Pricing Strategy on Mahindra and Mahindra

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Pricing Strategy on Mahindra and Mahindra Powered By Docstoc
					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
                                                                                      1,848
       Four wheeler market
       In „000 vehicles




 379


  Source : SIAM                                                         CVs + Cars + Uvs

 F94    F95       F96   F97   F98   F99   F00   F01   F02   F03   F04     F05   F06     F07




                                                                                      15.0
       Auto components
       $ billions




        3.1


        Source : ACMA



       1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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

				
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