Redhawks ConsultingMahindra & Mahindra

The Challenge

How to position Mahindra & Mahindra

(South Africa) while operating in the context

of the parent company’s mission and managing risk.

I. AnalysisI. PESTLEII. Porter’s Five ForcesIII. SWOT AnalysisIV. SWOT Strategy

II. Alternatives

III.Recommendation

IV. Implementation

.

Table of Contents

● Population• 50.6 Million

• Black Africans – 40.2M• White Africans – 4.6M• Other – 4.6M

• Target age group: 15-50

● Economic• Fastest growing economies in Africa carry highest macroeconomic risk• 8 of top 10 global vehicle makers• 3 of world’s largest manufacturers• More than 200 automotive component manufacturers

● Social• Brand conscious• Black: 49% of middle income, higher disposable income, new vehicles,

features are important, suspicious• Buyer power is rising• White: Earn higher income, spend more, less disposable income, used

cars, functional is important

● Legal• Motor industry development program• Automotive production and development program• Import duty rates/discounts

External Analysis

PESTLE

Supplier Power

Buyer PowerCompetitive

Rivalry

Threat of Substitution

Threat of New Entry

-Moderate-Moderate imput on price-High differentation of inputs-High presence of substitute inputs-Moderate supplier concentration

-High-High price sensitivity-High level of company alternatives-Low switching costs -High buyer volume-High impact on quality

-High-Many Alternatives-Lowcosts of substitutes-Moderate feasibility based on geographical location

-Low-High cost barrier-High cost barrier-High brand identity -High Government policy

-High-High level of Competitors-High concentration of competitors-High globalization of industry

External Analysis

Porter’s Five Forces

Strengths

• Presence in all provinces• Network of customer

service outlets

Weaknesses

• No distinctive competency• No clear strategy for South

Africa• Miniscule market share• Small profits• No established brand identity• No established trust with target

market

Opportunities

• New market potential in African continent

• Black African market growth• Government contracts

Threats

• Underdeveloped market in SA

• High risk of political/social unrest

• Recovery from global recession• Cost of Tariffs and taxes• Over-capacity

Strengths

• Presence in all provinces• Network of customer service

outlets

Weaknesses• No distinctive

competency• No clear strategy for

South Africa• Miniscule market share• Small profits• No established brand

identity• No established trust with

target market

Strengths

• Presence in all provinces• Network of customer service

outlets

Weaknesses

• No distinctive competency• No clear strategy for South

Africa• Miniscule market share• Small profits• No established brand identity• No established trust with target

market

Opportunities

• New market potential in African continent

• Black African market growth

• Government contracts

Threats

• Underdeveloped market in SA

• High risk of political/social unrest

• Recovery from global recession• Cost of Tariffs and taxes• Over-capacity

Strengths

• Presence in all provinces• Network of customer service

outlets

Weaknesses

• No distinctive competency• No clear strategy for South

Africa• Miniscule market share• Small profits• No established brand identity• No established trust with target

market

Opportunities

• New market potential in African continent

• Black African market growth• Government contracts

Threats• Underdeveloped

market in SA• High risk of

political/social unrest • Recovery from global

recession• Cost of Tariffs and taxes• Over-capacity

Internal / External Analysis

SWOT Analysis

Turn-around

Aggressive

DefensiveDiversif

y

SWOT Strategy

Internal / External Analysis

Opportunities

Weaknesses Strengths

Threats

Alternative #1

Contract Assembly

Alternative #2

Build manufacturing

facility

Alternatives

Alternatives

Alternative #3

Wait and watch

Alternative #4

Use South Africa as a hub

Alternative #5

Exit Strategy

Contract Assembly

• Improve margins - reduces cost of shipping by 25%

• No major upfront investment• Option for companies with low volume• Must assemble 50,000 vehicles per annum and export

to be eligible for tradeable certificate• Import duty for CKD components: 20% • 3-months lead time to commence operations• 10 day vehicle ordering cycle

Build manufacturing facility

• Standard for setting up own facility is annual sales of 6,000 units with a single brand selling 1,500

• Must manufacture 50,000 vehicles per annum and prove content localization to be eligible for tradable certificate

• Have to maintan high production levels to break even

Wait-and-watch • Global automotive market has not fully recovered from recession

• Industry has just recovered from a sharp decline in new-vehicle sales in three consecutive years

• Import duty for CBUs: 25%• Not eligible for tradeable certificate

Use South Africa as a hub

• Individual markets have to be developed over time

• None of the 54 African countries has a sizeable middle class

• Political turmoil

Exit Strategy • Sell assets• Divert resources to SsangYong

Alternatives

Overview of Alternatives 1-4

Contract Assembl

y

Manufacturing Facility

Wait and watch

Hub

Investment

No Major Upfront Investment

Low – Developed in

India

None High

Potential Benefits

25% reduction in Shipping Costs

Beyond Breakeven -Fixed Costs Spread over more Units

No risk of losing

investment

High Growth

Potential

Risk Lose all control

Surplus Demand does not grow as expected

Not ready to

capitalize on

unexpected market growth

High costs and

unknown environme

nts

Return on Investmen

t

Quick break even but low effect on margins

Dependant on large growth in capturing

market share

Small Break even takes a

long time

Investment & Return

Alternatives

Exposure to RiskFinancial FeasabilityAligned with Mission of Parent

Company◦Long Term Player◦50% Rule: even if demand falls by as

much as 50%, each business has to remain profitable

Competitive Advantage Presence in South Africa

KEY SUCCESS FACTORS

Alternatives

Contract Assembly

Manufacturing

Facility

Wait-and-Watch

Re-Export Hub

Exit Strategy

Key Success Factor

Weight

Rank

Weight

Rank

Weight

Rank

Weight

Rank

Weight

Rank

Weight

Exposure to Risk

,35 3* 1,05 1* ,35 4* 1,4 1* ,35 5 1,75

Financial Feasability

,25 3 ,75 2 ,50 4 1,0 1* ,25 5* ,75

Alligned with Mission of Parent Company

,25 4 1,00 5 1,25 2 ,50 5 1,25 3 ,75

Competitive Advantage

,10 2 ,20 4 ,40 2 ,20 3 ,30 3 ,10

Presense in South Africa

,05 3 ,15 4 ,20 2 ,10 5 ,25 1 ,05

Total 1,00 3,15 2,70 3,20 2,40 3,35

.

Ranking Scale1: The alternative does not effectively address this criterion2: The alternative may contribute to addressing this criterion3: The alternative provides an average solution to this criterion4: The alternative provides an above-average solution to this criterion5: The alternative effectively addresses this criterion

Weighted Competetive Strength Analysis

Alternatives

Alternative #5

Exit Strategy

Recommendation

Recommendation

• Highly unstable region• Political, Social, Legal-All extremely high

• Hard to penetrate market• Low trust from consumers

• Extremely low market share• 1555 total cars sold in 2010 (less than 1% of

market)

• Competitive market dominated by entrenched global players• U.S., German, Japanese, Korean

• Slow economic growth

• Chance of another global recession• Debt crisis Europe/U.S. threatens credit markets

worldwide

• Potential growth does not currently outweigh costs and risks

• We can still reach the South African/African market without putting our assets at risk

Recommendation

Justification

Mahindra & Mahindra South Africa Income Statement

2009 2010 2011

Revenues ZAR 198.685.150,00

ZAR 192.463.763,00

ZAR 270.766.948,00

Cost of Sales ZAR 199.642.431,00

ZAR 166.470.257,00

ZAR 221.703.228,00

Gross Profit ZAR -957.281,00

ZAR 25.993.506,00

ZAR 49.063.720,00

Other Income ZAR 369.597,00

ZAR 1.653.520,00

ZAR 138.082,00

Investment Revenues

ZAR 1.138.512,00

ZAR 2.970.225,00

ZAR 3.145.901,00

Financing Costs ZAR 11.985.817,00

ZAR 4.518.481,00

ZAR 2.409.208,00

Operating Expenses

ZAR 41.954.297,00

ZAR 22.425.423,00

ZAR 23.900.437,00

Profit Before Tax ZAR (53.389.286,00)

ZAR 3.673.347,00

ZAR 26.038.058,00

Tax ZAR 14.664.466,00

ZAR 1.044.461,00

ZAR 7.293.834,00

Profit After Tax ZAR (38.724.820,00)

ZAR 2.628.886,00

ZAR 18.744.224,00

Financial Justification

Recommendation

50% Rule Projections

Revenues ZAR 135.383.474,00

Cost of Sales ZAR 110.851.614,00 50% Drop

Gross Profit ZAR 24.531.860,00

Other Income ZAR 69.041,00 50 % Drop

Investment Revenues ZAR 2.418.212,67 Average of Previous 3 Years

Financing Costs ZAR 2.409.208,00 No Change

Operating Expenses ZAR 19.120.349,60 20% Drop

Profit Before Tax ZAR 5.489.556,07

Tax ZAR 7.667.587,00

Profit After Tax ZAR -2.178.030,93

Financial Justification

Recommendation

What Who

Develop strategy for transition of resources to SsangYong Board / CEO

Develop PR/marketing strategy to mitigate negative brand reputation PR/Marketing

Fulfill current obligations in South Africa M&M (SA)

Prepare Egyptian facility to accomodate additional demand if necessary Management

Create marketing plan to increase sales from other locations Marketing

Sell assets Finance / Management

Assist displaced workers Human Resources

Transition Management

Implementation Plan

Implementation

1 month 3 months 6 months

Develop strategy for transition of resources to SsangYong

Develop PR/marketing strategy to mitigate negative brand reputation

Fulfill current obligations in South Africa

Create marketing plan to increase sales from other locations

Prepare Egyptian facility to accomodate additional demand if necessary

Sell assets

Assist displaced workersMilestone ReviewImplementation

Implementation Timeline

Risk Probability

MitigationSolution

South Africa/Africa market grows faster than expected

LowGenerate sales through imports from India and Egypt

Parent Company does not approve of exit plan

Low Adopt a wait and watch approach

Implementation

Contingency

Exit Strategy

Recommendation

Redhawks ConsultingMahindra & Mahindra