Supply Chain Creation and Local Development Infrastructure
Cars are made up of several parts, each of which is manufactured by as many part makers. The auto industry has a hierarchical structure, with the automakers at the top as assemblers, working directly with the relatively large Tier 1 suppliers, who in turn are supplied by many Tier 2 and Tier 3 suppliers. Creating a supply chain with these parts suppliers is critical to producing cars in India.
In the first half of the 1980s, when Suzuki was just beginning passenger car production in partnership with Maruti Suzuki, there were no companies in India that could manufacture auto parts that met Suzuki's quality standards. Thus, Maruti Suzuki began producing passenger cars by furnishing its factories with welding and painting equipment and assembling the parts and materials that were imported from Japan. At the behest of the Indian government to procure parts domestically to develop an auto parts industry in India, Maruti Suzuki began sourcing tyres and batteries domestically. Since buses and trucks were being produced domestically, India already possessed the technology to produce these items. Although it was not easy to apply these technologies to compact cars, the company was able to eventually localize the procurement with the cooperation of Indian manufacturers.
At the time, Tata and Mahindra & Mahindra were manufacturing trucks and buses. With all necessary parts manufactured internally, these companies never considered the development of a parts supplier network. With Suzuki's instruction, a Phased Manufacturing Program to develop a local Indian parts suppliers' network began. For example, a technology called “zone toughening” is used on windshields that can alter the size of a crack depending on its location on the windshield. It was necessary to bring this technology from Japan to make windshields in India. Parts suppliers themselves possessed the technology, so Suzuki decided to form a threeway JV between Suzuki, Maruti Suzuki, and parts suppliers. The same applied to plastic bumpers, since India at the time only produced metal bumpers. In this manner, Suzuki steadily pressed forward with creating a local supply chain.
Circumstances changed dramatically with the economic liberalization policies of the 1990s as major foreign parts manufacturers began to expand into India. The Phased Manufacturing Program ended in 1992 and Maruti Suzuki began procuring parts from Indian companies, which by then could produce high quality parts. Today, Maruti Suzuki procures more than 90 % of its parts domestically, importing only a very small percentage from Japan. However, in many cases, the company procures parts from the Indian subsidiaries of Tier 1 Japanese parts suppliers, which in turn import critical parts from Japan for further assembly in India.
For example, Denso, a supplier of electronics controlling units (ECUs), fuel pumps, and injectors, primarily imports critical parts from Japan and assembles them in India. It procures some parts, such as plastic and die cast locally, but India still lacks adequate Tier 2 suppliers. Furthermore, Japanese suppliers at this level are mostly smalland medium-sized businesses, with only few expanding into India. “Increasing the amount of local procurement is essential to reducing costs, and automakers are very cooperative. We cannot lower the quality, but we do need to change our thinking, such as decreasing the functionality of Indian specifications” (an oral interview with employee at Denso's Indian subsidiary).
Maruti Suzuki began producing diesel cars in 2006. Demand in India for dieselrun cars is high, and depending on the model, it can be higher than demand for gasdriven cars. Suzuki did not possess diesel engine technology, so it received technical assistance from Fiat, on account of its alliance with GM, which had a capital alliance with Suzuki at the time. Because the ECUs for diesel engines were manufactured by the Italian firm Magneti Marelli, in 2008 Maruti Suzuki formed a JV with Magneti Marelli and began production of diesel engines in India.
As Maruti Suzuki moved ahead with the localization of its production processes, it also proceeded in terms of creating infrastructure to enable the development of compact cars in India. Up until that time, new cars introduced into the Indian market were models already in mass production in Japan that had been modified according to Indian specifications. However, with the introduction of the Swift model in 2005, Suzuki completely changed course and began the simultaneous production of cars of the same specifications and quality of those produced in Japan, Hungary, India, and China.
Suzuki took a step forward with the release of the A-Star. Manufactured in India and made for the global markets, the model was sold not only in India but was also exported to Europe. Maruti Suzuki and Suzuki periodically had exchanges between the two companies' engineers, helping the growth of development infrastructure in India. There are three stages in local design. The first stage is the ability to design the front and rear of the body, specifically the shapes of the lights and front grill. Maruti Suzuki is already at this level. The second stage is the ability to design the entire body, and the third is the development of the entire vehicle, including the platform. According to a Maruti Suzuki local staff “The company would like to be positioned at level two in the next few years.”