Mahindra & Mahindra in South Africa Essay example
928 WordsSep 18th, 20144 Pages
Case: Mahindra & Mahindra in South Africa In May 2011, Pravin Shah, the CEO at Mahindra & Mahindra, was evaluating four possible options of company’s growth strategy in the South Africa. Those options included: entering into agreement with the local vendor for the contract assembly of M&M vehicles, investing in its own manufacturing plant in South Africa, using South Africa as a hub for the further export of the other countries and lastly waiting and watching until enough vehicles are sold for the sustainable long term growth. Once those options were evaluated, Shah needed to present the final chosen one to the board of directors for the final approval on the best strategy for company’s growth in the South African Market. 1) Which…show more content…
To date, Mahindra & Mahindra shows a very strong entry-level presence in the local market. In short 6 years period, they were able to capture the trust and loyalty of the local populations. Their strategy to manufacture and export vehicles that were suitable for local roads and, at the same time affordable for the locals, made it possible to secure the market share of 1.2% of the SUV and medium range SUV vehicles. Their localization of dealers in nine South African provinces made it possible for customers of all regions to have the direct access to the vehicle inventory. On the other hand the company faced a challenge of losing sales because of the time it took to process vehicles orders from India.
3) How attractive is the South African auto market for the growth and profitability? In the past decade or so, South Africa showed a stable economic growth among the population. Even though the growth rates are somewhat low compared to the other developing countries, it didn’t have any decline. With economic growth, more locals are able to afford to own a vehicle. As research study presented in the case shows, the buying power of the black African consumers, making the largest segment of the middle-income market, was rising. To the benefit of companies such as Mahindra & Mahindra, unlike white South African population, black African consumers were more open and inclined to purchase newly introduced brands to the
Table of contents
1. Situation Synopsis 2
2.1 External Analysis: Opportunities and Threats 2
2.1.1 PESTLE Analysis 2
2.2 Internal Analysis: Strengths and Weaknesses 2
3. Competitive Advantage 3
3.1 Target Market 3
4. Alternatives 3
5. Implementations 4
5.1 HR Implementation 4
5.2 Marketing Implementation 4
5.3 Logistics Implementation 4
5.4 Financial Implementation 5
6. Time Planning 5
6.1 Long-Term Plan 5
7. Conclusion 5
8. Recommendations 6
8.1 Recommendation 6
8.2 Contingency Plan 6
9. Exhibits 7
9.1: SWOT Analysis 7
9.2: PESTLE Analysis 8
9.3: Decision Matrix 8
9.4 Income statement 9
9.5 Costs of sales 9
9.6 Profit after tax 10
9.7 Time Planning 10
1. Situation Synopsis
Leading multinational automotive manufacturer Mahindra & Mahindra Ltd. was debating which of the four options should be chosen as the company’s growth strategy in the South African market. It is facing the decision to:
- Choose contract assembly by a local vendor;
- Invest in M&M’s own manufacturing facility;
- Wait and watch until their subsidiary logged a critical mass of vehicle sales volumes;
- Use South Africa as a hub, to sell to other African countries.
This report will explore the trade-offs, brought forth by each of these four options; a company- and business environment analysis of the South African market; a marketing plan considering how to kick off promotion in the South African market and increase brand equity; a financial overview of the operation and expected profitability; and lastly, a time-planning and a contingency plan, to ensure success even when unexpected situations arise.
2. Internal & External Analysis
2.1 External Analysis: Opportunities and Threats
Opportunities include: South Africa being a springboard for the larger African market, the chance to create a good fit between customer needs and what M&M can offer. The threats of M&M (SA) are the competition of the well-known brands (Toyota, Nissan), and the political uncertainty that might arise in local areas. (Exhibit 1).
2.1.1 PESTLE Analysis
Among other data, analyses show (Exhibit 2)that the population of South-Africa comprises of 50.6 million people, black Africans being the largest group of 40.2 million. This group has unique buying characteristics, for example, they hold higher acceptance of non-European brands such as Asian ones. Lastly, currently Africa is in a recession, which is slowly recovering.
2.2 Internal Analysis: Strengths and Weaknesses
From the company analysis (Exhibit 1) M&M (SA)’s main strength can be classified as the engine-piston formation that M&M (SA) has, with eight diversified branches like automobiles, IT and finance, having the opportunity to strengthen one another and thrive off the large company’s success; the ability to partake in joint ventures with companies outside M&M (SA). This in turn allows each business to create synergies; the large amount of varied transportation vehicles in the product portfolio, turbo prop engines to powerboats to pickups, allowing in synergies across categories like sourcing, product development and quality control. The main weakness the company has to be cautious about is that as their market share is very low to compared competitors already successfully in business in South Africa, and M&M will have to be savvy with the resources and assets they do have.
3. Competitive Advantage
M&M (SA) has a broad variety of products: from cars, to busses, to small turbo prop aircrafts, two-wheelers and powerboats, positioning itself on the platform of ‘motorised mobility’. With all these different types of transportation, actions like sourcing, product development and quality control triumph with making use of the company’s synergies. It would be wise to think about expanding product lines even further to provide even more options for transportation.
Because the company also branches out in farm equipment, systech, IT services, financial services and others, each of the eight ‘pistons’ focus on what it does best. It in turn also works on improving the engine (M&M). The business verticals (pistons) also work together to create even more synergy.
3.1 Target Market
Looking at the South African market, black Africans composed 79.4% of the population, white Africans 9.09%, coloured Africans 8.9%and Indian/Asian Africans 2.5% of the population. According to the South African Advertising Research Foundation (SAARF) had made a segmentation system, classifying the South African population into ten categories of Standard Living Measures (LSMs) based on criteria as ownership of cars and major appliances and level of urbanisation. As each segment comes with different preferences, it is important for M&M to choose and define which target group to aim their products and marketing towards.
The buying power of Black Africans is steadily rising and expected to rise even further, and black Africans comprise the largest group in the middle income segment, which is LSM 5-8. It is therefore wise to target these groups.
Black Africans are prone to distrust local brands, which is why they have mostly bought car brands from Europe, Japan and Korea. For this group, how the purchased product makes them feel increases with income level, unlike the white Africans. Black Africans howeverhave the inclination of being cheated and distrust the safety of lesser-known brands.