Saturday, September 01, 2012

The high royalty payment issue

R. C. Bhargava, Chairman of Maruti Suzuki talks to B&E’s Pawan Chabra about competitve threats from foreign players launching better technology cars and the high royalty payment issue.The secret to profits has, and always will remain competitive pricing and satisfied employees, says a Least Worried Bhargava.

B&E: But you can’t deny the fact that over time, foreign players and Tata Motors have managed to chip away Maruti’s market share...
RCB: During the era post economic liberalisation, that Maruti Suzuki had competition like Matiz and Santro. But even then, the company was able to outshine competitors and stay ahead of the pack with a 50%-plus market share. It was around that very time when Maruti and its now partner Suzuki, were negotiating on the renewal of our agreement. During this period, our market share had started falling, and had already fallen below 50%. But after the issue was resolved and the JV agreement was renewed, the company was back on track. Therefore, even though we have recently gone below the 50% market share mark, we will bounce back soon...

B&E: But experts opine that royalty payments will continue to drain your finances even over the coming months. How do you see the situation turning out to be?
RCB: Maruti relies heavily on Suzuki, so the royalty payments are bound to be at a level at which they are standing today. However, with the Rohtak unit set to become operational by 2012, a situation may arise where you will see Suzuki paying the royalty to Maruti for the use of the technology developed at the R&D centre.

B&E: The company has been actively involved in CSR activities of late. How do you connect it with profits?
RCB: My idea of CSR has been to do what makes all the stakeholders happy. We try and do the maximum to our capacity for the society. Then be it the traffic management program on the Gurgaon-Jaipur highway or the tree planting initiative, the company tries to give back to society in whatever ways it can. In fact, we started the water conservation unit at out Gurgaon plant in the 1980s, way before the CSR activities became necessary. Clearly, it was a proactive measure depicting the concern of Maruti Suzuki towards the environment and society. So people might link CSR to higher profits, but we don’t.

B&E: Maruti Suzuki has a very low attrition level. What are the reasons for the high employee satisfaction levels?
RCB: It is because of the processes and policies that we have inculcated into the system over the years. In fact, Suzuki also played a major role in it by bringing many Japanese HR practices into the company that make the employees an integral part of our journey. This keeps them motivated to work for the high profitability of the company. It is only through employee satisfaction that you achieve profits.



Posted by at
Labels: , , , , , , , , , , ,