Suzuki Plans to Venture into Maruti’s Territory


 

A Suzuki vs. Suzuki battle could be on the cards as Suzuki plans to set up its own factory in India for supplying components and cars to Maruti Suzuki India where it holds 56%.

 

There were several trust issues that negated the alliance between Volkswagen AG and Suzuki Motor Corp. The Japanese giant now has to win over skeptical shareholders with regard to the vital partnership with Maruti Suzuki India. Maruti’s minority shareholders will have to be won over for Suzuki to emphasize on production and Maruti to concentrate on sales and distribution. This, as per minority shareholder concerns, may lead to the Indian partner being sidelined.

 

Suzuki is trying to become a leading market player in India by investing more in overall production capacity. This would automatically free Maruti for expansion of its sales network and premium brand building. According to several minority shareholders, the long term agenda points at Suzuki taking control of production and this would also mean full control of exports, thereby bypassing Maruti Suzuki entirely in the future. Suzuki is betting big on India for major growth and India is poised to become the third biggest automobile market in the world by 2020 outstripping both Germany and Japan. Suzuki’s confidence in India further comes from the overwhelming 45% market share of Maruti in the country.

 

16 institutional shareholders of Maruti Suzuki protested at the plans proposed by Suzuki for setting up the wholly owned subsidiary and factory in Gujarat. Investors like Franklin Templeton Investment Management Ltd, HDFC Asset Management Co and Reliance Mutual Fund have said how this plan will foster the conversion of Maruti Suzuki into a shell company in the future. Even two governance advisors have been combating each other with regard to the voting for the deal. The ballot results will be published on the 17th of December. According to advisors opposing the deal, Suzuki’s dependence on Maruti will cease to exist and the power balance will shift in its favor. This will also mean greater subservience on part of Maruti’s shareholders to the interests of shareholders of Suzuki.

 

However, several advisors state how the plan has benefits with regard to spurring Maruti’s sales expansion with growing competition in the country. The contract manufacturing agreement has to be approved by 51% of minority shareholders for it to proceed.

 

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