Page 184 - DMGT519_Conflict Management and Negotiation Skills

Conflict Management and Negotiation Skills

Notes
the Japanese market. But due to the Second World War it had to stop the production of cars
and concentrated on the manufacture of the looms.
The company shifted its focus back to automobiles with the termination of war and collapse of
cotton market in 1951. In 1952 it manufactured its first motorized bicycle called 'Power Free'.
In 1954, the company changed its name to Suzuki Motor Co. Ltd. and was by then producing
around 6,000 cars per month. With 57 production centers all over world, its manufacturing
and assembly network expanded to over 26 countries all over the world. Company
established 22 automotive manufacturing facilities in 17 countries. Suzuki's vehicles were
sold through 134 distributors in 175 countries. By March 2001, Suzuki's net sales were ¥
1,600, 253 billion and it was one of the top 5 automobile manufacturers of the world. MUL
manufactured passenger cars at its factory in Gurgaon, Haryana with an installed capacity
of 350,000 vehicles. The first product, Maruti 800 was launched in 1984. Consumers hitherto
without any choice rushed to buy the vehicle. Maruti 800 earned the tag of being the
'people's car...'
The Conflict

SMC had raised its stake in MUL to 40% in 1987 and to 50% subsequently in 1992. As MUL
ceased to be a government unit, SMC began managing the company, with MD R.C.
Bhargava (Bhargava) taking directions from Japan.
As R.C. Bhargava reportedly shared a good rapport with the secretary and other higher
officials at the Industry ministry, the relations between SMC and GoI remained cordial.
The first signs of dispute surfaced in late 1993, when SMC proposed a Rs 2,200 crore
expansion and modernization plan. The plan envisaged increasing the production by
1,00,000 vehicles to effectively meet the growing competition in the sector. The Heavy
Industry secretary Ashok Chandra and the Finance secretary, Montek Singh Ahluwalia
suggested SMC, in an informal discussion, to go in for a public issue to raise the finance for
the expansion plan. Though initially SMC was reluctant to go for a public issue, Bhargava
managed to persuade it in 1995 for the same. However, things changed with K.Karunakaran
(Karunakaran) becoming the Union minister for Industries in 1995...
The MUL Disinvestment Issue
In late 1999, following the recommendations of Disinvestment Commission, the GoI
announced its decision to divest its stake in MUL. The GoI decision was a part of its
industrial policy to privatize PSUs through gradual disinvestment or strategic sale. The
first phase of MUL's disinvestment was to start with a Rs 400 crore rights issue with
renunciation option for the government, in December 2001.
The second and final phase of MUL disinvestment was to be completed by the end of 2002,
wherein GoI would divest its remaining equity holding in MUL through a public offering.
The GoI was to sell its interest to the best bidder at a premium. However, subject to a
clause in the MUL joint venture agreement, the GoI could not sell its stake without the
written consent of SMC. This was expected to complicate the disinvestment process of
MUL. In January 2002, the GoI announced its willingness to renounce its portion of the
rights in favour of SMC during the rights issue. The negotiations between the GoI and
SMC to fix the renunciation premium and the control premium were scheduled to begin
in January 2002. GoI was reportedly hopeful of getting a substantial 'control premium' for
letting SMC get MUL's full control...
Question:
Analyse the case and Discuss the Case Facts.
Source: http://www.icmrindia.org/casestudies/catalogue/Business%20strategy1/The%20Maruti%
20-%20Suzuki%20Conflict.htm

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