How joint ventures transformed auto sector

Sanjay Khurana

After the economy was liberalised in 1991 by the then Prime Minister PV Narasimha Rao, the Indian automobile industry witnessed its most transformative phase in 1995 with the introduction of the new automobile policy. It paved the way for global automobile majors to make inroads into India through the joint-venture (JV) route. Today, India is one of the fastest growing passenger car markets. In the two-wheeler manufacturing space, it holds the second spot after China. Hero MotoCorp is the world’s largest motorcycle manufacturer and Tata Motors the fifth largest commercial vehicle manufacturer.

India has established itself as a leading player in the global market, thanks to its talent resource pool, low input costs, skilled labour and favourable investment climate.

According to the Society of Indian Automobile Manufacturers (SIAM), the automobile industry experienced a significant 21 per cent increase in domestic sales in FY 2022-23. The passenger vehicle sector achieved its highest sales figures, showcasing an annual growth rate of 27 per cent.

Advent of tie-ups

In India, collaborations started in the form of the JV model in the late 1980s. The initial approach of global players was cautious and involved setting up of JVs where Indian players were the major stakeholders and the foreign counterparts were satisfied with minority investments and technology tie-ups. Encouraged by the results, many global companies increased their stakes significantly.

Major joint ventures

Maruti Suzuki India Ltd: Formerly Maruti Udyog Ltd, it is a joint venture between the Indian government and Suzuki Motor Corporation (SMC), Japan. The company launched Maruti 800 as its first car in 1983. In 2002, the government privatised the company, and the SMC took a major stake. Currently, it has a large product portfolio ranging from small entry-level cars to mid-sized SUVs, sedans, MPVs and SUVs. The company is credited with bringing about an automobile revolution.

Toyota Kirloskar Motor (TKM): It is a joint venture between Toyota Motor Corporation, Japan, and the Kirloskar Group for the manufacture and sale of Toyota cars in India. It sells popular models like Innova, Fortuner and Camry.

Cross-badging strategy

Cross-badging or badge engineering is a strategy used globally in the auto sector. Under it, group companies or partners sharing the same car or platform make minor engineering changes and launch a new product.

Under the Toyota-Suzuki global partnership, TKM and Maruti Suzuki India share cars using the cross-badging strategy. After Glanza, TKM launched Urban Cruiser, based on Maruti Suzuki’s Brezza platform. The newly launched Invicto is a rebadged version of Toyota Innova Hycross MPV.

“The very idea of the alliance is to strengthen competitiveness of both companies by applying our strong points and learning from each other. Such tie-ups will pave the way for the introduction of competitive and cutting-edge products and technologies, giving customers varied choices while maintaining fair competition,” said a spokesperson for Toyota Kirloskar Motor.

“The synergy between the two companies will undoubtedly generate significant value for the automobile industry in India. Both the parties remain committed to the widespread acceptance and use of more fuel-efficient vehicles,” he added.

Honda Cars India: Honda Cars India Ltd (HCIL) is a 100 per cent subsidiary of Honda Motor Company Ltd., Japan. The company was established in 1995 as a joint venture, namely Honda Siel Cars India, in partnership with Usha International. In 2012, Honda acquired the stake of Usha International to become a 100 per cent subsidiary of Honda Motor Co, Japan.

Hero Honda: It was formed as a joint venture between Hero Group and Honda Motor Company, a Japanese conglomerate, in 1984. It benefitted both by making Honda a well-known brand and providing Hero Group with the relevant technology. Since 2001, the company is the largest two-wheeler manufacturer globally. In March 2011, Hero Group bought Honda’s stake in the company, and it was renamed Hero MotoCorp.

Nexcharge: It is a joint venture inked between Exide Industries, India’s largest battery manufacturer, and Leclanche, a Swiss battery manufacturer, in 2018. The company makes lithium-ion battery packs used in EVs. At the time of forging the JV, Exide held a stake of around 75 per cent. After incorporation, Exide increased its stake to 84.9 per cent in 2022.

Some of the other joint ventures that once existed in the Indian four-wheeler space included Fiat India with Premier Automobiles, Ford Motors with Mahindra and Mahindra, General Motors with Hindustan Motors, and Peugeot with Premier Automobiles.

Advantages of partnerships

Cost-sharing: The automobile industry is highly capital-intensive and requires huge investments in factory, machinery and equipment. Additionally, companies benefit from the economies of scale. Thus, small local players can enter the industry by forming a joint venture with global players.

Brand development: Companies in international markets may not be known in the domestic markets and may have to spend extensively on marketing, which can prove to be unsuccessful. Instead, such companies collaborate with well-known local players and develop a brand image. Suzuki Motors chose this route, and today, most cars sold in India are made by Maruti Suzuki.

Access to advanced technology: Local companies may not have the latest technology available in international markets. New technologies can help reduce costs, increase efficiency and stay ahead of the competition.

Join Whatsapp Channel of The Tribune for latest updates.