ITM BUSINESS SCHOOL

PGDM

(Batch 2011-13)

BUSINESS POLICY AND SRATEGIC MANAGEMENT

SHRADHA KULKARNI (52)

SHUBHAM GOYAL (58)

ROSHAN VAILAYA (64)

SOURABH CHOPRA (71)

RAHUL HEDAU (73)

GROUP – 3

BATCH - Finance 2

A Project Report

On

Maruti Suzuki Ltd.

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TABLE OF CONTENT

SR. NO. SECTION PAGE NO.

1 Executive Summary 2

2 Define the Industry 2

3 Portfolio Analysis of Industry 4

4 Attractiveness of Industry 5

5 Value Chain of Maruti Suzuki 6

6 Porters generic Strategy 8

7 Added Value Concept 9

8 Cost Component 10

9 Willingness to Pay Component 11

10 Overcome the Threats 12

11 Scope of Further Growth of Company 12

12 Conclusion and Learning 13

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1. EXECUTIVE SUMMARY

Maruti Suzuki a leading car maker in India is a subsidiary of Suzuki Motor

Corporation of Japan. Maruti is a market leader in mid-size segment of cars and has a

market share of around 42% in mid-size segment cars. Best selling cars of Maruti include

Swift, Swift Dzire, Alto, and Ertiga. They have production on economies of scale and works

on cost effectiveness. Maruti has manufacturing plant in Manesar and Gurgaon and they are

coming up with plant in Gujarat to make India a hub for mid-size cars. They also have a

research and design center at Haryana.

Maruti Belongs to an Automobile Industry which has tough competition from other major

players after liberalization when companies like Hyundai, Honda, Skoda, Toyota,

Volkswagen have started selling cars in India. The core competencies of Maruti include

strong customer base and brand image, well developed sales and service network and

strong knowledge of Indian markets. Analysis based on BCG matrix and GE matrix is also

performed in order to understand brand marketing and product management to help a

company decide what products to add to its product portfolio, and which market

opportunities are worthy of continued investment.

Attractiveness of the Industry is analyzed through Porters Five forces and also Value Chain

to get idea about how the operational activities and production activities are performed in

compliance to have cutting market competition. Porter Generic strategy to understand

about cost, differentiation and focus strategy and the added value so that customer can

differentiate Maruti product with the other leading company’s product and its competitive

advantage.

Maruti’s leadership is market is due to its cost advantage which is least among all the other

players in market and its lower maintenance cost. The willingness to pay is also very high

because customers can easily pay required cost because they are getting what they are

expecting and also cost is low.

Maruti has threat from imitations, Substitute, slack and Holdup which has proven problems

for the company in recent past but still they had overcome them to prove there cost

leadership and market leader. Further companies future growth and prospects is discussed

to get clear picture how companies expands and which new products company is launching

to maintain and retain market share.

2. DEFINE THE INDUSTRY

Maruti Suzuki India Limited is a subsidiary company of Japanese automaker Suzuki Motor

Corporation. It has a market share of 42.1% of the Indian passenger car market as of March

2012. Maruti Suzuki offers a complete range of cars from entry level Maruti 800 and Alto, to

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hatchback Ritz, A-Star, Swift, Wagon-R, Estillo and sedans Dzire, SX4, in the 'C'

segment Maruti Eeco, Multi-Purpose vehicle Ertiga and Sports Utility vehicle Grand Vitara. It

was the first company in India to mass-produce and sell more than a million cars. It is largely

credited for having brought in an automobile revolution to India.

INDIAN AUTO INDUSTRY

One of the major industrial sectors in India is the automobile sector. Subsequent to the

liberalization, the automobile sector has been aptly described as the sunrise sector of the

Indian economy as this sector has witnessed tremendous growth.

The Indian auto industry is showing signs of slowdown. Utility vehicles are growing strong,

clocking 53% growth over last year. The cumulative production data for April-July 2012

shows production growth of 7.10% over same period last year.

The industry produced 1,746,840 vehicles in July 2012 as against 1,656,014 in July 2011. The

overall growth in domestic sales during the period was 9.34% over same period last year.

Passenger Vehicles segment grew 10.20% during April-July 2012 over same period last

year. Passenger cars grew 5.5% while utility vehicles grew 53.66% during April-July 2012 as

compared to same period last year.

During April-July 2012 overall automobile exports registered negative growth at (-4.03)

percent. While passenger vehicles and commercial vehicles both grew by 9.14 percent. Two

& three wheelers declined by (-1.00) and (39.23) percent respectively in April–July 2012

compared to the same period last year.

MARUTI SUZUKI GROWTH ANALYSIS

Maruti Suzuki India Limited logged 9.2 percent increase in sales for July 2012 at 82,234 units

as against 75,300 units in the same month last year, riding back on the humungous sales of

its compact sedan, Swift Dzire, clocking an almost four-fold increase, according to a

company statement.

According to the carmaker, its domestic sales during July stood at 71,024 units, compared to

66,504 units in July last year, up 6.8 percent. The sales were driven mostly by its compact

sedan Dzire, which clocked 11,413 units.

Sales of small cars, including the M800, Alto, A-Star and Wagon R, however, declined by

23.7 percent to 28,998 units. The company's other best-selling model Swift along with Estillo

and Ritz together clocked 15,759 units in July this year, up 73.2 percent from last year.

MSIL's sales of its mid-sized sedan SX4 plunged by 70.5 percent to just 679 units in the

month, the company said in a statement, adding that it managed to sell just two units of the

luxury Kizashi sedan. Exports during the month stood at 11,210 as compared to 8,796 in July

last year, up 27.4 percent.

CURRENT STRATEGIES OF MSIL

A. Focus on small market segment to beat the stiff competition.

B. Develop capabilities & internal resources to finance its expansion and growth.

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C. To stay away from ultra-low cost segment.

D. To make India an exclusive small car manufacturing base to leverage frugal engineering.

E. To establish R&D facility in India to produce cars in India, starting from design till

production

CORE COMPETENCIES OF MSIL:

Core competencies of an organization can be simply defined as a set of qualities, which are

unique to that particular organization that cannot be easily imitated by its competitors. Core

competencies are factors which give competitive advantage to the organization in its chosen

market. Core competencies may be of various types- technical know-how, relationship with

customers, employee-dedication, manufacturing process etc.

An analysis of the Maruti Suzuki India Ltd. shows three core competencies:

1. Strong Customer Base & Brand image –

The MSIL has a market share of about 55% in the Indian passenger car segment and is the

largest manufacturer of small cars in India. The company has been voted as first by Indian

customers for level of customer service and customer satisfaction. The company

manufactures affordable small cars which serve the needs of an average Indian customer

faithfully and hence have a strong brand image as the common man’s car in India, which an

average Indian customer identifies with. Such a strong brand image and huge customer base

can sustain the position of the company as the market leader in the Indian small car

segment.

2. Well-developed sales and service network throughout India –

The Maruti Suzuki India has a strong dealership network comprising more than 450 cities

across India and a huge service network of more 2750 franchises of service outlets

spreading about 1300 cities throughout India. Such a widely distributed sales and service

network can help the company to relate with its customers across India and also facilitates

bargaining power with suppliers and increase profitability.

3. Very Strong knowledge of Indian market –

The Maruti Suzuki India has a strong knowledge of the Indian market which has helped them

to grow their sales and market share in India.

3. PORTFOLIO ANALYSIS OF THE COMPANY

BCG Matrix for MSIL

Maruti Suzuki, one of India’s leading automobile manufacturer and the market leader in the

car segment, both in terms of volume of vehicles sold and revenue earned.

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STAR: The Company has long run opportunity for growth and profitability. They have high

relative market share and high growth rate. SWIFT, SWIFT DEZIRE AND ZEN ESTILO is the

fast growing and has potential to gain substantial profit in the market.

QUESTION MARK: These are also called as wild cats that are new products with potential for

success but there cash needs are high and cash generation is low. MARUTI SX4, GRAND

VITARA, RITZ fall in the category of question mark

CASH COW: It has high relative market share but compete in low growth rate as they

generate cash in excess of their needs. ALTO AND WAGNOR have fallen to ladder 3 & 4 due

to introduction of ZEN ESTALIO and A STAR.

DOG: The dogs have no market share and do not have potential to bring in much cash.

Business of SX4, OMINI, and VERSA has liquidated and trim down.

GE MATRIX OF MSIL

The GE matrix is an alternative technique used in brand marketing and product

management to help a company decide what product(s) to add to its product portfolio, and

which market opportunities are worthy of continued investment.

GE MATRIX INDUSTRY ATTRACTIVENESS

BUSINESS

STRENGTH

HIGH MEDIUM LOW

HIGH Investment &

growth SWIFT

Investment & growth

ALTO

Selectivity/

earnings A-

STAR

MEDIUM

Investment &

growth SWIFT

DEZIRE

Selectivity/earnings

SX4 Harvest ECO

LOW

Selectivity/

earnings

WAGON R

Harvest

VERSA Harvest OMNI

4. ATTRACTIVENESS OF THE INDUSTRY

PORTER’S FIVE FORCES MODEL

Michael Porter identified 5 forces that determined the long run attractiveness of a business.

We would analyze Porter’s five forces in context of the Maruti Suzuki.

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a) Threat of New Entrants: Increasing

Although most of the major global players are present in the Indian market; few more are

expected to enter due to the welcoming government policies and expected retaliation.

b) Threat of Substitutes: Low to Medium

Maruti Suzuki faces serious threat from consumer shifting to hybrid or electric cars.

Currently, the electric car market in India is dominated by sole player Reva Electric Car

Company. However brands like Tata Motors, Chevrolet and Nissan are also planning to

launch their electric car this year.

c) Bargaining power of Supplier: Low

Automakers are the key to the supply chain of the automotive industry. Maruti Suzuki has

manufacturing units where engines are manufactured and parts supplied by first tier

suppliers and second tier suppliers are assembled. There are a large number of automobile

component suppliers whose switching costs are very high. Thus reducing the bargaining

power of the suppliers

d) Bargaining power of buyers: Increasing

Today, consumers are considered kings in the automobile market. There is an increasing

awareness among them and they are given a humongous number of choices. Buyers get

incentives in the form of cost discounts and better after sales services. This further

increases the bargaining power of the buyers.

e) Competitive Rivalry: High

Competition in certain segments is very high e.g., small and mid-car segment. Brands like

Hyundai, Chevrolet, Tata and Skoda have given huge competition to Maruti Suzuki. In

the recent past Volkswagen, Honda, Ford has also given competition to the premium car

segment.

5. VALUE CHAIN OF MARUTI SUZUKI

Porter distinguishes between primary activities and support activities. Primary activities are

directly concerned with the creation or delivery of a product or service i.e. operational. Each

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of these primary activities is linked to support activities which help to improve their

effectiveness or efficiency.

(A) Primary activities at Maruti Suzuki (Operational)

1) Inbound Logistics

Inbound Logistics i .e. the receiving and warehousing of raw mater ials, and

their distr ibution to manufacturing. Maruti Suzuki ’s inputs primarily

comprise raw mater ials and purchased components. Raw material includes

rubber, glass, steel , plastic , aluminum. Tyre, windshields, and airbags are

example of parts or components. The company has implemented tierization

of suppl iers and Just in Time supply logistics.

2) Operat ions

Transform inputs into f inal product form through machining, packaging,

assembly, equipment maintenance, test ing, printing and facil ity operations.

3) Outbound Logistics

Are the activities required to get the finished product to the customer, including collecting,

storing, physically distributing, material handling, delivery vehicle operation, order

processing and scheduling.

4) Market ing and Sales

Provide means by which buyers can purchase the product and inducing them to do so, such

as advertising, promotion, sales force, quoting, channel selection, channel relations, and

pricing. Maruti’s marketing objective is to continually offer the customer new products and

services that:

1. Reduce the customer’s cost of ownership of our cars; and

2. Anticipate and address the customer’s needs and preferences in all aspects and

stages of car ownership (MARUTI SUZUKI refers to this as the “360 degree customer

experience”

5) Service

Aims to enhance or maintain the value of the product, such as installation, repair, training,

parts supply, and product adjustment

(B)Secondary activities at Maruti Suzuki (Supportive)

1) Procurement

The function of purchasing raw materials and other inputs used in the firm’s value creating

activities

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2) Technology Development

Technology development includes research and development, process automation, and

other technology development used to support the value chain.

a) Research & Development (R&D)

b) Technology absorption, adaptation and innovation

3) Human Resource Management

Activities associated with recruiting, training, development and compensation of

employees.

4) Firm Infrastructure

Firm infrastructure consists of general management, planning, finance, accounting, legal,

government affairs and quality management.

Kaizen - Maruti had adopted the Japanese management concept of Kaizen, or continuous

improvement. The Kaizen activities had resulted in the improvement of the in-house

capabilities. For example, they had manufactured 25 multi-axis robots and 16 multi-spot

welders.

6. PORTERS GENERIC STRATEGY

The Low Cost Maintenance Advantage

The Acquisition Cost Is Unfortunately Not The Only Cost You Face When Buying A Car.

Although a Car May Be Affordable To Buy, It May Not Necessarily Be Affordable To

Maintain, As Some Of Its Regularly Used Spare Parts May Be Priced Quite Steeply. Not So In

The Case Of a Maruti Suzuki. It Is In The Economy Segment That The Affordability Of Spares

Is Most Competitive, And It Is Here Where Maruti Suzuki Shines.

Lowest Cost of Ownership

The Highest Satisfaction Ratings With Regard To Cost of Ownership among All Models Are

All Maruti Suzuki Vehicles: Estillo, Wagon R, Esteem, Alto and Omni. We Are Proud to Have

the Lowest Cost of Operation/Km (Among Petrol Vehicles) - The Top 5 models Are All Maruti

Suzuki Models: Maruti 800, Alto, Zen, Omni and Wagon R.

To achieve cost leadership --- upfront capital investment in state-of-the –art equipment/plant is

required. e.g. --- Maruti Suzuki has two state-of-the-art manufacturing facilities in India. The first

facility is at Gurgaon spread over 300 acres and the other facility is at Manesar, spread over 600

acres in North India. Maruti Suzuki's facility in Gurgaon houses three fully integrated plants.

Together the three plants have an installed capacity of around 700,000 units. K Series Plant. The

Gurgaon facilities also house the ‘K’ Engine Plant. Commissioned in 2008, the K-series engine plant

has an installed capacity of 500,000 units. Manesar Facility At present the Manesar plant rolls out

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World Strategic Models Swift, A-star, SX4 and swift Dzire. The plant at Manesar is the company's

fourth car assembly plant and has a capacity of 300,000 cars per year.

Differentiation - creating something that is perceived industry wide as unique. Differentiation can

take many forms - Brand name- Maruti Suzuki Technology- The highly fuel efficient, technologically

advanced K series engines have been very well appreciated by our customers for their performance.

Service- Best Service/highest no. of service centers Dealer Network – Highest Quality- Value for

money Performance Mileage Best match with Indian road conditions Less Maintenance cost Resale

price

7. ADDED VALUE CONCEPT

The Quality Advantage

Maruti Suzuki Owners Experience Fewer Problems With Their Vehicles Than Any Other Car

Manufacturer In India. The Alto Was Chosen No.1 In The premium Compact Car Segment

across 9 Parameters. Wagon R No. 1 in the premium compact car Segment and SWIFT as

best hatch back car. This study measures owner In terms of design, content, layout and

performance of vehicles across various parameters.

A Buying Experience like No Other

Maruti Suzuki Has a sales network Of 307 state-of-the-art showrooms across 189 Cities, with

a workforce of Over 6000 trained sales personnel to guide Customers in finding the right

Car. The high sales and customer care standards led us to achieve the no.1 name.

Quality Service across 1036 Cities

Maruti Suzuki scored the highest across all 7 parameters: least problems experienced with

vehicle serviced, highest service quality, best in-service experience, best service delivery,

best service advisor experience, most user-friendly service and best service initiation

experience. About 92% of Maruti Suzuki owners feel that work gets done right the first time

during service and 97% of Maruti Suzuki owners would probably recommend the same

make of vehicle, while 90% owners would probably repurchase the same make of vehicle.

One Stop Shop

At Maruti Suzuki, you will find your entire car related needs met under one roof. Whether it

is easy finance, insurance, fleet management services, exchange- Maruti Suzuki is set to

provide a single-window solution for all your car related needs.

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8. COST COMPONENTS

The cost components are basically the group of cost origins for the organization. Cost

Components of any Automobile Company like Maruti Suzuki include Prime Cost, Works Cost,

and Cost of production and Total Cost.

Prime Cost

It consists of costs of direct material, direct labour and direct expense specifically

attributable to the job. This is also known as flat, direct or basic cost. Costs involved in this

are the main costs with the help of which the core products that the company is indulged in

are produced. Egg.:- costs in procuring raw materials for production of the cars, payment to

labour involved in production activities etc.

Works Cost

It comprises of prime cost and factory overheads, (cost of indirect material, indirect labour

and indirect expenses related to factory works). This cost is also known as factory cost,

production or manufacturing cost. Costs involved in this are Complementary to the Prime

costs of the business and includes those things which directly doesn’t involve in production

of the goods. Egg.:- Payment of wages to employees such as supervisors, guards etc.

Cost of Production

It is the sum total of works cost and office and administrative overheads (Cost of indirect

material, indirect labour and indirect expenses related to office works). This cost is known as

office cost. Costs involved in this are the Office and Administrative Expenses i.e. the salaries

of the office employees and managers.

Improvement in Cost Component

Prime Cost component is the one which can be improved and is the one on which the

company is taking steps to improve because of the foreign exchange fluctuations and higher

input costs. The company has initiated measures to step up localization levels and to pare

the number of tier-I suppliers over the next two-three years, cutting down component

imports, improving yield and enhancing the usage of raw materials.

Consolidating its supplier base to increase sourcing from a smaller and more stable base of

tier-I vendors to bring down logistics costs and to leverage economies of scale while inking

sourcing pacts.

Maruti Suzuki sources 10 per cent of components directly from foreign markets, while

another 15 per cent are imported by its vendors. To reduce exposure to forex fluctuations,

the company has decided to cut direct and indirect imports of components by half over the

next three years.

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9. WILLINGNESS TO PAY

Customers prefer and give value to the convenience provided by one stop shopping as it

gives broad scope. It gives the customer the experience of one single point of contact for

sales service and other support which they can provide. Maruti Suzuki is providing the same

with so many features mentioned below:

Offering one shop stop:

In one shop stop you get many thing at one place, this is a growing trend among the

automobile industry:

Maruti Finance: In a market where more than 80% of cars are financed, Maruti has

strategically entered into this and has successfully created a revenue stream for Maruti. This

has been found to be a major driver in converting a Maruti car sale in certain cases. Finance

is one of the major decision drivers in car purchase. Maruti has tied up with 8 finance

companies to form a consortium. This consortium comprises Citicorp Maruti, Maruti

Countrywide, ICICI Bank, HDFC Bank, Kotak Mahindra, Sundaram Finance, Bank of Punjab

and IndusInd Bank Ltd. (erstwhile-Ashok Leyland Finance).

Maruti Insurance: Insurance being a major concern of car owners. Maruti has brought all

car insurance needs under one roof. Maruti has tied up with National Insurance Company,

Bajaj Allianz, New India Assurance and Royal Sundaram to bring this service for its

customers. From identifying the most suitable car coverage to virtually hassle-free claim

assistance it's your dealer who takes care of everything. Maruti Insurance is a hassle-free

way for customers to have their cars repaired and claims processed at any Maruti dealer

workshop in India.

Customize the vehicles: Customize the wheel and the colour of the car.

True Value: Providing customers with second hand vehicles for purchase with the assurance

of Maruti and warranty and guarantee by the company itself for few years.

Maruti Driving School (MDS): Maruti has established this with the goal to capture the

market where there is inhibition in buying cars due to inability to drive the car. This brings

that customer to Maruti showroom and Maruti ends up creating a customer.

10. THREATS OF SUBSTITUTION

Imitation – It refers to struggle for existence. Use of high grade plastics in areas like door

trims, fuel hoses, and fuel railings etc., and new light-weight 6-layer polymer fuel tank helps

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Maruti Suzuki to reducing the weight of the vehicle and cost which enables the company to

achieve the economies of scale. Maruti Brand loyalty is very high in small cars so, it very

difficult for the competitor to imitated the brand loyalty and customer satisfaction.

Substitution - The threat of substitution is medium, there are various substitution product

of Maruti like bus, trains, aircraft etc. and also company facing a competition from Chinese

car. Hyundai, Nissan has come up with really impressive cars to challenge the dominance of

Maruti. To response this and maintain its dominance in small segment, the Maruti

announces WagonR r and Alto 800 in the year 2012-2013.

Hold up – It refers to delays in you delivering your service or product at the specified price

and time. Recently, Maruti Swift runs out of stock because the company is not expected to

revive production at the violence-hit Manesar plant, its sole manufacturing facility. This will

likely to further increase the waiting period for customers, affect suppliers dependent on

the car, and hit sales. It will lead the competitors like Hyundai, may get additional customers

for its launched i20 hatchback. Tata Motors may also witness higher demand for its Indigo-

Indica range in coming months.

Slack - The silent killer of small business, theft, absenteeism, non-engagement and waste or

ineffective use of current resources. The companies facing a problem of innovation because

company is still focus on old cars and upgraded models

11. SCOPE OF FUTURE GROWTH OF MARUTI SUZUKI

• The company’s network of sales and services outlets continues to be its strength.

Network is set to expand in the future and it will help to tap opportunities in the

country.

• Manesar Plant reopens under full security of employees

• MSIL to fast track its New alto launch which is priced about 2 lakhs, Suzuki making MSIL

a small car manufacturing hub, Volume growth of 10.8% for FY2012

• Company facing slowdown as the demand environment is impacted

• Share in diesel vehicle is 38% during 1st quarter FY13

• Net sales grew by 27.5% yoy to Rs.10,778cr in 1st quarter FY13, EPS Estimates to be INR

66.87 and ROE of 12.1% for FY2013, Expected significant volume growth of 15% for

FY13

• Coming up with new plant and Skill development center in Gujarat and R&D center in

Haryana

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12. CONCLUSION AND LEARNING

A detail analysis on the business of Maruti Suzuki is done based on the various theories laid

down under business strategy. The analysis included applying various concepts and theories

which include Porters five forces to understand portfolio analysis, value chain of the

company, cost component, willingness to pay and growth prospects of the company in near

future.

It can be concluded that Maruti Suzuki is expanding its product basket by offering value

(swift, sx4) at different income level. Maruti Suzuki stands for value as much as it stands for

performance. In spite of rising input costs, Maruti Suzuki always tries to provide cars at

reasonable cost. Their running costs and resale values are unbeatable too. This enabled

Maruti to become Market leader. Suzuki gaining globally on back of small car portfolio.

Economies of Scale make India attractive destination for Maruti Suzuki. With the passenger

car sales over spiraling fuel prices and high interest rates, India’s largest car manufacturer,

Maruti Suzuki India, is working on customer specific marketing strategy to increase its sales

among the first time buyers. The company have maximum 47 per cent market share among

the first time buyers.

Maruti Suzuki is far behind in luxury and SUV car, the other player like GM, TATA, Mahindra,

Honda and Toyota are already established in the market, so replacing them would not be

easy

Learning can be put as understanding of various theories of business strategy and practically

using them to comprehend on economic, industry and financial details.