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Business policy and strategic management of maruti suzuki
ITM BUSINESS SCHOOL PGDM (Batch 2011-13)BUSINESS POLICY AND SRATEGIC MANAGEMENT SHRADHA KULKARNI (52) SHUBHAM GOYAL (58) ROSHAN VAILAYA (64) SOURABH CHOPRA (71) RAHUL HEDAU (73) GROUP – 3 BATCH - Finance 2 A Project Report On Maruti Suzuki Ltd.
TABLE OF CONTENTSR. NO. SECTION PAGE NO. 1 Executive Summary 2 2 Define the Industry 2 3 Portfolio Analysis of Industry 4 4 Attractiveness of Industry 5 5 Value Chain of Maruti Suzuki 6 6 Porters generic Strategy 8 7 Added Value Concept 9 8 Cost Component 10 9 Willingness to Pay Component 11 10 Overcome the Threats 12 11 Scope of Further Growth of Company 12 12 Conclusion and Learning 13 Page | 1
1. EXECUTIVE SUMMARYMaruti Suzuki a leading car maker in India is a subsidiary of Suzuki MotorCorporation of Japan. Maruti is a market leader in mid-size segment of cars and has amarket share of around 42% in mid-size segment cars. Best selling cars of Maruti includeSwift, Swift Dzire, Alto, and Ertiga. They have production on economies of scale and workson cost effectiveness. Maruti has manufacturing plant in Manesar and Gurgaon and they arecoming up with plant in Gujarat to make India a hub for mid-size cars. They also have aresearch and design center at Haryana.Maruti Belongs to an Automobile Industry which has tough competition from other majorplayers after liberalization when companies like Hyundai, Honda, Skoda, Toyota,Volkswagen have started selling cars in India. The core competencies of Maruti includestrong customer base and brand image, well developed sales and service network andstrong knowledge of Indian markets. Analysis based on BCG matrix and GE matrix is alsoperformed in order to understand brand marketing and product management to help acompany decide what products to add to its product portfolio, and which marketopportunities are worthy of continued investment.Attractiveness of the Industry is analyzed through Porters Five forces and also Value Chainto get idea about how the operational activities and production activities are performed incompliance to have cutting market competition. Porter Generic strategy to understandabout cost, differentiation and focus strategy and the added value so that customer candifferentiate Maruti product with the other leading company’s product and its competitiveadvantage.Maruti’s leadership is market is due to its cost advantage which is least among all the otherplayers in market and its lower maintenance cost. The willingness to pay is also very highbecause customers can easily pay required cost because they are getting what they areexpecting and also cost is low.Maruti has threat from imitations, Substitute, slack and Holdup which has proven problemsfor the company in recent past but still they had overcome them to prove there costleadership and market leader. Further companies future growth and prospects is discussedto get clear picture how companies expands and which new products company is launchingto maintain and retain market share.2. DEFINE THE INDUSTRYMaruti Suzuki India Limited is a subsidiary company of Japanese automaker Suzuki MotorCorporation. It has a market share of 42.1% of the Indian passenger car market as of March2012. Maruti Suzuki offers a complete range of cars from entry level Maruti 800 and Alto, to Page | 2
hatchback Ritz, A-Star, Swift, Wagon-R, Estillo and sedans Dzire, SX4, in the Csegment Maruti Eeco, Multi-Purpose vehicle Ertiga and Sports Utility vehicle Grand Vitara. Itwas the first company in India to mass-produce and sell more than a million cars. It is largelycredited for having brought in an automobile revolution to India.INDIAN AUTO INDUSTRYOne of the major industrial sectors in India is the automobile sector. Subsequent to theliberalization, the automobile sector has been aptly described as the sunrise sector of theIndian economy as this sector has witnessed tremendous growth.The Indian auto industry is showing signs of slowdown. Utility vehicles are growing strong,clocking 53% growth over last year. The cumulative production data for April-July 2012shows production growth of 7.10% over same period last year.The industry produced 1,746,840 vehicles in July 2012 as against 1,656,014 in July 2011. Theoverall growth in domestic sales during the period was 9.34% over same period last year.Passenger Vehicles segment grew 10.20% during April-July 2012 over same period lastyear. Passenger cars grew 5.5% while utility vehicles grew 53.66% during April-July 2012 ascompared to same period last year.During April-July 2012 overall automobile exports registered negative growth at (-4.03)percent. While passenger vehicles and commercial vehicles both grew by 9.14 percent. Two& three wheelers declined by (-1.00) and (39.23) percent respectively in April–July 2012compared to the same period last year.MARUTI SUZUKI GROWTH ANALYSISMaruti Suzuki India Limited logged 9.2 percent increase in sales for July 2012 at 82,234 unitsas against 75,300 units in the same month last year, riding back on the humungous sales ofits compact sedan, Swift Dzire, clocking an almost four-fold increase, according to acompany statement.According to the carmaker, its domestic sales during July stood at 71,024 units, compared to66,504 units in July last year, up 6.8 percent. The sales were driven mostly by its compactsedan Dzire, which clocked 11,413 units.Sales of small cars, including the M800, Alto, A-Star and Wagon R, however, declined by23.7 percent to 28,998 units. The companys other best-selling model Swift along with Estilloand Ritz together clocked 15,759 units in July this year, up 73.2 percent from last year.MSILs sales of its mid-sized sedan SX4 plunged by 70.5 percent to just 679 units in themonth, the company said in a statement, adding that it managed to sell just two units of theluxury Kizashi sedan. Exports during the month stood at 11,210 as compared to 8,796 in Julylast year, up 27.4 percent.CURRENT STRATEGIES OF MSILA. Focus on small market segment to beat the stiff competition.B. Develop capabilities & internal resources to finance its expansion and growth. Page | 3
C. To stay away from ultra-low cost segment.D. To make India an exclusive small car manufacturing base to leverage frugal engineering.E. To establish R&D facility in India to produce cars in India, starting from design till productionCORE COMPETENCIES OF MSIL:Core competencies of an organization can be simply defined as a set of qualities, which areunique to that particular organization that cannot be easily imitated by its competitors. Corecompetencies are factors which give competitive advantage to the organization in its chosenmarket. Core competencies may be of various types- technical know-how, relationship withcustomers, employee-dedication, manufacturing process etc.An analysis of the Maruti Suzuki India Ltd. shows three core competencies:1. Strong Customer Base & Brand image –The MSIL has a market share of about 55% in the Indian passenger car segment and is thelargest manufacturer of small cars in India. The company has been voted as first by Indiancustomers for level of customer service and customer satisfaction. The companymanufactures affordable small cars which serve the needs of an average Indian customerfaithfully and hence have a strong brand image as the common man’s car in India, which anaverage Indian customer identifies with. Such a strong brand image and huge customer basecan sustain the position of the company as the market leader in the Indian small carsegment.2. Well-developed sales and service network throughout India –The Maruti Suzuki India has a strong dealership network comprising more than 450 citiesacross India and a huge service network of more 2750 franchises of service outletsspreading about 1300 cities throughout India. Such a widely distributed sales and servicenetwork can help the company to relate with its customers across India and also facilitatesbargaining power with suppliers and increase profitability.3. Very Strong knowledge of Indian market –The Maruti Suzuki India has a strong knowledge of the Indian market which has helped themto grow their sales and market share in India.3. PORTFOLIO ANALYSIS OF THE COMPANYBCG Matrix for MSILMaruti Suzuki, one of India’s leading automobile manufacturer and the market leader in thecar segment, both in terms of volume of vehicles sold and revenue earned. Page | 4
STAR: The Company has long run opportunity for growth and profitability. They have highrelative market share and high growth rate. SWIFT, SWIFT DEZIRE AND ZEN ESTILO is thefast growing and has potential to gain substantial profit in the market.QUESTION MARK: These are also called as wild cats that are new products with potential forsuccess but there cash needs are high and cash generation is low. MARUTI SX4, GRANDVITARA, RITZ fall in the category of question markCASH COW: It has high relative market share but compete in low growth rate as theygenerate cash in excess of their needs. ALTO AND WAGNOR have fallen to ladder 3 & 4 dueto introduction of ZEN ESTALIO and A STAR.DOG: The dogs have no market share and do not have potential to bring in much cash.Business of SX4, OMINI, and VERSA has liquidated and trim down.GE MATRIX OF MSILThe GE matrix is an alternative technique used in brand marketing and productmanagement to help a company decide what product(s) to add to its product portfolio, andwhich market opportunities are worthy of continued investment. GE MATRIX INDUSTRY ATTRACTIVENESS HIGH MEDIUM LOW Selectivity/ Investment & Investment & growth HIGH earnings A- growth SWIFT ALTO STAR BUSINESS Investment & Selectivity/earnings STRENGTH MEDIUM growth SWIFT Harvest ECO SX4 DEZIRE Selectivity/ Harvest LOW earnings Harvest OMNI VERSA WAGON R4. ATTRACTIVENESS OF THE INDUSTRYPORTER’S FIVE FORCES MODELMichael Porter identified 5 forces that determined the long run attractiveness of a business.We would analyze Porter’s five forces in context of the Maruti Suzuki. Page | 5
a) Threat of New Entrants: Increasing Although most of the major global players are present in the Indian market; few more are expected to enter due to the welcoming government policies and expected retaliation.b) Threat of Substitutes: Low to Medium Maruti Suzuki faces serious threat from consumer shifting to hybrid or electric cars. Currently, the electric car market in India is dominated by sole player Reva Electric Car Company. However brands like Tata Motors, Chevrolet and Nissan are also planning to launch their electric car this year.c) Bargaining power of Supplier: Low Automakers are the key to the supply chain of the automotive industry. Maruti Suzuki has manufacturing units where engines are manufactured and parts supplied by first tier suppliers and second tier suppliers are assembled. There are a large number of automobile component suppliers whose switching costs are very high. Thus reducing the bargaining power of the suppliersd) Bargaining power of buyers: Increasing Today, consumers are considered kings in the automobile market. There is an increasing awareness among them and they are given a humongous number of choices. Buyers get incentives in the form of cost discounts and better after sales services. This further increases the bargaining power of the buyers.e) Competitive Rivalry: High Competition in certain segments is very high e.g., small and mid-car segment. Brands like Hyundai, Chevrolet, Tata and Skoda have given huge competition to Maruti Suzuki. In the recent past Volkswagen, Honda, Ford has also given competition to the premium car segment.5. VALUE CHAIN OF MARUTI SUZUKIPorter distinguishes between primary activities and support activities. Primary activities aredirectly concerned with the creation or delivery of a product or service i.e. operational. Each Page | 6
of these primary activities is linked to support activities which help to improve theireffectiveness or efficiency.(A) Primary activities at Maruti Suzuki (Operational)1) Inbound LogisticsInbound Logistics i.e. the receiving and warehousing of raw materials, andtheir distributio n to manufacturing. Maruti Suzuki’s inputs primarilycomprise raw materials and purchased components. Raw material i ncludesrubber, glass, steel, plastic, aluminum. Tyre, windshields, and airbags areexample of parts or compo nents. The company has implemented tierizationof suppl iers and Just in Time supply logistics.2) Operat ionsTransform i nputs i nto final product form through machi ning, packaging,assembly, equipment maintenance, testing, printing and facility operations.3) Outbound LogisticsAre the activities required to get the finished product to the customer, including collecting,storing, physically distributing, material handling, delivery vehicle operation, orderprocessing and scheduling.4) Market ing and SalesProvide means by which buyers can purchase the product and inducing them to do so, suchas advertising, promotion, sales force, quoting, channel selection, channel relations, andpricing. Maruti’s marketing objective is to continually offer the customer new products andservices 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”5) ServiceAims to enhance or maintain the value of the product, such as installation, repair, training,parts supply, and product adjustment(B)Secondary activities at Maruti Suzuki (Supportive)1) ProcurementThe function of purchasing raw materials and other inputs used in the firm’s value creatingactivities Page | 7
2) Technology DevelopmentTechnology development includes research and development, process automation, andother technology development used to support the value chain. a) Research & Development (R&D) b) Technology absorption, adaptation and innovation3) Human Resource ManagementActivities associated with recruiting, training, development and compensation ofemployees.4) Firm InfrastructureFirm infrastructure consists of general management, planning, finance, accounting, legal,government affairs and quality management.Kaizen - Maruti had adopted the Japanese management concept of Kaizen, or continuousimprovement. The Kaizen activities had resulted in the improvement of the in-housecapabilities. For example, they had manufactured 25 multi-axis robots and 16 multi-spotwelders.6. PORTERS GENERIC STRATEGYThe Low Cost Maintenance AdvantageThe Acquisition Cost Is Unfortunately Not The Only Cost You Face When Buying A Car.Although a Car May Be Affordable To Buy, It May Not Necessarily Be Affordable ToMaintain, As Some Of Its Regularly Used Spare Parts May Be Priced Quite Steeply. Not So InThe Case Of a Maruti Suzuki. It Is In The Economy Segment That The Affordability Of SparesIs Most Competitive, And It Is Here Where Maruti Suzuki Shines.Lowest Cost of OwnershipThe Highest Satisfaction Ratings With Regard To Cost of Ownership among All Models AreAll Maruti Suzuki Vehicles: Estillo, Wagon R, Esteem, Alto and Omni. We Are Proud to Havethe Lowest Cost of Operation/Km (Among Petrol Vehicles) - The Top 5 models Are All MarutiSuzuki Models: Maruti 800, Alto, Zen, Omni and Wagon R.To achieve cost leadership --- upfront capital investment in state-of-the –art equipment/plant isrequired. e.g. --- Maruti Suzuki has two state-of-the-art manufacturing facilities in India. The firstfacility is at Gurgaon spread over 300 acres and the other facility is at Manesar, spread over 600acres in North India. Maruti Suzukis facility in Gurgaon houses three fully integrated plants.Together the three plants have an installed capacity of around 700,000 units. K Series Plant. TheGurgaon facilities also house the ‘K’ Engine Plant. Commissioned in 2008, the K-series engine planthas an installed capacity of 500,000 units. Manesar Facility At present the Manesar plant rolls out Page | 8
World Strategic Models Swift, A-star, SX4 and swift Dzire. The plant at Manesar is the companysfourth car assembly plant and has a capacity of 300,000 cars per year. Differentiation - creating something that is perceived industry wide as unique. Differentiation cantake many forms - Brand name- Maruti Suzuki Technology- The highly fuel efficient, technologicallyadvanced K series engines have been very well appreciated by our customers for their performance.Service- Best Service/highest no. of service centers Dealer Network – Highest Quality- Value formoney Performance Mileage Best match with Indian road conditions Less Maintenance cost Resaleprice7. ADDED VALUE CONCEPTThe Quality AdvantageMaruti Suzuki Owners Experience Fewer Problems With Their Vehicles Than Any Other CarManufacturer In India. The Alto Was Chosen No.1 In The premium Compact Car Segmentacross 9 Parameters. Wagon R No. 1 in the premium compact car Segment and SWIFT asbest hatch back car. This study measures owner In terms of design, content, layout andperformance of vehicles across various parameters.A Buying Experience like No OtherMaruti Suzuki Has a sales network Of 307 state-of-the-art showrooms across 189 Cities, witha workforce of Over 6000 trained sales personnel to guide Customers in finding the rightCar. The high sales and customer care standards led us to achieve the no.1 name.Quality Service across 1036 CitiesMaruti Suzuki scored the highest across all 7 parameters: least problems experienced withvehicle serviced, highest service quality, best in-service experience, best service delivery,best service advisor experience, most user-friendly service and best service initiationexperience. About 92% of Maruti Suzuki owners feel that work gets done right the first timeduring service and 97% of Maruti Suzuki owners would probably recommend the samemake of vehicle, while 90% owners would probably repurchase the same make of vehicle.One Stop ShopAt Maruti Suzuki, you will find your entire car related needs met under one roof. Whether itis easy finance, insurance, fleet management services, exchange- Maruti Suzuki is set toprovide a single-window solution for all your car related needs. Page | 9
8. COST COMPONENTSThe cost components are basically the group of cost origins for the organization. CostComponents of any Automobile Company like Maruti Suzuki include Prime Cost, Works Cost,and Cost of production and Total Cost.Prime CostIt consists of costs of direct material, direct labour and direct expense specificallyattributable to the job. This is also known as flat, direct or basic cost. Costs involved in thisare the main costs with the help of which the core products that the company is indulged inare produced. Egg.:- costs in procuring raw materials for production of the cars, payment tolabour involved in production activities etc.Works CostIt comprises of prime cost and factory overheads, (cost of indirect material, indirect labourand indirect expenses related to factory works). This cost is also known as factory cost,production or manufacturing cost. Costs involved in this are Complementary to the Primecosts of the business and includes those things which directly doesn’t involve in productionof the goods. Egg.:- Payment of wages to employees such as supervisors, guards etc.Cost of ProductionIt is the sum total of works cost and office and administrative overheads (Cost of indirectmaterial, indirect labour and indirect expenses related to office works). This cost is known asoffice cost. Costs involved in this are the Office and Administrative Expenses i.e. the salariesof the office employees and managers.Improvement in Cost ComponentPrime Cost component is the one which can be improved and is the one on which thecompany is taking steps to improve because of the foreign exchange fluctuations and higherinput costs. The company has initiated measures to step up localization levels and to parethe number of tier-I suppliers over the next two-three years, cutting down componentimports, improving yield and enhancing the usage of raw materials.Consolidating its supplier base to increase sourcing from a smaller and more stable base oftier-I vendors to bring down logistics costs and to leverage economies of scale while inkingsourcing pacts.Maruti Suzuki sources 10 per cent of components directly from foreign markets, whileanother 15 per cent are imported by its vendors. To reduce exposure to forex fluctuations,the company has decided to cut direct and indirect imports of components by half over thenext three years. Page | 10
9. WILLINGNESS TO PAYCustomers prefer and give value to the convenience provided by one stop shopping as itgives broad scope. It gives the customer the experience of one single point of contact forsales service and other support which they can provide. Maruti Suzuki is providing the samewith so many features mentioned below:Offering one shop stop:In one shop stop you get many thing at one place, this is a growing trend among theautomobile industry:Maruti Finance: In a market where more than 80% of cars are financed, Maruti hasstrategically entered into this and has successfully created a revenue stream for Maruti. Thishas been found to be a major driver in converting a Maruti car sale in certain cases. Financeis one of the major decision drivers in car purchase. Maruti has tied up with 8 financecompanies to form a consortium. This consortium comprises Citicorp Maruti, MarutiCountrywide, ICICI Bank, HDFC Bank, Kotak Mahindra, Sundaram Finance, Bank of Punjaband IndusInd Bank Ltd. (erstwhile-Ashok Leyland Finance).Maruti Insurance: Insurance being a major concern of car owners. Maruti has brought allcar insurance needs under one roof. Maruti has tied up with National Insurance Company,Bajaj Allianz, New India Assurance and Royal Sundaram to bring this service for itscustomers. From identifying the most suitable car coverage to virtually hassle-free claimassistance its your dealer who takes care of everything. Maruti Insurance is a hassle-freeway for customers to have their cars repaired and claims processed at any Maruti dealerworkshop in India.Customize the vehicles: Customize the wheel and the colour of the car.True Value: Providing customers with second hand vehicles for purchase with the assuranceof Maruti and warranty and guarantee by the company itself for few years.Maruti Driving School (MDS): Maruti has established this with the goal to capture themarket where there is inhibition in buying cars due to inability to drive the car. This bringsthat customer to Maruti showroom and Maruti ends up creating a customer.10. THREATS OF SUBSTITUTIONImitation – It refers to struggle for existence. Use of high grade plastics in areas like doortrims, fuel hoses, and fuel railings etc., and new light-weight 6-layer polymer fuel tank helps Page | 11
Maruti Suzuki to reducing the weight of the vehicle and cost which enables the company toachieve the economies of scale. Maruti Brand loyalty is very high in small cars so, it verydifficult for the competitor to imitated the brand loyalty and customer satisfaction.Substitution - The threat of substitution is medium, there are various substitution productof Maruti like bus, trains, aircraft etc. and also company facing a competition from Chinesecar. Hyundai, Nissan has come up with really impressive cars to challenge the dominance ofMaruti. To response this and maintain its dominance in small segment, the Marutiannounces WagonR r and Alto 800 in the year 2012-2013.Hold up – It refers to delays in you delivering your service or product at the specified priceand time. Recently, Maruti Swift runs out of stock because the company is not expected torevive production at the violence-hit Manesar plant, its sole manufacturing facility. This willlikely to further increase the waiting period for customers, affect suppliers dependent onthe car, and hit sales. It will lead the competitors like Hyundai, may get additional customersfor its launched i20 hatchback. Tata Motors may also witness higher demand for its Indigo-Indica range in coming months.Slack - The silent killer of small business, theft, absenteeism, non-engagement and waste orineffective use of current resources. The companies facing a problem of innovation becausecompany is still focus on old cars and upgraded models11. SCOPE OF FUTURE GROWTH OF MARUTI SUZUKI• The company’s network of sales and services outlets continues to be its strength. Network is set to expand in the future and it will help to tap opportunities in the country.• Manesar Plant reopens under full security of employees• MSIL to fast track its New alto launch which is priced about 2 lakhs, Suzuki making MSIL a small car manufacturing hub, Volume growth of 10.8% for FY2012• Company facing slowdown as the demand environment is impacted• Share in diesel vehicle is 38% during 1st quarter FY13• Net sales grew by 27.5% yoy to Rs.10,778cr in 1st quarter FY13, EPS Estimates to be INR 66.87 and ROE of 12.1% for FY2013, Expected significant volume growth of 15% for FY13• Coming up with new plant and Skill development center in Gujarat and R&D center in Haryana Page | 12
12. CONCLUSION AND LEARNINGA detail analysis on the business of Maruti Suzuki is done based on the various theories laiddown under business strategy. The analysis included applying various concepts and theorieswhich include Porters five forces to understand portfolio analysis, value chain of thecompany, cost component, willingness to pay and growth prospects of the company in nearfuture.It can be concluded that Maruti Suzuki is expanding its product basket by offering value(swift, sx4) at different income level. Maruti Suzuki stands for value as much as it stands forperformance. In spite of rising input costs, Maruti Suzuki always tries to provide cars atreasonable cost. Their running costs and resale values are unbeatable too. This enabledMaruti to become Market leader. Suzuki gaining globally on back of small car portfolio.Economies of Scale make India attractive destination for Maruti Suzuki. With the passengercar sales over spiraling fuel prices and high interest rates, India’s largest car manufacturer,Maruti Suzuki India, is working on customer specific marketing strategy to increase its salesamong the first time buyers. The company have maximum 47 per cent market share amongthe first time buyers.Maruti Suzuki is far behind in luxury and SUV car, the other player like GM, TATA, Mahindra,Honda and Toyota are already established in the market, so replacing them would not beeasyLearning can be put as understanding of various theories of business strategy and practicallyusing them to comprehend on economic, industry and financial details. Page | 13