A Brief Comparison of Maruti and Pak Suzuki’ Way of Business

Maruti Vs Pak

Maruti Suzuki has product portfolio of about 17 vehicles ranging from Gypsy and Omni to S-Cross and Baleno, whereas Pak Suzuki sells 11 products from Suzuki Ravi to Suzuki Ciaz.

Prices of some of the vehicles offered by both companies are:

Motor Vehicle Maruti Suzuki Pak Suzuki  
Standard Variant INR PKR (Approx) PKR
Alto/Mehran 331,000 530,000 802,000 51%
Swift 599,000 959,000 1,327,000 38%
Wagon R 415,000 665,000 1,054,000 58%
Ciaz 773,000 1,237,000 1,859,000 50%
Celerio/Cultus 404,000 647,000 1,124,000 74%
Omni/Bolan Van 261,000 418,000 730,000 75%

(Yes, I know I haven’t added Vitara in the table, which is primarily due to the fact that Maruti is offering Grand Vitara and its offshoot. Both -Indian and Pakistani Vitara- are animals of different breed)

This analysis highlights the percentage of the price that Pakistani commuters are paying extra to the company due to lack of proper price control mechanism and absence of healthy competition in the automobile market.

The financial and operational performance of both the companies are summarized as follows:

Maruti Suzuki (June 2016) Pak Suzuki (Dec 15)
INR PKR (Approx) PKR
Net Sales – Overall 563 Billion 901 Billion 84.54 Billion
Production Volume – Motor Vehicle 1,429,248 units 133,952 units
Profit  After Tax (Before:Dep) 73.93 Billion 118.3 Billion 6.8 Billion
Net Profit per unit (Approx) 83,000 44,000
Surplus Cash at year end 58.5 Billion 93.6 Billion 15 Billion
Total Assets 391.9 Billion 627 Billion 37.452 Billion

Why is MS earning more profit than PS though MS is charging less to its customer? The answer is MR is 88.64% is more efficient than PS in terms of per unit profit earned. There are two main approaches to increase your per unit profit and improve your efficiency:

  1. Decrease your production cost
  2. Increasing your product sale price

The first approach, decrease in production cost, is usually associated with production and other cost factors. While controlling your production cost without affecting its quality is, no doubt, a challenging task.

How to control your production cost?

There are different strategies and techniques that are applied in industries across the globe. Like Ford Motors is moving their small cars assembling plant to Mexico to lower labor cost and taxes.

MS achieved it by:

  • Using vision of its Board of Directors by not compromising on their quality, maintaining compliance with international standards and focusing more on Research & Development and making innovations and introducing new products
  • Highly skilled and experienced human resources which are supplied by their renowned universities and college; and
  • Favorable government policies like the recent initiative “Make in India” taken by Indian PM Narendra Modi.

MS’s product price is also competitive in India, that locally manufactured vehicles are much cheaper than imported vehicles; hence the entry of foreign vehicles is reduced if not completely blocked.

The ‘favorable govt policies’ is comparatively very easy for an organization to achieve if there is a low competitive market. In such cases, govt loosens rules and regulation to control the prices.

The primary reason for PS’s net gain of Rs. 44,000 per unit is due to its higher sale price rather than high efficiency. Suzuki Mehran and Cultus are a major contributor to PS turnover. There is no direct competitive vehicle available in the market to compete both of these hatchbacks, and there is a massive absence of an automobile regulatory body to monitor product costing and sale price. As a result, local auto manufacturers are taking the easy way out to generate more profits by increasing the price of their products.

Do PS not aware of reducing their cost to gain profit? Yes, they are but they achieve it by compromising on product quality. There is a glaring reality of no innovation and R&D by any auto manufacturer to support this claim. If you are still confused as what I am implying then consider the example of Suzuki Mehran, which is a car of 90′, not 2017.

So why apart from the absence of any regulatory body, are Pakistani consumers still deprived of modern vehicles? Part of its answer lies in sales figures and their close relationship with big turnovers. Since India is highly populated than Pakistan, which means higher customer demands and higher production. It would not be true to say that PK should increase their production up to 1.4 million per annum. But keeping in view Pak-Suzuki’ market share, production capacity and the status of the only auto manufacturer to offer under 1,000cc cars in Pakistan, they should try to achieve an optimum level of production to benefit themselves as well as consumers.

 

Mian Saddam Sarwar

Mian Saddam Sarwar has life-long love for automobiles and has experience of driving many local and imported vehicles. He is pursuing Chartered Accountancy and is Senior Audit Associate in a Big4 Accountancy firm in Islamabad.

  • NIKHIL KULKARNI

    What exactly is your point?? This is a very confusing article with no structure to the argument! You could have used the structure below

    – Hypothesis
    – Data
    – Analysis
    – Inference
    – Recommendations

  • Hussain

    bro pl dont expect Std and quality from PW

  • Zohaib

    well researched? If read fully!

  • Amer Lodi

    What do you mean???? Plz just do not under estimate and give sweeping statement

  • twister286

    Maruti Suzuki also exports cars…for example the Suzuki Celerio sold in Australia is made in India.

  • Usman Haider Sheikh

    There are facts, opinions and recommendations too, but still author’s view can’t be comprehended by reading this article due to lack of coherence and proper structure in other words “khichri pakki hui ha.”

  • Usman Haider Sheikh

    and I disagree with author about pak suzuki to keep their production low, they were exporting Liana to Bangladesh, Ghana, Nigeria and Maldives a few years ago. if they can achieve better R&D and localization of parts of high quality, I see export potential to all underdeveloped countries where Suzuki doesn’t have its own plant or doesn’t build a particular model.

  • Asif Khan

    Very nicely written article. Unfortunately Paksuzuki management is full of dum and duffers. No plans of improvement. If Govt of Pakistan try to regulate them. PakSuzuki Mafia’s blackmail the Government. I am planning to file a case against PakSuzuki for selling substandard products and playing with customers.

  • nishantsirohi123

    The post is using old info

    Grand vitara was discontinued 3 years ago
    The vitara brezza, same as the vitara launched in pak is on sale, with a diesel engine.

    Also no mention of other models,
    Recently discontinued ritz, which now has the ignis.
    The new Baleno
    You guys still have the old 1st gen swift on sale,
    No mention of the swift dzire, second best seller in the country

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