Partnering for Emerging Markets

Focus on India

Dr. Pawan Goenka

President - Automotive Sector
Mahindra & Mahindra Ltd.
India
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
• India’s 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
Four wheeler market
In ‘000 vehicles

GR
CA
%
13
G R
CA
%
18

Source : SIAM

Auto components
$ billions

G R
CA
%
19

Source : ACMA
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 India’s automotive sector will be
US$ 145 billion by 2016, contributing to 10% of
India’s Gross Domestic Product and providing
employment to 25 million persons additionally.”
It’s 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. GM 1. Maruti Suzuki
2. Toyota 2. Tata Motors
3. Ford 3. Hyundai
4. VW Group 4. Mahindra
5. Honda 5. 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 OEM’s
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 – Comprehensive
– Product based across the value
– Asset based chain

Automotive Value Chain

Design Engineering Sourcing Manufacturing Channel

 Scope of Collaboration
M&M Evolution

Contract Product
JV Management

Channel Sourcing Design

Mfg. Dev.
Investment

Contract
M&M Capability

Channel
Mfg.

Contract
Mfg.
Royalty

Licensing

Scope of Collaboration
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 : Market knowledge, Capacity, Relationships
– Ford : 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 : Market knowledge, PD skills, LCVs, Capacity,
Relationships, Sourcing and Engineering skills
– ITEC : 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