MAHINDRA AND MAHINDRA IN

SOUTH AFRICA

An Analysis by:
Ajay Shetty PGPM- 16 - 004
Bharat Gakhar PGPM 016 - 013
Kavita Singh - PGPM 16 - 027
Shreya Bhattacharya PGPM 16 - 053
Viraj Nayak PGPM 16 - 067
 Question 1:Which of the 4 options should
Chief Executive International operations
choose for M&M in South Africa?
Options available for M&M in South Africa are contract assembly, setting up of a new
manufacturing facility, wait and watch and sustain and grow using current business model
of importing CBUs and selling to other African countries.
M&Ms sale in the SUV segment is the lowest amongst competing brands in the product
line (1555 vehicles in 2010).
Also M&M has sold an aggregate of 11000 vehicles in the period 2005 to 2010.
Also , the new reduced import tariffs under APDP will give some allowance to
manufacturers who import a percentage of their components, the manufacturers must
have a plant volume of at least 50000 units to claim this benefit.
M&M competes with players such as Toyota, BMW, Land Rover in the SUV market which
have higher sales as well as better brand equity than M&M in South Africa.
High entry barriers in import and sale of CBU will not help Mahindra achieve its strategic
targets.
Investing in a new manufacturing facility will involve significant investment and with the
volume of M&M in South Africa, will pose a challenge as far as break even point is
concerned.
With contract assembly, M&M can have the benefit of improving margins be reducing lead
times thereby reducing shipping costs of CBUs which are otherwise supplied from India.
The company must partner with an assembler who has surplus capacity, ability to ramp up
, technical know how and financial capability.
Wait and watch approach may help the company overcome recessionary pressures but
the company will have to continue bearing the burden of high import duty.
Therefore, contract assembly will be the most feasible option for Mahindra and Mahindra in
South Africa.
 Question 2-
M&M experience with South African
Subsidiary
The decisions made by the subsidiary organization M&M (SA) were in-line
with the growth strategy of the organization.
Their entry level strategy of :
Entering and capturing a niche segment with Bolero and Scorpio
Competitive pricing
Helped them gain market share in semi urban and rural areas.

By 2011, M&M had turnover of $40.3milliom; sold 11,000 vehicles and

secured market share of 1.2%
M&Ms product target strategy of different SUVs to different segments
and choice of used cars for locals helped it build a strong loyalty among
consumers for the Mahindra brand
However a major constraint that M&M faced in SA was with respect to lead
times wherein it had difficulties in participating for African govt. tenders-
sub Sahara region, single largest buyer of new vehicles
Question 3-
Attractiveness of South African Auto
Industry
Incentives under APDP for localization of components, production and
investment in the form of Import Duty rebate. This reform will boost
local automotive manufacturing activity.
Presence of more than 200 Automotive component manufacturers
ensures easy availability of parts.
Strategic location, port cities serve as an advantage to export to other
African, Asian and European countries.
Rise in the purchasing power of Middle Income Black Africans which
constitute a potential segment for mid size cars and UVs.
Lot of government measures to improve productivity and efficiency
parameters like min. units/company, no. of vehicles/employees
working in automotive industry etc. to ensure global competitiveness.
Question 4: Shahs
Recommendation to M&M BoD
Shah should recommend the Contract Assembly

The disadvantages of the other options are as follows:

Setting up a manufacturing facility
1. High investment at a time while the economy was still recovering
2. Threat of overcapacity - Constant pressure to cover fixed costs
3. M&M far behind competition Volume sales not comparable to Toyota, Nissan, etc.
Wait & Watch
1. High rate of import duty @ 25% vis--vis local manufacturers
2. Difficult to compete in a price sensitive segment
Use SA as a hub -
1. Business uncertainty risk - Political turmoil in Algeria, Egypt, Libya, Morocco and Tunisia

The advantages of the Contract Assembly are as follows:

Local assembly would improve margins by reducing cost of shipping by 25%
Ability to launch variants that were in demand Improve responsiveness to market
Possibility of local sourcing of components and extra fitments
Shorter lead time (3 months)
No upfront investment

Though this option conflicts with M&Ms business style with the vendor controlling
mobilization and deployment of resources as well as certification of vehicles, but it
appears to be the best bet given the market conditions

M&M could consider the possibility of establishing a manufacturing facility once the
macroeconomic conditions stabilized and it managed to acquire a bigger market
share.