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Big Future In Small Cars

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The Maruti Suzuki A-Star vending its way through the Swiss Alps stops a group of Indian tourists in their tracks. The shock of actually seeing a home-grown car in a plush western European destination leads to gasps all around. But what the tourists see is nothing new for Maruti Suzuki, exporting as it does 140,000 units annually to 109 countries now.

That's a far cry from the first batch of 102 cars the company exported to Bangladesh, Bhutan and Nepal in 1987.  "At that time, India was still perceived as a third world country. The idea of exporting a car to some of the most advanced nations was itself very audacious," says Mayank Pareek, managing executive director (sales and marketing) at Maruti Suzuki India.

Despite high domestic demand in 1986-87, the company got into exporting cars. The premise then was that unless you challenge yourself against the best in the world, unless you benchmark with the best in the business, you will not be able to develop the quality and productivity levels that are required to survive in a competitive market.

That thinking has definitely helped. Today, the Maruti manufacturing system is in a position to meet the demands of countries across the world. So, if one car on the assembly line is being readied for the Netherlands, the next one is being made for Chile, and the third for Bangladesh. This has happened because production systems are flexible, automatic and computerised, enabling it to manage this complexity of business. As a result, today the company is a dominant player in the small car market in many European countries and sells cars on the basis of lower cost of ownership including low maintenance and high fuel efficiency.

In FY2010, Maruti exported 147,575 units to a European market that was witnessing a boom thanks to the vehicle scrappage incentives offered by several governments. During that year, 77 per cent of exports went to Europe. However, realising that the incentive will not last forever, Maruti began working pro-actively on developing non-European markets. In FY2011, Maruti focused its energies on developing existing non-European markets such as Australia and Indonesia while also exploring new markets in West Asia and Latin America.

The shift in focus led to Europe contributing only about 34 per cent to export sales, with non-European countries accounting for the rest. For  FY2011, the company reported a fall in exports — cushioned by the sales in new markets — at 138,266 units.

Exploring Uncharted Territories
One of the biggest achievements of Maruti Suzuki has been its ability to open up new markets on a regular basis. For example, in 1987, the company ventured into Hungary. It is now a leader in the small car segment in the Netherlands (it sold 17,126 units in FY2011). Maruti's choice of markets has been quite distinctive. Breaking away from the obvious, the company also exports to less popular markets such as Algeria, Egypt and Morocco in Africa; Chile, Peru, Panama and Uruguay in Latin America; Sri Lanka, Indonesia, Israel and the Philippines in Asia, among others.

How does Maruti manage to do this? Pareek says Maruti continuously strives to match the right fit between the product and the customer needs in the quest for new markets. He explains that the company identifies a target market by studying the socio-economic conditions before venturing there. Banking upon Suzuki's strong distribution network, the company creates awareness and educates the end-user. Africa, for instance, was used to driving large used cars imported from the US and elsewhere. The company educated end-users about the benefits of a brand new car and fuel economy.

The next critical step in the export process is the timely delivery of the vehicle from India to distributors around the world. Pareek says logistics is a humungous task mainly because of the geographical diversity of Maruti's export markets. The company has created two facilities — at the Mundra and Bombay ports. Apart from contracts with global shipping lines, it has invested over Rs 100 crore in a pre-delivery instruction centre at Mundra, from where the cars are loaded into ships.

Accepting Brand India

The benefits of exports do not end there. They create a degree of respect among global peers for the India-made car. In 2009, Nissan Motor signed a contract manufacturing agreement with Suzuki Motor Corp. to sell Maruti A-Star under the Nissan badge Pixo in certain European markets. Pareek says the Nissan contract was about synergies. Through the pact, Maruti's product quality got an endorsement and higher volumes led to cost-efficiency. For Nissan, it was about bringing in a highly fuel-efficient car under its brand name. The A-Star, one of the most fuel-efficient cars in Europe, is sold as Suzuki Alto in Europe, Suzuki Celario in non-European markets and as Maruti Suzuki A-Star in and around India. The company expects to cross the cumulative export milestone of a million units by April 2012, with over 25 per cent of the sales contributed by the A-Star.

Championing Quality
One big advantage Maruti has is the Japanese connection — Suzuki. Since 1986-87, Maruti has sold all its small cars — 800, Zen, Alto and A-Star — under the popular Suzuki brand Alto, leading to a seamless integration with Suzuki's product portfolio in export markets.

Maruti will continue to expand in the non-european markets

The challenge for Maruti was internal. "Suzuki was very clear that quality should never be compromised," says Pareek. Although Maruti had been making cars for three years in 1987, it had the big task of scaling up quality to become globally competitive. Amidst a nascent auto industry, the carmaker realised that to improve the quality of the end product, it would have to create a vendor base competent enough to supply as per global standards. "In our time, there was nothing. We had to literally hand-hold people and show how to work. We had to get global collaborations for domestic vendors to make components," says Pareek.

The company brought in foreign collaborators and created as many as 14 joint ventures to develop a vendor base. "Then, India was not a hot destination for foreign capital. Since nobody knew a third party, in many cases we stood guarantee. We were silent partners in these joint ventures, putting in money," he says. Maruti also started a vendor development programme in which company employees would be stationed at vendor facilities to educate them about Maruti's production and quality systems. The programme called ‘Shikhar' is still on with Maruti's team working with vendors to identify quantifiable improvement areas.

Overcoming the quality challenge proved to be a boon for the entire industry as now the country has a vendor base which supplies to manufacturers worldwide. It has also led to global manufacturers setting up shop in India. "Leadership is not about benefiting yourself, but benefiting the industry at large," adds Pareek.

As a leader, Maruti Suzuki helped create not just a thriving local auto industry, but also opened doors for firms from various industries to tap unexplored markets. Pareek says that many firms from different sectors consult Maruti about its strategy for approaching new markets. Without naming the firms, he says that mainly people from two-wheeler, logistics and consumer durable industries turn to Maruti for guidance.

On the back of its leadership in the small car segment, Maruti will continue to expand in non-European regions. It believes that African and Latin American countries hold huge potential. Pareek is categorical when he says: "We believe there is a big future in small cars." 

abhinav dot sharma at abp dot in

(This story was published in Businessworld Issue Dated 19-03-2012)