Mahindra Case Study

 

Mahindra and Mahindra in South Africa

 

 

Mahindra & Mahindra Founded 1945 Key  People 

-:

J.C.MAHINDRA

K.C.MAHINDRA

Mahindra & Mahindra Limited is part of the Indian Industrial Conglomerat Conglomerate e Mahindra Group based in Mumbai.

G. MOHAMMAD KESHUB MAHINDRA(CHAIRMAN)

 

Mahindra & Mahindra  Automotive Industry

Net income(US$670 million) 2012

HQ- Mumbai

Revenue US$16.7 billion(2013)

Employees 34,612

Major automobile manufacturer of utility vehicles, passenger cars, pickups, commercial vehicles, and two wheelers.

M&M has partnerships with international companies like Renault SA, France and International Truck and Engine Corporation, USA.

Its global subsidiaries include Mahindra Europe Srl. based in Italy, Mahindra USA Inc., Mahindra South Africa and Mahindra (China) Tractor Co. Ltd.

 

How Did They enter South Africa Set up a 50:50 joint venture with a South African company Africa Automotive Investment Corporation in 2004.

launched Scorpio sports utility vehicle (SUV).

Imported vehicles from India. Created Dealers and distribution channel.

 

SWOT SWO T Analysis Analysis • New Product

Strength

Strong, recognizable brand name: M&M. • Majority Customers were buying non-European brands

• Economic Crash • Competition between other

Weakness

companies.

 

SWOT SWO T Analysis Analysis • Higher chance to spread the reputation of the new product.

Opportunities

• Unfulfilled customer needs. • Advancement of technology.

• Possible shifts in consumer tastes. • Possible increase in trade barriers

Threats

due to the economic crash. • New trading regulations.

 

Mahindra and Mahindra Sales Volume 1600

1400

1200

1000

800

600

400

200

0 2005

2006

Bolero

2007

Scorpio

Scorpio pi pick up up

2008

Mahindra Thar

2009

Mahindra Xylo

2010

 

Which Approach is better?

 

PEST ANALYSIS – South Africa Economical Political MIDPincentivized export of vehicles and components APDP-incentivized value added through local production

Auto Industry contributes about 7.5 to GPD Industry picked up momentum after 3 yrs. of negative growth SA exported vehicles to more than 70 countries

Social

Technological

Population of 50.6 million

SUV’s Pickup

Buying power of black Africans(largest group) was rising

Trucks forwere SA apt

Preferred other

Acquisition of SsangYong facilitated enhancement in

brands over local brands

existing technology

 

Manufacturing in South Africa vs Importing Fully Assembled Units 

Government support in the form of subsidies or import duties for CKDs (MIDP and APDP plans)

M&M pays 25% import duties for CBUs into South Africa (where it is 20% for CKDs)

If assembly were done in South Africa, some components could be substituted from local market, mar ket, cheaper than importing.

 

Contd..

As a trading company only, and having brand awareness which is not par to competitors like Toyota, Mercedes, Merce des, BMW, it is harder to market and build customer trust.

As entry barriers in to the South African market CBU are high for trading/importing companies, M&M might not meet its strategic goals of using South Africa as a springboard for the larger African market

Delivery times could be shortened. (Delivery time due to manufacturing in India and shipment of the CBU takes two months, and could lead to losing customers / proposals especially in African governments’ large purchases)

 

  Starting a manufacturing plant in South Africa  M&M already has six assembly plants outside of India and is therefore experienced in manufacturing 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.

This initiative can be realized as an FDI though: Greenfield Buy SmartDraw!- purchased copies print this document without a watermark. Visit www.smartdraw.comorcall 1-800-768-3729.

Acquisition

Joint venture

 

Greenfield investment  • consistent consistent with M&M’ M&M’ss mission of being a long tterm erm play player er  • demonstrate to customers its commitment to the local market and attract sales

.

by building trust, warranties, after sales service and help to build up brand awareness in the region.

• Currently M&M SA doesn’t have local manufacturing experience, experience, and is missing local knowledge on the

.

manufacturing market and resources. • Therefore, greenfield greenfield entry bri brings ngs challenges on "Context specific resources... networks and relationships with other firms, with agents in distribution channels and with government authorities which are all important assets.

• Greenf Greenfield ield entry helps to capture many of the benefits of local production • Greenfield entry is probably the most expensive and slowest paying off

.

investment. However, it's the best way if M&M is looking for Long term establishment.

 

Joint Venture  • Joint venture entry would help M&M to benefit from all local manufacturing related advantages that

.

greenfield 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.

investment of funds in comparison to greenfield entry entry.. • Setting up a joint venture could require less investment • But the joint venture structure would still fall short of fulfilling the limit l imit of 50,000 units per year production for

.

the government duty subsidy for the imported CKDs, and M&M would still have the CKD import duty disadvantage against its competitors.

• Another point is, M&M always wants to be the leading partner in joint ventures, and this mind-set can make

.

the management of the joint venture and execution of strategies harder and may result in an underperforming organization.

 

Acquisition  • First of all, through the acquisition M&M will have access to all “contex “contextt specific

.

resources that were previously embedded in the local organization. organization. • 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.

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

.

.

could help to get the government subsidies on the CKD import duties by reaching the 50.000 unit 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 t here are suitable organizations that M&M can acquire, it it’s ’s the most appealing option in line with M&M’s strategic goals, if their next step in South Africa is an FDI .

 

Contracting Contr acting in South Africa for Assembling 

• As South Africa opened its economy to international markets, and supported FDIs with clear and

.

objective legislation, intensified investments in the country, as an institutional framework it appears a strong and reliable figure for MNEs. t he freedom to lead and manage its incentives to the full extent, • The acquisition will also give M&M the without any friction of other management unlike in a JV. JV.

• By contracting with a local assembler, 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 with local components.

• In contrast to the three FDI options above, contracting has the following advantages: economies of scale and the CKDs import subsidy s ubsidy can easily be achieved under the assembler ’s production production unit declarations; as management involvement and organizational integration 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).

 

Conclusion M&M has built its distribution network, after sales services, 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 economic momentum, M&M knows that they should act fast.

Although resource constraints might not seem to be a big concern, the break-even point is. Therefore, M&M should choose the most economically feasible option for its market projections. To realize its market projections, quick action and results are also important.

Therefore, under the current situation given in the case, the most viable option for M&M is to find a partner thatimported will work CKDs underon anbehalf assembly contract, and assemble of M&M for its African market.

 

  Thank You..