Abstract
Origin of Indian passenger car industry dates back to the year 1928. First 55 years saw negligible to slow growth in this industry till Maruti Udyog Ltd, later named as Maruti Suzuki India Ltd (MSIL), was incorporated in 1983. The MSIL, through its wide range of cars across different segments spread over 15 brands and over 150 variants, became the leader of the Indian car market during the next two-and-a-half decades. Suddenly, the MSIL showed a significant fall from over half of its share (53.13 per cent) of Indian car market to a market share of 44.9 per cent in the fiscal year 2010–2011, despite robust growth of 21.6 per cent of MSIL in the fiscal year 2010–2011 and a faster industry growth at 34.3 per cent during this fiscal. This declining market share of the leader of Indian car market has been investigated by the authors using industry analysis and reports, Society of Indian Automobile Manufacturers’ reports and publications, media coverage and other secondary sources available in print and web media, and MSIL’s own source for the last five years from 2006–2007 to 2010–2011. The article thus tries to bring out the strategic perspectives of MSIL that helped it reach the top of Indian car market segment and does the environmental scanning to identify factors that dipped it to low. It is found that in the last three years has come about what has been popularized as the ‘disruptive innovation strategy’ in the passenger car industry of India occupying the centre of the wheel. With increasing loss in its market prominence and market share, how does MSILpropose to meet the challenges of survival and sustainability on product price, customization and customer service is the issue of this case.
Keywords
Background
The Indian auto industry has experienced strong growth over the past decade and sales of passenger vehicles here have more than doubled since 2001 to over 1.5 million units. Yet, according to World Trade Organization (WTO), less than 1 per cent of the population currently owns automobiles, that is, 100 people per vehicle compared to 82 people per vehicle in China. According to Business Monitor International (BMI) data, 0.70 per cent of the Indian population owned a car in 2006, while 1.10 per cent of the Chinese population owned a car in the year 2006. India is currently the eleventh-largest passenger car market in the world and aims to be the seventh-largest market by 2016 (The Indian Automotive Market, n.d.). Through a collaborative effort between the Indian government, the automotive industry and academia, India’s Automotive Mission Plan (AMP) 2006–2016 has been developed with a vision:
to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of U.S. $145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016. (NEMMP, n.d.)
Maruti Suzuki India Ltd (MSIL) has played a major role in this strong growth which was kicked off by the launch of Maruti 800 in 1983. Since then, even though there have been other players in the passenger car industry in India, MSIL has been the leader till 2005–2006, when it felt the heat from the competitors, forcing its market share to fall by about 10 per cent (from 65.10 per cent in the year 2004–2005 to 55.60 per cent in the year 2005–2006). Yet, the company continued to capture over half of the market share but for the year 2010–2011, which, for the first time ever, saw its market share dip below half to 44.90 per cent (Company reports, n.d.). This poses a perfect case of concern particularly when the industry is growing at a faster rate.
This case study analyzes and identifies the strategic perspectives of MSIL which took it to the top of Indian car market segment. It then does the environmental scanning to identify factors that saw it dip down. It further attempts to capture MSIL’s approach to rejuvenate its market and opens up the same for analyzing its efficiency and effectiveness.
The Maruti Company
Maruti Suzuki was incorporated as Maruti Udyog Limited (MUL) in 1981. According to CRISIL company report, it was a joint venture (74:26) of the Indian government and Suzuki Motor Corporation (SMC) of Japan. The first Maruti 800 rolled out on 14 December 1983, which was the only modern car available in India at that time, sparking off a revolution in automobiles. Previously, the Government of India (GoI) held 18.28 per cent stake in the company, and 54.2 per cent was held by Suzuki of Japan. However, in June 2003, the GoI held an initial public offering of 25 per cent. By 10 May 2007, it sold off its complete share to Indian financial institutions. Today, it is a subsidiary of SMC, Japan. The MUL collaborated with SMC of Japan to produce affordable cars for the average Indian. The MSIL, so renamed in the year 2007, has been the leader of the Indian car market for over two-and-a-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 1.2 million (1,200,000) vehicles annually. It is planning to expand its manufacturing capacity to 1.75 million by 2013 (Company reports, n.d.).
The Maruti Cars
The MSIL offers a wide range of cars across different segments. It offers 15 brands and over 150 variants—Maruti 800; people movers, Omni and Eeco; international brands, Alto, Alto-K10, A-star, WagonR, Swift, Ritz and Estilo; off-roader, Gypsy and SUV Grand Vitara; sedans, SX4, Swift DZire and Kizashi. In an environment-friendly initiative, in August 2010, Maruti Suzuki introduced factory-fitted compressed natural gas (CNG) option on five models across vehicle segments. These include Eeco, Alto, Estilo, WagonR and SX4. In fiscal 2009–2010, Maruti Suzuki became the only Indian company to manufacture and sell 1 million cars in a year (Company reports, n.d.).
Disruption in Indian Passenger Cars Industry
The MSIL sold over 1.27 million vehicles, including 138,266 units of exports, in 2010–2011. By the end of March 2011, Maruti Suzuki had a market share of 44.90 per cent of the Indian passenger car market (Table 1), showing a significant fall from over half of its share (53.13 per cent) of Indian car markets in the preceding year (Society of Indian Automobile Manufacturers [SIAM], 2011) (Maruti Suzuki Cars in India, n.d.). This is the first time ever that Maruti has had a below 50 per cent market share over a considerable period of time.
Indian Passenger Car Market Share of Different Players during 2010–2011
According to SIAM, leading players like Maruti Suzuki, Hyundai Motor and Tata Motors lost their market share in 2010–2011 to new players entering the small car segment in India with new models mainly from Ford India and Volkswagen. As per figures released by SIAM, the country’s car market leader’s, that is, MSIL, market share in the passenger car segment is the most hit. This is despite the fact that Maruti itself had a robust growth of 21.60 per cent in the fiscal 2010–2011. And the industry has grown faster at 34.30 per cent putting the company on the back foot. India has broken into the top 10 auto-producing countries, standing at seventh place in 2010 against 15th in 2000. This is an alarming situation for MSIL. The think tank of the company attributes its drop in sales largely to a number of new launches, including Tata Nano, Ford Figo and General Motors Beat, and inclusion of more sub-segments in the market.
Objectives and Methodology of Research
In the light of the circumstances encountered by MSIL in the Indian passenger car industry, the present study attempts to study the following:
The strategic perspectives that led MSIL to the top of Indian car market segment. To understand and identify reasons behind declining market share of the leader of the Indian car market. The environmental scanning to identify factors that saw MSIL dip down. Competitors’ strategies that disrupted the car market segment in recent years. MSIL’s multiple plans to remain the industry leader.
Sources of Information
This present study is based on secondary sources of data drawn primarily from the following sources:
industry analysis and reports; SIAM’ reports and publications; CRISIL researches; media coverage of Indian auto industry; secondary data available in print and web media; researches and analytical articles from experts; and MSIL’s own source through its annual reports, press briefings, etc.
The article meticulously arranges this information after careful study of the same to capture the problem and issues; the sequence of events that led to the case situation; and focuses on the measures initiated to deal with the same vis-à-vis competitors strategies.
Landmarks of Passenger Cars in India vis-à-vis MSIL Launches
Landmarks for Passenger Cars in India and MSIL
Some landmarks for passenger cars in India are given in Table 2, along with product launches by MSIL, till the year 2011 (Kazmi, 2009, pp. 551–569; Company reports, n.d.). It may be noted that the first car, that too imported, seen on Indian roads was in the year 1928. More than 80 years have passed since then. Growth of passenger cars during the first 50 years has been very slow. It is only since 1983, after the incorporation of MUL, that this segment picked up. The pace picked up further due to the liberalization policy that GoI adopted in 1991. Maruti drove the Indian passenger cars market and steered the segment to notch more than half of its share.
The MSIL was feeling the heat of competition from global car majors in 2005–2006 (National Foundation for Corporate Governance, n.d). The company put in place a comprehensive strategy for customer retention, leading Maruti into new service businesses, including car finance, car insurance and sale and purchase of pre-owned cars. These services leveraged Maruti’s large customer base and extensive network, and helped reverse the decline in market share by increasing customer pull for Maruti cars. These measures also created new revenue streams for dealerships and enabled them to be more aggressive in the new car market. In recent years, Maruti has reduced cost and improved quality across the value chain. This resulted into significant progress by MSIL as obvious from Table 3 which shows market share of the company in the industry passenger car sales in India during the first decade of the current century, that is, from the year 2001–2002 to 2009–2010 (Auto news, n.d.). It is only during the last fiscal, that is, the year 2010–2011, that MSIL’s market share dipped below half of the industry sales (The Hindu Business Line, 2010).
Market Share of MSIL in Domestic Passenger Car Sales
The Multifold Strategy
The MSIL has rightly taken the cognizance of the dip in its market share and has started taking many initiatives, like launching a new version of its best-selling model, Alto. In addition, in an unprecedented move, the company has geared up to launch five vehicles—Alto, Estilo, WagonR, Eeco and SX4—in CNG variants on a single day. The car market leader is working on a multifold strategy to garner at least half of the domestic car market, although buyers face an up to six month long waiting period for some models such as the Swift and Swift DZire. It also made initiatives to advance the start of two greenfield production lines at Manesar to produce 1.85 million units by end-2012. It is also aiming to leverage its strength in the rural markets and its extensive dealer/service network to continue its strong grip on the market. Maruti is even arranging bank financing for its vendors. The vendor base was trimmed from 385 to 225 five years ago. The numbers are being stepped up again. Some 15 global suppliers—who are also suppliers to Suzuki—have been added to the network (Maruti Suzuki: Count on us, 2011).
Maruti’s vision is to remain the leader in the industry, maintain market share and contribute to the Indian economy (Company reports, n.d.). Despite a number of challenges, the company hopes to achieve its vision through its multiple plans. It is believed that Indian market will double in the next five years from 2 million cars to 4 million-plus. Maruti, after 28 years of growth, reached sales of 1 million cars in 2009–2010. In the next five years, it is faced with the challenge and the opportunity to double it. What that means is that it has to do everything faster in a shorter period of time. How does MSIL propose to meet the challenges of survival and sustainability on product price, customization and customer service with increasing loss in its market prominence and market share is the issue of this case.
Disruptive Innovation Strategy
Clayton Christensen (Disruptive innovation, n.d.) first coined the term ‘disruptive innovation’. India’s car manufacturer, Tata Motors, revolutionized the global car market with its disruptive innovation strategy by launching its disruptive innovation named ‘People’s Car’ or ‘One-Lakh taka Car’. One lakh in Indian vernacular is 100,000 Indian rupees. The ‘People’s Car’, also referred to ‘Nano—The small’, corresponds to a ‘Two-Thousand-Euro-Car’. This innovation turned the automobile market on its head and resulted in a paradigm shift. Like many other disruptive innovations, Tata’s innovation consciously sacrificed some performance in order to be able to radically reduce the costs and the selling price. Tata’s Nano—the disruptive innovation model—has, on one hand, four seats and four doors but, on the other hand, it is only propelled by a 660 ccm rear-mounted diesel engine with 30 horsepower. The maximum speed is 64 kilometres (km) per hour. The target group of Tata’s disruptive innovation is not the already existing car drivers; rather, the millions of Indian motorbike and motor scooter drivers, to which, however, the drivers of three-wheeled cars can also be added. While each year 6.5 million motorbikes and motor scooters are sold in India, up to now, only 1.3 million cars are purchased every year. The conversion of motorbike and motor scooter drivers into car drivers therefore represents a huge market potential. According to an estimate, out of India’s present population of more than 1.1 billion people, more than 400,000 qualify for the target group of a low-price innovation strategy and as a potential buyer of a low-price car. The determining factor for the conversion success is the price point. With only ₹100,000, Tata’s disruptive innovation costs about double the price of an Indian motor scooter. This is enabling Tata to win over a large part of the price-sensitive motorbike and motor scooter drivers, who so far could not afford a car, for the ‘People’s Car’. With its four wheels and the protecting body, this disruptive innovation opens up a totally new world of safety and comfort for the Indians that have driven motorbikes and scooters so far. That is why Tata’s are advertising for exchange of any old motorbike/scooter with its Nano car (Inspire innovation management with a vision, n.d.).
In the initial stages, many customers dreaming to own a car, but unable to so due to their financial position, ventured to buy Tata’s Nano, thus pushing Maruti’s market share down during the year 2010–2011, particularly by eating up its Maruti 800 car segment. The subsequent downward stretch of Nano in this segment is yet to be visible but with its tempting offer to exchange bike with car, it is bound to be visible shortly. In addition, Hyundai’s Santro, competing directly with the Maruti’s Alto in the same price and market segment, took away the car market share from MSIL that saw its sudden downfall in 2010–2011. On the similar lines were attacks from Chevrolet brand of cars. Hence, MSIL faced a threefold attack from Tata Motor Co., Hyundai Motor Co. and Ford Motor Co. in common market segment where it had the largest share, and the result obviously had to be a steep market decline bringing MSIL to below 50 per cent market share for the first time ever.
Analysis and Discussion
Initially, Maruti reined the Indian passenger car market using adequate support from GoI. Later, a host of strategies put in place by MSIL led it to become the market leader in India. One of these strategies of MSIL has been its proactive approach in launching new models to cater to customer aspirations. It has been mitigating the growing competition in the small car segment through model launches at steady intervals. It has been introducing fuel-efficient cars that did not pinch the pocket of the customers through its much stronger and focused research and development capabilities. In addition, the company went in for aggressive dealership network and expansive servicing capabilities. The MSIL has the largest network of dealers amongst car manufacturers in India and it provides excellent after-sales service to the customers (Average sales/Dealership: Indian car manufacturers, n.d.). This offers consumers with service benefits. The MSIL also enjoyed further government support that led to opening up of money supply from government and free lending by public sector undertaking (PSU) banks. It had capex plans in place to take on the new demand wave. The MSIL, therefore, definitely made a splendid effort to rise to the position of a market leader through most notable strategies like new model launches, faster model refreshments, new engines and fuel options, new design philosophy, network expansion plus more feet on street and continued focus on customer satisfaction and communicating total cost of ownership.
Maruti Suzuki develops products (News, 2011) for the new generation and changeable lifestyles, constantly creating new technologies and applying them to products with affluent imagination. The team covers a wide range of latest advances in energy, environment, electronics, communication, information and control applications. This is counteroffensive defence that MSIL uses to maintain its market leader position. On the other hand, the company announced discontinuation of production of its first launch, Maruti 800, thus leaving the Nano to dance at the lower segment of the car market. This is the contraction strategy introduced by the MSIL to tackle its present market situation.
The Race is Far from Over
The history of Indian passenger cars industry dates back to the year 1928, and is almost 86 years old, but its visibility has been only since 1981 with incorporation of Maruti Udyog Ltd, now MSIL. Of course, liberalization of Indian economy added boost to this visibility. MSIL, the engine of growth of the Indian auto industry, was once the only player in the small car segment. It is the king of small cars in India with two most successful models called Maruti 800 and Alto in the segment. The segment comprising the three main manufacturers commanding more than 90 per cent of the sales volume (Maruti, Tata Motors and Hyundai) is up since last five years. This segment has seen a change with more players entering. The segment is becoming increasingly competitive. This is evident not only from the increase in the number of players but also by the number of model launches happening on a yearly basis in this segment. Maruti Suzuki uses a combination of ‘counteroffensive defence’ and ‘contraction defence’ to defend its market share. The contraction defence strategy can be clearly seen in Maruti phasing out Maruti 800. Urban market growth is becoming more and more difficult, so most automobile manufacturers have to focus on rural markets; however, it is challenging but significant for the companies. Maruti is increasingly losing its market prominence and market share. The new market players have their intelligent strategies. For Maruti, survival and sustainability could become major issues. How does it propose to meet the challenges on product price, customization and customer service? The race is far from the over.