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The Maruti - Suzuki Conflict

Background :

Till the early 1980s, the Indian passenger car industry offered limited choice to
the customers, with only two popular models in the form of Hindustan Motors'
(HM) Ambassador and Premier Automobiles' (PAL) Padmini. The government not
only controlled the price mechanism in the industry, but the entry of foreign
players was also strictly regulated.

However, the scenario changed in 1981, when the GoI itself entered the car
business by establishing MUL by acquiring the assets of Maruti Ltd.6 In October
1982, the GoI signed a licensing and joint venture agreement with SMC where in
Suzuki acquired the 26% share of the equity.7Suzuki's history dates back to
1903, when Michio Suzuki founded Suzuki Loom Works in Hamamatsu in
Shizuoka, Japan. For the first 30 years, company focused on the development
and production of complex machines for Japan's silk industry. In 1937, the
company diversified into building cars and in 1939 began manufacturing cars for
the Japanese market. But due to the Second World War it had to stop the
production of cars and concentrated on the manufacture of the looms.The
company shifted its focus back to automobiles with the termination of war and
collapse of cotton market in 1951. In 1952 it manufactured its first motorized
bicycle called 'Power Free'.In 1954, the company changed its name to Suzuki
Motor Co. Ltd. and was by then producing around 6,000 cars per month. With 57
production centers all over world, its manufacturing and assembly network
expanded to over 26 countries all over the world. Company established 22
automotive manufacturing facilities in 17 countries. Suzuki's vehicles were sold
through 134 distributors in 175 countries. By March 2001, Suzuki's net sales

01-111072-194 (M.Rohail Anjum)BBA-6D


were ¥ 1,600, 253 billion and it was one of the top 5 automobile manufacturers of
the world. MUL manufactured passenger cars at its factory in Gurgaon, Haryana
with an installed capacity of 350,000 vehicles. The first product, Maruti 800 was
launched in 1984. Consumers hitherto without any choice rushed to buy the
vehicle. Maruti 800 earned the tag of being the 'people's car...'

Conflict:

» Disinvestment of Maruti, problems in the Joint Venture between Maruti &


Suzuki, role of Government of India in J V, passenger car market in India.The
case gives detailed insight into the disputes between Suzuki Motor and the
Government of India (GoI), joint venture partners in Maruti Udyog Limited (MUL),
an automobile giant in India.
Covering the expansion plan, appointment of Bhaskarudu as the managing
director and the disinvestment of MUL, it describes in-depth the disputes between
the partners

.In August 1997, the Government of India (GoI) appointed R.S.S.L.N.


Bhaskarudu (Bhaskarudu) as the managing director (MD) of India's passenger
car market leader Maruti Udyog Ltd. (MUL). The appointment was strongly
opposed by Suzuki Motors Corporation (SMC) of Japan, the GoI's 50% partner in
MUL joint venture. In a press release following the appointment, Osamu Suzuki
(Osamu), President of SMC, claimed that the appointment was illegal on the
grounds five of the directors who comprised the majority of MUL's board strength
of nine, had objected to the appointment. Suzuki even alleged that Bhaskarudu
was incompetent and unsuitable for the MD post.

The GoI argued that as per the 1992 amendment in the GoI-SMC joint venture
agreement, both the partners were entitled to nominate the MD for five years in
turns, and there was no need for any consultation on it. Industry minister Murasoli
Maran (Maran) alleged that SMC was opposing the appointment of Bhaskarudu

01-111072-194 (M.Rohail Anjum)BBA-6D


as it wanted Jagdish Khattar (Khattar), Executive Director (ED), MUL (reportedly
a SMC loyalist) to become the MD. Following the disagreement over
Bhaskurudu's appointment, a furious exchange of letters took place between
SMC and the Industry ministry. SMC asked for Bhaskurudu's resignation claiming
that the minutes of the meeting when Bhaskurudu was appointed, did not fully
record its objections to the same. However, the GoI refused to remove
Bhaskurudu and reportedly even started looking for a prospective partner in the
event of SMC's exit.

Soon after, in the AGM held on September22, 1997, SMC and the GoI
representatives even resorted to verbal violence.1 SMC nominees on the board
attempted to prove Bhaskarudu's unsuitability of the post by questioning him
regarding MUL's functioning. When Bhaskarudu's appointment was put to vote,
there was a tie. Prabir Sengupta (Sengupta), Chairman of the MUL board, used
his casting vote to ratify the appointment. Following this, SMC nominees passed
a no confidence motion against Sengupta and proposed the name of Yoshio
Saito2(Saito) for the chairmanship.

The GoI strongly backed Sengupta stating that he should be allowed to complete
his scheduled term of five years until 2000. SMC then lodged an arbitration
petition against Bhaskarudu's appointment in the International Court of
Arbitration.3 In June 1998, the new ruling Bharatiya Janata Party (BJP)
government intervened into the issue and arranged for an out-of-court settlement
between the parties.4 As per the settlement deal, Bhaskarudu was to step down
in December 1999, two years ahead of schedule and Khattar was to replace him
in January 2000.5 Further, Saito was to replace Sengupta as the chairman.
Though the dispute between SMC and GoI seemed to have been put to rest for
the time being, the issue did not come as a major surprise to industry watchers.
This was because the company's history was marked with frequent conflicts
between the two partners over the years.

01-111072-194 (M.Rohail Anjum)BBA-6D


My Recommendations:

I think their way of resolving the conflict was not appropriate because this conflict
may have caused financially as well as social damage to both the
companies.Due to this conflict market share of Suzuki maruti may have suffered
and good will have also been destructed.So i think Suzuki and maruti was badly
failed to resolve this conflict in good manner and could have resolve this conflict
in better manner.

When ever these types of joint ventures took place conflicts arises,so I think
when ever this type of situation occurs it must be resolved by mutual consciences
of both the parties.

1. The above mentioned conflict will never occur again if both the companies
Maruti India and Suzuki Japan make a policy that contains democratic
theory of ethics by which every executive post is filled by consciences of
both the parties that will cause a good working environment.

2. This conflict could be resolved by making a policy in such a way where an


executive post should be filled by conducting a lucky draw which should be
crystal clear and transparent so every one should accept this way of job
posting.An advantage of such an activity is that maruti India and Suzuki
japan both the party will agree upon it and there will be lesser conflict in
future.

3. Another way of handling such a conflict is to form a neutral committee


which is responsible for judging the problems faced by the organization
and making ways to resolve those problems, and produce a monthly report

01-111072-194 (M.Rohail Anjum)BBA-6D


to the board of directors.i think this is the best way to solve this type of
conflict situations, because in this method every report of organization is
been delivered to board of directors.

References:

http://www.icmrindia.org/casestudies/catalogue/Business%20strategy1/The%20Maruti
%20-%20Suzuki%20Conflict.htm

01-111072-194 (M.Rohail Anjum)BBA-6D

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