Operations Management at Maruti Udyog

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Case Details:

Case Code : OPEA001
Case Length : 18 Pages
Period : 2003
Organization : Maruti Udyog Limited
Pub Date : 2004
Teaching Note :Not Available
Countries : India
Industry : Automobile

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

In the early 1980s, the Indian government decided to produce a small car, affordable to the Indian middle class. The obvious place to shop for technology was Japan, which had developed world-class capabilities in small cars by that time. It was not Toyota or Nissan or Honda, the three largest players in Japan, with whom the government tied up, but Suzuki, a much smaller company, with strong capabilities in making small cars. Maruti was incorporated in 1981 by taking over the assets of the erstwhile Maruti Ltd, (set up in 1971 and wound up in 1978). In 1982, the government signed a joint venture agreement with Suzuki, which was offered a 26% equity stake in the company.

In December 1983, Maruti launched its first car, Maruti 800, targeted at the masses, as the 'people's car' with a price tag of Rs.40,000 (ex-show room price). Maruti rapidly consolidated its competitive position by launching various other models. In 1984, Maruti introduced a utility vehicle, Omni that could seat up to eight people.

In 1985, another utility vehicle Gypsy, designed for tough road conditions, was launched. In the late 1980s, Suzuki increased its equity stake in Maruti from 26% to 40% and further to 50% in 1992. This converted Maruti into a non-government company, giving Suzuki a much freer hand in managing the affairs of the company.

In 1990, Maruti introduced a 3-box car, Maruti 1000. In 1993, it introduced a new model, the Zen with a 1300 cc engine, and Esteem, a variation of Maruti 1000 (which was replaced) with more power and a new exterior. Around this time, the first sign of conflict between the joint venture partners surfaced, when Suzuki proposed a Rs.22 billion expansion and modernization plan.

The transfer of gearbox technology was also a bone of contention between the two partners. The government felt that Suzuki was deliberately withholding this technology so that it could export it to Maruti and make windfall profits at the cost of Maruti. However, in mid-1996, the government approved the plan and Suzuki agreed to transfer its technology.

Meanwhile, in 1994, Maruti had become the first Indian company to reach a cumulative production of one million vehicles. In 1995, Maruti received ISO 9002 certification. In 1997, Maruti's cumulative vehicle production crossed the two million mark. In 1997-98, Maruti's overall market share was 83.1%.8...

Excerpts >>

8]  Source: Maruti Red Herring Prospectus.


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