Widgetized Section

Go to Admin » Appearance » Widgets » and move Gabfire Widget: Social into that MastheadOverlay zone

How Mahindra & Mahindra came to dominate the Indian automotive industry

topimg_25957_pawan_goenka_600x400By focusing on product development and taking unprecedented risks, Pawan Goenka has ensured that Mahindra & Mahindra not only survives competition and dominates the Indian market, but is also ready to take on the world.

“Oh God, what have I done?” wondered Pawan Goenka as he stood in front of Mahindra & Mahindra’s research and development (R&D) facility in Nashik, Maharashtra. It was October 13, 1993, his first day on the job as general manager (R&D). He had just returned from Detroit to India after a 14-year stint with General Motors, where he was managing the world’s then-largest carmaker’s engine design and development.

He had not expected M&M’s R&D infrastructure to match that of General Motors which, in the early 1990s, had an annual budget of $1 billion as well as a team of 20,000 engineers spread across multiple locations. But neither was Goenka prepared for the ground reality in Nashik. Consider that the research facility was merely a shed and had only 50 engineers. “I must admit that the starting point was a lot less than what I had imagined,” says Goenka, who is now executive director and president (automotive & farm equipment sectors) of the Mahindra group.

Twenty-one years on, M&M’s revenue has risen 25 times to Rs 43,838 crore from Rs 1,715 crore; profits have gone up 55 times to Rs 3,758 crore from Rs 68 crore at the time. (The automotive and farm equipment business accounts for close to 66 percent of its overall revenues.) Also, the company has become the largest tractor manufacturer in the world apart from dominating the Indian SUV market in which almost every major global carmaker is fighting for a share. The most significant change has been this: Riding on strong product development abilities, M&M has managed to launch several successful products during this period.

Not that Goenka, then 38, could have predicted this outcome at the time. He was making his comeback to India with the broad plan of helping build a homegrown company. And his meeting with Anand Mahindra, then deputy managing director of M&M, had determined his journey. Mahindra told him how the country’s economic liberalisation and potential competition from global players had left M&M, a maker of pick-up trucks and jeeps for the rural market, with three options: Exit the automotive sector, become a licenced manufacturer for another company or develop own products. “We have chosen to develop our own products and compete with the world. I am looking for somebody to undertake this big task. You will have all the freedom. Just give me a product in a reasonable time,” Mahindra had told him.

mg_78669_mahindra_280x210.jpg

Goenka, who had agreed, says it was “one of the very few decisions I have taken without looking at the spreadsheet”. And there has been little cause for regret. Because, despite the initial disadvantages, Goenka, with his single-minded focus on R&D and the full backing of his boss has steered the company on to the fast-track of growth—and established himself as an India Inc worthy.

The journey has not been devoid of uncertainty. To leapfrog limitations of scale, he had to keep drawing M&M into uncharted waters. Some of those moves—building Scorpio ground up when the company clearly lacked product development expertise, or setting up the Mahindra Research Valley when the country had a dearth of engineers with the required experience—could have sunk the company and culled his career. But for Goenka and Mahindra, fortune has so far favoured the brave.

And he is not finished yet. Goenka is now taking an even bigger risk by getting M&M to invest in automotive technology development—an area that has been the exclusive preserve of fat-pocketed global car majors. But he isn’t worried. Because, as Professor Vijay Govindarajan, Coxe Distinguished Professor of Management at Dartmouth’s Tuck School of Business and an expert on innovation, puts it, “Leaders act with courage—making decisions without full information and in the face of enormous uncertainty and potential risk. They are not afraid to fail.”

THE IN-HOUSE GAMBIT
The transformation had a slow beginning. The availability of meagre resources in 1993-94 did not permit large-scale investment in research. Goenka, consequently, focussed on fixing what was possible—and necessary—to at least set the ball of product development rolling: For instance, various departments for computer-aided design as well as engineering and vehicle design were set up and staffed. The minimum requirement of infrastructure was built and people were trained.

This done, the first product to emerge from their newly-refurbished shop was a pick-up truck in 1997, followed by Bolero, an SUV, in 2000 which replaced their Armada, which had been launched in 1993. (M&M, which was established in 1948, had initially assembled multi-utility vehicles under a licence agreement with Willys Jeep. It continued its manufacturing activity through similar arrangements).

Though Bolero was the first product to be developed in-house, it used the Armada’s chassis, roof and door. Investment in it was kept low at Rs 30 crore. “Bolero’s success was beyond our wildest dreams. More than 14 years later, it still sells one lakh units a year,” points out Goenka. Bolero also bolstered—and widened—the company’s product range which had, thus far, included pick-up trucks and jeeps predominantly focussed on the rural markets.

————————-
Report:N Madhavan
Source: Forbes India

Share This Post