Is Suzuki’s decision to set up 100 percent subsidiary a smart move?

The decision of Suzuki Motor Company to operate a fully-owned subsidiary in Gujarat that will make cars that MSIL will is a smart move. That was announced by Osamu Suzuki who was in India recently. According to Mr Suzuki, chairman, SMC, “the board of Maruti Suzuki has approved that a new company – Suzuki Motor Gujarat Pvt Ltd – will be set up. It will not be a listed company and have a start-up capital of Rs 100 crore and be set up by April 2014. Its HO will be located at the regional office of Maruti Suzuki in Ahmedabad.

The new form of doing business will help Suzuki in some key ways:

• Firstly, it will give Suzuki greater control over quality processes as the new facility can be built grounds up to meet the Japanese carmaker’s exacting standards. Verily, the plant will be Suzuki’s newest worldwide.
• Secondly, it gives Suzuki a handle on labour issues. The Manesar labour fracas affected production in two consecutive years – 2011 and 2012-  with monthly tallies in the affected months dropping by half.
• With the new arrangement, Suzuki gets a handle on inventory and related costs. That’s  a key part of the business where cost-cutting has become a way of life. Now just imagine there’s another downturn, all that Suzuki has to do is cut output till the scene improves.

One wonders why the stockmarkets reacted adversely to the decision but that is only a short –term thing given that investors would have had questions to which there are no immediate answers. Gujarat is widely considered to be India’s most biz-friendly state. Already Ford is there and HMSI is expected too, as also a group of vendors. Suzuki has made a very wise decision.