Transcript Document

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
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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
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Source :World Development Indicators database, World Bank, 14 September 2007
terms of GDP
3rd largest economy in
PPP terms
The Indian Automotive Market
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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
CVs + Cars + Uvs
Source : SIAM
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Auto components
$ billions
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15.0
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Source : ACMA
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Future Growth Drivers
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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 …
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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
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GM
Toyota
Ford
VW Group
Honda
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Maruti Suzuki
Tata Motors
Hyundai
Mahindra
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
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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
– Product based
– Asset based
– Comprehensive
across the value
chain
Automotive Value Chain
Design
Engineering
Sourcing
Manufacturing
Channel
Scope of Collaboration
JV Management
Investment
Contract
Mfg.
Channel
Contract
Mfg.
Channel
Product
Dev.
Sourcing
Contract
Mfg.
Royalty
M&M Capability
M&M Evolution
Licensing
Scope of Collaboration
Design
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
– Ford
: Market knowledge, Capacity, Relationships
: 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
– ITEC
: Market knowledge, PD skills, LCVs, Capacity,
Relationships, Sourcing and Engineering skills
: M&HCV experience, Engines, PD skills, Global brand,
Sourcing and Engineering opportunity
• Structured to meet both partners’ complementary aspirations
Critical Negotiation Issues
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Shareholding
Dilution
Termination/exit pricing
IPR
Branding
Management
Governing Law
Other Negotiation Issues
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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
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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
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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