Maruti Suzuki Ltd.

Competing through Business Models

Submitted by Section B, Group 8 Akshay Kumar Divya Priyanka Sinha Kaushlendra Singh Kuldeep Kumar Piyush Vanjani Sachin Varshney Sravanti Krishna Vaibhav Gupta

Maruti Suzuki Ltd.

Contents
Industry Overview ..................................................................................................................... 3 Automobile Sector: A historical Perspective ............................................................................. 4 Porters Five Forces Analysis .................................................................................................... 6 Trends in the industry (2005 to 2010)...................................................................................... 10 Company Brief ......................................................................................................................... 16 Critical Success Factors and CPM ........................................................................................... 20 Marutis Value Chain ............................................................................................................... 26 Value Loop and Business Model ............................................................................................. 30 References ................................................................................................................................ 39

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Maruti Suzuki Ltd.

Industry Overview
Automobile Sector in India is one of the largest and second fastest growing in the world. This growth could easily be attributed to easy financing options and a broad range of cars in the market. 1. Indian market is the Asias third largest passenger vehicle market 2. The Indian automotive manufacturing industry grew by 20.9% in 2010 to reach a value of $45.3 billion. 3. The production numbers have increased from 8.5 Million units in 2004-05 to 14.1 Million units in 2009-10 at a compound annual growth rate (CAGR) of approx. 11%. 4. Furthermore, the domestic sales increased from 9.7 Million units in 2008-09 to 12.3 million units in 2009-10 (10% growth) 5. The FDI inflow for automobile industry in 2009-10 was $1.2 Billion which is 4% of total FDI in the same year 6. In 2015, the Indian automotive manufacturing industry is forecast to have a value of $66.1 billion, an increase of 45.9% since 2010. 7. Cars is the largest segment of the automotive manufacturing industry in India, accounting for 49.7% of the industry's total value. 8. The Indian Automotive Industry is set to be worlds seventh largest market by 2016 and 3rd largest by 2030 (behind China and US)

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Maruti Suzuki Ltd.

Automobile Sector: A historical Perspective

Pre-Independence to Pre-liberalization
Till 1930s, there was no in-house production of passenger vehicles and the demand was met by import. The first domestic assembly plant was established by Mahindra & Mahindra in 1940s, for Jeep Utility Vehicles with a joint venture with Willys. After independence, the growth in this industry was hampered due to nationalist measures taken and license raj both reasons were a major deterrent for the private industry in India as a whole. During this time, passenger vehicles were considered a luxury with only 2 major players Hindustan Motors and Fiat. It was during 1980s when the industry started to look up. Few Japanese companies like Suzuki and Honda groups came to India looking for JV opportunities. GoI chose Suzuki to form a JV for manufacturing of small passenger vehicles under the brand Maruti Suzuki. This JV changed the face of the industry with Maruti 800 coming in markets within middle class pockets and sufficient production thus increasing the choice for customers.

Impact and Implications of this Era

This era is marked by lack of choices for the consumer both passenger cars and two wheelers. For example, Bajaj which was manufacturing two wheelers had a waiting period of approximately two years due to lack of options and financing opportunities. Agriculture was given the prime importance by the policy makers resulting in increase in production and growth of commercial vehicles and tractors. New JVs increased the market of passenger vehicles and hence provided the customers with more choices apart from Ambassador and Fiat. Furthermore in 1980s, several banks started easier financing schemes for buying a car thereby increasing demand of the industry.

Globalization Era: Liberalization to present

The industry has shown a sustained growth because of entry of new players and increased FDI. The new players which entered the passenger vehicle segment since then are Honda, Hyundai, Tata Motors, Mahindra and Mahindra and Ford etc. They have expanded their

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Maruti Suzuki Ltd. operations both domestically and internationally. The growth of the industry was also boosted by Indias economic growth. The Indian automotive industry started from 1991 with the governments de-licensing of the sector and subsequent opening up for 100 per cent FDI through automatic route. Since then many large global companies have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 14.1 million in 2010. This era also saw several technological breakthroughs Multi Point Fuel Injection (MPFI), Common Rail Diesel Injection (CRDI), Hybrid technology, CNG Engines and so on. The growth in the automobile sector was attributed to increasing incomes of the middle class, increase in the range of vehicles to buy from, increased exports, easier financing, technological breakthroughs and general fall in the price of the automobile. The industry is export driven as well the figure stand at $6 Billion in year 2010, up 32% from $4.5 in 2009. Almost all MNCs are shifting their base to India - due to strong engineering base and expertise for low and fuel efficient cars Now the industry contributes to about 5% of the total GDP currently and this figure is expected to grow to a contribution of 10-11% towards GDP by 2016.

Impact and Implications of this Era

Opening up of FDI resulted in large number of players flowing in Hyundai, Daewoo, Honda and GM etc. All players saw the rising incomes of the middle class and identified a major emerging segment leading to launch of vehicles like Swift, WagonR, Indica, Matiz and Santro etc. This era also saw an increase in the demand for more fuel efficient cars for a price-conscious Indian consumer. This was further aggravated by rising fuel costs and hence between 2006 and 2008, the demand for new cars dropped by a huge margin.. The consumer, thereafter, grown to be more fuel efficient conscious and it is expected that the demand for such and alternate fuel vehicles would increase further. Currently, Suzuki Motors is leading the passenger cars segment with a market share of 46%. Demand Determinants 1. Vehicle Prices 2. Exchange Rate 3. Affordability 4. Technology 5. Demographics 6. Infrastructure

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Maruti Suzuki Ltd.

Porters Five Forces Analysis

To clarify the stakeholders of the Porters five forces analysis of the Automobile Industry of India: 1. Players/Competitors: Vehicle Manufacturers like Maruti Suzuki, Tata Motors etc. 2. Suppliers: Manufacturers of castings, raw materials and components like Munjal Showa. 3. Buyers: Dealerships ultimately leading to the consumer himself

Buyer Power
All vehicle manufacturers sell their product through dealers either self-owned or third party. The dealers, though they have long term contracts in place with the manufacturers, are not in a favorable position to bargain with the latter. This is because dealers are dependent on the manufacturers for product for which they are not high on price sensitivity and would incur high switching costs if they decide to switch. Another reason for high switching costs is that dealers are exclusive ones for any manufacturer and hence they would have to make a lot of efforts to change its alliance. The competition among the buyers is high because they have to sell brands and models preferred by customers. Though they score decently on product differentiation, due to their

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Maruti Suzuki Ltd. small size and unwillingness to backward integration, they are not a major threat to the automobile manufacturers. Hence Buyer Power low to medium

Supplier Power
The suppliers to any manufacturing firm, has collectively neither higher bargaining power nor lower bargaining power. It has high bargaining power in terms of price sensitivity and demand of high quality input. However, it loses out in terms of low differentiation in the inputs, lack of intent and opportunity for forward integration and switching costs. Hence Supplier power medium

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Maruti Suzuki Ltd.

Threat of new entrants

It is pretty difficult to enter into Indian Automobile market as a manufacturer because of high capital outlay required initially and economies of scale required

breaking even quickly. It is important to note that

favorable regulatory framework, increasing infrastructure growth

and high market growth promotes more and more entrants in the market. However, these two are not

favorable enough for small players to enter into the market especially with high distribution requirements, access to better technology and adverse reactions from the existing players with deep pockets. Hence Threat of new entrants low

Threat of Substitutes
The main substitute for automobile industry is from the used vehicle segment. However, keeping car specifically in mind, then two wheelers are also another source of substitute. Especially during a recessionary period, the sales of the two substitutes have gone indicating price sensitivity in the buyers. They would not score high on relative performances and switching costs. Moreover two wheelers are known for their fuel efficiency and hence would have higher number of sales in a price sensitive market. Therefore the threat of substitutes is medium.

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Maruti Suzuki Ltd.

Competitive Rivalry
The industry is fairly competitive with not many players in the large scale serving. The competitiveness increases in the industry with high inventory costs thus no extra production can be done. Furthermore, it being a capital intensive industry, the exit barriers are very high. Finally the players present are both domestic and international player with huge pockets to counter any moves from the other players. However there is some respite in the rivalry with help of very less excess capacity in the production facilities (almost all of them are running at 90% capacity or even more than 100% with extra shifts), low switching costs and low product differentiation. Hence, due to high rivalry, the existing players are looking at ways to grow in not just organic manner but in inorganic as well seen from the Tata Motors acquisition of Daewoo and M&Ms acquisition of Reva. To conclude Competitive rivalry is high.

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Maruti Suzuki Ltd.

Trends in the industry (2005 to 2010)

As already mentioned that India is the 11th largest passenger car market in the world and it is a prominent feature on the global automobile footprint. Like any other country, the passenger cars have the largest market share in the domestic markets. It contributes to a total volume of 78%. Major players in the market are Maruti Suzuki Ltd. Tata Motors Ltd., Hyundai, Toyota, Honda, Ford and GM. With focus of all conglomerates shifting towards the emerging markets like India, there are many new entrants like Mercedes, BMW and Volkswagen etc. to capitalise on the growth prospect of the market.

1.5

Car Sales (in Million) Source: SIAM

0.5

0 2006 2007 2008 2009 2010

The graph shows the sales trajectory of four wheelers in million units. Car sales in India have risen rapidly since 2006 based of strong economic growth and government. Industrial growth has also lead to an increase in the multi-utility and the utility vehicles.

Automotive Industry Trends

Automotive Industry viewed as Locomotive for Growth by SIAM and GoI By 2016, automotive industry is expected to contribute around 10% of the Countrys GDP It has very rapidly expanding consumer base. The regulatory framework in terms of is tax

favourable

structure specifically. Availability of easy finance at

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Maruti Suzuki Ltd. affordable rate have increased the purchasing power of the consumers Favourable government policies like Increased engagements in Free Trade Agreements have boosted the automobile production in the domestic market.

Indian Auto Component industry trends

There are great opportunities for organic growth, however it is difficult to do so because of high competitive rivalry Increasing domestic demand from all vehicle segments (used car market as well) Opportunities for exports increasing manifolds seen by o Global OEMs sourcing from Low cost countries (LCC) o Increasing outbound acquisitions o International Trade liberalization At the same time, Global partners are gaining ground in India o Partnerships/acquisitions of local players e.g., Bosch(KBX), Mahle (Purolator) Component suppliers shifting to module/system suppliers for standardization and thus reducing costs Focus on design and development capability is continuously increasing seen by the increasing focus on the research and development phase Local sourcing giving way to global sourcing as tariff barriers come down and hence would increase quality and would reduce cost of sourcing as well.

Technology Trends
There has been an increase in focus towards following technologies: Fuel efficient cars Light weight construction Lower CO2 emissions Higher acceleration Increasing emphasis on safety More attractive upholstery More & more environment (ELV, Alternate fuels (CNG, LPG, E-10) Hybrid propulsion Plug in electric vehicles Move towards Euro 5 emission norms Drive by wire Voice control GPS Navigation Night Vision Page 11

regulation Asbestos free) Section B | Group 8

compliant

Maruti Suzuki Ltd.

Supply Chain Management Trends

Recent emphasis on global climate change is increasing pressure on automotive executives to make the right decisions in many areas, including R&D and manufacturing. In fact, emissionlevel targets, currently in question, threaten to alter the entire structure of the auto industry. These challenges hit an industry already plagued with high costs, low profit margins, and accelerating competition. Only a handful of established players are consistently delivering satisfactory profits, such as Toyota, Honda, Porsche, and BMW. Meanwhile, many others are undergoing some form of restructuring. General macroeconomic and financial circumstances are not necessarily favourable, either. The cost of energy and raw materials continues to increase due to rising global demand. Strong fluctuations in exchange and interest rates pose another challenge and are difficult and costly against which to hedge. In this dynamic business environment, a superior supply chain is one critical element to helping automakers differentiate themselves from the competition.

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Maruti Suzuki Ltd.

Demand Trends
Uneven Growth between emerging and developed markets
The demand for cars is growing in emerging markets whereas in developed markets, the industry has matured and stabilized. This uneven growth creates issues in the supply chain. Now suppliers must establish a local presence to catch on to these new opportunities in emerging markets. They must be able to tap into the local supply base to take advantage of low cost levels and fulfil local requirements. However, at the same time, they must integrate these local operations into their global supply chain management systems and programs as best practices.

Fragmentation within segments

The traditional segmentation of the industry is not entirely relevant in the industry today. There is more and more fragmentation spreading out on account of various variants being launched in to the market which have created segments within the traditional segments. The new variants are a result of increasing preference for personalization and new customer segments. This provides for an opportunity for operational synergies as well. For example, using an identical gearbox in two different car models does not prevent the manufacturer and its supplier from having to manage the supply chain process on a transparent basis to ensure on-time delivery of the specific gearbox to the specific assembly line in the specific location.

Increased Volatility
Due to increase in choices brands, variants and segments, it is very difficult to predict demand for the new product. Customers want more personalization and because of increased choices, they are now more informed than they would have been in past. As a consequence, there is a definite downshift in customer loyalty. To build loyalty, a better service in terms of flexibility and responsiveness must be incorporated so that suppliers can react quickly to the market dynamics. For this more and more data is required: What product is selling at what price? Which channels are the most profitable and most common? Who is buying what products and when? Page 13

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Supply Trends
Differentiated Outsourcing
Differences in labour costs and disadvantages in scale and scope for both automotive suppliers and manufacturers would ensure outsourcing will continue. This would create opportunities for both automotive suppliers and supply chain management service providers to expand their businesses together.

LCC Sourcing
As discussed before, sourcing from LCC is very important for global OEM providers. However for an industry which is quality sensitive as well, lowest price isnt everything, they need to look at logistics, quality of work, and management as well. This approach may be referred to as best-cost-country sourcing for want of a better word. This would provide SCM providers another business opportunity.

Risk Management
There is no doubt in this volatile world that the risks have increased or there is a want for better risk management practices in all industries. The whole supply chain must come up with alternatives for their activities in case of any disruption. Hence, it leads to requirement of increased transparency so that risks can be identified early and managed.

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Maruti Suzuki Ltd.

Recent Key Developments

New Launch: Toyota Kirloskar Motor launched a new variant of its premium sedan Corolla Altis in both petrol and diesel options. The petrol variant is priced at Rs 10.53 lakh to Rs 14.77 lakh, while the diesel option will be available for Rs 11.46 lakh to Rs 14.55 lakh. New Launch: Toyota is planning to launch its luxury car Lexus in India. The company is also looking to kickstart its car finance division, Toyota Financial Services, to boost sales. Production: Ford Motor Company began production of its global Ford Fiesta at their manufacturing facility at Maraimalai Nagar, Chennai. The city-based facility is the sixth plant for Ford to produce Fiesta model. Besides here, Ford Fiesta has also production bases in China, Germany, Spain, Mexico and Thailand. Variant Launch: Honda City is going for a makeover to counter rising competition and falling sales, after an Rs 66,000 price cut a few days back. A new version of the City is expected by the festival season (around October) which would sport changes both in the interior and on the exterior. Player Entry: France-based automobile manufacturer PSA Peugeot Citroen (PSA) is planning to re-enter the Indian market. The player is still mulling over three locations (Tamil Nadu, Gujarat and Andhra Pradesh) to set up an Rs 4,000-crore manufacturing facility in India. Production: Maruti Suzuki will shift production of Swift DZire to its Gurgaon facility from Manesar, where a labour strike last month hit production. The company will carry out layout changes at its Gurgaon plant to facilitate the sedan's rollout. Product Re-branding: Maruti Suzuki Ltd plans to launch a new, costlier version of the Swift car under a new brand towards the end of August. The price range of the new model is expected to be higher than the current Swift model.

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Maruti Suzuki Ltd.

Company Brief
Maruti Suzuki is a subsidiary of Suzuki Motor Corporation and one of the biggest players in automobile industry in India. The focus of the company is towards passenger car segment. The company has 2 manufacturing plants, one in Gurgaon and another one at Manesar. The company also facilitates pre-owned car sales, car financing and fleet management. Maruti Suzuki maintains 13 brands in its portfolio with around 150 variants. The brand portfolio contains mix of domestic and international brands across various segments like SUV, Sedan, Hatchback and Small Car segment. Maruti 800 Omni Alto A-star WagonR Swift Ritz Estilo Gypsy Grand Vitara SX4 DZire Eeco

The company has 5 subsidary namely Maruti Insurance Business Agency Ltd. Maruti Insurance Distribution Services Ltd. Maruti Insurance Agency Solutions Ltd. Maruti Insurance Agency Network Ltd. Maruti Insurance Agency Services Ltd.

The revenue of FY2010-11 was clocked at Rs. 368.12Billion. This was an increase of 24% as compared to previous year. The Net income showed a decrease of 9% at Rs. 238 Lacs. The primary reason for the decrease of net income was decrease in net loss on sale of fixed assets, interest expenses, absence of doubtful debt provision, lower rental expenses, loans & advances and claims.

Sales Analysis
During the year ended March of 2011, sales at Maruti Suzuki India Ltd were 368.12 billion Indian Rupees (US$8.27 billion). This is an increase of 24.4% versus 2010, when the

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Maruti Suzuki Ltd. company's sales were 295.92 billion Indian Rupees. This was the fifth consecutive year of sales increases at Maruti Suzuki India Ltd (and since 2006, sales have increased a total of 205%). The company currently employs 7,159. With sales of 368.12 billion Indian Rupees (US$8.27 billion), this equates to sales of US$1,154,898 per employee.

Recent Sales (Billion INR)

400 350 300 250 200 150 100 50 0 2006 2007 2008 2009 2010 2011 121 181 147 207 296 368

Profitability Analysis
On the Rs. 368.12B in sales reported by the company in 2011. Some other key highlights of the profitability analysis are as following The cost of goods sold totalled Rs. 338.70B, or 92.0% of sales (i.e., the gross profit was 8.0% of sales). This gross profit margin is lower than the company achieved in 2010, when cost of goods sold totalled 79.3% of sales. The gross margin in 2011 was the lowest of the previous five years. Gross profit margin of 8.0% was lower than all three comparable companies (which had gross profits in 2011 between 12.1% and 19.5% of sales). In 2011, earnings before extraordinary items were Rs. 23.82B, or 6.5% of sales. The company's return on equity in 2011 was 19.6%. This was significantly worse than the 27.4% return the company achieved in 2010.

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Maruti Suzuki Ltd.

Year

Sales Amount (Lacs) Y-O-Y Growth 5.20% 2.60% 29.50% 16.90% 10.10% 21.80% 23.00% 14.10% 43.20% 24.40%

COGS Amount (Lacs) 5,95,950 5,94,200 7,31,850 8,59,740 9,30,670 11,24,690 14,23,780 17,16,630 23,47,610 33,87,040 % of Sales 84.30% 81.90% 77.90% 78.30% 77.00% 76.40% 78.60% 83.10% 79.30% 92.00%

EBITDA Amount (Lacs) 57,000 69,860 1,39,110 1,83,880 2,07,320 2,61,850 3,17,240 2,46,670 4,54,570 4,19,500 % of Sales 8.10% 9.60% 14.80% 16.80% 17.20% 17.80% 17.50% 11.90% 15.40% 11.40%

PAT Amount (Lacs) 10,450 14,640 56,090 88,010 1,21,910 1,58,830 1,78,990 1,22,740 2,62,470 2,38,240 % of Sales 1.50% 2.00% 6.00% 8.00% 10.10% 10.80% 9.90% 5.90% 8.90% 6.50%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

7,06,770 7,25,350 9,39,400 10,97,700 12,08,770 14,72,170 18,10,410 20,66,380 29,59,150 36,81,170

Financial Position
As of March 2011, the company's long term debt was 4.54 billion Indian Rupees and total liabilities (i.e., all monies owed) were 47.91 billion Indian Rupees. The long term debt to equity ratio of the company is very low, at only 0.03.

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Maruti Suzuki Ltd.

Balance Sheet (Common Size)

Fiscal Year Total Assets Cash & Short Term Investment Cash Short Term Investment Receivables (Net) Inventories (Total) Raw Materials WIP Finished Goods Progress Payments Prepaid Expenses Other Current Assets Current Assets (Total) Investment (Associate Companies) Other Investments Property & Equipment Accumulated Depreciation Property & Equipment (Net) Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets Total Liabilities Accounts Payable Short Term Debt Accrued Payroll Income Taxes Payable Dividends Payable Other Current Liabilities Current Liability (Total) Long Term Debt Deferred Taxes Other Liabilities Total Liabilities Non-Equity Reserves Minority Interest ESOP Guarantees Common Equity Total Liability & Equity 2010 Assets 1,68,835.00 1.00% 0.70% 0.20% 10.10% 7.30% 0.20% 0.20% 2.20% 4.60% 0.00% 4.90% 23.20% 2.90% 40.90% 65.00% 32.20% 32.90% 0.10% 0.00% 0.00% 0.10% 100.00% 1,68,835.00 13.90% 3.70% 0.40% 0.40% 0.00% 7.30% 24.90% 2.10% 0.90% 0.00% 27.80% 0.00% 0.00% 0.00% 72.20% 100.00% 1,39,825.00 14.20% 1.80% 12.40% 15.30% 6.60% 3.90% 0.40% 1.20% 1.10% 0.00% 4.10% 40.20% 3.00% 20.40% 69.90% 33.50% 36.40% 0.00% 0.00% 0.00% 0.00% 100.00% 1,39,825.00 18.60% 1.50% 0.40% 0.40% 0.70% 4.50% 26.20% 4.30% 1.10% 0.00% 31.60% 0.00% 0.00% 0.00% 68.40% 100.00% 1,25,809.00 3.00% 3.00% 0.00% 9.30% 8.30% 2.70% 0.40% 4.30% 1.00% 0.00% 4.70% 25.50% 2.80% 39.00% 64.60% 31.90% 32.70% 0.00% 0.00% 0.00% 0.00% 100.00% 1,25,809.00 6.90% 6.00% 0.40% 0.10% 1.20% 11.20% 25.80% 4.30% 1.40% 0.00% 31.40% 0.00% 0.00% 0.00% 68.60% 100.00% 1,03,614.00 13.90% 1.20% 12.60% 10.50% 7.00% 3.40% 0.30% 2.20% 1.20% 0.00% 6.40% 37.70% 2.20% 31.70% 62.30% 33.90% 28.40% 0.00% 0.00% 0.00% 0.00% 100.00% 1,03,614.00 8.90% 1.50% 0.40% 0.90% 1.30% 11.90% 24.90% 5.90% 1.70% 0.00% 32.40% 0.00% 0.00% 0.00% 67.60% 100.00% 84,206.00 23.60% 0.70% 22.90% 10.90% 10.60% 3.40% 0.30% 5.80% 1.10% 0.00% 5.50% 50.60% 2.10% 23.00% 63.30% 38.90% 24.30% 0.00% 0.00% 0.00% 0.00% 100.00% 84,206.00 7.50% 1.30% 0.40% 1.10% 1.20% 13.40% 25.00% 7.80% 1.00% 0.00% 33.70% 0.00% 0.10% 0.00% 66.20% 100.00% 2009 2008 2007 2006

Total Liability & Shareholders Equity

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Critical Success Factors and CPM

Critical Success Factors
To build business strategy for any firm, sustainable competitive advantage is the key for a successful strategy and implementation. The sources which help to establish this competitive success are called Critical Success Factors (CSFs). These are arrived at with help of the following table: What do customer wants Passenger Cars Low price Comfort Style Mileage Security Interior How do firm Survive Competition High fixed cost Excess Capacity Exit Barrios Strong Financial Market Share Product Quality Management Global Expansion Financial Position R&D Focus Customer Service Price Competitiveness Customer Loyalty Sales Distribution Production Capacity Critical Success Factors

Resources required

Market Share
Rationale for market share as a CSF is that it is a direct indication how well the company has done by showing the number of units or revenues generated by the sales. It also gives a launch pad for the player in terms of existing customers who are the main source for word of mouth publicity and the repurchases. Hence more the market share, stronger the business is. Market share of Maruti in Passenger segment is 46.07%, Tata Motors 16.45% and Hyundai 14.15%.

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Maruti Suzuki Ltd.

Product Quality
Every customer cares about the product quality especially when the customer is highly informed. Customer instead of making decisions based on brand; now consider quality as a major key driver. Moreover higher the product quality lowers the maintenance charges. Over the years Maruti created a faith in its customers that it provides good quality products. The major improvement in product quality they have managed is the improvement in braking performance by using the brake noise chassis Dynamometer. Another one to be noted is hydraulic actuators for better braking. Product quality of Hyundai and Tata is also above average.

Global Expansion
Global Expansion means how much a company expanding and exporting globally. Export markets are important because a large percentage of sales is coming through this channel. Till now Maruti doesnt have production capacity outside India but its partner has the production facility outside India. But if we look from export point of view then Maruti is rising very sharply. In 2009-2010 they reported 111% growth in its export sales. They exported 147575 cars in 2009-10 FY. Global sales for Passenger vehicles for Tata Motors were 568263 units but they score high on account of JLR account. Hyundai has the highest export units from India hence it scores high on this factor.

Financial Positions
It is very essential to have sufficient finances for the operational expense and maintain inventory. Moreover, abundant finances are required for capacity expansions and to counter any competitive move from a competitor. Maruti and Hyundai both are enjoying good profit from many years so they have good financial strength. Tata Motors is the market leader in the Commercial vehicles and having the back up of Tata group, would not face this issue.

Technology
R & D is an important factor to focus. It is generally useful to come up with new technologies and low cost production/assembly for vehicles which results to the overall cost reduction of vehicle which beneficial for both company and customer. R & D is also being capable of doing minor changes and co-design activities with SCM for a new model. Now they are developing the capability to change the full body of car. Maruti is enhancing their engine

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Maruti Suzuki Ltd. capabilities and have produced new K12 and G12 Engines. R & D also helped them to upgrade their vehicle to the level of BS-IV norms. Hyundai also invest a high amount on its R & D department in India which was not present earlier.

Customer Service
Customer Service is key success factor because in automobile post sales services are very crucial nowadays with the new well informed customer. In the study Customer Service Index of automobile in India by JD Power Asia Pacific 2010, Maruti Suzuki scored the highest rank on the following seven parameters of service quality: delivery process, delivery timing, salesperson, sales initiation, dealer facility, paperwork and deal. Maruti Suzuki scored 849 points at scale of 1000. Industry average was 812. On this scale Hyundai scored 785 and Tata Motors scored 779.

Price Competitiveness
Price is always a primary factor to effect the buying decision for the price conscious Indian Consumers. Maruti has reach in the all price segments with sufficient product variety. After the launch of Tata Nano Tata became lowest price car provider. Hyundai has little higher price range. So Maruti and Tata is still the first choice of customers due to their low price and product availability.

Customer Loyalty
Customer loyalty is very important for automobile industry. Customer Loyalty is completely depending on the post sales services and the dealer services. More the customer satisfied with its dealer more he will refer to others that particular dealer. According to that J D Power Survey 86% of the highly satisfied customer says that they will revisit the dealers for the post warranty service. According to this survey as mentioned above Maruti scored more than its competitors. Even in remote places of India customers still think passenger cars means Maruti only. However as explained earlier, this loyalty is now being built on better service, quality and fast response not word of mouth as it was earlier.

Sales Distribution
The sales distribution or the dealership is very critical for success of company. Unlike retail or FMCG industry the automobile industry usually require dedicated brand specific dealrer

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Maruti Suzuki Ltd. showrooms. Having the first mover advantage in Indian market, Maruti has a very strong dealership network. Tata Motors also has a strong dealership network because of its commercial vehicle market. However, being an external and relatively new player in Indian market, Hyundai still needs to grow its dealership market in tier two, three cities and remote towns.

Production Capability
It is very simple that more the production, more chances of making sales and bigger economies of scale. This way it would be easier to cope up with the ever fast growing automobile market. Total Capacity of Maruti is 1.25 million units. Maruti already invested 3625 Cr for two new plants which will be ready by 2013 and the production capacity will increase to 1.75 million. They have also announced that they will invest Rs 12000 Cr for plant of 2 million new capacities in Gujarat. This will give them competitive edge from export point of view. It is clear that Maruti has higher production capacity than its competitors in terms of passenger car market.

Competitive Profile Matrix

Competitive Profile Matrix is a comparison tool which compares a companys performance on critical success factors against its competitor. Here CSFs can be considered as both Internal and External Environmental Factors. Ratings represent the performance of firm for that particular CSF. Its range is taken as 1-4 where 1 is poor response and 4 is best response. Weightage is the importance of that particular CSF in the industry. Then finally the total weighted average is taken which forms the overall score for a firm. The rating points given below are according to the description given above in the Critical Success Factors.
Tata Motors (Passenger Cars) Rating Score 3 0.45 4 0.6 3 0.24 4 0.28 3 0.24 2 0.10 3 0.24 4 0.48 2 0.12 Maruti Suzuki Rating 4 4 3 2 3 2 4 4 4 Score 0.60 0.60 0.24 0.14 0.24 0.10 0.32 0.48 0.24 Hyundai Rating 3 4 3 3 3 3 2 3 2 Score 0.45 0.60 0.24 0.21 0.24 0.15 0.16 0.36 0.12

Critical Success Factors Market Share Product Quality Management Global Expansion Financial Position R&D Focus Customer Service Price Competitiveness Customer Loyalty

Weight 0.15 0.15 0.08 0.07 0.08 0.05 0.08 0.12 0.06

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Maruti Suzuki Ltd. Sales Distribution Production Capacity

0.07 0.09 2 2 0.14 0.18 3.07 4 3 0.28 0.27 3.51 1 3 0.07 0.27 2.87

So here according to the total weighted score Maruti is dominating over Tata Motors and Hyundai Motors in Passenger car segment particularly.

Other Major Success Factors of Maruti Suzuki

Export potential
Currently Maruti is exporting A-star car through Mundra Port. Its total export part is around 7% of its total sales. They also announced that they will invest Rs 12000 cr for plant of 2 million new capacities in Gujarat. This will give them competitive edge from export point of view. First phase of this project will be completed in 5 years. This will produce 5 million cars.

Rapid adjustment of capacity to sales

The total sale of Maruti in 2010-2011 financial years is 966447. This is which is near 80% of its current production capacity. So they have 20% spare capacity to increase the output according to the passenger car market growth. Also the new plant are coming in future

Employee Development
Company is also focusing on the employee development. They provided training to its employees around 46200 man days.

Energy Saving Initiatives

Maruti took various steps to save the energy like LEDs, Variable frequency starter for motors, Automatic group controller for compressors etc. These steps helped them to reduce the energy and water consumption in Gurgaon plant by 2% and 9% respectively. For Manesar plant the numbers were 22% and 27%.

Technology Absorption, Adaptation and Innovation

They are very fast to adapt and absorb the new technologies; this helped them to increase the localization content in vehicle which resulted to low cost. This is a basic requirement in the small car segment.

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Maruti Suzuki Ltd. This technology adaptation also resulted to increase the comfort and style content in the cars. These qualities are also comes under primary requirements of the customers. They also focused on the quality improvement and the weight reduction of the vehicles. They were also focusing on the cost reduction of the parts of new models from day one so it can be profitable for both company and customers.

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Maruti Suzuki Ltd.

Marutis Value Chain

A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value. The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities so that the company can charge a premium price for the product hereby resulting in a profit margin.

Primary Activities
Supply Chain
Maruti has 246 local suppliers & 20 global suppliers. 86% of the suppliers are located around a 100 Km radius. They follow JIT inventory system & they keep advance material for not more than 2 hours. The vendors keep an unending supply of key components. The input primarily comprise of raw materials & components.

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Maruti Suzuki Ltd. The global suppliers send 60 components every week. The Indian management is responsible for shipping of those components from Japan. The company develops a detailed & precise shipping plan, thus having a better control over the shipments. For the suppliers that are within the walls of Maruti factory, the automaker follows Kanban system and maintains a two hour replenishment rate.

Quality Aspect
They follow a cluster approach for vendors where vendors are grouped together & are trained in quality management. They do a periodic vendor quality audit. Also they have a program called shikhar in which performance of each vendor is measured & those with defects above a specified limit are retrained & educated. A few other initiatives for performance measurements are in various key Result Areas (KRAs) which are applied to managers, suppliers, dealers, etc. with different parameters for each category. They practice Kaizen to ensure that there is no slip in the quality of products. Each and every component & process is thoroughly observed to identify gaps & scope for improvement. These gaps are later plugged gradually.

Distribution & Transport

Maruti has the most connected and largest dealer & aftermarket network. They have 877 sales outlets, 2885 workshops & 346 True value dealers. The transportation mostly relies on trucks & trailers (90%), the remaining 10% is covered by rail. Maruti has a policy of changing trailers & trucks that are more than 4 years old. The finished goods are carried across the country by more than a 100 LSPs. The company avoids larger LSPs and favors the smaller ones who have the fire to grow with the company & become a part of its supplier base.

Production System
The production system of Maruti is highly efficient in predicting the demand. They plan meticulously and once they decide on a number, they stick to it. Their predictions are neither

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Maruti Suzuki Ltd. to optimistic nor too pessimistic. They take regular feedback from their dealers to get the number right. If a new product has to be developed, they always first pursue existing vendors. However if the existing vendors are not able to satisfy the need, then Maruti starts to look for a new vendor. Maruti is opening two new production lines in Manesar

Marketing
The increased marketing has helped Maruti to increase its sales in south and in other regions. Maruti advertises about both the umbrella brand and the individual models launched. Maruti majorly focuses on ATL marketing. The various media used by Maruti are: Television, Print, & digital (social media, mobile, search engine). Maruti has increased its focus on digital and recently doubled its spending from Rs. 48 miilion last year to Rs. 92 million this year. Maruti is working closely with Google to have a more focused foray into the digital media. Customer Service: The Companys major focus is on providing supreme customer service. The company takes utmost care of its customers by providing them with services like car finance, car insurance and sale & purchase of pre-owned cars. They ensure that the customer get the products of utmost quality at best possible price by reducing cost and improved quality across value chain. Marutis service network is vast and it is one of the top rated companies by the customers in terms of service. Maruti has a network of 2,946 service centers in 1,395 cities & towns of India.

Support Activities
Human Resources
The company employs 7000 plus employees in various offices. The company is trying to increase the percentage of women employees by promoting the existing ones to senior positions and filling the gaps these promotions create by employing more women. The company runs an all women industrial training institute in Gurgaon. The company is involved in various CSR initiatives like road safety & vocational training programs. Keeping in mind the road safety issues the company has also started 83 driving schools across country. The company has also adopted villages in Manesar, and is responsible for the development of healthcare & education in these villages

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Maruti Suzuki Ltd.

R&D
Maruti constantly seeks innovation keeping in mind the green initiatives like CNG. The R&D at Maruti focuses on Research and Development for passenger cars including test tracks and Suppliers' Park for Vendor companies of Maruti Suzuki India Limited. They are currently doing lot of research on Hybrid & electric cars. Maruti is investing around 10 billion to 15 billion to open a hi-tech R&D complex in Rhotak.

Information System
Marutis efficient supply chain is credited to its e-nagare system. This system helps Maruti maintain JIT inventory, immediate response to market variations & incessant production. All the vendors are linked to the system and the system maintains information regarding order status, delivery instructions thus reducing inventory levels & lead time. Once the stocks in the bins get used up the information is sent to the vendor using the system and the stocks get replenished. Maruti also uses a dealer management system, which helps them stay connected to all their dealers. This helps dealers in better servicing the clients as they are aware of the scheduling that happens inside the plant. The system helps dealers to place orders and also to give regular feedback on the demand in market.

Warehousing
Maruti has a single warehouse in Gurgaon. All the components of finished goods are stored here. The warehouse is fully automated with loading, unloading & carrying equipment. The systems ensure on-line material identification, capture of First-in-First-Out movement, periodic stock taking and inventory carrying cost analysis. It is from this warehouse, where the finished goods are distributed to various dealers.

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Maruti Suzuki Ltd.

Value Loop and Business Model

Value Loop

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Maruti Suzuki Ltd.

Business Model

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Maruti Suzuki Ltd.

Value Loop
The value loop for the Maruti Company represents the fundamental logic of value creation and value capture. At a high level aggregation, this includes 3 choices and 10 consequences. The choices are namely1. Extensive Organized Dealer Network This choice leads to a consequence of Superior Customer Service which can be changed with change in the choice. 2. Extensive Service Centre network This choice leads to a consequence of Superior Customer Service which can be changed with change in the choice. 3. R & D This choice leads to a flexible consequence of Innovation which can be readily changed with change in degree of R& D used by Maruti.

These choices lead to consequences of which some are sensitive to the choices that generate those (Flexible Consequences) and some do not change rapidly with choices that generate them (Rigid Consequences).

Flexible Consequences
1. High Willingness to Buy: Maruti has extensive Organized Dealer Network and extensive service Centre network that lead to Superior Customer Service for the customers as they are served better and this in turn increases their willingness to buy a car/product from the Maruti Dealers. Proven products and brand firstly increase the comfort level of the customer in buying from Maruti dealers and in turn increases willingness to buy and secondly develops a confidence in Maruti products thus these products have high resale value and high willingness to buy. 2. Superior customer Service: When there is extensive organised dealer network and extensive service centre network, customer gets a good service from Maruti dealers. Eventually the customer tends to be more at ease with the thought of buying the product. Hence the willingness to pay is high. 3. High Volume: High Willingness to buy by the customer translates in high volume of sale of Maruti Products. 4. Economics and scale and scope: A high volume of sale of Maruti products on one hand create high Market share and on the other hand help Maruti to develop economies of scale and scope.

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Maruti Suzuki Ltd. 5. Low cost: Economics and scale and scope help Maruti lower its cost of production. 6. High Profit: When the cost of production is low, Marutis margins increase and it attains high amount of profit. This further creates a feedback loop to generate Extensive Organized Dealer Network and Extensive Service Centre Network. 7. High Quality Standard: High profit creates high disposable income to invest in quality and effectiveness of the product and thus quality standard of the product increases. This further increases the willingness to buy by the customer. 8. Innovation: R&D leads to improvement of product and services due to innovation. This further increase a consumers willingness to buy. 9. High Resale value: When the brand of Maruti is established, it creates a confidence among the buyers about the product performance and thus they are willing to buy the product even at a higher price.

Rigid Consequences
Proven Products & Brands: High quality standard of Maruti products increases the product performance and brand value. Brand equity and consumer confidence about the product takes a long time to build and thus forms a rigid consequence. Minor changes in the choices leading to this consequence would not be able to easily alter it.

Business Model
Business Model is a more detailed view of the choices and consequences. Thus while relating a particular consequence to a choice; we come across numerous other intermediate choices that Maruti has made to reach the final goal.

Choices
1. Extensive Organized Dealer Network: This choice leads to a consequence of Superior Customer Service which can be changed with change in the choice. 2. Extensive Service Centre network: This choice leads to a consequence of Superior Customer Service which can be changed with change in the choice. 3. R & D: This choice leads to a flexible consequence of Innovation which can be readily changed with change in degree of R&D used by Maruti. 4. Open Communication Policy: This leads to ownership motivation and pride.

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Maruti Suzuki Ltd. 5. Common Platform for Employees: This helps the employees to develop more pride in their work and motivation to carry on the job at Maruti. 6. Location of suppliers: This helps to determine the effectiveness of Just in time operations. 7. Small LSP: When the LSP are small they have less bargaining power and are dependent on Maruti and want to grow with it. 8. Controlling sourcing globally: This helps to determine the effectiveness of Just in time operations. 9. Easy car finance and insurance: This creates an ease of purchase environment for the customer and his willingness to buy increases. 10. Kaizen: This helps to determine the effectiveness of Just in time operations. 11. Plant Expansion: With increase in the size of the plant, there is more option to produce a number of products thus increasing the product mix. Also a big plant can house the supplies and the suppliers lowering the lead time. 12. Japanese Management Style: This leads to the adoption of specific methods like Kaizen, localization of suppliers and controlling source globally. This also leads to small LSP. 13. Reasonable Price: If the price of the product offered by Maruti is low, it eventually leads to high willingness of the customer to buy the product. 14. Easy car Finance and Insurance: This creates ease of purchase and thus high willingness among customers to buy. 15. CSR Activities: High Profit margin helps in investing a part of profit into CSR activities as well which in turn improve the brand equity.

Flexible Consequences
1. High Willingness to Buy: Maruti has extensive Organized Dealer Network and extensive service Centre network that lead to Superior Customer Service for the customers as they are served better and this in turn increases their willingness to buy a car/product from the Maruti Dealers. Proven products and brand firstly increase the comfort level of the customer in buying from Maruti dealers and in turn increases willingness to buy and secondly develops a confidence in Maruti products thus these products have high resale value and high willingness to buy. 2. Superior customer Service: When there is extensive organized dealer network and extensive service center network; customer gets a good service from Maruti dealers. Section B | Group 8 Page 34

Maruti Suzuki Ltd. Eventually the customer tends to be more at ease with the thought of buying the product. Hence the willingness to pay is high. 3. High Volume: High Willingness to buy by the customer translates in high volume of sale of Maruti Products. 4. Market Share: High volume of products helps to increase Marutis market share which in turn increases Marutis bargaining power in the market as well as gives its the mettle and resources to develop an extensive organized dealer network and extensive service centre networks. 5. Higher Bargaining Power: Increase in market share leads to high bargaining power to Maruti and this helps to lower its costs. 6. Awards: High quality standards lead to attainment of awards and recognitions which in turn increases brand equity. 7. Economics and scale and scope: A high volume of sale of Maruti products on one hand create high Market share and on the other hand help Maruti to develop economies of scale and scope. 8. 9. Low cost: Economics and scale and scope help Maruti lower its cost of production. High Profit: When the cost of production is low, Marutis margins increase and it attains high amount of profit. This further creates a feedback loop to generate Extensive Organized Dealer Network and Extensive Service center Network. 10. High Quality Standard: High profit creates high disposable income to invest in quality and effectiveness of the product and thus quality standard of the product increases. This further increases the willingness to buy by the customer. 11. Innovation: R&D leads to improvement of product and services due to innovation. This further increase a consumers willingness to buy. 12. High Resale value: When the brand of Maruti is established, it creates a confidence among the buyers about the product performance and thus they are willing to buy the product even at a higher price. 13. Strong Relationship: When companies/suppliers grow along with Maruti, they together develop a strong relationship. This also reduces cost. 14. Lower Lead time: Plant expansion helps to reduce lead time. 15. Better product Mix: Plant expansion also helps to expand the operations of the company and thus develop a diverse product mix. 16. Risk Sharing: Strong relationship among Maruti and its suppliers lead help in sharing the market risk. Section B | Group 8 Page 35

Maruti Suzuki Ltd. 17. Efficient SCM: JIT operations help in creating a system of efficient supply chain management. 18. Flexibility: Risk sharing among the suppliers and the company, gives more flexibility to the organization in determining its future goals and day to day operations. 19. Training and capability building: High profit increases the opportubity to train and build capability of employees which in turn leads to high quality standard. 20. Customer Intelligence: Training and capability building leads to customer intelligence which further guides innovation initiatives. 21. Lower retention and acquisition cost: Ownership motivation and pride reduces the retention and acquisition cost among employees. 22. Improved Product Management system: Ownership motivation and pride leads to improved product management system.

Rigid Consequences
a) Proven Products & Brands: High quality standard of Maruti products increases the product performance and brand value. Brand equity and consumer confidence about the product takes a long time to build and thus forms a rigid consequence. Minor changes in the choices leading to this consequence would not be able to easily alter it. CSR activities and awards also add to the brand equity. b) Ownership, Motivation and Pride: Common Platform for employees and open communication policies increase the ownership, motivation and pride among employees. This further leads to high quality standard, low retention and acquisition cost of employees and Improved Product management system.

Business Model Effectiveness- Analysis in Isolation

1. Alignment of Goal The basic goal of Maruti to provide high value based products and services to its customers and in turn create maximum profit for its shareholders. We can see that the business model choices are delivering the consequences that lead to the objectives and goals of Maruti. For instance we can see that Maruti has made the choice of having extensive organized dealer network and extensive service center network which lead to superior customer service and in

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Maruti Suzuki Ltd. turn high willingness to buy for the customer. Thus Maruti can sell high volume of products and can have economies of scale and scope. This will reduce Marutis cost and increase its profits, i.e both its goals are satisfied in this manner. 2. Virtuousness When we look at the business model of Maruti we see that there are positive feedback loops. These loops help business model of Maruti to gain strength over time. We see from Marutis business model that the choice of investment in R&D leads to innovation which in turn increases customers willingness to buy. Thus High volumes of Marutis products are sold leading to economies of scale and scope. This helps to save cost and increase profit. Higher profit can further used to invest and improve R&D. We can also see that Maruti made a choice to use extensive organized dealer network and extensive service center network. All of these led to superior customer service and high willingness among customers to buy. High volume of products were sold leading to economies of scale and scope which further lead to low cost and high profit and further investments to have extensive organized dealer network and extensive service center network. These two instances corroborate the fact that a positive feedback loop was used in the business model and that eventually strengthened the Operations at Maruti. 3. Robustness It is the ability of an organization to sustain the effectiveness over time with help of following factors: a) Imitation: The presence of rigid consequences like proven products and Brands and Ownership, Motivation and pride make it difficult for the competitor to copy. i. Proven products and Brands Brand equity is difficult to establish but when it is firmly entrenched in the products of a company, it cannot be replicated easily. It is the differentiating factor of a company and in this case Maruti has a strong brand name due to the awards it has achieved and due to first mover advantage. ii. Motivation and pride It is difficult and time consuming to instill motivation and pride among employees. Maruti has done it through open communication

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Maruti Suzuki Ltd. policy and creating a common platform for employees. Thus due to compression diseconomies its difficult to imitate by the competitor. b) Hold-up: Maruti has high bargaining power owing to high market share. As a result it has suppliers making it easier for Maruti to walk away from a particular relation with trading partners. Thus the hold-up is low. c) Slack: There are chances that a slack might develop in the company as there is no strong incentive or monitoring system. There is ownership motivation and pride (rigid consequence) among the employees that is not adequate enough to do away with complacency in case it arises. d) Substitution: There is low threat to substitution in the products supplied by Maruti. There is high willingness to buy among consumers due to choices of Business model like reasonable price and easy car finance and insurance. Consequences in business model like high re-sale value, proven products and high brand equity and high quality standard. The business model can increase its plasticity by removing rigid consequences to remove the threat of substitute completely.

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Maruti Suzuki Ltd.

References
1. ACMA Report on Growing capabilities of Indian Auto Component Industry, June 2011 2. 3. 4. 5. 6. 7. 8. 9. Annual Reports 2008-09, 2009-10 and 2010-11 Business Monitor Autos Report, Q3 2011 CISCOs Trends in the Automotive Industry February 2008 CRISIL Automobile Industry Analysis Reports Data Monitor Report on Indian Automobile Market, February 2011 IBEF Report on Automobile Market, November 2010 JD Power rankings 2010 NDTV news piece Maruti plans 20 lakh capacity plant in Gujarat June 2011 http://www.youtube.com/watch?v=mWdieI23N4Q 10. News article on Maruti Suzuki Supply Chain January 2011
http://logisticsweek.com/feature/2011/02/eye-for-innovation/

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