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1. Mahindra & Mahindra Farm Equipment Sector – Tractor Business
International Audit case study
International Business Management
Prof. Jean Paul Lemaire
Matteo Lanzi
Weifeng Zhang
Naufal Kukkady
Donata von Schack
26/11/2009
2. Assistant (Change via 'View - Header and Footer')
- 2 -
Agenda
Present Company
External Analysis
Internationalization Assessment
International Development Strategy
3. General Presentation of Mahindra Group
The Mahindra Group
Large industrial conglomerate in India
One of the most reputable Indian industrial houses
US $6.3 billion conglomerate with employee strength of over 75000
Ranked amongst Forbes Top 200 list of the World's Most Reputable Companies
Leadership in utility vehicles & tractors in Indian market
Sectors of operation:
Automotive
Farm equipment
Financial services
Trade and logistics
Automotive components
After-market
IT
Infrastructure sectors
Headquarters located at Mahindra Towers in Mumbai
- 3 -
5. Organizational Structure
Mahindra operates in a
federal structure
The various businesses
viewed as investments
They are evaluated only by
financial performance
All its businesses except the
newest ones are listed
separately
Automotive and Farm
equipment are listed together
as M&M Ltd as they display
great synergies
- 5 -
6. History
Incorporated by KC Mahindra and Ghulam Mohammad as a Mahindra & Mohammad to manufacture
Jeeps under license of Willys
Mahindra & Mohammad became Mahindra & Mahindra
Built on his expertise in the steel industry & began trading steel with UK suppliers
Listed on Bombay Stock Exchange
Entrance into world market as exporter of utility vehicles and spare parts
Restrictions of License Raj
Forced to expand into other businesses, creating a tractor division
Created tech division (now Tech Mahindra)
Continued to diversification since through JVs and Greenfield investments
Group divided into 6 Strategic Business Units:
Automotive; Farm Equipment; Infrastructure; Trade and Financial Services; Information Technology and Automotive
Components (Systech)
New Managing Director Anand Mahindra introduced new logo
Successful launch of the Mahindra Scorpio (a wholly indigenously designed vehicle)
Ranked among top 10 Indian companies in “Global 200: The World's Best Corporate Reputations” list.
As well as one of India’s 40 largest companies
- 6 -
1945
1948
1956
1969
1982
1986
1994
2000
2002
2007
7. Code of Corporate Governance
A reminder of the underlying principles governing the
conduct of the businesses
To achieve the best performance within the overall
context of the prevalent economic environment
To secure maximum benefit for all the stakeholders
Benefit:
Successfully integrate the beliefs, values, culture and
ethics of Mahindra Group to the system and process
Blue Chip Mantra
At M&M annual conference key priorities are defined
- 7 -
Governance
8. Good Corporate Citizenship
Seek long term success, in alignment with the country's needs, without compromising ethical business
standards
Professionalism
Seek the best people for the job and giving them the freedom and the opportunity to grow
Support innovation and well reasoned risk taking, but will demand performance
Customer First
Respond to the changing needs and expectations of the customers speedily, courteously and effectively
Quality Focus
Make quality a driving value in the work, in the products and in the interactions with others
Believe that the quality is the key to delivering value for money to the customers
Dignity of the Individual
Value individual dignity, uphold the right to express disagreement and respect the time and efforts of others
Nurture fairness, trust and transparency through actions
These values become the compass that will guide both personal and corporate actions of the group
- 8 -
Core Values
9. Farm Equipment Sector (FES)
- 9 -
Mahindra Tractors
World's top tractor brands; market leader in
India
Core business
Mahindra Samriddhi
Offer a wide range of agri-related services
Mahindra Applitrac
Offer total farming solutions to increase
mechanization level
Mahindra Shubhlabh Services Limited
Export seeds, vegetables and fresh fruits
Mahindra Powerol
Produce Diesel Generating sets and engines
10. Farm Equipment Sector (Tractors)
Among the top three tractor brands in the world
The first tractor company globally to win the Deming Application Prize in 2003
The first tractor company worldwide to win the Japan Quality Medal in 2007
Domestic operations
No. 1 tractor brand in India, since 1983, with a domestic market share of around 41%
Sells a range of tractors: Bhoomiputra, Shaan, Sarpanch and Arjun Ultra-1
High fuel efficiency and reliability
15 HP to 75 HP category tractors for the domestic market
International operations
Spread across six continents and in around 25 countries
State-of-the-art manufacturing plants in India and China, as well as plants in USA and Australia
Combined capacity to produce more than 170, 000 tractors a year
More than 1000 dealers world-wide
25 to 125 HP category tractors for international market
- 10 -
11. Area of Reference
- 11 -
6
2
1
3
Number of Plants
Tractor categories
Domestic Market:
15 HP 25 HP 75 HP 125 HP
International Market:
5
12. Expansion
1994 M&M FES starts its expansion by entering Bangladesh and Nepal (throughout M/s Karnaphuli and
M/s AGNI Incorporated Pvt. Ltd. serving as distributors, after-sale service and training) as well as
the American market (Incorporation of MUSA and focus on hobbyist segment <100hp)
Opening of second assembly line in Calhoun, Georgia (USA) to cut costs both for dealers and M&M
as well as to improve (after)sale services.
Entering markets of China (JV with JMCG, with a 12,000, 18-33 HP complementary production
capacity and an established distribution network), Chile (throughout M/s Gildemeister) and Sri Lanka
(M/S DIMO)
Entering markets of Australia (opening of assembly and customer support centre in Acacia Ridge,
Queensland), Africa (local dealers network), Serbia and Macedonia (throughout M/S
AGROPANONKA MTZ FINKE and Intermotors).
Opening of third assembly line in Red Bluff, California (USA)
Entering the Iranian market throughout an alliance with ITMCo in order to access the 80% market
share and assure high quality customer service thanks to the vast network hold by the partner
Entering the Turkish market throughout a partnership with ITCE Group in order to touch the 80% of
the farming community made by small and medium size farmers.
Opening of 4 assembly plants in Chaad, Mali, Nigeria and Gambia that import SKU from India in
order to deliver to African farmers affordable but still high quality tractors
- 12 -
2003
2004
2005
2006
2007
13. Expansion (continues)
2008 Entering markets of Botswana, Egypt, Niger, Congo, Yemen, Argentina and Cambodia
Opening of fifth assembly plant in Ghana, Africa in partnership with ZoomLion Ghana Limited to
ensure the technology transfer, provide employment opportunities and create a platform for skills
training and capacity building of local artisans.
Second JV in China with Jiangsu Yueda Group (Jinma brand). This strategic move let M&M access
a huge distribution coverage (Yueda has footprint in more than 60 countries including USA, Russia,
South-America and Africa), a larger manufacturing base both in terms of product line (now up to
125HP) and of economies of scale
Brand building campaign in USA designed to touch upon the various aspects within the life of the
typical Mahindra customer.
- 13 -
2009
Swaraj Brand
2004 M&M acquires 43,3% of the Punjab Tractors Limited, establishing its position of leader in the Indian
tractor market. This acquisition let M&M acquire a wider customer base (with decreasing market
share), a richer product portfolio also on an international basis and higher distribution coverage.
Consolidation of stake to 64,4% and displacement of production at PTL in order to utilize its large
manufacturing base
Consolidation of stake to a complete merger. Under M&M’s management the sales of Swaraj brand
increased by 57% and its market share went from 7,3% to 10,7%
2006
2008
14. Financial performance
F2009 results include PTL
numbers from 1st August 2008
Raised Rs 400 Crore in Non
convertible debentures even in a hostile
market
Domestic market share increased to
40.8% as result of merger
Growth of 25.1% in domestic market in
comparison to 0.6% of growth of entire
industry
Significant costs reduced as result of
merger
Maintained good ratings despite the
current economic scenario
- 14 -
15. Record increases in raw material prices, followed by industry wide price increases
Increasing labor cost
Continued high interest rates for tractor loans
High NPAs & resulting stringent lending norms remain a concern
Tractor industry exports likely to remain depressed
- 15 -
Main challenges
16. Assistant (Change via 'View - Header and Footer')
- 16 -
Agenda
Present Company
External Analysis
Internationalization Assessment
International Development Strategy
17. Sales are directly tied to farm income and crop production projections
Commodity prices, weather, crop production expenses (fertilizer, fuel, pesticide), credit availability
Large companies (John Deere, AGCO, and CNH) produce a full array of products, smaller companies
generally make a single product line
Production of diesel engines is the major separator between large and small companies → large amounts of capital and
expertise required
Big companies have large economies of scale – annual revenue of about $350,000 per employee
Small companies can be successful by making specialized equipment - annual revenue per employee of about $150,000
World tractor market is becoming more
consolidated
In developed countries like the US and most of
Europe very mature with few key players
Largest tractor markets are the US, China
and India
- 17 -
Farm Equipment Sector
18. M&M‘s positioning in the Farm Equipment Sector
Four principles: business leaders, innovative, global potential, financial returns
Strategic acquisitions and Joint Ventures to survive and prosper in an increasingly
consolidated market with global reach
Competitiveness, efficiency, distribution competence & network, manufacturing strength, market
knowledge, access to markets
Major products: tractors, self-propelled harvesting combines, tractor attachments,
equipment used for crop production and farm animal management
Tractors account for about 30% of the market, combines 25%
Strong and durable tractors for small and medium farmers - Product range going up to 125HP
Low cost manufacturing in China and India for exports
Mature Markets
US
Largest export market
Niche market of hobbyist segment
Sales of MUS decreased by 32% due to crisis/recession and changing exchange rates
Refocus from declining US market on Africa
EU
Obtained qualification to sell under MCTCL brand
Niche position in US, probably has no other option in other mature markets like EU
- 18 -
Strategic positioning
Strategic Markets
19. Home Market
India
One of the largest tractor markets in the world by volume, low penetration
Market leader with 40,8% market share, sales increased by 25% despite flat industry
National tractor market is fragmented with 13 national players
Merger with Punjab Tractors - consolidation, enforced market leadership, cost savings, economics of scale, sourcing
benefits, productivity increase
Present and entering into other emerging markets
China
China demand for tractors increased by 32% between 2003 and 2008
Further consolidating its position through strategic JVs – Mahindra Yueda Tractor Company
Yueda is Nr 4. in Chinese tractor market according to volume
Broadened product range 16-125HP, low cost manufacturing, large additional distribution network
Domestic presence increased to serve demand for tractors
1st JV - Company growth in 2007 +21% - launched Mahindra tractors in China
Now selling under Mahindra Feng Shou brand not MCTCL Feng Show brand anymore
Launched customer support initiatives to differentiate
Increases its offered product range in China from up to 40HP to 50HP
Africa offers opportunities to expand exports & set up assembly plants
Largest export market besides US, 5 assembly plants
New markets could be Egypt, Botswana, Niger, Congo & Brazzaville
Extended product offer up to 80HP
Test market for launch of new model in South America and Australia
Middle East, East Europe, South America & South East Asia exploring opportunities to extend export
- 19 -
Strategic Markets
20. India: Agriculture priority area for Government
Population base dependent on farming and allied industries, like in many emerging markets
Government support prices for crops in India
Union budget credit allocation to agriculture → to offset liquidity crunch, strict lending norms or farm loans
due to higher NPAs, high interest rates for tractor loans, increasing raw material/tractor prices
F-09, the Government of India has proposed to allocate Rs. 2.8 lakh crores / $ 62.2 Bn for agricultural
credit
Strong focus on irrigation projects and investment for development of rainless areas with an outlay of Rs.
20,000 crores/ $ 4.4 Bn
China:
Abolition of tax on agriculture
Subsidy for tractor purchase
Political instability
Present in many target countries (Nepal, Africa)
Integration of Indian and global economy
Financial markets, political regulations (pollution
and emission requirements)
Rupee appreciation – hedge risk
- 20 -
Political-Regulatory Pressures
21. Transition from many, small subsistence producers
Fewer and larger commercial producers - larger farm operations overall
More non-farm employment
World population of 9.1bn in 2050 → raise overall food production by 70% between 2005/07 and 2050
Production in the developing countries would need to almost double
Demand for cereals is projected to reach some 3 bn tonnes by 2050, up from today’s nearly 2.1 bn tonnes
Food and animal feed, bio fuel (political regulations)
Production of biofuels (ethanol & biodiesel) tripled since 2000 → is projected to double again within the next decade
90% of production increases to come from augmenting yields and cropping intensity, only 10% by
expanding arable land
Developing countries: ratio at 80/20
Land-scarce countries: achieve growth by improving yields
Global recessionary pressures - Indian economy slowed down BUT impact on rural economy minimal
Lower levels of mechanization → significant growth potential
Commodity prices
Fuel prices (60% of cost of running tractor) and preference of petroleum as most tractor have diesel engines
- 21 -
Socio-Economic Pressures
22. Market consolidation in every area of farming, demand for increased efficiency will in the long run
demand for larger machines as soon as capital and level of development are sufficient
In developing markets the hobbyist segment is marked by competition from second hand retailers
Need to diversify in more upscale products at some point to cover full portfolio
Acquisition & retention of technical and managerial talent
Need to remain innovative and anticipate changes in technological demands
Alternative fuels mandatory
M&M has already reacted and customizes by providing alternative engines
- 22 -
Technological Pressures
23. - 23 -
Revenue Growth
Global Presence
Competitive Map
26. Stabilizing world economy
Growth of Indian economy
World demand for agricultural equipment
forecasted to rise by 3,8% annually to $112
bn in 2012
Need for increased mechanization in emerging
markets
Replacement related demand in industrialized
countries
Mostly linked with technology upgrades
Competition from world leaders increasing, they strive to profit from promising
emerging markets
Introducing machinery specifically designed according to needs of emerging economies
Have leverage and innovative experience which will be hard to compete with
A global footprint
Overall thrust on agricultural development by government in India
Government’s emphasis on rural economic development and support to the agriculture sector
will create opportunities for growth in farm mechanization
- 26 -
Outlook
27. Assistant (Change via 'View - Header and Footer')
- 27 -
Agenda
Present Company
External Analysis
Internationalization Assessment
International Development Strategy
28. Internationalization
Anand Mahindra , the new CEO restructured company into 6 businesses in 1994 to deal with India’s
liberalization and globalization
Farm equipment sector
Automotive
Automotive components,
Financial services,
Infrastructure development,
Software
Reengineered business processes, brought in new people, invested in information technology, and
reduced head count.
M&M corporate launched the Operation Blue Chip in 2002
Focus on achieving global competitiveness
FES was identified with global potential
Emphasis on innovation
Emphasis on customer centricity
“I believe that business families should behave like aggressive private equity companies. They must
allocate capital, demand performance, create synergies, sustain value systems, and implement good
governance practices, but they should let professional managers run the companies.”
- 28 -
30. International Diagnosis
v
- 30 -
M&M: expanding international
presence and first
establishment of multinational
hubs (USA, Australia)
31. - 31 -
International Diagnosis (continued)
Key Functions Specific features
Production
• 20-125 HP reliable tractors
• Lean and agile: production of SKU in India and assembling in local
facilities
Marketing
• Emerging markets: M&M ties up relationships with established local
distributors network (e.g. in Sri Lanka, Bangladesh and Nepal with one
of top10 corporate houses)
• Mature markets: Investments to adapt brand image to customer
lifestyle (Mahindra USA brand building campaign through sponsoring
Finance
• Rated AA- by CRISIL for long term ,highest rating for short term
• Been Able to raise capital in International Markets
Strategy
• M&M enters particularly strategic markets through JVs (China and
Iran) or Partnerships (Turkey)
• M&M has managed to balance the global downturn by focusing on
emerging economies
32. Opportunities for international Expansion
M&M in a great position to serve emerging markets -
lower levels of mechanization
First mover advantage
Expertise in this field
Leverage its education programs and power supply
expertise
Local
International market: FES plans to expand
aggressively into newer markets and strengthen its
presence in existing markets
In the long term growth opportunities may be
capped if M&M remains in its field of small tractors,
especially if big players enter the market.
Diversifying within area of expertise seems to be a
sensible move.
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Agenda
Present Company
External Analysis
Internationalization Assessment
International Development Strategy