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Team #1 Case: Mahindra & Mahindra

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SERGIO ROJAS

on 24 September 2014

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Transcript of Team #1 Case: Mahindra & Mahindra

International Business
Mahindra & Mahindra
Daniel Leiserowitz
Michelle Qualls
Sergio Rojas
Ozkan Gedik
Joint Venture with
a local company.....

Set up own
Manufacturing unit.....

Tweak the Current
Business model.....

Wait and Watch.....
We believe that:
Shah's recommendation for
the board of directors should be

PROS
CONS
PROS
CONS
PROS
CONS
PROS
This is the age of new growth and creativity (African market opportunity)
Many opportunities for M&M business model
M&M entering into the African market can take lead in the automobile industry and shape it to its needs
If it turns out to be a successful business model for the African market. Then the company can skip some basic steps, because of the company’s know-how
CONS
The economy is recovering from a recession period
Political instability
It can be a costly experiment, because it takes time to adapt
Could be a challenge for a well tested business model. However, it might need some adjustments that can disrupt the “engine”
Attractiveness of South Africa
Mahindra & Mahindra
in

INDIA
Mahindra & Mahindra
in
SOUTH AFRICA
M&M South Africa
towards
Global Network
Mr. Shah's head-ache...
Strategy: Anchoring with MNCs in overseas market: Collaboration with Ssong Yang motors to establish in South Africa.
Access to new technology, market and skill sets.
Larger untapped African market
Gateway to new markets.

African Caribbean Pacific group, Cotonou agreement: free trade agreement between South Africa and Europe. This will allow South African automobile manufacturers to export to Europe.
Also to NAFTA, Asia, Australia, Japan


Export Market
The major brands...
In 2010, South Africa exported 0.5 million vehicles to 70 countries.
Target 1.2 M in 2020
More than 300 000 people are directly & indirectly employed in automotive sector
Government support, Motor Industry Development Programme (MIDP)
South African Auto Market...
South African sales, production, exports and imports grows at a rate of 2.8% of the country’s GDP.

Ranks 3rd in South African economic sectors, 7.5% to the country’s GDP.

Assembly of motor vehicles and light trucks since 1924.
South African Market Advantages
Government support- APDP, (Automotive
Production and Development Programme) Reduction of
Tariffs
Flexible production
capability
Emerging market cost advantages low cost of living & labor costs
Raw material availability,
rich source of minerals and metals, and Africa has 10% of the world’s oil reserves. R&D, technical expertise
Infrastructure- roads, telecommunication, banking systems, insurance and shipping
Language skills and culture similarities
South Africa has a competitive labor cost (inexpensive)
Large source of raw material (rich source of minerals and metals, and Africa has 10% of the world’s oil reserves)
Availability of skilled labor
Save high transportation costs
This option will align with the company’s long term mission (Globalization)
It will show commitment with local government and with customers
After sales warranty to align with customers interests
Create fidelity with the M&M brand in the South African market
High costs
High pressure to have a break-even point. Gross margins in the automobile industry fluctuated with production volume because many of the costs related to vehicle production were fixed. Therefore, M&M would be forced to sustain high levels of production.
1978
Started Globalization
The Company started negotiation with Balania K. Zacharopoulos Ltd., Athens for jointly promoting a new company in Greece
1980-1990s
Major expansions and acquisitions phase: America, South Africa and many more countries.
Also started entering into other diverse branches not even remotely related to automotive industry
2002
Established itself in UV segment in India through Scorpio.
9 Manufacturing plants in India, 6 assembly plants outside India
2011
1945
1970
The name was changed from
Mahindra Van Wijk & Visser Ltd.
to
Mahindra & Mahindra Ltd.
Even before India's independence: Steel trading company in Mumbai was founded by J C Mahindra and K C Mahindra.
Two years later entered automotive Industry by launching 'WILLYS' it's first UV before entering into the farm segment both of which formed the companies core.
Two-wheelers, trucks, buses, pickups, cars, small air crafts and even powerboats.
Also diversified into Financial, IT, Hospitality and infrastructure.
Stats: 11,300+ employees, 650 million+ cash reserves, 45 billion INR PBIT
It would represent a big step to “Rise” in the long term mission of the company “globalization”
Free trade agreement between South Africa and Europe. This will allow South African automobile manufacturers to export to Europe.
The company will take advantage of a large source of raw material (rich source of minerals and metals, and Africa has 10% of the world’s oil reserves)
M&M should set up its own
Manufacturing Facility
Difficult for M&M managers
Problems with certification, it can be outsourced to South Africa - in this case M&M will not have control for the process
Political uncertainty in African countries
Local assembly will reduce costs of shipping by 25 % from India to African continent
No investments required
Produced vehicles can be exported to other African destinations
Already possesses experience in contract assembly
Engine Theory...
M&M management style identified with 'Toughness'
Shipment of parts from India assembled in South Africa

During the recessionary period M&M reduced fixed costs
Improve business processes and enlarge the quality of its dealer network
Continue its prevailing business model in order to help the company to tide over recession
Over capacity as the major concern globally
Learn by observing environment, competitors thus low risk
Consider the higher rate of import tariffs of 25% compared with local assemblers and manufacturers
Recession cycle
Timing a problem (specially in some African countries where M&M were their main supplier)
Lack of commitment to local market
Options:
Assembly plant in South Africa.
Import CBUs from India.
Costly, time consuming
Expansion of operations in the African continent.
Formal entry to South Africa: Feb 2005
51% own subsidiaries 49% local partners. (Since OCT 2004 importing to SA)
Strategy of Entry:
Focused on Niche market of SUVs Segmented towards Cargo and Passenger traffic
Value Proposition:
By pricing 20 - 30% less than prevailing competition (Bolero)

New brands available in South Africa around the same time as in India
Company's Global launches and Global Plans
Full control and management of business in South Africa Aug 2009- Bought out its local partner's stake.
In 5 years of doing business M&M SA sold 11,000 vehicles
Securing market share about 1.2% pickup market
Goals of M&M SA
To increase market share up to 5%
Targeting families, mining, companies and farmers leading towards strong customer loyalty
Long term plan: Entry point to Africa
CONCLUSION
TEAM #1
Question 1: Which option should Shah choose? What operation mode options are available to M&M in South Africa? What are the merits and concerns related to each option?
Question 3: How attractive is the South African auto market for growth and profitability?
Question 2: What is your assessment of M&M’s experience of its South African subsidiary to date?
Question 4: What potential roles can M&M’s South African subsidiary play in the company’s global network?
Question 5: What should be Shah’s recommendation to M&M’s board of directors?
Full transcript