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M&M, Ford gear up for emerging markets play

Murali Gopalan | Updated on November 21, 2019

Pawan Goenka, Managing Director of M&M   -  PAUL NORONHA

Pawan Goenka, MD of Mahindra & Mahindra, spells out the ingredients of this potential win-win alliance

There are a whole lot of contours to the partnership between Mahindra & Mahindra (M&M) and Ford but at the core lies the intent to create a foundation for what could become an “emerging market strong business centre”.

According to Pawan Goenka, Managing Director of M&M, this is perhaps among the most important components of the alliance which needs to be understood in its entirety. It was also the starting point for talks between the two former allies.

From Ford’s point of view, it was only too aware that it had a strong emerging market presence worldwide but it was M&M that had the business model for this to work well. The most logical step, therefore, was to take Ford’s global presence and M&M’s proven business model for emerging markets to create a strong union.

Eyeing long drive

In the process, this would then create tremendous value where the partners could even conceive of becoming emerging market experts through this association/alignment. “And that in a sense is a longer term vision of what we can do together,” says Goenka.

He is candid enough to admit that while Ford’s technical knowledge, expertise and resources are ahead of what M&M has in its kitty, what the Indian SUV maker brings to the table is the all-important component of frugal processes. The combination of these strengths would have the potential to create “the most appropriate” products for emerging markets.

“For instance, if M&M is able to do today, on its own, a good value product at 95-96 per cent of what the customer wants and, with Ford’s help, if this can go to 99-100 per cent, that is the gap that we fill there in the product,” elaborates Goenka.

The net result is “a very strong product” for global markets where neither partner will attempt to overshadow the other. In the process, both the Mahindra and Ford brands will stay strong and independent without any threat of dilution. “So, if they are two different companies, two different brands, how does it help? That’s the question that has been asked of me,” says Goenka. The starting point to this query lies in product development which goes beyond the partners’ strengths of technical expertise and frugal engineering.

New platforms

In the area of developing new platforms, for instance, where each partner would have to earmark a certain investment for this effort, doing it jointly would see the creation of one platform. This would spawn a vehicle each for M&M and Ford with savings of up to 33 per in product development.

“Now, imagine if the cost is to the tune of ₹1,200-1,500 crore, the one-third savings would work out to ₹400-500 crore just in doing that one product,” explains Goenka. Whether it is a product for Ford or M&M, the benefits of using the same platform and plant (be it at either company’s facility) becomes an additional advantage.

The partners have also reiterated that this joint effort will just not be about changing the grille and putting a badge on it but working on a totally differentiated product. “Nobody would know, by looking at the product, that it is coming from the same platform,” he adds.

This means that the exclusive DNA of a Mahindra and Ford product would be intact which means the look, feel and drive would also be completely different and easy identifiable in the process.

Beyond product development, the combined strengths in sourcing will be substantial too and lead to significant cost savings. Even a 1-1.5 per cent reduction in material costs “is worth its weight in gold” since it will mean a “humongous increase” in profits.

Access to global sourcing

As Goenka adds, M&M will also get access to the global sourcing world of Ford. Right now, this is primarily confined to India while Ford is truly global. “When it comes to what we source in India, we have very good expertise, probably among the best here, but when it comes to global sourcing, our expertise is very limited,” he explains.

The access to Ford’s plants, along with M&M’s own capacity, means that “for the next foreseeable future” there is no investment needed for capacity creation. Right now, Ford has 40 per cent available (it has two plants in Chennai and Sanand) while M&M, after the expansion in Chakan, would be at about 60-65 per cent capacity. In short, this means about 35 per cent capacity that is already paid for. “Therefore, our potential in the future, to not have to invest in capacity and still grow, is very high. So we are, in some sense, well-prepared for a market turnaround,” says Goenka. In his view, this is a clear positive since it means being “protected for a long time” in terms of capacity.

With these combined strengths at the backend, the M&M chief is confident that the stage will then be set for the global reach that the partnership has outlined as its core objective. “M&M has good emerging market products, but we do not have a reach, and to create a reach is not as easy as those who are not in the business would think,” he says.

Brand awareness

To create a dealer network, brand awareness and the ecosystem for warehousing, spares etc “takes a lot of effort and many, many years”. This is especially evident in a market like South Africa where, even after decades, M&M has managed to establish a “fairly decent network, brand awareness, and so on”.

With Ford, however, the timeframe would not be so long and, in fact, result in getting “almost instant access” to many markets. “So therefore, using Ford for growing Mahindra volumes and selling (Mahindra) products through the Ford brand both become a very strong future potential,” says Goenka.

For instance, take a hypothetical instance of Marazzo where M&M, on its own, may target overseas shipments of around 500 units a month. If a Ford version of Marazzo ends up becoming a good MPV for emerging markets under the Ford brand, shipping out 5,000-odd units is actually conceivable. This optimism is bone out by the fact that Ford’s exports of the Figo to Europe are in a similar range as also the EcoSport to the US.

“So that is the kind of potential we see in growing exports through Ford, which benefits both Ford and Mahindra. The Ford network gets a product at a competitive price that they don’t have today,” says Goenka while citing the Marazzo as just an example of the potential that lies ahead.

In turn, M&M gets the volumes for a product that they have developed, which means the company’s fixed cost comes down on a much larger volume. “Any of our products which we have today and what we will have in the future has the potential,” he adds.

Three ‘distinct things’

In the process, there will be three “distinct things” happening in the emerging markets strategy. The first, begins Goenka, is the new product developed in the JV, for the Ford brand, exported under the Ford brand to the Ford network.

The second is Mahindra products exported as Mahindra products in emerging markets with the Ford network helping out. And the third is a Mahindra product getting exported, with a change in appearance, as a Ford product in the Ford network globally.

Needless to say, continues Goenka, both companies need to constantly monitor trends in emerging markets to decide the price points, technology and so on.

“This is where Ford’s technical base and Mahindra’s frugal approach will come together and give us the muscle power to compete with very aggressive players,” declares the M&M chief.

Published on November 21, 2019

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