1. Introduction ........................................................................................................................................................ 3 2. Industry Overview and Structure ........................................................................................................................ 3 3. Company Overview ............................................................................................................................................. 4 4. Company Strategy .............................................................................................................................................. 5 4.1. Generic Strategy .......................................................................................................................................... 5 4.2. Strategic Initiatives ...................................................................................................................................... 5 4.3. Competitor Strategy .................................................................................................................................... 6 5. Brand Positioning ................................................................................................................................................ 6 6. Resource-based View of Maruti Suzuki .............................................................................................................. 7 6.1. VRIN Framework .......................................................................................................................................... 7 6.2. Tetra-Threat Framework ............................................................................................................................. 8 7. Future Scope and Recommendations ............................................................................................................... 10
1. INTRODUCTION
The Indian Automotive Industry comprises of the automobile and the auto component sectors and includes passenger cars; light, medium and heavy commercial vehicles; multi-utility vehicles such as jeeps, scooters, motor-cycles, three wheelers and tractors; and auto components like engine parts, drive and transmission 1 parts, suspension and braking parts, electricals, body and chassis parts, etc. The Automobile segment manufactures over 11 million vehicles and exports around 1.5 million vehicles each year. The dominant products of the industry are two wheelers (approx. 75% market share) and passenger vehicles. About 91% of the vehicles sold are used by households and only about 9% for commercial purposes. The industry has attained a turnover of more than USD 35 billion and provides direct and indirect employment to over 13 2 million people. On 31-Mar-2010, passenger vehicles contributed to 15.34% of the automobiles in the 3 country. The industry under study is the passenger car segment of the automobile industry. Maruti Suzuki India Limited ("Maruti"), the incumbent under consideration was established in 1981 and is the 2 country's largest passenger car manufacturing company with a market share of 46%. It reported consolidated 4 revenues of $4.8 billion in 2010 and manufactures cars in all segments - passenger cars, SUVs and sedans.
http://business.gov.in/Industry_services/automobile_industry.php http://www.imaginmor.com/automobileindustryindia.html http://acmainfo.com/docmgr/Press_Releases/ACMA_ppt_Feb_8_ver_4_0_Edit.pdf http://business.mapsofindia.com/automobile/ http://dhi.nic.in/annrep_eng_1011.htm http://www.automobileindustryindia.com/resources/overview-of-indian-automobile-industry.html Porter, Michael E. (1980) Competitive Strategy, New York: The Free Press. 3
3. COMPANY OVERVIEW
Maruti Suzuki India Limited (originally established as Maruti Udyog Ltd.) is a subsidiary of Suzuki Motor Corporation. Suzuki Motor Corporation, headquartered in Japan, is a global manufacturer of motorcycles, 8 automobiles, outboard motors and related products. In India, Maruti Suzuki has been a market leader in the passenger car segment for the last two and a half 2 decades and it currently enjoys a 46% market share. Maruti entered the sector in 1983 with Maruti 800, an entry level compact car designed to fill the need of price-sensitive Indian customers. The model was a huge success and the subsequent launch of Maruti Alto, India's most selling car, enabled Maruti to retain the leading position in the segment. In recent years, the company has faced increasing competition from new companies and foreign companies. It has however expanded its offering from A-1 to A-3 segments and has come up with new models to counter the competition. Currently, Maruti offers 15 brands and over 150 9 variants. Maruti's total sales have risen at a CAGR of 17.14% over the last five years and in February 2012, it 9 became the first Indian company to cross the 10 million cumulative sales mark. The sales volume growth and the cost structure breakdown for Maruti Suzuki is as given below:
Domestic Exports
Selling & Dist Cost, Depreciation, 2.94% Mfg & Adm Cost, 2.83% Interest, 0.10% 2.73%
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Sales Volume (lakh units)
12 10 1.38
1.48
0.39
8
6 4 6.36
0.53
0.70
11.33
7.12 7.22 8.71
Material Cost, 83.63%
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0 2006-07 2007-08 2008-09 2009-10
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2010-11
In 2010-11, Maruti Suzuki reported revenues of Rs. 408.66 billion, EBITDA of Rs. 42.58 billion and net profit of Rs. 22.88 billion. At 5.6%, Maruti's net profit margin is greater than the industry average and the low debt to equity ratio portray the strength of its balance sheet. Exports have grown at a steady rate and account for over 15% of total sales. Also, compared to an industry average of 13%, the ROCE was 21.69 % for Maruti. Key financial ratios for Maruti are shown in the table below: Table 1: Maruti's Key Financial Ratios10 Operating Profit Margin (%) Net ProfitMargin (%) ROCE (%) Debt to Equity Ratio Current Ratio Inventory Turnover Ratio Asset Turnover Ratio
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Maruti Suzuki also offers many allied services like Maruti Insurance to provide vehicle insurance to its customers, Maruti Finance to assist customer financing and Maruti TrueValue to provide a platform for selling and buying used cars. Maruti Suzuki's overall financial performance is above that of the industry average and despite rising competition, its wide sales and service network, strong brand position and ability to cater to 11 various price segments have equipped Maruti to sustain its leader position in the industry.
The Indian automobile industry has had to cope with increasing petrol prices (and recently, a proposed hike in diesel prices), increasing environmental awareness and tighter emission norms. Maruti has started focusing on the role of alternative fuels in the automobile space, is expanding its
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diesel capacity and is promoting CNG cars. Maruti launched the first BS-IV compliant car in India and plans to setup an independent R&D facility in the country.
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To counter the impact of slowdown in the European Union on its exports, Maruti expanded its exports to other regions. The share of its non-EU exports increased from 20% in FY10 to 55% in FY11.
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5. BRAND POSITIONING
Maruti's passenger vehicle models can be positioned in the cost-differentiation space as depicted below (arrows denote the direction of expansion of the range offered by the company):
Cost Kizashi (Upper Luxury)
Vitara (Sporty) SX4 Dzire (Luxury) Gypsy (Style &Performance) A-star Ritz Swift (Style) (Premium) Estilo 800 Alto (Comfort) WagonR
Differentiator
Omni (Space)
Eeco (Space)
In line with their positioning, Maruti Suzuki's models can be classified as below: Low cost-Low differentiation Maruti 800 which was low priced and simple model Low cost-High differentiation Alto is differentiated on the basis of comfort and it has led to development of other two models Estilo and WagonR. These models are positioned along the comfort factor. Omni is differentiated on the basis of space and it led to the introduction of Eeco. Other models like A-Star, Ritz and Swift which differentiate on basis of style and premium looks. All models of this category are not low priced. This is Maruti's key operating segment. High cost-High differentiation Gypsy was the first model in this category and was differentiated on the basis of its sportiness. It was however priced higher than other models. At the moment, the same space is occupied by Grand Vitara, is a model with similar characteristics. High cost-Low differentiation This segment primarily includes models like SX4 and Swift Dzire. These models are similar to other passenger models but are luxurious and therefore costly. Maruti has entered the ultra luxury segment in India with the introduction of Kizashi. As can be seen from the figure, Maruti that started in low cost-low differentiation space has expanded its territory to cover all the segments. Maruti's strength today lies in the low cost-high differentiation space. This strategy has helped Maruti counter the increased competition it faced from entry of foreign players and the changing consumer preferences for greater comfort.
Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99121. 7
India. This is backed by a 17% sales contribution from the rural areas where Maruti was the first automobile manufacturer to turn its focus. This strength falls under all four VRIN categories and is thus a sustainable competitive advantage.
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BRAND VALUE
Maruti Suzuki is the best known brand in the Indian passenger vehicle space and it stands for value as much as it stands for performance. Taking into account the resale value, driving and maintenance cost, the price of a car is just a third of its overall value. Maruti's brands are rated the best across the segments they operates in.
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Maruti's brand image is a sustainable competitive advantage for it and over years, the company has worked to strengthen and maintain its brand image.
CUSTOMER BASE
Maruti has a huge, loyal customer base that provides deep insights into various aspects of car design and comfort. Over their lifetime, many customers move from low-cost segments to high-cost segments and Maruti's excellence in automation, after-sales service and performance enables customer retention. This is again a sustainable competitive advantage, as showcased by the JD Power Customer Satisfaction Study, 2009 where Maruti was ranked first in customer satisfaction for ten years in a row.
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TECHNOLOGICAL ADVANTAGE
Maruti Suzuki benefits in the technology and R&D space from its collaboration with Suzuki Motor Corporation, its parent. The company consciously adopts energy efficient technologies and its existing equipments are continuously modified to reduce energy consumption. Some of the internal initiatives taken by Maruti include installation of energy efficient furnaces in the Gurgaon casting plant, energy efficient lighting, rationalization of natural gas input and commonization of electrical motors. These have also helped the company cut down on its costs. In line with the stricter environmental norms, Maruti was the first automobile company to launch a BS-IV compliant car in India.
http://blog.carazoo.com/2010/06/maruti-suzuki-to-increase-its-dealership-network-to-1000.html 8
best selling cars in the segment. As other automobile manufactures look to replicate Maruti's success in the low cost segment, Maruti faces considerable threat to its leading position. An example was the launch of Tata 20 Nano by its key competitor. In further attempts to beat Maruti at its own game, the competitors are looking to strengthen their retail base in small towns and cities to match that of Maruti. Also, as its competitors have access to the same low cost and high quality supply chain, there is a possibility of imitation of its products. Thus, Maruti faces a high threat of imitation on various fronts. To tackle the treat of imitation in the low cost 21 segment Maruti is planning to launch a new model 'Cevra' in the ultra low cost segment.
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http://business.rediff.com/slide-show/2010/mar/10/slide-show-1-auto-the-top-6-best-selling-cars-inindia.htm
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http://ibnlive.in.com/news/ratan-tata-launches-nano-in-mumbai/88445-25.html
http://articles.economictimes.indiatimes.com/2011-08-11/news/29876484_1_cheapest-car-low-costsegment-small-car/2
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http://www.indiancarsbikes.in/cars/deal-sealed-fiat-supply-100000-multijet-diesel-engines-maruti-suzuki54808/
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http://www.thehindubusinessline.com/opinion/article2531927.ece http://www.edynamic.net/home/News/News11.aspx 9
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http://www.motorbeam.com/news/maruti-suzuki-taking-a-beating-from-the-competition/ 10