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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

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Partnering for Emerging Markets Focus on India

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  1. Partnering for Emerging Markets Focus on India Dr. Pawan Goenka President - Automotive Sector Mahindra & Mahindra Ltd. India

  2. 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 • India’s largest SUV/UV player • Alliances with Ford, Renault and International Truck

  3. 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

  4. The Indian Automotive Market • 11th largest car market • 4th largest CV market • 2nd largest 2W market • Largest tractor market • Largest 3W market

  5. Demonstrated Strong Growth Four wheeler market In ‘000 vehicles 13 % CAGR 18 % CAGR Source : SIAM Auto components $ billions 19 % CAGR Source : ACMA

  6. Future Growth Drivers • Strong GDP growth • Rapidly improving infrastructure • Rising disposable incomes • Favorable demographics • Willingness to spend • Easy finance availability • Replacement of ageing vehicles

  7. 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.”

  8. It’s 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

  9. 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

  10. GM Toyota Ford VW Group Honda Maruti Suzuki Tata Motors Hyundai Mahindra Ashok Leyland Global vs. Indian Top 5 Source : World motor vehicle production by manufacturer : World Ranking 2006 OICA July 2007 and SIAM data Apr-Mar 2007

  11. Strong Capabilities of Indian OEM’s

  12. The $ 2,500 Car (The NANO)

  13. 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

  14. Suppliers in India MNCs MNC-JVs MNC Alliances Indian

  15. Recent Newsmakers

  16. 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

  17. Strength of Indian partner Strength of MNC Benefits from Collaboration Source : Innovation through Global Collaboration: A New Source of Competitive Advantage, Alan MacCormack, Harvard Business School

  18. Design Engineering Sourcing Manufacturing Channel Partnership Options • Licensing • Tactical JV • Escort service • Product based • Asset based • Strategic JV • Comprehensive across the value chain Automotive Value Chain

  19. M&M Capability Scope of Collaboration Scope of CollaborationM&M Evolution Contract Mfg. Channel Product Dev. Sourcing Design JV Management Contract Mfg. Channel Investment Contract Mfg. Licensing Royalty

  20. Design Engineering Sourcing Manufacturing Channel LicensingM&M Case : Peugeot • 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

  21. Design Engineering Sourcing Manufacturing Channel Tactical JVM&M Case 1 : Mahindra Ford (50:50 JV) • Mid ’90s • Ford Escort assembly at M&M plant • Deliverables • M&M : Market knowledge, Capacity, Relationships • Ford : 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

  22. Design Engineering Sourcing Manufacturing Channel Tactical JVM&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

  23. Design Engineering Sourcing Manufacturing Channel Strategic JVM&M Case : Mahindra ITEC (51:49 JV) • 2005 : Comprehensive global CV tie-up • JV designing full range of CVs from scratch • Deliverables • M&M : Market knowledge, PD skills, LCVs, Capacity, Relationships, Sourcing and Engineering skills • ITEC : M&HCV experience, Engines, PD skills, Global brand, Sourcing and Engineering opportunity • Structured to meet both partners’ complementary aspirations

  24. Critical Negotiation Issues • Shareholding • Dilution • Termination/exit pricing • IPR • Branding • Management • Governing Law

  25. Other Negotiation Issues • Non Solicitation • Non Compete • Differing return requirements • Negotiations of key products and services purchased from parents • Consensus decision items

  26. 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

  27. 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

  28. Key Success Factors • Know, appreciate and accept both partners objectives • Good negotiating process covering all future contentious points and scenarios • Build and nurture trust

  29. Key Insight Both partners must accept Equal partnership of Un-equal partners

  30. Thank You

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