Partnering for Emerging Markets Focus on India

(The case of M&M in Auto Industry)

Source: Presentation of Dr. Pawan Goenka, President - Automotive Sector, Mahindra & Mahindra Ltd.

Mahindra : An Introduction
Conglomerate with over 6.5 bn USD in revenues
Strong presence in six business verticals
Leading presence in the automotive business for

over 63 years
Lineage to the legendary Jeep
Sales of over 1,80,000 vehicles in FY07
Indias largest SUV/UV player
Alliances with Ford, Renault and International
Truck

The India Opportunity

12th largest economy in
terms of GDP
3rd largest economy in
PPP terms

Source :World Development Indicators database, World Bank, 14 September 2007

The Indian Automotive Market

11th largest car market

4th largest CV market
2nd largest 2W market
Largest tractor market
Largest 3W market

Demonstrated Strong Growth

1,848

Four wheeler market

In 000 vehicles

379

CVs + Cars + Uvs

Source : SIAM
F94

F95

F96

F97

F98

F99

Auto components
$ billions

F00

F01

F02

F03

F04

F05

F06

F07

15.0

3.1

Source : ACMA

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Future Growth Drivers

Strong GDP growth

Rapidly improving infrastructure
Rising disposable incomes
Favorable demographics
Willingness to spend
Easy finance availability
Replacement of ageing vehicles

AMP 2016: A Vision for Automotive

Industry in India
Revenue 35 to 145 bn USD
Exports from 4 to 35 bn USD
Vision 2016
By 2016, India will emerge as the destination of
choice in Asia for the design & manufacture of
automobiles and automotive components. The
output of the Indias automotive sector will be
US$ 145 billion by 2016, contributing to 10% of
Indias Gross Domestic Product and providing
employment to 25 million persons additionally.

Its Not Volume Growth Alone

A global marketplace
Very competitive market
Technology upgradation
Stringent emission and safety regulations
Frequent launches of new models
Low cost sourcing
Increase in exports

8 out of top 10 global companies

have India presence

They contribute 60 % of global production

but
25 % of India Production

Source : World motor vehicle production by manufacturer : World Ranking 2006 OICA July 2007 and SIAM data Apr-Mar 2007

Global vs. Indian Top 5

1.
2.
3.
4.
5.

GM
Toyota
Ford
VW Group
Honda

1.
2.
3.
4.
5.

Maruti Suzuki
Tata Motors
Hyundai
Mahindra
Ashok Leyland

Source : World motor vehicle production by manufacturer : World Ranking 2006 OICA July 2007 and SIAM data Apr-Mar 2007

Strong Capabilities of
Indian OEMs

The $ 2,500 Car (The NANO)

Very Competitive Market

From 20 models available in year 1995 to
93 available today (Not counting the variants)
60 new launches planned in 2008

Source : Autocar India, The Economic Times, Dt. 26 Dec 2007

Suppliers in India
MNCs

MNC-JVs

MNC Alliances

Indian

Recent Newsmakers

3Cs of Global Collaboration Strategy

Cost

3Cs

Capability

Context

Source : Innovation through Global Collaboration: A New Source of Competitive Advantage, Alan MacCormack, Harvard Business School

Benefits from Collaboration

Lower Costs

Superior Capabilities

Contextual Knowledge

Low cost labor

Rapid access to capacity

Market access

Low cost materials

Technical know-how

Supplier relationships

Low cost suppliers

Process expertise

Institutional ties

Low cost infrastructure

Domain knowledge

Government connections

Strength of Indian partner

Strength of MNC

Source : Innovation through Global Collaboration: A New Source of Competitive Advantage, Alan MacCormack, Harvard Business School

Partnership Options
Licensing

Tactical JV

Strategic JV

Escort service
Product based
Asset based

Comprehensive
across the value
chain

Automotive Value Chain

Design

Engineering

Sourcing

Manufacturing

Channel

Scope of Collaboration
JV Management

Investment

Contract
Mfg.

Channel

Contract
Mfg.

Channel

Product
Dev.

Sourcing

Contract
Mfg.
Royalty

M&M Capability

M&M Evolution

Licensing

Scope of Collaboration

Design

Licensing
M&M Case : Peugeot
Design

Engineering

Sourcing

Manufacturing

Channel

Mid 80s
Technical license for engines, and transmissions
Deliverables
M&M
: Aggregates and related technology
Peugeot : Brand building, Commercial benefits

Pure limited life commercial transaction

As M&M matured, need diminished

Tactical JV
M&M Case 1 : Mahindra Ford (50:50 JV)
Design

Engineering

Sourcing

Manufacturing

Channel

Mid 90s
Ford Escort assembly at M&M plant
Deliverables
M&M
Ford

: Market knowledge, Capacity, Relationships

: Product engineering, Processes, Know how

Asset based partnership, as partners matured,

need diminished
JV could have graduated to a higher level, but for the
Scorpio development

Tactical JV
M&M Case 2 : Mahindra Renault (51:49 JV)
Design

Engineering

Sourcing

Manufacturing

Channel

2005 : Product specific JV for Logan

Deliverables
M&M

: India knowledge, capacity, channel, relationships,

engineering support, JV management
Renault : Product, Engineering for India, Global processes,
Purchasing organisation

Asset based partnership but structured to meet both partners

differing aspirations
Could graduate to a different level

Strategic JV
M&M Case : Mahindra ITEC (51:49 JV)
Design

Engineering

Sourcing

Manufacturing

Channel

2005 : Comprehensive global CV tie-up

JV designing full range of CVs from scratch
Deliverables
M&M
ITEC

: Market knowledge, PD skills, LCVs, Capacity,

Relationships, Sourcing and Engineering skills
: M&HCV experience, Engines, PD skills, Global brand,
Sourcing and Engineering opportunity

Structured to meet both partners complementary aspirations

Critical Negotiation Issues

Shareholding
Dilution
Termination/exit pricing
IPR
Branding
Management
Governing Law

Other Negotiation Issues

Non Solicitation
Non Compete
Differing return requirements
Negotiations of key products and services
purchased from parents
Consensus decision items

Issues in Negotiation Process

Bureaucracy in Global OEMs
Silo structure
Decision making power

Discipline in Indian partner teams

Strong influence of lawyers in Global OEMs
Require open mindset

Why JVs Fail

Inability of Indian partner to invest

MNC does not need Indian partner any more
Indian partner does not need MNC any more
Non performance of JVs

Key Success Factors

Know, appreciate and accept both partners
objectives
Good negotiating process covering all future
contentious points and scenarios
Build and nurture trust

Key Insight
Both partners must accept
Equal partnership
of
Un-equal partners

Thank You