Analyse the internal and external environment of Maruti Suzuki and the Indian automobile imdustry using Pestel and Swot

• For Hyundai Motors India Pestle and Swot analysis, see Hyundai India Pestle & Swot.

1.0 INTRODUCTION 

Maruti Suzuki India Ltd is an Indian based carmaker and subsidiary of Suzuki Motor Corporation Japan. It was first established as a joint venture in 1981 between state-owned Indian car maker Maruti Udyog and Suzuki with the principle aim of manufacturing and selling of motor vehicles. The company is now majority owned by Suzuki and interestingly, Maruti Suzuki has a market capitalisation three times bigger than Suzuki Motor Corporation itself (Mundy 2017). Maruti Suzuki is also the biggest vehicle manufacturer in India with a market share of over 50% meaning, one out of every two cars purchased in India is a Maruti Suzuki. In fact, such is the dominance of Maruti Suzuki that seven of its passenger vehicles were featured in a list of India’s best selling cars of 2017 (Mukherjee 2017).

Its closest rival is Hyundai Motors India with a market share of around 17% meaning the combined market share of Maruti Suzuki and Hyundai Motors India India is close to 70%. Such a high concentration of the market share between the two dominant players means India’s automotive sector is a duopoly (Maruti Annual Report 2016; Mukherjee 2017; Mundy 2017).

Maruti Suzuki net revenue for the year ended 2017 was US$12bn, 24% increase from the previous year where the com US$9.1bn in annual revenue (Annual Report 2017).

India’s car market is currently the 5^th biggest in the world and poised to become the 3^rd largest in the world by 2020, overtaking Japan and Germany with only China and the US ahead (Mundy 2017). And with sales slowing in China and demand stagnant in the US, many firms are seeing opportunities in the Indian market. This may also explain why parent company Suzuki Japan is not only financing new capacity expansion in Gujarat, India but also purchasing land out rightly to lease to new potential dealer outlets and expand its network (Annual Report 2017). Using Pestle and Swot, this report will examine the current macro environment in the Indian automobile industry to understand the key trends driving growth and competition.

2.1 Political environment

The political environment refers to those politically induced factors coming from governmental action that can impact an industry and individual firms operating in it. This can be in form of new taxation policies, or changes in the regulatory environment by government that can lead to industry-wide changes.

2.1.1 The Indian Electric Vehicle roadmap

One of the most comprehensive current political factors affecting the Indian automotive sector and individual car manufacturers such as Maruti Suzuki, or Hyundai Motors India include the government of India’s ambitious EV (electric vehicle) plan to electrify all new vehicles and create an entirely electric road transport system by 2030 is already disrupting as well as transforming the technological landscape of India’s automobile industry. It presents both an opportunity and threat for car makers and auto-parts manufacturers in India. Parent company Suzuki Japan has already been compelled to joint venture with Toyota, Toshiba and Denso to manufacture lithium-ion batteries as well as enhance hybrid technology (Annual Report 2017; Shah 2017).

While the Indian government originally wanted EV to constitute 100% of all new car sales by 2030, Society of Indian Automobile Manufacturers (SIAM) revised this projection in 2017 stating a more achievable target is 40% (Business Today 2018).

2.2 Economic environment

2.2.1 Demonetization of the Indian economy

The Indian auto industry is still recovering from the medium-term effects of the demonetisation drive initiated in 2016. It squeezed liquidity out of the Indian economy impacting car sales, credit and the general Indian economy. Only which car brands that offered credit facilities with best terms gained market share (Mukherjee 2016). Maruti Suzuki held a strong competitive edge here due to strong legacy ties with local banks and credit institutions.

2.3 Social Environment

The macro social environment can include changes in people’s lifestyles, fashion, labour composition, or other demographic trends that have the potential to be threats or opportunities for businesses.

2.3.1 Rise of Indian millennials and an affluent middle class

The biggest lifestyle change that’s already affecting the Indian automotive industry is the emergence of more affluent middle class in Indian with a higher disposable income than in the past means that car brands will be able to enter higher-end car segments which also have broader margins (Team 2017) serving customers based on lifestyle rather than price. This opportunity will pit Maruti against Hyundai which offers a bigger premium product portfolio marketed to the more affluent classes in India compared to Maruti Suzuki (Rao 2014).

2.3.2 Rising demand for Utility vehicles

Combined with rising incomes and a tech savvy young population with a media age of 30, the UV segment in India is predicted to become the next battle ground for car makers looking to put pressure on market leader Maruti. One out of every four passenger vehicles retailed in India is now UV (Pratap 2018). The UV segment trend is sustaining the industry with double digit growth forecasts by 2018-19 at a time when sales of other segments such as sedans are slowing. This is because UVs especially compact SUVs are becoming more affordable, priced in line with entry-level or mid-size sedans, yet offering better dynamics and drivability. This preference for compact SUVs has resulted in Maruti gaining market share toppling leader Mahindra which specialised in larger UVs while Hyundai also gained market share toppling Toyota to take third position in this segment. The SUV trend is the reason why both Maruti-Suzuki and Hyundai, India’s two biggest auto companies all have SUV versions rolling out.

2.4 Technological environment

When it comes to the technological factors affecting Maruti Suzuki in the macro environment, it is the digital revolution that perhaps represents both great opportunities for those that take advantage or a threat for those that don’t adapt and make use of it. The effect of the digital revolution on society has rightly been termed as the “fourth industrial revolution” for the sheer scale of transformation it is having on societies unlike anything seen before. The challenges it presents for Indian auto companies such as Maruti Suzuki are many.

But the biggest one is Artificial intelligence and the rise of autonomous driving technology. Autonomous driving technology represents one of the biggest technological threats because it not only challenges how people drive (or driven) but also the very concept of vehicle ownership. According to a KPMG survey of European car executives, almost 60% believed car ownership will likely decline by 2025 (Silver 2017).

2.5 The Legal environment

The legal environment concerns the regulatory environment, laws as well as litigious situations from the external environment, which can impact a firm’s operations in multifaceted ways. An example in India is the new Goods and Services Tax (GST) tax introduced in July 2017 which has seen car prices reduced across all major car categories, which has in effect made all cars barring hybrid vehicles, become more affordable than before to Indian buyers (Dutta 2018).

2.6 Environmental Factors

The transition to a low carbon and resource-efficient future is underway, affecting almost every sector of the global economy. In India, the Bharat Stage (BS) IV emissions standards that came into force beginning April 2017 are a threat to Indian auto firms. According to the Indian Express (2017), the implementation of the latter will mean car manufacturers will no longer be able to sell or register vehicles which do not comply with the BS-IV standards. According to Khan (2017), this scenario represents a nightmare scenario for Indian auto firms when the new BS emissions regulatory rules start being enforced.

3.0 Maruti Suzuki Swot analysis 2018

3.1 Strengths

• The success of Maruti Suzuki was from the beginning built on making small affordable cars for Indian consumers who are traditionally price sensitive. Most of the brands it manufactures have been engineered to be small, affordable and fuel efficient to make them affordable to own for the masses (Annual Report 2017). Six of the company’s bestselling cars are either small hatchbacks or entry-level sedans including the Alto, India’s best-selling car. Biggest automobile firm in India across all performance measures including both domestic sales and international exports ahead of HMIL.

• Biggest car dealer network approximating 2000 distribution outlets with further expansion in the pipeline. According to Bhargava (2017) distribution is now the core strength of Maruti Suzuki enabling it to now fully connect directly with customers and convey all its products.
• Boasts leadership position in most of the key market segments in India’s automobile industry.

• Boasts 7 car brands in India’s top 10 best-selling cars with the Alto, its bestselling car. The interesting thing is the top 6 spots composition based on model with either small hatchbacks or sedans dominating. Hyundai manages to break this monopoly with its own hatchback, the Grand i10 taking 7^th spot. Spot 8 and 9 are the only SUV entries with Maruti’s Vitara Brezza and Hyundai’s Elite i20 taking each spot respectively (Mukherjee 2017a).
• Its cars have the most resale values in the pre-owned market, a key success factor in India’s unique automobile market where customers place a high value on resale value when purchasing a car. Resale value has in a way become a valuable, rare, inimitable, and non-substitutable (VRIN) intangible resource that’s availing Maruti Suzuki a rare opportunity to exploit India’s largely disorganised pre-owned car market. It’s doing this through a complete nationwide revamp of all True Value outlets, the independent sales and service network that offers buyers of pre-owned Maruti Suzuki cars a safe, reliable and hassle free purchase experience normally reserved for new car buyers (Annual Report 2017).
• Strong R&D capabilities with a state-of-the-art R&D facility at The Rohtak Centre, built in 2009 for vehicle design, development and quality testing (Annual Report 2017).
• Experience curve due to pioneer status derived from being in operation since 1982 gives Maruti Suzuki a competitive edge over other domestic and foreign rivals.

3.2 Weaknesses

• Nevertheless, as the dominant market leader, Maruti Suzuki is the target of competitors looking to exploit its weaknesses to gain market share. Potential high sunk costs, given the government’s electrification vehicle drive, may render some of its capital investment in the new diesel engine plant at Gurgaon an albatross. If this happens, Maruti Suzuki could find itself losing market share to well-prepared firms such as Mahindra and Toyota.
• Another major weakness has been the image of Maruti Suzuki as a budget and dull brand whose cars lacked uniform and sophisticated designs or features. Competitors such as Hyundai Motors India have taken advantage of this, releasing stylish but feature-rich cars with sophisticated designs that are in demand among the growing rich and upper middle class (Rao 2014).

• Potential high sunk costs given electrification drive may render all its capital investment in the new diesel engine plant at Gurgaon an albatross. If this happens, it could find itself losing market share to well-prepared firms such as Mahindra and Toyota. Perhaps that’s why Parent company Suzuki Japan has already been compelled to joint venture with Toyota, Toshiba and Denso to manufacture lithium-ion batteries as well as enhance hybrid technology (Annual Report 2017; Shah 2017).

3.3 Opportunities

• The emergence of more affluent middle class in Indian with a higher disposable income than in the past means that car brands will be able to enter higher-end car segments which also have broader margins (Team 2017) serving customers based on lifestyle rather than price. This opportunity will pit Maruti against Hyundai which offers a bigger premium product portfolio marketed to the more affluent classes in India compared to Maruti Suzuki (Rao 2014).
• The government of India’s ambitious EV (electric vehicle) plan to electrify all new vehicles and create an entirely electric road transport system by 2030 is already disrupting as well as transforming the technological landscape of India’s automobile industry. It presents both an opportunity and threat for car makers and auto-parts manufacturers in India. Parent company Suzuki Japan has already been compelled to joint venture with Toyota, Toshiba and Denso to manufacture lithium-ion batteries as well as enhance hybrid technology (Annual Report 2017; Shah 2017).

3.4 Threats

• Demonetisation impact on car sales, credit and the general Indian economy.
• New BS emissions regulatory environment getting tougher
• The Indian government introduced new GST tax rules in 2016
• Digital disruption

References

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