Mahindra & Mahindra in South Africa
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How attractive is the South African auto market for growth and profitability? What is your assessment of M&M’s experience with its South African subsidiary to date?
As a company culture Mahindra & Mahindra believes that globalization gives M&M access to new technologies, new markets and new skill sets. South African market was being considered as a growth market for the future by M&M and therefore the company wanted to expand in the South African market.
In general the automotive industry was picking up following a recession between 2007 and 2009 and during 2010 it exceeded projections. Although the competition was fierce and leader brands production was higher than M&M, the company had found a niche SUV market which had a constant growth in its market share.
Another indication that South Africa indeed was a growth market with high profitability is that they had exports larger than 70 countries including Japan, Australia, Unites States and United Kingdom. M& M had saw an entry level opportunity in black African consumers by strengthening their brand equity. Black Africans earned less but they had higher disposable income, they were buying new vehicles, and lastly they preferred features providing design and comfort. M&M was ready to use this card to penetrate into the South African market where they saw high profit margins.
M&M formally entered the South African market in February 2005 by forming a 51% subsidiary M&M SA with a local partner. This was a very good move from M&M SA’s perspective as there were no local automobile brands, which would provide a great opportunity for them to increase their brad equity in the market. This was also a good move from their part to utilize the situation to gather further information about the market and get a local business perspective.
The company continued exporting cars to the South African market from India. With the new subsidiary the company formed a network of service outlets for its customers and a spare parts distribution network. This way M&M SA started to implement its own brand equity and brand recognition into the new market.
M&M SA had a constant market growth in South Africa with its niche SUV market despite the economic downturn between the years 2007 until 2009.
Finally in August 2009 M&M SA bought all company shares from its local partner as the company attached great value over fully controlling and managing their own businesses. The company had enough assets to operate without depending to a local subsidiary as they had 50% rule which basically provided the company to stay profitable even though demand falls as much as 50%.
2- What potential roles can M&Ms South African subsidiary play in the companys global network? What should be Shahs recommendation to M&Ms board of directors? Why?
Although M&M SA had an increasing net profit starting from their formal entry to the South African market up until 2011, the company challenged their market strategy as they believed this was a growth market of the future. Therefore by considering the growth opportunity and profitability of the market, the company decided to expand further into the South African market. M&M SA considered four possible options as a growth strategy in the South Africa. First option was to form an agreement with a local vendor for the contract assembly of M&M vehicles. The second option was to invest in its own manufacturing plant in South Africa. The third option was to use South Africa as a hub for the further export of the other countries and lastly to wait and watch until enough vehicles were sold for the sustainable long term growth.
As we already know that the South African automotive industry is growing with an impressive rate, it is beneficial to work with a subsidiary which will provide