Strategic Management submission

Week

Submitted to: Prof. Arun K Jain Section D: Group 7

Nikhil M (PGP27226) (PGP27238) Venkatesh S R (PGP27259) (PGP27260)

Maheswaran Vignesh N

Contents
About Mahindra Group...............................................................................................3 Mahindra & Mahindra Limited....................................................................................3 Board of Directors...................................................................................................4 Core Purpose..............................................................................................................4 Core Values.............................................................................................................4 Scrutiny of Core Values........................................................................................4 Business Model...........................................................................................................5 Analysis of Mahindra and Mahindras Strategy...........................................................7 Actions to gain sales and market share via more appealing design, better quality, customer service, wider product selection..............................................................7 Actions to respond to changing market conditions.................................................7 Actions to enter new geographic/product markets or exit existing ones:................8 Actions to capture opportunities and defend against threats..................................8 Mergers and Acquisitions........................................................................................9 Actions to strengthen competitiveness via strategic alliances and collaborative partnerships............................................................................................................9 Actions to diversify the companys revenues by entering new businesses...........10 Actions and Approaches used in managing R &D, production, sales, marketing, finance and other key functions............................................................................10 Overall Strategy of Mahindra & Mahindra.............................................................11 Proactive elements.............................................................................................12 Reactive elements..............................................................................................12 Abandoned strategy elements...........................................................................12 Synergy between the M&M divisions..................................................................13 External environment analysis.................................................................................14 Policy/Regulatory/Legal forces..............................................................................14 Demographic and Societal factors.........................................................................15 Technological forces..............................................................................................15 General Economic conditions................................................................................16

3 Global forces.........................................................................................................17 Interaction of various macroeconomic forces........................................................17 Porters 5 forces analysis..........................................................................................18 One step backward Porters 5 forces for suppliers..............................................20 One step forward Porters 5 force analysis for buyers (M&Ms dealers)..............21 Causes of dynamicity in External Forces..................................................................22 Factor causing dynamicity in the medium term....................................................22 Factors causing dynamicity in the long term........................................................23 Key Success Factors.................................................................................................24 Industry level key success factors.........................................................................24 Firm level key success factors...............................................................................25 Competitive landscape.............................................................................................26 Mahindra versus its competitors...........................................................................26 Future launches.....................................................................................................27 Influencers and Shapers...........................................................................................28 Recommendations....................................................................................................28 Suggested vision statement for Mahindra & Mahindra.............................................30 Suggested vision statement for Mahindra & Mahindra

About Mahindra Group

The Mahindra Group is an Indian multinational conglomerate company with operations in over 100 countries across the globe. The group has a presence in aerospace, agribusiness, aftermarket, automotive, components, construction equipment, defense, energy, farm equipment, finance and insurance, industrial equipment, information technology, leisure and hospitality, logistics, real estate, retail, and two wheelers. It is considered to be one of the most reputable Indian industrial houses with market leadership in utility vehicles as well as tractors in India. The company reported revenue of US$ 14.5 billion and a profit of US$ 373 million in 2011. It has an employee base of 1, 44,000 making it one of the biggest employers across the globe. [http://en.wikipedia.org/wiki/Mahindra_Group]

Fig 1.1: Company Structure

Mahindra & Mahindra Limited

Mahindra & Mahindra Limited is a subsidiary of Mahindra Group conglomerate and one of the largest automobile manufacturers by production in India. It was ranked #21 in the list of top companies of India in Fortune India 500 in 2011. It has reported revenue of US$ 8.15 billion and a net income of US$ 677.38 million in the year ended 2011. The major M&M divisions include 1) Automotive Division 2) Farm Division 3) Mahindra Defense System %26_Mahindra]

Division[http://en.wikipedia.org/wiki/Mahindra_

Board of Directors
Mahindra & Mahindra Limited has a total of 12 members in its Board of Directors, comprising of 8 independent directors, 2 non-independent directors and 2 promoters. Higher number of independent directors gives more objectivity to the board as there will be better separation of ownership and control. Out of these, only 2 of them belong to the Mahindra family. This shows that the company is not a family run one. Every Board member is highly qualified with educational backgrounds in diverse fields such as Chemical engineering, Mechanical engineering, Law, Finance and MBA. This diversity brings the necessary breadth of perspective that is needed for M&Ms wide range of business and products. The professional diversity of the Board is also worth noting. The members are from a variety of professional backgrounds such as ICWA, Consultancy, Company law and taxation, Life insurance, Chemical technology, Information technology and financial services. Members have been drawn from all over India. As M&M looks to expand its reach throughout India, this becomes an important factor. Members have been selected from various places such as Mumbai, Assam, Boston, Chennai, Kolkata, and Delhi. A possible drawback of M & Ms board is that there is no female member in the board which will curb the diversity of opinion. [http://www.mahindra.com/Investors]

Core Purpose
We will challenge conventional thinking and innovatively use all our resources to drive positive change in the lives of our stakeholders and communities across the world, to enable them to Rise Mahindra does not have an explicit Vision statement. However its

6 objectives are based on the above mentioned core purpose. Rise is the new tagline and the brand logo of Mahindra Group, which reflects the new strategy of Mahindra group. It is a call to action - a core purpose that will galvanize employees, customers and stakeholders in coming together to form a more cohesive, formidable unit. For Mahindra, Rise means achieving world-class standards in everything they do, setting new benchmarks of excellence and conquering tough global markets. This is supported through three brand pillars of Accepting no limits, Alternative thinking and Driving positive change. The move to the new core purpose is intended to add value to all stakeholders through its core values.

Core Values
M&Ms commitment to sustainability social, economic and environmental- rests upon a set of core values. These are: Good corporate citizenship, Professionalism, Customer first, Quality focus, Dignity of the individual. Scrutiny of Core Values The company stands up to corporate citizenship through various initiatives. Project Nanhi Kali was initiated in 1996 by K C Mahindra Education Trust (KCMET) with an objective to provide primary education to underprivileged girl children in India. In 2005 KCMET entered into a partnership with Naandi Foundation, a reputed NGO, to jointly manage the programme. Through this partnership, the company aims to extend 10 years of quality education and material support to underprivileged girl children. Life Line Express, a free of cost hospital-on-wheels, is a joint undertaking of Mahindra & Mahindra Automotive and Mahindra Finance to sponsor the Lifeline Express project at Rangia, Assam. As far as professionalism is concerned, the recruits the best people for the job. Group Management Cadre (GMC) program draws in highly talented MBA graduates to jumpstart their careers in key positions throughout the Group. The companys performance also reflected a significantly improved level of customer satisfaction as demonstrated by its scores in independent syndicated customer satisfaction and sales satisfaction studies. In the TNS study on Dealer Satisfaction released in 2007, your Company came first. The Company was also rated in a TNS study, one among the top two Most Trusted Indian car companies. Hence we see that the company adheres to its core value of putting the customers first. M&M won lot of awards for its focus on quality. The Farm Equipment Sector (FES) of M&M received the Deming Application Prize in 2003.The prize is given to companies that have established total quality management (TQM) in their entire business operations. M&M is committed to environmental sustainability. The 100 million USD investments in the "Mahindra Research Valley" (MRV) - which is a fully integrated R&D facility, will focus on constant upgrading of fuel efficiency and alternative fuel technologies in all their future offerings. On analyzing, we found that the company always lives up to its core values.

Business Model

The major streams of revenue are 1) The passenger vehicles sales The company is the domestic market leader of UVs , which is one of the major source of revenue and a niche segment where there are not much significant players. The cost leadership gives them significant advantage in earning more revenue. This category is further supported by MPVs and Cars where they just showed their presence. They have a significant global presence in this category. It has a leading market share of 60% in the MUV market, with an aggregate registered growth of 26 % in its net income. 2) Commercial vehicle sales The Company has a significant presence in LCVs, with a good amount of their earnings are coming through this category. The company has products like Maxximo, which cater to the unfulfilled market demands by other players. This category is supported by the M&HCVs, where they just forayed into the segment. They have a significant global presence in this category. 3) Tractor and farm equipment sales M&M is a global leader in the tractor business, where a major source of revenue is coming from exports to developed countries. They have wide range of products (<30hp, 30-40hp, >40hp) which cater to almost all the requirements in that segment. Apart from that, they have sales of wide range specific farm equipment, which is another source of revenue in this category. 4) Three-Wheeler sale The Company is in to sale of both passenger and goods three-wheeler vehicles, with 17% market share in the domestic goods vehicle three-wheeler market. The revenue is coming from the export of goods category as well. 5) Two-Wheeler sale The Company just forayed in to this business with less domestic market share. This is the least source of revenue to the company. 6) OEM business (components sales) - Mahindra & Mahindra has expertise in forgings, castings, gears, stampings, steel, ferrites, contract sourcing, and composites. It also offers full-service art-to-part solutions that integrate design, manufacturing, and sourcing. This is a growing business for M&M and have global presence through various acquisitions 7) Trucks sales - In 2010, M&M entered in to this business in partnership with a US firm where they import trucks from US and sell in the domestic market. As of now, this is not a significant contributor to their revenue but has the potential to grow in the domestic market. 8) Defense vehicle sales The Company first started in defense business and still retain its significant presence in in this category in the domestic as well as global market especially by the sale of bullet proof vehicles.

8 9) Energy business Under the Powerol brand, M&M has a significant presence in the domestic generator sets and inverters market. They have global sales as well in this business. 10)After sales business - M&M through its Mahindra first choice is a major player in the domestic vehicle reseller business. Through this, the company will sell the pre-owned vehicles, not only Mahindra brands but also other brands as well. Because of the trust the brand Mahindra have, this particular business is able to generate a significant revenue and profit to the parent company. First choice is Indias only organized multi-brand player, with 114 outlets in 74 towns across India. The volumes of production of various product divisions are shown below. The predominant focuses of M&M are on tractors and utility vehicles in which it is a global player. Its venture into passenger vehicles and multi-purpose vehicles is to complete its portfolio and position itself as an integrated auto maker. Hence its business model is mainly based on revenues it generates by position itself as the leader in tractors and utility vehicles in the country and offering value propositions of exceedingly good mileage (especially for the utility vehicles), durable performance and reliable performance (tractors and Utility vehicles). It also positions its SUV in a niche range (of price and features) giving it a low cost product image. Being an integrated automaker, it also enjoys cost leadership through economies of scale. This gives its business model robustness as there are not many players in the tractor and utility vehicle section giving Mahindra a sole leader position. It is also slowly becoming more competitive in passenger vehicle sector through various joint ventures and collaboration.

Analysis of Mahindra and Mahindras Strategy

Actions to gain sales and market share via more appealing design, better quality, customer service, wider product selection
The Company lays high emphasis of design on its products. This has been a key driving force behind its increasing sales. An innovated Scorpio which was launched in 2006 received the Business world national institute of design award for best automobile design in 4 wheeler category. It was also awarded the Golden Peacock

9 award for innovation in automobile segment. Through the acquisition of Engines Engineering, Italy, Mahindra & Mahindra strengthened its 2 wheeler design capability. In the TNS study on Dealer Satisfaction released in 2007, the Company came first. It was also rated among the two most trusted Indian car companies. This indicates a significantly higher level of customer and dealer satisfaction. If we look at the existing portfolio of vehicles like Scorpio, Bolero, we can see that always the company modernized these products and introduced new variants with new features in tune with the contemporary requirements of the customers. This is true in their global operations as well and all those products are successful after close to 10 years of their launch.

Actions to respond to changing market conditions

The period 2006-2007 saw high growth expectations from the Indian automotive industry. Mahindra & Mahindra responded appropriately by setting up two Greenfield plants, one near Pune and another near Chennai, to meet the expected domestic and export requirements. The Company also enhanced its presence in the sector through many joint ventures for commercial vehicles. They also ventured into developing products powered by alternate energy like CNG and electricity. The global economic meltdown in 2008-2009 had adverse impact on the Indian automotive sectors. The company quickly took corrective measures to re-align the companys production with the reduced demand. A total of 181,842 vehicles and 43,278 three-wheelers were produced as against 200,132 vehicles and 34,556 three-wheelers in the previous year.

Actions to enter new geographic/product markets or exit existing ones:

M&Ms new strategy is to become a global player in the locomotive industry, mainly through the international acquisitions and partnerships. The Company introduced many vehicles in new overseas markets including Europe, Middle East, South America and South-East Asia by adapting unique business models for each country. It became the first Indian automotive company to launch a product internationally by introducing a pick-up version of Scorpio in South Africa in 2006-2007. In early 2008, Mahindra commenced its first overseas CKD operations with the launch of the Mahindra Scorpio in Egypt in partnership with the Bavarian Auto Group. This was soon followed by assembly facilities in Brazil. Mahindra planned to sell the diesel SUVs and pickup trucks starting in late 2010 in North America through an independent distributor, Global Vehicles USA. They had entered in to the Swedish market by acquiring ailing Swedish car maker Saab. In the farm division, some of the major export markets included Bangladesh and Sri Lanka. In 2006, they entered in Iran through an agreement with ITMCo (Iran Tractor Manufacturing Co). This shows M&M eyeing to become a significant global player in the automobile and tractor business. Presently M&M has 6 subsidiaries in automotive sector across

10 Australia, Cyprus, Italy, Mauritius & South Africa and 3 subsidiaries in farm sector across China & US.

Actions to capture opportunities and defend against threats

Opportunities: In 2006, the government announced a new automotive policy called Automotive Mission Plan 2016, in partnership with the automotive industry of India aiming to double the sectors contribution to the Indian economy. The company through its joint ventures for commercial vehicles and cars was well poised to garner its increasing share in the market. MUVs are the most economical vehicles for transporting people in interiors of the country. As public transportation system is not well developed in rural India, MUVs will have a huge role to play. M&M has a very strong presence in the MUV segment with its products like Scorpio and Bolero. Higher industrial development also drives the sales of MUVs and commercial vehicles. A growing middle class population in the country with an increasing disposable income implies higher propensity to consume and hence growth in the passenger car segment. The company is in partnership with Renault to introduce models suitable for the country. USA and China are huge international markets for tractors. MCTCL has started selling tractors in the domestic Chinese markets. Threats: As there is an increase in excise duty in 2010, Mahindra & Mahindra has hiked prices of its products by up to Rs 18,000. Mandatory use of vehicles powered by alternative energy sources could lead to a demand for different types of vehicles. The Company has developed products powered by alternate energy like CNG and electricity to provide lower polluting products for a better environment, which minimizes this risk. The Company has also developed prototypes of a hybrid Scorpio and hydrogen powered 3-wheeler and 4-wheeler, thus demonstrating its capabilities to change in accordance with the external conditions. It also developed bio diesel powered Scorpio and Bolero in 2007. Hence the Company is well placed to move with the trend towards alternative energy vehicles, should it take place. Acquisition of Reva can be attributed to this move.

Mergers and Acquisitions

In the last 5 years, M&M has made many small and big acquisitions, mainly for entering in to new geographies, for entering in to new business or to gain a command over their major supplies. Each of M&M's automotive acquisitions over the last 5 years was significant in its own way. M&M acquires a 70 per cent stake in South Korea's SsangYong Motor Co for about Rs.2,100 crore. It is the largest outbound deal by M&M, which now plans to introduce SsangYong vehicles in India in 2012. This acquisition is to enter in to the Korean market, where SsangYong has a significant market share in the SUV business. At the same time they are planning to use SsangYongs marketing and distribution reach in Russia, Latin America and Western Europe to realize its ambitions of becoming a global major. M&M acquired the SsangYong at the right time and in right price.

11 M&M buys an 80 per cent stake in Kinetic Motors' two-wheeler business for Rs 110 crore. This is run as a separate company, Mahindra 2 Wheelers. This helped the company to foray deeper in to the 2 wheeler business Another major acquisition is the 55.2 per cent stake in Reva Electric Car Co. Even though Mahindra-Reva made a loss of Rs 28 crore in 2010/11, M&M will benefit in the long run from Reva's electric vehicle technology, and the acquisition will revive M&M's own alternative propulsion projects. The decision to buy the Reva went in the right direction for M &M. Soon after M&M bought Reva, the government announced tax breaks for electric cars. M&M has a great future if they can leverage the acquired technology. There are lots of other major acquisitions, especially vertical integration made by M&M in the last 5 years in automotive component. Even though M&M has acquired major stake in companies over the globe, they are not so aggressive in their decisions. Their decisions were prudent and this explains heightened sense of caution with which M&M goes after acquisitions, especially those with a higher degree of risk or of a size that may be difficult to digest. An example is the group's decision to drop out of the race to buy JLR.

Actions to strengthen competitiveness via strategic alliances and collaborative partnerships

M&M has partnerships with international companies like Renault SA, France and International Truck and Engine Corporation, USA. Mahindra Renault Limited was a Joint Venture between M&M and Renault S.A formed in 2007. A bigger setback for M&M has been the Logan, a mid-size sedan that is the offspring. The car flopped and the partners parted ways after four years of friction. M&M is selling the remaining units as its Verito brand. But this alliance paved a way for M&M to enter in to the mid-sized sedan car segment. The other major partner whom M&M tried and partially failed is with International Truck and Engine Corporation, USA, where the company aimed its maiden entry into the heavy trucks segment with Mahindra Navistar. But the deal is temporarily stalled due to legal & political issues, manufacturing related issues and some partnership issues. Mahindra became the first Indian automaker to enter the North American passenger vehicle market through its strategic alliance with the Global Vehicles USA Inc. of Alpharetta, to import and distribute Mahindra SUVs and pickups in United States. The decision to enter the U.S., the most demanding automotive market in the world, is a deliberate and rational as M&M knows the U.S. forms a crucial part of the strategy to make Mahindra a truly global company. In 2010, Mahindra & Mahindra (M&M) signed a memorandum of understanding with the State Bank of Bikaner and Jaipur (SBBJ) for vehicle finance. This will help in easy

12 availability of vehicle loan for the Mahindra customers. This increases M&M competiveness in the market. Mahindra have alliances and partnerships with various dealership firms across South Africa, Pakistan, Europe and Latin America mainly for exporting tractors and SUVs to that country. Even though there are alliances, which are not so successful, the company is prudent in its decisions and has always corrected their strategies whenever it is required. Also these alliances and partnerships are considered as a great learning experience in understanding the different technologies and made the company stronger. A great example of this is the birth of Scorpio, truly indigenous SUV from Mahindra, after the failure of their partnership with Ford in 2002. M&M is very specific about their alliances and partnerships. They never tried or made alliance/partnerships in their core business, SUV and Tractor business, where they have a core competency.

Actions to diversify the companys revenues by entering new businesses

M&M started as a Jeep manufacturing company under a license and an agreement with Willys Motors Inc. As and when they found new opportunities, M&M diversified its business. In 1995, the Automotive division undertook to introduce a wide range of products such as mini bus, MM Deluxe, Armada deluxe, Cabking pick-up, CLClassic & a single/double Cab pick-up etc. In 1999, M&M has set up a new company - Mahindra Auto Specialties Ltd - for bullet-proofing passenger vehicles and providing specialized services. In 2008, Mahindra acquired major stake in Kinetic Motors, and entered the two wheeler segment. It also made its entry into the passenger car segment with the Logan in April 2007 under the Mahindra Renault joint venture. M&M will make its maiden entry into the heavy trucks segment with Mahindra Navistar, the joint venture with International Truck, USA. M&M identified the potential in the After-Sales sector of personal vehicles, which is untapped and expected to grow by 17million per year in 2015. Mahindra First Choice Wheels is the countrys preferred used car mart and is Indias only organized multi-brand player, with 125 outlets across 80 cities in India.

Actions and Approaches used in managing R &D, production, sales, marketing, finance and other key functions
M&M always implemented competitive technologies at their production centers. In 1997, with the technology received from Fuji Technica, Japan the company undertook to manufacture dies for vehicle bodies in the new Die Shop. That helped the company to introduce 7 new models to cater to different niche markets. In the same year, M&M implemented Mahindra Production System (MPS) which is an amalgamation of latest work measurement techniques and Toyota Production Systems. M&M set up an engineering and product development center at Thane to strengthen its technology and designing capacities in 1998. In 2006, M&M and Renault joined hands yet again to establish a Greenfield passenger car manufacturing plant in India within five years. M&M has managed its finance

13 activities well in advance. In 2000, the Company had a tie-up with Citibank for a channel financing agreement for their dealers. In 2009, M&M signed a memorandum of understanding with the State Bank of Bikaner and Jaipur (SBBJ) for vehicle finance. To ensure the 100,000-plus staffers are on the same page, M&M has started detailed human resources exercises which include incorporating Rise in performance management systems. It has, for example, launched a new metric called Employee Promoter Score. Under this, people will be judged how enthusiastic an employee is to recommend Mahindra products. [http://articles.economictimes.indiatimes.com/2011-01-17/news/28428433_1_newbrand-aerostaff-australia-m-m-vice-chairman]

Overall Strategy of Mahindra & Mahindra

M&M from their beginning has forayed in to different business, but at the same time they never lost focus on their core competency in Off-road vehicles, specifically SUVs and Tractors. As the company desires to achieve economies of scale, their present strategies are to expand the addressable market by entering into new customer and market segments, continually refresh and update its product portfolio and by investing significantly in R&D. It also pursues global expansion through organic and inorganic routes. The objective of the company is to become the no. 1 player in tractor business and leading player in the SUV business, both globally. They are also upgrading their production facilities and acquiring new technologies to meet the global standards of quality, technology, testing norms, regulations and emissions. Compared to other Indian Multinationals, M&M is taking prudent and less aggressive decisions in acquisitions. This made most of their acquisitions successful and those which are currently in loss has a great potential for the future. Acquisition of SsangYong Motor Co is an example for this. M&M has always taken wise decisions in its strategic alliances and partnerships. They never made an alliance/partnership in their core business, Tractor and SUVs, where they have high competency. The company does not want to lose its core competency. But they have tried their foray in to new businesses and products like mid-segment sedan cars, trucks etc. through major alliances. Apart from acquisitions and alliances, Mahindras strategy involves focus on achieving cost leadership through focused cost optimization, value engineering, improved efficiency measures like supply chain management, countrywide connectivity of all its suppliers and dealers and exploiting synergies between its sectors. The farm equipment sector strategy has been aligned to farm tech prosperity of the Indian farmer. It focuses on delivering products that enhance farm productivity.

14 The time to market and cost of new product is significantly good compared to the peers in both domestic and international. This is evident from the fact that the development of Scorpio cost barely US$ 120 million, whereas globally developing such a vehicle can cost US$ 0.6-1.5 billion. The same is true for their latest development of SUV model XUV500. This is a significant achievement and key differentiator which helps the company to achieve a significant growth. The company is good in identifying the key requirement of the industry and the customer as well. The introduction of Scorpio is in tune with their ability to identify the gap in the auto industry. In all businesses today, aligning human resource management with business strategy has become an important element to succeed. At M&M, Organizational restructuring, managing key resource requirements, performance management systems, career and succession planning have all been re-aligned to form synergy with the companys overall business strategy. On the CAPEX front, M&M has cut short their production capacity investment, but retained strong capital expenditure on product development. The reduction in capacity expansion is for short term because of the concerns on the industry growth projection for the next two-three years. Parts of these strategies are proactive and some are reactive in nature. Proactive elements Sensing the global shift towards sustainable mobility driven by climate change concerns, M&M is heavily investing in new alternate fuel technologies. The recent acquisition of Mahindra Reva Electric Vehicle Private Limited is an important step towards remaining at the forefronts of these developments. This is a proactive measure taken by the company as part of its strategy. The acquisition of SsangYong Motor company ltd is a proactive step taken to achieve an early global presence. Reactive elements The joint venture with Renault to manufacture passenger cars was a step to counter the cut throat competition in the sector. More focus on MUVs and commercial vehicles due to developments of projects like Golden quadrilateral road project, North/South/East/West corridor projects as they are the most preferred vehicles on such roads. Abandoned strategy elements This is evident from the Rise Transformation done by M&M at the beginning of 2010. The companys initial objective was to demonstrate that Indians were second to none which worked very well. As time went by two things happened. Firstly India grew in stature and Indian companies grew. So the company wants to move away from defensive strategy to more proactive strategy. Secondly the company was becoming increasingly global through mergers and acquisitions, so the initial objective will lack connect with the increasing number of foreign expats in

15 the company. So the company identified the need to change their core purpose and objective. The Rise move is intended to add value to the stakeholders through core values, core purpose, sense of urgency and commitment. Another major findings are that M&M always abandoned their strategies which they found not successful or at par with their objective and values. A few examples to strengthen this argument are the breaking of partnership between M&M and Ford at early 2000. Mahindra Ford India Ltd (MFIL), a 50-50 venture with Mahindra & Mahindra was set up to make Ford Escort cars. Since it was not successful, M&M dismantled the partnerships. Another example is the par between M&M and Renault, where they launched mid-sized sedan car, Logan in Indian market. As and when M&M found a rash in relationship between Renault, they stopped that alliance. But the good thing about these unsuccessful alliances is that M&M gained valuable knowledge in automobile technology and other production related process and technologies, which helped them to come up with their most successful and iconic brand/product of Mahindra, the Mahindra Scorpio. Synergy between the M&M divisions Mahindra and Mahindra is constantly looking to achieve synergy between auto and farm equipment segments. The first such effort was Mahindra Spares Business, which was formed in 2002 and has been one of the first synergistic operations in M&M. This synergy was achieved by capitalizing on combined network of dealers, distributors and stockiest, both for auto and tractor spares. The underlying objective was to consolidate the operations to drive the benefits of scale and critical mass. Presently around 70 per cent of suppliers are common for various parts like sheet metal, frames and engine-related technology. So placing order in larger volumes will bring down the sourcing cost for the company. The recent decision to make Pawan Goenka, president, automotive division, shoulder additional responsibility of the farm equipment sector strengthens the view that the company has strong focus on economies of scale coming out of the synergy between the Auto and Farm businesses. M&M is now looking for sharing the facilities for production, product development and technology. The biggest demonstration of synergy is in its two recent projects. One is the flexible manufacturing plant at Chakan, which will make products as diverse as the new global SUV, trucks, commercial vehicles and two-wheelers. This makes Capex and Opex per unit much lower. Most importantly, it gives the flexibility to meet the fluctuating demands. The second project is a new R&D centre, Mahindra Research Valley, in Chennai, where M&M is co-locating its entire R&D, again will help to reduce their expenditure. At the same time, there are no changes on sales, service and marketing of Auto and Farm business. There are no plans to bring these operations together. The company has different focus areas and customer base for both the businesses.

16 [http://www.mydigitalfc.com/careers/goenka-takes-charge-mm%E2%80%99s-farmequipment-biz-029] [http://www.businessworld.in/businessworld/businessworld/content/Surface-AirCompany.html?print=yes]

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External environment analysis

India is home to a vibrant automobile of more than 40 million vehicles. It has been one of the few countries which saw growing passenger car sales during the recession of the past two years. In fact, in 2009-10 it has recorded its highest volumes ever. It is believed this upward trend will be sustained in the foreseeable future due to a strong domestic market and increased thrust on exports. The Indian economy has grown at an average rate of around 9 percent over the past five years and is expected to continue this growth in the medium term. This is predicted to drive an increase in the percentage of the Indian population able to afford vehicles. Indias car per capita ratio (expressed in cars per 1,000 populations) is currently among the lowest in the worlds top 10 auto markets. The twin phenomena of low car penetration and rising incomes, when combined with increasing affordability of cars, are expected to contribute to an increase in Indias automobile demand. According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected to increase to 5 million by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads.

Policy/Regulatory/Legal forces
Emission standards These norms have been progressively made stringent and India has adopted the European emission standards and test procedures. Bharat stage-II norms which stipulate vehicular emission standards are in place throughout the country. BS-III norms are in place in 11 major cities of the

18 country. Auto makers have to keep in track with the standards specified in their product to avoid legal issues.[ http://www.siamindia.com/upload/AMP.pdf] Safety requirements - The current traffic conditions, driving habits, traffic density and road user behavior necessitate that maximum safety be built into the vehicles. Progressive tightening of safety standards taking into account unique India requirements is being addressed. Central Motor Vehicle Rules (CMVR) came into force from 1989 and serious enforcement of regulations came into effect. It deals with construction, equipment and maintenance of vehicles and in addition to rules governing emission limits; there are several rules requiring motor vehicles to comply with safety regulations. Vehicles being manufactured in the country have to comply with relevant Indian Standards (IS) and Automotive Industry standards (AIS). [http://www.siamindia.com/scripts/background.aspx] Fuel specifications - The fuel quality plays a very important role in meeting the stringent emission regulation. Specifications on the composition of gasoline, diesel, petrol, etc. are in place in an attempt to reduce the pollution. Automobile manufacturers have to design engines that work most efficiently with the given fuel specifications. [http://www.siamindia.com/s cripts/fuelspecifications.aspx ]

Demographic Societal factors

and

Urbanization - Joint families in towns and villages have given way to migration of younger generation to cities in search of better opportunities. The new age educated migrants and nuclear families have higher purchasing power. Presently, the rate of urbanization is 30% and is likely to increase to 40%. Emergent middle class - Post 1980s, a surging economy has created millions of new jobs in the private sector. This has led to a lot of prosperity in the working class and middle income households. According to planning commission report, between 2003 and 2009, 130 million people have been added. According to McKinsey, the middle income group will grow from 50 million to 550 million by 2025.

These 2 trends reflect greater prosperity among Indians and will translate into higher demands for car in the immediate future. [http://www.kpmg.de/docs/Auto_survey.pdf]

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Technological forces
Hybrid vehicles Hybrid vehicles are becoming increasingly popular. Hybrid cars typically give 1.5 2 times greater efficiency and lower emission than conventional cars. Many car manufacturing giants are designing cars with this technology as fuel efficiency is the need for the hour Electric vehicles - Electric cars run on fuel stored in a batter which can be replenished by plugging the car into a recharging unit. Major players such as Tata and GM India are planning to launch electric variants of Nano and Spark. Mahindra has Reva in its portfolio through the acquisition of that company. Fuel cell technology - Hydrogen and oxygen are converted into water, in the process producing the requisite energy for the car. All major companies such as GM, Ford, Toyota and Honda are conducting researches on this technology. Increasing Digital Content - Digital content such as navigation systems, rear seat entertainment systems, and driver assistance applications have increased and are now considered mainstream products. Fast Automotive Innovation Cycle - A typical automotive design cycle is approximately 24 to 36 months, which is much faster than the 60-month life cycle from five years ago. Short design cycle times place tremendous pressure on system suppliers to quickly prototype and demonstrate their designs to OEMs. Expect this trend to shorter development cycles to continue. [http://www.altera.com/end-markets/auto/industry/aut-industry.html]

General Economic conditions

FDI - Under the Auto Policy framed in 2002, government allows automatic approval of foreign equity investment up to 100% for the manufacture of automobiles and auto components. Further, it also promises fiscal incentives for the manufacture of multi utility vehicle that can provide mass transport systems in rural areas. Fiscal regulations - In the Exim Policy 2001-02, the government hosted various non-tariff barriers to protect the domestic industry. Vehicles need to confirm to Central Motor Vehicle Rules. Import would be allowed only through the Mumbai port.

20 Finance schemes - Most nationalized and foreign banks have very tempting finance options for purchase of cars and 2 wheelers. There are specialized companies that finance the commercial vehicles. All this has made the dream of owning a vehicle an easy reality. Government spending Government is spending heavily in improving the infrastructure of the nation. These include better roads, better traffic control and better connectivity which will enhance the sales of automobile in the country. Improvement in rural roads will increase the sales of commercial vehicles and 3wheelers as they help in transport of agricultural products. Improvement in rail connectivity will help in easy movement of raw material and finished goods. On the other hand, betterment of public transport system might have negative consequences.

Global forces
Global crude oil - The developments in Middle-East and North Africa coupled with vagaries of global weather have resulted in oil and food prices casting a shadow over forecast on growth, inflation and policy action. The RBI has since March 2010 raised key policy rates. As a result, FY 2012 would be a challenging year as corporates face commodity price increase and demand gets threatened by rising interest rates.

Interaction of various macroeconomic forces

The global crude oil prices have been continuously increasing. Also strict restrictions are being brought into force by the government to curb harmful emissions arising from automobiles. Consequently more and more investment is flowing into development of more environment friendly automobiles. This has consequently led to an increase in the prices of automobiles on offer. Also because of rising global crude oil prices we see an increase in cost associated with usage of automobiles. Hence there is a renewed focus on technology innovation by the automobile companies to come up with hybrid vehicles and also alternate fuel technology vehicles. The demographic trend points to increasing employment levels and disposable incomes. This has dramatically increased the purchasing powers of consumers. Also the general economic environment can be conducive for investment in automobiles. But presently the increase in interest rates and the slowdown in the demand for vehicles in global market have resulted in demand contraction in the automobile sector. The global recession had its effects

21 significantly on the Tier-II and Tier-III suppliers, especially those in the forging, casting and fabrication industry, who had laid-off skilled and semi-skilled labor, found it difficult to get them back as the industry as picked up. This resulted in more dependence on the imports of Tier 2 and Tier 3 supplier components at higher costs, resulted in the cascading effect in increase in the price of raw materials to the final auto manufactures.

Porters 5 forces analysis

Internal rivalry The Indian Auto Industry has seen a steady increase in total production over the years. The sales are expected to increase to over 5 million by 2015. This highly growing market has invited many international players into the sector on top of the existing India giants making it extremely competitive. Firms like Ford, Hyundai, Renault and BMW have started their Indian operations in Chennai and other parts of the country. Presently, the Indian market has 13 foreign players, 5 joint venture brands and 6 local brands and hence, any product offering by any company is matched by its competitors in the next 2 -3 months. Entry Car brands in India have a variety of features in which they differ from the predecessors. An entrant has to spend big amounts on safety, motor management, comfort, design and numerous other functions. The Indian customer is also always focused on brand loyalty and this is an advantage for the existing firm. Companies like Maruti Suzuki derive huge brand loyalty. One of the biggest KSF for this industry is the distribution network. Old and established players have a flawless network with strong bonds with dealers. These relations help the firms exert control over the sales in order to execute the marketing strategy, price policy, high service levels for the customers. This will be a huge impediment for the firms entering. Investment costs are also high and Indias inflation poses threat to entrants. Inflation has led to rise in prices of Steel. Increasing petrol prices in India have led to drop in car demands making it difficult for existing companies to itself attain economies of scale. Conclusively, threat to entrants is high. Substitutes and complements Threats from substitutes are moderate in the Indian automotive industry. The 2 major substitutes in the country are 2-wheelers and public transport system. Huge chunk of Indias middle class families prefer to start with 2-wheelers which involves lesser initial investment and lower operational costs. Raising petrol prices is also a driving factor for people switching to 2-wheelers. Indian government is also investing heavily in its infrastructure and

22 many tier one cities (major customers for the industry) have started the metro rail operations. A strong public transport system can make people switch from cars. Suppliers power There are different kind of suppliers for the auto industry. They are the braking system, classic and frame, cooling system etc. However the most important supplier is the steel supplier. The concentration of car makers and the ongoing out sourcing of car manufacturer represent new challenges for the supplier. It becomes vital for the steel suppliers to extend their core competency because the car companies are growing bigger year by year and they have more bargaining power. Companies like TATA have satisfy their demands themselves. Conclusively, the suppliers have low bargaining power in the sector. Buyers power The growing middle class is becoming a significant fraction of car sales for major companies. This middle class is funded by various auto loans; they have access to internet and are well informed. This gives the buyers a huge bargaining power. Moreover, the switching costs are also very low in this industry. The five forces put together make the automotive industry an attractive and a profitable proposition.

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One step backward Porters 5 forces for suppliers

The automotive industry is growing and profitable. The suppliers have consolidated and have achieved economies of scale. This coupled with the strong relationships with big auto manufacturers and heavy capital expenditures necessary make it an attractive proposition for the suppliers of auto industry.

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One step forward Porters 5 force analysis for buyers (M&Ms dealers)

The exclusive distribution strategy adopted by Mahindra & Mahindra makes it a safe bet for its dealers. Hence it is attractive & profitable for automobile dealers to be part of the forward value chain of Mahindra & Mahindra.

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Causes of dynamicity in External Forces

Factor causing dynamicity in the medium term
Growth - Indias automobile market has grown at an unprecedented rate over the last six years, with the exception of the previous two years where the effects of the global downturn were felt, in sales of commercial vehicles. While most developed markets have reached saturation of growth, Indias automotive sector is booming in synchronization with its GDP and economy as a whole. The Indian market, unlike other countries with the exception of China, is evolving in a fashion which has 3/4th the space occupied by two-wheelers.

Affordability Vehicle affordability remains a concern in India. Although the price of an average motorcycle in India (about USD 900) is comparable to the average per capita income, the prices of passenger cars have a long way to go. Since the Indian economy is growing at a very high pace, average per capita income is also expected to increase with it. Although the entry level car (Nano) is priced at around USD 2,500, the passenger car market could grow multi-fold if there is a break-through of another price level in the years to come. Cost leadership will always remain the way ahead in the short term future. Untapped markets - The automobile industry has yet to fully tap into demand from rural areas. Figure shows the steady growth in demand for passenger vehicles from rural areas, accompanying the growth of the overall segment. While the Indian automobile industry seeks to double total sales on the back of steady growth over the next decade, these relatively

26 under tapped demand segments (rural markets, youth, women and luxury cars) are expected to play a significant role. Consolidation - Indias attraction as a destination for automobile manufacturers has been underscored by the number of new manufacturers entering the country over the last two decades. Unlike in several markets, the number of manufacturers has continued to grow in India over the years across vehicle segments. The Indian market is evolving as the next big opportunity and players from across the world see it as a natural extension of their business domain. And Indian players in the automotive sector are now viewing the entire global market as an opportunity. With high skill levels and a competitive environment, they are no longer restricted to viewing India alone. Fuel economy India has always been primarily driven by fuel economy. While the US government is setting norms to achieve fuel mileage of 35 mpg on petrol, a majority of Indian cars already offer that much. With the increasing price of crude oil (and consequently petrol, gasoline, diesel, etc.), the performance expectation is bound to increase in the near future. Fuel economy will also be an important factor in the truck sector. Some 65% of the total cost of ownership of a truck is fuel consumption. This directly goes into the profit and loss of the customers.

Factors causing dynamicity in the long term

Green revolution The rise in price of oil along with the increasing pressures on environmental concerns, stringent emission policies from the government and technological advancements have made companies significantly progress in green vehicle technology. There are 3 drivers for green vehicle development globally I. Government/ Regulatory support a. Example: ethanol subsidies in Brazil b. Tax incentives in US and Israel Customer Power a. Availability of customers who are willing to pay premium price for such cutting edge technology b. Celebrity endorsements to hybrid vehicles thereby underlining their green credentials c. Consumer activism: Increased environmental awareness among customers leading to demand for greener vehicles

II.

27 III. Investment in technology a. Many firms in India have started designing and manufacturing electric and hybrid vehicles. Eg, M&Ms Reva b. Cluster of support Industries such as batter industry in China c. Availability of investors willing to take risky bets. Ex, Silicon Valley backed Tesla motors

This global phenomenon is soon to affect India and the country will see similar trends emerging. Indian auto industry today is evaluating two paths towards greener vehicles. I. CNG/Dual fuel vehicles The government has already made its move by ordering the conversion of diesel/petrol based public transport vehicles to CNG based ones in cities like Delhi and Mumbai. India has the fifth largest number of CNG vehicles. It is believed that at least 5 percent of new car buyers opt for a CNG variant where available. This is because, even though the CNG/dual variant is costlier initially, it pays off through lower operational costs. Electric/Hybrid vehicles Electric vehicles have just begun making some inroads into the market. In passenger cars, there is only one established domestic manufacturer, Reva, whose sales account for less than 1 percent of all passenger cars sold in India. Electric/hybrid commercial vehicles are mostly in the experimental stage at the time of writing so it is not yet clear how this industry will shape up in India. The move towards greener commercial vehicles is currently limited to the major metropolises because consumer activism is still gaining momentum.

II.

Green revolution is definitely the way ahead for auto market globally and in India. Mobility revolution - Globally, OEMs recognize the potential of other modes of transport to complement traditional private vehicle use. Alternative transportation represents another area of interest for the automobile industry, but opinion is divided on whether it represents an opportunity or a threat. In India, the share of public transportation has declined while private vehicle ownership has been booming, driven by growing urbanization and increased affluence. Alternate mobility revolution is just taking off in India. The alternate mobility revolution in India has the following options. I. Metros/BRTS Metros are being built in all major tier-I cities of the country and Bus rapid transport system is being planned for various tier-II cities.

28 II. III. Fleet taxis/buses State governments have started investing in their respective road transport corporations. Rural mobility Many parts of rural India is not well connected. Government is spending heavily to improve the connectivity.

Government spending, which is a general economic force, has increased tremendously in infrastructure over the last 3-5 years. This will emerge as a long term trend as the effects of a well-established public transport system can be seen only after 5 to 10 years.

Key Success Factors

Industry level key success factors
Safety Safety of the vehicles manufactured is a basic success factor in the auto industry. Automakers must also ensure that the vehicles they sell are in compliance with various federal and local regulations. In India, Bharat Stage norms layout the emission specifications and Central motor vehicle rule (along with Indian Standards and Automotive industry standards) specify the safety requirements. Image - One critical factor that often defines an automotive company is its public image. Because buyers entrust their safety, along with a sizable portion of their income, to a car company, the perception of the company figures greatly in the buying decision. Distribution network - Cars and trucks are not sold directly to customers, auto manufacturers rely on franchised dealerships to provide local showrooms. These dealers must be knowledgeable and reputable to sell cars, which is essential for the automaker. Greater number of showrooms will also help the customers get a better buying experience and the company will enjoy a wider reach in the geography. Flexibility Auto industry is a cyclical industry. It is also highly sensitive to factors like state of economy, fuel price, technological advancements etc. To be successful, a company has to be flexible and highly responsive to such changes. It is essential that automakers remain attentive to these trends and keep in place a system that can adapt quickly to create new products that meet the current and near-future needs of customers. After sales service Service is a very critical expectation of the auto buyers. An after sale service which provides the necessary spare parts, shorter service time etc. wins more customers. Given the strength of internal rivalry in the industry, service becomes a critical success factor. Auto makers now have service stations across the geography to support their buyers. Fuel economy Fuel economy has been a primary driver of the Indian auto industry. Major chunk of the customer base belong to the burgeoning middle class who are extremely conscious about the performance of their vehicle. [http://www.ehow.com/list_6181968_automotive-critical-success-factors.html]

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Firm level key success factors

Frugal engineering Mahindra possesses a strong and efficient research and development division. This enables them to compete with its rivals on price. For example, the company's indigenous development of its model Scorpio has received international attention for the fact that it cost barely US$ 120 million to develop, whereas globally developing such a vehicle can cost US$ 0.6-1.5 billion. Technological advancement in greener vehicles The external environment analysis revealed that in the long term, the industry is heading towards a green revolution. Mahindra is a forerunner in it as it has the countrys first electric vehicle. The company is well poised to have first mover advantage in this area. Faster to market Its R&D divisions efficiency helps M&M to reach the market with products much faster than its peers in the utility vehicles segment. Both Scorpio and XUV 500 were designed and brought to market in record time. Global presence Through various joint ventures and collaborations with international players, it is making its presence across the globe more prominent. It is already making LCV, MCV and HCV that are being exported to various markets like Asia, Middle East, Africa, Russia and Central Europe apart from serving the domestic markets. As we saw earlier that, consolidation is a dynamic trend that is evolving and Indian players are looking beyond the countrys boundaries, M&Ms established global presence will give it a huge leverage. [http://www.scribd.com/doc/56512724/Mahindra-Mahindra]

Competitive landscape
The Indian auto industry is highly competitive with a number of global and Indian auto-companies present. Most automotive players are present in more than one segment of the industry. The booming Indian economy and auto industry has attracted a good number of international players. Huge amounts if investment is also going into this market.

Mahindra versus its competitors

Mahindra & Mahindra majorly focusses on MUVs and tractors. It is a market leader in India in these segments. However, it slowly diversified into other segments and today has a wide portfolio. Below figure shows the portfolio of M&M viz a viz its competitors. Compan y 2wheeler 3wheeler Car s Electric / Hybrid SUV s MUV s Tractor s CV s Boats / Aircraf t

30 s Mahindr a Toyota VW Honda Renault Ford GM Hyundai * s ships **

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Future launches
2012 will be an action packed year for the Indian auto industry, with double digit launches in the utility vehicles, passenger vehicles and commercial vehicles segment. Mahindra & Mahindra will have to be on their toes to stay on top of each category. The utility vehicle segment which is Mahindras forte will also be highly competed. However, most of the planned launches are skewed towards high premium MUVs. These launches are largely by global companies such as Audi AG (NSU GR, NR), BMW India, Ducati Motor Holding (DMH IM, NR), General Motors India, HMSI, MercedesBenz India, Ssangyong Motor Company (003620 KS, NR), Toyota Kirloskar Motors, Triumph Motorcycles and Volkswagen India. Mahindras products in this segment compete on price. Scorpio, Xylo and XUV 500 occupy a unique position in the price spectrum of utility vehicles offering a unique value proposition. New entrants and smaller manufacturers such as Mahindra Navistar Automotive, Asia Motor Works and Force Motors have planned launches in the commercial vehicle segment over 2012. These launches are unlikely to have a significant impact on market shares of established players such as Ashok Leyland (AL IN, NR), EIM and Tata Motors (TTMT IN, NR) as transport operators prefer timetested products. Traditionally not Mahindra & Mahindras forte, this segment will see close to a dozen launches from well established players including Hero MotoCorp, Honda Motorcycles and Yamaha.

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Influencers and Shapers

Recommendations
We have come up with few recommendations based on the dynamicity in the external factors in the short term and long term and on analyzing M&Ms current strategies and core competencies. Recommendation 1: Leverage the existing brand equity of Scorpio, Xylo for other product portfolios. Explanation: The brand Mahindra is known for its ruggedness. Now it needs to add an aspirational value and build a clear character around that just like Hyundai is known for value for money, Toyota for quality, BMW for engineering and Land Rover as an off-roader. Mahindra's UVs have earned a reputation for their hardiness. The Scorpio and the Xylo also contributed the attribute of reliability. Now the biggest challenge is to transfer those attributes to other segments of the auto chain whether it is two-wheeler or sedan. The challenge is on how to leverage M&M's core attributes of "ruggedness, reliability and resilience" across all product lines. The same applies to the integration of all the acquired companies being it Reva or SsanYong. Recommendation 2: Create divisions within the organizations to focus on each automobile category. Explanation: Another issue is about how long M&Ms diverse portfolio of auto products/business can go together. As per the opinion of board of several other Indian and global companies, it is very difficult to transfer leanings on product development and marketing between cars, trucks and UVs as the mindsets involved in each are different. To maintain a strong foothold in their respective business in the long term, M&M needs to focus on each auto business and give each due attention. M&M is widening their portfolio at a great pace with the same senior management bandwidth. But the issue here is how effectively they can provide adequate focus and resources to each of these businesses. So in the long run, the company has to look for an internal restructuring with each unit heading separately.

33 Recommendation 3: Locate production centers in multiple countries to meet local demand efficiently in the long run thus reducing overdependence in any one country. Explanation: On the manufacturing front, most of their production plants are in India, especially its competent products UVs. The company is looking for more its global expansion; this will be a major bottle neck for the company in the short term and long term. The shipping and the transportation cost is increasing. The new initiative and the innovative method used by the company, CKD kit (Complete Knock-down kit) especially for UVs, will help to reduce the transportation cost to a great extent. The process followed by the company is making CKD kits of the UVs in their home production plants and transporting it to other countries like Latin America and Egypt, where the partnership firm will assemble the unit and sell. But this wont suffice once the demand picks up. So the company should look for more production facilities in these countries. This will help reduce country specific risk such as when strikes happened at Manesar. Recommendation 4: Increase focus on R & D to meet global safety standards Explanation: The other major issue, due to its global presence, is the safety and compliance and quality requirements of their products. Since they are present in different geographies, they have to adhere to the global standards as well as the specific country standards. The company should enrich their production facilities and R&D to meet these requirements. Recommendation 5: Invest aggressively hybrid/alternate technology to meet changing driving forces. Explanation: One of the major driving forces in the auto industry is Fuel price. The fuel cost is burgeoning resulted in more demand to the technology which is working on alternative fuel. This coupled with the burgeoning environment protection move by the major countries, will shift the KSF of an automobile company to the technology capability in clean fuel. Even though the company has made a move to this by acquiring Reva, the company should leverage the capability more. The critical component of the electric powered vehicle is battery. So the company either should do a vertical integration or JV or strategic alliance with any of the leading battery manufacturer. The other driving force is the demographics which includes age, lifestyle, disposable income etc. As there is going to be drastic demographic difference in terms of the average age in developing countries like India, and that of some developed countries like US , UK etc. The company should envisage the taste of disparity in young population and aged population. Their product design and features should focus this difference and come up with different products required for different countries.

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Suggested vision statement for Mahindra & Mahindra

Based on the recommendations put forward in the previous section, the vision we suggest for Mahindra & Mahindra is We will lead the way globally in the automobile industry, in a manner that will create value for our stakeholders and be environmentally responsible. We will do this by leveraging our existing distinctive competencies and at the same time forming prudent strategic alliances.

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