Corporate Responsibility Strategy Development For Maruti Suzuki Management Essay

The report is on Corporate Responsibility practice currently in Maruti Suzuki India Limited, review of their performance and recommending a strategy which delivers positive value with a sustainable competitive advantage. Maruti Suzuki India Limited is major concerns are the labour issues caused by the contract, young and restless and the environmental impact.

With the awareness of environmental aspect, customers are shifting towards eco-friendly products and valuing product which are doing so. Regulation and global competition on becoming more environmental friendly organisation is pushing companies to do more on reducing consumption and waste.

The corporate responsibility issues in value chain across the three category Environmental , Social and Economic is analysed and is tabulated with the prioritised impacts. Then the current performance highlights of the MSIL in the Environmental , Social and Economic from their annual Corporate Responsibility Report. The short comes and areas of improvement are discussed.

With the issues and the present performance of corporate responsibility, a better responsible vision is created. A corporate responsibility strategy is developed to gain value.

Introduction

Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a subsidiary of Suzuki Motor Corporation, Japan. Maruti Suzuki claims to be the leader of the Indian car market for over two and a half decades. The company has two manufacturing facilities located at Gurgaon and Manesar, India. Both the facilities have a combined capability to produce over a 1.5 million vehicles annually. The company plans to expand its manufacturing capacity to 1.75 million by 2013. Maruti Suzuki contributes 45 % of total industry sales in India. Maruti Suzuki is the only Indian Company to have crossed the 10 million sales mark since its inception since 1983. In 2011-12, the company sold over 1.13 million vehicles including 127,379 units of exports. (Maruthi Suzuki, 2012).

The Company employs over 9000 people (as on 31st March, 2012). Maruti Suzuki’s sales and service network is one of the largest among car manufacturers in India. The Company has been rated first in customer satisfaction in the JD Power survey for 12 consecutive years (Maruti Suzuki India Limited, 2012).

Figure Maruti Vision and Core Values

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworksvision-banner-bottom.jpg

Source: (Maruti Suzuki India Limited, 2012)

Maruti Suzuki has gained several awards for organisation performance and products. Maruti is be the leader in the automobile industry in India and doing their best to improve in their performance.

Figure Certifications

Source : (Maruthi Suzuki, 2012)

Maruti has a strong presence of its network and availability across India. With a 1100 sales network in 801 cities and 2958 service station in 1408 cities.

Figure Maruti Domestic Presence

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworksmap.jpg

Source: (Maruthi Suzuki, 2012)

The Maruti started exporting since 1987, as of 2011 the total units exported was 863,380. Europe has the highest share with 55 % followed by Asia 17 % , Africa 16 % and Latin America 10 % . Recently they have started exporting to Oceania.

Maruti has expanded into Insurance , Finance , Used Care Sale and Fleet management keeping closely aligned with the core business. Maruti also has a Joint venture with its 19 suppliers who are considered to be vital among the 290 suppliers.

Maruti Insurance

Maruti Finance

Maruti TrueValue

N2N Fleet Management

While working to enhance shareholder wealth, Maruti Suzuki will regularly engage with all stakeholders to assess their needs and through its products, services, conduct and management initiatives, promote their sustained growth and well-being (Maruthi Suzuki, 2012).

There has been issues in the management do to the joint venture agreement between Suzuki and Government of India , until recently Government of India has sold its complete share to Indian financial institution. Due to the management changes and pose of job loses dude to the change there has been lot of unresolved issue with the work force. Since its first operations in 1983 there has been strikes , go slow protest by the labours. There have been many occurrence in the years 1984,1997,2000,2001,2002,2011 and 2012.

The recent incident at Manaser shock the whole industry, leaving one dead and 100 injured when more than 500 workers broke the office and set it on fire. The reason of this from the labour side is that the contract works get only half the salary of the permanent employees also claim harsh working conditions. Discriminatory comments to a low-caste worker by the supervisors. The management disagreed to the cast discrimination.

Corporate responsibility issues across value chain

Clean, lean and safe’ cars are not only societally desirable but they also have the potential to create a competitive advantage for the industry, insofar as they meet these consumer expectations, are affordable and address needs which are applicable to, and have to be addressed by, the global community as a whole (European Commission, 2006).

Environment Issues

Environment issue is mainly in the Manufacturing of vehicles, inbound component and part manufacturing and Logistics. Electricity is consumed in both inbound and operations and their back up power supply is powered by fossil fuel both leading to Greenhouse gas. There are waste such as Hazardous waste from the production, shredded metals and residue from raw materials, Oil and lubrication from operation and service, package materials and water waste.

Logistics is a major operation as the manufactured vehicles has to be delivered across the country and also to the harbour for exporting. With the just in time model the is an increases in the inbound logistic (India transport portal, 2010). The Fossil fuel is used for combustion and this leads to Greenhouse gas potential increasing the carbon foot print. Figure shows the important environment issues across the value chain.

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Figure Environmental issues across the value chain

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Social Issues

The recent incident in Manesar says more on the social issues which are involved with the workforce management. Even with the industry saying Maruti is best in wage payment they have workforce issue due to the contract workers, young and restless workers (Malini & Bureau, 2012). Figure shows the key social impacts across the value chain, in social all the issues are taken as important as failing to respond to it will damage the reputation and decrees the brand value.

Figure Social issues across the value chain

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Economic Issues

Economic issues concerns over the policies and the good practices in doing the business. The regulation which has to be obeyed in doing the action, this issue should not trigger company’s image as corrupt and spoiled. Figure show the key economic issues across the value chain.

Figure Economic issues across the value chain

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Review of Corporate Responsibility

Corporate responsibility practices of an organisation relies on the transparency of the practices as presented in corporate reporting and strategy documentation. Maruti Suzuki has well prepared and clear information on corporate responsibility which is published in their website and annual corporate responsibility report which are aligned to Global Reporting Initiative guidelines.

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworksbanner-1.jpg

Maruti Suzuki’s focus has been on growing together with its business partners. The Company is aware that in Giving support to its business partners on issues of sustainability, it will Get back in return manifold. This will naturally translate into an opportunity for Maruti Suzuki and all its partners to Grow together sustainably (Maruthi Suzuki, 2012).

Transparency

The corporate responsibility report generally tends to have its good deeds more on it and this is why there may be a lack in transparency. This report should be prepared as per the international Global Reporting Initiative (GRI) guidelines.

Based on environmental and social impact performance, Maruti Suzuki India Limited has received an overall Scientific Rating of 6.3, which is 26% higher than the average for all Company Ratings. Transparency related to environmental performance is 7.6 and Transparency related to social performance is 6.1 the full index is in the Appendix A (GoodGuide, 2012).

Corporate responsibility report can be made more reliable when there is a check and reliability check by external authority . Having more indicators to compare and asses the position of the company within the industry.

Environment performance

Maruti has significantly brought down CO2 emission per vehicle in car manufacturing. At the Gurgaon Plant, CO2 per vehicle in 2010-11 came down by 15% compared to the previous year while in Manesar facility, CO2 emission reduced by 13% during the year. Maruti uses Natural Gas for power generation, which further limits CO2 emission. The use of waste fuel of turbines to generate steam and compressed air also helped bring down CO2 emission per vehicle. Maruti has registered its first Clean Development Project with the UN Framework for Climate Change (Maruthi Suzuki, 2012).

In a significant initiative, a part of the hazardous waste generated at the plants is supplied to the cement industry where it is utilized for co-processing. The hazardous waste being sent includes paint sludge, phosphate sludge and ETP sludge. In all, 6,447 tons of such waste was sent for recycle/use in the cement industry in 2010-11, the first year of this initiative. The present landfills are also being emptied out, enabling efficient use of land within the facilities (Maruti Suzuki India Limited, 2012).

The 42% of the total water requirement was met through recycled and reused water in 2010-11.

Figure Environmental performance in 2011

Gurgaon plant

Manesar plant

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Reduction in

CO2 emissions

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworks13co2.jpg

Reduction in

CO2 emissions

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworks5wa.jpg

Less water used

In manufacturing

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworks16wa.jpg

Less water used

In manufacturing

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworkstree.jpg

25,000 Tree Planted

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworksled.jpg

LED lights for street

lighting and meeting rooms

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworksindex.jpg

6,447 tons of waste recycle/re used

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworkslo.jpg

76% of suppliers within

100 kms of radius

Source : (Maruti Suzuki India Limited, 2012)

Environmental performance can be increased by reducing the logistic in supply chain and transporting the finished product. Recycling of the cars after its life cycle, Maruti Suzuki has to do much in their environmental aspect when it is compared with the Global terms.

Social performance

Maruti Suzuki spends Rs 15.2 crore on social responsibility projects in 2010-11, an increase of 34.5 per cent over the previous year. Employee volunteers remained the driving force behind the Company’s social programs. They contributed about 2792 volunteer hours, at 24 volunteering centres. Road Safety is Maruti Suzuki’s (Q,N,C,F)* flagship national program for the society. The Company and its partners promote Road Safety by imparting driving training, awareness and advocacy (Maruthi Suzuki, 2012).

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The number of Maruti Driving Schools, set up and managed by its dealer partners, doubled to 166 during 2010-11. The Company also imparts driving training through Institutes of Driving Training and Research (IDTR), set up in partnership with state governments. These IDTRs trained 70,000 people during 2010-11.

While working to enhance shareholder wealth, Maruti Suzuki will regularly engage with all stakeholders to assess their needs and through its products, services, conduct and management initiatives, promote their sustained growth and well-being (Maruthi Suzuki, 2012).

The Company works closely with communities in four villages at Manesar. It runs education support centres, a computer literacy centres and vocational training programs including driving training, besides upgrading school infrastructure in these villages.

Figure Social initiatives

Maruti Suzuki is one of the best paid companies, with the economic and drops in sales figure it has been put in tough times. There have been rising issue with the management and labour in the past and in July 2011 the works broke the office in Manesar plant and set it on fire with took a life of a senior executive and left hundreds injured. This issue are due to the lack of management attention , having contact workers , young and restless workers. The loss in lockout of Manesar plant was more than 1 billion rupees (India CSR, 2012).

Economic Performance

Maruti Suzuki strongly believes in sustained business growth and works towards the well being of its direct stakeholders. It makes far-reaching investment decisions taking into consideration unmet customer needs, market growth potential, upcoming regulations and long term sustainability of the Maruti and its various stakeholders (Maruthi Suzuki, 2012).

Maruti Suzuki is investing over Rs. 60,000 million in new manufacturing facilities, expansion of R&D infrastructure and vehicle stockyards. Maruti registered its highest ever sales of 1,271,005 vehicles in domestic and export markets in 2010-11.Company’s sales in the domestic market crossed the one million vehicle milestone for the first time in with the sale of 1,132,739 units, a growth of 30.1% over the previous year.

Figure Economic performance

ECONOMIC DIMENSIONS

ACHIEVEMENTS 2009-10

ACHIEVEMENTS 2010-11

CHANGE

Domestic Sales (nos.)

870,790

1,132,739

30.1%

Export Sales (nos.)

147,575

138,266

-6.3%

Total Sales (nos.)

1,018,365

1,271,005

24.8%

Net Sales (Rs. mn)

289,585

361,282

24.75%

Profit After Tax (Rs. mn)

24,976

22,886

-8.3%

Reserves and Surplus (Rs. mn)

116,906

137,230

17.3%

Market share (A+B+C)*

44.6%

44.9%

0.3 %

Contribution to national

exchequer (Rs. mn)

51,442

71,343

38.6%

Expenditure on R&D (Rs. mn)

1,733

4,163

140.2%

Expenditure on CSR (Rs. mn)

113

152

34.5%

Source : (Maruti Suzuki India Limited, 2012)

Developing Better Vision

With rapid economic growth and investment in new capacities, skill development is critical for the country and the manufacturing sector. While this requires a concerted effort at the national level, Maruti Suzuki is doing its bit in this area as part of its CSR program.

With learning from the past Maruti has an issue which impact social dimension which in turn affects the economic dimension. With the growing awareness of environment, failing to act will bring in issues in long term.

Stage 1 Maruti has its value since its launch and is said to be “India’s Pride ” , on environmental impact the have to improve their indicators. Environmental and social performance can be only improved if the people who are involved are willing to bring in the process. They have ISO 14001:2004 Environment Management System Certificate for Gurgaon and Manesar Plants, Figure bring in the Human resource factor in the ISO 14001 in the stages will help in effective engagement of people.

Figure Sustainability through human resource factors

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCoursework14001.jpg

Source : (Bonnie & Su-chun, 2001)

Stage 2 Redesigning process, product and business to gain value, one of the causes for manesar Plants incident was the lack of ownership and executive decision. With the past experience the should be new process in place to avoid such fatal risk. Creating new ways for improving efficiency, adding more value for the customers will be achieved only with the interest of the stakeholders. Innovation in more energy efficient cars ,

Stage 3 and 4 are with the innovation and expansions of business aligning to its core business. This can be new venture dealing with the cars after their life cycle, this could bring in more value and reduce the waste.

To have an effective execution of the vision there should be an integrated and systematic in the five critical areas.

Figure Vision

Vision

Developing Corporate Responsibility Strategy

The Corporate responsibility strategy could be implemented in 3 years addition along the way.

Corporate Responsibility Drivers

Stakeholders including consumers, investors, and employees pay increasing attention to the social and environmental footprints of business and corporate-responsibility (Bhattacharya, et al., 2011). The drivers for the corporate responsibility are

Growing concern of the environment.

Social wellbeing of the workers.

Customers preference of products which are efficient and environmental friendly

To improve the brand value

Key Issues & Objectives

Improving workforce management by collaborating with the associations and satisfy the genuine needs of labours.

Improving executive task ownership and responsibility through having a structure.

Improving community through local hiring, working with NGO’s to run education and health camps.

Educating good driving habits through Road Safety Initiatives and Maruti Driving Schools.

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Compiling with governing body and organization for environmental impact assessments, social impact assessments and internal management systems.

Research and development on bring out more efficient vehicles.

Targets and Key Performance Indicators

Training 3,00,000 people on Safe driving.

Opening 50 more Maruti Driving Schools.

Reducing CO2, electricity and water consumption by 3 % per vehicle in both the manufacturing plants.

Improve workforce welfare, avoid strikes.

To have 75% of suppliers with ISO 14001 certification.

Reducing packaging material by 5 % and using bio degradable packaging material.

Reducing employee injury rate by 10 %.

Governance & Stakeholder Engagement

Maruti has a well-structured organization with good communication channel to perform.

Figure Corporate governance structure

F:MBAModulesSem 2NBS-M019 – CORPORATE RESPONSIBILITYCourseworkcorprategor.jpg

Source : (Maruthi Suzuki, 2012)

To have an effective Corporate Responsibility there should be good engagement across all levels with the understanding about it. The Board of directors who look into the whole CR function and discuss with the committees for prioritising the issues and key activities. These committees are different for economic, social and environment they are responsible for the distributing the roles and responsibility to the staffs , achieving targets and reporting to the Board of directors. Control and audit looks into the performance of staffs, changes in the global stage and benchmarking.

Figure Governance, Accountability and Reporting Structure

Remuneration of executive and employees for achieving their targets will motivate them to carry on the good work.

The Stakeholder engagement can be improved by does the activities in Figure Stakeholder engagement activities

Figure Stakeholder engagement activities

Stakeholder

Activity

Shareholders and Investors

Annual General Meeting

Investor Meets

Suppliers

Product Meeting

Joint Venture HR Meeting

Dealers

Balanced Score Card

Dealer conference

Zone Meeting

Social

Meetings with Community

NGO’s meeting

Environment

Regulatory Authorities

Community Feedback

Management Systems

The process of managing the sustainability should be headed by the Board of directors having the knowledge of the prioritise issues and key activities. Management communities get in the views and concerns from various elements, they then asses the importance and benefit of performing the action on it. The also look in for possible risk which will affect them. These are taken into account in the planning stage itself. Environmental , social and economic impacts should be open to scrutiny by government agency , independent regulatory bodies and other firm in order to have a transparency and increasing the confidence of the reliability in the performance figures. The risk management activity is reviewed by the Audit Committee through a management subcommittee, namely the Executive Risk Management Committee. It reviews risk management activities on a regular basis, in addition to scanning for emerging risks.

Economic

Social

Executive Risk Management Committee

Board Of Directors

Assessment by Authorities and outside firms

Environmental

Stakeholder Concerns, Business Impacts, Risks And Opportunities

Management Committee

Adapted : (Maruthi Suzuki, 2012)

Risk

Risk is caused both from internally driven and externally driven.

Figure Maruti Risk

Economic Risks

Environmental Risks

Systematic financial failure

Labour Strike

Competitor

Economy slowdown

Carbon Positioning

Flood and Land Slides

Plastic waste

Earthquake

Land and water use management

Geopolitical Risks

Societal Risks

Government Changes

New policies and regulations

Water supply crises

Power supply crises

Fire and Safety

Reputation

Technological Risks

Failure of IT system

Cyber attack and Data privacy

Conclusion

Maruti corporate responsibility is performing good at the moment when compared to its competitor in the domestic region. The major issue in the social are the labour unrest. With the improved vision the company will bring in more value. The process is improved with implying human resources factors and managing the at all levels. Transparency is gained by allowing the external firms and authorities to scrutiny. The new corporate responsibility strategy is aligned to the existing activities and issue. Stretching the environmental performance figures will gain brand value and compete with the international industry level .

Bibliography

Bhattacharya, C., Danie, l. K. & Sankar, S., 2011. What really drives value in corporate responsibility?. [Online]

Available at: http://www.mckinseyquarterly.com/What_really_drives_value_in_corporate_responsibility_2895

[Accessed 11 12 2012].

Bonnie, F. D. & Su-chun, H., 2001. Achieving sustainability through attention to human resource. International Journal of Operations & Production Management, 22(12), pp. 1539 – 1552.

European Commission, 2006. A Competitive Automotive Regulatory System for the 21st century, Belgium: Office for Official Publications of the European Communities.

GoodGuide, 2012. Maruti Suzuki India Limited – GoodGuide Ratings. [Online]

Available at: http://companies.goodguide.com/l/121398/Maruti-Suzuki-India-Limited

[Accessed 11 12 2012].

India CSR, 2012. Lockout in Maruti’s Manesar Unit Costing Rs 90 crore Per Day: Assocham. [Online]

Available at: http://www.indiacsr.in/en/?p=7334

[Accessed 10 12 2012].

India transport portal, 2010. A peek into Maruti’s supply chain management. [Online]

Available at: http://indiatransportportal.com/2010/12/a-peek-into-maruti%E2%80%99s-supply-chain-management/

[Accessed 09 12 2012].

Malini, G. & Bureau, E., 2012. Four reasons behind Maruti Suzuki’s Manesar problems. [Online]

Available at: http://articles.economictimes.indiatimes.com/2012-07-22/news/32777541_1_maruti-suzuki-s-manesar-maruti-s-manesar-shinzo-nakanishi

[Accessed 09 12 2012].

Maruthi Suzuki, 2012. Awards. [Online]

Available at: http://www.marutisuzuki.com/sustainabilityreport/certifications.html

[Accessed 10 12 2012].

Maruthi Suzuki, 2012. Maruthi Suzuki Sustainability Report 10-11, Gurgaon : Maruti Suzuki India Limited .

Maruti Suzuki India Limited, 2012. About Us. [Online]

Available at: http://www.marutisuzuki.com/about-us.aspx

[Accessed 11 12 2012].

Maruti Suzuki India Limited, 2012. Annual Report 2011-12, New Delhi: Maruti Suzuki India Limited.

Maruti Suzuki India Limited, 2012. Environmental Performance. [Online]

Available at: http://www.marutisuzuki.com/sustainabilityreport/environmental.html

[Accessed 10 12 2012].

Maruti Suzuki India Limited, 2012. Sustainability approach. [Online]

Available at: http://www.marutisuzuki.com/sustainabilityreport/sustainability-approach.html

[Accessed 10 12 2012].

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