This strategic report analyzes the opportunities and threats faced by Maruti Suzuki, an automobile manufacturing company in India. It also evaluates the organization's resources and provides recommendations for international expansion.
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Executive Summary This is a strategic report prepared forMaruti Suzuki, an automobile manufacturing company in India. In this report, micro and macro environment analysis of Maruti Suzuki have been carried out and found the presence of various opportunities and threats for this organization. Evaluation ofMarutiSuzuki’sresourcesidentifiedtheexistenceofdistinctivecapabilitiesforthis organization to help in gaining competitive advantage.Recommendations for international growth ofMarutiSuzukiare given to initially adoptexporting and then choose to have subsidiary in Netherlands. Page | 2
Table of Contents Executive Summary2 Introduction4 Maruti Suzuki4 Opportunities and threats for Maruti Suzuki5 Evaluation of Organization Sources7 Recommendations for the International Expansion9 Conclusion10 References11 Page | 3
Introduction This is a strategic report prepared for Maruti Suzuki India Limited, an automobile manufacturer in India. The main aim of this report is to analyze the opportunities and threats of Maruti Suzuki in Indian market,evaluate the key resourcesofMarutiSuzukiand then provide possible recommendations forits internationalexpansion.MarutiSuzukiis from a developing country India also known as republic of India in South Asia.With an area of nearly 3,287,263 square kilometers, India is considered as 7thlargest country in the world in terms of its area. India posses thesecondpositionwithsecondhighestpopulationafterChinawith1.364billion (Statisticstimes, 2019). India based on its low per capita income India is considered as emerging country because ofits economic growth,possessing sixth largesteconomy with respectto nominalGDP and third largestGDP with respect to purchasing power parity (Iccrindia, 2019). Increasing urbanization, growing middle class population due to rise in working population have become some key factorsmaking India as fastestgrowing economy in the world (United Nations, 2019). Due to this growing economy, the demand for vehicles not just for travelling but symbol of status has increased greatly in India. Besides, the increase in demand for cars from the manufactures like MarutiSuzuki,increasing competition and severalproduct models with less differentiation and domination of few firms in the automobile manufacturing industry have made companies look foranalyzing theirmicro and macro environmentto make decisions on their international environments. Maruti Suzuki MarutiSuzukiIndia Limited in an automobile manufacturing started in the year 1981. With its head quarters in New Delhithe capitalcity of India,the MarutiSuzukiserves the passenger vehicle needs of the target market in India. The leading models sold by Maruti Suzuki are cars with range including hatch backs, sedans, vans and sport utility vehicles (Maruti Suzuki, 2019c). Maruti Suzuki is known for its iconic model Maruti 800 that has revolutionized Indian car model afterbeing launched in the year 1983.With its strategic values like responsibility dynamism, open,efficient,reliable,MarutiSuzukihas been changing to meetthe growing needs and demands of Indian consumers (Maruti Suzuki, 2019a). Maruti Suzuki consists of 56.21% stake by Suzuki motors which is Japan manufactures of car and motor cycles. In the year 2018 Maruti Suzuki posses 53% market share in India market of passenger cars. Maruti Suzuki is known for Page | 4
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manufacturing and launching huge number of cars with its fifteen millionth vehicle being swift dezire launched in the year 2015 (Maruti suzuki (2019b). The strategic vision ofMarutiSuzukiis to create a MarutiSuzukiworld thatbuilds cars for creating better experiences. These experiences are offered through innovative, high technological and creative design car models. Besides manufacturing cars Maruti Suzuki also offers a number of services like Nexa and True value which are the dealership services offered for the consumers. Maruti insurance, Maruti Suzuki finance, Maruti Suzuki auto card, Maruti Suzuki leasing, Maruti Suzukigenuine parts and MarutiSuzukiaccessories are othersub divisions of this company (Maruti Suzuki, 2019d). This report focuses on the car manufacturing activities of Maruti Suzuki and hence targets the macro environment of this company as Indian automobile industry. Opportunities and Threats for Maruti Suzuki Existing in one of the highly potentialand attractive markets, Maruti Suzuki is experiencing a numberofopportunities.Some of these opportunities are increasing demand for sports utility vehicles due to high urbanization, increasing middle class population and increased discretionary spending ofpeople in India (Roy,2018).This opportunity is availed by MarutiSuzukiby manufacturing and launching sports utility vehicle is one ofthe key productrange (Maruti Suzuki,2019a).Anotheropportunity thatisavailable forMarutiSuzukiis to increase its customer base by attracting new customers through new e-commerce and aggressive marketing activities.Thisopportunity iscurrently realized by MarutiSuzukithrough itsinnovative distribution channels. Besides focusing on extending the product range to attract customer base, MarutiSuzukihas also focused on providing innovative distribution channels such as Maruti SuzukiArena,Nexa,true value and commercial(Nexaexperience,2019).Allthese channels provide unique shopping experience to the customers there by helping the company to not only avail the opportunities but also overcome the threat from competitors. Despite existing in an attractive industry with high growth potential, Maruti Suzuki is also facing a numberofthreats in this industry.Intense competition from the competitors due to similar product models with less differentiation is one of the key threats. However Maruti Suzuki is able to deal with this competitor threat and competitor retaliation using with supporter from Japanese company Suzuki and by making its car model unique and distinctive from the competitors. The Page | 5
ability of Maruti Suzuki to acquire 53 % market share in the car market segment in India shows the way in which MarutiSuzukiis able to convertthe competition threatto its opportunity. Another threat that is identified to be faced by Maruti Suzuki in Indian market is the probability oflosing its customers because oftheirhigh preference to environmentalfriendly vehicles emitting less toxic substances. The high bargaining power of the buyers in Indian market because of their increasing purchasing power, rise in their disposable income as indicated by IBEF (2018) can furtherescalate this threatoflosing customers.A reportby world economic forum has indicated thatIndia is expected to possess a consumer marketthat is third largest in the world with consumers spending reaching $6 trillion USD by the year 2030 (Economic Times, 2019). In the same way, rules from India government to stop using fossil fuels also increase the chance of probability ofthis threatto the company.However,with knowledge based experience in car manufacturing and on Indian car market, Maruti Suzuki has identified this key driver of change which help the organization to convert the threat into opportunity. This Maruti Suzuki Company has started various innovations in orderto reduce the extentofCO2 emissions from its car models.With the use ofnextgeneration HEARTECT platform,MarutiSuzukiis intended in building new carmodels with lowering CO2 emissions by nearly 8% (MarutiSuzuki,2019f; Economic Times, 2019). In the process of tackling this threat, Maruti Suzuki has set plans to end usage of dieselcars (Ghosh and Raj, 2019). This way of launching ultra low emission vehicles helps in attracting the new customer base of people looking for environmental friendly driving. In this way, Maruti Suzuki is able to convert its threat as its opportunity. Another threat that is identified to be faced by Maruti Suzuki in Indian automobile industry is the loss ofmarketofmarketshare when consumers shifttowards electric vehicles.This clearly shows thatelectrification technology and high awareness of consumers in India are key drivers of change in the industry. Realizing this key driver of change, Maruti Suzuki announced its plans to text electric cars in the Indian market. The support from its subsidiary Suzuki has enabled this organization set it plans of launching its first electric vehicle Wagon R as the text bed for electric vehicles (Dhabhar,2018).This shows the way in which MarutiSuzukihas identified the key driver of change from the threat and then converted it into an opportunity in attracting consumers preferring electric vehicles in the Indian market. Page | 6
The consumers in Indian marketare identified to have high bargaining power because of their significantrise in purchasing power(Economic Times,2019),increasing disposable income, high knowledge awareness on car models and due to the availability of several models with less differentiation.This high bargaining power of consumers can case threatfor Maruti Suzuki in decreasing its sales revenue when consumers start to switch to its competitors car models. Maruti Suzukihas completely dealtwith this threatin a differentmanner butnotfocusing on costly aspectoffrequently launching severalcarmodels buthas involved in providing extra care services from existing and new customers. This is done through its vertical integration with the distributors there by creating opportunity in diversifying its channels into Nexa,Arena,true value and commercial(Nexaexperience,2019).The wide range of services offered by Maruti Suzuki like financing, driving school, accessories and insurance have created an opportunity for MarutiSuzukito retain its existing customers and increase its sales revenue. Instead of relying on high investment option to tackle the threat from competition, Maruti Suzuki has invested on costeffective ones in terms of providing ultimate customer service.This notonly helped the organization to overcome threat from competitors but also create an opportunity to offer unique value for the customers. Evaluation of Organization Sources MarutiSuzukimanufactures fourwheelpassengervehicles like cars underfour ranges.This company shares mostofits resources with its competitors like Mahindra and Mahindra,Tata Motors and Hindustan Motors.Allthese automobile manufacturing companies manufacture passengervehicles in theirmanufacturing plants located in differentplaces in India.Another common resource thatis shared by Maruti Suzuki with other companies is supplier integration. Identifying the availability of fragmented suppliers, Maruti Suzuki similar to its competitors has vertically integrated with the suppliers to provide required products forcarmanufacturing process. On the otherhand,MarutiSuzukiis able to show certain resources and capabilities thatare distinctive in nature when compared to its competitors.With its Japanese subsidiary,Maruti Suzukiautomobile manufacturing company,this MarutiSuzukiis known forlaunching high revolutionized car models like Maruti 800 and Maruti Swift (Maruti Suzuki, 2019c). This clearly shows the sound knowledge based experience possessed by this company in Indian car market, Page | 7
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technicalexpertise in designing car to meetcustomer needs supporting R&D investments and reliable supplier to manufacture high quality car models as promised. This made Maruti Suzuki acquirenearly 53% ofmarketsharein passengercarmarketsegmentofIndia (Maruti Suzuki¸2019g).This shows the high usefulness of MarutiSuzukiresources and capabilities in realizing the opportunity of increasing demand for cars. Anotherdistantstrategic capability ofMarutiSuzukiisits dealerintegration.This dealer integration enabled Maruti Suzuki to make its models deliver to the customers using a number of innovative channels like Maruti Suzuki Arena, Nexa, True Value and Commercial. Each of these distribution channelis highly unique and designed to meetthe unique taste and preferences of the different segments present in the market. For instance, Nexa distribution channel is used by MarutiSuzukito targetluxury car marketsegmentby selling its premium cars. Maruti Suzuki Arena on the otherhand is designed formillennialto come,chose,customize and relax by having unique shopping experience (MarutiSuzuki,2019h).This way of differentiating itself from the competitors through dealerintegration is highly rare forMarutiSuzuki.Imitation certainly needs more time,capitalinvestments and also experience in the car market to design the channelsaccording to the taste ofthe targetmarket.MarutiSuzukiwith its Japanese subsidiary Suzukilimited has organized its distribution channels so that they not only focus on tradition brick and motorstores and also use technologicaldevelopments like e-commerce to reach the customers. Another distinctive resource of Maruti Suzuki is the diversified services offered by this company to its existing and new customers. Unlike its competitors, Maruti Suzuki is not just involved in offering carmodels butis also involved in providing a numberofservices like financing, insurance,driving school,auto card,leasing and accessories.Some of these services help in retaining the customers while some ofthem help in increasing the switching costthereby minimizing the threatof high buyer barging power in Indian automobile industry. For instance, MarutiSuzukifinance,MarutiSuzukiauto card and MarutiSuzukileasing and instance make the company to offer high flexibility in allowing the customers to pay monthly installments with contractual agreements (Maruti Suzuki, 2019g). These agreements made in contract increases the switching costthere by making the customers reduce their bargaining power.Rather than just focusing on distribution channels and innovative services,MarutiSuzukialso consists ofa Page | 8
dedicated innovation lab called MAIL (Mobility and Automobile Innovation Lab)(NDTV, 2019).This MAIL is aimed atdriving innovations forproviding highly effective and best commitmentformobility and automobiles in India (MarutiSuzuki,2019e).This is notjusta threshold capability butalso distinctive capability forMarutiSuzuki.The distinctiveness of MAIL lab lies in partnering with GHV accelerator which is a leading accelerator program to supportcontrolled environmentand sustainability through provision ofrequired funds.This supportfrom GHV acceleratorcertainly makes MAIL highly distantforMarutiSuzukiin innovating environmentalfriendly vehicles like electric cars and ultra low emissions vehicles withoutfearing offinancialsupport(MarutiSuzuki,2019e).With this high organizational support,creation ofinnovation labs like MAIL with required funding supportas in case of Maruti Suzuki is not easily inimitable as it is difficult, costly and also time consuming. In order to dealwith allthese distinctcapabilitiesand threshold capabilitiesofMarutiSuzuki,a competitor certainly needs good experience in the automobile industry, sound knowledge, huge capital investment and also more time that is less likely to occur. Recommendations for the International Expansion India is certainly having the potential of becoming one among the global big three countries for automobile manufacturing. Not only in terms of automobile sales, Indian market is also known to be highly potential automobile exporter. With automobile exports increased by 20.78% between Apriland November2018,exportsfrom Indian automobile manufacturesare expected to experience compound annual growth CAGR of nearly 3.05 % between the period 2016 and 2026 (IBEF, 2019). Among the top five exporters of passenger vehicles in India, Maruti Suzuki is one among them.In the year2018,MarutiSuzuki,has contributed 16% of totalindustry exports (Economic Times,2018).This clearly shows the potentialof MarutiSuzuki to compute in the Indian marketand also to serve the needs ofinternationalmarkets.Certainly its Japanese subsidiary Suzuki automobile company provides an added advantage for the organization. In the process of expanding the internationalisation process, Maruti Suzuki needs to consider the option ofwholly owned subsidiary betterthan jointventure.The experience ofits parent company Suzukiin having subsidiaries and making them profitable across the Asian countries can certainly be a great asset for the company to be successful in the internationalisation process. The Eclectic paradigm by Dunning (2015)indicates the need ofcompanies having location Page | 9
advantage,ownership advantage and competitoradvantage in orderto choose foreign direct investmentoption.In the case ofMarutiSuzukiCompany,certainly this company possess ownership advantage and the competitor advantage in terms of its parent company support from Suzuki,high experience in car manufacturing,manufacturing plants in India, ability to control manufacturing and operating costs. With respect to location advantage, this report recommends MarutiSuzukito choose Netherlands forestablishing the subsidiary unit.The highly support environmentexisting in Netherlands forthe businesses such as infrastructure,availability of skilled workforce and support tax regime as indicated in Pwc (2018) are the key reasons behind recommending Netherlands for Maruti Suzuki to gain location based advantage. According to Uppsala ModelbyVahlne & Johanson (2017), internationalization seems to be a slow and interactive process by starting from nearby countries. This is certainly true in case of Suzukias ithas initially entered the nearby markets in Asia in India,Pakistan,China and Indonesia through Wholly owned subsidiaries and joint ventures. Having acquired the required knowledge and experience,itis now time forMarutiSuzukito internationalize into UK and European markets.With the currentsituation ofUK leaving European Union,there is high chance of trade barriers increasing between these countries. This makes car dealers in UK look for exporting from other emerging countries in cost effective manner rather than only relaying on European countries. This situation becomes great opportunity for Maruti Suzuki India to export the carmodels mainly to UK and European markets.This choice ofinitially exporting is recommended for MarutiSuzukiby considering Uppsala modelbyVahlne & Johanson(2017) that companies need to start internationalization by choosing less risky method of exporting first. Conclusion The strategic analysis ofMarutiSuzukicarried outin this reporthas analyzed its macro and micro environment.This analysis identified that Maruti Suzuki is facing a number of threats in terms of losing market share and customers. However, the knowledge in Indian market industry made Maruti Suzuki to identify the key drivers of change and thereby change the threats into its opportunities. Further, the resources and capabilities of Maruti Suzuki have been identified. This analysis found Maruti Suzuki having both threshold and distinctive capabilities that are valuable, rare, and inimitable along with obtaining proper organizational support. Based on the distinctive Page | 10
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capabilities of Maruti Suzuki, this report has recommended the opportunity for this company to internationalize.Selectinginitiallyexportingmodeandthenhollyownedsubsidiaryis recommended in this report.More specifically choice of Netherlands is made so as to enable MarutiSuzukiacquire location based advantage besides ownership and competitive advantage for justifying the choice foreign direct investment to internationalize. References ●Dhabhar.C.(2018).MarutiSuzukiTo StartTesting 50 Electric Cars In India Soon. InternetLink: https://auto.ndtv.com/news/maruti-suzuki-to-start-testing-50-electric-cars-in-india-soon-1 912914, Viewed on [10-03-19] ●Dunning,J.H.(2015).The eclectic paradigm of international production: a restatement andsomepossibleextensions.InTheEclecticParadigm(pp.50-84).Palgrave Macmillan, London. ●Economictimes(2019).Maruti'investing'in new technologiesto bring down CO2 emissions.InternetLink: https://economictimes.indiatimes.com/industry/auto/cars-uvs/maruti-investing-in-new-tec hnologies-to-bring-down-co2-emissions/articleshow/64464586.cms,Viewedon [06-03-19] ●Gupta,S.(2018).The future ofmobility in India’s passenger-vehicle market.Internet Link: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/the-future-o f-mobility-in-indias-passenger-vehicle-market, Viewed on [14-03-19] ●IBEF(2018).IndianConsumerMarket.InternetLink: https://www.ibef.org/industry/indian-consumer-market.aspx,Viewed on [10-03-19] ●Ibef(2019).AutomobileIndustryinIndia.InternetLink: https://www.ibef.org/industry/india-automobiles.aspx, Viewed on [20-03-19] ●Iccrindia(2019).India,afast-emergingeconomy.AvailableInterneton: http://www.iccrindia.net/economy/, Retrieved on (05/03/2019) Page | 11
●Marutisuzuki(2019a).Aboutus.InternetLink: https://www.marutisuzuki.com/corporate/about-us,Viewed on [13-03-19] ●Marutisuzuki(2019b).Home.InternetLink: http://www.marutisuzukicommercial.com/#home, Viewed on [11-03-19] ●Marutisuzuki(2019c).Allcars.InternetLink: https://www.marutisuzuki.com/channels/arena/all-cars,Viewed on [20-03-19] ●Marutisuzuki(2019e).AboutGHV.InternetLink: https://www.marutisuzukimail.com/about-ghv.html,Viewed on [05-03-19] ●Marutisuzuki(2019f).MarutiSuzukiinnovations to reduce emissions and water use; cumulativelysavesover8.3lakhtonnesofCO2.InternetLink: https://www.marutisuzuki.com/corporate/media/press-releases/2018/maruti-suzuki-innov ations-to-reduce-emissions-and-water-use-cumulatively-saves , Viewed on [03-03-19] ●Marutisuzuki(2019g).Finance.InternetLink: https://www.marutisuzuki.com/more-from-us/finance,Viewed on [15-03-19] ●Maruti suzuki (2019h). Channels. Internet Link: https://www.marutisuzuki.com/channels Viewed on [15-03-19] ●NDTV (2019).MarutiSuzukiLaunchesMobility And Automobile Innovation Lab. InternetLink: https://auto.ndtv.com/news/maruti-suzuki-launches-mobility-and-automobile-innovation-l ab-1980807, Viewed on [23-03-19] ●Nexaexperience(2019).AboutUs.InternetLink:https://www.nexaexperience.com/, Viewed on [23-03-19] ●Roy, A. (2018). The Middle Class in India.Education About ASIA,23(1). ●Statisticstimes(2019).ChinaVsIndiaPopulation.InternetLink: http://statisticstimes.com/demographics/china-vs-india-population.php,Viewedon [10-03-19] ●United Nations (2019).68% of the world population projected to live in urban areas by 2050,saysUN.AvailableInterneton: https://www.un.org/development/desa/en/news/population/2018-revision-of-world-urbani zation-prospects.html, Retrieved on (05/03/2019) Page | 12
●Vahlne, J. E., & Johanson, J. (2017). From internationalization to evolution: The Uppsala model at 40 years.Journal of International Business Studies,48(9), 1087-1102. ●Ghosh, M. and Raj, A. (2019). Maruti Suzuki, Mahindra see end of road for diesel cars. InternetLink: https://www.livemint.com/auto-news/maruti-suzuki-mahindra-see-end-of-road-for-diesel- cars-1550183566356.html, Viewed on [02-03-19] ●Pwc(2018).DoingbusinessintheNetherlands:2018.InternetLink: https://www.pwc.nl/nl/assets/documents/pwc-doing-business-in-the-netherlands-2018.pdf , Viewed on [02-03-19] Page | 13