This underscores the cost competitiveness of the Indian operations and the rationale for making India a hub for outsourcing small cars. The sharp jump in Maruti’s exports this year already reflects this. In the eight-month period between April and November, Maruti’s exports have risen by 126% to 91,731 units. The firm plans to increase its capacity and one of the factors that will drive the decision on how much additional capacity would be put up is the outsourcing opportunity.

Graphics: Yogesh Kumar / Mint

From Volkswagen’s perspective, the partnership will give it the best possible footprint in India. It will become the single largest shareholder in Suzuki, which enjoys at least 50% share of the Indian market. While the launch of its small car, Polo, may enable it to increase its share in the Indian market, its partnership with Suzuki will immediately increase its presence in India. Currently, 90% of its volumes in the Asia-Pacific region comes from the Chinese market, and India accounts for only 1.2%. Apart from the Indian market, it will also get a presence in Indonesia and Pakistan thanks to the partnership.

Volkswagen also brings with it strengths in the area of diesel engines, luxury cars and a strong presence in the European market. Suzuki and its affiliates will benefit from this expertise. Besides, a large chunk of the money received by Suzuki will be invested in research and development, and Maruti is likely to benefit from the trickle-down benefits.

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