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MAHINDRA & MAHINDRA IN SOUTH AFRICA
SYNOPSIS
The case describes the managerial dilemmas facing Pravin Shah, chief executive, International Operations
(Automotive and Farm Equipment Sectors) at Mahindra & Mahindra Ltd. (M&M), an Indian
multinational headquartered in Mumbai, India. Shah’s dilemmas pertain to the course of action with
regard to Mahindra & Mahindra South Africa (Proprietary) Ltd (M&M (SA)), the company’s subsidiary
based in Pretoria, South Africa.
The case comes with a video of an interview with Dr Pawan Goenka the president of Mahindra and
Mahindra’s automotive and farm equipment businesses. In the video, Dr. Goenka provides updates on the
TEACHING OBJECTIVES
ADDITIONAL MATERIAL
READINGS
1. Court David and Narasimhan Laxman, “Capturing the world’s emerging middle class,” The
ASSIGNMENT QUESTIONS
TEACHING APPROACH
1. WHICH OPTION SHOULD SHAH CHOOSE?
The instructor can begin the class by showing the four options in four different columns on Board 1. The
instructor can then ask the class the lead question above and take a vote to gauge the initial distribution of
2. WHAT IS YOUR ASSESSMENT OF M&M’S EXPERIENCE WITH ITS SOUTH AFRICAN
SUBSIDIARY TO DATE?
The focus of the discussion should be on how well the subsidiary in South Africa has done in terms of
growth, profitability and market share during the previous six years. Also of interest are the following
3. HOW ATTRACTIVE IS THE SOUTH AFRICAN AUTO INDUSTRY FOR FUTURE GROWTH AND
PROFITABILITY?
This section can be discussed by the class in terms of three major trends: the potential of the market, the
nature of competition and the role of regulation. The observations by students can be listed on Board 3.
4. WHAT POTENTIAL ROLES CAN M&M’S SOUTH AFRICAN SUBSIDIARY PLAY IN THE
COMPANY’S GLOBAL NETWORK?
The purpose of this section is to elevate the discussion regarding the options facing M&M (SA), in the
light of the global strategy of M&M and the specific contribution M&M (SA) should make in that regard.
5. WHAT SHOULD BE SHAH’S RECOMMENDATION TO M&M’S BOARD OF DIRECTORS?
6. THE BOARD’S DECISION AND THE CEO’S VIEWS ON STRATEGY?
Once the class has made recommendations regarding the South Africa decision, the instructor may want
to use the DVD (Ivey product #7B11M106), incorporating an interview, conducted in January 2012 at
Mahindra’s global headquarters in Mumbai, India, with Dr. Pawan Goenka, president (Automotive and
Farm Equipment Sectors).
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Ask for comments and push the class to think about what managerial challenges are posed by the
execution of this vision and, in particular, on the integration of local strategies with global strategy.
ISSUES FOR CLASS DISCUSSION
1. WHAT CRITERIA ARE RELEVANT IN CHOOSING AMONG THE FOUR OPTIONS?
The instructor can open the discussion by inviting the class for suggestions on the key issues that Shah
should keep in mind when deciding on the way forward. Students should be encouraged to justify each
criterion with a brief remark and then move on.
2. WHAT MAKES SOUTH AFRICA AN ATTRACTIVE DESTINATION FOR AN OVERSEAS
AUTOMOBILE COMPANY?
By now, the class should be familiar with the basic data stated in the case study about the automobile
industry in South Africa. Automobiles comprise 10 per cent of South African exports and contribute 7.5
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per cent to the country’s GDP. The industry is recovering from a three-year slump but is on the growth
path again, having set a target of manufacturing 1.2 million vehicles by 2012. Automobile customers in
3. WHAT MAKES SOUTH AFRICA ATTRACTIVE FOR M&M?
The instructor can use this question as an opportunity for the class to ascertain the degree of attention that
M&M (SA) attracts from the top management at M&M headquarters in Mumbai, India.
The instructor can ask the class if South Africa offers long-term growth prospects for M&M. The decision
on the part of the board of directors of M&M has a qualitative element requiring an understanding of the
long-term potential of South Africa as a market destination. The business environment rankings provided
4. WHAT IS THE GROWTH STRATEGY OF M&M? WHERE IS IT HEADING?
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M&M is one of India’s leading multinationals. It comprises eight unrelated businesses, each with its own
The instructor can also draw attention to the business model followed by M&M. The parent company sees
itself as an engine with multiple pistons. Each business vertical is seen as a piston and the parent company
The instructor can take this opportunity to have the class consider the competencies that M&M has
developed and the competencies it needs to develop going forward. South Africa can be considered a test
market for the class to examine the issue.
5. WHAT ARE THE CONSIDERATIONS THAT SHAH SHOULD FACTOR IN WHILE TAKING A
DECISION?
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The instructor can conclude a discussion of this section by referring to the general criteria that the class
has already suggested and which have been added to the board.
The fourth consideration is the sales capacity. M&M has sold 1,500 vehicles in 2010, which was a year of
slump, and had sold 3,300 vehicles in 2006, when it was just establishing its foothold in the South African
market. The minimum sales capacity that will make having its own manufacturing facility viable, as Shaw
points out, would be 6,000 vehicles per annum, of which 1,500 vehicles should be from a single platform.
Given the optimistic projections of the automotive market in South Africa and M&M’s own plans to be a
major player in the SUV market, a sales and production capacity of that order is within the grasp of
M&M, which makes a compelling argument in favour of M&M having its own manufacturing facility in
South Africa. It also involves a qualitative assessment of the South African market and its long-term
potential.
6. HOW SHOULD SHAH DEVELOP A BUSINESS CASE FOR EACH OF THE FOUR OPTIONS?
The class can address each option in a sequential manner, while keeping in mind the three large buckets
under which the criteria suggested at the beginning of the class have been listed (see Exhibit TN-2:
Comparative Options).
Assembly Plant
Strategic Attractiveness
A contract assembly is a ready-to-go option, wherein no more than three months will elapse between the
signing of a contract with an assembler and the vehicles rolling off the assembly line.
South African consumers do not trust the local brands, so, any association with a local manufacturer will
Economic Viability
M&M will reap two immediate benefits from contracting with a local vendor for assembly. The import
duty will decrease from 25 per cent (for CBUs) to 20 per cent (for CKDs). The vehicle ordering cycle will
decrease from two months to 10 days.
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M&M (SA) has a repertoire of lessons from having operated the assembly plant in Egypt, where it
contracts out 200 Scorpio units every month.
Manufacturing
Strategic Attractiveness
Having its own manufacturing plant will show M&M’s commitment to the local market. In an industry in
which warranties play a crucial role in building relationships, having its own manufacturing plant will
help to reinforce consumer confidence in M&M brands.
Economic Viability
Organizational Feasibility
7. THE CORPORATE VIEW
The discussion can turn to what happened re: the South Africa decision and to the corporate perspective
by leveraging the video material available with the case. For an outline about how to use the video in
class please refer to p. 4 of this note.
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WRAP-UP
The instructor can highlight two major takeaways for students.
SEQUEL TO THE CASE STUDY (AS OF OCTOBER 2011)
M&M finalized its plans to launch its first global sport-utility vehicle (SUV) brand in December 2011.
Called XUV500, the new SUV was to roll off a separate assembly line at the company’s manufacturing
plant at Pune, near Mumbai, in western India. The brand will be launched simultaneously in India and
South Africa.
1
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Exhibit TN-1
BOARD PLAN
Board 1
Board 2
Board 4
Option 1
Option 2
Option 3
Option 4
Criteria
• Strategic
attractiveness
• Economic
viability and
• Organizational
feasibility
M&M (SA)
Strategy
Alternative
growth
strategies in
South Africa
Upside
Downside
Upside
Downside
Upside
Downside
Upside
Downside
Board 5
Board 3
M&M Headquarters
M&M (SA)
Prospects
Attractiveness
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Exhibit TN-2
COMPARATIVE OPTIONS
Managerial
Option
Why
Why Not?
Upside
Downside
Wait and Watch
• It helps ride out global
recession in auto industry.
• It helps deal with the global
issue of excess capacity.
• There is no recession in
South African market.
• There is no excess capacity
in South African automotive
market.
• The intervening time can be
used to develop new sources
of revenue at M&M (SA) and
strengthen operations from
within.
• The automotive market is
growing in South Africa and
losing momentum now will
force M&M (SA) into playing
catch-up.
Contract Assembly
• It is the logical way forward
• It has been tried and tested in
Egypt
• There is no shortage of
assemblers
• It is a learning ground for
manufacturing
• It generates immediate savings
of 25 per cent in logistics
• M&M (SA) does not need to
look for any more learning in
the local market since it has
been in South Africa for six
years and knows the local
market.
• There will be no need for
upfront investment.
• Vehicle ordering cycle is
reduced to 10 days, which
helps boost re-exports.
• M&M managers are not used
to ceding control.
• Building brand equity will be
an uphill task,
• M&M (SA) does not have
competency in vehicle
certification procedures.
Manufacturing
• It enables localization of
content, which makes M&M (SA)
eligible for subsidies
• It increases the incidence of
fixed costs on the total cost of
operations
• It is consistent with the
mission
• It signals commitment to the
local market
• It enables ground-level entry
to exports to African nations
and locks in black African
customers
• It uses low-cost platforms
already developed in India
• It helps build brand equity
locally
• It pits M&M (SA) against
competing component makers
and dealers that have benefits
of scale, brand equity, product
range, product quality and
network.
• It leads to high fixed costs in
the event of under-utilization of
capacity.
Re-export Hub
• It helps target the bourgeoning
African market
• It does not reinforce long
term commitment to the local
market
• South Africa is one of the
biggest export markets.
• The shortlist of 17 countries
provides an entry port to
Africa.
• There is no sizeable middle
class in Sub-Saharan Africa.
• Competition is high for
markets in the African region.
Source: Created by authors.
