Partnering For Emerging Markets: Focus On India

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 Indias 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
Source : SIAM
Auto components $ billions
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 Indias automotive sector will be US$ 145 billion by 2016, contributing to 10% of Indias Gross Domestic Product and providing employment to 25 million persons additionally.
Its 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. 2. 3. 4. 5. GM Toyota Ford VW Group Honda 1. 2. 3. 4. 5. 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 OEMs
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 Low cost materials Low cost suppliers Low cost infrastructure
Rapid access to capacity Technical know-how Process expertise Domain knowledge
Market access Supplier relationships Institutional ties 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
Escort service Product based Asset based
Strategic JV
Comprehensive across the value chain
Automotive Value Chain
Design
Engineering
Sourcing
Manufacturing
Channel
Scope of Collaboration
M&M Evolution
JV Management
Contract Mfg. Contract Mfg. Contract Mfg.
Channel
Product Dev.
Sourcing
Design
M&M Capability
Investment
Channel
Royalty
Licensing Scope of Collaboration
Licensing
Design
M&M Case : Peugeot

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
Design
M&M Case 1 : Mahindra Ford (50:50 JV)

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
Design
M&M Case 2 : Mahindra Renault (51:49 JV)

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
Design
M&M Case : Mahindra ITEC (51:49 JV)

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

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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Partnering for Emerging Markets Focus on India

Dr. Pawan Goenka

The India Opportunity

terms of GDP 3rd largest economy in PPP terms

Source :World Development Indicators database, World Bank, 14 September 2007

The Indian Automotive Market

Demonstrated Strong Growth

Auto components $ billions

Future Growth Drivers

AMP 2016: A Vision for Automotive Industry in India

Its Not Volume Growth Alone

8 out of top 10 global companies have India presence

They contribute 60 % of global production but 25 % of India Production

Global vs. Indian Top 5

Strong Capabilities of Indian OEMs

The $ 2,500 Car (The NANO)

Very Competitive Market

Source : Autocar India, The Economic Times, Dt. 26 Dec 2007

3Cs of Global Collaboration Strategy

Benefits from Collaboration

Rapid access to capacity Technical know-how Process expertise Domain knowledge

Market access Supplier relationships Institutional ties Government connections

Strength of Indian partner Strength of MNC

Automotive Value Chain

Contract Mfg. Contract Mfg. Contract Mfg.

Licensing Scope of Collaboration

M&M Case : Peugeot

Mid 80s Technical license for engines, and transmissions Deliverables

Pure limited life commercial transaction As M&M matured, need diminished

M&M Case 1 : Mahindra Ford (50:50 JV)

Mid 90s Ford Escort assembly at M&M plant Deliverables

Asset based partnership, as partners matured,

M&M Case 2 : Mahindra Renault (51:49 JV)

2005 : Product specific JV for Logan Deliverables

Asset based partnership but structured to meet both partners

M&M Case : Mahindra ITEC (51:49 JV)

Structured to meet both partners complementary aspirations

Critical Negotiation Issues

Other Negotiation Issues

Issues in Negotiation Process

Why JVs Fail

Key Success Factors

Equal partnership of Un-equal partners

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