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Suzuki to work more closely with MUL

By K. T. Jagannathan

CHENNAI APRIL 2. Even as Suzuki Motor Corporation (SMC) waives royalty on five Maruti models and slashes transfer price by 10 per cent on inputs and components supplied by it, the Japanese company is reported to have indicated to the Government that it will work far more closely with the joint venture Maruti Udyog in design and development.

This strategic commitment stems from a realisation that MUL could prove a critical component of Suzuki's gameplan in the international arena. The series of quality upgradation and cost cutting initiatives has helped MUL hold on to its dominance despite competition from Ford and Hyundai.

Given this backdrop, Suzuki, it is believed, sees a pride of place for MUL in its scheme of things. Further, MUL is claimed to be successful among overseas ventures for Suzuki till date.

Suzuki, it may be mentioned, has decided to forego royalty on Maruti 800, Zen, Omni, Gypsy and Esteem. The decision, nevertheless, comes on the eve of the Union Government, the joint venture partner in MUL, readying to further dilute its holding in the venture.

Official sources indicated that the choice of models for royalty waiver "is taken at the highest level". The royalty on these models is reported to be very high since it hinged on the `localisation' levels in them. Further, these five models are also volume-fetching ones for MUL. Ipso facto, these models fetched higher royalty for Suzuki.

Though official sources said that the Suzuki move on royalty and transfer price fronts would not have any significant near-term fallout on their selling prices, they, nonetheless, admitted that the gesture could see MUL bottomline benefiting to the tune of Rs. 40 crores. MUL paid a royalty of Rs. 117 crores to Suzuki in 2001-02, up from Rs. 62 crores in the preceding year. The Suzuki gesture is also expected to make the MUL share attractive as the Government goes through with the promised second phase of its disinvestments through an initial offer to the public.

It is not immediately known how will the cut in transfer price impact MUL's bottom line. ``It is, however, linked to the cost down exercise being carried out in Japan, similar to the Challenge 50,'' official sources explained. During 2001-02, MUL imported raw materials and components worth Rs.943.50 crores. This included a substantial import of steel, though not from Suzuki.

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