken to see whether certain terms of the CEPA should be updated to enhance the benefits of the agreement.
ODA has been strong a pillar of the bilateral engagements since 1958 and Japan has extended more than JPY 4,000 billion worth ODA loans to numerous projects in different sectors . What is remarkable is that when Japan’s overall size of its aid has decreased in recent years, its contribution to India has been kept at a very high level. In fact, until the end of the 1990s, Japan was the top most aid giving donor of the world. But it could not retain that position after 2000. Currently, it is only the fourth in the global ranking after the US, UK, and Germany. ( 3 ) The
declining aid‐giving capacity of Japan made many doubt whether Japan’s diplomacy would be able to maintain its clout in the coming years. Even in developing countries including India, many started advising their governments to gradually shift from Japanese official aid to Japanese private investment.
The Indian automobile industry ranks as the seventh largest in the world. Having witnessed tremendous growth in recent years, it contributes 7% to the country’s GDP. It employs about twenty million people both directly and indirectly. In 2014, the auto industry produced more than twenty million vehicles including passenger cars, commercial vehicles, three wheelers and two wheelers. The industry is expected to grow at a rate of 13% during 2012‐21. In addition, it is projected to be worth over $250 billion by 2026 (4 ). The Automotive Mission Plans 2006‐16 and 2016‐26, if effectively implemented, will make India one of the three world’s top three automobile manufacturing industries of the world. India will also become a leading auto exporter.
Background: The industry did not have a smooth start in the early post‐
independence period. In the immediate aftermath of freedom, the country faced serious challenges such as poverty, economic backwardness, illiteracy, and unemployment. The partition of the country added to the confusion.
Centuries of colonial rule left the country in a state of utter helplessness. India’s leaders facing pressures from the two power blocs were keen to avoid undue dependence on any foreign country for its sustenance. The government did not have too many options. It adopted the principle of planned economy and import substitution in order to promote native industries and acquire a degree of self‐
sufficiency at least in some sectors. The main objective of this policy was to
develop a self‐sustained economy while receiving assistance from other countries whenever necessary. It specifically stated that foreign investment would be allowed only if it carried no strings or conditions. The role of the state in the development of the economy became central and this strategy was to some extent inevitable given the near absence of the private sector at that time. The Industrial policy of 1948 and the successive five year plans adopted by the government clearly underlined the preponderance of the state. (5)
Though this economic strategy contributed to India’s industrialization to some extent, it also created many problems. Large scale state‐sponsored enterprises soon became inefficient and non‐competitive. Excessive government spending resulted in mounting deficits in the state budget. Targets set in the plans appeared too distant and elusive and had to be drastically modified. Further, natural disasters, regional conflicts and political instability compelled the government to deflect from its chosen goals. The economic situation was so precarious during the eighties that the government had to approach the IMF for loans and in response to its conditionalties, it had to initiate several deregulation measures. Yet, the main thrust of the economic policies was governed by the earlier socialist philosophy.
It took a few more years before it became inevitable for the economy to undergo critical structural changes. The collapse of the cold war deprived India of many of the advantages it had enjoyed earlier. India could no longer count on the favourable terms of trade it had established with the erstwhile Soviet Union. With the skyrocketing increase in the oil prices following the Gulf War in August 1990, India’s currency situation suffered one of the worst setbacks. The government
was even forced to mortgage its gold reserves to raise loans. It was under these circumstances that it had to approach the IMF again for rescue and in return, accepted several conditionalties which led to far‐reaching structural changes.
Sweeping measures in external , financial and public sectors intended to put the Indian economy on the road to liberalization and reform were implemented.
Liberalisation measures
In July 1991, a New Industrial Policy was announced and it clearly indicated the new path that the Indian economy was to traverse from then on. A major policy to deregulate and promote foreign direct investment has been in effect since then. Under the previous system, the government discouraged FDI strongly and placed many restrictions on domestic competition by means of licensing schemes and barriers to the entry of new companies. Under the new 1991 policy, doors were opened for easier flow of FDI. Thirty six fields were earmarked for automatic approval for direct investment. Many important fields which were closed for foreign investors earlier were thrown now open to them. The private sector could now operate in all areas except strategic ones like defence and atomic energy.
Licensing was almost done away with except in a very few cases. The incentives given to foreign investors were very impressive. Foreign equity since then has been granted to the extent of 100%. For instance, keeping in mind the acute shortage of power, the government wanted to attract foreign companies to power generation sector by offering one hundred per cent equity. Automatic approval is given quickly to proposals involving foreign equity up to 51% in thirty six high priority areas. These proposals need not be accompanied by technology transfer agreements. In order to speed up the process of clearing FDI proposals,
the government also set up the Foreign Investment Promotion Board. The government revised the Foreign Exchange Regulation Act ( FERA ) in order to eliminate unnecessary restrictions on foreign investors and bring more benefits to them like setting up branch office, purchase of real estate , fund‐raising, using their brand names , etc. India also signed the Convention of the Multilateral Guarantee Agency in order to provide protection to foreign investors. The government also liberalised imports by abolishing the import approval system.
Tariff rates have since then been appreciably lowered. (6)
One immediate and direct result of the reforms was seen in the sustained growth of the economy in the following years. After 1992, the GNP maintained an annual growth of about 6%. Industrial growth following the reforms contributed to major strides in capital formation. The contribution of manufacturing industries under the private enterprise was significant and it was undoubtedly due to the new buoyancy that the private sector received under the reforms .In addition, India has been steadily accumulating foreign exchange reserves on an impressive scale.
Auto industry‐related measures: Several auto industry‐related measures soon
followed either as part of the reforms package itself or as measures that boosted the tempo of the reforms in the following years. As has been noted, the Industrial Policy of 1991 abolished the licensing requirement for commercial vehicles, public transport vehicles, two wheelers and three wheelers. In 1993, passenger cars were delicensed. It meant that no license was required to set up an automobile manufacturing unit. In 1997 automatic approval up to 51% created increased competition within the industry and contributed to raising standards. Seventeen new ventures involving foreign players emerged in the field.
In March 2002 , the government announced its first Auto Policy with a vision to establish a globally competitive automobile industry in India and to double its contribution to the economy by 2010. The thrust of the new policy could be stated in its following objectives to:
Promote an integrated, phased and self‐sustained growth of the automotive industry;
Make it a lever of industrial growth;
Promote a globally competitive automotive industry including the auto component industry;
Establish an international hub for manufacturing small, affordable passenger cars and a key centre for manufacturing tractors and two‐wheelers in the world;
Strive for the modernization of the industry and facilitate indigenous design, research and development and steer India’s software industry into automotive technology; and
Assist development of vehicles propelled by alternate energy sources and development of domestic safety and environmental standards at par with international standards. (7)
The government also introduced several incentives to encourage the auto companies to spend more on their Research and Development (R &D) activities. From 2004, 150% deduction of R&D expenditure from taxable income was permitted. In another significant move in 2006, the government reduced the excise duty from 24% to 16% and showed its interest in developing small cars. In the following years, the tax was further reduced.(8) This was a very significant step and many manufacturing companies vied with one another to produce small compact cars. But the condition put by the government was that the engine of the small car should not exceed 1200 cc and its length should be below 4000 mm. This triggered a race among car makers who, keen to take advantage of this
concession, designed their car models to keep the engine capacity at 1197 cc and the length of the car just below 4000 mm. For instance, Maruti introduced RITZ with an engine capacity of 1197 cc. Similarly, the Hyundai’s i20 and Honda’s Jaaz were also made with similar features. It showed how the leading companies tried to reap the maximum advantages from the measures introduced by the government.
Japan’s Direct investment:
As mentioned earlier, during the initial decades after the attainment of freedom, India pursued an economic strategy which emphasized import substitution industrialisation with an accent on developing indigenous skills and capabilities in the manufacturing sector. The official policy was basically restrictive and it continued until the 1980s when steps were taken to make some marginal relaxation. For instance, in some very exceptional cases, slightly more than 40%
equity shares were permitted depending on the importance of a given sector. In 1988, even a fast channel was set up in order to ensure speedy FDI clearances.
But a real change of official mindset on foreign investment occurred only after the launching of the 1991 reforms. The new Industrial policy of 1991 brought about a paradigm shift in the attitude of the government which now considered FDI as a key instrument of industrial and technological growth.
The economic reforms took place when there was a global surge in FDI outflows.
Japan itself was emerging as a major supplier of FDI to the different parts of the globe. In 1985, Japanese FDI amounted to only $44 billion, but jumped to $293 billion by 1999. Out of this, about two thirds of the outflows were directed to the US and Europe while more than fifty per cent of the remainder went to Asia.
China and ASEAN countries were the major recipients of Japanese investment in Asia. What India received at that time was too small to merit attention.(9)
TABLE I
Japan’s FDI to China and India during the 1990 ( Million US $ )
Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 China 579 1070 1691 2699 4478 2510 1987 1179 819
India 14 122 35 102 130 219 434 285 227
Table I above brings out the glaring differences between the positions of India and China in terms of Japan’s FDI during the 1990s. Though India was the biggest recipient in South Asia, its share in the overall Japan’s FDI compared to China’s, was negligible.
Post‐2000 Scenario
But this scenario changed rather drastically after 2000 and FDI flows into India tended to increase fairly rapidly. In 2001, the total FDI inflows amounted to $2.4 billion, but steadily increased over the next decade to mark $30.9 billion in 2014‐
15. Barring the years‐‐ 2009‐10, 2010‐11 and 2012‐13‐‐ when there was a negative growth, the percentage of growth has been quite considerable.
The following Table brings out vividly India’s expanding FDI scenario.
TABLE II FDI flows into India during 2000‐2015
Financial year Amount ( Million US $) %age of growth
2000‐01 2,463
2001‐02 4 ,065 +65%
2002‐03 2,705 ‐33%
2003‐04 2,188 ‐19%
2004‐05 3,219 +47%
2005‐06 5,540 +72%
2006‐07 12,492 +125%
2007‐08 24,575 +97%
2008‐09 31,396 +28%
2009‐10 25,834 ‐18%
2010‐11 21,383 ‐17%
2011‐12 35,121 +64%
2012‐13 22,423 ‐27%
2013‐14 24,299 +8%
2014‐15 30,931 +27%
Source: Fact Sheet on Foreign Direct Investment from April 2000 to June 2015, (Government of India)
FDI flows from Japan :
As for Japan’s FDI, it started with $ 223.6 million in 2000‐01 and had a rather fluctuating trajectory. After an initial increase to $411.87 million in 2002‐03, it tended to decrease in the next four years. In 2008‐09, it had a dramatic rise to
in 2009‐10. Recovering slightly in the following year, it rose to $2.971 billion in 2011‐12 and to $2.237 billion in 2012‐13. In 2013‐14, Japanese FDI amounted to
$ 1.438 billion.(10) Table III gives the figures of Japan’s equity flows to India during 2000‐14. ( $ million )
TABLE III : Japan’s FDI equity flows to India. ( in $ million)
Year Amount
2000‐01 223.66
2001‐02 177.68
2002‐03 411.87
2003‐04 78.36
2004‐05 126.24
2005‐06 208.29
2006‐07 84.74
2007‐08 815.2
2008‐09 4469.95
2009‐10 1183.4
2010‐11 1562
2011‐12 2971.7
2012‐13 2237.22
2013‐14 1438.31
Although Japanese investment in India has been on the increase since 2000, it occupies the fourth position among the investing countries. As Table IV indicates, Japan with its $18.81 billion FDI, accounts for 7% of the total FDI India has received. It also gives the shares of top ten investing countries in FDI equity inflows. Barring Mauritius and Singapore which provide certain advantages to the investors, only the United Kingdom figures slightly higher than India. But other countries like the US, Germany, the Netherlands and France lag behind Japan.
Table IV : Shares of top ten investing countries : April 2000‐June 2015 Cumulative amount of FDI equity inflows : 258,020 million $
No Country Total 9 (billion ) percentage
1 Mauritius 89.64 35%
2 Singapore 35.86 14%
3 U.K. 22.86 9%
4 Japan 18.81 7%
5 Netherlands 15.32 6%
6 U.S.A. 14.37 6%
7 Germany 8.19 6%
8 Cyprus 8.1 3%
9 France 4.6 2%
10 Switzerland 3.1 1%
( Source: Fact Sheet on Cumulative amount of FDI equity inflows, Govt of India, New Delhi )
Japan’s FDI has flowed into several sectors and the top five sectors that attracted Japanese equities during 2000‐2015 are the following: India attracted cumulative inflows amounting to $ 13.4 billion during April 2000 ‐‐June 2015. Tt accounted for 5% of the total equity inflows.
Services sector‐ (17% )
Construction Development, etc‐ 9%
Computer software and hardware ( 7% )
Telecommunications (7% )
Automobile industry ( 5% )
The following automobile companies are among the top ones that invested in India‐ Nissan Motors, Honda Motors, Maruti Udyog and Yamaha.
Source: Fact sheet on FDI from April 2000‐June 2015 ( Government of India )
The Maruti Motors, which pre‐dated the economic reforms, was set up in 1981 with Sanjay Gandhi as its Managing Director. But as it did not take off the ground, it was nationalized and in 1983 and a joint venture was formed with Japan’s Suzuki Motors. One major objective of establishing the joint venture was to respond to the growing demands of the people to have a personal mode of transport. At that time, there were few facilities for transport that enabled people to move from place to place with comfort and reasonable cost. Even in urban areas, there were very inadequate means of public and private transport. Cars were still considered as luxury
items and to establish a car manufacturing company in the public sector was an extraordinary act. Under the joint venture, Suzuki Motors acquired only 26% of the equity shares and agreed to provide the latest technology as well as skills including training to Indian personnel. Suzuki had the options to increase its equities in future if it so desired.
Why Suzuki Motors? The question that is often raised is why was Suzuki selected as partner when there were other top companies in Japan as well as abroad? The selection process itself was very prolonged and detailed investigations about other foreign manufacturing companies were also conducted. In fact, Japan figured only at the end of the long investigations.
First, efforts were made to explore the prospects of selecting a partner from Germany, Italy, Britain and the US. But at the end of the exercise, it was felt that the peculiar requirements of India including the cost and technology could not be adequately met by the companies of these countries. Further, the terms and conditions put forward by India were not acceptable to them. At the same time, what was happening in the Japanese automobile sector was of great relevance to India. The Japanese car industry which was emerging rapidly as a force on the international scene was also deeply interested in the concept of producing fuel efficient small cars. Serious discussions were initiated with Japanese companies including the Mitsubishi Motors, the Nissan Motors, and the Suzuki Motors. At the end of the negotiations, Suzuki was preferred on account of cost as well as Suzuki’s experience and expertise in the manufacture of small cars. Suzuki’s small and compact cars which were popular in Japan eminently conformed
to what Maruti was looking for. Further, the Indian negotiators had struck a personal and friendly chord with Suzuki which finally resulted in the signing of the joint venture agreement.(11)
Suzuki was quite generous in its offers to India. It was inclined to invest in India even though it had no in‐depth experience of having known its economy, work culture, or the working of the auto sector. Yet, it offered its latest model 800cc four‐door car which was very popular in Japan. It also offered 800cc van which came to be called Omni. Suzuki’s Completely Knocked Down (CKD) kits were reasonably priced compared to the offers coming from other car companies. Suzuki also offered to provide facilities for training Indian personnel both in Japan and India. It was Suzuki’s track record in small car production and its readiness to offer reasonable terms which clinched the agreement.
In the project report to the government, Maruti had indicated the extent to which localisation would take place in the initial period. Known as the Project Manufacturing Programme (PMP), it was applied to all foreign technical collaboration agreements. The aim of the government was to ensure that technology was transferred to save the outflow of foreign exchange resources.
Maruti work culture:
The first and foremost contribution of the Maruti‐Suzuki collaboration should be seen in the emergence of what came to be called Maruti culture or Maruti revolution. It became a catalyst for the diffusion of a new brand of work culture which rests on discipline, punctuality, productivity and
quality consciousness. Under this system, employees are appointed strictly on the basis of qualifications and merits. Regular attendance at the work place is appreciated and rewarded. It has a zero tolerance on lack of punctuality. Uniform dress at the work place and physical exercises are made mandatory. Common canteens where all employees irrespective of their official positions sit and eat together. Cleanliness is maintained as a matter of rule. All this has created a strong comradeship among the employees of the company and motivated them to strengthen the company’s goals.(12)
Economy of scale:
One of the first steps that Maruti‐Suzuki took was to set a high target of production. In the third year itself , the company set a record by producing 100,000 cars. In 1982, most of the spare parts suppliers had deep skepticism about the ability of the company to produce 100,000 units within five years. Their skepticism stemmed from the belief that in the previous state dominated regime, the two main companies – the Premier Motors and the Hindustan Motors‐ even together could not produce 50 000 units annually. But Maruti‐Suzuki believed that what the company needed was economy of scale. High volumes are needed to lower the cost of production and enhance quality. But at the same time, it is also essential to ensure the viability of the sales and to take care of the after sales network.
Soon the vendors changed their attitude and the company impressed on them the need to strictly adhere to the new work culture.
Development of partnership with vendors:
From the start, Maruti‐Suzuki believed that much of its business success would depend on the kind of close partnership it developed with the vendors. This partnership, the company asserted, should rest on mutual trust and long term cooperation. In order to realize this goal, Maruti found it necessary to change certain prevailing practices in the relations between the vendors and the car manufacturers. But as a company functioning in the public sector of the government, it had to function within the framework set by the government. For instance, it could not select its own spare part suppliers at will. The procedure prescribed by the government at that time was to call for public bidding and the lowest bidder would normally be selected. The ostensible aim of the government was to save official expenditure, but it also led to making wrong choices that resulted in the loss of quality. Maruti stopped this procedure.
Another obstacle Maruti encountered was the existing government’s policy of reserving a large number of products including auto components for manufacture under the category of small scale industries. The prescribed monetary ceilings under this category were very low for many of the auto components to be manufactured with appropriate technology and in the quantities required. It was found almost impossible to ensure good quality under the financial limitations set by the government. Suzuki was totally opposed to approving the components that were not manufactured in conformity with the prescribed standards and procedures. Maruti worked very hard with the government to remove the auto components from being considered under the label of small‐scale industries. This undoubtedly
placed the company in a more advantageous position in terms of ensuring the quality of products as its hands were not restricted by outmoded official procedures. The de‐reservation of many important components, which contributed to the modernization of the industry, was a boon to car manufacturers.(13)
As a result of its association with Suzuki, Maruti also made another significant change in the complexion of the in‐house manufacture. At that time, Indian car manufacturers produced about 50% of the components of a vehicle in‐house. On the contrary, in Japan, car manufacturers limited their in‐house production only to those which were essential for performance and appearance like engine, gearbox and outer body and preferred to outsource the production of other components. But to make this system work successfully in India, a set of long ‐standing and reliable vendors was needed and it was not easy to develop a class of committed suppliers overnight. Maruti set out to develop a new pattern of partnership with a vast network of component makers. The new system treated the vendors as equal partners with long term commitments. Previously they were treated as mere subordinates. Maruti was showing its utmost willingness to extend solid support to the vendors who in turn were equally ready to give their full commitment. What eventually developed was a new and unique win‐win interdependent relationship accompanied by a mutual recognition of their obligations. The new pattern of relations based on a feeling of partnership created benchmark in the history of automobile manufacturing industry in India.
Determining the prices of the components was an important factor in the pattern of relations. Maruti, as we saw earlier, stopped the practice of procuring components from the lowest bidding vendors as it would not guarantee the quality. And it decided to negotiate with them every year. It also preferred to have more than one vendor for each item in order to avoid any interruption of supplies. In the case of low level of technologies, Maruti could consider even more than two vendors, but under no circumstances did it welcome more than three at the most. (14)
The vendor development programme had to start immediately after the signing of the joint venture. The process of selection had to be stringent particularly in the initial stages. Maruti realized that from a long‐term perspective, its business success and reputation would depend on the kind of vendors it developed. And once the assembly line started, its continuous operations would depend on the supplies coming from the vendors.
As the whole process started making advances, a large number of vendors joined as suppliers to Maruti. As the volume of Maruti’s production kept mounting, the vendors had to enhance their productivity and manufacturing capacities. The increasing number of vendors included many well‐known companies in the auto field like the TVS,Chennai and Bharat Forge, but there were also numerous new‐comers who have entered the field. It is important to note that adjacent to Maruti’s Gurgaon and Manesar facilities, suppliers’ parks have emerged where select vendors who produce critical components have manufacturing units. The company’s Report says that nearly 86%of the supplier base is located within a hundred kilo meter radius of the company.( 15 )
As the number of vendors increased, Maruti was acting as a liaison for them. Even though Maruti could not be involved directly, it helped the Indian vendors to get in touch with several Japanese component producers.
The result was that over forty five joint ventures and technical agreements were signed with them within a comparatively short time. The idea of creating joint ventures actually came from Japan where Suzuki has similar ventures with business firms. Maruti even acquired some equity shares of the joint ventures. But its shares varied in proportions. In some cases it was only 10% (Sona Steering) and but it could go up to 50% (Mark Auto). In any case, Maruti was not inclined to get involved in the actual functioning of these ventures. Rather than getting involved in the day to day management of these ventures, Maruti was represented on the boards of these companies and it could exert influence on the management decisions.
Emphasis on quality:
One of the outstanding features of the Japanese management system is its emphasis on maintaining quality all through. Quality is an integral part of a continuous process meticulously monitored. Every managerial system is interested in maintaining high quality in order to promote its own products.
But the methods adopted to do that may differ. In India, the general practice is that quality inspection takes place after the products have been manufactured. In Japan they had learnt from experience that it would be essential, even from the point of cost reduction, to inspect the components at each and every stage. The real answer to the question of producing high quality products lies in improving the process of production to such an
extent that even inspectors would become redundant. In other words, quality has to be built into the process. For that it is necessary to train workers to carefully implement the process.
Maruti insisted on the vendors getting the ISO certification. The vendors were told that producing good quality products would lead to reduction in cost. It was driven home to them that if they could avoid things like wastage of time, re‐work, non‐availability of machinery and waiting time, they could enhance the quality of their productivity. Maruti’s insistence on quality has contributed to the development of automobile component industry and its position in the international market.
Maruti held a series of vendor conferences where they were told to strictly adhere to processes and specifications. Many vendors invited Japanese experts to India to train their employees and technicians in improving the system and to educate them on how to maintain good quality. Others dispatched several of their employees to Japan to undergo training in quality enhancement. Maruti has also undertaken a project to partner with 30 identified vendors where there are high prospects of improvement. The company’s quality team visits these suppliers and monitors their performance. During 2014‐15, about 1,500 such visits were made by the quality team. The company also provides vendors with knowledge and interventions in specific areas which have a good influence on overall quality. It also conducted a number of training sessions to vendors to share the best practices in quality system and manufacturing practices.(16)
New Customer culture:
Maruti has made a signal contribution to the development of a new customer culture in India. The growth of automobile industry in India is such that the role and importance of the customers always remained rather neglected. As noted earlier, in the early decades after freedom, it was the state which virtually dictated its terms to the industry and thereby developed a sellers’ market. Ideas about marketing and consumers’ choices or satisfaction were almost non‐existent.
Even as early as 1981 Maruti blazed a new path by conducting a survey to know what kind of cars the people preferred to have. It raised many eyebrows at that time because it was quite unprecedented for a public sector undertaking to seek to know the people’s options. But from the beginning Maruti kept its fingers on the pulse of the people and it has remained so since then.
Understanding the negative image of the PSUs at that time, Maruti
believed that it would not get involved in the actual sales of the cars;
instead it preferred to appoint private dealers to do that. Its position with regard to the dealers was succinctly expressed in one of the policy approach papers at that time: “This opportunity ( of selecting dealers ) should be utilized for introducing standards of service to the customer and an approach to the marketing and sales which are found in highly cooperative situations. The possibility of doing this would only be available at the time of selection of dealers and the finalization of contractual conditions with them.”(17) Dealers were appointed on the basis of strict criteria. Maruti also prescribed clear norms for showrooms and
standardized their size, and the various facilities in the showrooms. It also provided guidelines on how to set up workshops with bays, equipment, storage and handling of spare parts.
As Maruti started bringing out its different models, dealers were supposed to be familiar with the detailed features of those models. Even mechanics and engineers dealing with customers should develop a deep knowledge of those models. Maruti believed in the philosophy of not to sell cars without proper facilities for service. Maruti activated dealerships only after the ensuring the availability of al facilities. Maruti did not stop with that and it appointed an executive at the level of manager in charge of looking after the customer care.
In 1985 Maruti started setting up the Maruti Authorised Service Stations (MASS) all over the country. These are small service stations located in cities run by private individuals. The mechanics in these stations are trained by Maruti. In 1986‐87 Maruti started with 117 MASS, but over years, the number has multiplied. There are now 3086 service stations across 1471 cities and towns. (18)
Another facility available is the Maruti Mobile Support ( MMS ) which provides door‐to‐door service to customers in remote areas. Seeing the response of the customers, it has been extended to metro cities as well.
The number of vehicles has gone up to 1250 in 2015 from 1000 in 2014.
While customers enjoy this facility, dealers derive the benefit by extension of their service‐reach and customer retention and profitability. ( 19 ) Maruti has also established regional spare parts warehouses to ensure the
availability of spare parts quickly whenever needed. Many of these initiatives have been appreciated by the customers who have voted Maruti as No 1 in J.D. Power Customers Satisfaction Survey in India for the last fifteen years.
NEXA: As a novel method of attracting the emerging segment of customers who like personal attention and pampering , Maruti has launched a new type of showrooms called NEXA. More than one hundred NEXA outlets have already come into existence. Driven to sell two million cars by 2020, Maruti wants to reach out to this segment of affluent buyers who can conduct their dealings in a relaxed and comfortable atmosphere. Baleno , a major premium hatchback and another premium car S‐Cross are sold through NEXA. Maruti is keen to increase the number of NEXA from 100 to 250 before the end of 2016. ( 20))
Research and Development: (R&D )
Maruti has played a significant role in using its R&D efforts to maintain its lead over other car makers. Its production of K‐ series engines has set a benchmark in auto manufacturing in India. Part of Maruti’s popular models like Alto K‐10, Swift, Wagon‐R, Celerio, K‐Series engines can power Maruti alternate fuel ( LNG and CNG ) versions of Alto, Dzire, and Ertiga. The production of K‐series engines has already crossed 25 lakh mark.
Maruti’s ability to produce different models in the same assembly line drew great interest and appreciation. During 2014‐15, R&D manpower stood at 1350 who will help Maruti in attaining capability in the company’s design,
Maruti has set up a modern R&D centre at Rohtak , Haryana, at a cost of Rs 6.6 billion . It is a state of the art facility and it compares well with
some of the best in the world. It is also Suzuki’s first global R&D centre outside Japan. Some of Suzuki’s achievements in the R&D sphere are as follows:
Maruti has also introduced India’s first two pedal auto gear shift (AGS ) technology. Maruti’s Dzire , the best selling sedan, is the first diesel car to be equipped with automatic gear system. The AGS technology which has no clutch makes it comfortable to drive in congested areas. Drivers need not change gears and enjoy the comfort of automatic driving at an affordable cost. At the same time,
the system also takes care of the fuel efficiency.
Maruti is developing 800 cc compact diesel cars for Indian roads , yet another first for Maruti.
Maruti achieved 3% to 15%increase in fuel efficiency during 2014‐15 across all models by working on different technologies.
To meet the stringent emission regulations like Euro5, ISS feature was introduced in the export sector market.
All Maruti models have been made OBD II compliant.(21)
In order to realize its goal of producing two million unit sales, Maruti has to offer more models and enter new segments . Having succeeded already in its models Ciaz and new Alto‐K 10, Maruti is ready to offer new options in the SUV segment and light weight commercial vehicles.
The company has taken several initiatives to build and improve capacities of the suppliers. In 2014‐15, it launched several steps to strengthen quality across the value chain. A major project with thirty vendors was undertaken to improve their quality. The quality team of the company visited their facilities and examined many related issues with them and formulated action plans for addressing them.
The company provides suppliers with knowledge in areas that have a major influence on quality. During 2014‐15 alone, sixty training sessions were conducted for about 1000 vendor personnel to share the best practices in manufacturing processes. Maruti Center of Excellence ( MACE ) extends support tier I and II suppliers to acquires world class standards in quality, cost, service, and technology orientation (22)( pp 103‐4 )
The following Table gives details of the trends on R&D expenditure covering from 2012‐14. It shows how the R&D expenditure has consistently increased during the period.
Rs MN FY 12 FY 13 FY 14 YOY % Capital 1,491 2,613 4311 65.0 Recurring 2,226 2,562 2,265 11.6
Total 3,717 5,175 6,576 27.1
Source: Emkay Research, Company
Promotion of Exports:
Though Maruti‐Suzuki was started with the main objective of meeting the domestic needs, it slowly evinced interest in exporting its products abroad too. Even during the late 1980s the question cropped up whether Maruti could afford to divert its attention from the domestic market. It did start selling its cars to East European countries. Hungary was the first country to purchase Maruti’s compact cars. Gradually more East European countries followed suit. As Maruti diversified its models, even many West European countries started importing Maruti cars. Indeed Maruti was the first Indian company to sell cars to Europe. Simultaneously, Maruti also found an attractive market in Africa and Asia. A substantial portion of Maruti’s cars went to African countries. The following Table V the details of the geographical distribution of Maruti’s export sales in recent years.
Table V: Export sales of Maruti ( Units )
2010‐11 2011‐12 2012‐13 2013‐14 2014‐15
Non‐Europe 79,047 84,332 92,424 72,622 105,767 Europe 58,219 43,047 27,964 28,730 15,946 Total 138,266 127,379 120,388 101,352 121,713 Source: Maruti Suzuki Annual Report 2014‐15,p 88
For the first time in 2014‐15, Maruti’s sales to non‐European countries crossed one hundred thousand mark. The proportion of European purchases has sharply declined since 2011‐12 whereas the non‐European purchases have significantly increased.
Maruti‐Suzuki has decided to make India an export hub for regions like Africa, West Africa and Latin America. It can develop these markets according to its own plans like promoting local production and marketing practices. Maruti has a special focus on Africa where it wants to introduce some of the best practices of its domestic market. It has succeeded in its market penetration in South Africa, Angola and Mozambique. By exporting its cars, Maruti has been able to bring a great deal of foreign exchange resources for the country.
Another significant development relates to Maruti‐Suzuki’s plan to export its latest cars to Japan. According to the company’s announcement, it will export 30,000 to 40,000 units of Baleno hatchback to Japan. Being the first time when India‐made cars are sent to Japan, this trend will give a new fillip to Prime Minsiter Modi’s “make in India” policy.(23)
Fuel Efficiency: Over years Maruti has earned a name for itself by focusing on producing fuel efficient cars. There has been a consistent improvement in making its cars more fuel efficient while at the same time ensuring greater mileage. In 2014‐15, a new model car Ciaz was launched with 25% higher fuel efficiency as compared to the earlier SX4. Refreshed Swift, Dzire, and Alto K 10 were launched with higher fuel efficiency.
Till March 2015, Maruti had sold 4.8 lakh CNG vehicles cumulatively. This had offset about 2.9 lakh tons of CO2 which could have been emitted otherwise ( 24)
All company’s models are free from hazardous substances and over 85%
material could be recycled. The company’s policy is to optimize resources and avoid waste to reduce environmental footprint. The company is also working on
Alternative fuel technology: Maruti has also introduced several compressed natural gas (CNG) variants like Celerio and Alto K10 with a new intelligent Gas post injection technology. This technology reduces CO2 emissions by 20%
compared to petrol ‐based cars. Maruti has also sold over 4.8 lakh CNG vehicles cumulatively by March 2015. A list of some of the models with fuel efficiency is given below: (25)
Model‐‐‐‐‐‐‐‐‐ Fuel efficiency in CNG mode Alto ‐‐‐‐‐‐‐‐‐‐‐‐‐‐30.46 km/kg
Alto K10‐‐‐‐‐‐‐‐‐‐‐‐‐32.26 Km/kg Celero‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐31 Km/kg Wagon R‐‐‐‐‐‐‐‐‐ 26.60 KM/kg Ertiga‐‐‐‐‐‐ 20.80 Km/Kg
(Source: Maruti Annual Report 2014‐15 )
Social Responsibility: Aware of the responsibilities that it owes to the larger society, Maruti has generated wide awareness in road safety. As part of its responsibility, it initially launched the Maruti Driving School in Delhi. But later, it extended such services to other cities as well. These schools impart teaching and practical training in safe driving. The company states that the increasing number of road accidents can be brought down if the government, industry and voluntary organisations work together in in an integrated manner. As part of enhancing travel safety, Maruti has also introduced driver airbag facility in its Alto 800 and Alto K 10 models.
Rural Penetration: Maruti has also built a very impressive distribution network covering rural areas. In recent years, its rural penetration has achieved considerable success. In 2008, it had about 200 rural outlets and in 2014 it jumped to 700. As for its sales, the rural areas accounted for only 8% in 2009, but the volume increased markedly to reach about 32% in 2014.(26)
2. Honda Cars India Limited
Apart from Maruti Suzuki, there are other Japanese companies which have also emerged as important players in the automobile sector and they include The Honda Cars India, the Toyota Motors and the Nissan‐Renault. Honda Motors India enjoys about 7 % market share in India and is also making all efforts to expand its activities. A brief account of Hondo’s role in India is given in the following pages.
The Honda Cars India Limited (HCIL), a subsidiary of the Honda Motors, Japan, was established in 1995 with the main objective of providing automobiles with the latest technologies. Located in Greater Noida near New Delhi, it is spread over 150 acres of land and it has the capacity to produce 100,000 units annually.
It has also set up a second plant in Tapukara in Rajasthan State and it is spread over an area of 450 acres. It has an installed capacity of 1,20,000 units per annum, and the company wants to increase it. The company has already shifted the production of Honda City to this plant which also produces Honda Amaze and others. This is an integrated manufacturing plant which includes such facilities as forging, press shop, weld shop, paint shop ,engine assemble, frame assembly and engine testing .(27 )
In addition, Honda is also having a big profile in the manufacture of two wheelers and it had a long tie up with Hero Motorcycles which broke up in 2014. Since then Honda has maintained its own subsidiary and a lucrative business. Honda Motor Cycles and Scooter India Pvt Ltd ( HMSI ) is the world’s biggest two wheeler company with three plants in India. The first one is at Manesar near Delhi, which started production in 2001. The second plant at Tapakura in Rajasthan was started in 2011 with a production capacity of 12 lakh units. Honda then set up its third plant in Narasapuram , Karnataka in 2013 with an annual capacity of 18 lakh units. Anticipating the future demands for scooters, Honda is now establishing its fourth plant in Ahmedabad which is scheduled to become operational in 2016. The Ahmedabad plant will be the biggest two‐ wheeler plant in the world. (28))
Primarily a maker of premium cars, Honda has introduced over years many models like Brio, Amaze, Mobilio, City, and CRV. Honda cars are known for their advanced design and technology.
The company launched its Honda City in 1998 and it sold 50,000 cars in the first year itself. It then went on to invest $ 1 billion in its two plants in Noida and Tapakura. (29) Despite its good image in the market, it still remained a low‐key player in India. The triple tragedy which struck Fukushima in March 2011 damaged many of Honda’s supplies and forced Honda to reduce its production.
Further, it was also the time when there was an increasing demand on the part of buyers to prefer diesel‐driven cars. But Honda could not respond to this change of consumer preferences as its cars were wholly petrol driven.
Considering the huge potential in India., Honda has set the target of producing 300,000 cars annually in both plants in Delhi and Rajasthan. It is also set to concentrate more on producing small, compact cars to cater to the changing demands of the people. Further, Honda also considers India as the hub of its auto exports. In 2013 it invested Rs. 3,500 crore in its Rajasthan plant to produce engines, manual gears, axles and other components that are exported to different markets in Thailand, Japan, Indonesia UK, Brazil, South Africa, and Mexico. Since India provides low cost sourcing and manufacturing, it can become a very useful export hub for the company. HCIL wants to take advantage of Prime Minister Modi’s ‘Make in India’ policy by manufacturing more cars and auto parts and exporting them. It wants to double the volume of its auto parts exports in 2016 to more than Rs. 1,100 crore.
In addition, Honda has also initiated steps to acquire land in Gujarat to set up its third manufacturing plant. With three plants online, Honda hopes to boost its domestic market share as well as to promote its exports. (30)
On the challenges that Honda faces in India, one has to recognize the fact that in a cost conscious country like India, there is a public perception that Honda cars carry a high price tag. Honda worked rather aggressively in the last few years on localization levels to make its prices look more competitive. In a bid to win the confidence of the Indian customers, Katsuahi Inoue, President of the Honda Motors India frankly said, “India is a discount market and the competition is tough. Our main focus will be to enhance customer’s satisfaction and not to chase volume ahead of their satisfaction.” ( 31)
Honda is setting up an independent R&D facility, Honda Genbetsu India at a cost of RS 500 crore to help the company in its indigenisation efforts as well as in providing designing support. It will work in collaboration with R&D Centre at Tochigi, Japan. Honda has developed a very efficient diesel engine and brought out Mobilio, a multipurpose vehicle and the Jaaz premium hatchback. It is now concentrating on its foray into small cars where Genbetsu could play a crucial role.
Social responsibility: As part of its social obligations, Honda has taken steps to promote safety and environment. It has educated over five hundred thousand persons of all ages on safe driving with special focus on women and children.
Further, adopting eight Traffic Training parks in in major cities it has trained over two hundred thousand persons on safe riding. Honda has also established more than 4000 outlets all over the country to ensure its effective presence.(32}
3. Other Japanese auto –manufacturers : Toyota‐Kirloskar Motor Private Ltd:
Toyota Kirloskar Motor was established in 1995 as a joint venture with Toyota having 89% of share and Kirloskar a minority share of 11%. Known basically as a producer of premium cars, it has made its recent foray into the compact segment also. Toyota’s market share was only 6% until recently and it was predominantly centered around the sale of its premium Innova. But it wants to increase its share to 10 % with the introduction of its compact cars Etios sedan and Etios Liva hatchback. The cost of these cars is still considered to be quite high and one reason for Toyota’s high cost is that it has not been able to achieve the level of localization it has wished to. Much of its profitability would depend on the degree of localization that it is able to accomplish. About half of its Innova is made in India. If the company can localize engine and transmission manufacturing , it can
cut down overall cost by about 11%. During 2012and 2013 Toyota suffered losses .In order to achieve its 10 % goal, Toyota wants to collaborate with another Japanese car maker Daihatsu which is known for its production of small cars.(33)
Toyota has still not developed its R&D plans in India, but as its business involvement expands, it has to think about its future plans. In an expanding and competitive market like India’s, Toyota has to work out its strategy properly to stay in the market. It promotes human resource development by sending its personnel to Japan for training. Toyota’s Technical Education Programme (TEP) has gone a long way in terms of improving the technical skills of its personnel. The Toyota Technical Training Insitute was set up in 2007.
Toyota wants to make India a major source of auto components. It has set up the Toyota Kirloskar Auto Parts which manufactures transmissions since 2004. Toyota has invested Rs 600 crore in TK Auto Parts for manufacturing transmissions and engines for small cars.
Toyota also sees bright prospects of exporting its cars and auto parts to other countries. It exports transmission assemblies from India. It considers India a hub of automobile products. As a beginning, Toyota has already started exporting its Etios models to South Africa. With its big brand name and the accompanying support from its parent body, Toyota hopes to play a critical role in India’s automobile sector.
4. Nissan Motor India:
Nissan started its operations in India very recently. Collaborating with the Renault Company, Nissan has its plant in Oragadam near Chennai. Nissan considers India
as one of its larger hubs for investment. The Oragadam facility has the capacity to produce 480,000 units annually.
Nissan has achieved much success in its exports. In 2013‐14, it exported 118, 000 units and expects to increase the volume with the addition of its Datsun model. It also exports its engines well as body parts to over fourteen countries including the U.K., Brazil, Mexico and the US.
Areas of concern
a. Labour unrest in Maruti:
It is also necessary to examine some of the challenges that Maruti faced after its establishment. In the initial years, it had few problems in its relations with the labour. The management knew that the nascent company’s progress would depend on the kind of cooperation that it received from its labour force. The management itself took the initiative to establish an employees union which entered into an agreement that it would not organize any strike for five years at least.(34) The workforce in the company extended cooperation and accepted the Japanese work culture and the manufacturing processes. The management associated the employees in all its decisions which ensured mutual cooperation.
Following the adoption of economic liberalization in 1991, there was by and large an improvement in the in the industrial relations in the country as a whole and this was reflected in the sharp decrease in the number of strikes and lock outs.
But troubles started brewing in Maruti after 1997 when some changes in ownership and management took place. In 2000 the employees went on an indefinite strike demanding revision of wages, pensions and incentives.
Following a change of government in 2000, the new NDA government , as part of its disinvestment policy, decided to sell a portion of its stakes to Maruti Suzuki, The employees resisted this step as they feared that the new policy would deprive the company of its business advantages and also affect security of the workers. The government did not pay heed to the concerns of the employees and went on to privatize the Maruti Udyog in 2003. Suzuki became the majority owner of the Maruti.
More labour troubles started happening at the Manesar plant in 2011 when a section of workers went on a strike and demanded their right to organize an alternative labour union. The problem was, however temporarily solved by the management which provided the workers’ leaders with a reasonable voluntary retirement scheme.
But a more serious incident, which shook the image of Maruti, occurred in April 2012 when a group of workers indulged in violence and attacked management staff. In the confusion, the chief of the human resources division was burned to death. The incident sent shock waves across the entire country.
The real reason for the sudden and unexpected incident should be seen in the changing fortunes of the company. The changes that happened in the ownership of the company also coincided with the sharp falls in Maruti’s market shares.See Figure I below. Prior to 1998 it had a very enviable share of 80%, but it came down to 45% in 2000. In 2011‐12, the share even plummeted to about 38.3%, the lowest in Maruti’s history. Reasons for this dismal situation like the entry of many new rivals like Hyundai, Toyota and Honda, the appreciation of the value of
Japanese yen, and the advent of diesel cars were perhaps not effectively handled by the Maruti management.(35)
Figure I :
Maruti Suzuki’s market shares (2000‐2015)
In the midst of the sagging sales, Maruti was in a frenzy to produce more cars at its Manesar plant where its prestigious models Swift and Dzire were manufactured. Pressures on the workers increased the tension particularly among the temporary workers who had already been intensifying their demands for higher wages and equal treatment. They had complained against what they called discrimination between the permanent and temporary workers.
