Process of automobile cluster development in India: Case of Maruti Suzuki

Type de publication:

Conference Paper

Source:

Gerpisa colloquium, Paris (2019)

Résumé:

1 Research Statement

Industrial clusters are recognized as playing a significant role in both regional economic development and growth of transnational corporations (Porter, 1998). So, clusters have grown to be an object of aspiration for many regions wanting to advance their knowledge and technology (e.g. Silicon Valley, Route 128- Boston and Cambridge).

The geographic agglomeration of firms within industries is a visible fact in many countries and has been recognized many years ago. Auto industry in Detroit (US), Turin (Italy), NCR (National Capital Region) in India are good examples. There have been lots of theory on why firms locate near to each other and which kind of competitive advantages they gain.

The liberalization of Indian government policies has resulted in the rapid growth of auto industry post 1993. With its fast growing economy, major global players in the automobile industry have been attracted to India. The automobile industry, because of its large backward and forward linkages, greatly influences the pattern of economic development in almost every country and every region that produces automobiles.

Maruti Suzuki India Limited (Maruti Suzuki now onwards), previously known as Maruti Udyog Limited (MUL) is one of the first projects in automobile industry with Japanese investment which started in 1983. This joint venture (JV) between the Indian government and Suzuki Motor Corporation (SMC) played an important role not only in the expansion of Indian auto market, but in the agglomeration of this industry in Delhi region, also known as “National capital region or NCR”. Its role in the NCR auto cluster is undeniable.

In this scenario, objective of this research is to understand the process of development of the automotive clusters in India, specifically looking at the case studies of Suzuki, the leading MNE (multi- national enterprise) in the NCR auto cluster. Also, it will analyze the Maruti Suzuki’s reasons for supplier development.

 

2 Methodology

 

2.1 Case Study

Explanatory case study has been used in this research, complemented with application of flowchart model of industrial agglomeration. Explanatory case study is chosen in this research because it allows the researcher to concentrate on specific instance, the Indian automobile cluster, in an attempt to find details of specific process. Specific instance is NCR auto cluster and specific process being process of industrial agglomeration.

 

2.2 Data Collection

This research has used secondary data for analytical purposes. In this research, gathering relevant data from the specified documents and compiling databases are needed in order to analyze the material and arrive at a more complete understanding.

The research has used data from various secondary sources.

 

 

2.3 The Flow Chart Model of Agglomeration

Development process of NCR automobile cluster is explained by using the flow chart model of industrial agglomeration. The flow chart model, developed by Kuchiki (2005), describes that industrial cluster policy can be an effective tool for creating industrial cluster by establishing industrial zones, building capacity and inviting anchor firms. Kuchiki has developed this model to describe how developing countries are attracting foreign anchor firms to invest by creating prerequisite environment in their country.

 

3 Result

 

3.1 Process of cluster development: Flowchart Model

The research analyzed the process of agglomeration of automobile industry in NCR region. Explanatory case study has been used in this research. Researcher applied a general model of the flowchart approach to industrial cluster policy, which is developed by Akifumi Kuchiki, to NCR automobile cluster.

From the flowchart model of clustering policy analysis, it is seen that after the entrance of FDI from the Suzuki, clustering process began in NCR region. This State–MNE joint venture that started as public company has a significant effect on the agglomeration process of automobile industry in NCR region. Over the period of time, after the liberalization this process has accelerated. 

 

3.2 Agglomeration through development of auto component makers

The research covered the supplier development process adopted by Maruti Suzuki in detail. Maruti Suzuki made different kinds of efforts in order to enhance the quality of auto component produced in India. First, Suzuki encouraged its component suppliers to invest in India. Maruti Suzuki brokered many JVs and technical collaboration between Indian and foreign component makers over time. This effort has helped in the development of auto component industry in India (Bhargava, 2010; pg 223).

  Maruti Suzuki has laid stress on local suppliers and placed great focus on local sourcing of parts. As Maruti Suzuki introduced JIT system in India, it gave preference to locally based suppliers to achieve JIT completely in material supplies. It also facilitated relocation of vendors within a 100 km radius of its plants.

Second, Maruti Suzuki has encouraged its supplier to invest in quality improvement. It offered volume of the business to the potential suppliers (100,000 automobile in the initial phase). It worked as incentive for existing component makers to invest in quality improvement. 

This research also analyzed the factors that necessitated the endeavor of Maruti Suzuki. Many factors, such as PMP or localization policy, lack of quality components, fluctuating foreign exchange rates, government of India’s policy of protection, and tax system have been the reason for the supplier development.

 

4 Conclusion

Overall, this research describes the clustering process of Indian automobile industry, focusing especially on Maruti Suzuki’s case. And paper explained the process by using the flowchart model. Analysis showed that various reasons necessitated the development of auto component makers by Maruti Suzuki. That also led to further agglomeration in national capital region. Maruti Suzuki led the auto industry to agglomeration by participating actively in the development of auto component supplier.

Understanding the process of agglomeration in developing countries will be useful. Knowledge of the process could be valuable to develop industrial cluster.

 

 

Reference

Bhargava, R. (2010). The Maruti Story: How a Public Sector Company Put India on Wheels. 1st ed. Collins.

 

Kuchiki, A. (2005). A flowchart approach to Asia's industrial cluster policy. In: A. Kuchiki and M. Tsuji, ed., Industrial Cluster in Asia, 1st ed. Basingstoke: Palgrave Macmillan, pp.193-225.

 

 

Porter, M. (1998). Clusters and the new economics of competition. Harvard Business Review, pp.77-90.