Suzuki Motors

Nov 4, 2017 | 0 comments

Nov 4, 2017 | Miscellaneous | 0 comments

Suzuki Motors

 

The year 2012 was a drastic and surprising one for Suzuki stakeholders. The company chose to move out of the American market completely, a surprising move even for a large and struggling company.  By all accounts Suzuki faced a challenging task, remaining in a market where profits continued to be elusive. After decades of operating in the American market, it is surprising that things seemed quite dismal. Not enough investments and partnerships were in the pipeline, patents on top selling brands such as Kizashi were not drawing enough customers. Despite several partnerships in the tunnels, the company was continuing to post dismal results.

There are critics that felt that the company threw in the towel quite early in one of the most fertile markets for automobiles.  However, it should be noted that Suzuki made a great effort to transform, change its organizational structure. Suzuki formed autonomous, restructured entrepreneurial distribution centers (Blais 2012). This was a bold testimony to the belief that Suzuki executives had on the American market.  Increase of sales in other markets was considered a flicker of hope for Suzuki. Other scholars and business analysts feel that the extended struggle to survive in the American market was far from worth it. In fact, to them Suzuki should have left the American market decades ago.

A common belief is that Suzuki was not prepared for the market changes which included a new competitive edge. Left behind by growing and changing technology, the company was and is still playing catch up to other major automobile producers. Diminishing investment in research and development and increased reliance on partnerships for successful products is still considered a formula that led to the quick downfall of Suzuki.

 

Executive and management

The executive management led by the former CEO, Koichi formed the first top layer involved in the decision to pull out of the market. At the time, the management was tasked with the responsibility of negotiating the declining sales, the closure of dealerships and even the dwindling customer base for Suzuki.  Former CEO Koichi led the management team in 2004 for three years. He transferred to Japan after some exemplary performance in the American chapter. However, when trouble started looming and closure seemed imminent, the CEO was forced to return for another term to America. Despite several restructures, notable among them being the decision to actively pursue partnerships with General Motors and other fast selling brands; the company continued showing dismal results.

Faced with an uncertain future and unquantifiable risks, the Suzuki management realized that it was time to take some drastic steps in an attempt to save the company. In the year 2008 and 2009, research and development was stepped up. The idea was that with one singular winning product, Suzuki could keep afloat in the market. However Pol and Thomas (1997) show that, unfortunately, this did not work out and the company management faced an even bigger problem where many former partners resolved to dissolve their partnerships.  This was perhaps the biggest blow to a company whose main selling products came from partnerships. The loss of partners forced the board to go back to the drawing board and come up with alternative plans.

The executive management went for a strategy known simply as satisficing to make the decision. Normally managers are forced by their employer and their own requirements or targets to make optimal decisions. These are decisions that will bring success and profit to the company. However, with satisficing they choose from a limited sample of stakeholders to identify ways to respond. In the case of Suzuki, the company chose a limited number of dealers. What was found turned out to be the basis on which the decision to file for bankruptcy was based. A large percentage of the dealerships were in the process of closing down and many more would not be operational in the following year. The most active dealers sold less than three cars in the past year that is 2010. Based on this and other issues such as an increase in the number of creditors and unreliable flow of income, the executives chose to file for chapter 11 and shut down operations in America.

Dealers

Automobile manufacturers rarely if ever sell to their customers directly. Instead they operate through a number of independent entrepreneurial structures known as dealerships. In the year 2004- 2007, Suzuki experienced an increase of dealerships perhaps brought on by the appointment of the new CEO. Over time however, the glimmer of hope proved false as more and more dealers began experiencing difficulties. Products that were expected to take the market by storm proved disappointing and were almost always floored by competitors. Dealerships were having a hard time staying afloat in the market. Of course some dealers opted to move from this market to friendlier companies offering support such as Mitsubishi, (Kline 2005).

Despite the several alternatives put in place including changes in the supply structure for dealerships, still more and more dealers opted out of Suzuki contracts. The simple truth according to many dealers is that there was no hope of ever generating profits under such contracts. The dealers entered into the business because they believed with proper supply and maintenance, Suzuki products would transform the auto mobile market. However, after years of trying every alternative the investments proved to be null and void. In 2010, many of the dealerships recorded dismal sales which average three cars in an entire year. With more and more dealerships opting out of the market, they played a major role in forcing the hand of Suzuki. With few active dealerships, most of which were on the verge of collapse, the company had no choice to but to consider leading the market.

Shareholders

Shareholders have a claim on every decision made in the company. This is simply because when they buy shares they become owners of the company not just by name but also by action. When Suzuki faced problems in the American market and continued to have declining performance despite several costly investments, shareholders demanded to know what the course of expected action was. Of course at the beginning, the demand was for change to drive up the competitive advantage while the companies that are rigid to changes are left behind. This eventually can lead to drastic losses in profit and market share and at least bring in some sort of profit from the American charter.  According to Grasby (2000), the main interest of shareholders in this aspect was to generate some form of return from their investment. Shareholders pushed the management to work diligently to bring in even more profits. Some of the management teams were forced into early retirement and resignation as shareholders believed they were the reason behind dismal performances. For while especially in the five years between 2004 and 2009, the overhaul of management was constant.

Unfortunately majority of the stakeholders in Suzuki were operating under ambiguous information.  Whereas they understood and knew that the American Suzuki was in trouble, many were not completely aware of how much and the nature of trouble that the company was in. the information available to them came from conflicting reports and could be interpreted in multiple ways. This is perhaps the main reason why the many decisions and changes lauded by shareholders failed miserably. In addition, many of the times shareholders only got information when situations had reached emergency. Decisions needed to be made rapidly and as such provided no time for studying the various alternatives in place to deal with the situation.

In the end, shareholders were called in to approve the final decision by management to shut down operations in the American market. Surprisingly, the decision was not really put in as one of the options but as the only option for the company. In essence for shareholders of Suzuki to get any form of return and dividends, the American charter needed to go.  At least with the plan approved by court in March 2012 shareholders had the chance to recoup some of their losses (Aliber and Click 1993). With this plan in place, majority shareholders went ahead to approve the decision. Given the time available the shareholders could not consult each other on any other alternatives. Moreover even if the shareholders were granted enough time, the costs of obtaining the information could be deemed prohibitive. It is however to be acknowledge that the shareholders got information which had been thoroughly researched by experts hired by the company. Based on the confidence of the executives and advice of the experts, shareholders played a major role in ensuring that the decision to pull out of the American market was positively accepted by various stakeholders.

Factors that led to the decision

It cannot be said that the pulling of Suzuki from the American market was completely unexpected. For many, it was the only alternative remaining for the large multi-national company.  However to completely understand this major decision, it is important to understand the factors that led to it.

 

Product quality

Suzuki was a renowned manufacturer of small cars for families. Unfortunately with consumers, Suzuki never reached the expected quality of automobiles. It seems that the company was always one step behind when it came to innovative products. The cars did not appeal to the consumers and came with a variety of problems: one of which was excessive fuel consumption and lack of spare parts.  In 2002 in an attempt to redeem its failing lines of automobiles, Suzuki bought Daewoo. Many consumers thought and imagined that this was the breath of fresh air they needed and had requested from the company.  In the following year, automobile lines from the new company accounted for majority of the sales. Unfortunately, it took a short while for the quality of the new vehicles to come into question gain.

Along with the quality of the cars, reliability was also under par. Majority of the dealers felt that the vehicles were far from reliable. When new Suzuki brands were unveiled, they promised much but delivered very little. For example on the concept of fuel saving, the Suzuki Verona and Forenza were touted as the best. However, a few months into the market consumers discovered that this was not exactly the truth. Further majority of the lines of vehicles required constant maintenance and care, extra costs and efforts which the consumers were not willing to endure. With the economic times taking a downturn, Suzuki became one of the most unwanted brands in the market.

Poor strategizing

The fall of Suzuki America comprised of a set of poorly structured strategies, whose mistakes compounded until there was no solution possible. Business analysts indicated that it anything; Suzuki was plagued by over-confident managers who felt that they would definitely turn around the business. The 2004 Daewoo purchase proved that Suzuki was taking the related diversification seriously.  The expected outcome was a synergy between the small cars manufacture and production of the large vehicles which were in high demand in the American market. The research and development skills of Daewoo were employed in an attempt to bring fresh blood to Suzuki. Though it was successful in the short term, the unfortunate did happen where the main problems of Suzuki followed the new company. Quality, unreliability and poor branding all led to the failure of this strategy.

In 2009 Suzuki Koichi returned to leadership and elected a much higher risk strategy that is a low cost strategy. Suzuki expected to outbid its competitors by simply undercutting the process of the vehicles in the market.  Suzuki focused all the energy and all the functions on driving the cost of production down and therefore the price of the end product even lower. New products manufactured during this era such as the sports sedan, focused more on cutting the price. Taylor (2010) Organizations that adopt this strategy can sell a product for less than most of their rivals and still maintain a profit line.  However when credit and financing collapsed for the company, Suzuki was left vulnerable. Restructuring of finance patterns became impossible, profits margins decreased and new investments could not be financed. In the end, this strategy considered to be a last dying breath for the company became its undoing. Analysts felt that this strategy would have been successful three years earlier. As is the case for Suzuki, change came a little too late.

Collapse of partnerships

Thirty years ago, Suzuki entered the American market in partnership with General motors.  The Suzuki Company was branded as the ideal manufacturer of small vehicles. However, the company needed to tap into the American market hence the partnership with general motors.  Partnerships were directed at ensuring growth and maintained income during the difficult years for Suzuki. Of course each company had something to gain from the partnerships. The success of partnerships with GM led to research and of course signing of further partnership deals. The strategy was simple, the company sought out companies with products that appealed to the American market, financed the research and entered into a delicate partnership. At first the results were positive, with majority at least 60% of the sales coming from such partnerships.

In the last decade of Suzuki America’s partnerships began collapsing. Constant reports by the media on the low quality Suzuki products in the market became the initiative for many partners to opt out. The fear that the poor publicity of Suzuki would rub off on other lines of products, caused many partners to withdraw partnerships. The final blow came from the dissolution of the GM partnership. With many partners pulling out and majority of the sales coming from such partnerships; it became obvious that Suzuki’s future was far from certain in America. Of course the company was flourishing in other markets such as India and Asia. The decision to focus on the flourishing markets and partnerships was easy.

Quantitative analysis

The global market environment is changing; more effort is being directed towards building stronger economies. With employment rates increasing and falling rates of interest, the American market is facing a revolution. Change is coming, and in a few years it is possible that the Suzuki Company will regain its footing and return to the fertile American grounds. For a large multi-national company it is perhaps quite difficult and in fact almost impossible to ignore the American market. Global multi-nationals facing imminent failure have been saved by the American market.

However, the company will have to restructure completely in order to regain the trust of the American population. Troubles of the past are likely to plague the re-entry. Consumers will of course be skeptical as to the quality of products currently re-entering the market. This is why it is completely vital for the company to provide evidence of changes in management and even production. Proof of reliability needs to be established to ensure success in the American market. The company cannot continue to rely on the success in Asian and Indian markets to convince American consumers. There is need for re-branding to appeal to the American market. Target research in what the American consumers need and require from their cars is the first step towards ensuring future Suzuki does not fall into the trap for the former.

In the next decade, global automobile trends will have changed drastically. Plans for Suzuki to take advantage of such change are already underway. The company needs to invest more in research and development of new products. The old products may be successful in other markets; however, the American market has proved to be different in tastes and buying trends, (Perelman 1999).  For Suzuki to re-enter the market successfully, there is need to find the untapped American auto mobile needs. Targeted research is vital rather than the normal haphazard research that the company has seemed to carry out.  Planning for the future re-entry begins now rather than later.

Alternative strategies 

Suzuki had another alternative which simply included a complete cost re-structure. Much of the losses occurred from increased costs of production and distribution. The ideal alternative included a complete focus on cutting overhead costs which also included reducing the number of dealerships drastically. This may have meant closing off operations completely in some states but this would have been beneficial.

After the closure of Suzuki there were several alternatives offered, among them being sale of portions of the Suzuki American charter. Rather than complete closure, the company could easily have sold off some the parts of company and maintain the profitable sections.

Recommendations

When a company finds that it has fallen out of favor with the target market, it is time to consider re-branding. For Suzuki this would have been the most ideal strategy. It may have included spending more resources in publicity and also research. This would have further ensured that the consumer market slowly turns around and begins to accept the new products. Re-branding of Suzuki would have included the various marketing strategies. However, it is important to note that re-branding of the company needed to start small and targeted. That is, the company needed to do some bit more research on what the American consumers are demanding that it is not offering, (Colpan et al 2010). In this case, the American public continually demanded better quality and the company continually disappointed, Suzuki therefore became known as an unreliable brand. For purpose of re-structuring, Suzuki may have needed to unveil a product which though pricey could completely be proven reliable. Such a product would definitely draw back the interest of the consumers.

Re-branding also requires serious price cutting measures. During the difficult economic times that befell the entire globe, consumers including the American population opted more for cheaper products. A cheap vehicle would have drawn the interest of even the most skeptical consumers. Once such consumers prove reliability, the market comes rushing for the quality product. Suzuki therefore reliably transforms the poor brand and slowly becomes a to go to brand.

References

Aliber, R. Z., & Click, R. W. (1993). Readings in international business: A decision approach. Cambridge, Mass: MIT Press.

Blais, S. (2012). Business analysis: Best practices for success. Hoboken, N.J: Wiley.

Grasby, E., & Richard Ivey School of Business. (2000). Business decision making: Text and cases. Australia: Nelson, Thomsom Learning.

Kline, J. M. (2005). Ethics for international business: Decision making in a global political economy. London: Routledge.

Perelman, M. (1999). The natural instability of markets: Expectations, increasing returns, and the collapse of capitalism. New York: St. Martin’s Press.

Pol, L. G., & Thomas, R. K. (1997). Demography for business decision making. Westport, Conn: Quorum.

Taylor, L. (2010). Maynard’s revenge: The collapse of free market macroeconomics. Cambridge, Mass: Harvard University Press.