TVS turnaround story

ENTREPRENEURSHIP MANAGEMENT


T h e s t o r y o f h o w i t W O N , L O S T A N D W O N A G A I N ! ! ! ! . .

ENTREPRENEURSHIP MANAGEMENT2

“A joint venture is a special

purpose vehicle set up by two

entities for the purpose of

learning. It will work as long

as both want to learn

different things. Once this is

achieved by either or bothpartners, it is time for

disengagement.”

- Venu Srinivasan, Chairman, TVS MOTORS on

TVS-SUZUKI breakup!


The Beginning!...

• T. V. Sundaram Iyengar was an industrialist, the founder of TV Sundaram Iyengar

and Sons group of companies.

• Humble beginning as a lawyer.

• Dumped two cushy jobs (in Railways and a bank) to realise his passion—Business.

• Vision to set up south India's first everrural bus service

• In 1911, he started off with a bus service in the southern temple town of Madurai.

• This laid foundation for road transport industry in the erstwhile Madras Presidency

through the states first bus service.

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Mr. Thirukkurungudi Venkata Sundaram(TV..S) Iyenger(1877-1955)


• He established the T.V. Sundaram Iyengar and Sons Limited in 1923.

• This paved the way for the genesis of the TVS Group.

• During second world war, To meet the demands of petrol scarcity in Madras

Presidency , Sundaram Iyengar designed and produced the TVS Gas Plant.

• He also started a factory for rubber retreading,

• Started as a single man’s passion soon became the business of a family.

• Sundaram Iyengar had five sons and three daughters, four other sons.

• Four sons T. S. Rajam, T. S. Santhanam, T. S. Srinivasan and T.S. Krishna —

became an integral part of the business

• There have been four largely distinct branches that have worked under the TVS

umbrella.

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• Group Diversified into

– two-wheelers

– automotive components

– automotive spares

– computer peripherals

– financial services.

• Group successful in - Automotive components and Two-wheeler businesses.

• By 2001, with 25 companies in its fold, TVS group emerged as India’s Third leading two-

wheeler manufacturers one among the top ten manufacturers of bikes

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TVS Iyengar

Rajam

Grandchildren

Holding co. TVS & Sons

Santhanam

Sons

Sundaram finance & Wheel

India

Srinivasan

Sons

TVS Motor Co TVS Electronics

Krishna

Sons

Sundaram Fasteners and Brake linings


Some of the TVS group companies are:

•Wheels India

•Brakes India

•Sundaram Fasteners,

•TVS Motor Company

•Sundaram Finance

•Turbo Energy Limited

•Axles India

•Sundaram Clayton

•Lucas TVS

•Sundaram Motors

•Sundaram Brake Linings

•TVS Logistics

•TVS Southern Roadways LTD


Sustainability factors

• The successive generations are groomed and prepared well so that they can

join the management.

• Family values make sure they are in a position to command respect, not

demand respect.“

• The entrepreneurship model could mean the subsidiary companies of the

earlier generation could serve as the parents of newer companies that could be

floated by the upcoming generation.

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• Example of Sundaram Clayton, which was, among other companies, the parent of TVS

Investments. In turn, TVS Investments floated TVS Electronics. And now TVS

Electronics owns Sravaana Properties.

• Business philosophy is based rigidly on four concepts –

– quality,

– service,

– reliability

– sense of ethics.

• It is this philosophy that has formed the cornerstone of corporate culture, over the past

87 years, helping in evolving TVS group into one of India's leading industrial houses.

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TVS MOTORS

• TVS MotorCompany Ltd. is the flagship company of the TVS Group

• TVS Motorwas founded in 1978

• TVS Motor has grown to be the largest in the group, both in terms of size and

turnover, with four state of the art manufacturing plants in Hosur, Mysore and

Nalagarh in India and Karawang in Indonesia.

• TVS Motor Company is the first two-wheeler manufacturer in the world to be

honoured The Deming Prize forTotal Quality Management.

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TIMELINE….

• 1978

– TVS motors alias Indian Motorcycle Pvt. Ltd is founded

• 1982

– Name changed to Indo Suzuki Motorcycles Pvt. Ltd, promoted by Mr. N.

Krishnan in collaboration with Suzuki Motor Co. Ltd. Japan; Sundaram-

Clayton, Ltd

– The company entered into a technical know-how and assistance

agreement with Suzuki Motor Co. Ltd., of Japan on 22nd September

– The name of the company was changed from Indo Suzuki Motorcycles

Ltd. to TVS Suzuki Ltd with effect from 18th August.

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• 1991

The technical aid agreement entered into with Suzuki Motor Co., Japan which expired in

August 1991 was extended for three more years with the approval of the Government of

India.

• 1992

The Company launched two new models of motorcycles viz. `Sumurai' and `Shogun‘.

• 1993

The Company launched a new model of moped viz. `TVS Scooty‘

• 1995

Proposed to introduce upgraded version of mopeds. In addition, during the year, the

Company undertookto develop new models of motorcycles.

• 1996

The company is taking steps to meet the increase in demand for its products and improve

the market share.

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• 1999

Suzuki has indicated to the TVS group of the Japanese company's interest in acquiring a

majority stake, it would allow Suzuki to set up a 100 per cent subsidiary.

• 2000

TVS-Suzuki Ltd on August 30th, formally launched its indigenously developed 4-stroke

motorcycle, TVS Victor, here. The price has been fixed at Rs 41,187.

• 2001

The TVS group and Suzuki Motor Corporation on September 27 parted ways from their

15-year-old joint venture with the former buying out the 25.97 per cent stake of the

Japanese companyforRs 9 crore.

• 2003

TVS MotorCompany has recorded a market shareof 35% from motor cycles division

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• 1997

TVS-Suzuki plans to set up an auto ancillary estate through joint venture with some of its

existing components suppliers. The proposed project is to come up at a new 57 - acre site

nearTVS-Suzuki's existing plant at Hosur.

TVS-Suzuki (TSL) - a joint venture between the TVS group and Suzuki Motor Corporation,

Japan - was the first company to launch a 100-cc motorcycle in the Indian market

• 1998

TVS Suzuki Ltd, one of the leading two-wheeler manufacturers in the country, has crossed

the Rs.1,000-croreturnovermark in 1997-98.

TVS will be the first company in the country to introduce the 4 stroke scooter in the Indian

market.

TVS Suzuki Ltd on October 1 launched its new generation 4-stroke scooter `TVS Spectra' in

Delhi

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SUZUKI GROUP• Suzuki’s history dates back to 1903, when Michio Suzuki founded Suzuki Loom Works

in Hamamatsu in Shizuoka, Japan.

• the company focused on the development and production of complex machines for

Japan’s silk industry

• In 1937, the company diversified into manufacturing cars for the Japanese market.

• Collapse of the cotton market in 1951 drove the company back to automobiles

• In 1952, it manufactured its first motorized bicycle called ‘PowerFree.’

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TVS-SUZUKI

• Suzuki entered India through the TVS Suzuki joint venture, originally incorporated as

Indian Motorcycles Pvt. Ltd in 1982.

• The company came out with a public issue in 1984 and was named as TVS Suzuki. In the

same year, the company launched its first 100-cc motorcycle, Ind Suzuki.

Initial Hiccups

• The company failed to turn this initial success of Ind Suzuki into sustainable profits

due to the high import content of the vehicle, and it posted losses up to 1986.

• The merger with Sundaram Clayton’s moped division provided temporary respite to the

company.

• In 1987, the company launched TVS-Champ the moped for the urban segment.

• TVS Suzuki was doing well in the moped segment, although the motorcycle business

was not picking up. 16


• According to automobile analysts, compared to other motorcycles in the market, TVS-

Suzuki’s products lagged behind in performance and fuel efficiency.

• Moreover, the company could not match the marketing aggressiveness of rivals like

Hero Honda, Kawasaki Bajaj and Escorts Yamaha, who garnered significant market

shares.

• TVS Suzuki posted losses consecutively for three years - 1989-91.

• In 1990-91, due to labour problems, the company had to declare a lock out for 3

months.

• In 1997, TVS Suzuki launched India’s first 5 speed motorcycle Suzuki Shoalin and

introduced the Suzuki Shogun with a catalytic convertor.

• Shoalin and Shogun failed to generate adequate sales for the company.

• Moreover, as the company could not meet the new emission norms

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Problems AplentyREASONS FOR THE DECLINE OF TVS SUZUKI

1) Outdated Two stroke engine technology

2) Poor fuel efficiency products

3) High capital cost as compared to Hero Honda and Bajaj Kawasaki .

4) Lack of timely technology and fund infusion by Suzuki

5) Differences between Suzuki and TVS motors over various aspects of

business

6) Lower market penetration and poor distribution and marketing efforts in

North India.

7) Poor dealer management

8) High level of market competition from technologically superior products like

four stroke engine bikes of Bajaj and Hero Honda .

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STRAINED RELATIONS - DANGER IN PARADISE

PART 1- THE DENIAL

• Differences between TVS and Suzuki first surfaced in 1992, when TVS approached

Suzuki for more funds and technology for new models, to meet the intensifying

competition in the motorcycle segment.

• Suzuki not only refused to provide funds and technology for the new models, but also

created road blocks to the management instead of helping them.

• “Everything without exception had to be approved by Suzuki.”

• Instead of getting new technology from Suzuki, TVS Suzuki had to re-engineer the

basic Suzuki models, which led to the launch of the Samurai and the Shogun.

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PART 2-COVERTLY AMBITIOUS SUZUKI

• The next major dispute between the two parties arose in the mid 1990s.

• Suzuki, which had around 26% stake in the company’s equity holding, expressed its

desire to increase the equity holding.

• Suzuki wanted to play a pivotal role in TVS Suzuki, by gaining sufficient management

control.

• Suzuki’s demands included-

1. Veto rights over all aspects of day-to-day management as well as in the strategic

decision- making process.

2. Restrictions on exports and high commissions on the exports made.

3. Stringent conditions to restrict indigenisation of components for future models

4. Compulsory imports of all dyes and capital equipment by TVS from Suzuki and

5. The minimum royalties to be paid for an indefinite period.

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The Conflict

• Suzuki’s efforts were not successful as Venu Srinivasan refused to agree to any

change in the equity holding pattern.

• Differences took a serious dimension when the TVS group CMD Mr Venu

Srinivasan approached the Prime Minister’s Office (PMO) to stall Suzuki’s efforts to

gain control of the venture.

• Letter to the PMO, claimed that Suzuki’s demands were motivated by a desperate

desire to seize control of the company.

• The government of India decided not to interfere in the matter.

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INTERIM RESOLUTION

• Both partners decided to bury their differences as neither could have afforded

to breakup at that point of time.

• Suzuki’s sales in Japan and Europe were on the decline, India emerged as a

major market for its vehicles.

• TVS also realized that developing new products on its own would require

significant time and funds.

• Further, it needed the Suzuki brand name to strengthen its hold in the Indian

motorcycle market.

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SUZUKI ‘S PASSIVENESS

• Over the next few years, Suzuki’s contribution gradually declined. Other than the two-

stroke Suzuki Max 100R, none of the company’s fast selling products received any

contribution from Suzuki.

• As Suzuki was not known for successful four- stroke models, it could not offer any to

TVS Suzuki either.

• As a result, TVS Suzuki lost out on the huge demand for four-stroke motorcycles in the

1990s .

• TVS-Suzuki had to rely on Suzuki for the technology and the kits for more or less all

successful products from TVS Suzuki were non-Suzuki product.

• The absence of Suzuki’s representatives at TVS-Suzuki's annual general meeting on

September 21, 2001 was a definite proof of the fact that ‘all was not well’ with the

partners

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• Furthermore, the recent strategic alliance between Suzuki and Kawasaki created a

conflict of interest for TVS , as Kawasaki had a successful joint venture with Bajaj in

India.

• TVS saw this move as a direct conflict of interest, since Kawasaki already had a

successful motorcycle joint venture with Bajaj in India.

• In early 2001, Suzuki and TVS separately applied to bid to buy the public sector firm

Scooters India,this f lared up rumours on the differences

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THE BREAK - UP

• On September 2001, Sundaram Clayton and Japanese automobile major Suzuki Motor

Corporation (SMC), partners in the joint venture TVS Suzuki (TVS Suzuki), announced

their decision to break-up.

• TVS bought the 25.97% stake of Suzuki for Rs 90 million, increasing its stake to

58.43%.

• Suzuki signed an agreement with TVS, according to which the existing licensing

arrangement was to continue for 30 months. TVS agreed to pay royalty to Suzuki for this

period

• Suzuki’s departure evoked mixed reactions from industry watchers about the future of

TVS Suzuki. Analysts commented that TVS’ in-house product development was not

good25


• TVS-Suzuki’s competitors as well as analysts went to the extent of writing off the

company’s chances of survival.

• The managing director of a rival company remarked, “It was practically a sick company.”

• Suzuki sold its stake to TVS for Rs 15 per share when the share was quoting

approximately Rs 90 in the stock market.

• Suzuki realized that it would not be able to get a majority holding in TVS Suzuki and

that it had only two options – either remain in the joint venture as a passive partner or

move out to explore other .

• Moreover, since the joint venture’s inception, Suzuki had invested only around Rs 60

million, whereas it had received around Rs 900 million in royalties and dividends over

the years. The stake sell-off thus did not seem to be a bad move.

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AFTEREFFECTS !!!!......

• In the motorcycle segment, TVS was now on its own to compete with the technical and

financial might of other Indo-Japanese joint ventures.

• TVS’s over-dependence on two-stroke technology was a definite handicap as the market

had almost completely switched over to four-stroke engines.

• Moreover, it was estimated that TVS would have to spend around Rs 2 billion to convert

to four- stroke technology.

• When consumers could choose from vehicles developed and produced by Japanese

companies which had superior brand image, TVS was seen as a company all set to fight a

losing battle.

• Only one Four Stroke model FIERO was hardly inspiring in trying times for the

company .Led to loss of market share rapidly .

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TURNING IT AROUND!

• Alarmed by dismal performance, TVS-Suzuki put in place measures to turn the

company around.

• By 1991-92, a turnaround strategy was formulated for execution .

• TVS-Suzuki decided to become a product-led company with strong focus on R&D and

production engineering.

• Embarked on an exercise of cost cutting , slashed manpower and controlled inventory.”

• Total number of employees reduced from 1855 in 1992-93 to 1272 in 1994-95.

• Efforts paid off as the company launched five new products in 1992-93.

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• Product launches wereaccompanied by an aggressivemarketing revamp.

• New Models - Suzuki Samurai , Suzuki Shogun, Suzuki Max 100, Suzuki Max 100R .

• The company paid special attention to the skill development of managers, sales officers

and service engineers.

• Dealerships weretransformed and theirnumberreduced to 250 from 400.

• TVS Suzuki interacted closely with the dealers to keep their motivation levels high and

also conducted customer-retentionprograms.

• In December 2001, TVS Motor Company opted for an early end to the licensing

agreementwith Suzuki and asked forexpiry of the agreement by the end of April 2002.

• Agreement resulted in substantial savings for the company in the form of royalty which

it would have had to pay Suzuki.

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• Besides building TVS as a brand, TVS Motor Company decided to reduce the product

development time from 24 months to 12 months and to improve the sales and service

programs at the dealers’ end.

• The fact that the company’s market capitalization had more than trebled to Rs 57.52

billion in January 2002 from Rs 18.44 billion three months earlier seemed to indicate

that the markets werereadyto accept the companywithout Suzuki.

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LAUNCHES THAT MADE THE STRATEGIES A SUCCESS

• 2001

Launched India's first fully indigenously designed and manufactured motorcycle.

• 2004

Launched the revolutionary VT-I engine for the best in class mileage in TVS Centra

• 2006

Launched TVS Apache - first bike to win 6 awards in a row

• 2007

Apache RTR - first two wheeler in India to have racing inspired engine and features.

• 2008

TVS Flame, TVS Scooty Electric Vehicle and Three wheeler TVS King launched.

• 2009

TVS Apache RTR 180 and TVS Streak launched.

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RESULTS

• Introduction of 4 Stroke engine technology led to production increase and market

penetration .

• Plant capacity enhancement resulted in greaterprofitabilityand market share.

• IT systems ensured that product development cycles were drastically reduced from 24 to

12 months.

• R&D ensured leadershiprole

• Quality won laurels for the company in the market space (Deming's prize)

• Energy managementled to savings of Rs 1-3 crs per year.

• Reduction of excess manpowerresulted in increased profitability .

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• Inventory management led to lower costs and provided an impetus to beating the

competition in securing a large market share .

• R&D ensured more models and product diversification was achieved at minimal costs

apart from ensuring leadership in the two wheeler segment.

• Aggressive marketing coupled with exploring of export markets expanded the market

penetration of TVS products .

• Product diversification ensured that market requirements were met in all categories of

two wheelers ( price ,age and choice requirements of customers)

• Third in India and one among the top ten in the world in two wheeler production .

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CONCLUSION

• TVS motors has come a long way across the tough terrain of business and is still going

strong in the market.

• Core principles of quality, reliability, sense of ethics and service have served as the

organization backbone ,helping it stand strong in difficult situations.

• An inspirational turnaround story of winning a losing battle with optimistic attitudes

striking down all odds.

• Its an exemplary exampleof survival in a competition drivenmarket .

•The case also highlights the plight of a joint venture going the wrong way due to self-

centered interestof a partnering firm.

•Even though losing on the 4-stroke market the firm has manage to surge to again become

the third largest two-wheelermanufacturer in India and is among the world's top ten

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BIBLIOGRAPHY

1. Ravindranath Sushila, Riding from the Ashes, Business India, 27 February, 1995.

2. Karmali Naazeen & Chandra Mohan.N, It’s TVS v/s Suzuki now, November 6, 1995,

Business India.

3. Sen Subhashini, TVS-Suzuki Rides into New Markets, Business World, December

11, 1996.

4. Ravindranath Sushila, The making of Spectra, Business India, September 7, 1998.

5. Prakash Dilip, TVS-Suzuki: the third coming, Business Today, December 6, 2000.

6. Ramesh. M., Mathematics of a TVS minus Suzuki, Business Line, September 28,

2001.

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7. Anand.M, Under Siege, Business World, March 19, 2001.

8. Madhavan. N., Using JV as a special purpose vehicle, Financial Express, October 8,

2001.

9. Narasimhan .M. S, TVS Suzuki break up --Where do other Shareholders stand,

Business Line, October 14, 2001.

10. Das Sanchita, Lone rider, now, Business India, October 15, 2001.

11. www.tvssuzuki.com.

12.http://www.hinduonnet.com/businessline/iw/2001/10/14/stories/0814h01t.htm.

13. http://www.hinduonnet.com/businessline/2001/09/28/stories/022807zu.htm

14. www.suzuki.co.jp .

15. http://www.hinduonnet.com/businessline/2001/09/27/stories/14270702.htm

16. http://www.hinduonnet.com/businessline/2001/09/27/stories/14270701.htm

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PRESENTED AND SUBMITTED BY

ASHISH KUMAR ANNEPU

DFT-7

ROLL NO-7

TVS turnaround story

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