Mahindra & Mahindra

In South Africa
Case Study

Date 12.2.2015
BUAD 647

Introduction
Mahindra and Mahindra was founded as a steel trading company in Mumbai, India in
1945, by two brothers. Two years later Mahindra and Mahindra entered into automotive
manufacturing by launching Willys. Willys was the iconic Word War II jeep with was franchised
from Willys-Overland Motors, the American makers of general purpose utility vehicles.
Mahindra and Mahindra was one of Indias leading multinationals and had 113,000 employees of
whom 12 per cent were foreigners and Indian expatriates, located across 79 countries. It had
consolidated revenues of 370 billion for 2011. South Africa was one of Mahindra and Mahindra
biggest and most important export markets and was crucial to its strategic growth
Consumers
The target market was the South African population which consisted of 50.6 million
people. Out of those 50.6 million people 40.2 million were black Africans, 4.6 million was white
Africans, 4.5 million was coloured Africans and the remaining 1.27 million was Indian/Asians
Africans. Now there were trends that you noticed about each group. White Africans earned more
and also spent more, leaving them with less disposable income to invest in optional purchases
like cars. Black African earned less but also spend less leaving them with a higher disposable
income. The next trend was white African were buying used vehicles rather than new vehicles
while the contrary was happening with black African. Black Africans purchased new vehicles
instead of used ones. Lastly white African preferred vehicles with good mileage whereas black
African preferred vehicles features, like design, aesthetics, and comfort I their vehicles.
Define the Problem
The company was weighing its options on the companys growth strategy in the South
African market. Shah was faced with a four problems that needed solving. Shah needed to decide

whether Mahindra and Mahindra South Africa should move to the next logical step of an
agreement with a local vendor to use the latters surplus facility for contract assembly of
Mahindra and Mahindra vehicles. Or, Mahindra and Mahindra South Africa could skip that step
altogether and invest in its own manufacturing facility. Shah could also wait and watch until the
subsidiary logged a critical mass of vehicle sales volumes that would be sustainable in the long
term. The last option would be to grow the current business model of importing CBUs from
India by using South Africa as the hub from which to sell them to other countries in the African
continent therefore expanding the export market.
Consider Relevant Information
PEST Analysis
Political Factors
There is Political turmoil in the surrounding countries of South Africa. Having instability
could be a great risk.
Economic Factors
The economic factors that must be taken into consideration is the that the auto industry is
still in a recession. However there is an expected increase in the automotive industry in the next
few years.
Social Factors
The social factor that must be taken into consideration is that the population is young and
there is a small middle class population. The buying power of black Africans was rising. These
people preferred other brands over local brands
Technological Factors
The technological factor that must be taken into consideration is that there are new
technologies that are available to be taken advantage of.

SWOT Analysis
Strength
One of Mahindra and Mahindra strength would be that it has a diversified business
model.
Weakness
Mahindra and Mahindras have very low brand awareness among African consumers.
They do not trust the local brands. They have a long order cycle and lack of international
presence.
Opportunities
There are opportunities to have a healthy economy in South Africa. Also there is a
growing demand in South Africa which can be taken advantage of.
Threats
The threat that Mahindra and Mahindra are facing would be the backlash of the recession,
high tariff, high interest rate and heavy competition.
Identify Best Alternatives
There are four alternatives being considered by the company executives listed below.
1. The first alternative is to Wait and watch until the subsidiary logged a critical mass of
vehicle sales volumes that would be sustainable in the long term. This alternative wait
and watch would allow the recession to pass, help stabilize operations while minimizing
the risks. This could be a good alternative but it would cause Mahindra and Mahindra to
miss out on new opportunities as well as bear the higher rate of import duty of 25 per cent
compared to local competitors.

2. The second alternative is to use South Africa as a hub. This alternative would create a lot
of expansion opportunities. The downside was that there was a lot of political tumor
which brought a lot of uncertainties.

3. The third alternative is to contact assembly of Mahindra and Mahindra in South Africa.
This alternative has low risk. It will reduce the cost of shipping showing immediate
benefits. No new technology would be needed and its minimal cost. The con to this
alternative is that there could be poor labor quality and they can lose control as they may
not be able to keep up to the demand.
4. The fourth alternative is to own a manufacturing plant in South Africa. This alternative
would line up with Mahindra and Mahindra mission of being a long term player. It would
demonstrate commitment to the local market. It would also present an opportunity to lock
in new customers at the growth curve. The only drawbacks to this alternative are that you
will have high fixed costs and a high commitment and pressure to sustain high production
levels just to break even.
Recommendation
I would recommend that Mahindra and Mahindra in South Africa open up its own
manufacturing plant. This would help the long term mission of the company as well as
globalization. As mentioned before, South Africa is an emerging economy with a growing middle
class having greater disposable income. The outlook of the industry is positive and coupled with
incentive from government, the industry is set to grow. Companies such as Mahindra which are
aggressively pursuing the market will likely to benefit from this improving their profitability.
Therefore I believe this would make a great recommendation.