For decades, supply chain was invisible. A back-end office function nobody talked about. Then came COVID. Then the Red Sea crisis, and then the Iran-US conflict. Suddenly, the world realized that the country which controls its supply chain controls its future. ET Supply Chain brings you Movers and Makers, conversations with the people who are actually solving this. CEOs, chief supply chain officers, policymakers, the ones responsible for building India's supply chain from the ground up. My guest for today needs no introduction. But he deserves one anyway. He came to Maruti in 1987 when it was just a government dream and built it into India's most successful automotive company. Today, as chairman of Maruti Suzuki, he continues to shape how India thinks about building things. He has seen India's economy transform over decades, governments and global crisis, and he still believes that the best is yet to come. Welcome to Movers and Makers, sir.
India is now the world's sixth largest economy and the fastest-growing major economy. Manufacturing ambitions are at an all-time high, and if you talk about supply chain, it has suddenly become a geopolitical word. But if we strip away all this noise, in your opinion, is Indian manufacturing truly ready to carry that weight of ambition?
Manufacturing in India is not just the manufacturing OEMs. Manufacturing has to include the supply chain. You know, one of the earliest learnings when I joined Maruti was that I thought as a car maker, we can make most of the car. I didn't know much about the industry at all.
I very quickly learned that actually car makers are more assemblers than manufacturers. And in the case of Maruti about 75% of the components by value are bought out. So you can't be a competitive quality manufacturer of cars or airplanes or tractors or bicycles if you don't have suppliers
who will support you in the same manner.
So while we're talking about suppliers here, OEMs and suppliers, their relationship in India has largely been transactional. The buyer squeezes and of course the supplier has to comply. Why do you think this model is somewhere broken and what does a truly productive partnership look like to you?
See when it is a transactional relationship there is very little commitment on the part of the supplier to make investments in the long term so that over a period of time he can keep improving, doing R&D, developing new products for supply to his OEM because he doesn't know if he's going to be there 2 years from now. Whereas if you have a more partnership kind of approach where both are dependent they recognize that they're dependent on each other and they're going to be there together for the long term as partners then both will work to improve each other because both gain. If the vendor becomes better, I become better. If I become better, I sell more. If I sell more the vendor gets more business. And vice versa. So there's a big difference in the approach and the mindset of a transactional supplier
to a supplier who feels he's a partner with the OEM.
There's a long-standing belief, sir, that if you bring an OEM, the supply chain will follow. But, Maruti seems to suggest or let's put it this way, you seem to suggest something that's opposite to this belief. What did you actually have to build first and why does that sequencing matter?
when we started, there was not one component of Maruti which was made in India, available in India by anyone.
So, we had to develop all components. Some of the people who developed components were already manufacturers of components. But, they had to be persuaded that we were going to be a viable company and we would make our 100,000 cars a year
and they could start investing money in developing components for us.
But, for a lot of components, there was nobody around to do anything. So, we had to get new people who started new industry who had to be in a sense hand-held from the beginning on how to select even machinery and how to go about manufacturing, get technology, how to solve problems, how to do so many things. So, you had to develop your vendors with you, otherwise you couldn't do it. It still applies intensely because vendors are both tier one, tier two, tier three. And tier three vendors and tier two vendors are often very weak manufacturers.
They affect the quality of the final product. So, you still need to work with them.
Right. So, while you know, you've built an entire supply chain for Maruti yourself. Now, the industry has to do it all over again for EVs and most of the critical components are still imported. What do you think is harder this time?
See, what is harder this time is that the technology for a major component like a battery which is almost 40% of the cost of an electric car is not available. It's largely held by the Chinese. And they don't part with the technology just like that.
So, we have a big problem in that area. Other components which are few besides the battery are possible. But don't forget that a lot of the car electric car is very similar to the ICE car. And a lot of vendors are going to remain common anyway. But the real issue is the battery.
So, this brings to my next question. You mentioned in your paper that you know, India talks about self-reliance, but the dependency on imported components is still very high. While we have the intent, but localization still we think that we keep falling short of that. In your view, where do you think we are going wrong?
See, it's always been an easier route for a supplier to import components, assemble the product and give it to the OEM.
The price of the component covers the cost of the imported component. So, there's very little motivation on the part of the supplier to localize.
Over the years, we have been working with the local component manufacturers to localize and invest. And one of the incentives we give them is that if you bring down the cost by localizing a component, you can keep part of that benefit to yourself.
