Even though Maruti Suzuki was exporting cars to other countries including those in Europe, Suzuki Motor Corporation didn’t think its quality met the standards of the Japanese market.
With Suzuki Motor Corporation (SMC) finally allowing Maruti Suzuki India Limited to export its brand new Baleno hatch to the home market in Japan, the Indian subsidiary has truly come of age. Maruti surpassed Suzuki’s production in its home market many years ago – Suzuki’s production in Japan has been hovering around the 1 million mark for several years while Maruti produced 1.3 million in FY15. The Indian subsidiary accounts for around 40% of SMC’s global profits and, in FY15, its sales were 70% those of Suzuki in Japan, up from 56% the year before – indeed, if you keep in mind the Japan sales include motorcycles, it is likely Maruti’s passenger car revenues were equal to those of SMC in its home market. None of this, however, was good enough since, at the end of the day, SMC didn’t think Maruti’s quality met the standards of the Japanese market even though Maruti was exporting cars to other countries including those in Europe. That has changed now, and represents a big step in a long journey that the company has undertaken over the past 15 years.
Till then, apart from slight tinkering with the headlamps and grilles, every major facelift done for models like the M800 were done in Japan. Starting around 2000, however, Maruti started sending engineers to work in the main Hamamatsu plant, to work along with their Japanese counterparts. By 2003, when the Zen was redesigned, it was Maruti’s engineers that did all the work, worked on the clay models, created the dies in-house – the savings weren’t much, probably under Rs 100 crore, but it was a big milestone. From then on, Maruti began to play a bigger role in Suzuki’s R&D and the fact that the new plant had a test track was part of this plan to design and develop cars, eventually, from scratch in India – that Maruti’s R&D teams played a big part in the development of global cars like the Swift is well known.
There are big lessons here for Indian policy makers and the Make-in-India plan. As the Suzuki example makes clear, it takes decades for the eventual plans of companies to come to fruition as building quality and creating/training vendors isn’t easy. So when a company takes a decision to invest in India, it is very mindful of changes in policy and their larger impact – what looks like a minor change in tax or labour laws to the government bothers investors deeply since they are looking at stability in policy over several decades. Similarly, forcing companies to indigenize faster or to meet export commitments is a waste of time – a company will indigenize/export only when it is convinced the quality of domestic work is good enough and the economics is compelling. In the case of SMC, for instance, as manufacturing in Japan gets more costly and India’s quality keeps improving, it is conceivable that the bulk of Japanese demand will be met from India. In the case of mobile phones, it is only when local Indian demand increased so much, and quality of production improved that mobile phone assembly started here – the tax advantages no doubt helped, but they were not the game-changer. And genuine manufacturing of phones – that is, the chipsets – will take place only when local manufacturing facilities improve. Make-in-India is not going to really catch on as long as investors remain suspicious of government and government keeps imposing short-term goals on would-be investors.