The Maruti saga
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Various reasons have been adduced for Suzuki's recent announcement of new projects in India. Happily a compromise solution has quickly ended the controversy. But there are lingering doubts about its impact on Maruti Udyog and its stakeholders, say the authors.
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Assembly line at Maruti's Gurgaon plant
YET ANOTHER chapter in the volatile saga of the relationship between Suzuki Motor Corporation (SMC) and the Indian Government was written last week with the resolution of the latest dispute over the joint venture Maruti Udyog Limited. The Government had reacted angrily to a unilateral announcement by Suzuki over plans for fresh investment in a car project in India. Top Suzuki officials were hastily sent to India to meet officials and the Heavy Industry Minister, Santosh Mohan Dev, to reach a compromise solution. The net result was smiles all round as Suzuki backtracked, allowing MUL to hold a sizable equity stake in the new projects.
Such a scenario has been repeated several times in the past as Suzuki sought to wrest effective control of the company while the Indian Government thought it must play a dominant role to protect the interests of its taxpayers. The highlight of the episode this time has been the remarkably short period within which the issue was resolved and a compromise arrived at.
This is significantly different from the major spat between the two joint venture partners when the then Managing Director, R. C. Bhargava, retired in 1997 and the Government appointed R. S. S. L. N. Bhaskarudu as Managing Director. Suzuki was keen to appoint the present Managing Director, Jagdish Khattar, in that position especially since the then Heavy Industry Secretary, T. R. Prasad, was appointed MUL Chairman. It had even sought international arbitration since it maintained that the MD's post was their choice under the contract between the two MUL partners. The dispute began during the time of the United Front Government but was ultimately resolved after a year when the NDA Government came to power and the SMC supremo, Osamu Suzuki, personally came to India to meet the then Industry Minister, Sikander Bakht.
Interestingly enough, another key issue raised at that time was that SMC was not prepared to set up a gearbox plant in India, thereby frustrating the Government's hopes of achieving complete indigenisation of Maruti cars. This concern seems to have finally been put to rest with the latest MUL statement mentioning in the last paragraph that production volumes are sufficiently high to warrant considering setting up a gearbox project in this country. The theory that had been propounded in the late 1990s by government officials was that SMC was trying to ensure that Maruti cars would, for all time to come, have to import expensive gearboxes from Suzuki's Japanese plants. With the entire scenario of car manufacturing having now changed and Indian companies looking to become global suppliers of auto components, such fears appear to have been misplaced.
Since then, relations between Suzuki and the Government have been remarkably strife-free largely because the NDA Government took the stance that it should not be in the business of car manufacture which, it felt, rightly belonged in the private sector. Suzuki had already been given 50 per cent shareholding by 1992, a big increase from the initial 26 per cent when MUL was first set up in 1983.
A right issue in favour of Suzuki in 2002 raised its holding to 54.21 per cent. The Government diluted its equity holding further to 18.24 per cent in 2003 when it made an initial public offer (IPO).
The question that now arises is why, despite these amicable ties, did Mr. Osamu Suzuki decided to make a unilateral announcement about setting up a new car project without even the courtesy of consultations with the UPA Government. One reason could be mere complacency as the previous regime had virtually allowed Suzuki to carry out operations without any hindrance to ensure that the company retained commercial viability.
The second reason could be the concern that is rarely voiced, but definitely felt, within the Japanese company that the Suzuki brand name had not made a mark in India. The brand is Maruti in this country for the millions of car being sold by MUL, not Suzuki. It remains to be seen what brand name will be given to the high value cars coming out of the new plant. Most likely these will be known as Suzuki rather than Maruti cars. This will finally remove the feeling that despite Suzuki's phenomenal success in the subcontinent, it has not been able to project its own brand name on this popular car.
In any case, the present Heavy Industry Minister has made it clear that despite the minority shareholding of the Government, it will no longer have a hands-off attitude to the company. This is bound to worry Suzuki but the prime concern of both joint venture partners is profitability, the value of the Maruti scrips and the company's market share.
If these parameters remain on course, it could be a trouble-free ride for MUL over the next few years.
Sushma Ramchandran
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