Mahindra and Mahindra in South Africa

Mahindra & Mahindra

Mahindra & Mahindra
Limited is part of the Indian
Industrial Conglomerate
Mahindra Group based in
Mumbai.
Founded
1945
Key
People
-:
J.C.MAHINDRA
K.C.MAHINDRA
G.
MOHAMMAD
KESHUB
MAHINDRA(CHAIRMAN)
Automotive Industry HQ- Mumbai
Revenue US$16.7
billion(2013)
Net income(US$670
million) 2012
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.
Mahindra & Mahindra
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 Analysis
New Product
Strong, recognizable brand
name: M&M.
Majority Customers were
buying non-European brands
Strength
Economic Crash
Competition between other
companies.
Weakness
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 barriers
due to the economic crash.
New trading regulations.
Threats
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
Which Approach is better?
PEST ANALYSIS South Africa
Political
MIDP-
incentivized
export of vehicles
and components
APDP-incentivized
value added
through local
production
Economical
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
Population of 50.6
million
Buying power of
black
Africans(largest
group) was rising
Preferred other
brands over local
brands



Technological
SUVs Pickup
Trucks were apt
for SA
Acquisition of
SsangYong
facilitated
enhancement in
existing
technology



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,
cheaper than
importing.



Manufacturing in South Africa vs Importing Fully
Assembled Units
As a trading company
only, and having
brand awareness
which is not par to
competitors like
Toyota, Mercedes,
BMW, it is harder to
market and build
customer trust.
As entry barriers in to
the South African
market are high for
CBU
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)
Contd..

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 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.
Greenfield investment
.
consistent with M&Ms mission of being a long term player
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 doesnt have local manufacturing experience, and is missing local knowledge on the
manufacturing market and resources.
Therefore, greenfield entry brings 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.
.
Greenfield 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.
.
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 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 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 to
the 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 50.000
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 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.
Contracting 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.
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 with
local 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; as
management 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).
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 that will work under an assembly contract,
and assemble imported CKDs on behalf of M&M for its
African market.

Thank You..