Mahindra Case Study

5/19/2018 Mahindra Case Study

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Mahindra and Mahindra in South Africa


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Mahindra & Mahindra

Mahindra & MahindraLimited is part of the Indian

Industrial Conglomerate

Mahindra Group based in

Mumbai.

Founded

1945

KeyPeople-:

J.C.MAHINDRA

K.C.MAHINDRA

G.

MOHAMMAD

KESHUB

MAHINDRA(CHAIRMAN)


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Automotive Industry HQ- MumbaiRevenue US$16.7

billion(2013)

Net income(US$670million) 2012

Employees 34,612

Major automobilemanufacturer of utility

vehicles, passenger cars,

pickups, commercial

vehicles, and two wheelers.

M&M has partnerships withinternational companies like

Renault SA, France and

International Truck and

Engine Corporation, USA.

Its global subsidiariesinclude Mahindra Europe

Srl. based in Italy, Mahindra

USA Inc., Mahindra South

Africa and Mahindra (China)

Tractor Co. Ltd.

Mahindra & Mahindra


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How Did They enter South Africa

Set up a 50:50 jointventure with a SouthAfrican company AfricaAutomotive Investment

Corporation in 2004.

launched Scorpio -sports utility vehicle

(SUV).

Imported vehicles from India.

Created Dealers anddistribution channel.


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SWOT Analysis

New ProductStrong, recognizable brandname: M&M.

Majority Customers werebuying non-European brands

Strength

Economic Crash

Competition between othercompanies.Weakness


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SWOT Analysis

Higher chance to spread the

reputation of the new product. Unfulfilled customer needs.

Advancement of technology.Opportunities

Possible shifts in consumer tastes.

Possible increase in trade barriersdue to the economic crash.

New trading regulations.Threats


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0

200

400

600

800

1000

1200

1400

1600

2005 2006 2007 2008 2009 2010

Mahindra and Mahindra Sales Volume

Bolero Scorpio Scorpio pick up Mahindra Thar Mahindra Xylo


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Which Approach is better?


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PEST ANALYSISSouth Africa

Political

MIDP-incentivized

export of vehiclesand components

APDP-incentivizedvalue addedthrough localproduction

Economical

Auto Industrycontributes about

7.5 to GPD

Industry picked upmomentum after3 yrs. of negative

growth

SA exportedvehicles to morethan 70 countries

Social

Population of 50.6million

Buying power ofblack

Africans(largestgroup) was rising

Preferred otherbrands over local

brands

Technological

SUVs Pickup

Trucks were apt

for SAAcquisition of

SsangYongfacilitated

enhancement inexisting

technology


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Government supportin the form of

subsidies or importduties for CKDs

(MIDP and APDPplans)

M&M pays 25%import duties forCBUs into South

Africa (where it is20% for CKDs)

If assembly weredone in South Africa,some components

could be substitutedfrom local market,

cheaper thanimporting.

Manufacturing in South Africa vs Importing Fully

Assembled Units


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As a trading companyonly, and having

brand awarenesswhich is not par tocompetitors like

Toyota, Mercedes,BMW, it is harder to

market and buildcustomer trust.

As entry barriers in tothe South African

market are high for

CBUtrading/importingcompanies, M&Mmight not meet itsstrategic goals of

using South Africa asa springboard for the

larger African market

Delivery times couldbe shortened.

(Delivery time due tomanufacturing in

India and shipment ofthe CBU takes twomonths, and could

lead to losingcustomers / proposals

especially in Africangovernments large

purchases)

Contd..


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Starting a manufacturing plant in South Africa

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This initiative can be realized as an FDI though:

Greenfield

Acquisition

Joint venture

M&M already has six assembly plants outside of India and is therefore experienced inmanufacturing and / or assembling its vehicles internationally. . In order to benefit from the

advantages of local manufacturing in South Africa, and establish the foundation for its

growth strategy in Africa, M&M should start manufacturing in South Africa.


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Greenfield investment

.

consistent with M&Ms mission of being a long term player

demonstrate to customers its commitment to the local market and attract salesby building trust, warranties, after sales service and help to build up brandawareness in the region.

.

Currently M&M SA doesnt have local manufacturing experience, and is missing local knowledge on themanufacturing market and resources.

Therefore, greenfield entry brings challenges on "Context specific resources... networks and relationships withother firms, with agents in distribution channels and with government authorities which are all importantassets.

.

Greenfield entry helps to capture many of the benefits of local production

Greenfield entry is probably the most expensive and slowest paying offinvestment. However, it's the best way if M&M is looking for Long termestablishment.


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Joint Venture

.

Joint venture entry would help M&M to benefit from all local manufacturing related advantages thatgreenfield entry would do.

In addition, the local partner would bring its experience in the local manufacturing, resources market,networks and relationships, all of which would result in a faster start of the entry process.

.

Setting up a joint venture could require less investment of funds in comparison to greenfield entry.

But the joint venture structure would still fall short of fulfilling the limit of 50,000 units per year production forthe government duty subsidy for the imported CKDs, and M&M would still have the CKD import dutydisadvantage against its competitors.

.

Another point is, M&M always wants to be the leading partner in joint ventures, and this mind-set can makethe management of the joint venture and execution of strategies harder and may result in anunderperforming organization.


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Acquisition

.

First of all, through the acquisition M&M will have access to all context specific

resources that were previously embedded in the local organization.

The acquisition will also give M&M the freedom to lead and manage its incentives tothe full extent, without any friction of other management unlike in a JV.

.

In addition, previously produced units can be added to M&Ms assemblies, and therefore this

could help to get the government subsidies on the CKD import duties by reaching the 50.000unit of production per annum threshold, or it will help them to reach this target earlier.

. Will acquisition require less or more funds than greenfield entry?This is unknown, but

assuming that there are suitable organizations that M&M can acquire, its the most appealing

option in line with M&Ms strategic goals, if their next step in South Africa is an FDI.


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Contracting in South Africa for Assembling

.

As South Africa opened its economy to international markets, and supported FDIs with clear andobjective legislation, intensified investments in the country, as an institutional framework it appears astrong and reliable figure for MNEs.

The acquisition will also give M&M the freedom to lead and manage its incentives to the full extent,without any friction of other management unlike in a JV.

. By contracting with a local assembler, M&M will enjoy all the benefits of local manufacturing; lead times will

be shortened, market and after sales service trust will be established, and some parts can be substituted withlocal components.

.

In contrast to the three FDI options above, contracting has the following advantages: economies of scale and

the CKDs import subsidy can easily be achieved under the assemblers production unit declarations; asmanagement involvement and organizational integration are minimal, management friction and corporate

culture clashes are at the minimum level and maybe the most important of all, contracting requires the least

entry investment in comparison to FDIs (a fraction of the cost).


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Conclusion

M&M has built its distribution network, after salesservices, and has experience on trading in South

Africa, and what it needs is an assembly operation,where it can also leverage economies in scale in low

volumes. In addition, to catch the economicmomentum, M&M knows that they should act fast.

Although resource constraints might not seem to be abig concern, the break-even point is. Therefore, M&Mshould choose the most economically feasible option

for its market projections. To realize its marketprojections, quick action and results are also

important.

Therefore, under the current situation given in thecase, the most viable option for M&M is to find a

partner that will work under an assembly contract,and assemble imported CKDs on behalf of M&M for its

African market.


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Thank You..

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Mahindra Case Study