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Business Commentary/Dilip Thakore

Thank God for the election! Maruti might be saved

One of the plus points of the democratic system of government is that the pressure of public opinion usually combines with the force of circumstances to drive incompetent governments and ministers from office. The fall of the second government of the 14-party coalition United Front in New Delhi has had the beneficial fallout of preventing Union Industry Minister Murasoli Maran from inflicting further damage upon India's largest car manufacturing company Maruti Udyog Ltd in particular and Indo-Japanese bilateral relations in general.

The rash of obituaries in the media weighing the credits against the debits of the Gujral government which ruled at the Centre for some eight months, and will continue till a new government takes office in March 1998, have tended to fault it for its sins of omission rather than commission. But its one great sin of commission -- the grievous bodily harm it has inflicted upon Maruti Udyog Limited, the most successful Indo-Japanese partnership project ever -- is likely to go down in history as the most reckless and irresponsible act of a popularly elected government.

The curtain on the drama which threatens to wreck MUL, the 16-year-old Union government and Suzuki Motor Corporation joint-venture enterprise, was raised in September when R C Bhargava, chairman and managing director of MUL, retired after over a decade at the wheel of the path-breaking company. Under one of the terms of the joint venture agreement between the Union government and the Suzuki Motor Co, it was the turn of the government to appoint the next managing director of the company while SMC would nominate the chairman.

At a hurriedly convened board meeting of MUL on September 22, and with the help of the casting vote of a government-appointed acting chairman, R S S L N Bhaskaruddu, hitherto joint managing director of the company, was appointed managing director of MUL.

For reasons which are clouded in obscurity, SMC and particularly Osamu Suzuki, the testy septuagenerian promoter-chairman of SMC, is dead set against Bhaskaruddu's elevation to the office of MUL managing director and chief executive. SMC's case is that even though the joint-venture protocols conferred rights upon the partners to alternately appoint the chairman and managing director of the company, a process of prior consultation and concurrence is inherent within a partnership agreement.

In pursuance of a ruling on this line of argument, SMC has invoked a compulsory arbitration clause referring the dispute for adjudication by the Paris-based International Chamber of Commerce. Typically, the Union government has refused to agree to a fast-track arbitration proceedings which would settle the dispute within three months.

The irresponsible obstinacy with which Maran has bulldozed a path of the managing director's office for Bhaskaruddu has been compounded by his recklessness. At a press conference, he publicly challenged SMC to divest its shareholding in MUL stating that several automobile industry majors were ready to buy out SMC's 50 per cent shareholding. Simultaneously a not-so-subtle media campaign was launched belittling SMC's contribution to the amazing success of MUL, which currently manufacturing over 400,000 cars annually and has a 80 per cent share of the national market for passenger cars.

Among the charges made:
* that SMC is a bit player in the Japanese and international marketplace and that the bulk of SMC's profits flow from MUL; and,
* that SMC has been overcharging Maruti on forced sales of components and capital equipment and that the Japanese company has been resisting the transfer of contemporary technology to the joint venture.

Predictably, Maran has also wrapped himself up in the tricolour and projected SMC as an upstart company which doesn't respect this nation's sovereignty.

Admittedly the temperamental Osamu Suzuki hasn't pulled his punches either. At a press conference called in Japan, he described Bhaskaruddu as incompetent and categorically ruled out further transfer of technology or capital equipment to MUL until the current impasse is settled, that is, until Bhaskaruddu is superseded.

However, greater circumspection and responsibility is expected from government representatives who are expected to be mindful of the national interest than should be expected from a self-made entrepreneur such as Suzuki. Despite official statements to the effect that the SMC-MUL imbroglio hasn't adversely affected potential Japanese investors in India, media reports from Japan indicate that this standoff has severely damaged Indo-Japanese business relations.

Moreover, the last word on the subject has been had by Suzuki. In a brilliantly conceived (and uncontradicted) press advertising campaign featuring full page ads in virtually all the national dailies, Suzuki issued a point by point rebuttal of the Union government's belittling and misinformation campaign against SMC.

Among the facts disclosed by Suzuki: that far from being a midget as alleged, SMC is a heavyweight international sub-compact car manufacturing company with 59 manufacturing plants in 27 countries (aggregate annual sales: $ 10.25 billion); and that MUL contributes less than 1.9 per cent of Suzuki's turnover and even less to its profits.

And far from being unwilling to transfer technology, the Suzuki ad stresses that SMC has willingly helped MUL to attain 95 per cent indigenisation of components while ensuring that the quality of the company's cars are of international standard. Of the 160,000 cars thus far exported by MUL, 70 per cent have been sold in quality-conscious European countries, say the Suzuki ads.

Fortunately for Suzuki, MUL, the Union government and potential purchasers, Indian democracy and the parliamentary system have forced Maran out of the industry ministry before he can inflict further damage upon the nation's showpiece and widely admired public sector company. Thousands of jobs, livelihoods, excise and tax revenues and further development of India's automobile industry are the vital issues at stake. Now pending the election of a new government at the Centre, it is for the company's management to get the company back on track.

And the greatest service Bhaskaruddu can do MUL is to resign in the larger interests of this path-breaking Indo-Japanese company which yet has the potential to put India on the radar screen of the international automobile manufacturing industry.

Dilip Thakore