India soon to be export base for Suzuki's Swift

Sep 19 2013, 09:10 IST
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Maruti Suzuki has begun manufacturing of Swift at its Manesar plant for the West Asian, African and Latin American markets. Maruti Suzuki has begun manufacturing of Swift at its Manesar plant for the West Asian, African and Latin American markets.
SummaryJapanese car maker to take advantage of inexpensive labour, unutilised capacity at its local subsidiary.

To take advantage of the inexpensive labour force and currently unutilised capacity at its local subsidiary, Japan’s Suzuki Motor Corporation is shifting the export base of its popular premium hatchback Swift to India.

Sources said that Maruti Suzuki has, since last month, begun manufacturing the vehicle at its Manesar plant for the West Asian, African and Latin American markets. Earlier, vehicles for these markets were being made in Japan as they were meant for left-hand drive (LHD) traffic. Maruti did not have the capability to manufacture LHD Swift till now.

Suzuki’s plant in Japan will now produce Swifts for the home market and small export volumes for developed markets that

require a bigger, 1.4-litre petrol engine. In India, the Swift is fitted with 1.2-litre petrol and 1.3-litre diesel engines.

Maruti's Swift is the largest-selling car in India after the Alto, clocking monthly volumes of close to 14,000 units.

However, this is lower than the manufacturing capacity of over 17,000 units a month that Maruti is not able to fully utilise due to sluggish demand in the domestic market. This excess capacity is thus being used for exports.

At present, the Swift is mostly exported as completely knocked-down (CKD) kits to markets like Thailand and Malaysia, with Vietnam to be added by next month. The plan is to now ship completely built-up units.

“The LHD version was being made only in Japan apart from Hungary, which makes the European version. But from last month India is producing it for the Latin American, West Asian and African markets and will soon take over from Japan as the major exporter of the model. The LHD version is important since 65% of Africa is LHD and Maruti can now supply there. Till now, the Swift had been exported only as CKD kits, where earnings are lower because final assembly and some value addition happens at the destination,” a source close to the development told FE.

Maruti Suzuki did not reply to an emailed questionnaire.

“The focus is on emerging markets, but it will take some time to develop these new markets. The idea is to grow in various markets like Colombia and Laos” where the company does not have a large presence yet, the person cited earlier said. “The company is also looking to enter South Africa in a big way — it is 40% of the African car market,” the source added.

Manish Sabharwal, CEO at staffing firm TeamLease, said that the wage bill for a blue-collar worker in Japan is about five to eight times higher than in India, without taking into account additional payroll costs like social security. “The problem in Japan is not only high cost of labour, but their population is also declining. Who knows, in the long run cars may be exported to Japan from India as well. The car business is very labour intensive,” he said.

A sector expert with a global consultancy firm said, “The strategy to shift export production to India will do well for Suzuki. This is what all multinationals like Bosch and Daimler are doing as a long-term strategy. It gets you to utilise capacity, while quality gets pushed up.”

Maruti exports to about 120 countries, a large part of which is CKD exports of models like the Swift and Ertiga. Among other models, Maruti already makes LHD versions of the Dzire and A-Star, though it now expects the Swift to deliver far higher export volumes. Originally launched in 2000 and now in its third generation, the Swift has been one of Suzuki’s most successful brands globally.

Separately, Maruti is also working on feasibility studies in order to set up assembly plants in various emerging markets such as Sri Lanka and South Africa, and a decision on this is expected by end of this fiscal. The move will help the company avoid trade barriers like high import duties. The focus on emerging markets by Maruti follows a recent change in mandate by parent Suzuki under which Maruti has been entrusted to develop and market products in emerging markets globally, while Suzuki will focus on developed markets like Europe and Japan.

The Maruti Suzuki share on the BSE closed up 1.61% at Rs 1,397.95 on Wednesday.

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