Sunil Jain: Being Khattar

RATIONAL EXPECTATIONS

After the manner in which he ensured Maruti Suzuki India Limited maintained its lead at well over 50 per cent in an overcrowded market for years and came up with novel marketing solutions (schemes like Lalkar, Wheels of India, Panchayat, Teachers and so on added sales of around 20,000 extra cars this year) to ensure Maruti grew 18 per cent so far this year while others grew by less than half, stepping into Jagdish Khattar's shoes was never going to be easy. Not even for an old India hand and seasoned campaigner like Shinzo Nakanishi "" he was part of the initial start-up team in 1983-84, played a critical role in Maruti's disinvestment and has been the company's chairman since 2002.

But December 18, the day Khattar retired after eight years at the helm, is important for another reason. It is the first time, after majority control in Maruti was bought by Suzuki Motor Corporation that someone from the parent company will be in control of it. Coming as this does at a time when Maruti is also becoming a bigger part of Suzuki's global empire, this has both advantages as well as attendant risks. Nakanishisan's biggest challenge will be in how he manages to retain Maruti's identity and profitability while achieving this integration. Indeed, this is the dilemma of all fast-growing Indian subsidiaries of MNCs.

But first, some numbers on how important Maruti is to Suzuki. In terms of numbers, it provides 28 per cent of Suzuki's global sales "" indeed, in April to September, Maruti sold more cars in India than Suzuki did in Japan. In terms of value, Maruti accounts for 13 per cent of Suzuki's global sales; in terms of profits, the figure's risen from 6 per cent in 2001-02 to 32 per cent in 2006-07!

To achieve this, Maruti also began playing a bigger role in Suzuki's R&D, both for India as well as globally. While Maruti redesigned the Zen completely on its own in 2003, its engineers were later part of the Swift and SX4 global design team. Maruti's engineers, for instance, were a core part of the team that designed the Swift engine for India and China. As part of this greater integration, apart from the Rs 9,000 crore being invested in manufacturing facilities at Gurgaon and Manesar and the two engine plants (the diesel one is a JV with Suzuki), another Rs 7,000 crore is to be invested in the new R&D centre that, in O Suzuki's words, would be at par with Suzuki, Japan "" this includes a testing track and the Haryana government has already been asked to give land for this. In another year, India will be the global production hub of the new A-Star ... the list goes on. Not surprising then that, last year, Suzuki brought in nearly 3,000 of its dealers and sub-dealers to study Maruti's plants and dealerships.

It is here that the challenges lie. How is Maruti to be compensated? In the past, when just a few engineers from Maruti got seconded to Suzuki, the former was happy that their salaries were taken care of by the parent "" when the numbers get large, that is no longer enough. In any case, Maruti is now making large investments in R&D "" how will the returns on this be provided, especially when, as is increasingly likely, work is done for cars which are sold globally? Indeed, if a large part of the R&D for the cars sold in India is done by Maruti (O Suzuki's said India will be the R&D hub for all of Asia, ex-Japan), should Suzuki's royalty on new models be lowered and, if so, by how much? Maruti's export strategy, similarly, will have to fit into Suzuki's "" till 2005, Maruti supplied Suzuki's left-hand drive Altos to Europe, but this was discontinued when Suzuki decided the Hungarian Swift would be its new European compact. Who will decide the price of future exports?

Indeed, this is precisely what Maruti's independent directors tried to ensure when, for instance, prices were being fixed for the Swift diesel engines Maruti bought from Suzuki Powertrain India Limited (SPIL) "" its JV in which Suzuki owns 70 per cent. SPIL was subjected to the same discipline other vendors face and asked to get its cost reduction plans approved by Maruti.

Apart from finding novel marketing solutions and finding ways to increase dealer profits without impacting Maruti (getting into auto insurance was one such way) as Khattar was able to, a large part of Nakanishisan's job and that of his independent directors will be to bargain hard with his boss O Suzuki. For the sake of 46 per cent of Maruti's shareholders whose names aren't Suzuki.