Professional Documents
Culture Documents
For all the attention the media bestowed on the eventual separation between TVS
and Suzuki in their Chennai-based mopeds-motorcycles-scooters joint venture, the
articulation of this arguably the most drastic development in its short life history, in
the directors annual report to shareholders couldnt have been more prosaic or
clinical:
Suzuki Motor Corporation, Japan (SMC) ceased to be a shareholder and
provider of
September 2001,
the promoters of the company. During the year, the shares held in the company by
SMC were acquired by Anusha Investments Limited (AIL), a wholly owned
subsidiary of SCL. With the total holding of SCL and AIL in the equity capital
exceeding 51 per cent, the company became a subsidiary of SCL, effective 15th
November 2001.
It was the culmination of what observers and analysts had termed a troubled
marriage: that was star-crossed right from the beginning with the partners divergent
institutional aspirations with regard to the future of the business. Marriages of
convenience, such as this one, do fall by the wayside, sooner or later. In October
2001, the board of directors of TVS-Suzuki Motors in Chennai met to discuss, besides
the financials of the company, change of name to TVS Motors, following the exit of
Suzuki from the seventeen year old joint venture that had led the company to rank
third among producers of scooters and mopeds in India. Applying closure to joint
ventures is not an unusual phenomenon and could be precipitated by a variety of
causes. The most fundamental trigger however is the erosion of the basic need of the
partners for each other. Among the needs that joint venture partners have of each
other, learning is an important constituent; it could relate to technology,
management practices, logistics and distribution management, local socio-cultural
wisdom, and so on. Once this thirst is satisfied, the partners may begin to feel the
redundancy of the other, especially if the agreements involve, as they normally do,
joint decision making on key operational matters, as well as imposition of constraints
on exploitation of overseas markets or use of domestically developed technological
Managing Director of the company in October 2001, months before the actual
separation, succinctly underscores this vital constituent of such partnerships:
A joint venture is a special purpose vehicle set up by two entities for the
purpose of
And the formal separation was approved by the board at that meeting. Thus
ended a partnership that had been described as uneasy at the best of times over its
decade and half plus tenure. Responding to press enquiries on the reasons for this
(not unexpected) parting, all that Mr. Srinivasan would say was: both of us desired
to pursue our own business interests, markets and brands.
work
practices,
manufacturing
practices,
vendor
development
practices.
And again,
The value-addition in two wheeler production is small 70 per cent is the
material cost. You need to make the product at the right cost oand develop
and good vendor base. Technology is just a means to an end. It must meet the
cost requirements of the customer. You have to provide a package.
The strategic intent of TVS right from the beginning was thus explicitly spelt
out from time to time: to gain brand advantage in the Indian market, to use virtually
off-the-shelf products from the collaborator which would otherwise have taken much
longer if developed indigenously, and to benefit from manufacturing and other
processes that Japan was famous for.
capabilities had been strengthened, there was little that Suzuki could bring to the
table, and still less that the domestic partner could learn from the other.
It is equally instructive to explore Suzukis approach to the idea of the joint
venture initially, and its dissolution seventeen years later. It is common knowledge t
hat Japanese companies in general had been eyeing the vast potential of the Indian
market, and had been held back primarily because of the restrictions on foreign
direct investment imposed by the Indian government in the post-independence
protectionist and nationalistic zeal. Once there were signs of some thawing on these
fronts, the Japanese, as indeed many others, were quite keen to get on board. Suzuki
had one particular advantage, serendipitous or otherwise. They were in some ways
very fortunate to have bagged the small car project (Maruti) originally envisioned by
Sanjay Gandhi, the rising sun in the political arena, not the least because of his being
the son of the then Prime Minister of the country, Indira Gandhi. Following his
unfortunate demise in an air accident, the mother inherited the legacy and
determined to turn her sons dream into a reality. Suzuki won the collaboration not
only because of its the small car demand at 200,000 units per annum by the year
2000, while other competitors were trailing far behind in the 50,000 units range. In
a sense therefore Suzuki had tasted blood in its India foray, and was keen to
strengthen its presence in India through a concerted strategy of sustained
investment, not only in the small car company but also in a number for its twowheeler operations, Suzuki was strategically and emotionally more than ready to
jump in.
A second aspect of Japanese foreign investment strategy also needs to be
borne in mind while reviewing its entry into the two-wheeler joint venture with TVS.
It was a case of horses for courses. In the case of their investments in China for
example, geographical proximity and Korean competition would dictate their
business ventures.
untapped market that was the prime mover. Sundaram Iyengar, the founding father
of TVS, aspired to provide transport independence to the teeming millions of middle
class Indians, and Suzuki could see the spiraling demand for two-=wheelers in India
and desired to participate and appropriate a fair slice of that cake. It was the same
kind of aspiration (scaled up a keeping with the times)that led Ratan Tata later to
work on providing a low-cost four-wheeler to the millions struggling in public
transport and on two-wheelers leading to the Nano (the real small car of Tata Motors
in 2009).
commitment to projects they embark upon. Suzuki did put in financial, technical
and managerial resources into the joint venture, with more than matching support
from TVS in terms of local knowledge, management drive and burning ambition.
TVS-Suzuki soon became a force to reckon with in the Indian two-wheeler market
along with Bajaj and Hero Honda.
By the time the break-point was reached in 2001, had Suzuki come to the
conclusion that its need for TVS was no longer as acute as it was in the 1980s and
90s? Clearly, in terms of acquiring a measure of local expertise on markets, logistics
and business environment, Suzuki had probably learnt all it could both due to its
presence in India, and through interaction with its Indian partner. Financially, the
initial investments had probably paid back several times more through dividends,
royalties and technical fees and so on. Whether TVS had the potential to offer Suzuki
any further learning sources and opportunities which it could not be achieved (and
the future prospects of achieving were indeed bleak) was to obtain total management
control of the operations (unlike incase of the automobile venture where it has
boiught out the equity of the other partner, the Indian government).
thoughtfully written out right from the beginning. Consider the following pointers:
1. While Suzukis equity holding in the joint venture company was peged at
25.97 per cent right through, TVS holding had moved up to 32.46 per cent,
clearly establishing the latter as the senior partner in the venture.
2. TVS did not agree to a request from Suzuki in mid-1990s to increase its equity
holding, and to have a more effective say in the companys day-to-day
management.
3. Prior to 1996, both TVS and Suzuki had an equal number of directors on the
Board. In 1996, TVS had increased the number of Board seats in control to 5,
one more than Suzuki.
4. In 1999, taking advantage of policy relaxations, Suzuki gave notice to TVS
seeking to increase its equity holdings to a controlling 51 per cent failing which
a concurrence to set up its own 100 per cent subsidiary. The proposal was
vehemently opposed by TVS, and Suzuki dropped the matter.
5. When the foreign direct investment guidelines were relaxed in favour of easier
entry of international companies without having to wait for concurrence from
the Indian partners, if any, Venu Srinivasan was among the most vocal critics
of the move. Although positioned as advocacy of the interests of the domestic
industry, the direct personal interest in the matter, given the relationship with
Suzuki, cannot be lost on the discerning observer.
6. When, in the early 1990s, Suzuki rejected TVSs request for more funding to
facilitate internal design capability, the joint venture company nevertheless
went ahead with its plans for strengthening such capabilities, using internal
funds. There could be no better indicator of the JVs move towards selfreliance (just in case Suzukis contribution should diminish or disappear at a
future date).
Both partners were thus on a mutually conflicting strategic course which did
not permit or accord with management control, dominance, or even sharing to
any extent by the other. Suzukis long term plans in the more relaxed foreign
direct investment climate of the country was to have total control over its
business operations.
The ending of the partnership with Suzuki had meant a greater freedom and
flexibility to grow according to TVS-Ms own perception of its priorities and
goals, charting its own course for the future. Now TVS-M can design, and
develop new motorcycles and upgrades of existing products to meet the
changing customer needs not just in the Indian market, but also abroad, TVSM has not longer any restrictions in designing and developing , manufacturing
and selling products for the overseas markets. TVS-M can thus more fully
exploit its capabilities in design, development, manufacturing and marketing
of two-wheelers and attempt penetrating Asian and other markets.
As the clich goes, the choice was clear! If Suzuki wished to work towards
achieving their ambitions of being a lead player in the two-wheeler segments in
India in their own right, they had to part company with TVS, and venture out
afresh on their own. This, in the event, is what they chose to do. After nineteen
years of cohabitation, TVS and Suzuki agreed to go their respective ways, each
confident of achieving its own goals in grand isolation.
Source: Adapted from Government Issues in Corporate Partnerships and Separations: N Balasubramanian
odium of displaying bad faith. If the alliance has helped Suzuki to understand the Indian
two-wheeler market and thereby secure a better foothold here when it seeks to enter on
its own, so too it could be said that TVS had gained an insight to the Japanese way of
doing things.
It is not difficult to see the strategic compulsions behind Suzuki's move to quit the
alliance and strike out on its own. For a company that started its business journey
manufacturing textile looms, it has come a long way with a significant presence in
automotive business. Incidentally, Suzuki shares a common history with its more
celebrated rival Toyota, as the latter too started out life manufacturing textile looms.
Today, Toyota has left other Japanese car manufacturers way behind. But that is another
story.
The basic problem confronting Suzuki is its narrow product and geographical focus.
Nearly two-thirds of its income accrues from automobiles and 70 per cent of its total
income is accounted for by the home market, Japan. This would not have mattered so
much if the Japanese economy was robust, or if Suzuki enjoyed leadership position in
the automobile market. But unfortunately, neither of these conditions exist for Suzuki to
leave things as they are.
The Japanese economy has gone into a long-term recession from which it is not showing
any signs of recovery. In fact, given the economy's structural deficiencies and a
demographic profile which shows an aging population, any dramatic improvement in the
economy and by extension, car sales as well, in the medium term, can be ruled out.
Similarly Suzuki cannot also hope for a leadership position in the automobile market in
the near term. It is way behind at fourth spot, with Toyota, Honda and Nissan ahead of
it. Even this fourth position does not seem all that impregnable with Mitsubishi,
Daihatsu, Fuji, etc., snapping at its heels.
The situation may or may not be ripe for an immediate shakeout. But the prospect for all
but the top two or three players in the industry can be none too good. Lending
momentum to the process is the global forces at work. The global automobile industry
might be left with just four or five players -- a situation that does not leave much room
for most players but the top ranked ones, reckoned on a global basis. It is entirely
possible that Suzuki may be vacating the major lines of passenger car market for
General Motors and perhaps concentrate on mini cars and station wagons. For Suzuki,
then, the situation clearly calls for hedging its bet on the motorcycles business, where it
has a superior leadership position on a global scale. A thrust into India on an
independent basis is a strategic imperative.
The global manufacturing sector is inexorably moving towards a situation of
commoditisation of manufactured goods. A diffusion of manufacturing know-how and
global access to capital has made it (commoditisation) so. Each manufacturer tries to
counter this by building in a value proposition in his manufacture through product
innovation and brand promotion. But success, such as it is, is only transitory. Once
customers realise that all features are universally available (logic of commoditisation
implies that this is so), the price becomes the key attribute for success in the market
place.
A winning edge in price can come about only through cost efficiencies. Superior cost
efficiencies are possible only for those with manufacturing capability on a global scale. A
virtuous cycle of scale economies contributing to larger volume of sales gets repeated
many times over. Any strategy of securing a global operating space in motorcycles is
inconceivable without a presence in India, a huge market by any yardstick. It is precisely
for this reason that Suzuki could not have allowed too much operating space to its Indian
co-promoter so that the joint venture could assume a commanding presence in the
Indian market.
Any gains made by the joint venture would make the later day entry of Suzuki that much
more difficult. If the local promoter wanted more product innovation and technical
inputs, Suzuki could not have acquiesced without compromising its own long-term
prospects in the Indian market on a standalone basis. The joint venture, by the very
nature of differing expectations and aspirations among the partners, cannot but be an
uneasy alliance -- one bound to break up sooner or later. The break-up of the SuzukiTVS group's joint venture must be seen in this context.
Where does that leave the TVS group? If it had seen the inherent contradictions in the
respective positions and prepared itself for this day, all may be well. For then, their
strategic response could be set to be already under way and success may be just round
the corner. If, on the other hand, they had not prepared for this day, their response is
going to be delayed that bit longer and this would begin to reflect on their financials
sooner than later.
Source: http://www.thehindubusinessline.in/iw/2001/09/30/stories/0830h151.htm
Suzuki, none of the company's fast-selling two wheelers had a major Suzuki cont
ribution.
TVS-Suzuki's 'bread and butter' product, the mopeds, is all Indian (although there is a
lingering suspicion that it is an adaptation of a moped model called Go-go VA of Batavus
of Holland). The hugely successful TVS-Scooty again is a non-Suzuki product.
It was only in two-stroke motorbikes such as the Max 100 R and the Samurai, and the
four-stroke Suzuki Fiero, that TVS-Suzuki had to rely on the collaborator's technology,
and of course, kits.
However, with the waning-off of the two-stroke motorcycles in India, and with the recent
launch of the all-Indian 'TVS Victor', it was clear that the Indian side could do without
the Japanese collaborator.
When TVS-Suzuki launched the Victor, company officials said ``off the record'' that the
collaborator was not too happy with it, because it would, among other things, mean that
TVS-Suzuki would buy fewer kits from it.
Some signs of trouble between the collaborators emerged a few months ago, when both
parties separately bid for the public sector Scooters India Ltd. It was then whispered that
Suzuki wanted a manufacturing facility of its own in India and Scooters India offered
quite that.
The absence of the Japanese collaborators at TVS-Suzuki's annual general meeting held
on September 21, was another indication that all was not well between the partners.
From Suzuki's point of view too exiting the joint venture appears appealing. Two other
compatriots of Suzuki, viz., Honda and Yamaha, are today on their own in India, having
jettisoned their erstwhile partners.
Furthermore, the recent strategic alliance between Suzuki and Kawasaki created a
conflict of interest, as Kawasaki has a successful joint venture with Bajaj in India.
http://www.thehindubusinessline.in/businessline/2001/09/27/stories/14270701.htm
During that time, TVS will conceivably acquire mastery over the products at present
manufactured under a licence from Suzuki--Max 100 R, Samurai and Fiero. The question
is, beyond 30 months, what?
Recently, Mr Srinivasan told his shareholders that the company proposes to spend
around Rs 250 crore over the next three years, only on developing new products.
The biggies in the motorcycles business - Honda, Yamaha, Suzuki and Kawasaki - won't
have to spend anything. Honda has over 400 models in its stable. The others have
lesser, but certainly in the upwards of 150 models each. To be able to compete with thes
e giants is not going to be easy for TVS.
TVS's track record of in-house product development is not good. Over the last seven-odd
years, there has been a string of failures - the 110 cc Shogun, the 135 cc Shaolin, the
100 cc Supra and Supra SS - all adaptations of Ind Suzuki. These products were
developed in India and got approved by Suzuki. However, Ind Suzuki itself, in its other
name as Max 100 R, is still a fast-seller. As regards the new TVS Victor, it is too early to
judge.
Even in the non-motorcycles segment, the 50 cc Super Champ, the 60 cc Astra, the 70
cc TVS Sport and more recently, the 150 cc scooter Spectra, all turned out to be lemons.
Today, essentially the company has four successful products - the moped TVS Champ,
the scooterette TVS Scooty and the motorcycles Max 100 R, Samurai and Fiero. Victor
may or may not prove to be successful.
The moped market has been hit by the recent lowering of the excise duty on scooters
and motorcycles, which has narrowed down the price difference between them and
mopeds. However, it is still the entry-level vehicle - any one who wants to 'graduate'
from cycles to a motorised vehicle will go to a moped shop. Here comes the strength of
`moped mannar's' company.
TVS Scooty is selling well. The company proposes to introduce 4-stroke versions also in
the next couple of years, thought it is not clear, at what cost. Even today, TVS Scooty
costs almost as much as the recently-introduced 4-stroke Bajaj Boxer.
Conceivably, the Japanese majors will also be eyeing this segment. These players may
not care much about margins in the short run, or make their profits in the higher-end
models. The competition in this segment is intense, and can be expected to intensif y
further.
Again, coming to motorcycles, TVS will not only have to compete with the technical and
financial might of the Japanese majors, and presumably with imports also, but will also
have to fight a mind-set. A totally indigenously developed vehicle is not treat ed with a
great trust in this country.
On the other hand, there is also a view that TVS should not be written off. One option is
to source design and development from abroad. There are companies like Tokyo
Engineering of Japan, AVL of Austria (which had a hand in Victor) and Cagiva of Italy.
Some analysts believe that, now that TVS is freed of Suzuki, it could access technology
from anywhere - different sources for different vehicles.
But until details on these issues emerge and the picture gets clearer, the odds are
loaded against 'TVS minus Suzuki', as the hypen in TVS-Suzuki may today mean.
http://www.thehindubusinessline.in/businessline/2001/09/28/stories/022807zu.htm