The finance and marketing chiefs at Indian carmaker Maruti Suzuki discuss market domination, plans for expansion – and, of course, cricket…
To help them understand India, Japanese bosses at car maker Suzuki learned cricket.
“It gave them a better insight and also helped teach them how to manage us,” said S Y Siddiqui, head of human resources and finance at Maruti Suzuki, the 27-year-old joint venture between the former government-owned Maruti Udyog and Japanese small car specialist and bike manufacturer Suzuki.
It might also explain why this is one of the most successful joint ventures in automotive history.
Today Maruti Suzuki has a 56% share of the Indian market and contributes more than 40% of Suzuki’s profits. Suzuki owns 55% of Maruti with the balance held by private investors.
Siddiqui described the joint venture as “a mature model” with Indian managers running the business while Japanese executives make the policy decisions. “They tell us which models to export and the countries,” he said.
It’s a model that others like Fiat-Chrysler and Renault-Nissan-Daimler might do well to study more deeply. And while Volkswagen’s recent purchase of 20% of Suzuki is being watched closely at Maruti, managers remain tight-lipped. “We’ll take a view on that in mid-summer,” said one.
Maruti Suzuki has just (in FY09) produced and sold 1m cars for the first time. It also has plans to expand production in the near term to 1.5m units a year so that it can maintain its stranglehold on the domestic market.
It will do that by doubling output from its modern Manesar plant south-west of New Delhi between now and 2015 as India’s new car market is predicted to grow to at least 3m units a year from 1.7m in 2009.
P K Roy, general manager of vehicle assembly, says the company can grow to an annual output of 1.5m by adding two new lines over the next three years at Manesar.
The plant, which employs 2,500, was opened in 2007 and has an installed capacity of 300,000 cars a year, on two shifts working six days a week. A total of 350,000 cars were built in fiscal 2009 as demand outstripped supply.
The self-contained 600-acre site which boasts its own power generating plant and water treatment facility has room to add two assembly lines while expanding the press and paint facilities by 50%.
That capacity linked to Maruti Suzuki’s original Gurgaon plant, established at the start of the joint venture in 1983, will give the company an output of more than 1.5m vehicles.
But that might not be enough.
Sales and marketing chief Mayank Pareek is far more bullish and thinks annual new car sales could easily be 4.5m or even 5m by then.
He bases his estimate on a number of growth statistics that have seen India’s economy maintain its relentless rise.
One of the key ones is that families start to buy their first car once annual income is at INR200,000 (around GBP3,300), the starting price for Maruti Suzuki’s A Star which it exports as the Alto to the UK and elsewhere. “By 2016 there will be 50m families in India earning at least that,” he said.
“Many people thought India would follow China and start to move to larger cars as the market matures, but there is no evidence to support that.”
The other driver will be the availability of credit – around 70% of cars are bought on finance the cost of which has fallen from an APR of 18% to around 8.5% today.
The improving infrastructure will also encourage more people into cars. “We have 660,000 villages – 10 years ago half of them were not connected to the main roads, now they are.” Hard to believe when you’re stuck in New Delhi’s traffic but the hinterland is a different place.
Other facts that Pareek happily threw into the interview are that India had only 1m telephones in 1991 and a three-year waiting list to get one, now that number of cell phones is sold every 15 days.
But back to the JV. Why has it worked so well? Apart from learning to understand cricket, Suzuki executives quickly came to terms with other major differences, said Siddiqui.
“They found it difficult to understand why we have 18% attrition when they are used to the concept of jobs for life. “
Also, the hourly workforce is not mature – the average age is 24 – and don’t understand problems facing an industrial company, unlike blue collar workers in Japan.
“We take on people and train them for our own needs but we are now a sitting duck for other companies to come and poach from us as India’s car industry grows.
“We have had zero industrial problems for more than 10 years and we have been the numer one car brand for 27 years so, as a corporate brand, there is huge pride working for us but we need to find people with the right mindset.
“For blue collar workers we give them an aptitude test, a physical test when they run 100m and have to throw a cricket ball so we can test their stamina and we meet and talk to them in detail so we can understand their family background, including its economic background. You know the youngest in a family is going to be more of a troublemaker than the eldest who has the responsibility of looking after the family. We have had 98% attendance rates over the last few years and our target is 95.3%.”
That is obviously a source of some pride to Siddiqui whose HR team is now helping Maruti’s top 80 suppliers by acting as HR consultants to them. “Their output and technical skills have grown, but not their management skills,” he said. “Most have a flexible workforce with a permanent workforce topped up by outsourcing to meet peak demand so they need to know how to manage that.”
The company works a 48 hour, six day week with two weeks holiday during the shutdown for maintenance.
“We don’t have any expectations of that changing with VW’s involvement,” he said.
But he does expect the Germans to grasp the basics of cricket.