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The Tata Group

A Legacy of Trust Tata is Indias largest and most diversified business conglomerate

with more than 100 operating companies spread across 85 countries in six different

continents, employing 350,000 people and generating revenue of US$ 70.8 billion as of

FY 2009. The group's global business operations are spread over seven business

sectors: communications and information technology, engineering, materials, services,

energy, consumer products and chemicals.

Tata companies share five core values integrity,

understanding, excellence, unity and responsibility.

Each Tata company agrees to the Tata Code of

Conduct by signing the TATA Brand Equity and

Business Promotion Agreement with Tata Sons

Ltd. This ensures adherence to the Tata ethos and

value system. Adherence to ethics and excellence

and the commitment towards serving communities

have been at the core of Tatas unblemished

growth and sustenance for over 140 years. This

heritage evokes trust and goodwill among

consumers, employees, shareholders and the

larger community. Today, the Tata name is a unique asset representing Leadership

with Trust. This legacy has earned the admiration of the groups stakeholders in a

manner few business houses can even hope to match.

Tata Group is one of India's largest and most respected business groups. Tata Group's

name is synonymous with India's industrialisation. The Group gave India her first steel

plant, hydro-electric plant, inorganic chemistry plant and created a reservoir of scientific

and technological manpower for the country. Its Trusts have instituted the Tata Institute

of Social Sciences in 1936; India's first cancer hospital, the Tata Memorial in 1941, and

in 1945, the Tata Institute of Fundamental Research, which became the cradle of India's

Atomic energy program. Today, Tata Group comprises 96 operating companies in

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seven business sectors: information systems and communications; engineering;

materials; services; energy; consumer products; and chemicals. The Group has

operations in more than 54 countries across six continents, and its companies export

products and services to 120 nations.

Jamsetji Nusserwanji Tata laid the foundations of Tata Group when he started a private

trading firm in 1868. In 1874, he set up the Central India Spinning Weaving and

Manufacturing Company Limited and thus marked the Group's entry into textiles. In

1887, Jamsetji Tata formed a partnership firm, Tata & Sons, with his elder son Sir

Dorabji Tata and his cousin Ratanji Dadabhoy Tata. His younger son Sir Ratan Tata

joined the firm in 1896. In 1902, the Indian Hotels Company was incorporated to set up

the Taj Mahal Palace and Tower, India's first luxury hotel, which opened in 1903. TheTata Iron and Steel Company (now known as Tata Steel) was established to set up

India's first iron and steel plant in Jamshedpur.

The plant started production in 1912. In 1910, Tata Hydro-Electric Power Supply

Company, (now Tata Power) was set up. In 1917, Tata Oil Mills Company was

established to make soaps, detergents and cooking oils. In 1932, Tatas entered aviation

sector with the establishment of Tata Airlines. In 1939, Tata Chemicals, presently, the

largest producer of soda ash in India, was established. In 1945, Tata Engineering and

Locomotive Company (renamed Tata Motors in 2003) was established to manufacture

locomotive and engineering products. In 1954, India's major marketing, engineering and

manufacturing organisation, Voltas, was established. In 1962, Tata Finlay (now Tata

Tea), one of the largest tea producers, was

established.

In 1968, Tata Consultancy Services (TCS), India's

first software services company, was established

as a division of Tata Sons. In 1970, Tata McGraw-

Hill Publishing Company was created to publish

educational and technical books. In 1984, Titan

Industries, a joint venture between the Tata Group

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and the Tamil Nadu Industrial Development Corporation (TIDCO), was set up to

manufacture watches. In 1996, Tata Teleservices (TTSL) was established to lead the

Group's foray into the telecom sector. In 1998, Tata Indica, India's first indigenously

designed and manufactured car, was launched by Tata Motors. In 2000, Tata Tea

acquired the Tetley Group, UK. This was the first major acquisition of an international

brand by an Indian business group. In 2001, Tata entered into insurance business in

joint venture with Tata AIG. In 2007, Tata Steel acquired Corus the fifth largest steel

company in the world.

Tata Group Companies

The two Promoter companies of Tata Group are: Tata Sons and Tata Industries. TataSons is the promoter of all key companies of the Tata Group and holds the bulk of

shareholding in these companies. Tata Sons is the owner of the Tata name and the

Tata trademark, which are registered in India and several other countries. Tata

Industries was set up by Tata Sons in 1945 as a managing agency for businesses it

promoted. Tata Industries' mandate was recast, in the early 1980s, to promote the

Group's entry into new and high-tech areas. The rest of the Tata companies spread

over seven sectors in which Tata Group operates are:

1. Engineering

(a) Automotive:

Tata AutoComp Systems Subsidiaries / associates / joint ventures: Automotive

Composite Systems International, Automotive Stampings and Assemblies, Knorr

Bremse Systems for Commercial Vehicles, TACO Engineering, TACO Faurecia

Design Centre, TACO Hendrickson Suspension Systems, TACO Interiors and

Plastics Division, TacoKunststofftechnik, TACO MobiApps Telematics, TACO

Supply Chain Management, TACO Tooling, TACO Visteon Engineering Center,

Tata Ficosa Automotive Systems, Tata Johnson Controls Automotive, Tata Toyo

Radiator, Tata Yazaki AutoComp, TC Springs, Technical Stampings Automotive

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Tata Motors Subsidiaries / associates / joint ventures: Concorde Motors, HV

Axels, HV Transmissions, Nita Company, TAL Manufacturing Solutions, Tata

Cummins, Tata Daewoo Commercial Vehicles Company, Tata Engineering

Services, Tata Precision Industries, Tata Technologies, Telco Construction

Equipment Company

(b) Engineering Services

Tata Projects

TCE Consulting Engineers

Voltas

(c) Engineering Products

TAL Manufacturing Solutions

Telco Construction Equipment Company

TRF

2.Materials:

(a) Composites

Tata Advanced Materials

(b) Metals

Tata_steel

Subsidiaries / associates / joint ventures: Hooghly Met Coke and Power

Company, Jamshedpur Injection Powder (Jamipol), Lanka Special Steel,

mjunction services, NatSteel, Sila Eastern Company, Tata Metaliks, TataPigments, Tata Ryerson, Tata Sponge Iron, Tata Refractories, Tayo Rolls, The

Indian Steel and Wire Products, The Tinplate Company of India, TM International

Logistics, Wires Division.

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3.Energy

(a) Power

Tata BP Solar India

Tata PowerSubsidiaries / associates / joint ventures: Tata Ceramics, Tata Power

Trading, North Delhi Power Limited

(b) Oil & Gas

Tata Petrodyne

4. Chemicals

Rallis India

Tata Chemicals

Tata Pigments

5.Services

(a) Hotels and Realty

Indian Hotels (Taj group) Subsidiaries / associates / joint ventures: Taj Air , Roots

Corporation (Ginger Hotels)

THDC

(b) Financial Services

Tata AIG General Insurance

Tata AIG Life Insurance

Tata Asset Management

Tata Financial Services

Tata Investment Corporation

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(c) Other Services

Tata Quality Management Services

Tata Services

Tata Strategic Management Group

6. Consumer Products

Infiniti Retail

Tata Tea Subsidiaries / associates / joint ventures: Tetley Group, Tata Coffee,

Tata Tetley, Tata Tea Inc

Tata Ceramics

Tata McGraw Hill Publishing Company

Titan Industries

Trent

7.Information systems and communication

(a) Information Systems

Nelito Systems Tata Consultancy Services: Subsidiaries / associates / joint ventures:

APONLINE, Airline Financial Support Services, Aviation Software Development

Consultancy, CMC, CMC Americas Inc, Conscripti, HOTV, Tata America

International Corporation, WTI Advanced Technology

Tata Elxsi

SerWizSol

Tata Interactive Systems

Tata Technologies

(b) Communications

Tata Sky

Tata Teleservices

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Subsidiaries / associates / joint ventures: Tata Teleservices (Maharashtra), Tata

Internet Services

VSNL

Tatanet

(c) Industrial Automation

Nelco

Subsidiaries / associates / joint ventures: Tatanet

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Case 1: TATA Corus Deal

Summary

Background to the Acquisition

Tata Steel- A Background:

Tata Steel Limited the flagship company of Tata Group is the largest manufacturer of

steel in India with 25.6 million tonnes of steel capacity. The company produces HR and

CR coils and sheets, galvanized sheets, tubes, wire rods, construction reban, rings and

bearings.

Corus Plc Ltd- A Background:

Corus (as of 2007) was Europe's second largest steel producer with annual revenues of

Rs. 82,674 crores (59.7 billion) and crude steel production of 18.3 million tonnes in 2006.

Corps had a presence in nearly 50 countries, including its global network of offices and

service centers. Corus was formed on October 6, 1999. Corus' main steelmaking

operations were located in the UK and the Netherlands with other plants located in

Germany, Norway and Belgium.

Deal origination:

Tata Steel (part of the Tata Group) acquired the Anglo-Dutch steel firm Corus after a four

month bidding war with Brazil's CSN (Companhia Sidcrurgica Nacional) for US $13.75

billion (Rs. 52.(0) crores) - this was the biggest acquisition by an Indian firm. Tata's

acquisition of Corus made it the fifth largest global steel producer with an annual capacity

to produce 25 million tons of steel. The acquisition was intended to give Tata Steel access

to European markets and to achieve potential synergies in the areas of manufacturing,

procurement. R&D, logistics and back-office operations. Analysts claimed that the

acquisition price at 608 pence per share was substantially higher than an earlier offer of

455 pence per share. Additionally, analysts felt that it would take several years for

potential production and operational synergies to materialize that would yield significant

cost savings. Following the acquisition Tata Steels stock suffered a significant decline in

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price causing Standard & Poor's to place it on a credit watch list with negative

implications.

Tata acquired Corus on the 2nd of April 2007 for a price of $12.1 billion making the

Indian company the world's fifth largest steel producer. This acquisition process has

started long back in the year 2005. This process started in the year 2000 and with Tata it

came to an end. In 2005, when the deal was started the price per share was 455 pence.

But during the time of acquisition held in 2007, the price per share was 608 pence, which

is 33.6% higher than the first offer.

Tata maintained a low profile compared to CSN aggressive stance which was part of the

overall tactical plan. It was started that when bidding began. Arun Gandhi, the M&A whiz

of the group was stationed at the office of the groups lawyer on Primrose Street, London

EC2A2HS, all night-with a motorcycle stationed kerbside, revved up and ready to go in

case networks failed and email bids could not be sent. Each bidder had to email his bid

during each round from his own solicitors office. The bidding was to go on for nine

rounds, during which a minimum of 5 pence enhancement per share was allowed over

the offer made by each party. In the ninth round, the parties had to put in their final bids,

besides indicating the maximum amount they were willing to pay in case theirs was the

lower bid. When Tata Steel bid 608 pence per share, their bid was higher than the last

bid put in by CSN by 5 pence.

Valuation Perspective:

As per statistics of the IISI, in 2005, Corus annual production was 18 million tons (mt),

while that of Tata Steel was at 5 mt. Corus turnover worked out to $18 billion as

compared to Tata Steels $4.64 billion in FY 2006. The enterprise value was placed at

$10 billion, including its outstanding debt. Brokerage house, First Global, estimates that a

$50 fall in global steel prices could lead to a $414 million loss from the acquisition in theFY 2008.

People often argued that Tata had paid a higher price than what was paid for Arcelor.

The price earnings ratio (the number of times the price is paid over the current years

earnings), at 14.8 times was also high. In case of Arcelor Mittal deal, the acquisition price

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per ton worked out to $840 as against $750 paid by Tata for Corus assets, even though

EV/EBITDA in the case of Tata Corus is higher at 7.6 as against 5.4 in Mittals case.

According to Chokseys estimates, the realization per ton in case ofCorus is higher that

Tata Steel, at $866 per ton, which was four, times that of Corus.

At 608 pence per share (which worked out to a price of 5.2 billion pound) the enterprise

value is seven times Corus EBITDA, as against a 5.4 times payment of Mittal St eel for

acquiring Arcelor, Tata Steel paid nearly 7.6 times. The premium was for consolidated

capacities.

Logic for Valuation:

According to Muthuraman, Tata Steel MD, the strategic objective of the deal is that it

brings to Tata Steel 19 million tone capacities at once, at a cost which is roughly a little

more than half the cost of Greenfield sites. It also gives the company access to mature

and developed markets of Europe. Moreover, Corus also has highly developed R&D

capabilities. Corus, which has multi-location plants, is not a fully integrated steel

company. Unlike the Tata, who have their own coal mines and captive source of iron ore.

Corus has to source its raw materials from the global markets. The higher the value

added, wider the speciality product range that Corus can add to the Tatas product range.

The Tata Group, which had embarked upon a major expansion spree by setting up

Greenfield projects, is looking at exporting a part of the semi-finished products from these

capacities to Corus, which would bring down costs considerably.

Riding the steel cycle boom, beginning in 2003, its cash flow from operations crossed Rs.

6000 crore in both FY 2005 and FY 2006. With profits of over $840 million, Tata Steel

was the groups most profitable, company, even ahead of its high profile TCS, in FY 2005.

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Q: 1 what are the strategic reasons for the TATA Corus deal?

A key objective for Tata Steel in this acquisition was gaining finishing expertise in

European markets, where it could export semi-finished steel from its plants in India. It

could also shift part of the steel-making capacities to India, where it was alreadyplanning a massive expansion.

Tata Steel had a number of things to consider in negotiating a deal for Corus. First of

all, Tata Steel could not make an all cash offer and assume the assets and liabilities of

Corus on its balance sheet because of the sheer size. Second, both companies had to

convince their shareholders about the strategic and financial benefits to the companies.

Shareholders would be concerned about the size of the premium and the potential

dilution in earnings per share.

Tata Steel goes for Acquisition for the following strategic reasons:

The cash cost of Tata Steel is around $160 per tonne. I believe that the cost at Port

Talbot (where Corus has a plant) is perhaps roughly twice of that. Between the two

teams, we see potential for significant synergies in the area of manufacturing, in shared

services, in logistics, in the marketplace, sharing best practices. We do see significant

synergies and a possibility of cost reduction.

In this world of consolidation and growing in size, both in geography and in size, Tata

Steel has been planning its long-term strategy.

4 Million tone to 30+ Million tone:

Tata Steels strategy, in terms of what it wanted to do over a period of time of 10 years,

between 2002-03 and 2015, was to grow from four million tonnes per annum, which

were at that time, to about 30 million tonnes plus, beyond the shores of India,

multinational, and continuing to be in a low-cost position and continuing to be EVA

positive. That strategy had six elements. One of them was that TATA would build a

strong base in India, that is why they are expanding Jamshedpur from five to 10 million,

and were building three greenfield projects.

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De-integration:

The second part of the strategy was that they adopt a de-integrated strategy where they

believed that the world steel industry, over the last 150 years or so, had adopted a

certain model of making from iron to finished steel in one location, irrespective of wherethe raw materials were. TATA always believed that this model will change, because

steel has to compete with other materials and, for the sustainable competitiveness of

steel, it is necessary that this business model will undergo a change. TATA wanted to

be at the forefront of that change in business model, so they would look for private

steelmaking in countries which are rich in iron ore and coal or gas. So TATA thought of

plants in India, Bangladesh, and Iran.

Material security:

The third part of the strategy was raw material security. Its important that TATA have

raw material security to be competitive and sustainable in this world. We have raw

material security on a 100per cent basis for their existing operations in Jamshedpur.

TATA have a large extent of self-sufficiency for coal. Each of their three greenfield

projects in India will carry with it raw material iron ore security. TATA have some

strategic types and some strategic positions in terms of coal and limestone beyond the

shores of India. They said: we should continue to look for raw material security, both in

India and overseas.

Going downstream:

The next part of strategy was getting more out of steel, which is by branding, by going

downstream, by positioning the products, getting into construction solutions and so on.

It is with that aim they people formed the joint venture with BlueScope. It is with that

strategy that they started having a joint venture with Ryerson of the US, for goingdownstream into processed materials.

Logistics control:

The next part of the strategy was control over logistics. No large company no large

steel company can be sustainable competitive over a period of time without some

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control on the efficiency and costs of logistics, so we decided to build a port in Orissa to

connect Indian operations with our overseas operations. TATA decided to start a

shipping company with NYK of Japan, and these are all in progress. Acquisition of

Corus and our partner in Corus to form a joint entity is part of this strategy.

Indeed there was very little shared territory in the markets the companies served. Tata

Steel had a strong position in India, Singapore, Thailand and other parts of Asia

whereas Corus had a strong presence in Europe.

Q: 2 discuss the Valuation aspects involved in the deal.

Financing India's largest leveraged buyout comprised of a $3.88 billion equity

contribution from Tata Steel, a fully underwritten non-recourse debt package of $5.63

billion, and a revolving credit facility of $669 million.

Date TATA Bid CNS Bid

October 20, 2006 455 pence (4.3 billion pound) -

November 17, 2006 - 475 pence

December 11, 2006 4.7 billion pound -

January 31, 2007 - 515 pence

Higher than 608 pence (5.2 billion

pound)

-

Tata Steel UK would offer a price of 455 pence per Corus share valuing Corus at 4.3b

($8.04b). This price represented a multiple of 7.9 times the EBITDA of Corus from

continuing operations for the twelve months to July 1, 2006. The acquisition was to be

structured as a 100 percent leveraged buyout funded through cash resources and loans

raised by Tata Steel and the SPV. Under the plan Tata Steel UK would arrange a loan

of 1.6 b ($3056m), a revolving credit facility and a bridge loan and the rest would come

from Tata Steel (to the SPV).

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Valuation Perspective:

Particular Corus TATA Interpretation

Annual production 18 million tons (mt) 5 mt More than 3.5 times

Turnover $18 billion $4.64 billion More than 3.5 times

P/E Ratio 14.8 times - Higher than Industry

Realization

Paid/tone

- $866 per tone 4 times that of Corus.

Overall Valuation 7 Times of EBIDTA - Tata paid nearly 7.6times

Sources of Fund:

Tata Steel appointed Credit Suisse, ABN Amro and Deutsche Bank to arrange

financing. Of the 3.3 billion of financing being raised at the SPV level, Credit Suisse

would provide 45per cent and ABN AMRO and Deutsche 27.5per cent each. The $1.8

billion bridge debt being raised at the Tata Steel level in India would be shared between

Standard Chartered and ABN AMRO.

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Sources of Funds:

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Stock Price history of TATA steel

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Case 2: The Growth Starategy of TATA group through Mergers and

Acqusitions

The growth strategy of TATA Group through Mergers and Acquisitions

Tata group is one of Indias largest and most respected business conglomerates. The

group comprises 93 operating companies in seven business sectors. Tata group was

focusing on the strategy of extending its presence in the international markets. Its

overall acquisitions during the seven years, 2000-2006, have crossed the $2.5 billion

mark. Tatas strategy was to rationalise the groups business portfolio and deliver

returns on investment that exceeded the cost of the capital. It aimed to have a

symbolically unified brand and grab new opportunities.

Period Acquire Target Value(Rs. Incrore)

Motive

February 2000 Tata Tea Tetley UK 1870 To be global beverage

giant

November2001 Tata Sons ComputerMaintenanceCorporationLtd

157 To consolidate itsleadership in ITservices

February 2002 Tata group VSNL 1439 Acquire fromGovernment of theirdisinvestmentprogramme.

June 2002 Tatateleservices

HughesTelecom India

- Was plan to have acomprehensivepresence across the

countryMay 2003 TCS AirlineFinancialSupportServices

- Global marketpositioning and jointstrategic businessdevelopment, qualityexcellence and superiorproduct delivery

-

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July 2003 VSNL Gemplex To use existing networkcapability and readyplatform in high trafficregion

March 2004 Tata Motors Daewoo

Commercialvehicles

459 Chinese market & small

truck segment entry

March 2004 VSNL Dish net DSLsISP Division

270 To strengthen itsinternet based services

March 2004 TCS AviationSoftwareDevelopmentConsultancy

4.02 To be competence anddeveloping thetransaction processingsystem in businesseslike credit cardprocessing and railwayreservation system.

Cross selling inaviation industry as wellas in banking, financialservices and insuranceindustry

May 2004 TCS Phoenix Globalsolution

- To strengthen itsoffering for theinsurance sector

August 2004 Tata steel NatSteel 1313 To have equalpresence in long andflat products of steel

November 2004 VSNL Tyco GlobalNetwork 13 To become advancedand extensivesubmarine cableprovider in the world

February 2005 Tata Motors HispanoCarrocera

70 Was able to supplyworld class buses inEurope.

July 2005 VSNL Teleglobe 1076 Was plan to expand inthe new market and tobecome a leadingglobal player in whole

sell voice andbandwidth andenterprise dataservices

October 2005 Tata tea Good earth 144 To consolidate itsposition in the specialitytea segment as globalconsumption of

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speciality (value added)tea is growing at fasterclip compare to thetraditional black tea.

December 2005 Tata steel Millennium

Steel

1818 To enhance its market

position in south eastAsia with globalisationinitiative

December 2005 Tatachemicals

Brunner Mond 789 To become largestproducer of soda ash inEurope.

June 2006 Tata coffee Eight O Clock 1015 Entry into worldslargest coffee marketUS

April 2007 Tata steel Corus 1210 Scale, range, access toglobal automakers

MERGERS-

Tata finance ltd was merged into TATA MOTORS. The merger was under the

scheme of amalgamation, all equity shareholders of TATA FINANCE LTD were

entitled to receive eight ordinary scheme of TML of Rs. 10 each for every 100

equity share of Tata Finance of Rs. 10 each. This merger was expected toenable the vehicle financing business of TFL to grow stronger by leveraging its

synergies of direct business model with the dealer driven business of Bureau of

Hire purchase and credits (BHPC). The merger allowed TFL share holders to

participate in the growth of Tata motors.

Merger was between Tata chemicals and Hindustan Lever chemicals Ltd. propose

scheme was, HLCL share holders were issued TCL shares in the ratio of 2.5:1.

The business of HLCL and TCL had natural synergies that contributed to

superior excellence model. TCLs inorganic chemical business was a natural fit

with HLCLs bulk chemical business. TCL was the largest manufacturer of soda

ash, the key raw material for production of detergent where as HLCL was Indias

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largest manufacture of STTP, used as builders in detergents. TCLs fertilizers

were highly complementary to HLCLs operations. Post merger, the company

was able to offer wide range of complementary products and support services to

current base of customers.

Conclusion-

Tata group has used merger and acquisition as a tool for growth by acquiring and

merging entities to grow and become top companies In that particular sector. Following

are the benefits Tata group got through merger and acquisition.

1. Tata steels acquisition to Corus steel, made Tata steel the fifth largest steel

maker in the world. In fact 30 % of its revenue (Rs. 96,723/- cr.) revenue from

overseas business had focused on finding on a strategic fit for its acquisitions.

2. Tata tea acquisition of Tetley Tea, made Tata tea to the no. 2 spot among worlds

tea makers and gave it an international beverage brand.

3. Deal with Daewoo Motors heralded Tata motors big ticket entry into the medium

and heavy commercial markets of china and South East Asia and also

rejuvenated its own truck making division through production of bigger vehicles.

4. Post HLCL and TCL merger, company was able to offer wide range of

complementary products and services to the current base of customers.

5. Tata chemicals acquisition of Brunner Mond Group, made Tata chemicals the

worlds largest producer of Soda ash. Tata power acquired 30% stake in

Indonesian thermal coal producers, PT Kaltim Prima Coal and PT Arutmin

Indonesia.

6. The National Iron and Steel Mills Ltd (NISM) enjoyed good brand recognition in

Singapore and in the other South East Asian region. After acquisition of NatSteel

gave Tata steel not only footprint in the seven new countries in Asia-Singapore,

China, Malaysia, Thailand. Australia, Vietnam and Philippines, also gave

geographic access to Asian region. Tata steels acquisition was a strategic

initiative to enter the high growth geographies of China and South East Region.

Main advantage of this acquisition was lowering of input steel costs. There were

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able to offer a more comprehensive basket of products to their customers and

provide more complete steel solutions.

7. Acquisition of Eight O Clock bought strategic and operational gains for Tata

coffee as its grand entry into the worlds largest coffee market.

8. Hispano carrocera is one of the largest bus and coach bodybuilders in Europe

and North America. It exports 50% of its production to countries worldwide. Tata

motors acquired 21% stake, after tying up with Tata motors, Company was able

to supply world class buses in Europe and outside, and gained access to new

markets in North America and Middle East.

9. Acquisition of Tyco Global Network, was the deal of worlds largest most

advanced and extensive submarine cable systems, gave control over a network

that spans 60,000 km and three continents.

10. TFL was merged into Tata Motors, enable the vehicle financing business of TFL

to grow stronger by leveraging its synergies of the direct business model with

dealer driven business of BHPC.

11.Tatas VSNL acquired Chennai based Dishnet DSLs internet service provider,

consolidated VSNLs position in dial up space, giving it control over 600 owned

and franchised Dishnet cyber caf as well as broadband assets servicing more

than 50,0000 customers in key cities.

12. To strengthen its offering for the insurance sector, Tata Consultancy Services

(TCS) acquired Phoenix Global Solution (PGS).

13. TATA acquired UK based Land Rover and Jaguar units from Ford company of

US. Land rovers benefits are upmarket SUV brand, Access to latest technology

in four wheel and readymade R & D. Jaguars benefits are Upmarket brand,

Access to new technologies, premium customer profile competing with

Mercedes, BMW and Audi and considered the best British brand.

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Case 3: Joint Venture of Maruti Suzuki

Joint Venture:

A joint venture (JV) is a business agreement in which parties agrees to develop, for a

finite time, a new entity and new assets by contributing equity. They exercise control

over the enterprise and consequently share revenues, expenses and assets. There are

other types of companies such as JV limited by guarantee, joint ventures limited by

guarantee with partners holding shares.

Joint venture in India:

A JV may be defined as any arrangement whereby two or more parties co-operate in

order to run a business or to achieve a commercial objective:

This co-operation may take various forms, such as equity-based or contractual JVs. It

may be on a long-term basis involving the running of a business in perpetuity or on a

limited basis involving the realization of a particular project. It may involve an entirely

new business, or an existing business that is expected to significantly benefit from the

introduction of the new participant. A JV is, therefore, a highly flexible concept. The

nature of any particular JV will depend to a great extent on its own underlying facts and

characteristics and on the resources and wishes of the involved parties. It is an effective

business strategy for enhancing marketing, positioning and client acquisition which has

stood the test of time. The alliance can be a formal contractual agreement or an

informal understanding between the parties. Global proliferation of business and

commerce has given an international dimension to JVs. Corporate entities across the

globe seek cross-border alliances to share the resources, opportunities and potential to

deliver cutting edge performance. Such alliances are designed to suit the commercial

requirements of parties and vary from a mere transitory arrangement for one partner toestablish its presence in a new market to a calculated step towards a full merger of the

technologies and capabilities of the partners. JVs are envisaged as alliances that yield

benefits for the JV partners by offering a platform to attain their business goals which

would be difficult or uneconomical to attain independently. Establishing a JV with an

ideal partner provides a fast way to leverage complementary resources available with

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the other partner, share each others capabilities, access new markets, strengthen

position in the current markets, or diversify into new businesses. India Inc. has come of

age and is not just an investment destination but also an aggressive investor. Indian

companies have exhibited, in the recent past, their ambition to venture into the quest for

overseas expansion. The main stumbling blocks for Indian companies in achieving

expected levels of global presence are deficiencies in terms of product quality,

technology, infrastructure and even management processes. These deficiencies can be

negated by way of an alliance with a foreign counterpart who is a strategic fit.

Benefits of Joint Venture:

A) Leveraging Resources:

With the globalization, access to labor, capital and technological resources have

become driving forces for modern businesses to aim to achieve economies of scale.

Today, business commitments are far too large to be executed by a single company.

From a wider perspective, the conduct of business mandates a huge pool of resources

extending from massive financial backup to plenty of skilled manpower. Cross-border

business projects are all the more demanding and the best solution is to either outright

acquire or share them by entering into a JV. Co-operation is a great way of reducing

research and manufacturing costs while limiting exposure.

B) Exploiting Capabilities and Expertise:

Parties to a JV may have complementary skills or capabilities to contribute to the JV; or

parties may have experience in different industries which it is hoped will produce

synergistic benefits. The basic tenet of a JV is the sharing of capabilities and expertise

of both the partners on mutually agreed terms. Such sharing grants a competitive

advantage to the JV partners over other players in the market.

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C) Sharing Liabilities:

A JV also offers parties an opportunity to jointly manage the risks associated with new

ventures. Through a JV they can limit their individual exposure by sharing the liabilities.

When the liabilities and risks are shared the pressure on each individual partner iscorrespondingly reduced. It reduces the risks in a number of ways as the business

activities of the JV can be expanded with smaller investment outlays than if financed

independently.

D) Market Access:

JVs are the most efficient mode of gaining better market access. Companies utilize JV

agreements to expand their business into other geographies, consumer segments and

product markets. In the case of a cross-border JV, the involvement of a locally-based

party may be necessary or desirable in countries where it is difficult for a foreign

company to penetrate the market or where the local law limits the ownership structure

by foreigners. For instance, in India, certain market sectors remain restricted for foreign

investment and a local partner with a certain shareholding in the company is a

regulatory necessity for commencing business and making investments. These

restrictions are discussed in further detail in a later section.

E) Flexible Business Diversification:

JVs offer many flexible business diversification opportunities to the partners. A JV may

be set up, as a prelude to a full merger or only for part of the business. It offers a

creative way for companies to enter into non-core businesses while maintaining an easy

exit option. Companies can also resort to JVs as a method to gradually separate a

business from the rest of the organization and eventually, sell it off. In certain

circumstances, JVs may be set up with strategic investors in the process of entering intoa new market so as to initially provide the foreign participant local infrastructure and

guidance but with a view to integrate the operations of the JV into the main company in

the future. In this situation, the foreign participant may choose to acquire the local

participants interest once the venture is up and running. This can be highly beneficial to

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both parties as the foreign party is able to establish itself in the local market while the

local party gets a liquid exit.

COMPANY HISTORY AND BACKGROUND

A) Maruti Udyog Limited (MUL):

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament,

to meet the growing demand of a personal mode of transport caused by the lack of an

efficient public transport system. It was established with the objectives of - modernizing

the Indian automobile industry, producing fuel efficient vehicles to conserve scarce

resources and producing indigenous utility cars for the growing needs of the Indian

population. A license and a Joint Venture agreement were signed with the Suzuki Motor

Company of Japan in Oct 1983, by which Suzuki acquired 26% of the equity and agreed

to provide the latest technology as well as Japanese management practices. Suzuki

was preferred for the joint venture because of its track record in manufacturing and

selling small cars all over the world. There was an option in the agreement to raise

Suzukis equity to 40%, which it exercised in 1987. Five years later, in 1992, Suzuki

further increased its equity to 50% turning Maruti into a non-government organization

managed on the lines of Japanese management practices.

Maruti created history by going into production in a record 13 months. Maruti is the

highest volume car manufacturer in Asia, outside Japan and Korea, having produced

over 5 million vehicles by May 2005. Maruti is one of the most successful automobile

joint ventures, and has made profits every year since inception till 2000-01. In 2000-01,

although Maruti generated operating profits on an income of Rs 92.5 billion, high

depreciation on new model launches resulted in a book loss.

The Evolution

Marutis history of evolution can be examined in four phases: two phases during pre-

liberalization period (1983-86, 1986-1992) and two phases during post-liberalization

period (1992-97, 1997-2002), followed by the full privatization of Maruti in June 2003

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with the launch of an initial public offering (IPO).The first phase started when Maruti

rolled out its first car in December 1983. During the initial years Maruti had 883

employees, a capital of Rs. 607 mn and profit of Rs. 17 mn without any tax obligation.

From such a modest start the company in just about a decade (beginning of second

phase in 1992) had turned itself into an automobile giant capturing about 80% of the

market share in India. Employees grew to 2000 (end of first phase 1986), 3900 (end of

second phase 1992) and 5700 in 1999. The profit after tax increased from Rs 18.67 mn

in 1984 to Rs. 6854.54 mn in 1998 but started declining during 1997-2001.

During the pre-liberalization period (1983-1992) a major source of Marutis strength was

the wholehearted willingness of the Government of India to subscribe to Suzukis

technology and the principles and practices of Japanese management. Large number of

Indian managers, supervisors and workers were regularly sent to the Suzuki plants in

Japan for training. Batches of Japanese personnel came over to Maruti to train,

supervise and manage. Marutis style of management was essentially to follow

Japanese management practices.

The Path to Success for Maruti was as follows:

(a) Teamwork and recognition that each employees future growth and prosperity is

totally dependent on the companys growth and prosperity

(b) Strict work discipline for individuals and the organization

(c) Constant efforts to increase the productivity of labor and capital

(d) Steady improvements in quality and reduction in costs

(e) Customer orientation

(f) Long-term objectives and policies with the confidence to realize the goals

(g) Respect of law, ethics and human beings. The path to success translated into

practices that Marutis culture approximated from the Japanese management practices.

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Maruti adopted the norm of wearing a uniform of the same color and quality of the fabric

for all its employees thus giving an identity. All the employees ate in the same canteen.

They commuted in the same buses without any discrimination in seating arrangements.

Employees reported early in shifts so that there were no time loss in-between shifts.

Attendance approximated around 94-95%. The plant had an open office system and

practiced on-the-job training, quality circles, kaizen activities, teamwork and job-

rotation. Near-total transparency was introduced in the decision making process. There

were laid-down norms, principles and procedures for group decision making. These

practices were unheard of in other Indian organizations but they worked well in Maruti.

During the pre- liberalization period the focus was solely on production. Employees

were handsomely rewarded with increasing bonus as Maruti produced more and sold

more in a sellers market commanding an almost monopoly situation.

B) Suzuki:

Suzuki is Japan's 4th largest automobile manufacturer after Toyota, Nissan and Honda,

the 9th largest automobile manufacturer in the world by production volume, employs

over 45,000, has 35 main production facilities in 23 countries and 133 distributors in 192

countries. According to statistics from the Japan Automobile Manufacturers Association

(JAMA), Suzuki is Japan's second-largest manufacturer of small cars and trucks.

In 1909, Michio Suzuki (18871982) founded the Suzuki Loom Works in the small

seacoast village of Hamamatsu, Japan. Business boomed as Suzuki built weaving

looms for Japan's giant silk industry. In 1929, Michio Suzuki invented a new type of

weaving machine, which was exported overseas. Suzuki filed as many as 120 patents

and utility model rights. The company's first 30 years focused on the development and

production of these exceptionally complex machines.

Despite the success of his looms, it occurred to Suzuki that his company would benefit

from diversification and he began to look at other products. Based on consumer

demand, he decided that building a small car would be the most practical new venture.

The project began in 1937, and within two years Suzuki had completed several compact

prototype cars. These first Suzuki motor vehicles were powered by a then-innovative,

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liquid-cooled, four-stroke, four-cylinder engine. It featured a cast aluminum crankcase

and gearbox and generated 13 horsepower (9.7 kW) from a displacement of less than

800cc.

With the onset of World War II, production plans for Suzuki's new vehicles were haltedwhen the government declared civilian passenger cars a "non-essential commodity." At

the conclusion of the war, Suzuki went back to producing looms. Loom production was

given a boost when the U.S. government approved the shipping of cotton to Japan.

Suzuki's fortunes brightened as orders began to increase from domestic textile

manufacturers. But the joy was short-lived as the cotton market collapsed in 1951.

Faced with this colossal challenge, Suzuki's thoughts went back to motor vehicles. After

the war, the Japanese had a great need for affordable, reliable personal transportation.

A number of firms began offering "clip-on" gas-powered engines that could be attached

to the typical bicycle. Suzuki's first two-wheel ingenuity came in the form a bicycle fitted

with a motor called, the "Power Free." Designed to be inexpensive and simple to build

and maintain, the 1952 Power Free featured a 36 cc, one horsepower, two-stroke

engine. An unprecedented feature was the double-sprocket gear system, enabling the

rider to either pedal with the engine assisting, pedal without engine assist, or simply

disconnect the pedals and run on engine power alone. The system was so ingenious

that the patent office of the new democratic government granted Suzuki a financial

subsidy to continue research in motorcycle engineering, and so was born Suzuki Motor

Corporation.

In 1953, Suzuki scored the first of many racing victories when the tiny 60 cc "Diamond

Free" won its class in the Mount Fuji Hill Climb.

By 1954, Suzuki was producing 6,000 motorcycles per month and had officially changed

its name to Suzuki Motor Co., Ltd. Following the success of its first motorcycles, Suzuki

created an even more successful automobile: the 1955 Suzuki Suzulight. Suzuki

showcased its penchant for innovation from the beginning. The Suzulight included front-

wheel drive, four-wheel independent suspension and rack-and-pinion steeringfeatures

not common on cars until three decades later.

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Volkswagen AG completed the purchase of 19.9% of Suzuki Motor Corporation's issued

shares on 15 January 2010; Volkswagen AG is the biggest shareholder in Suzuki.

History of Maruti Suzuki after joint venture:

Founded in the month of February in the year 1981, Maruti Udyog Limited started its

manufacturing operations in 1983. After a through market research, the first car rolled

out on 14th December 1983. This car was launched under the flagship of Maruti Udyog

Limited which was later renamed Maruti Suzuki IndiaLimited.

The headquarters of the company is located in New Delhi. The Indian Government

initially owned 18.28 per cent of the Maruti Suzuki Company and 54.2 per cent was

owned by Suzuki of Japan. In the month of June in year 2003, the BJP led government

offered a public issue of 25 per cent of the Maruti Udyog Limited. On 10 May 2007, the

government of India sold the complete share of Maruti Udyog Limited to Financial

Corporations. By doing this, the Government of India no longer has a stake in Maruti

Udyog Limited.

Maruti Suzuki Company in India is a subsidiary of Suzuki Motor Corporation. Being the

leader in manufacturing passenger cars and multipurpose vehicles in India, the

company is accounted for acquiring nearly 50 per cent of the total industry sales. During

the year 2009-2010, the Maruti Suzuki Company in India sold over 1,018,365 vehicles.

This comprises of 870,790 vehicles in the domestic market and 147,575 vehicles in the

foreign markets. In total, the Maruti Suzuki Company in India produced and sold over

eight million cars. In the year 2009-2010, the company had an income of Rs.301, 198

million. The Maruti Suzuki company information states that the company has a

financially enriched balance sheet with surplus and reserves of Rs. 116.9 billion and thedebt equity ratio of 0.07 as on 31st March, 2010. Maruti Suzuki Company is a limited

firm, which is listed on the National Stock Exchange of India Limited and Bombay Stock

Exchange Limited.

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Maruti Suzuki company in India has two producing unit based at Gurgaon and Manesar,

south of New Delhi, India. The combined production capacity of both the units is

somewhere around one million cars per annum. In the year 2009-2010, the company

acquired 700 acres of land in Rohtak, Haryana, India for setting up an excellent test

course for research and development. The Maruti Suzuki Company Profile ensures

complete customer satisfaction with 'one-stop-shop' facility providing different services

such as Automobile Finance, Automobile Insurance, Maruti Genuine Parts and

Accessories, Extended Warranty and Maruti Certified pre-owned cars. Maruti Suzuki

Company in India has established 358 pre-owned car outlets in 210 cities.

Present Scenario of Maruti Suzuki:

Maruti Suzuki Company in India sold a total of 75,300 vehicles in the month of July in

2011. This total includes a sum of 8796 units of exports. However in July 2010, the

Maruti Suzuki company had sold a sum of 1, 00,857 vehicles, which proved to be quite

a feat for the company. Due to the following activities of the Maruti Suzuki Company,

the total sales of the company suffered.

Manufacturing process for Swift Dzire was shifted from Manesar to Gurgaon. Due to

these planned changes, the production of the model was temporarily affected.

Therefore, the sales units were 5,471, lower than the production in the month of July in

2010.

The production of old Swift was discontinued in the month of July in the year 2011. New

model of swift was launched on the 17th of August, 2011. While the Maruti Suzuki

Company dispatched 11,828 units in July 2010, the delivery in the month of July 2011

was only 348 units.

With these two planned activities of the Maruti Suzuki company, the sales in the monthof July in the year 2011 dropped by around 17000 units as compared to July 2010.

Maruti Suzuki Way Ahead:

The Maruti Suzuki Company information reports that it is planning to expand its

manufacturing capacity to 1.75 million from 1.2 million by the year 2013. The chairman

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of the Maruti Suzuki Company, RC Bhargava stated that the production in the Gurgaon

plant is to be reduced since the plant is very old and congested. Estimated output will

be reduced to 6 lac units from 6.5 lac units per annum. Two new upcoming units will be

developed in Manesar plant and will have a total manufacturing capacity of 2.5 lac units

per annum. The second unit in the Manesar plant will be opened by September-

October, of this year. However, the third unit will start functioning from 2012-2013.

The Maruti Suzuki Company in India will be offering two new models in the Indian Car

Market between 2011 and 2013. A new model of Maruti Suzuki Swift was launched in

August 2011. On the other hand, Maruti Suzuki Swift Dzire will be launched in the

earlier part of 2012. The Maruti Suzuki Swift was initially launched in the European

market and the production of this variant has begun in their Hungarian plant. New

variant of Swift is somewhat wider and longer than the previous model. Besides, Maruti

Suzuki Swift Dzire has the same engine configuration but the length and width of the car

has increased.

Stake of Suzuki in Maruti Suzuki:

1) 1981:

The Indian Central government at the behest of Indira Gandhi salvages Maruti limited

and starts looking for an active collaborator for this company.Maruti Udyog Ltd was

incorporated under the provisions of the Indian Companies Act, 1956.

2) 1982:

License and Joint Venture Agreement (JVA) signed between Maruti Udyog Ltd.(Indian

Government) and Suzuki Motors Corporation of Japan.

3) 1991:

65 percent of the components, for all vehicles produced, are indigenized (produced

locally). Liberalization of the Indian economy opens new opportunities but also brings

more competition to segment.

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4) 1992:

Suzuki increases its stake in Maruti to 50 percent, making the company a 50-50 JV with

the Government of India the other stake holder.

5)1997:

Government nominated Mr. S.S.L.N. Bhaskarudu as the Managing Director on August

27, as the then current Managing director, R.C.Bhargava, was completing his tenure.

Creating a conflict with Suzuki

6) 2002:

Suzuki Motor Corporation (SMC) increases its stake in Maruti to 54.2 percent.

7) 2003:

Maruti Udyog Ltd is listed on BSE and NSE after a public issue, which is oversubscribed

10 times.

Maruti Suzuki India Ltd (MSIL) was incorporated as a 74:26 joint venture (JV) between

the Government of India and Suzuki Motor Corporation (SMC) in 1981 as Maruti Udyog

Ltd (MUL). SMC acquired 26 per cent equity in MSIL and increased it to 54.2 per cent in

2002, making MUL a subsidiary of SMC. In June 2003, the government offloaded

another 25 per cent of its stake in MSIL through an initial public offer (IPO). MSILs

manufacturing facilities are located at Gurgaon and Manesar. In 200607, the company

amalgamated with MSAIL, which was incorporated on April 12, 2005 as a JV

manufacturing facility (Manesar), in which MSIL and SMC had a 70:30 partnership.

Japanese parent Suzuki Motor had controlled 70% of the Suzuki Powertrain JV; the

newly formed JV is 54% owned by Suzuki and 46% owned by Maruti. The realignment

will strengthen our company by giving us greater flexibility and longer lead time in

meeting the changing market demand, Nakanishi says.

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The takeover amounts to a friendly swap of stock. Suzuki Powertrain is valued at Rs21

billion ($367.4 million), and it will receive Maruti Suzuki shares valued at Rs15 billion

($262.4 million).

The merger and fresh investment plans bring Maruti Suzukis entire annual diesel-

engine capacity of 900,000 units under a single management. Analysts believe the

merger will increase the auto makers net profits and operating margins.

The mergerwill result in a lot of synergies between the companies that will boost our

balance sheet, says Ajay Seth, Maruti Suzukis chief financial officer.

Reasons for Joint Venture:

The reason why Suzuki entered the Indian market is clear. Suzuki chose an untapped

market while Japans bigger auto makersToyota, Nissan, and Hondaengaged in

fierce competition within Japan. Osamu Suzuki, CEO and COO of the company (and a

grandson-in-law of its founder), is a creative decision-maker, a maverick who considers

himself an old man in a mom-and-pop company that concentrated most of its

resources on producing motorcycles and light motor vehicles. Yet when he decided to

diversify and focus on India, many criticized him as being reckless, because India was

so unfamiliar to Japanese companies. Indeed, while there are currently at least 19,000

Japanese companies in the Chinese market, there are only about 260 in India.

Suzukis decision to enter the Indian market turned out to be a resoundingly wise

choice. Japans population peaked in 2004 and is now falling, while its younger

generations show diminishing interest in automobiles. In the past, young Japanese were

proud of their knowledge about cars, and every teenage boy knew which model would

attract the most girls. Today, however, Japanese driving schools suffer from a fall-off in

students, which cannot be explained solely by declining population.

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Indias population, on the other hand, is increasing dramatically in the absence of a one-

child policy, such as exists in China. It makes sense, then, that Japanese companies

should head to the expanding Indian market.

Doing so, moreover, makes geo-strategic sense as well, with successive Japanesegovernments increasingly regarding India as a vital diplomatic and political partner. For

example, in August 2007, then Prime Minister Shinzo Abe headed a big delegation to

India, followed by an official visit in December by current Prime Minister Yukio

Hatoyama.

The Strategic and Global Partnership between Japan and India, established in 2006,

rests on the recognition that Japan and India share common values and interests, as

they are the two major entrenched democratic countries in Asia. These shared values

distinguish the Japan-India relationship from Japans relationship with China. The

growing congruence of strategic interests led to the 2008 Japan-India security

agreement, a significant milestone in building a stable geopolitical order in Asia.

A constellation of Asian democracies linked by strategic cooperation and common

interests is becoming critical to ensuring equilibrium at a time when Asias security

challenges are mounting due to the shift in global economic and political power from

west to east. The emerging Japan-India partnership looks like a necessary foundation

for pan-Asian security in the 21st century.

The key point today is that the governments in both India and Japan are keen on

developing their strategic consensus about Asias future, a fact underscored by the

many bilateral discussions between defence and military officials of both countries that

are taking place. These discussions include joint initiatives on maritime security,

counterterrorism, weapons proliferation, disaster prevention and management, and

energy security.

More is needed. India and Japan should, for example, jointly develop new defence

capacities. Today, India and Japan cooperate on missile defence in partnership with

Israel and the US. Bilateral efforts should also be launched to develop other defence

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technologies. Suzukis joint venture in India suggests that cooperation in high-tech

manufacturing is eminently possible.

Suzukis success is a powerful precedent not only for other Japanese companies that

are looking at the Indian market, but also for further deepening cooperation between thetwo countries. Osamu Suzuki may not be willing to share all of the secrets of his

success with his competitors, but they and Japanese diplomats should be studying the

Suzuki method. Japans economy and Asian security depend on its replication.

Financial information of Maruti Suzuki:

Year Sales (in Cr.) Operating profit

2008 35,587.09 2,512.892009 36,299.74 4,202.15

2010 29,623.01 3,954.29

2011 20,852.52 1,832.06

2012 17,860.28 2,167.37

Above is the sales and operating profit of Maruti Suzuki of last 5 years. Its really huge

in number. As a joint venture firm, the Maruti Suzuki is performing really well.

Disputes between Suzuki Motor and the Government of India (GoI):

The case gives detailed insight into the disputes between Suzuki Motor and the

Government of India (GoI), joint venture partners in Maruti Udyog Limited (MUL), an

automobile giant in India.

Covering the expansion plan, appointment of Bhaskarudu as the managing director and

the disinvestment of MUL, it describes in-depth the disputes between the partners.

Disinvestment of Maruti, problems in the Joint Venture between Maruti & Suzuki, role

of Government of India in J V, passenger car market in India.

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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.

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

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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.

Background Note:

Till the early 1980s, the Indian passenger car industry offered limited choice to the

customers, with only two popular models in the form of Hindustan Motors' (HM)

Ambassador and Premier Automobiles' (PAL) Padmini. The government not only

controlled the price mechanism in the industry, but the entry of foreign players was also

strictly regulated.

However, the scenario changed in 1981, when the GoI itself entered the car business

by establishing MUL by acquiring the assets of Maruti Ltd.6 In October 1982, the GoI

signed a licensing and joint venture agreement with SMC where in Suzuki acquired the

26% share of the equity.7 Suzuki's history dates back to 1903, when Michio Suzuki

founded Suzuki Loom Works in Hamamatsu in Shizuoka, Japan. For the first 30 years,

company focused on the development and production of complex machines for Japan's

silk industry. In 1937, the company diversified into building cars and in 1939 began

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manufacturing cars for the Japanese market. But due to the Second World War it had to

stop the production of cars and concentrated on the manufacture of the looms.

The company shifted its focus back to automobiles with the termination of war and

collapse of cotton market in 1951. In 1952 it manufactured its first motorized bicyclecalled 'Power Free'.

In 1954, the company changed its name to Suzuki Motor Co. Ltd. and was by then

producing around 6,000 cars per month. With 57 production centers all over world, its

manufacturing and assembly network expanded to over 26 countries all over the world.

Company established 22 automotive manufacturing facilities in 17 countries. Suzuki's

vehicles were sold through 134 distributors in 175 countries. By March 2001, Suzuki's

net sales were 1,600, 253 billion and it was one of the top 5 automobile manufacturers

of the world. MUL manufactured passenger cars at its factory in Gurgaon, Haryana with

an installed capacity of 350,000 vehicles. The first product, Maruti 800 was launched in

1984. Consumers hitherto without any choice rushed to buy the vehicle. Maruti 800

earned the tag of being the 'people's car...'

The Conflict:

SMC had raised its stake in MUL to 40% in 1987 and to 50% subsequently in 1992. As

MUL ceased to be a government unit, SMC began managing the company, with MD

R.C. Bhargava (Bhargava) taking directions from Japan.

As R.C. Bhargava reportedly shared a good rapport with the secretary and other higher

officials at the Industry ministry, the relations between SMC and GoI remained cordial.

The first signs of dispute surfaced in late 1993, when SMC proposed a Rs 2,200 crore

expansion and modernization plan. The plan envisaged increasing the production by

100,000 vehicles to effectively meet the growing competition in the sector. The HeavyIndustry secretary Ashok Chandra and the Finance secretary, Montek Singh Ahluwalia

suggested SMC, in an informal discussion, to go in for a public issue to raise the finance

for the expansion plan. Though initially SMC was reluctant to go for a public issue,

Bhargava managed to persuade it in 1995 for the same. However, things changed with

K.Karunakaran (Karunakaran) becoming the Union minister for Industries in 1995...

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The MUL Disinvestment Issue:

In late 1999, following the recommendations of Disinvestment Commission, the GoI

announced its decision to divest its stake in MUL. The GoI decision was a part of its

industrial policy to privatize PSUs through gradual disinvestment or strategic sale. Thefirst phase of MUL's disinvestment was to start with a Rs 400 crore rights issue with

renunciation option for the government, in December 2001.

The second and final phase of MUL disinvestment was to be completed by the end of

2002, wherein GoI would divest its remaining equity holding in MUL through a public

offering. The GoI was to sell its interest to the best bidder at a premium. However,

subject to a clause in the MUL joint venture agreement, the GoI could not sell its stake

without the written consent of SMC. This was expected to complicate the disvestment

process of MUL. In January 2002, the GoI announced its willingness to renounce its

portion of the rights in favour of SMC during the rights issue. The negotiations between

the GoI and SMC to fix the renunciation premium and the control premium were

scheduled to begin in January 2002. GoI was reportedly hopeful of getting a substantial

'control premium' for letting SMC get MUL's full control.

BENEFITS OF JOINT VENTURE:

For Maruti:

Suzuki motor Corporation, the parent company, is a global leader in mini and

compact cars for three decades:

The Suzuki motors is a global leader in mini and compact car for many years. Its really

usefull for the maruti ti tie up with the Suzuki, so that they can have the huge advantage

of the brand name of suzuki specially at global level,

Suzuki's technical superior:

The Suzukis technical superior is one of the main reason of joint venture rom Maruti

point of view. The Maruti Udhyog lacking in technology before joint venture compare to

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other players specially at global level. The technical superior of Suzuki helps the Maruti

a lot in technological upgradation.

lightweight engine that is clean and fuel efficient:

The efficient engine of Suzuki helps the Maruti to perform better in Indian market as well

as in foreign market too. The upgradation in the technology improve the performance of

company.

Nearly 75,000 people are employed directly by Maruti Suzuki and its partners:

For better tecnology, efficient and the employees who has the knowledge of that

technology in important for any firm. As the technology is provided by Suzuki, with that

they appointed 75000 people who has good knowledge of working with this kind a

technology. To train the new employee about new technology is difficult.

For Suzuki:

Large Indian Market:

For Suzuki, a major advantage is the large indian market. As suzuki is now in indian

market, they has that opportunity to target the huge market of india which can provide

huge opportunity to the company. That is something golden chance for the the Suzuki

motors to enter directly in Indian market with ready made market of Maruti and at the

same time target new market too.

Availability of resources:

The all major resources like raw material, labour, new technologies etc are available in

India. In fact the labour cost is cheaper in Indian market compare to foreign countries

which help in cost control. At the same time government of India is also providing many

incentives to this industry. So, that is good opportunity for Suzuki to enter in Indian

market.