Japanese automaker is keen to shift its small-car production base from Japan to India in response to the appreciating yen

Significance: Suzuki is keen to shift its small-car production base from Japan to India in response to the appreciating yen, reports the Financial Express. The shift will take place gradually once its Indian subsidiary – Maruti Suzuki – opens its new facility in Gujarat, making India the export hub for its entire range of small cars.
 
Implications: Suzuki is following a strategy being adopted by South Korean carmaker Hyundai and Japan's Nissan, both of which have made India their global production hub.
 
Outlook: It makes sense for Suzuki to make India its production hub for small cars. Aside from the appreciating yen, which has made exports from Japan uncompetitive, and the recent natural disasters in its home country, the Japanese automaker's plans are influenced by the huge component vendor base and supply chain it has in India.
 
Suzuki is keen to shift its small-car production base from Japan to India amid the appreciating yen, reports the Financial Express. "Small and large car exports from Japan have already become uncompetitive because of the appreciating yen so Suzuki is instead shifting small car production to India," said R.C. Bhargava, Chairman of Maruti Suzuki. The shift will take place gradually once its Indian subsidiary – Maruti Suzuki – opens its new facility in Gujarat, making India the export hub for its entire range of small cars. "Gujarat is ideally suited for exports and this was why we chose to locate the new facility there. We have already bought two tracts of land – 640 and 470 acres – for about Rs450 crore (INR4.5bn or USD80.8m] and they are about 18–20 km apart. The final clearance on the first phase of INR40bn (USD725.8m) investment is expected from the board in January, after which construction will start," a company official said.

Outlook and implications

Suzuki is following a strategy being adopted by South Korean carmaker Hyundai and Japan's Nissan, both of which have made India their global production hub. Honda and Toyota have also made India a hub for some of their models. Maruti is reportedly considering speeding up work on its plant in Gujarat, where it is investing about INR40bn (USD725.8m) to set up a new manufacturing facility. In August, Maruti paid the first instalment of INR220m (USD4m) for 640 acres of land at Hansalpur in Ahmedabad. The plant will have an annual capacity of 250,000 cars.

It makes sense for Suzuki to make India its production hub for small cars. Aside from the appreciating yen, which has made exports from Japan uncompetitive, and the recent natural disasters in its home country, the Japanese automaker's plans are influenced by the huge component vendor base and supply chain it has in India. Labour costs in India are also lower and Gujarat is ideal for exports. Suzuki's main production base, in Hamamatsu (Japan), will then cater exclusively to the home market. For the plans to be fruitful, the company needs to ensure that labour relations are cordial. The company witnessed major labour troubles at its plant in Manesar this year and last, which crippled production of some of its best-selling models. There is the possibility that by making India its export base, Suzuki might be able to push more Japanese products, such as its 600cc small cars, to the Indian market.

Jasmine Bedi
Research Analyst, IHS Automotive
Email: jasmine.bedi@ihs.com

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