A Study On Suzuki’s Corporate Level Strategy And The Use Of Retrenchment And Merger For Expansion In The Automobile Industry

Suzuki’s Corporate Level Strategy

In the present business environment it has become important for the organisation to take care of the strategy that is made by the company. These strategies help company to tackle competition in the modern business environment (Ahenkora & Adjei, 2012). The strategies are made as per the demand of the company as well as the availability of resources with the company. Many a time strategies are made as per the requirement of the firm in case of any arisen situation. There are many kinds of strategies that company takes use of in different situations.

Suzuki is one of the biggest firm in the Automobile industry. It is Japan based company headquartered in Minami-Ku, Hamamatsu. It deals in the business of automobiles, four wheel drive vehicles; all train vehicles, motorcycle, outboard marine engines, wheel chairs and many other kinds of internal combustion engines. It is presently having 45000 employees. Suzuki owns 35 production facilities in around 23 countries and is having 133 distributors in approx. 192 nations. It is considered to be the 10^th largest automobile firm in the world while it is third in the domestic sale within Japan. This company has used many kinds of strategies over the years to face many kinds of challenges coming from different environments all around the world. In many countries it has used the strategy of merger and acquisition so as to enter into the country. Its senior management is known for its quick decision making.

This report highlights the ways in which Suzuki has used business strategies for making expanding its business as well as ensuring long term profits from its business. Apart from this the condition of the company in the modern automobile industry has also been analysed to certain level and idea has been clarified why Suzuki has considered these case based strategies for its business.

• Developing products of higher value by focusing on the demands of the consumers.
• Establishing a company that is run through teamwork and adopting a culture of innovative and refreshing firm.
• Striving for personal excellence through regular improvement.

There are many kinds of strategy that has been adopted by the company over the years of its operations (Rothaermel, 2015) . This is according to the challenges that came in front of the firm over the years. Since this company is facing many kinds of challenges in terms of raising its profit margins hence company has to take certain decisions that could help in cost cutting. The strategy for closing various units within the country is known as Retrenchment (Automotive Industry in Malaysia: An Assessment of Its Development, 2018). This is the strategy that is used by the firm when they feel that some part of the firm is not working in a desired manner and is adding burden over the firm performance. It is also sometimes used by the firm for reducing the diversity or overall operations of the organisation. This strategy helps in achieving financial stability in the business.

Retrenchment Strategy in Malaysia

Adopting this strategy firms generally withdraws from certain market of eliminates some of the products or services from its portfolio and only concentrates on those which are doing good business (Bakar, Tufail, Yusof & Virgiyanti, 2011). In the above mentioned case study it can be seen that Malaysian unit of Suzuki was not performing well and the overall sale of the vehicles within the country has also been lowered in the years. This has reduced the overall profit of the firm and hence company closed down its assembly unit Malaysian motorcycle plant. There is considerable decrease in the demand of the vehicle in the market and hence company has to take this decision. Previously this plant was assembling scooters and kapchais that included Nex, Suzuki Address, Belang and Alexo among other sub-150 cc models.  Malaysian plant’s report in 2015 has showcased that there was decrease in output by half as compared to that of fiscal year 2013. Only 8000 units were sold in 2015.

In order to understand the reason for company to adopt this kind of decision it is necessary to understand the market of the Malaysia for which various tools such as PESTE and SWOT can be utilised.

STRENGTHS

• This company has a very established network of after sales as well as distribution chain.
• A highly innovative research and development unit which facilitates it in producing wide range of products in the market and hence satisfying the demands of the consumers.
• Very deep understanding of Malaysian market trends and opportunities.
• Having a bigger brand image which helps company in performing its business easily.
• Use of highly advanced technology in their motorcycles which is the demand of the industry.

WEAKNESS

• Lack of experience in Malaysian market as compared to its competitors.
• Higher priced products reducing overall sale of the firm as Malaysia is not having higher per capita income.
• Heavy import duties on fully built vehicles.

Opportunities

• Middle class present in the Malaysia can be an excellent target market for the firm.
• There had been many kinds of subsidies that is provided by the Malaysian government to the firms that is setting up in the country.

Threat

• Decreasing sale of the vehicle reducing overall profit of the firm.
• Increasing wages has put burden on the assembling plant which resulted in its closure.

Apart from this external factors have also pushed firm for making such kind of decision. This could be understood by PESTLE analysis:

• Political: The decision that was made by government of Malaysia has affected the business of overall industry (Brown, Bessant & Lamming, 2013). There was a heavy increase in the tax that was involved in production and assembly of motorcycle. Apart from this there was increase in the prices of the fuels in the Malaysian market which has reduced the sale of the motorcycles within the country. Continuous negligence of this industry and reduced help from the government has forced company to shut up its assembly unit within the country. There was increase in the goods and service tax for the company that was operating within the country which led to sorrow in the entire industry which was already struggling for enhancing its sales in the market.
• Economic: All around the world there was economic stability. It has also impacted on Malaysian market. After 2009 recession many of the Asian countries have not been able to stabilise themselves economically (Chakrabarti, Vidal & Mitchell, 2011). This has reduced the chances of the company to expand its market reach in country like Malaysia. People do not want to spend on higher cost motorcycles. This was unable to generate as much financial gain as it previously estimated from the assembly unit of Malaysia. In the coming years also it was estimated that there were will be considerable slowdown in the GDP growth of Malaysia and hence company felt to take decision of shutting down its firm within the nation.
• Social: Malaysia has a vibrant society but is basically attracted towards the products that have price tags that are lower side. On the other hand there was a considerably change in the demand of the society especially in terms of demands of innovative design vehicles (Dibrell, Craig & Neubaum, 2014). Youngsters were also preferring or the bikes that are more economical which was a weakness of Suzuki and hence decrease in the sale of bikes was noticed over the period of two years from 2013 to 2015.
• Technology: Technology in this industry has been a major factor for the success and failure of the firms (Elbashir, Collier & Sutton, 2011). This company has adopted most advanced technology for the assembly unit of Malaysia but there is a problem with the technology that it gets doubled in every six months and changing overall technology so quickly can reduced the overall profit of firm in the industry. Hence cost of overall operations within the firm was increasing and hence company took the decision of retrenchment.
• Legal: There were many kinds of laws and regulations that have come up in regards to operations within the firm. New employment laws and increased consumer strictness over environment friendly has reduced the overall profit of the firm (Freeman, 2010). There was many kinds of strictness that was enforced on firms in which taking innovative decisions was difficult and hence overall profits of the Malaysian assembly unit got reduced.
• Environment: Malaysian government has forced auto mobile companies for producing vehicles that are environment friendly business. They have also posed restrictions on the models that were emitting carbon pollutants over a certain level (Frynas & Mellahi, 2015). There was demand of new kinds of vehicles which needed technological advancements in the assembly unit that too in the situation where the profit margin was reducing day by day.

On evaluating internal and external environment of Suzuki, it can be deduced that the decision of making Retrenchment was good and can be justified. Continuing operations in such assembly unit may have led to overall decrease in the profit margins of the firms on the longer run. This could have led to higher loses to the financial resources of the firm. This retrenchment has provided a chance for the company to think with a very different kind of approach which that can be applied for their future operations (Greckhamer & Mossholder, 2011). Every company makes its corporate level strategy. This has been done so as to ensure that overall growth of the firm in the longer go gets ensured. In Suzuki’s Malaysian assembly plant there was an unfavourable and severe business activity which has prompted management for making such kinds of orders. In order to continue its business in the Malaysian market company has taken a decision of importing products from Japan which will reduce overall expenditure. Since this company has an excellent chain of distributors which can help firm in making this successful and ensuring that profit margins do not come down. It strategically fits into the Suzuki’s core business.

Pact with Proton Holdings Bhd

In the modern business environment where competition was on the higher side it has become more essential for the firm to take such kinds of decisions (Stead & Stead, 2013). Yes there are many kinds of complexities that are associated with the retrenchment decisions. One of the most influential impact was posed by the employees as providing them proper compensations was important (strategic management, 2018). Any retrenchment leads to many kinds of ill effects on image of the firm within the country as well as in other parts of the world (Hesterly & Barney, 2010). Retrenchment decisions always bring negativity in the entire firm which can result in reduction of productivity of the employees and other assembly units. Retrenchment strategy always reduces the chances of the firm to enhance the market share as finding new root of business in the competitive market can be a difficult task.

In the present case study Suzuki is facing difficulties in increasing motorcycle sale within Asian market. Apart from this there were several attempts that were made to contact with the factory management which got unanswered. There were many other management strategy that was adopted so as to reduce the overall expenses of the firm so that assembly plant can generate more revenue but all failed in the longer run. This decision was backed by its earlier decision of retrenchment of cars manufacturing plant which proved to be successful. On the other hand there was considerable hike in the Goods and Service tax within the country implemented last year as well as enhancement in the cost of living has restricted the pockets of Malaysian people to purchase quality motorcycle from this company (Heyns, Reilly, Smythe & McCarthy, 2011).

In the above section of the report it can be clearly seen that it has become essential for Suzuki to take retrenchment decision due to several factors. This has increased the need of new strategy for the company to continue its business in the Malaysian market (Popkova, Abramov, Ermolina & Gandin, 2015). In the above mentioned case study it can be seen that company is using the strategy of Merger. This is the strategy that is followed by the firm when it has to enter into the new market in a totally different ways. Merger is done in the ways that both the company shares a certain kinds of profits in overall profit of the firm (Hill, Jones & Schilling, 2014).  In this kind of strategy shareholders of the firms come together normally willingly to share the resources from sides of the strategic partners in the new organisation that is formed after merger.

Success of Retrenchment and Merger Strategies

 This is highly beneficial strategy as there is exchange of many kinds of plans and ideas that can lead to the profits of the company in the longer run. In this strategy both company shares their strengths to formulate an organisation which is having competitive edge over industrial competitors (Hill, C., & Jones, G. (2011). This also reduces the chances of larger financial lose to the firm as no single firm will bear the overall expenses in case of any plan failure. This provides stability to the business operations as firms. Each firm shares their resources which can be utilised for sustainable growth of the firm while facing challenges and issues coming in front of them. In this case his kind of merger has profited for both the firms (Hill & Jones, 2011). Suzuki required new set of business approach and resources for expanding into the market and on the other hand Proton Holding Bhd got a support of bigger brand name like Suzuki which it can use for their business.

Apart from this Suzuki is a master in use of technology and hence Proton Holding can utilise it for making business more efficient and easier. This signing of pact has been beneficial for the firm to Suzuki which has to follow a series of retrenchment decisions. It has empowered company to think in new dimension of the business (Morden, 2016). Since company can develop new kinds of products from the newly formed association while continue importing motorcycles from the Japan so that their own business do not get hamper. This strategy has been successful for many companies in the past and has been tested over the years.

On evaluating the question of whether this strategy will be successful for this company it can be said that this strategy has been successful for other companies in the past (Hitt, Ireland & Hoskisson, 2012). It is also to be understood that success of any strategy depends on the way it is implemented within the firm. This strategy is organisational fit for the company since Suzuki has done it in many other parts of the globe. For example its joint venture in India with Maruti for producing Cars has seen a lot of success and is almost the market leader in Indian market which in term of many ways resembles with the market of Malaysia. Both the nations have large number of middle class families which is perfect market for motorcycle sale. But it depends on what kinds of pact have been signed by both the firm ((Hubbard, Rice & Galvin, 2014).

Recommendations for Improved Strategy Implementation

Merger helps firm in finding new markets and both can gain new knowledge from experience of shareholders of both the firms. Merger always needs to be done checking the long term scope of collaboration and ensuring each other’s position in the market (Jones & Hill, 2012). Since Suzuki has already started its production of new kinds of vehicles in the market. Here it is can be noted that Suzuki is providing it manufacturing assistance to the Proton and since later firm is national carmakers hence helps them in enhancing the quality of the cars. Suzuki also helps Proton in rebranding of its cars which helps it in finding new positions in the market. Suzuki brings international competencies to Proton which helps in reducing the overall producing failures and hence can ensure growth of their business. On the other hand Suzuki can utilise the market reach of Proton for their business.

For measuring the chances of success of this pact analysing through the use of Porter’s five forces model can be highly beneficial (Kali?anin & Kneževi?, 2013). For Malaysian market Porters five forces analysis is as follows:

• Bargaining power of suppliers: Since the competition in the market has increased due to the presence of lot of internal and external suppliers their bargaining power have decreased considerably. On the other hand since the car industry is facing many kinds of challenges hence there has been considerable decrease in the demands of raw materials and hence bargaining power of suppliers has further reduced (Leonard, 2011).
• Bargaining power of Consumers: Due to heavy competition in the industry consumers bargaining power of consumer is increasing day by day (Luthra, Kumar, Kumar & Haleem, 2011). There are multiple options that are available with the customers and hence they can select from them. Consumer’s demands have been changing at very faster rate and Malaysian consumers are demanding for the vehicles that are innovative that too at lower rates. Apart from these diesel model by various companies have raised competition to cut throat level. All this have enhanced the bargaining power of customers.
• Threat of new entrants: This is on the lower side as entering into this industry requires larger amount of capital and financial stability. Finding a place in the market is not easy as consumers do not rely on the new comers (Men & Hung, 2012). There is very less chance that some company can come up with a new venture as the technological requirement of this industry is very high. People in the country are looking for the cars that are more innovative which is not easier for new ventures to provide. There is a chance that any bigger firm will invest in the Malaysian Car market.
• Threat of substitute: There is a less chance that cars will be substituted by any other substitutes. Public vehicles performance has poor and other four wheelers have not been so successful (Morden, 2016). Apart from this it can also be seen that there is decrease in the motorcycle sale and hence it cannot substitute cars from the market. This makes threat lesser dangerous for this joint venture and their upcoming products.
• Threat of competitors: It is one of the biggest threats to this joint venture. Since there are large number of competitors in the market like Nissan, Volkswagen, Ford, Tata motors, and General motors. All these firms have wide range of products and have large financial assets to influence the business of this joint venture (Nickols, 2011). Company has to ensure that there is product differentiation from other competitors so as to find its place in the market.

Apart from this it can be also seen from the case study that there has been use of new product development strategy by both the firm. In some ways it is the part of the diversification strategy that helps company to attract new set of customers towards the operations of firm (Ong, Teo & Teh, 2011). This also assists in increasing the sale of the firm which can be beneficial for the profit margins of the firm. New product development helps firm in coming to new kind of business which is essential for sustainable growth of the firm. This helps company in differentiating itself from other competitor’s products (Peng, 2013). In the provided case study it has been elaborated that both the firm is planning to make a seven-seater MPV which somehow resembles with Suzuki Ertiga design concept. More the company aims to produce new products more is the chances that company has edge over others by attracting larger base of consumers towards its business (Peppard & Ward, 2016). This joint venture need to focus on the demands of the consumers like producing cars at lower rates and make necessary cost cuts so that economic stability of the firm can be ensured.

Recommendation for Suzuki:

• Company needs to find new markets with the help of Proton which will help company in their other businesses also.
• Should provide technology to this venture so that products gets to the level of expectation that consumer wants from them and helps to retain the brand image of Suzuki in the market.
• Need to take the control of technological and research department as it has more experience in this field and has more knowledge about this area. This will boost up the new product development strategy.
• Suzuki must utilise its financial wealth for empowering the joint venture and provide assistance in any situations arisen.
• Suzuki has a larger experience of international market and has faced many kinds of challenges in past which it can utilise in this venture also. This can be done by having control in the strategic affairs of the firm.
• Must learn from the mistakes that were done by the firm in their past business.

Recommendations for proton:

• Proton needs to ensure that there is deep reach into the Malaysian market. This is due to the fact that they are more known to this market.
• Proton need to take control of the marketing and sales affairs in this joint venture.
• Proton need to ensure that high quality skilled employees get enrolled within the firm who will help company in making its strategic decision successful.
• Proton need to ensure that there will be continues flow of raw materials in the operation so that it does not gets hampered anytime.
• Company must learn from the experience of Suzuki in the international market and must adopt the environment where team culture is promoted.
• Needs to rebuild its organisational structure so that they can adopt the advancements that are required by the joint venture.
• Proton needs to take use of its political ties to ensure there that the decisions made the Malaysian government may not hamper the operations of the joint venture.

Conclusion

From the above based file it can be said that in the modern business style it is essential for the companies of the scale of Suzuki to manage its strategic affairs in a proper way. There are many kinds of strategies that are used by the companies which depend on the situation it is facing in the market. From the case study it was clear that Suzuki was facing long term loses from their business in Malaysia and hence company has decided to close its Motor cycle assembly unit in Malaysia. This Retrenchment strategy helps company to focus on those businesses which may provide long term profits to the company. It was done analysing all the variable present to their business. Apart from this company has adopted another strategy like Merger with the national car manufacturing company named Proton. This Joint venture helps firm in having competitive edge over others. Both companies will be able to share their competencies which will help them in making new range of products. Both this strategy adopted by the firms in the Malaysia ensures its long term growth in the market.

Conclusion

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