Automobile manufacturing industry in India started in 1948. Upto 1948 cars were being assembled and sold in India. The assembling started in 1926 by G Mackenzie and Co., followed by General Motors in 1928. However, due to government policies related to manufacturing many foreign companies left India. The players who remained in Indian market were Hindustan Motors, Premier Automobiles and Standard Motors.The Padmini premier was a preferred car till early 1980s. The waiting time for the car was 5 years. In 1968, the demand for cars outstripped the supply taking the waiting list to 82,000. People used to wait for more than two years to get a car. The huge demand created scope for black marketing. Bureaucrats influenced to get special quota to get cars and sold their used car at a huge profit. Due to lack of competition the price of the cars were high in those days (Rs 14,000 to Rs16,000). The quality of the cars was not up-to the mark. Government policies didn’t focus on the problems associated with the industry. The regulators tried to control price and neglected attention on the huge supply-demand gap.
Due to foreign exchange constraints government disallowed further import of technology to upgrade or change the models. The car manufacturers did not invest in any engineering base to develop models with technology upgrades. The license on production volume stole the motivation for investment in the sector. Foreign collaborations, consultancies and import of capital goods and components were barred. The situation of the entire industry was grim.
The adverse conditions forced the government to think of nationalize all the three car manufacturers in India.
Maruti Suzuki India Limited started its journey as Maruti Udyog Limited as a public sector company. The motivation behind the establishment of the company was to manufacture small low cost cars that can cater to the needs of the Indian consumers. In 1980, an ordinance was passes to acquire Maruti Motors Limited which was later legitimized through the Maruti Limited Act, 1980. Maruti Motors Limited was incorporated in 1971 by Mr Sanjay Gandhi, son of Indira Gandhi. Due to the political power Mr Gandhi enjoyed, Maruti Motors Limited could easily avail 297 acres of prime land for Rs 35 Lakh from the Haryana government. The officially stated reason of nationalisation of the Maruti Motors was modernization of automobile industry, more economical utilization of scarce fuel and ensuring a higher production of motor vehicles.
Maruti Udyog Limited (MUL) was incorporated in 1981 as 100% government own company. The initial plan was to set up a capacity of 100,000 passenger cars and 40,000 light commercial vehicles. However, there was a shortage of technology in the country. Government had decided to technology would be obtained through foreign collaboration.
Human Resource Acquisition
Government decided to bring the best talent from both the private and public sector to run the company. Mr Sumant Moolgaokar of TELCO was offered the post of non-executive chairman of the company. This model is considered as the base of PPP (Private-Public Partneship) in India. Other notable management talents who shifted to Maruti Udyog Limited are: V. Krishnamurthy of BHEL, D.S. Gupta from IIM, Ahmedabad, R.C. Bhargava (IAS) from BHEL etc. The management of MUL was provided with free access to Mr Rajiv Gandhi so that the constraints related to the project could be dealt with apt. Mrs Gandhi selected Mr Arun Nehru as the single point contact for the project.
MUL recruited several managers from BHEL, Indian Railways and other public sector units. The strategy was not to employ people who have already worked with any of the existing car company of India. The motive for such move was to prevent duplication of the existing culture of companies in Maruti. People who are new to the industry will find it relatively easier to learn the Japanese culture and the SMC system.
Most of the engineers in MUL were fresh engineering graduates. There was only a minor group of experienced engineers from Tata Motors and Eicher Motors.
Foreign Collaborator
MUL had a target to hit the road by December 1983, around 2.5 yrs from its inception. In order to get a foreign collaborator the Heavy Industry Ministry had contacted several car manufacturers in the US and Europe. The companies contacted included British Leyland, Peugeot, Renault, Volswagen, Man AG, Daimler-Benz, Daihatsu motors, Toyota Motors, Mitsubishi Motors, Honda Motors, Suzuki Motors, Isuzu Motors, Subaru, Nissan etc. The general response for collaboration was poor. Since the management of MUL was convinced that the small car model of Japan will well fit into the Indian conditions they focused on getting a Japanese collaborator. Daihatsu was the only company that had responded positively to MUL. However, later it was disclosed that the company only wanted to understand Indian market better through talks with MUL and had no intention to manufacture cars in India. Suzuki Motors Corporation (SMC) which was not in the landscape, suddenly expressed its desire to partner with MUL for car production in India.
Initially SMC subscribed to a 26% share in MUL.
MUL and SMC signed agreements to import CKD kits and other technology based auto components.
Location of the plant
The MUL plant was in Gurgaon. Since MUL had acquired Maruti Motors Limited it saved time in location selection and land acquisition. The location had many disadvantages especially if MUL had to export cars in future. At the same time proximity to Delhi, being on national highway were its biggest advantages.
Import Duty Reduction
The import duty on automobile components was 120%. This was to demoralise imports due to shortage of foreign exchange in India. Premier Padmini and Ambassador did not need any imported part for their cars. They imported only some spare parts if needed. But this high import duty was not tenable for MUL which had to import huge quantities of spare parts and kits. MUL managed to convince the government that imported parts will save energy and will reduce import of oils. Government reduced the import duty to 40%.
Learning the SMC way
From the very beginning of the MUL-SMC deal, Osamu Suzuki, the SMC president had made it clear that if MUL wanted the same quality as being achieved by Japan, MUL must act as SMC works. SMC offered acceptable terms to Maruti to train its employees in Japan. SMC ensured that the MoU of the deal included a clause on profit making as one of the objectives. This was to ensure that the functioning of MUL would be different from the functioning of any other PSU in India.
The training of supervisors in Japan started with learning of industrial culture before learning the job related training. SMC insisted for intensive training at all levels. Training was seen as the building blocks to ensure productivity and quality. The management of Maruti was advised to focus on employee training and development. SMC advised the management that disciplinary action or intimidation will never yield the same results as training and development will yield.
Engineers, supervisors, managers all were sent to Japan in batches for training- both about the culture and the job requirements. Nearly 230 people from MUL were sent to Japan for training.
In the year 1988-89 SMC accepted to deploy MUL workers on SMC’s production line for six months. The scheme was operative for 15 years. In these 15 years 979 workers of MUL were trained in Japan.
Suzuki Quality Management System
MUL adopted a system by which the quality of cars dispatched from the factory was measured on a daily basis. This was in accordance with the system followed by SMC in Japan. MUL also adopted Suzuki’s global customer audit index. This helped the company to provide a customer-oriented focus to the entire organization and also steered the channel resources towards customer complaints for rapid response.
Implementation of Kaizen
MUL also followed continuous improvement, i.e., Kaizen activities to improve its quality orientation. Participative management style to discuss problems relating to operations has helped the company to achieve better commitment from its employees. Quality circles, suggestion schemes etc. have helped the management to keep the focus on quality.
