Suzuki drives India’s car manufacturing story

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 today’s Maruti-Suzuki, was founded in 1981 to provide affordable mobility to India’s 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.”

Osamu Suzuki as well as the Indian and Japanese management teams played a key role in this. With Suzuki’s 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.

Suzuki’s conviction of “smaller, lighter, lesser and more beautiful” became inculcated in Maruti’s 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. Maruti’s DNA was aligned to this motto and this alignment is one of the major reasons for its continued success.

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.

Maruti’s 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 “daddy’s 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.

The writer is Managing Partner, Roland Berger, and author of the recently released ‘Riding the Tiger’