MARUTI-SUZUKI: Failure of Corporate Governance Case
(Gujrat Based Plant )
Shrund Kalse: A-30
Atif Ghole: C-29
Business Ethics & Corporate Governance
About Maruti-Suzuki Gujarat Plant
• Maruti Suzuki had acquired 1,190 acre of land
in Mehsana district (approximately 640 acres
in Becharaji & 550 acres in Vithalapur) in
Gujarat in 2011 for its expansion plans
• Japanese parent Suzuki Motor Corporation would
invest $485 million in a wholly owned manufacturing
facility in Gujarat to make cars and other vehicles on
contract for sale by its listed Indian subsidiary, an
arrangement that jolted its investors because of its
• Maruti had taken advantage of regulatory ambiguity, as
certain sections of the new Companies Act
• the company begins to strategically shift its business
model from manufacturing to distribution
More than mere shareholder issues, Suzuki's decision to run its Gujarat
plant as a 100 percent subsidiary brings larger benefits for
both Maruti, Suzuki and India.
(More of Maruti Suzuki's shareholders may be joining forces against
what they see as the Japanese parent's intransigence over the new plant in
• The Japanese company will own the factory with
production being earmarked for the local unit as this
will shield it from the need to lock up Its own funds.
• Therefore, more of Maruti Suzuki's shareholders may
be joining forces against what they see as the Japanese
parent's intransigence over the new plant in Gujarat.
• Stakeholders fail to see how this benefits India's largest
car maker by volume.
• Mutual fund houses and insurance companies are
planning to unite against the decision, said people
aware of the development.
Why Corporate Governance Fail?
wealth in the
• There seems to be some short-term
disappointment among traders, who expected
the stock to rise further. The stock had been
rising for four months since October till the
announcement was made.
• Many traders cut their bullish bets on Maruti.
• The huge cash flows generated by Maruti are
expected to be used for research and
development and expansion of distribution