Anand Mahindra barely has time to answer a couple of questions.
The Chairman of the Mahindra Group has just wrapped up a press conference in Mumbai to announce a joint venture with Ford. The two companies have worked in the past and are now back together in a far more significant alliance targeted for India and a host of emerging markets.
Mahindra is in a rush but pauses to listen intently to the question posed on the journey his company has been through in the car space over the years, including the alliance with Renault a decade earlier.
“It has been an interesting journey (with Ford, Renault and now Ford). However, the question is that every time you do a joint venture, as I said back in the early 1990s, there is a logic for doing so,” the Mahindra Group Chairman tells this writer.
As he puts it, the logic has to be some benefit “that you derive” and once those benefits are derived, each party has to be very clear about what they are looking for. “Everything we have done, we have had very clear objectives,” he reiterates. For instance, when Ford first entered India over two decades earlier, it was essentially about familiarising itself with a market that had just thrown its gates open to multinationals. For Mahindra & Mahindra, on the other hand, it was about upgrading technology where Ford was the ideal ally.
The learning experience
With Renault, it was about the French carmaker coming into India and getting the feel of a new market while for M&M it was about accessing the Logan which still continues in its new avatar as the Verito. The partnership did not last very long but, as in the case of Ford the first time around, there was a huge learning experience for the Indian SUV maker.
“Joint ventures are the recipe of the day to compete in a much more complex automotive world,” says Mahindra on the rationale of coming once again with Ford. He also points out that it is not as if it is only his company that is forging partnerships since this is now the norm worldwide.
“So what better partnership to have than one with an old friend?” reasons Mahindra as he gets ready to drive away. In the mid-1990s, M&M tied up with Ford in a 50:50 partnership to manufacture the Escort at its Nashik plant. By the time the American automaker had decided to get into full-fledged manufacturing at a new facility in Chennai, M&M was now determined to focus on its core business of SUVs.
New path for M&M
This was the beginning of Project Scorpio, the vehicle that paved the way for a completely new path for M&M as it grew from strength to strength. On the way, it acquired SsangYong Motor of South Korea while in more recent times, it has had to take on fiercer competition in the SUV arena back home.
In the case of Ford, it tasted success with the Ikon but could not quite sustain the momentum in later years. There was a global buyout opportunity for Daewoo which subsequently went to General Motors while a powertrain joint initiative was explored with Fiat in India.
All in all, Ford had little to show in its two decades here in terms of market share and has now teamed up with its former ally in a new joint venture with a 49 per cent equity share. Things are clearly a lot more different now, reiterates Pawan Goenka, Managing Director of M&M, at a media round table.
“At that time, the JV was more for Ford to learn India and for M&M to learn automotive manufacturing of modern times. This time, the alliance is to grow the business together,” he says. It is a view seconded by Jim Farley, President of Ford New Businesses, who is also part of the round table discussion.
“This is about maturing; the original objective in 1995 was totally different and it was the early days of the modern India automotive industry,” he says. As each company’s ambitions grew, it became clear that the best way to execute that was on its own.
“Now, the market has changed again and emerging markets are becoming so important for us at Ford,” continues Farley. In his view, the marriage this time around with M&M has a different objective which is to “develop new products, use M&M’s incredible capabilities that they have built since our last JV and now to benefit from that being together both in India and overseas”.
Between the two companies, says Goenka, they have six plants spread across Nashik, Haridwar, Kandivali (Mumbai), Chakan, Chennai and Sanand (the last two are Ford’s). For now, only Chakan and Sanand have extra capacity which means either can be used for future products/platforms “wherever it makes sense”.
Goenka also makes clear that while there will be huge synergies at the back end in terms of sourcing, R&D, engineering etc, the two companies will keep their brand identities intact at the front end of retail and distribution. This is where their individual DNA becomes the differentiator.
Interestingly, Alan Mulally who was the President & CEO of Ford till 2014 and played a huge role in its turnaround had implemented the One Ford strategy which was intended to prune the number of global platforms and increase commonality of components.
“We learnt a lot from One Ford and I mean a lot,” emphasises Farley. The team at Ford understood that that the scale had to be local to get value. If the product attributes were ‘over attributed’ with global, and not local, scale, things could not quite work from the viewpoint of value creation.
This, according to Farley, was a very important lesson for Ford as it went about the plan and redesigned its business. “We will have a fusion of a new capability below that which is a local scale and that is really the opportunity we have with M&M,” he says.
Focus on India
The other opportunity, which again was “a good part” of One Ford was learning how to export from India. “If you go to anyone who owns an EcoSport in Western Europe, Germany or Chicago, they love the product,” says Farley while driving the point home of global competencies developed locally. It is testimony to the quality of India and there are no two ways about the fact that this product is truly world-class. “We believe that this was an important positive lesson from One Ford. Now we get to do it with a cost base that we have never had before (with M&M),” says Farley.
During his tenure as President & CEO of Ford, Alan Mulally had told this writer in a 2012 interview that India was important to the company since the products made here like the “Figos, Fiestas or small SUVs” were the centre of the market worldwide. “That is why you see us making such a focused investment in balancing our portfolio to have an increasing number of smaller and medium-size vehicles,” he said.
Mulally added that smaller vehicles accounted for nearly 60 per cent of worldwide requirements and would be part of Ford’s global platforms. Here, 70-80 per cent of the components would be exactly the same across the chain.
“We will actually make vehicles in the same way across the world. A Fiesta in Chennai will be made exactly the same way as in China or the US which gives us the scale with our suppliers and [helps us] bring more affordable products (than competition) to customers,” said Mulally.
Today, the alliance with M&M is happening at a time when mobility disruption is the name of the game and has prompted a host of companies to forge partnerships and take the challenges head-on. Ford has also teamed up with Volkswagen for commercial vehicles and, more recently, has drafted a new course of action for China with Changan Automobile. For emerging markets, the path will be defined along with M&M and it will be interesting to see how the script evolves in the coming years.