TVS – Suzuki : Alliance Turned Sour?
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TVS – Suzuki : Alliance Turned Sour? For all the attention the media bestowed on the eventual separation between TVS and Suzuki in their Chennai-based mopeds-motorcycles-scooters joint venture, the articulation of this arguably the most drastic development in its short life history, in the directors’ annual report to shareholders couldn’t have been more prosaic or clinical: “Suzuki Motor Corporation, Japan (SMC) ceased to be a shareholder and provider of technology to the company pursuant to an agreement dated 27th September 2001, reached between SMC and Sundaram-Clayton Limited (SCL), the promoters of the company. During the year, the shares held in the company by SMC were acquired by Anusha Investments Limited (AIL), a wholly owned subsidiary of SCL. With the total holding of SCL and AIL in the equity capital exceeding 51 per cent, the company became a subsidiary of SCL, effective 15th November 2001.” It was the culmination of what observers and analysts had termed a “troubled marriage: that was star-crossed right from the beginning with the partners’ divergent institutional aspirations with regard to the future of the business. Marriages of convenience, such as this one, do fall by the wayside, sooner or later. In October 2001, the board of directors of TVS-Suzuki Motors in Chennai met to discuss, besides the financials of the company, change of name to TVS Motors, following the exit of Suzuki from the seventeen year old joint venture that had led the company to rank third among producers of scooters and mopeds in India. Applying closure to joint ventures is not an unusual phenomenon and could be precipitated by a variety of causes. The most fundamental trigger however is the erosion of the basic need of the partners for each other. Among the needs that joint venture partners have of each other, learning is an important constituent; it could relate to technology, management practices, logistics and distribution management, local socio-cultural wisdom, and so on. Once this thirst is satisfied, the partners may begin to feel the redundancy of the other, especially if the agreements involve, as they normally do, joint decision making on key operational matters, as well as imposition of constraints on exploitation of overseas markets or use of domestically developed technological alternatives, and so on. A comment by Venu Srinivasan, the Chairman and Managing Director of the company in October 2001, months before the actual separation, succinctly underscores this vital constituent of such partnerships: “A joint venture is a special purpose vehicle set up by two entities for the purpose of learning. It will work as long as both want to learn different things. Once this is achieved by either or both partners, it is time for disengagement.” Most of the inter-partner problems in joint ventures arise from the asymmetry of the learning speeds of respective partners. The one who learns faster and hence reduces the dependence on the other is disengagement (nor inconsistent with any legally binding agreements between the partners), and their phasing. Is this what happened in TVS-Suzuki? Did each of the partners feel their respective business need for the other had been eroded so extensively that a break-up wouldn’t really matter? From the Indian partner’s viewpoint, it would not only seem to be so, but also had been articulated in public as well. For example, consider the following reported statement attributed to Venu Srinivasan, made just a few days before the actual separation was tabled at the board meeting for consideration and formal announcement: “The Kawasaki deal has nothing to do with any Indian two-wheeler company. Bajaj may have a deal with Kawasaki separately, but that in no way is going to affect Suzuki’s deal with us. We have no fears about Suzuki pulling out of the existing joint venture.” (In September 2001, in response to questions on Suzuki’s reported deal with competitor Bajaj through the Kawasaki route). And yet, within days, the company notified the stock exchange (preparatory to its board meeting on October 11, 2001) that the company would: “consider a name change following the recent settlement on the overseas parent Suzuki Motor Corporation pulling out of the joint venture,” and also, “the possibility of disengagement of Suzuki Motor Corporation from the company both as a shareholder and a licensor.” And the formal separation was approved by the board at that meeting. Thus ended a partnership that had been described as uneasy at the best of times over its decade and half plus tenure. Responding to press enquiries on the reasons for this (not unexpected) parting, all that Mr. Srinivasan would say was: “both of us desired to pursue our own business interests, markets and brands.” STRATEGIC OBJECTIVES OF THE PARTNERS Why indeed did TVS go to Suzuki in 1985 in pursuit of a joint venture: Responding to this question in 1997 when cracks had begun to show up in the relationship, Venu Srinivasan had said: “We went to them 12 years ago (1984) not for technology alone but for strategic reasons. They had products off-the-shelf, while my development lead times were longer. Secondly, it gave us brand advantage. Thirdly, we learn work practices, manufacturing practices, vendor development practices.” And again, “The value-addition in two wheeler production is small – 70 per cent is the material cost. You need to make the product at the right cost oand develop and good vendor base. Technology is just a means to an end. It must meet the cost requirements of the customer. You have to provide a package.” The strategic intent of TVS right from the beginning was thus explicitly spelt out from time to time: to gain brand advantage in the Indian market, to use virtually off-the-shelf products from the collaborator which would otherwise have taken much longer if developed indigenously, and to benefit from manufacturing and other processes that Japan was famous for. Once these were achieved, and internal capabilities had been strengthened, there was little that Suzuki could bring to the table, and still less that the domestic partner could learn from the other. It is equally instructive to explore Suzuki’s approach to the idea of the joint venture initially, and its dissolution seventeen years later. It is common knowledge t hat Japanese companies in general had been eyeing the vast potential of the Indian market, and had been held back primarily because of the restrictions on foreign direct investment imposed by the Indian government in the post-independence protectionist and nationalistic zeal. Once there were signs of some thawing on these fronts, the Japanese, as indeed many others, were quite keen to get on board. Suzuki had one particular advantage, serendipitous or otherwise. They were in some ways very fortunate to have bagged the small car project (Maruti) originally envisioned by Sanjay Gandhi, the rising sun in the political arena, not the least because of his being the son of the then Prime Minister of the country, Indira Gandhi. Following his unfortunate demise in an air accident, the mother inherited the legacy and determined to turn her son’s dream into a reality. Suzuki won the collaboration not only because of it’s the small car demand at 200,000 units per annum by the year 2000, while other competitors were trailing far behind in the 50,000 units range. In a sense therefore Suzuki had tasted blood in its India foray, and was keen to strengthen its presence in India through a concerted strategy of sustained investment, not only in the small car company but also in a number for its two- wheeler operations, Suzuki was strategically and emotionally more than ready to jump in. A second aspect of Japanese foreign investment strategy also needs to be borne in mind while reviewing its entry into the two-wheeler joint venture with TVS. It was a case of horses for courses. In the case of their investments in China for example, geographical proximity and Korean competition would dictate their business ventures. In case of countries like India, it was the sheer size of the untapped market that was the prime mover. Sundaram Iyengar, the founding father of TVS, aspired to provide transport independence to the teeming millions of middle class Indians, and Suzuki could see the spiraling demand for two-=wheelers in India and desired to participate and appropriate a fair slice of that cake. It was the same kind of aspiration (scaled up a keeping with the times)that led Ratan Tata later to work on providing a low-cost four-wheeler to the millions struggling in public transport and on two-wheelers leading to the Nano (the real small car of Tata Motors in 2009). Consistent with the Japanese philosophy of more than necessary commitment to projects they embark upon. Suzuki did put in financial, technical and managerial resources into the joint venture, with more than matching support from TVS in terms of local knowledge, management drive and burning ambition. TVS-Suzuki soon became a force to reckon with in the Indian two-wheeler market along with Bajaj and Hero Honda. By the time the break-point was reached in 2001, had Suzuki come to the conclusion that its need for TVS was no longer as acute as it was in the 1980s and 90s? Clearly, in terms of acquiring a measure of local expertise on markets, logistics and business environment, Suzuki had probably learnt all it could both due to its presence in India, and through interaction with its Indian partner. Financially, the initial investments had probably paid back several times more through dividends, royalties and technical fees and so on.