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Mahindra & Mahindra In South Africa Case Solution
South African has shown a promising economic growth in the last few years. The living standards of consumers have also improved. However, it should be considered here that the growth rates in South African market are comparatively lower than growth rates of other developing countries (Shahbaz, Tiwari, & Nasir, 2013). Aside from this fact, as the economy grew and living standards improved, more and more people are becoming able to afford a new vehicle. The research study presented in the case shows that the purchasing power of the Black African people, which constitute the largest segment of South African middle class, is increasing. This can greatly benefit Mahindra & Mahindra as unlike the white South African population, black Africans are much more inclined to buy newly introduced brands in the market.
Case Analysis for Mahindra & Mahindra In South Africa
1. M&M is a family owned multinational corporation. Prior to the opening of Indian market to the foreign investors, this group was mainly based in the local farming equipment sector. When the competition increased in the Indian market it became necessary for the local companies to embrace globalization (Malhotra, 2014). M&M sought vast expansion measures which included geographic growth as well as expanding in related and unrelated products and services like Infrastructure development, automotive, system components and technologies, information technology, trade, retail and logistics, after market and financial services.
Anand Mahindra has transformed the company into an emerging giant global enterprise. His methods are very differing to the conventional thesis of management, particularly the ones which is followed in family owned businesses. His core focus is on the provision of autonomy and investing in emerging markets.
It can be observed that for a big multinational, autonomy of employees to take decisions and make improvements in the processes and products is the key to success (Wrzesniewski & Dutton, 2001). It is because a corporation, by its definition, is focused on the sole goal of maximizing owners’ wealth. Therefore, as a complete unit, it is incapable of making decisions that can risk the balance of profits against costs. This makes it critical to give the power of innovation to the subdivisions, different functions, and employees who have this potential. This is only possible if they are provided with adequate autonomy and favourable environment which fosters creative and inventive thinking (Hornsby, Kuratko, & Zahra, 2002).
Especially for an organization like M&M, which is at the growth stage, the autonomy is more beneficial as the business at this stage should be exploratory, not efficiency oriented. If an organization, at this stage, shifts its focus on achieving more and more efficiency in its processes instead of looking for newer avenues, it could not expand as much as it has potential to do so (Hughes & Morgan, 2007). Therefore, it can also be observed from this discussion that even if some inefficiencies emerge from this level of autonomy, it is still not necessarily an undesirable approach. Provided, that once the organization reaches a level where it becomes crucial to focus on making the quality of the processes impeccable and reduce waste and errors to a bare minimum, the company becomes efficiency driven (Sobrero & Roberts, 2001).
Mahindra has also left the decision of global expansion to the subsidiaries. This level of autonomy was provided because it is the business units that understands the dynamics of markets best; not the corporate executives. The subsidiaries are, therefore, completely liable for the decisions they make and deal with the risks they took. When independence is given, it develops ownership of the actions (Ghafoor, Qureshi, Khan, & Hijazi, 2011). This changes the dynamics of strategic management in a company that is headed by a parent corporation.
There is a trade off in this strategic management. If the subsidiary is provided with too little autonomy, there is a high risk of it getting over embedded in the MNC. It can lose its power of innovation and may miss out on many possible future growth opportunities. However, the subsidiary is kept oriented towards the profitability targets of the corporation. On the other hand, if the parent company exercises too little control over its subsidiary, it can result in goal incongruence between the two (Ambos, Andersson, & Birkinshaw, 2010). The latter can happen in the case of M&M. Mahindra is giving high levels of autonomy to the business units. The subsidiaries can have a goal of personal benefit which can contradict with the organizational goal. There has to be a check and balance on innovation which could prevent the company going along the path to decline.
Mahindra’s approach is innovation driven and even when autonomy is given to the business units, they are required to make innovation, their core competence. This, in itself, harmonizes the company’s and its subsidiaries’ goals. The focus, in both the cases, is on giving the employees a suitable environment to foster their growth and capability improvement. The companies are free to pursue the approach to business they like, as long as it is innovation driven (Mahindra & Mahindra in South Africa, 2011). This allows them to seek for new avenues of growth and profitability. This increases the knowledge capital of the corporation.
Mahindra is always seeking unconventional manners to solve business problems. He welcomes any suggestions from the employees and even give them substantial monetary support to give life to their ideas. Even if the workers are on the lower tier of management, their opinions are heard on the executive level and they are given credit for their solutions. When their ideas are implemented, they become a stronger part of the company. They get recognition for their work and know that if they excel in their performance, it will help their company become more profitable (Hornsby, Kuratko, & Zahra, 2002).
It is also not just the innovation oriented approach of Mahindra that is important in driving the strategic management of different businesses under the umbrella of M&M, it is also the consumer centric approach of innovation. In communicating the objective of innovation, Mahindra lets his business executives base their creativity around creating more value for the customer. When the consumers become the focal point of organizational strategy, the whole company is driven around the notion of creating value for them. The approach becomes consumer oriented instead of profit oriented. This has long term implications of sustainable profitability and consumer loyalty (Battistella, Biotto, & De Toni, 2012).
Another important aspect of Mahinda’s leadership is that he believes in capturing more industries to compete on multiple levels in the market instead of directing the efforts in a single sector. This allows the corporation to consider flanking and encircling tactics in the wake of strong competition. Further, this also lets the company have a strong financial base which allows them to invest in improving the processes and products and services for the customer, along with implementing expansion plans.
2. M&M’s business strategy is based on the principles of exploration and expansion. The way they internationalize their corporation is quite different from other companies. They seek new markets and new industries where they can invest to simply make the scale of their corporation bigger. The company is always on the lookout for emerging markets and promising sectors than they can invest in. Their corporation strategy is also different in the home market and in the global market. In local market, they aim to diversify in any number of markets that can provide them with profits. In the internationalization scenario, however, they are focused on automobiles and tractors (Stewart & Raman, 2008).
The engine theory of M&M, which makes all the business verticals separate pistons that work harmoniously together for the engine to work, makes the subsidiaries an independent driver of the corporation. Globalization is the key perspective of the company. However, it is not imposed on any of the subsidiaries but they are encouraged to go on this avenue. For internationalization, the corporation utilizes the option of joint ventures with local companies of target market (Stewart & Raman, 2008).
In South Africa, as well, the company initially set up a joint venture with a local company to create a network of outlets providing customer service and logistics partnership. Later, it bought its partner’s stake in the company to create a business fully controlled and managed by M&M (Mahindra & Mahindra in South Africa, 2011).
In 2011, Shah was evaluating several potential avenues of company growth in the South African market. Among these options was the agreement with local vendors to contract the Mahindra’s vehicles assembly locally. Another option was to create its own manufacturing plant but this would require heavy investments from the company. However, it can also make South Africa a hub for future potential exports to the regional countries. Last option was to wait and watch the market events unfold so that the company makes the appropriate strategy at a time when enough vehicles are being sold in the market. This can contribute towards long term sustainable growth for the company (Mahindra & Mahindra in South Africa, 2011).
These options were being considered because of the potential of African market to play an important part in the global network of Mahindra & Mahindra. The company’s global network is consistently growing, increasing the competition on the global scale. This makes it necessary for the company to secure the local markets. A subsidiary presence in South Africa would mean a large potential growth for M&M: They would be able to process the orders in South Africa instead of India, reducing the delivery time and they can also secure excess market segments by bringing the government on their side. Further, they would also be enabled to export to the neighbouring markets by making South Africa a hub of exports.
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