Chapter 6: Four Case Studies

CHAPTER 6: FOUR CASE STUDIES In this chapter the focus is on the four empirical cases selected for this study: Maruti Udyog Limited (MUL), Fiat India Private Limited (FIPL), DaimlerChrysler India Private Limited (DCIPL) and Skoda Auto India Private Limited (SAIPL). The main goal of this chapter is to look at each case individually and to identify the respective case’s hybridization profile as well as the causalities that have brought about a case specific hybridization profile. Each case starts with a more general discussion of the strategic choices at the corporate and sub- sidiary level. The main part of the case discussion consists of identifying the transfer scenarios, the institutional/strategic (mis)fits/recontextualization pressures and the dominant recontextualization modes of the cases’ different production system dimensions. The identi- fication of transfer scenarios, (mis)fits/recontextualization pressures and modes serve to determine the hybridization outcomes of the four cases under research. The empirical find- ings of the different cases’ hybridization profiles and the underlying causalities that have brought about these profiles are the basis for a systematic cross case comparison and analy- sis in chapter 7. 6.1 MARUTI UDYOG LIMITED (MUL). GLOBAL PRODUCT STRATEGY OF THE FOREIGN PARENT, STRATEGIC ROLE OF THE SITE AND STRATEGIC DISTANCE TO OTHER SITES “Small Cars for a Big Future” SMC’s Motto expressed by Osamu Suzuki (Datamonitor, 2003) Suzuki Motor Company’s (SMC) generic product strategy in the passenger car segment can be understood with Porter (1980) as a combination of a focus and a cost leadership strategy. SMC focuses mainly on light, sub-compact and small car market segments (Kasahara, 1994). SMC has been mainly focusing on “low-cost mini cars for the less wealthy but more populated areas of the world, such as India, China and Eastern Europe” (Reference for Business, 2003). Four billion people live where cars are not used much yet. That is the market we are after (Osamu Suzuki, citied in Eisenstodt, 1993) 126 Suzuki had a vision – instead of battling the industry giants, he focused on capturing buyers in the world's developing markets, such as India, China, and Hungary. (Ref- erence for Business, 2003) As a logical concomitant, this strategy SMC has not only emphasized efficiency through high volumes but simultaneously a constant cost reduction. Eisenstodt (1993) quotes Osamu Suzuki, the company’s long-time chairman as saying: “We make small cars, so we worry about cutting costs by even one yen”. While SMC had at the time of research an overall product range of 14 models, MUL offered in the Indian market about nine of them (MUL 4). All of these models were essentially developed in Japan and the level of responsiveness to the Indian environment was rated low (MUL 2). In the past, SMC was hesitant to offer the latest models in its developing country markets. Columnists’ as well as various inter- viewees’ comments suggested that in the past MUL’s profit strategy – at least in India – rested on the introduction of models and product-technologies which were not the latest in the company (MUL1; MUL 2; MUL 3). However, this model/technology gap narrowed a little after the turn of the millennium. Apart from SMC’s internationalization of motorbike production in 1960s and 1970s and its first automobile assembly site in Indonesia (starting in 1976) SMC’s internationalization in automobile production did not take off before the 1980s (Kasahara, 1994). In 1981 SMC signed business tie-ups with the General Motors Corporation. In 1982 SMC started an assembly operation in Pakistan and in the same year a JV agreement was signed with MUL for the set-up of an integrated production site in India. Besides its venturing into the Indian market, the most important steps of internationalization were in the 1980s a JV with Santana Motors in Spain (1985), an agreement with General Motors Corporation of Canada to establish a JV company – better know as CAMI (1986) – and the establishment of assembly sites in New Zealand (1984), Columbia (1987) and Egypt (1989). These internationalization efforts continued throughout the 1990s and included in Asia the establishment of wholly-owned operations, ties ups, or JVs for the production of passenger cars in Korea, China, Vietnam, and Myanmar as well as in Europe the establishment of an integrated production plant in Hungary (Suzuki, 2004). After the strong international expansion in the 1980s and 1990s, the turn of the millennium brought a shift in SMC’s internationalization pattern. Instead of unrelenting expansion, the focus became more one of consolidation and strategic reorientation of its international operations. MUL, for example, no longer exclu- sively served its domestic and neighboring markets but received the mandate to produce the new Suzuki Alto for European markets (The Financial Express, 2002). At the time of research, plans were under way to make MUL SMC’s most important R&D hub in Asia out- side Japan. Moreover, SMC entered a number of collaboration and strategic alliances the most important of which the one with General Motors in the year 2000. 127 SMC’s dominant mode of establishing foreign production sites has been setting up “satellite assembly plants” (Reference for Business, 2003). Only some of SMC’s sites are fully integrated production sites. With an installed capacity of 350,000 units and needs for further expansion, SMC’s Indian JV was strategically the biggest and most important among its foreign operations. With regard to production volumes and product variety, SMC’s Indian operation is strategically the closest to SMC’s main passenger car manufacturing site in Kosai, Japan. INTRODUCTION:FOUNDATION, ENTRY MODE AND EQUITY DEVELOPMENT OF THE SUBSIDI- ARY Market entry/establishment mode: SMC entered the Indian passenger car market in the early 1980s in the format of a JV with MUL, a Government of India Company at the time. Al- though MUL was established before SMC’s involvement, the JV was basically a Greenfield start-up. MUL which was founded by Sanjay Gandhi before it was taken over by the Indian Government had been incapable of manufacturing a single marketable car (MUL 4). The failure of the Indian automobile industry in general and MUL’s failure in particular, made the Indian Government rethink its protectionist industrial policies in the 1980s and look for foreign collaborators in the transport sector. For SMC, despite the risks involved (i.e. minority shareholding cum massive technology transfer, dealing with a state owned company), a market entry into India provided an oppor- tunity to advance its lagging internationalization. Above all, it allowed getting a foothold in a market: which still remained closed to other international auto companies, which lacked any serious domestic competition, and which had a huge unsatisfied demand in those lower market segments SMC was strategically focusing on (Venkataramani, 1990). The Indian Government selected SMC, in turn, because the company convinced with its small car product portfolio, its pricing, and its flexible approach in the negotiations. More- over, as a Japanese company SMC promised to provide at the time the much sought after Japanese manufacturing culture. More importantly, SMC’s equity participation offer was higher than that of the other contenders (Venkataramani, 1990). Equity mode and development: All these considerations led the Indian Government to ac- cept SMC’s offer and a JV and licensing agreement was signed between MUL and SMC in 1982. The equity participation between the Indian Government and SMC was set at 74% and 26%. The JV agreement included a provision that allowed SMC to raise its equity to 40%. In 1989 SMC exercised this right and raised its stake to 40%. When the ten-year agreement between the JV partners ended in 1992 a new JV agreement was signed that allowed SMC to raise its share to 50%. Around the same time India embarked on a massive liberalization program, which fundamentally changed FDI conditions in India. In 1993 the licensing for the automobile Industry was abolished and potential competitors were invited 128 into the country. Feeling the heat of the emerging competition, SMC asked in January 1997 the Indian Government for a majority stake in MUL. However, the Indian Government declined the request and period of conflict between the JV partners followed. It was not until 2002, following a new disinvestment policy by the newly elected BJP, that SMC was finally able to increase its stake to 54.2%. The remaining 45.8 % were held by the Govern- ment of India, institutional investors and others. LOCATION, PRODUCTION PROGRAM AND MARKET SHARE Location: MUL’s production facilities are located in Gourgaon in the outskirts of New Delhi. The JV agreement between the two parties stipulated that SMC was responsible for technology transfer, setting up production facilities and getting production up and running (MUL 4; c.f. Mohanty et al., 1994). Production Program: In line with SMC’s core competence in the small car segment and the Indian Government’s wish to mass-produce a ‘people’s car’ (i.e. a small, energy efficient and affordable car) production commenced in 1983 with the A-segment Maruti 800. As an affordable car for India’s growing middle class, the Maruti 800 proved to be a run-away success. Although the company introduced new and also higher segment models over time – offering in total nine basic models in over 50 variants – the models catering to the market segments A and B remained MUL’s bread and butter. In 2003 the Maruti 800 still ac- counted for 43.4 % of its domestic sales (Chavan, 2003). With an annual production capacity of 500000 cars and around 4500 employees, MUL was the biggest automobile manufac- turer in India.

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