Transcript Document

Redhawks Consulting
Mahindra & Mahindra
How to position
Mahindra & Mahindra
(South Africa)
while operating in the context of
the parent company’s mission and
managing risk.
I. Analysis
I.
II.
III.
IV.
PESTLE
Porter’s Five Forces
SWOT Analysis
SWOT Strategy
II. Alternatives
III. Recommendation
IV. Implementation
.
● 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
Supplier Power
-Moderate
-Moderate imput on price
-High differentation of inputs
-High presence of substitute inputs
-Moderate supplier concentration
Buyer Power
-High
-High price sensitivity
-High level of
company alternatives
-Low switching costs
-High buyer volume
-High impact on quality
Competitive
Rivalry
-High
-High level of Competitors
-High concentration of
competitors
-High globalization of industry
Threat of Substitution
-High
-Many Alternatives
-Lowcosts of substitutes
-Moderate feasibility based
on geographical location
Threat of New Entry
-Low
-High cost barrier
-High cost barrier
-High brand identity
-High Government policy
External Analysis
Strengths
Strengths
• Presence in all provinces
•• Presence
all provinces
Network of in
customer
service outlets
• Network of customer service
outlets
Weaknesses
Weaknesses
• No distinctive competency
• No distinctive competency
• No clear strategy for South
• No clear strategy for South Africa
• Africa
Miniscule market share
•• Miniscule
Small profitsmarket share
•• Small
profits brand identity
No established
No established
establishedtrust
brand
• No
withidentity
target market
• No established trust with target
market
Opportunities
Opportunities
•
•
•
••
New market potential in African
New
market potential in
continent
African
continent
Black African
market growth
Government
contracts
Black African
market growth
• Government contracts
•
•
•
••
•
•
•
•
•
Threats
Threats
Underdeveloped market in
Underdeveloped market in SA
SA
High risk of political/social unrest
High risk
political/social
Recovery
fromofglobal
recession
Cost
of Tariffs and taxes
unrest
Over-capacity
Recovery from global recession
Cost of Tariffs and taxes
Over-capacity
Internal / External Analysis
Opportunities
Turnaround
Aggressive
Weaknesses
Strengths
Defensive
Diversify
Threats
Internal / External Analysis
Alternative #1
Alternative #2
Alternative #3
Contract
Assembly
Build
manufacturing
facility
Wait and watch
Alternative #4
Alternative #5
Use South
Africa as a hub
Exit Strategy
Alternatives
Contract Assembly
•
•
•
•
•
•
•
Build
manufacturing
facility
•
•
•
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
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
•
•
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
Wait-and-watch
•
•
Alternatives
Contract
Assembly
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
Lose all
control
Surplus
Demand does
not grow as
expected
Not ready to
capitalize on
unexpected
market
growth
High costs
and unknown
environments
Quick break
even but low
effect on
margins
Dependant on
large growth in
capturing
market share
Small
Break even
takes a long
time
Risk
Return on
Investment
Alternatives
Exposure to Risk
 Financial Feasability
 Aligned 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

Alternatives
.
Contract
Assembly
Manufacturi
ng Facility
Wait-andWatch
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 Scale
1:
2:
3:
4:
5:
The alternative does not effectively address this criterion
The alternative may contribute to addressing this criterion
The alternative provides an average solution to this criterion
The alternative provides an above-average solution to this criterion
The alternative effectively addresses this criterion
Alternatives
Alternative #5
Exit Strategy
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
Mahindra & Mahindra South Africa Income Statement
2009
Revenues
Cost of Sales
Gross Profit
Other Income
Investment Revenues
Financing Costs
Operating Expenses
Profit Before Tax
Tax
Profit After Tax
2010
2011
ZAR
198.685.150,00
ZAR
192.463.763,00 ZAR
270.766.948,00
ZAR
199.642.431,00
ZAR
166.470.257,00 ZAR
221.703.228,00
ZAR
-957.281,00 ZAR
25.993.506,00 ZAR
ZAR
369.597,00 ZAR
1.653.520,00 ZAR
ZAR
1.138.512,00
49.063.720,00
138.082,00
ZAR
2.970.225,00 ZAR
3.145.901,00
ZAR
11.985.817,00
ZAR
4.518.481,00 ZAR
2.409.208,00
ZAR
41.954.297,00
ZAR
22.425.423,00 ZAR
23.900.437,00
ZAR
(53.389.286,00)
ZAR
3.673.347,00 ZAR
26.038.058,00
ZAR
14.664.466,00
ZAR
1.044.461,00 ZAR
7.293.834,00
(38.724.820,00) ZAR
2.628.886,00 ZAR
18.744.224,00
ZAR
Recommendation
50% Rule Projections
Revenues
Cost of Sales
Gross Profit
Other Income
Investment Revenues
Financing Costs
Operating Expenses
Profit Before Tax
Tax
Profit After Tax
ZAR
135.383.474,00
ZAR
110.851.614,00
ZAR
24.531.860,00
ZAR
69.041,00
ZAR
2.418.212,67
Average of Previous 3 Years
ZAR
2.409.208,00
No Change
ZAR
19.120.349,60
20% Drop
ZAR
5.489.556,07
ZAR
7.667.587,00
ZAR
-2.178.030,93
50% Drop
50 % Drop
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
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 workers
Milestone Review
Implementation
Risk
Probability
Mitigation
Solution
South Africa/Africa
market grows faster than
expected
Low
Generate sales through imports
from India and Egypt
Parent Company does
not approve of exit plan
Low
Adopt a wait and watch approach
Implementation
Exit Strategy
Redhawks Consulting
Mahindra & Mahindra