Mahindra embarks on phase II of Africa strategy
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Mumbai: On 2 December 2013, top executives of all Mahindra group firms gathered in Cape Town, South Africa, for the group’s annual strategic planning session, known as the Blue Chip Conference.
The choice of the venue was deliberate. Mahindra and Mahindra Ltd (M&M) chairman and managing director Anand G. Mahindra said it was aimed at communicating the strategic importance of Africa for the $16.7 billion group, which has business interests in automobiles, aerospace, information technology (IT), finance and real estate, among others.
“I am encouraging the various divisions of the group to evaluate business opportunities on this continent. This is a region already recording significant economic growth, with huge promise for the future as it develops,” Mahindra said at the session.
Since then, the group has prepared a blueprint that has forecast revenue from Africa to double to $1 billion over the next four to five years. The expansion is being planned against the backdrop of the continent’s growing economy. According to Boston Consulting Group’s (BCG’s) 2013 Africa Consumer Sentiment Survey, the African market for products and services will be worth well over $1 trillion by 2020.
This is the first time ever that the Mahindra group, which has a presence in North America and Europe, South-East Asia and Australia, is working on a comprehensive strategy to tap an entire continent, said S.P. Shukla, head of strategy at the group, who also heads the Africa council, which consists of representatives from 15 group firms.
As part of this plan, Mahindra will introduce its entire range of products and services, including IT, sport utility vehicles (SUVs), logistics and financial services, in all 56 countries of Africa over the next four to five years. It now has a presence in 35 countries.
Mahindra started focusing on Africa in a small way a decade ago with the export of its SUV Scorpio to South Africa. Since then, most Mahindra group firms, with the exception of Mahindra Lifespace Developers Ltd, Mahindra Logistics Ltd, Club Mahindra and Mahindra Financial Services Ltd, have established a presence in the continent in some form or the other.
The second phase of expansion in the African continent will consist of two elements—geographical expansion in adjoining markets and product-line expansion, said Shukla.
For instance, Mahindra plans to start selling two-wheelers in countries where it already sells SUVs and tractors. Similarly, it will target off-grid solar power projects in regions where it sells diesel generator sets.
The company’s agri-business, including fresh fruits arm Mahindra ShubhLabh Services Ltd, will also expand its presence in the continent. ShubhLabh will soon start sourcing grapes from Egypt and exporting them to Europe, said Ashok Sharma, chief executive of the agri and allied business of M&M.
Mahindra Financial will venture into Africa in six months, according to Ramesh Iyer, managing director. Iyer added that Mahindra Financial will be looking for a joint venture with a local company as part of its entry strategy.
“This is one of the best examples of how multi-product and services line of Mahindra group has allowed us to synergize across the continent—an advantage few companies have,” said Shukla. It’s unlike a single-product company that starts with a handicap—either one needs the service or product it sells or one doesn’t.
“Mahindra has done a better job than the Tatas in terms of leveraging from the sister companies in the group in Africa,” says Raveendra Chittoor, assistant professor of strategy at the Indian School of Business in Hyderabad, who has been tracking the Africa strategy of both the companies.
Indian companies have invested more than $50 billion in Africa; bilateral trade between Africa and India is expected to be $100 billion by 2015, the government said in October last year.
The $100-billion Tata Group for instance draws 2.3% of its revenue from Africa.
It aims to expand its business in the continent by 30% a year by increasing its presence in the automotive, mining, infrastructure and hospitality markets, Mint reported in March 2013.
Present in the continent since 1977, the group plans to enter seven new countries in the next three to four years, increasing its presence to 20 countries.
“With markets in developed countries having saturated, Africa is the next big frontier for growth. Interestingly, Indian companies have taken a lead in this market” said ISB’s Chittoor.
He cautioned that companies must devise appropriate strategies for each individual market within Africa, given the diversity across the continent.
“They have to pick and choose carefully without getting lost,” Chittoor said, citing the example of Bharti which is present in 18 countries in Africa, but is now revisiting its decision.
In order to win in Africa, companies need to become truly local, according to the BCG consumer survey report.
This will require that companies create an Africa offering; build and leverage brands; and control distribution, it said.
Mahindra’s Shukla is well aware of the challenge posed by the diversity.
The company will adopt the so-called hub and spoke model for deeper penetration into the continent, he said.
“We believe that geographical hubs will emerge for the group and each business will begin from different hubs and gradually expand in the geographies,” said Shukla, adding that it would also segment the market on the basis of language.