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Case Study On Maruti

Suzuki Conflict
Conflicting Situations
Appointment of bhaskarudu as
a managing director
Plan for Modernization and
Stake of SMC and GOI in
Maruti udyog ltd.

Parties in the
Maruti ltd-
Government of India
Suzuki ltd
Background Note

.Till the early 1980s, the Indian passenger car industry offered limited
choice to the customers, with only two popular models in the form of
Hindustan Motors' (HM) Ambassador and Premier Automobiles' (PAL)
Premier automobiles
.However, the scenario changed in 1981, when the GOI itself entered the
car business by establishing MUL by acquiring the assets of Maruti Ltd.
. In October 1982, the GO1signed a licensing and joint venture
agreement with SMC where in Suzuki acquired the 26% share of the
. The first product, Maruti 800 was launched in 1984. Consumers hitherto
without any choice rushed to buy the vehicle. Maruti 800 earned the tag
of being the 'people's car...'

Suzuki's history dates back to 1903, when Michio Suzuki founded
Suzuki Loom Works in Hamamatsu in Shizuoka, Japan.
. For the first 30 years, company focused on the development and
production of complex machines for Japan's silk industry.
.In 1937, the company diversified into building cars and in 1939 began
manufacturing cars for the Japanese market. But due to the Second
World War it had to stop the production of cars and concentrated on the
manufacture of the looms.
. The company shifted its focus back to automobiles with the termination
of war and collapse of cotton market in 1951. In 1952 it manufactured its
first motorized bicycle called 'Power Free'.
. In 1954, the company changed its name to Suzuki Motor Co. Ltd.

Bitter Fight
In August 1997, the Government of India (GoI) appointed R.S.S.L.N.
Bhaskarudu (Bhaskarudu) as the managing director (MD) of India's
passenger car market leader Maruti Udyog Ltd. (MUL).

The appointment was strongly opposed by Suzuki Motors
Corporation (SMC) of Japan, the GOI's 50% partner in MUL joint
Suzuki even alleged that Bhaskarudu was incompetent and
unsuitable for the MD post.
The GOI argued that as per the 1992 amendment in the GoI-SMC
joint venture agreement, both the partners were entitled to nominate
the MD for five years in turns, and there was no need for any
consultation on it.
Industry minister Murasoli Maran (Maran) declared that SMC was
opposing the appointment of Bhaskarudu as it wanted Jagdish
Khattar (Khattar), Executive Director (ED), MUL (reportedly a SMC
loyalist) to become the MD.
Following the disagreement over Bhaskurudu's appointment, a
furious exchange of letters took place between SMC and the
Industry ministry.
SMC asked for Bhaskurudu's resignation claiming that the minutes
of the meeting when Bhaskurudu was appointed, did not fully record
its objections to the same. However, the GoI refused to remove
Bhaskurudu and reportedly even started looking for a prospective
partner in the event of SMC's exit.
SMC then lodged an arbitration petition against Bhaskarudu's
appointment in the International Court of Arbitration.

In June 1998, the new ruling Bharatiya Janata Party (BJP)
government intervened into the issue and arranged for an out-of-
court settlement between the parties.As per the settlement deal,
Bhaskarudu was to step down in December 1999, two years ahead
of schedule and Khattar was to replace him in January 2000.
The Conflict
SMC had raised its stake in MUL to 40% in 1987 and to 50%
subsequently in 1992. As MUL ceased to be a government unit,
SMC began managing the company, with MD R.C. Bhargava
(Bhargava) taking directions from Japan.
The first signs of dispute surfaced in late 1993, when SMC proposed
a Rs 2,200 crore expansion and modernization plan.
The plan envisaged increasing the production by 1,00,000 vehicles
to effectively meet the growing competition in the sector.
The Heavy Industry secretary Ashok Chandra and the Finance
secretary, Montek Singh Ahluwalia suggested SMC, in an informal
discussion, to go in for a public issue to raise the finance for the
expansion plan.
Though initially SMC was reluctant to go for a public issue,
Bhargava managed to persuade it in 1995 for the same. However,
things changed with K.Karunakaran (Karunakaran) becoming the
Union minister for Industries in 1995...

. The above mentioned conflict will never occur again if both the
companies maruti India and Suzuki Japan make a policy that contains
democratic theory of ethics by which every executive post is filled by
conscience of both the parties that will cause a good working
. This conflict could be resolved by making a policy in such a way
where an executive post is filled by conducting a lucky draw which
should be crystal clear and transparent . An advantage of such an
activity is that maruti India and Suzuki japan both the party will agree
upon it and there will be lesser conflict in future.
. Another way of handling such a conflict is to form a neutral committee
which is responsible for judging the problems faced by the
Organizations and making ways to resolve those problems, and
produce a monthly report to the board of directors.