Will the Japanese Buy Suzuki Cars Made in India?

By Takehiro Yamada : Reporter of Toyokeizai
April 01,2016
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What types of product do you think of when you see the words “Made in India”? Leather goods? Apparel? How about industrial products? Perhaps there are not so many, especially in Japan. However, in March, the Japanese automaker Suzuki began selling cars manufactured in India to Japanese consumers.

In its long 33-year history of business in India, this was the first time that Suzuki has reverse-imported its cars from its Indian production bases. This bold decision is drawing a lot of attention among market watchers who are curious as to whether these made-in-India cars will be accepted by Japanese consumers, who are very demanding about quality.

When the automaker announced in the press conference that Baleno, the new compact hatchback manufactured in India, will be on sale in Japan, a reporter asked Chairman and CEO Osamu Suzuki what he thinks about the possible reluctance of Japanese consumers to buy this new model due to the widespread skepticism about the quality of goods produced overseas.

Instead of answering directly, Chairman Suzuki tossed back a question to the reporter: “You seem to have some kind of preconception, don’t you?" Added the chairman, “We are exporting Baleno from India to the European market. We find no problem with it, whatsoever. Isn’t this what globalization is all about?”

Changing the status quo with local production

True, but some Suzuki salespeople in the field do not seem to be as confident as their boss is. They know what happened to Nissan and Mitsubishi when they tried to sell their compact cars made in Thailand in Japan—both ended in sales disasters.

Even with these lessons learned from competitors’ failures, Suzuki decided to accept the challenge of reverse-importing its cars from India to address the urgent need for expanding sales of its compact cars in Japan.

Right now, approximately 90 percent of Suzuki cars sold in Japan are light motor vehicles (LMV). However, the LMV market in Japan has shrunk over the last 14 months. If adopted, the much-talked-about government plan to revise the automobile taxation policy may work to the disadvantage of LMV manufacturers, adding increased pressure on Suzuki to become less dependent on LMV sales as soon as possible.

Therefore, the management of Suzuki formulated a mid-term business plan in June 2015 that targeted annual domestic sales of 100,000 compact cars. This was a very ambitious target, considering the fact that the biggest number of compact cars ever sold by Suzuki in one year was 86,000.

According to the most recent fiscal result, Suzuki only managed to sell 76,000 in 2014–2015. Reaching the six-digit level will therefore be quite a challenge for Suzuki, more so because, unlike LMV manufacturers, there are a number of strong competitors in the domestic compact car market, including Toyota and Honda.

The compact car is the key to Suzuki’s future success

Suzuki is hoping that the Baleno will be its trump card to become more competitive in this market. This model was first released in India last October. In a short period of only six months, approximately 40,000 cars have already been sold to Indian consumers.

In the press conference, Chairman Suzuki also indicated that cost-effectiveness was another reason that led the company to decide on reverse-importing the Baleno. According to Chairman Suzuki, while the company has set the annual sales target of the Baleno in Japan at 6,000 units, it needs to sell at least 120,000 units to break even if it manufactures them in its costly production base in Japan.

“Rather than using two production bases, one in Japan and one in India, it is far more logical and cost-efficient to manufacture the Baleno solely in the region where it is selling well, which happens to be India,” he said.

In addition, Chairman Suzuki said, “Our judgment is strictly based on our assurance that the quality of vehicles manufactured in our local production base in India has improved significantly and is now rated on par with our high-quality cars manufactured in Japan.”

“There is also a strategic aim to this decision,” added President Toshihiro Suzuki. “We want to nurture our production base in India and develop it ultimately into our export hub.”

According to President Suzuki, the company currently has over 40 percent of the share of the Indian automotive market and still has large growth potential. He noted that the company’s vision was to “first reinforce our local productivity and become readily capable of supplying enough cars to meet the growing demand in India. Then, we intend to expand our capacity further to export from our base there too.”

Suzuki is primarily eyeing shipping its cars manufactured in India to markets in Europe, the Middle East, and Africa. If the company manages to achieve good sales of its made-in-India cars in Japan, that success will be strong encouragement to push forward its export business. Baleno is the first real test of whether Suzuki’s global strategy is viable or not.