chapter-iv trend analysis and composition of fdi inflow in maruti

98

CHAPTER-IV TREND ANALYSIS AND COMPOSITION OF

FDI INFLOW IN MARUTI SUZUKI INDIA LIMITED

BRIEF INTRODUCTION OF MARUTI SUZUKI INDIA LIMITED

Maruti Suzuki India Limited is India and Nepal's leading

automobile manufacturer and the market leader in the car segment, both in

terms of volume of vehicles sold and revenue earned. The company was

established as Maruti Udyog Limited (MUL) in 1981 with a prime

objective to meet the growing demand of a personal car for common

people of India. The incorporation of the company was through an Act of

Parliament. Suzuki Motor Company of Japan was chosen from seven

other prospective partners worldwide. Suzuki was selected due not only to

its undisputed leadership in small cars segment but also to make

commitments to actively bring to MUL contemporary technology and

Japanese management practices. A license and a Joint Venture agreement

were signed between Government of India and Suzuki Motor Company

(now Suzuki Motor Corporation, Japan) in October, 1982. In initial stage

Suzuki Motor acquired 26% stake in Maruti Udyog Limited with an

option to increase it to 40%.

The first manufacturing plant of Maruti Udyog Limited was set up

on the outskirts of Delhi in Gurgaon and the first car ‘Maruti-800’ was

launched in December, 1983 followed by India's first van ‘Omni’. Both

99

cars can still be seen on Indian roads. Maruti started export of cars to

Hungary while the ‘Maruti-800’ saw its first model change in 1987.

Suzuki exercised its option to buy more equity and increases its stake to

40% in 1987.

Liberalization of the Indian economy encouraged a rush of foreign

companies like GM, Ford, Peugeot, Daewoo and Honda in automobile

market of India. It also benefited Suzuki Motors who increased its stake to

50% in Maruti Udyog Limited during this period. The company was no

longer a public sector undertaking but an Indian company runs on

Japanese principles. A rotating scheme for appointing the managing

director was devised with government and Suzuki taking turns to appoint

a candidate for five years, alternately.

Korean auto giant Hyundai entered in automobile market of India

with Santro while Tata Motors, country's largest commercial vehicle

manufacturer, entered in the passenger car segment with Indica. The two

along with Daewoo's Matiz provide competition to Maruti's ‘M800’ and

‘Zen’. As the market expands, the company's hold weakens and its market

share falls from 80% in 1995 to 70% in 2001.

In September 2000 Maruti introduces ‘Alto’. It has been the largest

selling car for the past seven years and after the introduction of an

advance version of it in 2010, it became the largest-selling small car in the

world.

Government privatised Maruti in 2002 and Suzuki Motors took

majority ownership with a 54.2% stake. Maruti was listed on BSE and

NSE after an IPO that was oversubscribed 7.82 times. The government

sold 25% of its stake. The government's stake fell to 17% and mopped up

100

around Rs. 1000 crores. In 2006, government sold more of its stake and

exited the company in 2007 by selling off the residual equity. Today, after

Suzuki Motor, foreign institutional investors hold the maximum equity of

Maruti Suzuki India Limited i.e. 20.3% followed by banks and financial

institutions like LIC at 12.7%. General public owns 11.8% equity of the

company.

Maruti steps out of Gurgaon to invest in Manesar. Initially one

plant with a capacity of three lakh units and an investment of Rs. 1450

crore was set up in Manesar in 2007. The company announced fresh

investment of Rs. 3625 crore to build two more plants that would take up

its capacity to 8.5 lakh units by 2014.

The ‘Swift’ was launched in the year 2005and it became a symbol

of young India in a way similar to the M800 in the 80's. It is the second-

largest seller in the country after the Alto. In 2008, Maruti started the

production of ‘Sedan’ and ‘Dzire’ entered in to outside of the small car

segment.

A decade of smooth sailing was shattered when three labour strikes

between June and October, 2011 rocked the new Manesar factory and

crippled the production of the plant. Workers demanded recognition of a

new union. During the course of the unrest, Maruti suffered a revenue loss

of around Rs. 2500 crore and a production loss of 83,000 cars. Its’ market

share during the period slashed down to 38%, the worst ever since its

inception. The strike is finally resolved in October, 2011 after a tripartite

agreement.

Chronological Evolution of Maruti Suzuki India Limited

101

The chronological progress of growth of Maruti Udyog Limited,

now Maruti Suzuki India Limited may be portrayed as under-

1970: The Indian government launched a new car company called

Maruti Technical Services Limited which created competition for the

existing Ambassador Car Company.

1971: The government changed the name of the company to Maruti

Limited. Sanjay Gandhi became the first managing director of the

company.

1978: There was a Maruti Scandal in 1978 where the court issued a

notice to Maruti and as a result of corruption company was liquidated.

1981: The company was re-established. The Company was now called

Maruti Udyog Limited. After partnership with Japanese giant Suzuki

Motor Corporation in a Joint Venture Agreement, the company was

called Maruti Suzuki Company.

1983: Maruti produced its first car, the Maruti-800. It took the

company thirteen months to produce this car. This changed the

landscape of the Indian car market as Maruti-800 was the most cost-

effective and fuel-efficient car in India.

1984: Maruti produced a large mini-van called the ‘Omni’ that seated

up to eight people. This was an addition to its existing offering of the

Maruti-800.

Between 1985 and 1995: Maruti launched the ‘Gypsy’, ‘Maruti-1000’,

‘Zen’, and ‘Esteem’. In 1995 Maruti Suzuki India Limited started Road

Service, a 24-hour service which gives customers 24-hour access to

102

technicians and vans who are ready to help with any problem of the car

round the clock.

1987: The company made its first export sale, selling 500 cars to

Hungary.

2000: Maruti launched India’s first call center and the Altrura, a luxury

car. It also introduced the 16-Valve MPFI G13BB engine in the Gypsy

and the power increased to 80 bhp.

2002: The ‘WagonR Pride’, ‘Esteem (diesel version)’ and ‘Alto Spin LXi’

were introduced. Maruti Finance was started diversifying the company

from its initial product offering of only cars to finance. Maruti also

inaugurated a children’s park in Delhi as part of it’s Corporate Social

Responsibility Initiative.

2003: Maruti launched the ‘Grand Vitara’.

2005: Maruti launched the ‘Swift’.

2006: Maruti had produced up to six million cars.

2007: Maruti launched the ‘SX4’ and ‘Swift Diesel’. The company was

renamed from Maruti Udyog Limited to Maruti Suzuki India Limited.

2008: Maruti launched ‘Swift DZire’, ‘A-Star’ and inaugurated the K-

series engine plant in Gurgaon.

2009: The Company shipped the first batch of A-Star cars from the

Mundra port.

2010: Maruti Suzuki started manufacturing 12 models of cars in

Manesar plant, ‘Grand Vitara’ is imported from Japan as a completely

built unit (CBU), remaining all models are manufactured in Maruti

103

Suzuki's Gurgaon Plant. More than half the cars sold in India are Maruti

cars.

Prime Features of Maruti Suzuki India Limited

In the present time, Maruti Suzuki India Limited is India’s leader in

the automobile industry of the country. The prime features and

competitive strengths of the company may be discussed as under-

Expertise in small car technology- Maruti Suzuki India Limited, access

to globally respected technology in the small car segment. The

company has the advantage of Suzuki’s expertise in all aspects of

small car technology and design, with respect to products,

manufacturing processes, business practices, and the development of

supply chain and the training of personnel.

Extensive Product Portfolio- The diverse product range of the

company includes cars in segments A, B and C, and utility vehicles. It

manufactured five out of the ten models that were sold in the

combined A and B segments in India.

Quality Products- Maruti Suzuki India Limited was one of the first

automobile manufacturers in the world which receive the ISO

9001:2000 certification in November, 2001. Company began to export

products in 1988 and at present exporting to approximately 70

countries, including countries in Western Europe.

Extensive Sales and Service Network- Maruti Suzuki India Limited has

the largest network of dealers and service centers amongst car

manufacturers in India. As on March 31, 2011, company had 933 sales

104

outlets in 668 cities. It also had 2946 Maruti Authorized Service

Stations which covered 1395 cities in India backed by Express Service

Centers on 65 highways across the country.26

Brand Strength- Maruti Suzuki India Limited has been present in the

Indian market for almost thirty years and has built its brand on the

basis of the values of trust and reliability. Most of principal

competitors of the company have been present in the Indian

passenger car market for a significantly shorter period. This has

contributed to the strength of brand of the company. In 2000, 2001

and 2002, J.D.Power Asia Pacific, Inc. ranked Maruti Suzuki India

Limited, No. 1 in the India Customer Satisfaction Index. NFO

Automotive’s 2002 Total Customer Satisfaction Survey ranked Maruti

products as No. 1 in the “Economy”, “Premium Compact” and “Entry

Midsize” segments respectively, for 2009.

Integrated Manufacturing facility- The manufacturing facility of

Maruti Suzuki India Limited comprises three integrated plants with

flexible assembly lines located at Gurgaon in the northern state of

Haryana. These plants have advanced engineering capability and each

plant is upgraded on an ongoing basis to improve productivity and

quality. Company has an installed capacity of 700,000 vehicles per

year, which is the highest among passenger car manufacturers in

India. Company has consistently produced in excess of its installed

capacity in from past several years.

26 Annual Report of Maruti Suzuki India Limited, 2010-11; P. 20

105

Strong Vendor Base and Higher Rates of Localization- Maruti Suzuki

India Limited works closely with its vendor base for the supply of raw

materials, components and spare parts of its products. Most of

vendors of the company are its exclusive and dedicated suppliers and

are located within a radius of 100 kilometers from the manufacturing

plants of the company. The production systems of vendors of the

company are generally aligned to need of the company for a reliable

and timely supply of components that meet specific quality

requirements. This has enabled Maruti Suzuki India Limited to

increase the proportion of lower cost components and thus reduces

the cost of its products.

Skilled labour and experienced management- Maruti Suzuki India

Limited has highly skilled and productive labour in terms of vehicles

produced per employee. Company has been present in the Indian

passenger car market for a significantly longer period than most of its

principal competitors. As a result, Company has been able to build a

highly experienced management team that is familiar with conditions

in the Indian passenger car market perfectly.

Capital Resources- At December 31, 2011, Maruti Suzuki India Limited

had cash and bank balances and current investments amounting to

Rs.2508.5 crores. As of the same date, Company had relatively low

levels of current outstanding indebtedness, in the amount of less than

Rs.700 crore.27 As a result, Company has relatively low interest

27 Balance sheet given in the Annual Report of Maruti Suzuki India Limited, 2010-11

106

expense and flexibility to raise funds, if necessary, for its working

capital and capital expenditure in the future.

After studying the brief Introduction of Maruti Suzuki India limited,

it may be said that this company has a unique place not only in

automobile sector of the country but also among the joint venture

companies of India. Having seen the typical conditions of an industrially

developing host for foreign direct investment like India, not many foreign

companies have invested in India in a manner that will yield consistent

growth and profitability. Despite a long history and experience of

investment by several hundred foreign companies in India only a few

companies have had consistency in their growth and profitability in India.

The direct investment pattern of Suzuki Motor Corporation is rare model

that has benefited the host and helped the company to grow in size,

profitability and global presence through its operation in India. This is the

reason that researcher selected Maruti Suzuki India limited to study the

composition of FDI inflow in automobile Sector of India at micro level.

IMPACT OF FDI INFLOW ON MARUTI SUZUKI INDIA LIMITED

Most of the part of FDI in Maruti Suzuki India limited is invested by

Suzuki Motors, Japan. First this company signed a joint venture

agreement with Government of India as a minority partner and at

present Maruti Suzuki India limited is a subsidiary of Suzuki Motors,

Japan. Despite its shorter presence in India, Suzuki India limited has

grown in size, in strength and in its global presence through its timely &

107

holistic investment pattern in the Indian automobile industry, a strategy

that most of the foreign auto majors failed to adopt in India. Suzuki

Motors not only invested heavily in Maruti Udyog Limited but also

invested large amounts in many complementary business functions like

those of suppliers, dealers, car service centers. It has transferred its

technology and management skills to MUL and many component

suppliers in India. Further, it has either directly or indirectly influenced

many of the Japanese automobile component manufacturers to invest in

India. It has also indirectly attracted many global passenger car

manufacturers to invest in the Indian automobile industry. The holistic

impact of FDI in Maruti Suzuki India limited may be studied with the help

of following headings-

(A) Comparative study of total FDI inflow in Maruti Suzuki India Ltd.

(B) Transmission of Japanese Style Management System in India

(A) COMPARATIVE STUDY OF TOTAL FDI INFLOW IN MARUTI SUZUKI INDIA LIMITED

In Maruti Suzuki India limited, the investment of its foreign partner

increased gradually since its inception along with their influence and

interventions in all policy matters of the company. This affected the

production line, sales, export and profitability of company to a great

extent.

The status of FDI in Maruti Suzuki India limited and its direct

impact on different segments of growth of company may be studied with

the help of following headings-

108

Comparative study of total capital employed in Maruti Suzuki

India limited with total FDI in the company

Impact of FDI in Maruti Suzuki India limited over Production

Impact of FDI inflow in Maruti Suzuki India limited over Sales

Impact of FDI inflow in Maruti Suzuki India limited over Profitability

Impact of FDI inflow in Maruti Suzuki India limited over Export

Impact of FDI inflow in Maruti Suzuki India limited on Permanent

Employment

The detailed study of given headings is as under-

COMPARATIVE STUDY OF TOTAL CAPITAL EMPLOYED IN MARUTI SUZUKI INDIA LIMITED WITH TOTAL FDI IN THE COMPANY

In Maruti Suzuki India Limited, capital is employed by Suzuki

Motor, foreign institutional investors, financial institutions and general

public of the country. At present Government of India does not have stake

in the company and Maruti Suzuki India Limited is a subsidiary of Suzuki

Motor Corporation, Japan.

In the following table no. 4.1, an effort is made to compare the

total capital employed in Maruti Suzuki India limited with total FDI in the

company during the years 1991-92 to 2010-11-

109

Table 4.1

COMPARATIVE STUDY OF TOTAL CAPITAL EMPLOYED AND TOTAL FDI INFLOW IN MARUTI SUZUKI INDIA LTD. FROM

1991-92 TO 2010-11

Year

Total Capital Employed in

MSIL ( Rs. in Crore)

Total FDI in MSIL

( Rs. in Crore)

% of Inflow of FDI to Total

Capital Employed in

MSIL

Chain Base

Indices

Trend Values

1991-92 474.9 211.45 44.53 100.00 54.62

1992-93 944.9 385.97 40.85 91.74 55.90

1993-94 1119.6 692.45 61.85 151.41 57.19

1994-95 2148.8 1294.81 60.26 97.43 58.47

1995-96 2401.6 1595.1 66.42 110.22 59.75

1996-97 2542.6 1745.57 68.65 103.36 61.04

1997-98 3396.1 2248.18 66.20 96.43 62.32

1998-99 4159.8 2835.74 68.17 102.98 63.61

1999-00 5027.7 3422.2 68.07 99.85 64.89

2000-01 6223.7 4198.84 67.47 99.12 66.17

2001-02 7034.5 4807.62 68.34 101.30 67.46

2002-03 9648.23 6778.58 70.26 102.80 68.74

2003-04 10529.3 7339.03 69.70 99.21 70.03

2004-05 11487.21 7914.22 68.90 98.84 71.31

2005-06 11564.25 8296.69 71.74 104.13 72.59

2006-07 15254.26 11433.1 74.95 104.47 73.88

2007-08 17859.64 13321.66 74.59 99.52 75.16

110

2008-09 24456.36 18192.1 74.39 99.73 76.45

2009-10 32324.56 24372.01 75.40 101.36 77.73

2010-11 37548.36 28384.39 75.59 100.26 79.01

Source: Annual Reports of Maruti Suzuki India Ltd. from 1999-00 to 2010-11 and Other Statistical Reports available at www.marutisuzuki.com and www.siamindia.com

Diagram Showing % of Total FDI to Total Capital Employed in Maruti Suzuki India

Ltd. and its Trend Values in the Years 1991-92 to 2010-11

44.53

40.85

61.8560.26

66.42

68.6566.20 68.1768.07 67.47

68.34

70.26

69.70 68.90

71.7474.95

74.59

74.39

75.40 75.59

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Year

% of Total FDI to Total Capital EmployedTrend Values

Table no. 4.1 and its graphical representation clear the facts that

total capital employed in Maruti Suzuki India Limited was Rs. 474.9

crores in the year 1991-92 which shown an extraordinary increase of

111

about 7806.58 % during the study period and reached to Rs. 37548.36

crores in the year 2010-11. The prime reason for such a high increase in

capital employed in Maruti Suzuki India Limited was that due to its

almost monopolistic status, company increased its production capacity in

fast phase and invested the required capital accordingly.

The total foreign direct investment in Maruti Suzuki India Limited

was Rs. 211.45 crores only in the year 1991-92 which increased to Rs.

28384.39 crores up to the financial year 2010-11. The reasons traced in

respect of such a high increase in FDI in Maruti Suzuki India Limited

were:

To increase the share of Suzuki Motor Limited in the company’s share

capital from 40% to 54.2% during the study period and

Continuously increasing interest of foreign investors in the company’s

stake.

Percentage of FDI in Maruti Suzuki India Limited to total capital

employed in this sector was 44.53% in the year 1991-92 which showed

an almost increasing trend during the entire period of study. It reached

to its maximum level i.e. 75.59% of total capital employed in Maruti

Suzuki India Limited in the year 2010-11. This is the reason that the

company transformed from a government sector undertaking to Public

Sector Company and is a subsidiary of a foreign company i.e. Suzuki

Motor, Japan.

112

The trend values of the percentage of FDI in Maruti Suzuki India

Limited to total capital employed in the company are showing an

increasing trend throughout the study period.

IMPACT OF FDI IN MARUTI SUZUKI INDIA LIMITED OVER PRODUCTION

FDI facilitates the industrial units to consider over their expansion

plans. As a result the production capacity of the company increases.

The following table no. 4.2 presents the figures helpful in making

comparison between the total production and FDI in Maruti Suzuki India

limited from the year 1991-92 to 2010-11 so that the impact of FDI over

production may be studied.

113

Table 4.2

COMPARATIVE STUDY OF CHAIN BASE INDICES OF TOTAL PRODUCTION AND FDI IN MARUTI SUZUKI INDIA LIMITED

FROM 1991-92 TO 2010-11

YearTotal Production

of MSIL ( In Units)

Chain Base Indices

Total FDI in MSIL

( Rs. in Crore)

Chain Base Indices

1991-92 240659 100.00 211.45 100.00

1992-93 252367 104.86 385.97 182.53

1993-94 359256 142.35 692.45 179.41

1994-95 314296 87.49 1294.81 186.99

1995-96 332145 105.68 1595.1 123.19

1996-97 351483 105.82 1745.57 109.43

1997-98 354336 100.81 2248.18 128.79

1998-99 333198 94.03 2835.74 126.13

1999-00 407589 122.33 3422.20 120.68

2000-01 350376 85.96 4198.84 122.69

2001-02 358108 102.21 4807.62 114.50

2002-03 412543 115.20 6778.58 141.00

2003-04 452365 109.65 7339.03 108.27

2004-05 586145 129.57 7914.22 107.84

2005-06 612451 104.49 8296.69 104.83

2006-07 706351 115.33 11433.1 137.80

2007-08 764842 108.28 13321.66 116.52

114

2008-09 874649 114.36 18192.10 136.56

2009-10 1027879 117.52 24372.01 133.97

2010-11 1273361 123.88 28384.39 116.46

Coefficient of Correlation +0.984


Diagram Showing Chain base Indices of Total FDI and Total Production in Maruti Suzuki India

Ltd. and in the Years 1991-92 to 2010-11

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

Year

Chain Base Indices of Total Production of MSIL

Chain Base Indices of FDI in MSIL


total production in Maruti Suzuki India Limited was 240659 cars in the

year 1991-92 which shown a slightly fluctuating trend up to the year

115

2006-07 but ultimately got a good increase during the study period and

reached to 1273361 units in the year 2010-11.

The chain base indices of total production in Maruti Suzuki India

Limited depict that the annual growth of production of the company

remained ranging between -14.04% to +42.35% during the study period.

This growth rate does not grade as satisfactory having seen the

continuously growing demand of small cars by the middle class of the

country.

The total foreign direct investment in Maruti Suzuki India Limited

was Rs. 211.45 crores only in the year 1991-92 which increased to Rs.

28384.39 crores during the period of study. The chain base indices of

total FDI in Maruti Suzuki India Limited depict that the annual growth of

FDI in the company remained ranging between +4.83% to +86.99%

during the study period. The prime reasons of such a high fluctuating

growth rate of FDI of the company remain-

To increase the share of Suzuki Motor Limited in the company from

40% to 50% during the years from 1991-92 to 1994-95

The trembling attitude of foreign investors in respect of making

investment in Maruti Suzuki India Limited due to disputing

environment between the Suzuki Motor Limited, Japan and

Government of India.

The total production and inflow of FDI in Maruti Suzuki India

Limited from the year 1991-92 to 2010-11 have a highly positive

116

correlation i.e. +0.984. It means FDI has a direct and positive impact on

the growth of production of the company.

IMPACT OF FDI IN MARUTI SUZUKI INDIA LIMITED OVER SALES

Following table no. 4.3 presents the figures essential for making

comparative analysis between the sales and FDI of Maruti Suzuki India

limited from the year 1991-92 to 2010-11 -

Table 4.3

COMPARATIVE STUDY OF CHAIN BASE INDICES OF TOTAL SALES AND FDI IN MARUTI SUZUKI INDIA LIMITED FROM

1991-92 TO 2010-11

YearTotal Sales of MSIL

( Rs. in Crore) Chain Base

IndicesTotal FDI in MSIL


Indices

1991-92 1938.65 100.00 211.45 100.00

1992-93 2220.52 114.54 385.97 182.53

1993-94 2922.67 131.62 692.45 179.41

1994-95 4389.70 150.19 1294.81 186.99

1995-96 6696.68 152.55 1595.1 123.19

1996-97 7958.60 118.84 1745.57 109.43

1997-98 8478.48 106.53 2248.18 128.79

117

1998-99 8180.60 96.49 2835.74 126.13

1999-00 9672.36 118.24 3422.2 120.68

2000-01 9253.30 95.67 4198.84 122.69

2001-02 9410.30 101.70 4807.62 114.50

2002-03 9136.70 97.09 6778.58 141.00

2003-04 9081.20 99.39 7339.03 108.27

2004-05 10910.80 120.15 7914.22 107.84

2005-06 12050.34 110.44 8296.69 104.83

2006-07 14592.20 121.09 11433.1 137.80

2007-08 17860.36 122.40 13321.66 116.52

2008-09 20358.37 113.99 18192.1 136.56

2009-10 28958.33 142.24 24372.01 133.97

2010-11 36128.28 124.76 28384.39 116.46

Coefficient of Correlation 0.979


118

Diagram Showing Chain Base Indices of Sales and FDI in Maruti Suzuki India Limited from

1991-92 to 2010-11

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

Year

Chain Base Indices of Sales of MSIL Chain Base Indices FDI in MSIL


total sales of Maruti Suzuki India Limited was Rs. 1938.65 crores in the

year 1991-92 which shown a fluctuating trend during the study period

and reached to Rs. 36128.28 crores in the year 2010-11 having shown an

extraordinary growth of 1763.58% during the study period. The chain

base indices of total sales of the company revealed the fact that the

annual growth of sales of Maruti Suzuki India Limited remained ranging

119

between -4.33% to +52.55% during the study period. The roots of these

heavy fluctuations in the annual growth of sales of Maruti Suzuki India

Limited may be traced in to the highly competitive environment of car

market of the country after the liberalization of Indian economy.

The analysis of total foreign direct investment in Maruti Suzuki

India Limited during the period of study is same as mentioned in the

analysis of table no. 4.2.

The total sales and inflow of FDI in Maruti Suzuki India Limited

from the year 1991-92 to 2010-11 have a highly positive correlation i.e.

+0.979. It means that due to inflow of FDI, the sales of Maruti Suzuki

India Limited increased accordingly.

IMPACT OF FDI IN MARUTI SUZUKI INDIA LIMITED OVER PAT (PROFIT AFTER TAX)

Profitability is the ultimate parameter to check the success of the

policy decisions of company. The heavy inflow of FDI in Maruti Suzuki

India Limited during the study period remained positive for the

profitability of the company this may be studied with the help of

following table no. 4.4-

120

Table 4.4

COMPARATIVE STUDY OF CHAIN BASE INDICES OF PAT ( PROFIT AFTER TAX) AND FDI IN MARUTI SUZUKI INDIA

LIMITED FROM

1991-92 TO 2010-11

YearProfit after Tax

of MSIL ( Rs. in Crore)

Chain Base Indices

Total FDI in MSIL ( Rs. in Crore)

Chain Base Indices

1991-92 34.9 100.00 211.45 100.00

1992-93 37.8 108.31 385.97 182.53

1993-94 96.1 254.23 692.45 179.41

1994-95 247.6 257.65 1294.81 186.99

1995-96 427.6 172.70 1595.1 123.19

1996-97 510.1 119.29 1745.57 109.43

1997-98 651.9 127.80 2248.18 128.79

1998-99 523 80.23 2835.74 126.13

1999-00 330.1 63.12 3422.2 120.68

2000-01 -269.4 -81.61 4198.84 122.69

2001-02 104.5 373.90 4807.62 114.50

2002-03 305.9 292.73 6778.58 141.00

2003-04 542.2 177.25 7339.03 108.27

2004-05 853.6 157.43 7914.22 107.84

2005-06 1189.1 139.30 8296.69 104.83

121

2006-07 1562 131.36 11433.1 137.80

2007-08 1730.8 110.81 13321.66 116.52

2008-09 1918.7 110.86 18192.1 136.56

2009-10 2497.6 130.17 24372.01 133.97

2010-11 2288.6 91.63 28384.39 116.46



Diagram Showing Chain Base Indices of PAT and FDI in Maruti Suzuki India

Limited in the Years 1991-92 to 2010-11

-200.00

-100.00

0.00

100.00

200.00

300.00

400.00

Year

Chain Base Indices of PAT of MSIL


122


total PAT (Profit after Tax) of Maruti Suzuki India Limited was Rs. 34.9

crores only in the year 1991-92 which shown highly fluctuating trend

during the study period and reached to Rs. 2288.6 crores in the year 2010-

11.

The chain base indices of PAT (Profit after Tax) in Maruti Suzuki

India Limited portray that the annual growth of PAT in this sector

remained ranging between -181.61% to +273.90% during the study

period. In the year 2000-01 Maruti Suzuki India Limited first time

suffered a huge loss of 269.4 crores due to sudden growth of heavy

competition in car market of India and heavy increase in the cost of raw

materials but within a period of one year it again returned to its profit

trek with extra energy and enthusiasm and recorded heavy profits year

after year.



analysis of table no.4.2.

The total PAT and inflow of FDI in Maruti Suzuki India Limited from

the year 1991-92 to 2010-11 have a highly positive correlation i.e. +0.919

which indicates the positive impact of FDI over PAT (Profit after Tax) of

the company.

IMPACT OF FDI IN MARUTI SUZUKI INDIA LIMITEDOVER EXPORT

Maruti Suzuki exports entry-level models of cars across the globe

to over 100 countries and the focus of the company has been on

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identifying new markets. It shows the good trek record of company in the

field of export.

Here an effort is made to compare the total export and inflow of

FDI in Maruti Suzuki India Limited from the year 1991-92 to 2010-11

with the help of following table no. 4.5-

Table 4.5

COMPARATIVE STUDY OF CHAIN BASE INDICES OF TOTAL EXPORT AND FDI IN MARUTI SUZUKI INDIA LIMITED FROM

1991-92 TO 2010-11

YearTotal Exports of MSIL (

In Units)

Chain Base Indices

Total FDI in MSIL ( Rs. in Crore)

Chain Base Indices

1991-92 14439 100.00 211.45 100.00

1992-93 15899 110.11 385.97 182.53

1993-94 22273 140.09 692.45 179.41

1994-95 21372 95.95 1294.81 186.99

1995-96 22918 107.23 1595.1 123.19

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1996-97 21791 95.08 1745.57 109.43

1997-98 24804 113.83 2248.18 128.79

1998-99 23990 96.72 2835.74 126.13

1999-00 28939 120.63 3422.2 120.68

2000-01 26629 92.02 4198.84 122.69

2001-02 28649 107.59 4807.62 114.50

2002-03 37129 129.60 6778.58 141.00

2003-04 45236 121.83 7339.03 108.27

2004-05 48899 108.10 7914.22 107.84

2005-06 34784 71.13 8296.69 104.83

2006-07 39295 112.97 11433.1 137.80

2007-08 53024 134.94 13321.66 116.52

2008-09 70023 132.06 18192.1 136.56

2009-10 147575 210.75 24372.01 133.97

2010-11 138266 93.69 28384.39 116.46



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Diagram Showing Chain Base Indices of Export and FDI in Maruti Suzuki India

Limited from 1991-92 to 2010-11

0.00

50.00

100.00

150.00

200.00

250.00

Year

Chain Base Indices of Total Export from MSIL



Maruti Suzuki India Limited exported 14439 units of car in the year 1991-

92 which shown a fluctuating trend during the study period and reached

to 138266 units in the year 2010-11. The chain base indices of total

export from Maruti Suzuki India Limited portray that the annual growth

of export of the company remained ranging between -28.87% to

+110.75% during the study period. These figures do not present a

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positive sign for the export performance of the company and indicates

the highly impulsive export market of automobile sector.

The analysis of total foreign direct investment in automobile

sector of the country during the period of study is same as mentioned in

the analysis of table no.4.2.

The total export and inflow of FDI in Maruti Suzuki India Limited

from the year 1991-92 to 2010-11 have a highly positive correlation i.e.

+0.951 same as correlation between total production and inflow of FDI of

this sector. It means FDI has a direct and positive impact on the growth

of export of the company.

IMPACT OF FDI IN MARUTI SUZUKI INDIA LIMITEDOVER PERMANENT EMPLOYMENT

Employment generation is a major attribute which is appreciated by

the government of host nation at the time of granting permission for FDI.

Here an effort is made to compare the number of total permanent

employees and inflow of FDI in Maruti Suzuki India Limited from the

year 1991-92 to 2010-11 with the help of following table no. 4.6-

Table 4.6

Comparative Study of Chain Base Indices of Total Employment and FDI in Maruti Suzuki India limited from

1991-92 to 2010-11

YearTotal Permanent

Employees in MSILChain Base

Indices Total FDI in MSIL


Indices

1991-92 3912 100.00 211.45 100.00

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1992-93 4042 103.32 385.97 182.53

1993-94 4141 102.45 692.45 179.41

1994-95 4840 116.88 1294.81 186.99

1995-96 4968 102.64 1595.1 123.19

1996-97 5324 107.17 1745.57 109.43

1997-98 5642 105.97 2248.18 128.79

1998-99 5719 101.36 2835.74 126.13

1999-00 5848 102.26 3422.2 120.68

2000-01 5770 98.67 4198.84 122.69

2001-02 4627 80.19 4807.62 114.50

2002-03 4629 100.04 6778.58 141.00

2003-04 3334 72.02 7339.03 108.27

2004-05 3453 103.57 7914.22 107.84

2005-06 3535 102.37 8296.69 104.83

2006-07 3496 98.90 11433.1 137.80

2007-08 3419 97.80 13321.66 116.52

2008-09 3345 97.84 18192.1 136.56

2009-10 3286 98.24 24372.01 133.97

2010-11 3132 95.31 28384.39 116.46

Coefficient of Correlation -0.642


128

Diagram Showing Chain Base Indices of Total Employment and FDI in Maruti Suzuki India

Limited from 1991-92 to 2010-11

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00

Chain Base Indices


Chain Base Indices of Total Employment in MSIL

Table no. 4.6 and clear the facts that total number of permanent

employees in Maruti Suzuki India Limited was Rs. 3912 only in the year

1991-92 which increased up to a 5848 in the year 1999-00 and again

reduced to 3132 in the year 2010-11.

The chain base indices of total number of permanent employees in

Maruti Suzuki India Limited depict that the annual growth of employees

in Maruti Suzuki India Limited remained ranging between -27.98% to

+16.88% during the study period. The number of permanent employees

in the company increased continuously up to the year 1999-00 but after

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that this number started falling almost continuously till the end of the

study period. Here it is important to note the period of 1999-2010 was

the period when Suzuki Motors converted the Maruti Uduog Ltd. In to a

subsidiary of Suzuki Motors, Japan after a long struggle with Government

of India and in between the continuous disputes with powerful labour

unions of the company. The labour unrest in Maruti Suzuki India Limited

reached to its peak in July, 2012 with Manesar incident where one HR

manager of the company was killed by the mob of violent workers and

caused to lock out the Manesar plant by the company. All these affected

the employment opportunities in the company adversely.



analysis of table no.4.2.

The total numbers of permanent employees in Maruti Suzuki India

Limited from the year 1990-91 to 2010-11 have a negative correlation i.e.

-0.642 with FDI during this period in the company which indicates the

negative impact of FDI over permanent employment in the company. But

researcher considers the case of Maruti Suzuki India Limited as an

exception in this respect due to specific circumstances emerged before

the company during this period.

(B) TRANSMISSION OF JAPANESE STYLE MANAGEMENT SYSTEM IN INDIA

The case of Maruti Suzuki India Limited is best known in Indian

automobile industry for the successful transfer of Japanese style

management practices in India. Most of the features of Japanese

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management system such as Quality Circles, employee participation in

the production decision making, production incentives, company union,

and in-house training have been successfully transferred to the work

culture of Maruti Suzuki India Limited.

Suzuki Motors, Japan, Now the holding company of Maruti Suzuki

India Limited, 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. In addition, several Indian employees from

MUL were deputed to SMC’s factory in Japan. This exchange process of

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employees helped the smooth transfer of Japanese management

systems to Maruti-Suzuki in India.

Most of the management systems of Suzuki Motors were adapted

in Maruti Udyog Limited. There were no private rooms to differentiate

employees of different levels of management. Everyone in the company

wore common company uniform. Lunch was served for everyone in the

same room. Morning Japanese exercise was introduced as part of the

daily routine. To work as teams formed the basis of working through out

the factory. The Japanese style Company Union in Maruti-Suzuki

provided greater benefits to the workers and created one of the most

stable work environments in the factory.

Further, Suzuki Motors’ strategy to intensively participate in the

Indian automobile industry has earned itself a family brand name among

the people of India. The high quality and low priced car generated a huge

demand for cars in the Indian market. It enjoyed the largest market

share of passenger cars since its inception.

All these transmission of Japanese management system to Maruti

Suzuki India Limited created a different work environment in the

company which is positively affecting the overall growth of the company

till the date.

Having studied the impact of inflow of foreign direct investment

on Maruti Suzuki India Limited, it may be said that increase in FDI in the

company direct affected the company in a positive manner not only in

the fields of production, sales, profitability and export but also through

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knowledge sharing process in the areas of transfer of technology and

management expertise.

Documents

chapter-iv trend analysis and composition of fdi inflow in maruti