Mahindra in South Africa
MAHINDRA & MAHINDRA IN SOUTH AFRICA
BACKGROUND AND INTRODUCTION
Mahindra and Mahindra is a leading multinational automotive manufacturer headquartered in Mumbai, India which started as a steel trading company in 1945 by two brothers J.C Mahindra and K.C Mahindra. M&M has a labour force of 13000 and in 2001 profit before tax was 45 billion rupees. Currently the company has also extended its operations to small turbo prop aircraft and has a presence in the transportation media across land, sea and sky. M&M see’s South Africa as a growth market which is competitive and fragmented. M&M will also use South Africa as a globalization strategy.
Shah is considering the following four options: * Signing an agreement with a local vendor to use their surplus facility for contract assembly of M&M vehicles, * M&M could invest in its own manufacturing facility, * Shah waiting and watching until the subsidiary logged a critical mass of vehicle sales volumes that would be sustainable in the long term, and * To grow the current business model of importing completely built units (CBUs) from India by using South Africa as the hub from which to sell them to other countries in the African continent and thereby, expand the export market.
Local vender surplus facility use for contract assembly of M&M vehicles improves margins by reducing about 25% of the cost of shipping CBU’s from India to African destinations. Costs could further be reduced by launching variants that were in demand and by locally sourcing some of the components and extra fitments. Once vehicles are assembled locally, 3 months lead time will be needed to commence operations. Local assembly also means that M&M will not need to make any major upfront investment in the vendor’s facilities. Vehicle ordering cycle is about 10 days when using local assembly.
On the other hand contract assembly by local vendors depended on the availability of surplus capacity, the ability
BACKGROUND AND INTRODUCTION
Mahindra and Mahindra is a leading multinational automotive manufacturer headquartered in Mumbai, India which started as a steel trading company in 1945 by two brothers J.C Mahindra and K.C Mahindra. M&M has a labour force of 13000 and in 2001 profit before tax was 45 billion rupees. Currently the company has also extended its operations to small turbo prop aircraft and has a presence in the transportation media across land, sea and sky. M&M see’s South Africa as a growth market which is competitive and fragmented. M&M will also use South Africa as a globalization strategy.
Shah is considering the following four options: * Signing an agreement with a local vendor to use their surplus facility for contract assembly of M&M vehicles, * M&M could invest in its own manufacturing facility, * Shah waiting and watching until the subsidiary logged a critical mass of vehicle sales volumes that would be sustainable in the long term, and * To grow the current business model of importing completely built units (CBUs) from India by using South Africa as the hub from which to sell them to other countries in the African continent and thereby, expand the export market.
Local vender surplus facility use for contract assembly of M&M vehicles improves margins by reducing about 25% of the cost of shipping CBU’s from India to African destinations. Costs could further be reduced by launching variants that were in demand and by locally sourcing some of the components and extra fitments. Once vehicles are assembled locally, 3 months lead time will be needed to commence operations. Local assembly also means that M&M will not need to make any major upfront investment in the vendor’s facilities. Vehicle ordering cycle is about 10 days when using local assembly.
On the other hand contract assembly by local vendors depended on the availability of surplus capacity, the ability