SRATEGY FOR FDI

UNIVERSITY OF MUMBAI 2013-14 PROJECT REPORT ON A STUDY ON STRATEGY FOR FDI WITH SPECIAL REFERENCE TO SUZUKI MOTOR CORPORATION IN INDIA SUBJECT: STRATEGIC MANAGEMENT BY NAME OF STUDENT: GANESH NIKAM COLLEGE SEAT NO :- 119 MASTER IN COMMERCE ( SEMESTER-I )

K.M.AGRAWAL COLLEGE OF ARTS,COMMERCE & SCIENCE KALYAN (W).

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CERTIFICATE

THIS IS TO CERTIFY THAT MR.GANESH NIKAM HAS SATISFACTORILY CARRIED OUT THE PROJECT WORK ON THE TOPIC

A STUDY ON STRATEGY FOR FDI WITH SPECIAL REFERENCE TO SUZUKI MOTOR CORPORATION IN INDIA
For MCOM (SEM I) IN THE

ACADEMIC YEAR 2013-14.

SIGNATURE OF PROJECT GUIDE: SIGNATURE OF CO-ORDINATOR: (MCOM COURSE)

_______________ _______________

SIGNATURE OF EXTERNAL EXAMINER: -

_______________

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DECLARATION
I, GANESH NIKAM THE STUDENT OF K.M.AGRAWAL COLLEGE OF MCOM (SEM-I) HERE BY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON-

A STUDY ON STRATEGY FOR FDI WITH SPECIAL REFERENCE TO SUZUKI MOTOR CORPORATION IN INDIA
IN THE ACADEMIC YEAR 2013-14 THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.

PLACE: KALYAN

DATE: ___/___/_____

________________________

GANESH NIKAM

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ACKNOWLEDGEMENT
I EXPRESS MY GRATEFUL THANKS TO PROJECT GUIDE PROF.VAISHALI PATIL FOR HER TIMELY GUIDANCE AND HELP RENDRED AT EVERY STAGE OF THE PROJECT WORK. I EXPRESS SINCERE THANKS TO OUR PRINCIPAL WHO HAS GIVEN HER VALUABLE MORAL SUPPORT, MOTIVATION, INSPIRATION, AND EDUCATIONAL ATMOSPHERE IN THE INSTITUTE FOR THE SUCCESSFUL COMPLETION OF THE PROJECT WORK. I ALSO WISH TO EXPRESS MY REGARDS TO THE LIBRARIAN FOR HER COOPERATION IN PROVIDING ME WITH NECESSARY REFERENCE MATERIALS.

I ALSO EXPRESS MY THANKS TO FACULTY MEMBERS AND FOR COOPERATION AND HELP GIVEN IN COMPLETING THIS PROJECT.

GANESH NIKAM

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INDEX
1 INTRODUCTION 1.1 HISTORY OF FDI 1.2 RECENT TRENDS OF FDI 1.3 TYPES OF FDI 2 FOREIGN DIRECT INVESTMENT IN INDIA.. 2.1 DEFINITION OF FDI. 2.2 FDI ROUTES INTO INDIA.. 2.3 INDIAS FDI STRATEGY. 3 IMPACT OF FDI ON HOME AND HOST COUNTRY.. 3.1 MICRO ECONOMIC STUDIES ON FDI. 7 8 10 12 14 15 15 16 18 19

CASE STUDTY CASE OF SUZUKI MOTOR CORPORATION IN INDIA 4.1 INDIAN AUTOMOBILE INDUSTRY PRIOR TO SUZUKI MOTORS ENTRY IN INDIA.. 4.2 BACKGROUND TO SUZUKI MOTORS INVESTMENT IN INDIA..

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4.3 SUZUKI MOTORS INVESTMENT PATTERN IN THE INDIAN AUTOMOBILE INDUSTRY 23 4.4 DEALER & SERVICE CENTER NETWORK IN INDIA 4.5 TRANSFER OF JAPANESE STYLE FACTORY MANAGEMENT TO INDIAN PARTNER 5 6 SUMMARY & CONCLUSION.. BIBLIOGRAPHY.

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1.

INTRODUCTION

WHAT IS FOREIGN DIRECT INVESTMENT? Foreign direct investment (FDI) is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country). The International Monetary Fund's Balance of Payments Manual defines FDI as `an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor's purpose being to have an effective voice in the management of the enterprise'. The United Nations 1999 World Investment Report (UNCTAD, 1999) defines FDI as `an investment involving a long-term relationship and reflecting a lasting interest and control of aresident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor The common feature of these definitions lies in terms like `control' and `controlling interest', which represent the most important feature that distinguishes FDI from portfolio investment, since a portfolio investor does not seek control or lasting interest. There is no agree-ment, however, on what constitutes a controlling interest, but most commonly a minimum of 10 per cent shareholding is regarded as allowing the foreign firm to exert a significant influence (potentially or actually exercised) over the key policies of the underlying project.

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1.1 HISTORY OF FDI In the nineteenth century, foreign investment was prominent, but it mainly took the form of lending by Britain to finance economic development in other countries as well as the ownership of financial assets. However, a recent article by Godley (1999) analyses some cases of FDI in British manufacturing industry prior to 1890, and shows that from 1890 onwards the bulk of FDI was in the industrial goods sector. Godley also shows that investors in Britain prior to 1890 were primarily in the consumer goods sector, and that they mostly failed because they were narrowly focused and driven entirely by concern about enhancing access to the British market. One exception was the Singer Manufacturing Company. As a result of its enthusiastic commitment to FDI, the company emerged as the world's first modern MNC and was one of the largest firms in the world by 1900. In the interwar period of the twentieth century, foreign investment declined, but direct investment rose to about a quarter of the total. Another important development that took place in the interwar period was that Britain lost its status as the major world creditor, and the USA emerged as the major economic and financial power. In the post-Second World War period, FDI started to grow, for two reasons.The first was technological the improvement in transport and com-munications which made it possible to exercise control from a distance. The second reason was the need of European countries and Japan for US capital to finance reconstruction following the damage inflicted by the war. Moreover, there were some US tax laws that favoured FDI. By the 1960s, all these factors were weakening to the extent that they gave rise to a reversal of the trend towards growth in FDI. First, various host countries started to show resistance to the US ownership and control of local industry, which led to a slowdown of outflows from the USA. Second, host countries started to recover,

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initiating FDI in the USA, and leading to a decline in the net outflow from the USA. The 1970s witnessed lower FDI flows, but Britain emerged as a major player in this game as a result of North Sea oil surpluses and the abolition of foreign exchange controls in 1979 In the period 1990+2, FDI flows fell as growth in industrial countries slowed, but a strong rebound subsequently took place. This rebound is attributed to three reasons: (i) FDI was no longer confined to large firms, as an increasing number of smaller firms became multinational; (ii) the sectoral diversity of FDI broadened, with theshare of the service sector rising sharply; and (iii) the number of coun-tries that were outward investors or hosts of FDI rose considerably. Moreover, the 1990s brought considerable improvements in the invest-ment climate, triggered in part by the recognition of the benefits of FDI.The change in attitude, in turn, led to a removal of direct obstacles to FDI and to an increase in the use of FDI incentives. Continued removal of domestic impediments through deregulation and privatize tion was also widespread. Another important feature of the 1990s was the decline in the importance of Japan as a source of FDI, caused by the burst of the Japanese bubble economy. The late 1990s were characterized by cross-border M&As (which were motivated by deregulation and enhanced competition policy) as the driving force behind FDI. Moreover, the trend towards the liberalization of regulatory regimes for FDI continued. By the end of 1998, the number of treaties for the avoidance of double taxation had reached a total of 1871. In 1998 and 1999 some changes were introduced to (host) government policies on FDI, strengthening the trend towards the liberalization, protection and promotion of FDI (UNCTAD, 2000).

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1.2 RECENT TRENDS OF FDI In this section we examine briefly the recent trends in FDI. A more detailed account of the global and regional trends up to 1999 can be found in the 2000 World Investment Report (UNCTAD, 2000). Before we examine the figures, it may be worthwhile to try to anticipate what the pattern has been like on the basis of some theoretical considerations. Lipsey (2000) suggests that if FDI flows represented mainly responses to differences among countries in the scarcity and price of capital, countries would tend mainly to be sources or recipients of FDI (capital-surplus and capital-deficit countries respectively). Given the size of the economy, the levels of outflows and inflows should therefore be negatively related. This relationship is also obtained by viewing FDI flows as depending on economic conditions. If the economy is in a boom, FDI inflows will increase and FDI outflows will decrease. And if the economy is in a slump, then FDI inflows will decrease and outflows will increase. Hence, FDI outflows and inflows should be correlated negatively. Lipsey (1999, 2000) shows that this is not the case. The positive relationship is attributed to the possibility that economic factors that encourage inward flows also encourage outward flows. Lipsey also suggests that the coexistence of outward and inward stocks of FDI arises from an alteration between inflows and outflows. FDI flows comprise the capital provided (either directly or through related enterprises) by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. From the perspective of a particular country, FDI flows may be inward (when a foreign country invests in the country in question) or outward (when the home country invests abroad). FDI flows consist of the follow-ing items:

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. Equity capital, which is the foreign investor's purchases of shares in an enterprise in a foreign country. . Reinvested earnings, which comprise the investor's share of earnings not distributed as dividends by affiliates or remitted to the home country, but rather reinvested in the host country. . Intra-company loans, which refer to short-term or long-term borrowing and lending of funds between the parent company and its affiliates.

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1.3 TYPES OF FDI

FDI can be classified from the perspective of the investor (the source country) and from the perspective of the host country. From the perspective of the investor, Caves (1971) distinguishes between horizontal FDI, vertical FDI and conglomerate FDI. Horizontal FDI is undertaken for the purpose of horizontal expansion to produce the same or similar kinds of goods abroad (in the host country) as in the home country. Hence, product differentiation is the critical element of market structure for horizontal FDI. More generally, horizontal FDI is undertaken to exploit more fully certain monopolistic or oligopolistic advantages, such as patents or differentiated products, particularly if expansion at home were to violate anti-trust laws. Vertical FDI, on the other hand, is undertaken for the purpose of exploiting raw materials (backward vertical FDI) or to be nearer to the consumers through the acquisition of distribution outlets (forward vertical FDI). From the perspective of the host country, FDI can be classified into (i) import-substituting FDI (ii) export-increasing FDI; and (iii) gov-ernment-initiated FDI. Import-substituting FDI involves the production of goods previously imported by the host country, necessarily implying that imports by the host country and exports by the investing country will decline. This type of FDI is likely to be determined by the size of the host country's market, transportation costs and trade barriers. Export-increasing FDI, on the other hand, is motivated by the desire to seek new sources of input, such as raw materials and intermediate goods. This kind of FDI is export-increasing in the sense that the host country will increase its exports of raw materials and

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intermediate products to the investing country and other countries (where the subsidiaries of the multinational corporation are located). Government-initiated FDI may be triggered, for example, when a government offers incentives to foreign investors in an attempt to eliminate a balance of payments deficit. A similar, trade-related classification of FDI is adopted by Kojima (1973, 1975, 1985). According to Kojima's classification, FDI is either trade-orientated FDI (which generates an excess demand for imports and excess supply of exports at the original terms of trade) or anti-trade-orientated FDI, which has an adverse effect on trade. Finally, FDI may be classified into expansionary and defensive types. Chen and Ku (2000) suggest that expansionary FDI seeks to exploit firm-specific advantages in the host country. This type of FDI has the additional benefit of contributing to sales growth of the investing firm at home and abroad. On the other hand, they suggest that defensive FDI seeks cheap labour in the host country with the objective of reducing the cost of production. Chen and Yang (1999) suggested that a multinomial logit model can be used to identify the determinants of the two types of FDI in the case of Taiwan. Their empirical results indicated that expansionary FDI is influenced mainly by firm-specific advantages such as scale, R&D intensity, profitability and motives for technology acquisition. Defensive FDI, on the other hand, is shown to be influenced by cost reduction motives and the nexus of production networks. Both types of FDI are affected by the characteristics of the underlying industry.

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2 FOREIGN DIRECT INVESTMENT IN INDIA

Indias economy is booming, and the nation has attracted FDI equity inflows of USD 2,214 million as on April 2010, as per data released by the Department for Industrial Promotion and Policy, Government of India (http://dipp.nic.in).Many foreign players have entered the market, and many more are expanding their operations in the country. 20% of the companies on the Fortune 5 00 list, including Microsoft, Hewlett Packard, and General Electric have set up research and development facilities in India. The flow in FDI, coupled with the increasing joint ventures between Indian and foreign companies, and the growth in domestic demand have created significant employment opportunities for Indias young, talented and highly skilled professional workforce. The growth has spilled over to create a burgeoning middle class, with higher disposable income and increased consumption patterns. Today, the country has opened FDI opportunities in all sectors except defence (opened up recently to a limited extent), railway transport and atomic energy. In sectors like road and port infrastructure, mining of gold and minerals, and pharmaceuticals, Multi National Corporations (MNCs) can own up to 100% of their Indian affiliates without government approval. In other sectors such as power, integrated township development, 100% foreign ownership is possible with government approval. In areas like exploration for petroleum reserves, development of marketing infrastructure for petroleum products, and exploration and mining of coal, MNCs are allowed majority stake in the affiliates, usually varying between 51% and 74%. In most cases however, their stakes in State owned enterprises are restricted to 26%. Finally, in sectors like media and insurance, MNCs are also restricted to a minority stake, and areexpected to obtain governmental approval prior to the initiation of the business.

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2.1 DEFINITION OF FDI According to the International Monetary Fund (IMF), a FDI has three components, namely equity capital, reinvested earnings and other direct capital. A large number of countries, including several developing countries, report FDI inflows in accordance with the IMF definition. However, the Reserve Bank of India (RBI) reports FDI inflows only o n the basis of investments received fro m non-residents on equity and preference share capital under the FDI scheme. As the data released by the RBI does not capture reinvested earnings and other capital, these inflows to India do not fully comply with standard international coverage and are, therefore, not directly comparable with the FDI data released by other countries.

2.2 FDI ROUTES IN TO INDIA There are several ways for a foreign company to enter into India. The most capital-intensive mode is in general to incorporate a company in India with 100% foreign equity, i.e. a wholly foreign owned enterprises (WFOE), may it be a green field project or an acquisition. Further, a company can enter into a Joint Venture, by creating a new JV or via partial acquisition of an existing company. Less capital intense routes include export and set up of a branch office, a liaison office or a project office, all of which require an approval from the Reserve Ban k of India. In this dissertation, the latter have not been considered since the investment amount typically does not justify an extensive decision-making process.

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2.3 INDIAS FDI STRATEGY India has broadly promoted its strength in the service industry in attracting FDI, and has capitalised o n its high quality work forces skills and the advantages of a young college-educated English-speaking population. Noorbakhsh, Paloni and Youssef (2001) observe that the availability of local skills can become a strong pull factor for FDI, and India has stood witness to that. As compared to most emerging markets, India gets a large share of FDI in areas such as IT and knowledge based industries. This is also supported b y the view that efforts to provide better education and training would not only enhance the economic growth effects of FDI in an emerging market, but are also likely to induce higher FDI inflows (Borenszteinetal. 1998). Besides, the economic policy has adopted key currency exchange reforms and friendlier tax structures to imp rove competitiveness. Till date, when compared with China, India may not witness such a prominent trend of repatriation of funds from its non-resident citizens. However, this is slowly changing, with increased FDI initiatives from the Indian diaspora, especially in areas such as IT and technology consulting. Aside from the fact that these investments are linked to cost advantages, intuitive decision-making, as revealed as an important factor while investing into unknown markets, supports the idea that a non-resident citizen would feel more comfortable investing in his former homeland than an investor without any a priori link to India. In manufacturing, India is presently gaining considerable investment in communication technology and in the automotive industry (e.g. Nokia, Hyundai). The country would however need to focus on improving its infrastructure to significantly enhance FDI prospects. Recent administrative reforms have ensured that setting

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up a business is quicker, however, it still tends to be a prolonged affair, and exiting a business is still perceived as fairly cumbersome in India. Such factors deter investment flow and companies that look to test the water by making an initial entry into the market . However, it is also observed that India as a nation has adopted a highly pro-investor stance. Aside from the inducements offered by the Central Government, attractive incentives are also offered by state governments. Land is offered at very low rates for foreign-owned factories and attractive waivers and concessions such as tax holidays (e.g. Ford Motors, Tamil Nadu) and exclusive infrastructure improvements (e.g. General Motors, Gujarat) are provided (Gandhi 2002).

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3. IMPACT OF FDI ON HOME AND HOST COUNTRY A great amount o f research has been done on the impact of FDI. These studies either deal with the impact on the host countries (e.g. skill and knowledge transfer, employment) or the home countries (e.g. re deployment of labour, process changes). Again, the studies on FDI impact discuss more at the macro level and do not delve the decision-making process itself. However they are helpful to understand the background and setting in which FDI decisions are made. They point to two aspects, which are important to consider in this dissertation. Firstly, they analyse the concerns in the home countrys economy (Martin &Schumann 1996; Henneberger & Graf 1996). These concerns do have an impact on the companies decisions and decision-making processes such that they cite market orientation rather than cost cutting as their main reason to invest in foreign markets (Wang 1996; Ortmanns 1991). Secondly, the goals of the host country governments as well need to be accommodated. Often, they may not synchronise with the goals o f the organisation. Since FDI characteristics strongly affect the host countrys economy, FDI is regulated in detail such as in China (Plum 1995) and in India.

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3.1 MICROECONOMIC STUDIES ON FDI On a micro level, studies have been done which explain how and why the FDI decisions are made. Motivational studies discuss the factors that initiated the FDIs, i.e. whether it was market oriented or cost oriented. Mostly market orientation rather than cost cutting is cited as the reason to invest (Wang 19 96; Ortmann s 1991 ). There are also behavioural studies, which concentrate on the motives for FDI. This includes an analysis of why FDI was done in small market of Israel and not somewhere else (Aharoni 1966). These studies again serve as a background. This dissertation concentrates on the decision-making process of India. Hence why a company chose India for its FDI is not the question. It will concentrate on the process, which led to this decision and how it is different from the process, which led to decision made to invest in other emerging markets such as China.

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4 CASE STUDY CASE OF SUZUKI MOTOR CORPORATION IN INDIA 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. Given 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. 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 paper, after a systematic sampling of foreign companies in India during 1920s-1990s, selected the case of Suzuki Motors and studies the investment pattern of Suzuki Motor Corporation in India. It looks into the automobile industry scenario prior to Suzukis entry to India and analyses the nature, timing, and scope of investment adopted by Suzuki Motors. Based on the observations of the study, the paper suggests a suitable model of Foreign Direct Investment in emerging economies like India.

4.1 INDIAN AUTOMOBILE INDUSTRY PRIOR TO SUZUKI MOTORS ENTRY IN INDIA The first motorcar was brought to India in 1898. Although, imports of fully assembled cars began to grow slowly, there was no local assembly of cars in India until 1928. General Motors established an assembly plant in Bombay in 1928 to assemble cars and trucks using completed knocked down (c.k.d) kits imported from USA. Following this, Ford Motor Company established assembly plants in Madras in 1930 and then another assembly plant in Calcutta in 1931. In 1942, the Birla Group established Hindustan Motors Limited in Calcutta and then

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in 1944, the Walchand Group set up Premier Automobile Limited in Bombay. Subsequently, the Standard Motor Products Limited established to manufacture automobiles in Madras in the year 1948. In 1947, as the end of British rule in India seemed eminent, the Government of British India appointed a Panel on Automobiles and Tractors to examine the feasibility of establishing manufacturing facilities in the country. The Panels report strongly recommended the promotion of a transport vehicle industry in India for faster economic development in the country. However, the Government of India considered passenger cars a luxury and did not regard the development of his industry as a matter of high priority at this time. At the same time the government did encourage the private investment in the local manufacturing of passenger cars. In 1953, the Government of India passed a regulation that if assemblers did not have a phased plan to manufacture cars locally, then should wind up their operations in India with in three years. With the introduction of the above regulation, the big automobile assemblers like General Motors and Ford Motor ceased their operation in India. With the decision of General Motors and Ford Motors to wind up their operations in India, the passenger cars industry in India was left to Hindustan Motors (HM: Ambassador) and Premier Automobile (PAL: Fiat). These companies produced cars that were large, expensive and these cars had poor mileage. As a result not many people could afford to buy cars for personal transport. Passenger cars were mainly used by the government officials and by a few rich people during these years. The low volume of cars sold in the country provided little incentives for the other entrepreneurs in the automobile industry for the next thirty years. The passenger car industry in India grew only at a snails pace during those years. The government set a very large production target for MUL. It had a goal to produce 100,000 small passenger economy cars in a period of five years from the start of its operation. With this huge task, Indira Gandhi had to look for some of the best managers who could achieve such a fast growth. The best managers/administrators from the successful public limited companies and Private Limited companies were appointed to the top management of MUL. Mr. Suman

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Moolgaonkar, the then chairman of Tata Engineering & Locomotive Works was made the chairman of MUL. Mr. V. Krishnamurthy, former chairman of Bharat Heavy Electricals Limited (BHEL) was appointed as vice-chairman & managing director and Mr. Mr. R.C Bhargawa, the director, commercial of BHEL was assigned the post of director (marketing & sales) in MUL. It has also been noted that Indira Gandhi changed the minister in charge of industry when she found that he was slow in taking decisions related to implementation of MUL. The management of MUL soon started its search for a foreign collaborator who could provide low cost fuel-efficient car engine of below 1000cc. Early in 1981, the Government of India invited nearly 11 large established automobile companies from UK, France, West Germany, Italy and Japan. There were several rounds of negotiations. Most of the foreign partners were highly pessimistic with the joint venture. Before the final round of negotiations, Mitsubishi Motors of Japan seemed to be the likely winner for being the partner. However, Suzuki Motors attractive offer and its high speed of working turned itself to be the most favorable bidder finally and it won to be the partner of MUL. The agreement was ultimately finalized on October 2, 1982. 4.2 BACKGROUND TO SUZUKI MOTORS INVESTMENT IN INDIA Osamu Suzukis leadership was crucial to the success of Suzuki Motors bid to enter India. His quick decision making style gave Suzuki Motors an edge over Mitsubishi Motors in the final rounds of negotiations with MUL. The managers from MUL found it better to discuss issues with Osamu Suzuki because of his quickness in making decisions. Mitsubishi Motors that had almost won the bid before Suzuki Motors entered the race was slow because of bureaucracy in its working. Osamu Suzuki bid to offer the best package amongst all the bidders to MUL based on his intuition of large demand for cars in India. For most other investors, the Indian automobile market did not have much potential as the total demand during 1960-1980 had remained

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at lower than 50,000 cars per year. The two local manufacturers met this demand with Hindustan Motors (HM: Ambassador) manufacturing 30,000 cars and Premier Automobile (PAL: Fiat) manufacturing the balance of 20,000 cars. Contrary, to the logic of most foreign automobile manufacturers, Suzuki Motor predicted Indian market potential to rise to 200,000 cars per annum by the year 2000. In 1983, MUL set a target to manufacture 100,000 passenger cars (800 cc) per year. At this time, Suzuki Motors domestic production of passenger cars of 800 cc or greater than 800 cc cars in Japan was lesser than the production target set by MUL in India. Suzuki Motors also accepted the terms of the government in terms of its lower equity participation. Many other bidders to the joint venture declined to this policy of the Government of India. It may be worth to note here that General Motors and Ford Motors ceased their automobile operations in India when the government passed a law in 1953 requiring foreign car businesses to produce locally and to include local equity participation. Suzuki Motors Company agreed to 26% shareholding in MUL in 1982. Only after about six years did it invest additional amounts to raise its equity to 40% in 1989 and then to 50% in 1992.

4.3 SUZUKI MOTORS INVESTMENT PATTERN IN THE INDIAN AUTOMOBILE INDUSTRY Suzuki Motors not only invested more than a quarter of the capital in the joint venture with MUL, it also invested in many other automobile related businesses soon after its investment in MUL. As we note in the background of Indian automobile industry in India prior to Suzuki Motorss entry to India, the Indian automobile industry had a poor infrastructure to manufacture high quality small cars when Suzuki Motors entered India. Suzuki Motors could have imported the car components to maintain the quality of the car it manufactured in India. However, it faced two great problems at this time. First, it had to produce cars that could be afforded by the people in the middle-income

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segment. Importing components from Japan would have driven-up the cost of the cars it manufactured. Second, it was bound by the Indian Governments policy to include local components in its production. Although, the Maruti-Suzuki joint venture faced little bureaucratic hassles of the Government bodies and agencies, it faced the greatest hurdle to manufacture high quality small car at low price in an industry that had extremely poor component manufacturing infrastructure. Suzuki Motor invested extensively in the Indian component manufacturers to improve the quality of the components and to reduce the cost of its component procurement. The extent of Suzuki Motorss investment in the Indian automobile component industry is shown in the Table below. TABLE : SUZUKI MOTORS INVESTMENT IN THE VALUE CHAIN OF INDIAN AUTOMOBILE INDUSTRY indian partner year of investment maruti udyog limited 1983 subros limited 1985 baharat seat limited 1986 machino plastics limited 1987 asahi indo india 1988 products manufactured small passenger car car air-conditioner, car seats bumpers, front grill glass for cars

It is also observed that Suzuki Motors has heavily invested in component manufacturers of the Indian automobile industry since it started its operation in India in 1983. It has steadily increased its investment with all its partners over the years. Table 2 below provides a glimpse of its intensity of investment during 1983-90. The timing of investment in different components also shows its strategic choices of investment along the complementary market functions of its business.

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4.4 DEALER & SERVICE CENTER NETWORK IN INDIA Maruti-Suzuki has developed the most extensive dealer and service center network in India. It is present in as many as 115 towns and cities spread across the country. Many of the cities/towns have more than one dealer. The number of service centers in each place either equals the number of dealers or exceeds the number of dealers. Some of the larger cities have multiple numbers of dealers. Delhi has as many as 15 dealers and 19 car service centers. Bombay has as many as 9 dealers and 13 service centers. A few of the major cities and the number of dealers in these cities are shown in the Table Indeed, the extensive network of dealers and service centers has been crucial for the increased popularity of the Maruti- Suzukis car. Except for the major cities, many towns in India do not have car dealers and most importantly the service centers for passenger cars. There were nearly 700 authorized service centers by 1995. The non-availability of parts and service centers had restricted the use of passenger cars in many of the smaller towns in India before Maruti-Suzuki set up the crucial network of dealers and service centers. The development of this infrastructure has greatly added to the improvement of automobile industry in India. TABLE: DEALER & SERVICE CENTERS IN SOME MAJOR CITIES IN INDIA major indian cities delhi Bombay Madras Calcutta Ahmedabad Bangalore Chandigarh Total number of dealers 15 9 4 4 4 3 3 42 number of service centers 19 13 10 4 6 7 3 62

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4.5 TRANSFER OF JAPANESE STYLE FACTORY MANAGEMENT TO INDIAN PARTNER The case of Maruti Suzuki is best known in Indian industry for the successful transfer of Japanese style management practices. In fact, the case of Maruti Suzuki is often discussed in the Indian business schools as far as the Japanese Management is concerned. Most of the features of Japanese 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. Suzuki Motors 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 (Interview with Mr. Keiji Nakajima, General Manager Sumitomo, India). 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. As many as six to seven employees of Suzuki Motors were deputed to work in the Indian factory (please refer to Table 30). In addition, several Indian employees from MUL were deputed to SMCs factory in Japan. This exchange process of employees helped the smooth transfer of Japanese

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management systems to Maruti-Suzuki in India and has increased the overall factory productivity. 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. All these measures increased the overall productivity of the factory. Further, 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. Suzuki Motors strategy to intensively participate in the Indian automobile industry has earned itself a family brand name among the people of India. It enjoyed the largest market share of passenger cars since its inception. Until 1993, it enjoyed a virtual monopoly. It continues to be the leader among the passenger car manufacturers in India. It has increased its overall production of cars by manifolds. By the time Maruti-Suzuki produced 100,000 cars per years, it surpassed the production of Suzuki Motors production of cars in Japan. Its total production in 1999 was almost 400,000 cars, a figure almost twice of what Suzuki Motors predicted about Indian market when it entered India in 1983. Maruti-Suzuki has maintained high profits all through its operation India The high quality and low priced car generated a huge demand for cars in the Indian market. Customers paid the money for the car on an advance basis in order to book their orders. Suzuki Motors made a straight profit of 7% on the interest earned on the money deposited by its customers. In addition, to the profits made on the sale of the car, this additional profit through interest boosted its profit margins substantially (Interview with Mr. Keiji Nakamura, General Manager-Sumitomo, India). Maruti-Suzuki now exports cars to more than 70 countries worldwide spanning from Europe, South and Central America, Africa, Oceania and Asia. Suzuki Motors performed exceedingly well in the Indian market. Demand for passenger cars grew at a rapid pace in India. Suzuki Motors made large profits in the process.

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CONCLUSION

Despite its shorter presence in India, Suzuki Motors has grown in size, in strength and in its global presence through its timely & 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, its Indian partner for manufacturing passenger cars 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

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BIBLIOGRAPHY

LOTS OF BOOKS AND WEBSITES ARE AVAILABLE FOR THIS PROJECT BUT THE ABOVE MATERIAL OR INFORMATION ABOUT THE STRATEGY FOR FDI IS COLLECTED FROM THE FOLLOWING MATERIALS AND WEBSITES:-

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www.ask .com www.wikipedia.org www.google .com www.slideshare.com