• 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 2017-2018

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

4.0 Maruti Suzuki Porters Five Forces Analysis 2017-2018

Why is Porters industry analysis important? It is important because without an understanding of the competitive environment in which firms operate, they cannot make sound strategic decisions. Porters five forces analysis of the Indian automobile industry helps automobile firms operating in it to either identify attractive and lucrative segments within the Indian automobile industry as well as the sources of competitive advantage. This analysis of Maruti Suzuku using Porters five forces will thus help us understand why Maruti is embarking on certain strategies in an attempt to wrestle with rivals and more importantly shed some light on how has Maruti Suzuki has gained and maintained market share in recent years despite increased competition in India’s automobile industry.

4.1 Power of buyers

In the last 15-20 years, Maruti Suzuki managed to dominate the Indian automotive market based on a value for money foundation of producing cheap fuel efficient cars backed by good after sales with little regard given to style or features. In the past, this served the market well due to the economic realities of weak purchasing power, barriers such as regulatory protection and information asymmetry. But as incomes rise, and technology fuels disruptive technology, while knowledge becomes a commodity, power has shifted somewhat to buyers. Sources of competitive advantage are beginning to move beyond price to include differentiation, hence why Hyundai is gaining (Rao 2014). Nevertheless, because Indians rank car resale value very highly, it makes switching brands very hard so they get locked in to certain brands limiting buyer power of Indian car buyers hence the continued dominance of Maruti (Mehra 2017; Senguptal 2016).

4.2 Power of suppliers

Due to the sheer number of car manufacturers and brands setting up shop in India, it has also spawned an influx of component manufacturers who supply the auto industry. This gives them power over some brands that are not OEM manufacturers such as Tata Motors or Mahindra.

4.3 Rivalry within existing firms

India’s automotive industry currently resembles a duopoly with the top two car manufacturers commanding more than 65% of the entire passenger vehicle market consisting of 18 car and SUV manufacturers ((Annual Report 2017; Mukherjee 2017; Mundy 2017). This is a legacy of many factors including early mover advantage of the Maruti Suzuki joint venture since 1982 while Hyundai started manufacturing operations in 1992, the first foreign car brand to do so (Rao 2014). Government subsidy arising from the government’s shareholding in the Maruti Suzuki joint venture was an added perk for Maruti at least until 2007 when the government sold its shareholding. These factors have helped Maruti and Hyundai build unmatched distribution, sales and service outlets, helping them establish brand loyalty and reputation that will take time for rivals to overcome (Rao 2014).

4.4 Threat of substitutes

Another unique feature of India’s automotive industry is the massive presence of two wheelers, whose unit volume sales reached 18million (or 81% market share of the automobile market) compared to passenger vehicle unit sales of 3.4million--13% market share (Statista 2017). This means car purchases in India have a far bigger threat from two wheeler substitutes compared to other modes of transportation in other countries. Together with the rail, they offer a more affordable way of travelling within the country for the poor as almost half of two-wheelers sales comes from rural markets. Car rentals and cab aggregating platforms are another substitute whose continued growth is driven primarily by millenials but whose threat isn’t substantial due to fragmentation with demand mostly for short duration trips or weddings (Euro Monitor 2017; Mukherjee 2016).

4.5 Threat of entry/Barriers to entry

As the incumbent leader with the dominant market share in India’s automobile industry, Maruti Suzuki is all too aware of the threat new entrants pose to both its dominance of market share as well as profitability in different car segments as well as the automobile entire market. The threat of entry in an industry is usually determined by the barriers to entry that existing players set up to try and barricade themselves from competition.  In India’s automobile industry, Maruti is facing increased competition from domestic rivals such as Hyundai Motors India that has been eroding Maruti Suzuki dominance since 2012.

Bur rather than start a price war with new entrants vying for some of the attractive and lucrative car segments it dominates, Maruti Suzuki has instead embarked on a strategy of raising entry barriers in an effort to fortify itself against increased competition. In business strategy, one of the most effective offensive strategies incumbent market leaders use when facing market share erosion across key segments is to raise entry barriers through tactical maneuvers such as capital expenditure on new products, increased differentiation aimed at reinforcing consumer loyalty, or an outright price war against an encroaching competitor to deter them (Grant 2010; Johnson 2008).

A price war or increased capital expenditure on new car models isn’t the most favored option by carmakers because it’s risky yet very expensive. Maruti Suzuki has instead managed to gain and sustain its current competitive advantage through a four thronged counter-offensive strategy that has focused on raising entry barriers and fortifying its dominant position through 1) incremental product intervention, 2) distribution network expansion, 3) improved service offering and 4) digitization as detailed below (Annual Report 2017; Bhargava 2017; Murkherjee 2017).

4.5.1 Incremental product interventions

When Maruti Suzuki realized at some point in the last few years that it was losing appeal among growing millennials and the more affluent segments of the population; it quickly launched new products and services to counter this. For long seen as the “not-so-premium” brand for price-conscious consumers, Maruti Suzuki wanted to shed the dull image and move beyond its traditional value-seeking customer base (Rao 2014; Bhargava 2017). It has done this by slowly introducing cars with more stylish designs and sophisticated features to appeal to the young and more affluent. It has redesigned many of cars, including the Baleno RS as well as its bestselling car, the Alto which is currently more aerodynamic and stylish compared to past models. For young millennials, it has introduced a brand new compact hatchback, the Ignis, and the premium Ciaz hybrid for environmentally conscious elites (Mukherjee 2017; Annual Report 2017).

4.5.2 Accelerated distribution network-expansion programmes

• Maruti also embarked on an accelerated network expansion programme adding new distribution, service and sales outlets, expanding a network infrastructure that was already substantially bigger than rivals’. Now it boasts a nationwide service network spanning over 1500 cities and towns and a sales network that spreads across 1471 cities, backed by 2 state-of-art factories (Marutisuzuki.com 2017).

4.5.3 New and Improved services

• It also launched new services in an effort to shed its staid image including the launch of the Nexa chain of premium retail outlets in 2015 to serve higher end consumers (Bhargava 2017). This was followed by a plan for a nationwide complete revamp all True Value outlets, the independent sales and service network offering buyers of pre-owned Maruti Suzuki cars a safe, reliable and hassle free purchase experience as buyers of new cars (Annual Report 2017).

4.5.4 Digitization

• Maruti Suzuki has started leveraging digital integration to differentiate itself from competitors through innovations such as digitally enhanced showrooms enhanced like Nexa premium stores and Arena, which use digital technology to provide more information, customised buying experience and convenience to Indian car shoppers (Business Standard 2017).

All these operations have been part of an offensive strategy aimed at transforming a staid market leader coping with anxieties in the last 4-5 years about staying relevant in an India whose demographic landscape is shifting rapidly. Fortunately for Maruti Suzuki, the result of the strategic transformation is a now formidable infrastructure of resources and capabilities that are creating mobility barriers for rivals seeking to challenge it across the many market segments in the Indian automobile industry.

References

References available upon request

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