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Managerial Economics – Maruti Case study

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The Indian automobile industry produced a total 1.69 million vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in August 2013 as against 1.56 million in August 2012, registering a growth of 8.18 percent over the same month last year. The cumulative foreign direct investment (FDI) inflow into the Indian automobile industry during April 2000 to July 2013 was recorded at US$ 8,932 million, amounting to 4.5 per cent of the total FDI inflows (in terms of US$), as per data published by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce.

The overall automobile exports grew by 2.03 per cent during April-August 2013. Furthermore, the production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021, as per data published by Automotive Component Manufacturers’ Association of India (ACMA).

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Government Initiatives

The Government of India plans to introduce fuel-efficiency ratings for automobiles to encourage sale of cars that consume less petrol or diesel, as per Mr Veerappa Moily, Union Minister for Petroleum and Natural Gas, Government of India.

The Union Budget 2013-14 added some incentives to the industry. The analysis by Deloitte on the Union Budget highlighted the following points: •The period of concession available for specified part of electric and hybrid vehicles till April 2013 has been extended upto March 31, 2015 •The basic customs duty (BCD) on imported luxury goods such as high-end motor vehicles, motor cycles, yachts and similar vessels was increased. The duty was raised from 75 per cent to 100 per cent on cars/ motor vehicles (irrespective of engine capacity) with CIF value more than US$ 40,000; from 60 per cent to 75 per cent on motorcycles with engine capacity of 800 cc or more and on yachts and similar vessels from 10 per cent to 25 per cent •In addition, an increase in excise duty from 27 to 30 per cent has been allowed for SUVs with engine capacity exceeding 1,500 cc, while excise duty was decreased from 80 to 72 per cent, in case of SUVs registered solely to be used for taxi purposes •An exemption from BCD on lithium ion automotive battery for manufacture of lithium ion battery packs for supply to manufacturers of hybrid and electric vehicles •The excise duty on chassis of diesel motor vehicles for transport of goods reduced from 14 per cent to 13 per cent The Government of India allows 100 per cent FDI in the automotive industry through automatic route. The Government also plans to accelerate the supply of electric vehicles over the next eight years. It is expected that there will be a demand for 5-7 million electricity-operated vehicles by 2020. References: Media Reports, Press Releases, Department of Industrial Policy and Promotion (DIPP), Automotive Component Manufacturers Association of India (ACMA), Society of Indian Automobile Manufacturers (SIAM), Union Budget 2013-14 Analysis by Deloitte

Introduction

Maruti Suzuki India Limited

Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a subsidiary of Suzuki Motor Corporation, Japan. Maruti Suzuki has been the leader of the Indian car market for over two anda half decades. The company has two manufacturing facilities located at Gurgaon and Manesar, south of New Delhi, India. Both the facilities have a combined capability to produce over a 1.5 million (1,500,000) vehicles annually. The Company plans to expand its manufacturing capacity to 1.75 million by 2013. The Company offers 15 brands andover 150 variants ranging from people’s car Maruti 800 to the latest Life Utility Vehicle, Ertiga. The portfolio includes Maruti 800, Alto,Alto K10, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Kizashi, Grand Vitara, Gypsy and Ertiga.

In an environment friendly initiative, in August 2010 Maruti Suzuki introduced factory fitted CNG option on 5 models across vehicle segments. These include Eeco, Alto, Estilo, Wagon R and Sx4. With this Maruti Suzuki became the first company in India to introduce factory fitted CNG vehicles.In terms of number of cars produced and sold, the Company is the largestsubsidiary of Suzuki Motor Corporation. Cumulatively, the Company has produced over 10 million vehicles since the roll out of its first vehicle on 14th December, 1983. Maruti Suzuki is the only Indian Company to have crossed the 10 million sales mark since its inception.

The Company employs over 9000 people (as on 31st March, 2012).

Maruti

Suzuki’s sales and service network is the largest among car manufacturers in India. The Company has been rated first incustomer satisfaction in the JD Power survey for 12 consecutive years. Besides serving the Indian market, Maruti Suzuki also exports cars to several countries in Europe, Asia, Latin America, Africa and Oceania.

Histroy

Maruti Udyog Ltd was launched in1981 as a joint venture between the Government of India and Suzuki Motors of Japan to produce a people’s car, in a market which had been dominated by Hindustan Motors’ Ambassador and Fiat’s small car. From the late 80s the company began a new era as India’s largest car manufacturer and soon became the holder of over 80% of the automobile market share. The company was also upheld as a model employer, paying high wages and using several Japanese management techniques for integrating employees into the production process.

By 1995 it got ISO 1992 certification and continued to grab a number of domestic and foreign awards each year on productivity, customer satisfaction, exports and business excellence.

In 1996 it got the first prize in the national competition in Quality Circles.To improve its production and shop floor working through cost cutting, enhanced customer services and efficiency. This helped it grope back to over 50% share in a few years and thereafter it has managed to retain a share of over 55 % in a rapidly growing car market by launching new models regularly and investing in customer satisfaction. The company’s single union changed leadership several times during the many years of the company’s existence, but continued to remain independent even though it got support and guidance from several.

Company Strategy

As the going gets tougher in the Indian auto industry, Maruti Suzuki India (MSI) is driving into the rural markets to boost sales.

The company, which devised a plan to tap rural markets five years ago, plans to have presence in a total of one lakh villages across the country by March next year.

“The industry has seen a decline in sales by about 4-5 per cent this year. On the other hand, rural sales-which accounts for about 30 per cent of our total sales-have grown by 18 per cent in the April-November period this fiscal,” it.

Company is giving emphasis on rural markets. Last year, MSI had covered 44,000 villages and till November this year, we have presence in 60,000 villages and by March next year, we will have presence in one lakh out of a total of 6.51 lakh villages in India,” said Bhargava.

At present, MSI has a total of 700 rural outlets, which are accompanied by workshops that are authorised to carry out repairs under warranty to an extent. In addition, it has 650 mobile vans that has helped in servicing even at the customers’ homes.

Product Line

Maruti Suzuki, the country’s largest car manufacturer, sells a range of vehicles, from M800 to Grand Vitara, priced between Rs 2.13 lakh and to Rs 24.6 lakh (ex-showroom, Delhi).

“Maruti Suzuki will increase prices from January 2014 as input costs have been going up and MSI cannot continue to absorb all of it. It will pass on some part of it to the customers,” The company had earlier announced that it would increase prices of the entire range of models by up to Rs 10,000 from October first week, mainly due to depreciation of the rupee.

Critical Issues Faced

Assault on Executives

It was business-as-usual for Awanish Kumar Dev GM (HR), Maruti- Suzuki at the Manesar plant in Haryana. Little clue his family had when Awanish went to his office that he would not return and forever. Workers who went on a rampage in the Manesar plant on the 18th July,2012 smashed Awanish, fracturing both his legs leaving him immobile subsequently been burnt to death by an engulfing fire. Sticks and steel were used by workers to knock the top executives injuring critically leading them to hospitalization.

Approximately 26 senior executives were hunted and beaten mercilessly alongside the shop floor which was razed down by fire .At 8.45am on the 19th July, Shinzo Nakhanizi,MD, Maruti. Suzuki was having the greatest challenge to his professional life. An industry veteran, Nakanisi’s career spans over four decades in the automobile industry. He admits, this violence has clearly taken the management unaware and an assault to this gory magnitude wasleast expected. Nakanisi says” Suzuki has tolerated enough” and is prepared to fire workers and derecognize the recently formed Maruti Suzuki Workers Union (MSWU).

Though Nakanisi doesn’t rule out external influences, he still believes the problems are internal. On the evening of the 18th July, in the NDTV news channel; Mr.Padmanabhan, General Secretary, CITU vociferously supports the workers. Though he did condemn the violence, he saw the indiscriminate wage practices in the company as a flash point to this fiasco. Some insiders argue the castes remarks have added fuel to fire.

However the only fact is the “crux of the problem” seems to be tucked deeply away from reality which is again a grim remainder of an unresolved problem leading to fresh violence in future. The deceased Awanish kumar dev had resigned his post six months ago, and was all set to join another organization, but had finally decided to give into the persuasion of senior officials in the company. Awanish used to talk to this brother Avinash about the prevailing tensions at the plant. He sensed the older workers were calm and going about their work promptly but felt, the younger generation of workers (aged between 25-30 years) was becoming more restless. “They are aggressive and give enough trouble to the management” said Awanish.

This was not the first time Maruti. Suzuki plant at Manesar had witnessed issues between Management and workers. In October, 2011 there was a strike at the same plant which lasted about 10 days not ending before creating an accumulated loss of 2600 crores to the company. The Manesar plant produces Swift and Dzire models, where Swift is a flagship product. Every day lost by the company due to the strike and other issues would cost Rs. 75 Crores per day.

Deep Rooted Issues

When Osama Suzuki, the patriarch of Suzuki motors left India after his first visit in the early 1980’s, he promised the newly formed senior management and staff” a gift on his return to Japan”. When the large parcels that finally arrived were opened – out came the time clocks that were to be punched by all the employees.

Thus was born the modern Indian corporation. Many practices today such as mandatory attendance, relentless punctuality, and perpetual productivity-began with Maruti. Labour issues are not new to Maruti. In 1988, 2000, 2011, and 2012- the company has witnessed strikes, lock outs and worst violence especially the recent one. The 7.5$BN Maruti Suzuki empire is a fully owned Japanese company since 2007. In the last five years, two major events has dealt a severe blow to the image and profitability of Maruti Suzuki.

The foundation for this large scale violence coincides with the withdrawal of last year’s strikes. A group of disgruntled workers led by Sonnu Gujjar(union leader then) had stopped production only to slyly broker a side deal with the management in which they got a hefty payout. This raised the question if Maruti deviated from the best governance practices by helping Gujjar and others suspended for indiscipline, cut a sweet deal for themselves and leave the company. The Indian national labour institute states that 55 percent of the labour forces are on contract basis only. Primarily this is kept this way, so as to increase competitiveness and improve the profitability along with increase shareholder value of the company. Every six months the employees are removed and reappointed; reason being beyond 6 months of continuous employment-medical benefits and provident funds should be provided.

India’s automobile sector employs just over 7 percent on a permanent basis. Rests are on contract. These grey areas in the labour contract (regulation and abolition) act1970 have led to the unfair wage practices and hostile work environment. In Maruti Suzuki where a permanent employee gets INR 23,000/month, the contract labour for the similar skill and job profile is paid just about INR9500/ month.

Almost a third of India’s organized labour is on contract. The problem of contract labour is compounded by archaic labour laws, ironically established to support and protect workers. For instance, Section 10 of the Contract labour (regulation and abolition) act 1970 prohibits the workers employment in certain situation. The list is pretty long often confusing the country’s courts that have taken contradictory stance in the recent past.

Many blame the Japanese management for its insensitivity and inability to understand or handle a situation that was careening out of control. While relentlessly chasing higher production targets, they seemed oblivious to the urgent signals being sent out by restive workers. The workers say they were provided two 7.5 minute break within which they had to travel a good half a kilometer to either the canteen or to the wash room and get back to the work back on dot. Even in the production- there has been a fourfold increase in the car output. For instance in 2006 the shifts used to have 120 cars roll out.Present production is 450 cars. Rise in the demand has forced Maruti to hire contract workers in large numbers.

Role of Collective Bargaining

Collective bargaining has been the tool that has defined the Industrial relations over 50 years. Maruti Suzuki was caught on the wrong foot, when they rejected permission for the union formation. India being a founder member of the ILO, right to collective bargaining is a fundamental right of every worker. Further Maruti also goofed up during the strike last year, by insisting all workers who participated in the strike to sign a “Good conduct bond”.

The bond covered points such as- the workers will follow discipline, would not get involved in absenteeism, not resort to go-slow tactics, follow the production principle and not sabotage production or indulge in activities that hamper production. Schedule 5 of the Industrial disputes Act clearly rules this out stating that taking a good conduct bond during a strike as a precondition to allow them back to work is an unfair labour practice. Though it may be a slow recovery for Maruti Suzuki that lost one of its human resource managers to labour unrest

Conclusion

In this age of globalization – the products and production have global character. Hence it’s absolutely important that conflicts have to be minimal. The findings of the recent study on the job trends across the states by the labour bureau should serve as an eye opener. States like Gujarat and Himachal Pradesh, which have introduced labour reforms, have lesser unemployment than Kerala and west Bengal.

A modern factory with high production efficiency that produces low cost products so as to prevail in the fierce competition with other manufacturers and thus remain prosperous. For this the factory has got to be a high yield factory minimizing defects and loss in the manufacturing process by having a production control system that reduces the waste (non-value adding work) from work. Factory inventory is kept low. Production plans are adjusted to correspond to market fluctuations.

Maruti Suzuki should look in to this petty issue so that this don’t turnout in to major issues. It not only affect the company images but also reduce the overall productivity of the company.

The company should set up committee to address this kind of issue, a possible 3 tier committee can be set up.

Cite this Managerial Economics – Maruti Case study

Managerial Economics – Maruti Case study. (2016, Jul 17). Retrieved from https://graduateway.com/managerial-economics-maruti-case-study/

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