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Taking a cue from its global peers, Suzuki Motor Corporation (SMC) plans to shift the production base for its small cars to India. The shift would take place gradually once its subsidiary Maruti Suzuki India’s new factory comes up in Gujarat, with India becoming the export hub for its entire range of small cars. SMC’s main production base, in Hamamatsu, Japan, will then cater exclusively to the home market. In 2011-12, roughly 24% of SMC’s total output of 1 million cars was exported.
Confirming the development, Maruti Suzuki India chairman RC Bhargava said, “Small and large car exports from Japan have already become uncompetitive because of the appreciating yen so Suzuki is instead shifting small car production to India.” Bhargava added it was in this context that it was not seeking a relaxation in import duties in any revised trade agreement with Japan.
Apart from factors like an appreciating yen, which has made exports uncompetitive, and natural disasters in recent times, the shift to India makes sense because SMC is primarily a maker of small cars and has developed a huge component vendor base and supply chain in the country. The labour cost in India would also be less and Gujarat is ideal for exports, being a coastal state.
“Gujarat is ideally suited for exports and this was why we chose to locate the new facility there. We have already bought two tracts of land – 640 and 470 acres – for about Rs 450 crore and they are about 18-20 km apart. The final clearance on the first phase of Rs 4,000 crore investment is expected from the board in January, after which construction will start,” a company official said.
SMC, which owns 54.2% in Maruti Suzuki India, is emulating South Korean carmaker Hyundai and Japan’s Nissan, both of which have made India their global production hub. Other Japanese players such as Honda and Toyota too have made India a hub for some of their models.
SMC’s 2012 annual report carries a message from the management saying the yen appreciation and sales drop in India had resulted in net sales for the overseas operations in the fiscal ended March 31 falling 8.7% to 1,525.4 billion yen.
During 2011-12, SMC’s net profit stood at 53.9 billion yen (Rs 3,641 crore), 25% of which was contributed by Maruti Suzuki.
Maruti plans to invest about Rs 8,000 crore in Gujarat for building a 1,110-acre production facility. At full capacity, this facility is expected to churn out 1.5 million cars a year, taking Maruti’s total annual output to over 3.2 million units with the Gurgaon and Manesar facilities in Haryana combined.
Analysts said that the move makes sense but Maruti would have to ensure that labour relations are cordial. The company witnessed major labour trouble at its plant in Manesar this year, which crippled production of some its best-selling models.
VG Ramakrishnan, managing director, South Asia, at consultancy Frost & Sullivan, said that making India an export base will give Suzuki the flexibility to push more products at home, such as the 600cc small cars it sells in Japan. The move may also have something to do with the challenges Japanese companies are facing in China.
"It’s a fairly smart move for Suzuki and significant for profitability. They just have to make sure that local labour issues don’t disturb global operations later. Car companies have to make India a hub to make India work as a market – because to keep prices low at home, they have to have high volumes," Ramakrishnan said.
Suzuki also has a huge first-mover advantage in India in terms of suppliers who are dependent and loyal to Maruti and will invest more for the company, he said.
* Maruti investing R8,000 crore in Gujarat; proximity to ports for exports
* Total production capacity likely to cross 3 million units by 2018-19
* India good small-car export hub as huge supplier industry in place
* Hyundai, Nissan use India as small- car base; Honda, Toyota coming