The Maruti - Suzuki Conflict|Business Strategy|Case Study|Case Studies

The Maruti - Suzuki Conflict

            
 
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Case Details:

Case Code : BSTR029
Case Length : 11 Pages
Period : 1997-2002
Organization : Maruti Udyog Limited, Suzuki Motor Corporation
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Auto and Ancillaries

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"Maruti is a national company which has grown because of the support of the government. We can't hand it over to Suzuki on a platter."

- Murasoli Maran, Industry Minister, India, 1997.

"Suzuki feels they can no longer afford the disadvantage of government control over Maruti's decision making. They feel they can do better on their own."

- A Government of India Source, 1997.

A Bitter Fight

In August 1997, the Government of India (GoI) appointed R.S.S.L.N. Bhaskarudu (Bhaskarudu) as the managing director (MD) of India's passenger car market leader Maruti Udyog Ltd. (MUL). The appointment was strongly opposed by Suzuki Motors Corporation (SMC) of Japan, the GoI's 50% partner in MUL joint venture. In a press release following the appointment, Osamu Suzuki (Osamu), President of SMC, claimed that the appointment was illegal on the grounds five of the directors who comprised the majority of MUL's board strength of nine, had objected to the appointment. Suzuki even alleged that Bhaskarudu was incompetent and unsuitable for the MD post.

The GoI argued that as per the 1992 amendment in the GoI-SMC joint venture agreement, both the partners were entitled to nominate the MD for five years in turns, and there was no need for any consultation on it. Industry minister Murasoli Maran (Maran) alleged that SMC was opposing the appointment of Bhaskarudu as it wanted Jagdish Khattar (Khattar), Executive Director (ED), MUL (reportedly a SMC loyalist) to become the MD. Following the disagreement over Bhaskurudu's appointment, a furious exchange of letters took place between SMC and the Industry ministry. SMC asked for Bhaskurudu's resignation claiming that the minutes of the meeting when Bhaskurudu was appointed, did not fully record its objections to the same. However, the GoI refused to remove Bhaskurudu and reportedly even started looking for a prospective partner in the event of SMC's exit.

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Soon after, in the AGM held on September22, 1997, SMC and the GoI representatives even resorted to verbal violence.1 SMC nominees on the board attempted to prove Bhaskarudu's unsuitability of the post by questioning him regarding MUL's functioning. When Bhaskarudu's appointment was put to vote, there was a tie. Prabir Sengupta (Sengupta), Chairman of the MUL board, used his casting vote to ratify the appointment. Following this, SMC nominees passed a no confidence motion against Sengupta and proposed the name of Yoshio Saito2 (Saito) for the chairmanship.

The GoI strongly backed Sengupta stating that he should be allowed to complete his scheduled term of five years until 2000. SMC then lodged an arbitration petition against Bhaskarudu's appointment in the International Court of Arbitration.3 In June 1998, the new ruling Bharatiya Janata Party (BJP) government intervened into the issue and arranged for an out-of-court settlement between the parties.4 As per the settlement deal, Bhaskarudu was to step down in December 1999, two years ahead of schedule and Khattar was to replace him in January 2000.5 Further, Saito was to replace Sengupta as the chairman. Though the dispute between SMC and GoI seemed to have been put to rest for the time being, the issue did not come as a major surprise to industry watchers. This was because the company's history was marked with frequent conflicts between the two partners over the years.

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1] Business India, October 1997.

2] Executive Vice-President, Suzuki Motors Corporation, Japan.

3] Business India, October 1997.

4] According to analysts, the BJP government's intervention in the issue was a part of its strategy to show openness to foreign investment after the widespread condemnation of the India's nuclear tests in 1999.

5] Following the settlement deal, Khattar was promoted as Joint Management Director.

 

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