Table of Contents

STRATEGY OF INTERNATIONAL BUSINESS GLOBAL INTEGRATION WITH LOCAL RESPONSES ................................................................................................................. 2 1 BRIEF HISTORY OF MARUTI-SUZUKI INDIA LTD ............................................................ 2 2 PORTERS FIVE FORCES MODEL ................................................................................ 3 3 VALUE CHAIN OF MARUTI SUZUKI .............................................................................. 8 3.1 PRIMARY ACTIVITIES AT MARUTI SUZUKI ARE:................................................................. 9 3.1.1 INBOUND LOGISTICS ....................................................................................................... 9 3.1.2 OPERATIONS ................................................................................................................... 10 3.1.3 OUTBOUND LOGISTICS ................................................................................................. 12 3.1.4 MARKETING AND SALES ................................................................................................ 12 3.1.5 SERVICE ........................................................................................................................... 13 3.2 SECONDARY ACTIVITIES AT MARUTI SUZUKI ARE: ......................................................... 15 3.2.1 PROCUREMENT ............................................................................................................... 15 3.2.2 TECHNOLOGY DEVELOPMENT ..................................................................................... 15 3.2.3 HUMAN RESOURCE MANAGEMENT.............................................................................. 17 3.2.4 FIRM INFRASTRUCTURE ................................................................................................. 17 3.3 INTERNATIONALIZATION OF VALUE CHAIN .................................................................... 18 4 GLOBAL INTEGRATION VS LOCAL RESPONSES ........................................................... 19

STRATEGY OF INTERNATIONAL BUSINESS GLOBAL INTEGRATION WITH LOCAL RESPONSES

Brief History of Maruti-Suzuki India Ltd

Maruti Suzuki India Ltd., subsidiary of Suzuki Motor Corporation, formerly known as Maruti Udyog, is the one of the oldest car manufacturers in India. The company has written 28 years old history in the rich Indian heritage. Maruti Udyogs inception came in the country in 1981 under the provisions of the Indian Companies Act, 1956. During this era, scooters or two-wheelers had a long waiting as industrial production was low in numbers. There were only two car models in the name of Indian car industry, Hindustan Ambassador and PAL. Later, Maruti Suzuki made a successful move with its ever running Maruti 800 in 1983. With the launch of Maruti 800, Indian manufacturing and car industry saw a new dawn.

There are four phases of Maruti-Suzukis growth in India:

1. The first phase to be identified starts with the foundation of Maruti by Sanjay Gandhi in 1976. The
phase comes to a close with the companys failure and its conversion by an Act of the Indian parliament into a Public Limited Company in the 1981.

2. The second phase commences with Suzukis involvement in Maruti in 1982 and last until 1992
when Maruti-Suzuki ceases to be a Government of Indian company. In this phase Maruti-Suzuki could grow and acquired market dominance. Patronized by the Indian Government and supported by Suzuki, Maruti-Suzuki was shielded from international competition and able to outperform domestic competition.

3. The third phase commences in 1992 and ends in 2001. This phase is marked by emerging
international competition following comprehensive reforms and liberalization, conflict between the JV partners and the companys first labor unrest. In this phase the companys governance compromise is for the first time seriously challenged. At the end of this period Suzuki, after a long battle for control, finally acquires the majority in the JV.

4. The forth and current phase lasts from the takeover by Suzuki in 2002 until the present day. In
the face of losing ground to competition and changing ownership Maruti-Suzuki adopts a stronger market orientation. With the exponential growth of Indian Automotive industry, Suzuki had to face several challenges to retain the No.1 position. Under the several external conditions the company could sustain its No.1 position. We will be evaluating these external factors and the strategy and the measures taken by Maruti-Suzuki management to encounter these external factors through Five Forces Model.

Porters Five Forces Model

Firms in other in other industries offering substitute products

Competitive pressure coming from the attempts of the companies outside the industry to win buyers over to their products

Suppliers of Raw Materials, Components or other resource inputs

Competitive pressures stemming from buyer-supplier bargaining and supplier-seller collaboration

Rivalry among competitive Sellers. Competitive pressures created by jockeying for better market position, increased sales, and market shape, and competitive advantage

Competitive pressures stemming from buyer bargaining power and supplier-seller collaboration

Buyers

Competitive pressure coming from the threat of new entry of new rivals

Potential New Entrants

After taking major stake of 54% and eventually rights to management for Maruti-Suzuki in 2002, Suzuki Motor Corporation had several challenges, growth of the TATA Motors, Hyundai, rising costs of the raw materials, recent labor unrest and instability of management during 1999-2001, rise of two wheeler industry to name a few. With these challenges, Maruti-Suzuki started taking concrete steps to retain the No.1 position. Thos steps are studied are taken referring Five Forces Model as above.

1. Rivalry among Competitive Sellers: With liberalization, average GDP growth of 7%, the buying power of middle class group in India made the Indian automotive market very lucrative. During the phase of 1995-2000, Tata Motors, Hyundai, GM and Ford started entering 4-wheeler industry in big way in different market segments, but mainly focusing on middle class, offering popularly known as B segment. It has posted severe threat to Maruti Suzuki as A and B segment has been the bread and butter models. Maruti-Suzuki started losing market shares (Annual Report 2004-05, P.25). Another major worry was the sustenance of market in forthcoming years as the market was growing with Diesel cars and Maruti-Suzuki did not have any successful car in their stable with diesel engine offerings.

2. Buyers: In recent years, there are clear trends that customer expectations from a car have evolved considerably. Car customers now seek contemporary styling, international quality and latest features that enhance their safety and convenience, while expecting performance and fuel efficiency, like their parents did before them. Annual Report 2007-08. With the increased options and players, Indian buyers started realizing the buying power they were getting in A & B segments. Though M800 was only option around Rs.2.25 Lakhs in A segment, in B segment (or A2), buyers has an options like TATA Indica, Hyundai Santro, Getz, Chevrolet Spark, Fiat Palio. Also, some of the offerings were in Diesel and with most of the time, coupled with lucrative financing schemes. As the competition grew, Maruti-Suzuki was at major risk of losing the customers based on buying options and the financing

options. Maruti-Suzuki had major challenge to retain the current customer base as well maintain its No.1 position through capturing new buying group in the market.

3.

Potential New Entrants: Not only the growth in Indian automotive industry but the stagnancy in US and European markets started driving major players in USA and Europe to enter India. Players like Volkswagen, Fiat had started building their facilities in 2005-06, offering the major threats to current players including Maruti-Suzuki. Also, the current players had started expanding their product portfolios, giving customers with various options and more buying power. TATA Motors was coming up TATA Nano, with major threat to Marutis bread & butter model M800

4. Suppliers of Raw Materials, Components or other resource inputs: Being the No.1 player in Indian market, Maruti-Suzuki had developed suppliers from scratch. With the rise of global automotive players in India, the quality of the product has been the major challenge as Maruti-Suzukis products were far from achieving the global mark. MUL's executive director (marketing), Jagdish Khattar, MD, Maruti-Suzuki (2000-2007, once in his interview, told The Financial Express that Maruti sourced 75 per cent of its component requirement from vendors. "The quality of Maruti car is not up to the international standards," admits Khattar. Maruti's component defect rate was as high as 30,000 parts per million (PPM) as compared to 200 (PPM) for the developed countries. Also, as another resource input the employees has been strength for Maruti-Suzuki. Development of the employees to take on global competition was the major challenge for Maruti-Suzuki

5. Firms in other industries offering substitute products: M800 has been the greatest strength of MarutiSuzuki. The model was launched when 2 wheeler industries in India was not growing and not offering the cost and fuel efficient solutions to Indian customers. With liberalization, 2-wheeler industry outgrown and started offering very fuel-efficient solutions. It became major threat to M800 as customers had choice to multiple options of 2-wheeler. Another aspect in substitute products, earlier mentioned, as alternative fuel options. So far, petrol engines has been Marutis the major strength. With competitors offering Diesel engines, Maruti-Suzuki had major challenge to retain its existing customers and as well, grab the major pie in growing Indian automotive industry. Also, some of the players started offering LPG, CNG solutions in their cars, which were very efficient and safe. Maruti-Suzukis response: 1. New product introductions: The Company's success in the market can be attributed, broadly, to the new product design philosophy emerging from Suzuki Motor Corporation, a disciplined approach to cost that enables more features at less price, and market initiatives. The new design philosophy at Suzuki Motor Corporation, witnessed first in the Swift, is bold, aggressive and distinctly European. This philosophy is reflected in the Group's other World Strategic Models, such as SX4, Grand Vitara, A-Star and Splash. The success of the Company's new models is an indication that this new design philosophy has been well accepted by Indian customers. In addition, the Company's new models have consistently offered more features than comparable competitor offerings, and are very competitively priced. This has been made possible by a disciplined target cost approach towards new Annual Report (2007-08).

Between, 2002 to till date, Maruti-Suzuki took aggressive steps in introducing the new products in India. The models were focused on urban and semi-urban requirements Following sequence of the introduction of new models clearly anecdotes the new product introduction strategy of Maruti-Suzuki. Year 2002 Models introduced WagonR Pride; Esteem Diesel. All other variants upgraded: Alto Spin LXi, with electronic power steering; Special edition of Maruti 800, Indias first colourcoordinated car New Suzuki Grand Vitra XL-7, Redesigned Zen, Upgraded WagonR Non-A/C Alto variant; New Esteem variant with minor alterations but at a lower price, LPG variant of the Omni, new variant of Versa (5 seater), new variant of Baleno LXi New version of Maruti 800; introduction of the Swift Petrol Zen Estilo, Swift Dzire Launched Swift Diesel, SX4 luxury sedan, Grand Vitara Launched, 2008 Launch of 5 World Strategic model, A-star Launch of RitZ, Launch New WagonR
th

2003 2004

2005 2006 2007

2009 2010

2. 360 degree customer service: Maruti-Suzuki entered in various services related to automotive industry to provide customers end-to-end solutions. Following are the services: a. Maruti Finance: To promote its bottom line growth, Maruti Suzuki launched Maruti Finance in January 2002. Maruti claims that its finance program offers most competitive interest rates to its customers, which are lower by 0.25% to 0.5% from the market rates. Recently, the Company signed agreements with six public sector banks, to help improve retail finance availability. b. Maruti True Value: According to a report by research firm Credit Analysis and Research Ltd, the overall pre-owned car market in India was 1.5 million units in FY09 growing at compound annual growth rate of 20%. Maruti-Suzuki tapped this market long-time in 2001. Currently, it is No.1 in pre-owned cars with more than 300 dealers in True Value. In 2008-09, the TrueValue helped to generate a sale of 104,550 new cars through exchange or trade in. c. Maruti Genuine Accessories: Many of the auto component companies other than Maruti Suzuki started to offer components and accessories that were compatible. This caused a serious threat and loss of revenue to Maruti Suzuki. Maruti Suzuki started a new initiative under the brand name Maruti Genuine Accessories to offer accessories like alloy wheels, body cover, carpets, door visors, fog lamps, stereo systems, seat covers and other car care products. These products are sold through dealer outlets and authorized service

stations throughout India. The parts and accessories business served as a good cushion to both revenues and profits. The total parts and accessories sales grew to 13% in 200809 to Rs 10,858 Million d. Maruti Driving School: Having started from Bangalore in March 2005, Maruti Driving School has now spread its network throughout the country. 0neighbourhooddrivingtrainingschoolshavebeensetupin partnership with dealers in various cities across the country. Recently, the Company has set up two institutes of driving training in partnership with the Delhi Government. Also, Marui-Suzuki took some of the initiatives like Service at your Door Step through Maruti Mobile Support, Setting up "Express Service Bays" & "2 - Technician Bays", Car pick-up and drop facility for Women customers, which helped the company in big way to get closer to customer and boost the customer confidence in Maruti-Suzuki products.

3. Supplier Partner collaboration: Maruti-Suzuki started pushing its suppliers to acquire ISO certifications. To support small and medium enterprises Maruti-Suzuki initiated a cluster approach. The approach groups vendors together, trains them in quality management and assists them in obtaining the ISO 9000 certification (Red Herring Prospectus, 2003). MUL has reduced the number of vendors of components in India from 370 as of March 31, 2000 to about 100 as in 2005. As of the same date, they had strategic equity interests through joint venture agreements in their vendors, who together supply a substantial portion of the purchases of components. A number of their vendors are their dedicated suppliers in that they account for a majority of their turnover. Vendors located within a radius of 100 kilometers from the facilities supply the majority of the components. The production systems of their vendors are generally aligned to their needs for a reliable and timely supply of components that meet the required quality standards. This has enabled MUL to increase the proportion of locally sourced, lower cost components in their models, a concept refer to as localization.

Value Chain of Maruti Suzuki

The term value chain was coined by Michael Porter. The value chain is a comprehensive set of activities that are required to bring a product from a concept stage to marketing and consumption of end products. In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. A company is profitable if the value it commands exceeds the costs involved in creating the product. Porter distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency.

3.1 Primary activities at Maruti Suzuki are: 3.1.1 Inbound Logistics

Inbound Logistics i.e. the receiving and warehousing of raw materials, and their distribution to manufacturing. Maruti Suzukis inputs primarily comprise raw materials and purchased components. Raw material includes rubber, glass, steel, plastic, aluminium. Tyres, windshields, and airbags are example of parts or components. The company has implemented tierization of suppliers and Just In Time supply logistics. Maruti Suzuki has embarked on a comprehensive supplier development program, which strongly draws on Suzukis home practices. The company has instituted sustainable practices in its relationship with vendors like communicating realistic volumes to avoid excess capacities and inventories and making quick payments to facilitate healthy cash flows and financial discipline. To reduce supply bottle necks, transport related uncertainties, high in-transit inventories (related to long distance transport) and ultimately its total inventory levels, Maruti-Suzuki creates incentives for far away suppliers to move near its plant. These incentives comprise: setting up a supplier park with excellent onsite infrastructure; offering subsidized, well located and industrially developed land; sales tax concessions; and reliable power supply generated by Maruti-Suzuki itself. Over 76% of the companys 246 suppliers are located within 100 kms of radius. This has facilitated cost reduction in supply chain, generating employment opportunities and promoted development of the local industry. Maruti Suzuki played a particularly significant role in pushing local component suppliers to improve quality, price, and delivery, and in forcing some of them to adopt just-in-time (JIT) principles. The JIT system has evolved over the last 25 years in the company from monthly scheduling to daily scheduling of parts order and finally, in 2003, to e-nagare system i.e. the release of schedules on hourly systems, a practice that aids in maintaining less than two hours inventory of components within the company. Maruti-Suzuki gets involved in establishing suppliers, founds supplier JVs with local suppliers and ask Japanese suppliers to do the same. For instance, Maruti Suzuki formed a joint venture with 'Futaba Industrial Co., Ltd.' (Futaba) for manufacture of Exhaust Systems Components (ESCs). Futaba is the largest manufacturer of ESCs in Japan and has operations in many countries. This joint venture will ensure supply of high quality ESCs to the Company. A Joint Venture Company was incorporated under the name and style of 'FMI Automotive Components Limited with equity participation from Futaba and the Company in the ratio of 51% and 49% respectively. The manufacturing facilities of these Joint Ventures are located at 'Maruti Suzuki Suppliers Park' in IMT Manesar, Gurgaon, Haryana. Major Maruti vendors are: Asahi India Glass Bharat Seats Caparo Maruti Climate Systems India Denso India J.J Impex (Delhi) Jay Bharat Maruti Krishna Maruti Machino Plastics Mark Auto Industries Mark Exhaust Systems

The Company worked hard along with its vendors on cost reduction initiatives. The key initiative was a raw material yield improvement program with a micro focus on each component on the lines of Suzuki philosophy. Called One Component One Gram, this program calls for weight reduction of one gram for

every component. With this micro focus, the raw material yield improvement savings increased by a factor of three in 2009 as compared to 2008. The material cost to net sales reduced from 90% in 2000-01 to 79% in 2008-09, partly due to external factors but largely due to cost reduction efforts.

3.1.2 Operations
Transform inputs into final product form through machining, packaging, assembly, equipment maintenance, testing, printing and facility operations. Production process at Maruti Suzuki:

Maruti Suzukis manufacturing facility consists of fully integrated plants with flexible assembly lines located at Gurgaon. The scale and complexity of the Company's manufacturing operations have now moved to a different league. The Company reached a capacity of one million cars annual production in 2008 and was also able to operate at this average rate in the month of March, 2009. The operations comprise four car plants across two locations, two engine plants (including a diesel engine joint venture), twelve models with more than two hundred variants.

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But the automation level at Maruti Suzuki plants is not as par with its parent company Suzuki Motor Corporation. The reason might be availability of low cost labor. Maruti Suzuki has implemented Production Management System, which is a strategy to achieve Manufacturing Excellence evolved through participative approach PMS is A system which is people driven and ensures involvement of all levels ( Managers, Executives, Supervisors ) A system which ensures ownership A system which brings in standardization of systems & processes A system which ensures Sustainability

Maruti Production System or MPS draws learning's from its parent company Suzuki Motor Corporation's concepts on `lean manufacturing' under Suzuki Production System i.e. SPS. Setting trends in new products and achieving customer delight starts with Manufacturing Excellence and Maruti's manufacturing excellence hinges around four important pillars-Cost, Quality, Safety and Productivity. Cost Every employee working on the line is 'cost sensitive' and functions in capacity of a Cost Manager. He is a key contributor in suggesting how to keep costs of production under control. Maruti Suzuki initiated a programme called Challenge 50:30 whereby cost was reduced by 30% and productivity was improved by almost 50% during the 3 years ending March 2006. Quality A product of poor quality requires repeated inspections, entails wastage in terms of repairs and replacements. "Do it right first time", is the principle followed to avoid wastage. Safety "Home or work place; Safety takes First Place". This has been the motto of the company where safety is concerned.

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3.1.3 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. The Company has jointly developed with the Indian Railways, special Auto Wagons, to support a high capacity, high speed and safe car transportation system. To support its export shipments, the Company commissioned a dedicated Roll-on Roll-off car terminal at Mundra sea port in partnership with MPSEZL (Mundra Port and Special Economic Zone Limited). Built with an initial investment of Rs 1 billion, of which the Company's share is 40%, the mega car terminal houses a state-of-the-art 'Washing and Waxing Inspection' centre, a car stockyard and a parking area.

3.1.4 Marketing 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. Marutis marketing objective is to continually offer the customer new products and services that:

1. Reduce the customers cost of ownership of our cars; and 2. Anticipate and address the customers needs and preferences in all aspects and stages of car
ownership (MARUTI SUZUKI refers to this as the 360 degree customer experience Maruti Suzuki has been aggressively cutting prices of its models. The rationale behind the price cuts is the focus on offering new upgraded vehicles at a low price. Maruti Suzuki offer a two-year warranty on all the vehicles at the time of sale. The dealers are required to address any claim made by a customer, in accordance with practices and procedures prescribed by MARUTI SUZUKI, under the provisions of the warranty in force at that time. The dealers subsequently claim the warranty cost from MARUTI SUZUKI.MARUTI SUZUKI analyze warranty claims from dealers and either claim the cost from the vendors, in the case of defective components, or bear the cost ourselves, in the case of manufacturing defects. MARUTI SUZUKI also offers an extended paid-warranty program marketed under the brand, Forever Yours for the third and fourth year after purchase. The extended warranty program is intended to maintain the dealers contact with the customer and increase the revenue generated from sale of spares, accessories and automobile-related services. An effort is made during the period of the extended warranty to encourage the customer to exchange his existing Maruti car for a new Maruti car, or upgrade to a new Maruti car. True Value Solutions Limited (TVSL), which was incorporated on January 14, 2002 as a wholly owned subsidiary of Maruti, provides value-added services to owners and users of motor vehicles on matters relating to manpower services with regard to recruitment, training and development. The company also intends to promote the business in the areas of pre-owned cars, lease and fleet management, finance and insurance. Sales network MARUTI SUZUKI has the largest network of dealers amongst car manufacturers in India. Sales network

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is linked with the MARUTI SUZUKI through the secure extranet based information network. The sales of spares, accessories and Automobile related services such as insurance and finance serve as additional sources of revenue for the dealers. The availability of these related products and services at sales outlets also helps to attract customers to the outlets and promotes sales of the cars. MARUTI SUZUKI dealers provide services to customers such as predelivery inspection of vehicles, sales of cars, after sales service, supply of spare parts and other services that promote sales of cars within the territory for which they are appointed. Dealers are required to maintain their outlets in accordance with the specifications and employ well trained sales staff. Agreements with the dealers are usually of five years. These agreements are generally renewable for successive terms of three years, by mutual agreement. The performance of the dealers is followed and improvements are suggested frequently. In order to assist the dealers in enhancing their performance and capabilities, MARUTI SUZUKI has introduced a concept of Balanced Scorecard. Using this tool, the performance of a dealership in several areas of operations, including sales, service, spares and accessories, financial management and management systems is measured. Dealers who perform well on the Balanced Scorecard are reward with a cash payment at the end of the fiscal year. The Balanced Scorecard serves as an effective incentive for dealers to enhance their performance. There are more than 400 Maruti dealer workshops and more than 1,500 Maruti Authorized Service Stations, covering more than 900 cities in India. In addition, 24-hour mobile service is also offered under the brand Maruti Onroad Service. As a benchmark for dealers with respect to service quality and infrastructure facilities, MARUTI SUZUKI has launched service stations under the brand Maruti Service Masters or MSMs. MARUTI SUZUKI also has service stations on highways in India under the brand Express Service Stations. To promote sales of spare parts and the availability of high quality, reliable spare parts for its products, spares are sold under the brand name Maruti Genuine Parts, or MGP. These are distributed through the dealer network and through the authorized sellers of the spare parts. Many of the Service Stations are at remote locations where MARUTI SUZUKI does not have dealers. Some of these Service Stations are integrated into the sales process in order to increase sales of the cars and related products and services such as spares and accessories, insurance and financing. The Sales & Marketing Strategy of Maruti Suzuki can be summarized as: Continually enhance their product range Increase reach and penetration Increase the availability of automobile finance Ensure repeat business by offering a 360 degree customer experience Continually reduce costs across the value chain (through increase in levels of localization and reduction in number of platforms).

3.1.5 Service
Aims to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment

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Maruti Suzuki has the largest network of dealers and service centers amongst car manufacturers in India. There are more than 400 Maruti dealer workshops and more than 1,500 Maruti Authorized Service Stations, or MASSs, covering more than 900 cities in India. In these competitive times the challenge is to keep inventing newer ways of doing things to keep the customers in your fold. Over the last few years, the company strengthened the existing practices and experimented with many new initiatives by way of kaizens (continuous improvements) to delight its customers. These initiatives ranged from product design and quality to network expansion, and included new service programs to meet unsaid needs of customers.

Key Initiatives
Car pickup & delivery facility for women car owners

Setting up "Express Service Bays" & "2 - Technician Bays"

As the name suggests the company set out to delight its customers by offering them faster car service by introducing new concepts such as Express Service Bays & 2- Technicians Bays. These are done for customers who are hard pressed for time.

Mega Camps
The company aggressively conducts 'Mega Camps' throughout the country round the year. Activities undertaken during a mega camp include complimentary car wash, AC & Pollution check up, oil and fuel top ups, wheel alignments etc.

Service at your Door Step through Maruti Mobile Support

Another unique initiative is the door step service facility through Maruti Mobile Support.

Maruti Mobile Support is a first of its kind initiative and is expected not only to help the company reach out customers in metro cities but also as a mean to reach semi urban /rural areas where setting up of new workshop may not be viable.

Car Safety device: Immobilizer

The company used technology to meet customer needs and even delight them. Following feedback that the company's cars were more prone to theft owing to their resale value, the company worked on an antitheft immobilizer or "I-Cats;" system for all its new cars.

Complete car needs

The company's effort of providing all car-related needs -- from learning to drive a car at Maruti Driving Schools to car insurance, extended warranty and eventually exchanging the existing car for a new one -under one roof at dealerships also enhances customer satisfaction.

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3.2 Secondary activities at Maruti Suzuki are: 3.2.1 Procurement

The function of purchasing raw materials and other inputs used in the firms value creating activities. About three fourth of the car, by value, is outsourced. Any improvement in the car in terms of technology and design, quality or cost has to essentially include the Company's vendors and their support. In the year 2007-08, the Company signed two joint venture agreements with global component manufacturers for cost reduction through localization of components for Maruti Suzuki cars. The first was with Magneti Marelli, aimed at the production of electronic control units (ECU) for diesel engines and the second with Futaba Industrial Company, Japan for production of exhaust system parts. The Company is setting up a Suppliers Park in Manesar, close to its car plant on an area of 100 acres for Just-In-Time supplies. Both the above joint ventures are located in this Suppliers Park. An informal Suppliers' Club has been formed by the Company's vendors and it gives a good forum for building personal relationships, understanding key issues and exchanging best practices at the CEO level. In the early eighties, the Company made significant efforts in trying to develop a component industry from ground zero. Over the next two decades, about 110 foreign technology collaborations were facilitated and Maruti Suzuki engineers worked closely with the vendors' engineers to enable to deliver cars which are both high quality and cost competitive. Now, the relationship has matured and most direct vendors or Tier 1 vendors are competent enough to work on their improvement, but there is major scope for modernization of some sections of Tier 2 vendors. The Company has identified this as an opportunity for further quality, upgradation and cost reduction. The second focus area for component cost reduction is raw material yield improvement across all manufacturing processes, like sheet metal, castings, forgings and machining. Every component is studied in detail and innovative ideas are tried, to reduce the input material weight for the same component output. The total cost of raw material as a percentage of net sales ranges from 15% to 20%.

3.2.2 Technology Development

Technology development includes research and development, process automation, and other technology development used to support the value chain.

Research & Development (R&D)

During 2008, the Company took decisive steps towards building design and development capability, inhouse. The number of engineers in R & D went up from 258, at the start of the year, to 398 engineers by the end of the year. In line with this, the number of engineers will be scaled up to 1000 by 2010. Specific areas in which R&D has been carried out by the company:

Building Full Mode Change Capability Vehicle Design and Development

Benefits derived as a result of above R&D

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Launch of SX4. Launch of Swift Minor. Launch of Swift DZire. Focused model cost down.

Technology absorption, adaptation and innovation

Localization, development and testing of parts for existing and new models. Capabilities strengthened in component and vehicle evaluation, benchmarking and design optimization. Capabilities being further strengthened in area of alternative fuels like Diesel, CNG and LPG. Value Analysis/Value Engineering (VA VE) at the time of design and localization to maximize cost benefit. Acquiring design and cost knowledge through teardown and benchmarking and using it in future designs and cost reduction. Global sourcing and advanced sourcing to get the advanced technologies into India at lower costs. (Efforts made towards technology absorption, adaptation and innovation by either local vendors and helping world-leading component suppliers to set up shop in India). Design and development of electronic speedometers, keyless alarm controllers for enhancing comfort and convenience.

Benefits derived from above efforts

Indigenization of various vehicle aggregates at lower costs. Improvement and up-gradation of existing models for improved comfort, style and better value for money. Continuous reduction in product cost through VA-VE. Compliance to new regulations. - Significant cost reduction of new model parts compared to existing models, ensuring that the new models are profitable from day one. Significant cost reduction obtained in existing models.

Information Technology
In recent years, the Company has used IT to enhance interface with the customer. It has deployed a world class Dealer Management Solution across its vast network of dealers throughout the country. The solution has helped dealer managements to access a wide range of information about their operations, as also customer satisfaction and feedback. Information security continues to be a focus area and comprehensive security policy and procedures are reviewed on regular basis. The Company got the ISO 27001 Certification renewed during the year. The Company now has a world class data center. It incorporates best practices of data centre infrastructure encompassing fire, flood & earthquake safety with multiple level of access control to ensure high availability & information security to the organization. A comprehensive set of operational policy & procedures are in place to monitor the data center.

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3.2.3 Human Resource Management

Activities associated with recruiting, training, development and compensation of employees. The Company's key strength is its human capital. The Company has, during 2007-08, spent about Rs.10 crores on training of its employees. The Company conducts programs such as "Bulandi" and "Chunauti" for the workmen and technicians to enhance pride in being an employee of the Company and also to create team synergy. At the middle management level, the focus of the programs is to inculcate leadership qualities while at the Director level, one or more retreats take place so that the Directors can unwind and take a detached view of self development and the organization. The Company goes further and trains its dealers' and vendors' workforce. 3200 programs have been conducted covering more than 13000 dealers' sales persons. The Company's "Maruti Centre of Excellence" (MACE) is a team dedicated to the development of vendors' employees. In programs like "Family Connect" and "Parivar Milan", family members of the employees are invited to interact with top management to get a feel of the workplace and environment. The idea is to develop better understanding and increase the support and co-operation for the employees from their families. The outbound training programs (OBT) encourage learning while having fun. The training encourages team work and teams come back fully motivated to face future challenges. While training targets in terms of man days were exceeded, what is more important is that people development initiatives in general were made more effective and relevant. There were customized training programs in strategy and leadership for general managers. The Company introduced a program enabling select employees to pursue higher education in management and technical fields. The policy of a fast track for a small number of employees, introduced last year, also helped retention. The Company strengthened the concept of Stay Interviews (as opposed to exit interviews), to understand employee aspirations, delight factors and areas for improvement. The Suggestions Scheme, which is as old as the Company, continued to make a significant contribution to business performance. Employees implemented a record 108,885 suggestions during 2007-08, as against 85,428 suggestions received previous year. This has lead to net savings of worth Rs. 666 million in 2007-08 as against Rs. 509 million in 2006-07. The number of employees increased from 5,521 employees (March 2007) to 7,090 (March 2008). Much of this growth was accounted for by shop floor workers in line with capacity expansion at the Manesar Plant. Industrial Relations were cordial throughout the year and no man days were lost on account of strikes or disruptions.

3.2.4 Firm Infrastructure

Firm infrastructure consists of general management, planning, finance, accounting, legal, government affairs and quality management Maruti Suzuki produces high quality products, some of which are been exported to various countries including the Netherlands, Italy, Germany, the United Kingdom and Switzerland. The Company has again been awarded ISO: 27001 Certification by STQC Directorate (Standardization, Testing & Quality Certificate), Ministry of Communications and Information Technology, Government of India after re-assessment. The Company is thus certified to meet international standards for maintaining information security.

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Maruti Suzuki was certified with ISO: 9001:2000 in 2001 and aim to achieve the TS-16949 certification. In addition, it had made the following improvements in terms of producing defect-free products: DFC OK: Maruti Suzukis Direct Final Check OK, or DFC OK percentage, which signifies the percentage of vehicles that pass through the inspection stages as defect-free, improved from approximately 77% in March 2002 to approximately 90% in March2004. Reduction in rejection: Maruti Suzukis in-process rejection cost per vehicle, computed as the ratio of (1) the cost of components rejected due to defects arising during our production process, to (2) the number of vehicles sold, declined by approximately 65% from fiscal 2002 to fiscal 2004. In house warranty: Maruti Suzukis in-house warranty costs per vehicle, computed as the ratio of (1) the aggregate cost of components incurred by us to service warranty claims arising from operational defects in our manufacturing lines, to (2) the numbers of vehicles sold in the fiscal year, declined by approximately 85% between fiscal 2002 and fiscal 2004. Another feather in Maruti Suzukis cap in the field of quality is its Press Shop & associated functions certification for conformance to the requirements of TS16949 standard.

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. Group discussions among employees in different departments are conducted on a monthly basis in order to discuss and resolve problems relating to their areas of operation, an activity referred as quality circle activity. Based on the belief that individuals contribute to improvement in growth, there has been a suggestion scheme in which they promote participation of all employees at all levels. The average number of suggestions made per employee has improved by approximately 35% in fiscal 2004, when suggestion received were more than 80,000, as compared to fiscal 2002. Some of the other improvements as a result of the Kaizen process have been increased automation through automated material transport system.

3.3 Internationalization of value chain

Maruti Suzuki has expanded in the foreign markets. The export strategy of Maruti Suzuki is that it keeps almost all value activities within India. Maruti Suzuki merely exports vehicles and sell them in the foreign market. Maruti Suzuki uses its parent company Suzuki Motor Corporations distribution network wherever available in the foreign market. Maruti Suzuki exported the first lot of 500 cars to Hungary in 1987. Presently it exports to over 100 markets in Europe, Asia, Latin America, Africa and Oceania.

In 2008-09 Maruti Suzuki had signed contract with Nissan, who buys Maruti Suzukis A-Star car and retail it in Europe under the brand name Pixo. This deal is expected to add upwards of 30,000 units in export sale in the coming years. Maruti Suzuki has exported 53,000 cars in 2007-08 and the company has set a target to export 200,000 cars annually by 2010-11. To meet such specialized requirements, the Company entered into an agreement with Mundra Port and Special Economic Zone Limited (MPSEZL) in 2008-09 to develop a mega car terminal at Mundra Port for export of Company's products. This car export terminal offers a Roll on, Roll off (RORO) berth which speeds up the loading process and minimizes the chance of damage to cars.

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In a first of its kind initiative, the company in partnership with Indian Railways has developed double decker rail wagons to transport export cars from Manesar manufacturing facility to Mundra Port. This arrangement ensures availability of requisite infrastructure at the Port and export of products in an efficient manner.

Global Integration Vs Local responses

Suzuki foray's into India can be categorised as somewhere between Global and Transnational. It would be apt to say that the company started as a global player and is now moving towards becoming a transnational. The history of Maruti Suzuki shows signs of a shift from a "Standardised and Goal achievement oriented" organisation to the "Innovative/Creative and Entrepreneurially oriented" organisation that it has become today When Maruti Suzuki started, most of the features of Japanese management system such as Quality Circles, employee participation in the production decision making, production incentives, company union, and in-house were successfully transferred to the work culture of Maruti Suzuki. Suzuki Motors perceived that the hierarchy system in the Indian society greatly influenced the work culture in most Indian factories and it also faced similar problem in setting up a flat organization structure that would most benefit from the introduction of its own management system that it practiced in Japan. It employed two methods to overcome this problem. First, it recruited fresh graduates from the technical/engineering colleges to fill up most of the middle and lower level management positions. In fact, except for a few in the top management, who were transferred from large public and private companies, most of the middle and lower level positions were filled by fresh graduates. As the fresh graduates were not biased by any previous management styles, they could easily be trained with the management style that Suzuki Motors introduced in the joint venture. The top management from the Indian side also supported the introduction of Japanese style of management in the factory. Second, it undertook an extensive training program for the fresh recruits. Suzuki Motors deputed several Japanese workers and executives in the Indian factory at Gurgoan, near New Delhi. As many as six to seven employees of Suzuki Motors were deputed to work in the Indian factory. In addition, several Indian employees from MUL were deputed to SMC's factory in Japan. This exchange process of employees helped the smooth transfer of Japanese management systems to Maruti-Suzuki in India and has increased the overall factory productivity. Most of the management systems of Suzuki Motors were adapted in Maruti Udyog Limited. Suzuki has focused on the lean production system where thrust is given on the reduction of inventory cost and testing time. Globally, Suzuki pulls its supplier to be located near the plant. In India some suppliers only assemble the final parts or modules at the plant located near to Maruti factory, but produce components in relatively distant plants. Earlier, quality checks of all delivered components were done at Maruti factory only. Under the current system, quality checking systems are installed at the suppliers end and this generates reports which only go to Maruti electronically. The first successfully model, Maruti 800, was introduced in 1983 with a 796 cc engine. It was based on the Suzuki Alto. During the initial stage, majority of the car components were imported from developed countries. At that moment it was the only modern car in India (as compared to its competitors Hindustan Ambassador and Premier Padmini). Contrary, to the logic of most foreign automobile manufacturers,

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Suzuki Motor predicted Indian market potential to rise to 200,000 cars per annum by the year 2000. After 1991, Maruti Suzuki initiated strategic responses to cope with India's liberalisation process and began to redesign itself (to be able to compete with the new automobile players coming to India). In contrast to the above scenario, today, Saurabh Singh and Rajesh Kumar Gogu have helped in shaping Suzuki Motor Corporations A-Star Concept car. The car almost changes the way the world's perception of Indian auto designers. Maruti Suzuki India Ltds R&D team in Gurgaon have designed the concept car that is being pitted as the global Indian car. The Concept A-Star is the first concept car in which designers from Maruti Suzuki India's research-and-development division have been involved from the initial stage for its styling. Suzuki Motor Corporation (SMC) is pursuing a world strategy designed for long-term growth. Following the launch of its acclaimed fourth world strategic model, the Splash (named Ritz in India), at the 2007 International Motor Show, the company developed the A-segment five-door hatchback reflecting a focus on world-class environmental compatibility and comfort. It has a newly developed Euro 5-compliant 1.0litre aluminium petrol engine with C02 emissions lower than those of European competitors (target lower than 1 O9gfkm). Maruti Suzuki India, is now investing $310 million in a new research and development center in nearby Rohtak. This new facility which will be Suzuki's first major R&D center outside Japan and is scheduled to be completed by 2015. It will include test tracks, a crash-test facility, emissions labs, a wind tunnel and a durability testing center. Eventually, Suzuki wants the Rohtak complex to serve as its global small-car development hub.

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