Baleno will now be a Toyota vehicle

• Toyota will be launching Maruti Suzuki’s Baleno under their brand starting next financial year.
• Cross-badging is a concept that, in the past, has only yielded temperate results for automobile companies.
  
• That being said, Suzuki’s and Toyota’s respective competitive advantages are complementary to each other which may play in their favour.

A partnership that was cemented earlier this year between Maruti Suzuki and Toyota is bringing their first project to fruition. A crowd favorite, the Baleno will be the first vehicle to be cross-badged between the two companies.

In the first year, somewhere between 20,000 to 25,000 Maruti Suzuki Balenos will be shipped off to the Toyota Motor Corporation. The report by Mint indicates that this will be an annual exchange. Once Toyota has the cars, they will be selling them through their own dealership network starting Q1 of FY 2018-19.

Their respective competitive advantages are complimentary in nature but might not be enough to solve the dilemma of how successful cross-badging will be in India.

What is cross-badging?

To cross-badge a car essentially means launching the same car under a different brand with some minor alterations that are, more often than not, only superficial. Even with the Baleno, plans indicate that the car will undergo some interior and exterior changes that could include alterations to the head lights, tail lamps and the front grill of the car.

But, here’s the thing, cross-badging isn’t a concept that India is familiar with and past projects have performed the usual humdrum way. And, the Baleno isn’t the end of the road for Toyota either. The company has plans of launching Suzuki’s Brezza under their brand as well while Suzuki will introduce the Corolla under their banner.

Mutual benefits

This partnership utilises the competitive advantage of each company in a complementary manner. It’s essentially Ricardo’s trade theory playing out in real life where one entity trades its most efficient product against its counterpart’s most efficient product.

David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade even when one country's workers are more efficient at producing every single good than workers in other countries.

While Toyota has the hang of the executive sedan segment, they haven’t had much luck in the lower-end of the market. And the opposite is true for Maruti Suzuki.

It’s not that Toyota hasn’t tried. The Etios was their attempt at cracking India’s most high-volume segment of automobiles, but alas, the car wasn’t able to make a substantial mark. And, this isn’t only true with India. Toyota may be on the track to become to world’s third largest automobile player with investments all over the globe but they’re yet to capitalise in the densest markets around the world.

With the Baleno and the Brezza, Toyota will have another shot at making an impact in the competitive hatchback segment of automobiles in India.

More than dominating the market on product alone, economics of scale will also come into play once Suzuki starts manufacturing the Baleno from Toyota’s plant in Karnataka by repurposing the currently unutilised capacity of the hub.

And it’s not that Suzuki will get the short end of stick. More than using the Corolla to further expand their market share in the executive sedan segment, Toyota’s pool of knowledge, when it comes to electrical vehicles (EVs), holds greater utility for the company.

In the past, a similar partnership between Volkswagen and Suzuki didn’t yield any results. Partnerships have were also pursued between Volkswagen and Tata as well as Mahindra and Ford without substantial outcomes.

On the other hand, the Renault and Nissan alliance brought about the Renault Duster and Nissan Terrano SUVs. Even the partnership between Volkswagen and Skoda yielded the Volkswagen Vento and the Skoda Rapid. All these cars did decently well in this country. The Suzuki and Toyota partnership can thus work either way, we’ll have to wait and watch.