Maruti
Suzuki India Limited SWOT Analysis Report
Strategic and SWOT Analysis of Maruti Suzuki India
Maruti
Suzuki India Limited (MSIL or “the company”), a subsidiary of Suzuki Motor
Corporation, manufactures and distributes motor vehicles and spare parts.The
company's product suite consists of luxury cars, sports utility vehicles and
multi-purpose vehicles. In addition, the company also buys and sells pre-owned
cars. The company primarily operates in India, where it is headquartered in New
Delhi and employed 9,100 people as on March 31, 2012. The company recorded
revenues of INR347,059 million ($7,184.1 million) during the financial year ended
March 2012 (FY2012), a decrease of 3.2% as compared to FY2011. The operating
profit of the company was INR13,746 million ($284.5 million) during FY2012, a
decrease of 47.6% as compared to FY2011. The net profit was INR16,352 million
($338.5 million) in FY2012, a decrease of 28.6% as compared to FY2011.
SWOT
ANALYSIS
Maruti
Suzuki India (MSIL), a subsidiary of Suzuki Motor, manufactures and distributes
motor vehicles and spare parts. The company's product suite consists of luxury
cars, sports utility vehicles and multi-purpose vehicles. MSIL is India's
largest passenger car company, accounting for about 38.4% of the Indian
passenger vehicle market. A strong market position gives the company significant
bargaining power and provides it with benefits of economies of scale. However,
increasing competition would adversely impact the company's market share and
profitability.
Strengths
Strong domestic player
MSIL,
a subsidiary of Suzuki Motor (SMC) of Japan, is India's largest passenger car
company,
accounting
for over 38.4% of the Indian passenger vehicle market. MSIL is the only Indian
company to have crossed the 10 million sales mark since its inception. In
FY2012, the company sold over 1.13 million vehicles including 127,379 units of
exports. The company offers 15 brands and over 150 variants ranging from
entry-level cars such as Maruti 800 and Alto 800 and Alto K10; family cars such
as Ritz, A star, Swift, Wagon R, Estilo and Eeco; off-roaders such as Gypsy;
luxury cars such as SX4, Swift DZire and Kizashi; and sports utility vehicle
such as Grand Vitara. The company’s premium small car A-star with low CO2
emission was the single largest selling model and its cumulative sales crossed
the milestone of 300,000 units. Since its launch in 1983, Maruti 800 was the
best selling car till 2004. The Maruti Suzuki Alto then followed as the largest
selling car in India. Additionally, MSIL exports entry-level models across the globe
to over 120 countries in Latin America, Africa, South East Asia and Oceana.
Thus, a strong market position gives the company significant bargaining power
and benefits it with the economies of scale. In addition, it also enhances the
company's brand image and provides an edge over its competitors.
Robust brand image
The
company has built up a strong brand image over the years. During the year, the
company received reputed awards and accolades for its products and services
from independent expert groups, media houses and research agencies. For
instance, in FY2012, for the 12th consecutive time, MSIL was ranked the highest
in JD Power Asia Pacific 2012 India Customer Service Index
(CSI)
study. In addition, according to a survey conducted by JD Power Sales Service
Index (SSI)
study,
MSIL was ranked the highest in customer satisfaction with dealer service for a
13th consecutive year, with a score of 879 points. Therefore, strong brand
image makes the company's entry into new markets easier and increases the
customer base which further helps in boosting the overall sales.
Extensive distribution network
MSIL
has an extensive distribution network in India. It has a strong sales and
service network in the country. In FY2012, the company had a sales network of
1,100 dealerships across 801 towns and cities in India. In addition, it
provides service support to customers at 2,958 workshops spread over 1,408
towns and cities of India. The company has the highest presence in terms of
district coverage at 82%. MSIL is the only passenger vehicle manufacturer to
achieve more than one thousand sales outlets in India. Furthermore, the company
is planning to expand the number of dealerships to 1,500 by 2015.
Therefore,
strong distribution network enables MSIL to tap the growing demands in
metropolitan
cities
as well as fast growing small cities in India, which in turn enables the
company to improve its sales and to strengthen its market position in the high
growth Indian automotive market.
Strong parent backing
MSIL
is a majority owned subsidiary of Suzuki Motor (SMC), a Japan-based company,
engaged in the manufacturing and marketing of motorcycles, automobiles, marine
and power products, motorized wheelchairs, electro senior vehicles, and houses.
SMC is a pioneer and market leader in small car manufacturing segment in Japan.
Its mini car section rolled out innovative yet economical passenger car for the
masses.The company has high brand recognition and operates in more than 190
countries across the world. Brand recognition allows SMC to charge premium
prices than its competitors and thus register relatively higher margins. Hence,
SMC's strong brand image gives MSIL a significant competitive advantage and
helps it to register higher sales growth in domestic, as well as in
international markets.
Weaknesses
Labor unrest dampening company's
financial health and production
MSIL
has been involved in many labor issues in the recent past. The company was
subject to many labor strikes which significantly impacted its vehicle
production. For instance, production at the company's Manesar plant was
suspended in July – August 2012 after hundreds of workers rioted and set part
of the factory on fire in which more than 100 other executives were injured
during the unrest. MSIL declared an indefinite lockout at the plant on July 21,
2012. It reopened it on August 20, 2012.The company said the lockout impacted
some of its best-selling models such as the Swift, Dzire, SX4 and A-star
models. Consequently, MSIL's sales in August 2012 declined by 41% as compared
to the same period in 2011. Similarly, in August 2011, the employees at Manesar
plant resorted to a strike when five employees were suspended. In addition, the
company closed two factories in September 2011, due to a strike at its Suzuki
owned engine supplier, as the 18-day long labor unrest spread to its sister
companies. Strikes began at Suzuki Powertrain after labor unrest at the
company's Manesar factory, due to disagreements between workers and management
over discipline. As a result of this, production at MSIL's factory at Gurgaon,
also in Haryana, declined to 1,000 cars, compared with a normal daily production
of 2,800 cars. Production was affected at Gurgaon due to lower supply of diesel
engines and transmissions from Suzuki Powertrain. The strike at Manesar plant
was resolved and the operations started in October 2011 after more than a
month. Due to this, the company lost around $400 million in production
shortfall in FY2012 and saw its market share decline due to labor problems. Hence,
frequent lockouts such as these in the near future would have an adverse impact
on the company's overall production output and also its revenues.
Lapses in product quality impacts the
reputation
MSIL
announced recalls that cover one of its most popular models due to
manufacturing and design problems. For instance, in April 2011, MSIL recalled
about 13,157 diesel cars manufactured between November and December 2010, for a
possible faulty engine part. The recall included 4,505 units of Swift DZire,
6,841 units of Swift and 1,811 units of Ritz. In addition, the company recalled
100,000 cars of hatchback model A-Star from the Indian market to replace a
faulty fuel pump gasket, which could potentially lead to fuel leaks. The car
recall belongs to August 2009 lots. The recall was a negative development for
MSIL as A-Star has been a popular model in Europe. Furthermore, the company
increased the provision of warranty and product recall by 43.3%, from INR929
million ($19.2 million) in FY2011 to INR1,331 million ($27.6 million) in
FY2012. Hence, significant product recalls indicate decline in product quality
and a continuation of this trend which could negatively impact the consumer
confidence in MSIL's products and could strain its sales.
Opportunities
Growing automotive manufacturing
industry in India
The
Indian automotive manufacturing industry has experienced strong double digit
growth for the 2010 – 2011 period.The industry is expected to maintain positive
levels of growth from 2012 through to the end of the forecast period in 2016.
According to MarketLine (a unit of Informa plc), the Indian automotive
manufacturing industry grew by 11.8% in 2012 to reach a value of $77.6 billion.
Moreover, MarketLine estimates that in 2016, the Indian automotive manufacturing industry would have a value of $109.1
billion, an increase of 40.6% since 2012.
Moreover,
it is estimated that in another 40 years, the Indian automobile sector will top
the world in car production and around 611 million automobiles will be running
on the Indian roads.The economic liberalization in India that happened in 1991
brought in an increase in competitiveness and a relaxation in restrictions.
Post 1991, the Indian car market has been displaying steady growth. Many Indian
automotive majors like M&M, MSIL and Tata Motors expanded their base both
in India and abroad. The Indian automobile sectors healthy and financially
viable growth led to the internal development and also gave ri se to noteworthy
India-specific investments by multinational car makers. Major global players
like General Motors, Ford, Mercedes-Benz, Volkswagen, Suzuki, Honda, Fiat,
Hyundai, Porsche, Audi and more are active in the country, so does in all other
segments of the automotive industry. MSIL is a dominant player in the passenger
car segment of automotive market in India. In FY2011, the company had a market
share of over 38.4% in the Indian passenger car market. Hence, the company can
leverage its strong position and ride the buoyancy in the automotive market in
India.
Expansion of product portfolio through
launch of new models
The
company introduced various new and improved models in order to expand its
product offerings. For instance, in October 2012, MSIL unveiled Alto in a new
form ‘Alto 800’ with a fuel efficiency of 22.74 kmpl. Alto 800 will be
manufactured at the company’s Gurgaon facility and will be available in three
petrol variants and three factory fitted CNG variants. The company along with
its vendors have invested over INR4,700 million ($97.3 million) towards
developing the Alto 800. Similarly, in September 2012, MSIL introduced a new
Ritz Diesel, with 10% improvement in fuel efficiency from 21.1 kmpl to 23.2
kmpl. Furthermore, MSIL launched industry's first life utility vehicle named
Ertiga, in April 2012. With this, the company entered into the utility vehicle
segment in India. Ertiga strengthens the product portfolio of the MSIL and also
creates an all new life utility segment at an attractive price point.
Hence,
introduction of new models as per the changing market needs would enable the
company
to
remain at the forefront of competition apart from enhancing its product
portfolio and revenues.
Besides
helping to garner additional revenues, new models would also help the company
to revamp its aging model lineup.
Threats
Increasing competition
The
global automotive industry is intensely competitive and competition is likely
to intensify further in light of continuing globalization and consolidation in
the worldwide automotive industry. Factors impacting competition include
product quality and features, innovation and product development time, ability
to control costs, pricing, reliability, safety, fuel economy, customer service,
and financing terms. MSIL face intense competition from its domestic as well as
foreign competitors including General Motors, Honda Motor, Tata Motors,
Mitsubishi Motors, Fiat, and Ford, among others. Competition is expected to
intensify further as Indian automotive manufacturers obtain greater access to
debt and equity financing in the international capital markets or gain access
to more advanced technology through alliances. Additionally, in recent years,
the Government of India has permitted automatic approvals for foreign equity
ownership of up to 100% in entities manufacturing vehicles and components in
India. With
the gradual
liberalization of the automobile sector, the number of manufacturing facilities
in India has grown progressively. Furthermore, Chrysler, Kia, Peugeot, Triumph
and Scania are contemplating on foraying into India. These changes have led to
noticeably increased competition in product offerings by all the auto
manufacturers in India.Thus, increasing competition from global and domestic players
would fuel price wars, which in turn threatens to erode the market share and
margins of the company.
Environmental regulations
As an
automobile company, MSIL is subjected to extensive governmental regulations
regarding
vehicle
emission levels, noise, safety, and levels of pollutants generated by its
production facilities. These regulations are likely to become more stringent
and compliance costs may significantly impact the company's future results of
operations. For instance, India implemented the Bharat Stage (BS) 2 norms
throughout the country in 2005. Furthermore, the country adopted the BS 3
emissions standards in April 2010, which are more stringent than the previous
norms. In addition, the government of India implemented BS 3 from October 2010.
While MSIL is pursuing various technologies in order to meet the required
standards in the various countries in which it sells its vehicles, the costs
for compliance with these required standards can be significant to the
company's operations. Hence, this may adversely impact the company's financial condition
and results of operations.
Increasing interest rates
The bank
interest rates in India have been consistently growing from the past few years.
The interest rate decisions are taken by the Reserve Bank of India's Central
Board of Directors. From 2000 to 2013, India's average interest rate was 6.55%
reaching an historical high of 14.5% in August 2000 and a record low of 4.25%
in April 2009. Moreover, India's benchmark policy rate that determines the
interest rate is currently at 7.5%, whereas China's rate stands at 6.56%, the
US have its benchmark interest rate at 0.25%, the UK at 0.50% and Euro area has
approximately 1%. Increasing interest rates tends to influence the consumers'
decision making in buying vehicles as they tend to purchase vehicles at lower
interest rates. Hence, a consistent increase in the bank interest rates in
India would influence the growth in Indian automobile sales which in turn will
impact the company's vehicle sales.
If you
want SWOT Analysis Report on Maruti Suzuki, contact Mahasagar Publications
