Mahindra & Mahindra's capability building process

Catching up in automotive business through crisis construction

Bachelor Thesis, 2011

83 Pages, Grade: 1,0


Table of Content

1. Introduction

2. Literature Review

3. Case Introduction
3.1 Industry Overview
3.2 Company Portrait and History

4. Crisis Construction and Capability Building Process
4.1 First Crisis: Economic Liberalization and Competitive Shock
4.2 Second Crisis: Reinventing the Automotive Business
4.3 Third Crisis: Going Global
4.4 Fourth Crisis: Becoming a Technological Leader?

5. Analysis, Discussion and Propositions
5.1 Analyzing the Setup, Execution and Outcome of Constructed Crises
5.2 Discussing Crisis Construction as a Tool for Pioneering
5.3 Concluding Remarks and Suggestions for Further Research



Table of Figures

Figure 1: Literature Review

Figure 2: Crisis Construction Model

Figure 3: Justification of Constructed Crisis

Figure 4: Catch up Process in the Linkage, Leverage, Learning Framework

Figure 5: Capability Building in the Value Chain Framework

Figure 6: Comparison of Know-How Input into the two Joint-Ventures

Figure 7: Relative Product Development Expenditures

Figure 8: Suggested Adaptation of Crisis Construction Model

Figure 9: R&D Expenditure and Total Turnover

1. Introduction

The economic liberalization and the integration into the global corporate network of many Asian countries led to new opportunities and threats for both the Asian and the Western corporate world. The rise of these emerging economies brought along new business models, management approaches and manufacturing mantras, but it also saw a new species of companies emerge: The so-called latecomer multinationals enter the global arena late due to historic conditions; they lack resources, but are eager to catch up (Mathews, 2002, pp. 471-472).

The aim of this paper is to contribute to the on-going discussion about latecomer multinational companies from emerging markets. Many studies have been conducted on East Asian firms from countries like South Korea, Japan and Singapore (e.g. Hobday, 1995; Hobday, 1998; Sohn et al., 2009). However, now that these countries have left the stage of an emerging economy and reached first-world standards, it is necessary to build a profound basis of studies on the newly emerging economies, namely China and India. As India is one of the driving economies in future, next to China, it will become crucial to understand the strategies Indian firms apply to reach global standards and compete with established multinational companies in order to try to foresee future shifts in the global corporate pattern (Kedia et al., 2006, p. 560). While India has been the research object in many macroeconomic studies that try to understand the development of the country or industry branches as a whole (e.g. Burange & Yamini, 2008; Richet & Ruet, 2008), an in-depth analysis of key companies’ performances is yet to be developed on a sufficient basis. This paper will help to build up this research base. Given the fact that the Indian government has the goal to boost especially the automobile industry and develop it to become one major pillar of the Indian economy (Ministry of Heavy Industries & Public Enterprises, 2006, p. 25) in the near future, this study will be based on a case of the Indian automobile conglomerate “Mahindra & Mahindra”.

The objective of this case study is to build theory rather than to test it. It will follow the principles of qualitative case study research, which includes rich and detailed descriptions of a limited number of phenomena (Dyer & Wilkins, 1991, p.617) as well as the use of scientific methods and analyses (Eisenhardt, 1991, p.627). By adopting the findings from a former case study and by examining multiple smaller cases of the proposed ‘crisis construction’ in this study, this paper helps to build theory by implementing the “comparative multiple-case logic of replication” (Eisenhardt, 1991, p.627) The in-depth analysis of the Mahindra case will enhance the inductive theory building around the emerging topics of catch-up processes by latecomers and crisis construction as method of organizational learning. It will provide highly qualitative data about the complex processes and methods an Indian company applied over a time span of around twenty years to emerge as a globally competitive firm. Examining the technological catch-up as well as the gains in managerial maturity and its internationalization will be parts of this process. The author will investigate the applicability of Linsu Kim’s capability building model of the catch-up process at Hyundai and other Korean companies to a new generation of emerging companies. Thereby the paper will give new inputs to some open questions of Kim’s work. With the help of this research, existing and future case studies, sound theories and clearer concepts can be developed.

Regarding the research methodology, a broad base of sources has been used to construct this study in order to provide an objective view point to the case and the surrounding theory applied. As no public press archive or similar data bases exist, there is a lack of convenient access to information about Mahindra & Mahindra. That is why an immense effort has been put into secondary sources research. A vast amount of articles from newspapers, management and business journals, company documents such as annual reports and analyst meets’ presentations as well as videos and transcripts from speeches of and interviews with key people from the company serve as the major basis for the empirical evidence for this study. The absence of digitalized information especially about the years before 2000 was one reason for also using primary sources in this study. Primary sources were sought in form of three expert interviews that have been conducted - one with a key account manager from a major component supplier that has a long supplier relationship with the company, another with a former operations manager who had decades of experience with the company.

Both were or are active in the field of engine technology and manufacturing - one of the core fields of technology catch up in the automotive business. The last interview was given by the current Deputy General Manager of Vehicle Integration who has been with the company’s automotive sector for 25 years. A framework of interview questions was used and adapted to the respective fields of competences. The talking time with the interviewees amounted to about one hour each and the interviewees gave valuable insights, on the one hand side, about the time before the year 2000 and, on the other hand side, about the major product development project the company underwent at the turn of the century.

The investigation of this paper will concentrate on the automotive sector of the company, thereby not considering developments in other group sectors and also not focusing on its commercial vehicle and agricultural business. This choice has been made on the premises that this is one of the two core businesses of the company and the fact that the biggest learning leaps of the company can be seen in this branch. Further, the time span that will be predominantly investigated begins in 1990, shortly before India’s economic liberalization and India’s corporate journey into globalization began. The paper will mainly concentrate on technology catch-up and will treat aspects such as human resources, marketing and finance only as supportive arguments.

Starting off by giving a broad overview about the industry and company, the paper will go over to sketching the major theoretical frameworks that will be applied to the case. The center part of this study is divided into four different time periods representing four different stages of development in the company’s history between 1990 and 2010. At each stage, external and internal triggers to change, consequent challenges, and methods of advancing organizational learning as well as the qualitative outcome will be analyzed. The last part of this study will concentrate on the analyses of the proposed model by Linsu Kim, its extension and the discussion about its applicability for organizational learning past the catch-up process.

2. Literature Review

The case of Mahindra provides enough input to review and apply a multitude of papers from different areas of recent management research. It touches the fields of innovation management, emerging market economies, business group behavior, theories of the firm, foreign investment, and corporate internationalization. To narrow down the immenseness of aspects to a suitable format for this paper, a similar study on an automobile company conducted by Linsu Kim in 1998 will form a basis (see Figure 1). In his paper “Crisis Construction and Organizational Learning: Capability Building in Catching-up at Hyundai”, Kim investigated the catch-up process of Korea’s car maker Hyundai and attempted to create a new management tool, “constructed crisis”, as effective means to accelerate the catch-up process (Kim, 1998). He thereby argues that the proactive creation of a company crisis animates the organization to advance in “jumps”, and not in steps, from one level of organizational capabilities to another, moving along the general development from “imitation to innovation”. He declares that the absorptive capacity of an organization is the ultimate measurement of a company’s ability to build capabilities. That capacity, in return, is a function of the primary knowledge base and the intensity of effort put into the capability building process (Kim, 1998, p. 507). By constructing crises, according to Kim, the company can trigger a chain reaction that will lead to higher absorptive capacities and thus, to a higher level of organizational capabilities. This paper will test the applicability of his model and further develop the concept of constructed crisis for building up organizational capabilities. As it can be seen in Figure 1, there are four main research areas that are all interrelated and linked to the topic of this paper.

First to mention is the literature on latecomer industries and firms, started by major works of John A. Mathews. He holistically defines the term “latecomer firm” as a company, whose late entrance is not of its choice, but historically given, that does not have easy access to fostering networks like start-ups, that lacks internal resources, but that has the strategic intent to overcome these deficiencies as soon as possible (Mathews, 2002, pp. 471-472). He also constructed the theoretical model of linkage, leverage and learning as an effective way for latecomer firms to quickly achieve world-class standards. He thereby refers to the process of linking a less-knowledgeable firm from an emerging market to an incumbent, an experienced multinational firm, through an alliance or joint venture. Then, the latecomer firm needs to leverage knowledge from that link in terms of applying the incumbent’s process or product knowledge to its own production or management. The learning effect takes place after several rounds of linkage and leverage as the latecomer firm more and more understands the adopted know-how and is able to modify what it has learned and finally is able to generate or build own know-how and capabilities (Mathews, 2002, pp. 472-473).

This process - or at least parts of it - appear in different forms in other writings by Li and Kozhikode, for example, who generated the idea of two groups of latecomer firms - emulators and blind imitators. The latter does not reach the innovative or even the learning stage of catching-up, but is locked in linking and leveraging technology that is already available (Li & Kozhikode, 2008, pp. 435­436). Also Luo and Tung touch the catch-up process of latecomer multinationals in their “springboard perspective” of emerging multinationals’ expansion and explain the linkage phase as an aggressive entry into foreign markets via acquisitions abroad. Different rounds of acquisitions are necessary to successfully leverage the acquired knowledge, according to them. Nevertheless, difficulties like the internalization and the implementation into the daily routine of this acquired know-how need to be overcome in order to benefit in terms of organizational learning (Luo & Tung, 2007, p. 494). Pradhan and Sing as well as Richet and Ruet closely investigated the technological catch-up processes of the automotive branches in India and China, and thereby gave a sound quantitative macroeconomic basis for research on organizational learning in these newly industrializing countries (Pradhan & Singh, 2008; Richet & Ruet, 2008).

Amsden and Hikino explain late conglomerate growth through a firm’s project execution, production and innovation capabilities and reasonably explain why diversified business groups evolved and developed successfully (Amsden & Hikino, 1994). The authors thereby contribute valuable linkages between catch­up literature and writings about business groups or conglomerates in late-comer industries, the second field of literature, which is predominantly discussed by Tarun Khanna and Krishna Palepu. These two authors defend the position of diversified conglomerates as a successful business model in newly industrializing countries based on their ability to deal with “institutional voids”, that is the absence of regulated labor and capital markets as well as the insecurities in legal contract enforcement (Khanna & Palepu, 2004). Other studies on the effectiveness of business groups in such markets have been conducted by, for example, Kedia, Mukherjee and Lahiri in their paper “Indian Business Groups: Evolution and Transformation”.

Coming back to the catch-up processes, it is inevitable to cover the third vast field of management literature on organizational learning. Exemplarily, the works of Wernerfelt and Teece will be mentioned in this context. The former is representing the roots of the resource-based view of a firm (Wernerfelt, 1984). That, however, is challenged by the behavior of newly industrializing companies as resources that are difficult to imitate or substitute are not sought by these companies, they rather look for imitable and transferable resources as a starting point for their catch-up process (Mathews, 2002, p. 481-482). The latter, Teece, shall serve as a theoretic foundation for the capability approach that also Amsden and Hikino see as the basis for latecomer catch-up. Teece argues that “dynamic capabilities” are essential for long-term business success. As the environment is changing faster and faster, it is the ability to adapt given resources, know-how and capabilities to new situations that guarantees a firm’s survival (Teece & Pisano, 1994).

Finally, the research area of crisis management forms part of the theoretical background of this paper on crisis construction as a mean in technological catch­up processes. However, the theoretical input from this field of management to this paper is limited as the established literature views a crisis as an external, rather unforeseen and non-manipulable, factor and not as a tool that management can actively use to achieve strategic goals. The examination of the term ‘crisis construction’ is also very limited in Kim’s research and leaves a couple of questions unanswered. First, what is a crisis? What are its characteristics? Second, how to prove that the crisis was actively constructed and not only a reaction to environmental stimulus? Third, where is the line between a constructed crisis and an ambitiously set goal, like a stretch goal?

Some answers and valuable insights on the definition of business crises can be found in Krystek’s book on business crises, who in return, examined various definitions and papers on crisis management. He summa]rizes that a company crisis is characterized by the endangerment of the company as a system or a subsystem and its dominant goals, the limit of time for taking actions and the ambivalence of their outcomes (Krystek, 1987, p.6). He also adds the aspect of non-controllability as in that a crisis is an unforeseen and unplanned event.

Part of the core content of this paper will be testing the applicability and verifiability of actively triggering crises and thereby supporting the catch-up process with the example of Mahindra & Mahindra’s automotive business. It also includes the examination of the overall capability building process of that company, which also takes into consideration other theoretical models mentioned above. As opposed to Kim’s study, this paper will separate the function of Mahindra & Mahindra as a business group and leave it for further studies. It instead focuses on the triggers, execution and results of the organizational learning process.

In order to situate this case study in a proper context, it is also necessary to understand the business environment and overall nature of the company, which will be explained in the following chapter.

illustration not visible in this excerpt

Figure 1: Literature Review (compiled by the author)

3. Case Introduction

3.1 Industry Overview

In 2008/2009, the Indian automobile industry generated a turnover of about 38 billion US dollars (Society of Indian Automotive Manufacturers, 2011a), that is about 10 percent of the total turnover of the German automobile industry at that time. The Indian government expects the industry turnover to triple or quadruple over the next five years. Except for commercial vehicles, all other segments including two wheelers, three wheelers, passenger cars and utility vehicles are forecasted to grow at double digits annually (Ministry of Heavy Industries & Public Enterprises, 2006, p. 7-9). A special characteristic of the Indian automobile industry is that it is dominated by two-wheelers like motorcycles and scooters. It is the second largest two-wheeler market after China and 76 percent of the vehicles on the Indian roads are two-wheelers. The share of passenger vehicles is at around 16 percent while that for commercial vehicles is at around 4.5 percent (Society of Indian Automotive Manufacturers, 2011b). With the economic growth and the increase in income per capita, the share of passenger cars is expected to grow rapidly in the mid to long term future.

For a long time, the car in India was a pure luxury good and until today cheaper vehicles like two-wheelers dominate the market. It was only in the 1980s, when a governmental joint-venture with the Japanese company ‘Suzuki’ started to offer cars for the mass market (Ministry of Heavy Industries & Public Enterprises, 2006, p.5). Today, despite falling market shares, this state joint­venture (Maruti-Suzuki) still holds around 50 percent of the passenger car market. Other major market players include Tata Motors and Hyundai Motor. In the past decade, more and more international players have aggressively entered the market and successfully gained market share. Ford and Volkswagen are among the most successful foreign market entrants. The focus company of this study, Mahindra & Mahindra, is operating as a leader in the niche segment of utility vehicles and the volumes of this segment are attributed to the passenger vehicles or commercial vehicles, depending on the issuing authority. A clear determination of market share thus becomes difficult.

The poor road infrastructure in India and different consumer preferences require different product features to satisfy the market. For example, bumpy roads call for better suspension systems and elevated auto bodies. On the other hand, the poor roads prevent speeding, hence safety features like airbags become marginal. In addition, the average Indian consumer is relatively price sensitive, thus low-cost solutions are not only required as entry versions, but determine the success along the product portfolio. Due to its monopolistic market position in the first hours of the passenger car market, Maruti-Suzuki benefits from a great brand equity and natural preference of consumers. In addition, other brand conglomerates like Tata could successfully built on their brand images from other sectors while expanding the car business. Also Mahindra is one of the many recognized Indian conglomerates with a strong Indian brand connection.

3.2 Company Portrait and History

The Mahindra Group, at present, is an Indian business group that is active in ten very diverse business fields ranging from IT and consulting services to real estate, retail, automotive and farm equipment (see Appendix 7). It sees itself not as a conglomerate, but a federation of companies as all the major companies of the group are traded separately and have independent and individual leaders, so called presidents. The group is led by two second and third generation family members - Mr. Keshub Mahindra and Mr. Anand Mahindra. In the financial year 2009-2010, Mahindra generated a turnover of around 7.1 billion US dollars, employed around 110,000 people, and was the world’s biggest tractor manufacturer in terms of volumes sold. The flagship company “Mahindra & Mahindra Ltd.”, that now heads the automotive and farm equipment sector, is the largest - with automotive contributing around 36 percent and the farm equipment sector contributing around 29 percent of the total revenue in the financial year 2009-2010 (Mahindra & Mahindra Ltd., 2011a). In the niche market of utility vehicles and sport utility vehicles, Mahindra has an untouched leading position in the Indian market with 63 percent market share in 2010 (Mahindra & Mahindra Ltd., 2011). Mahindra vehicles are considered to be rough and edgy, capable of tackling the harsh Indian roads and most of all value-for-money. The company, until now, does not have any vehicles launched under its own development in other sectors such as the mass passenger car market or the low-cost vehicle market. Recently, the company expanded and diversified its business further into sea and air transportation (Dubey, 2011, pp. 35-36). For easier reference, the term “Mahindra” in this paper is equivalent with the automotive sector of the group if not otherwise specified.

The company started its business by assembling US jeeps under the license of Willys Overland Corporation after India’s independence, in 1947 (Mahindra, n.d.). In the beginning, this only included the assembly of the jeeps which required very low technical skills and know-how. Operating in a protectionist market under the so called ‘License Raj’, there was no need and no opportunity for the company to excel production, product quality or shine through innovative moves. Production quotas were given by the government, technological influences from outside were banned by restrictions on imports of machinery or know-how, and the company lacked financial resources due to fixed prices. In addition, the country itself was so poor that personal vehicles were far away from being a part of everyday life - and even if, the consumer was not very demanding as he had little choice (Mahindra, n.d.).

During this time, there were no extraordinary efforts of the company to become an experienced or leading automotive company - management was bound to its given limits and was forced to be rather reactive than proactive. Nevertheless, the protectionist political regime also implemented some incentives, which would be of great use later on.

First, the government pushed the company into domestic manufacturing of parts as it wanted to limit imports. Although it was uneconomical, Mahindra had to start manufacturing components in-house. In 1955, the company started the production of peripheral parts of the vehicle, for example tires, batteries and lamps. Later with the beginning of the 1960s, more complex parts like engine and gear box components were also manufactured domestically (see Appendix 4). Despite antique production systems, obsolete technologies and low incentives for R&D investments, Indian carmakers were forced to build an indigenous automotive industry base (Pradhan & Singh, 2008, pp. 3-4).

Second, due to strict production quota, the company had to look for new sources of income and opportunities for expansion and was granted a tractor building license by the government. US Harvester, the company that Mahindra used as a partner to enter the tractor business, shared its technological know-how (see Appendix 4). Soon, Mahindra gained all engineering capabilities required to build its own tractors (Mahindra, n.d.) - these were, of course, technologically inferior to the utility vehicle and car market. Nevertheless, organizational learning was boosted by some synergies that Mahindra gained out of this constellation - the rear axle for jeeps and trucks, for example, are similar.

When in 1973 the Gulf War led to petrol price hikes, Mahindra required a diesel engine for its utility vehicles. It decided to adapt a tractor diesel engine to the jeep and was able to present its first in-house developed jeep diesel engine in 1975 (see Appendix 4). However, the fact, that just four years later Mahindra had to license a diesel engine from Peugeot to meet the new emission norms (see Appendix 4), shows that efforts for improvement were only going along with the external trends and requirements - there was no big technological or organizational leap that kept the company ahead of others, it was still lacking behind. Despite some technological cooperation with Peugeot on the engine development, Mahindra still required Austria ALV’s help to enhance its indigenously developed engine at the end of the 1980s (see Appendix 2).

The company Mahindra spent decades after its foundation cut off from superior technological developments, separated from modern production systems, and left out of contemporary management mantras. Organizational learning was kept at a minimum and only prospered through some projects of inward licensing of foreign technology: With Willys Overland in jeep assembly, with US Harvester in tractor manufacturing and with Peugeot and ALV in engine development. In addition, the government forced the company to domestically manufacture of some components which helped Mahindra to build a knowledge base. In all

cases, however, these steps were a slow reaction to outside circumstances, nothing proactively revolutionary. Thus, it can be concluded that Mahindra entered India’s new economic era with a small but solid, even though obsolete, primary knowledge base. The intensity of effort to build superior capabilities was very low due to lacking incentives from the market and governmental restrictions.

4. Crisis Construction and Capability Building Process

4.1 First Crisis: Economic Liberalization and Competitive Shock

Often only a crisis leads to severe change in an organization and it is certainly true that a big crisis led to a big change for the company Mahindra at the beginning of the 1990s. For the first time in its history, Mahindra was “shook up” (Mahindra, n.d.) and faced an environment that was far more difficult to cope with than the protective regime of the past decades. Like many Asian countries, also India began its economic liberalization with the beginning of 1990 and opened up rapidly to world markets and foreign companies - which led to two major movements that formed the new competitive environment of the Indian market: liberalization and globalization.

In a gradual but straight forward approach, the government abolished the ‘License Raj’, thereby allowing capacity and industry expansions as the market required them. Further, it became easier for Indian firms to gain access to foreign technologies and foreign capital markets (Kedia et al., 2006, p. 568). All these factors plus the opportunity to serve foreign markets favored Mahindra’s business. As the former and current Group CFO Bharat Doshi puts it in an interview, Mahindra now had “freedom to invest as it wanted, embrace new technology, set up collaborations and partnerships, start making new types of products and respond to the market.” (Mahanama, 2008)

Before the liberalization, every car maker was bound to the government production quota and did not have to respond to a demanding market. All of the sudden, a market based competitive landscape was established and the Indian car makers were free to expand and defend their market share - a phenomenon they had not experienced before. Those were opportunities and threats Mahindra was inexperienced in dealing with and later on, the competitive arena got even stiffer by allowing new entrants from advanced Western markets. Globalization, that meant, above all, increased foreign competition (Kedia et al., 2006, p. 568).

The government’s decision to open up the economy was clearly a trigger of an influential external crisis to Mahindra’s macro-environment. Having a low primary knowledge base compared to international competitors, being inexperienced in operating in a competitive market environment and lacking behind in production standards; the company decided to make use of the external crisis and construct its own internal crisis. To the management, it seemed not enough to slowly adapt to the new environment, but it decided to take a big organizational leap in order to be prepared to compete in the “New India” that welcomed FDI and a globalized economy (Kurtzman, 1996). It is legitimate to view the following efforts of firm restructuring and business process reengineering as a crisis based on the criteria set up by the crisis management literature: First, the endangerment of the company and its structures is given by the massive restructuring program that the company decided for and also the endangerment of its subsystem in the manufacturing arms was provoked by the business process reengineering program. Second, time pressure was created by the fact of an ever increasing invasion from new market entrants. Thirdly, the ambivalence of the outcomes of these efforts is evident in many ways: Workers might have abandoned the company after being harshly pushed to work twice as much or the plans of focusing on the underdeveloped automotive business might have turned out to be a fatal decision - these were all experiments whose outcomes were unpredictable. Beginning in 1994, these big measurements were taken to change the organization (Koovappady, 1999) at two levels: the corporate and operational level.

On a corporate level, the company started from scratch and designed the new organization around the central question of “Where do we have the greatest chance of becoming globally competitive?” (Kurtzman, 1996). As a former Mahindra manager puts it, what followed was “a revolution, as all assumptions were questioned” (see Appendix 5). First, it was decided to concentrate on vehicle production and thus to get rid of the oil and drilling business, for example. Second, the strategy was refocused and bundled into smaller business fields (Kurtzman, 1996) and not around functional tasks anymore. Realizing the need for a better clustered and agile organization, the group was restructured into six strategic business units that were headed by one president each. Only around 8 percent of the 38,000 vehicles produced every year were not tractors - a strong forward diversification into the automobile sector was therefore decided as part of the future plan (Richet & Ruet, 2008, p. 453). The automotive business was clearly separated from the farm business and became the flagship branch besides the other five: Tractors, Infrastructure, Trade and Financial Services, Telecommunication and Automotive Components (Kurtzman, 1996).

At an operational level, a business process reengineering project led to huge uprisings among the workforce and became a real challenge for management levels to fight for. The business process reengineering program was set up in collaboration with Lucas Engineering Systems from the UK (Mukund, 2002, p. 1), demonstrating Mahindra’s first steps towards benefitting from linkages to more experienced, developed multinational companies. And as in any case, the workforce resisted heavily when changes were introduced. In order to bring up productivity, Mahindra linked the former granted festive “Diwali” bonus to productivity and wanted to also link the general wages to productivity (Raghunathan, 2006). The workforce went on strike and demonstrated at the factories in and around Mumbai. It took a whole five months before things went back to normal (Mukund, 2002, p. 5) and the general management had to demonstrate persistency and adhere rigidly to its plans. Senior staff members even began working in the shop floor to demonstrate that 100 of them could do what 600 workers had done before in the same time. After this showdown of strength, productivity was increased by 100 percent, while wages were also increased by 30 percent (Mukund, 2002, p. 5), and changes to the shop floor layout were also accepted.

Mahindra adopted various new models of production, now always concentrating on processes and not individual activities. Workers were trained to become multitasking in order to operate in the new cellular manufacturing factory layout that was introduced to eliminate non-productive activities. Further, the shop floor moved from batch to modular processes allowing them to quickly alter the production line for a broader range of products. Japanese concepts like ‘Kaizen’ and ‘Total Productivity Management’ were established and workers were encouraged to be pro-active in reducing failure rates and improving production flows. Last but not least, the newly evolving platform concept for vehicle production was also introduced, allowing the company to use some vehicle parts on various models without alteration (Mukund, 2002, p. 6). At the end of this mammoth project, productivity increased tremendously: Earlier, 1,230 workers were needed to produce 70 engines daily; in 1994 only 760 workers were needed to produce 125 engines (Raghunathan, 2006).

In 1990, Mahindra started off with a very low primary knowledge base about production systems and how to operate such a large business in a newly market driven environment. As the political and economic environment before the economic liberalization was not very demanding, efforts to enhance the knowledge base were very low. Now, with the first crisis to be overcome, Mahindra put a lot of effort into its organizational learning by restructuring the firm and enforcing a far-reaching business process reengineering program.

The construction of this crisis becomes obvious when looking at the reach of these efforts. The measurements taken clearly did not aim at keeping Mahindra in its competitive position and only adapting it to the new circumstances. No, these were efforts that go beyond a typical annual adaptation of business strategy; these were extraordinary efforts that brought Mahindra to a new level, marking a break in the company’s development. Also, it was not only an optimistic goal towards which the company as a whole worked, but it was a self- caused internal struggle that required to overcome also internal barriers and fights that otherwise, without the crisis construction, would not have appeared. While these mainly made Mahindra better off internally, it was not sufficient to also present itself to the external market as a new strong player. The vast knowledge area about product and production technology was still untapped. In this context, the joint venture with the Ford Motor Company played a crucial role and can be considered as a third major action to overcome the first crisis.

The combination of Mahindra, a resource poor latecomer firm that is looking for a technologically advanced partner, and Ford, an incumbent of the western car industry looking for a local partner to tap the newly opened Indian economy, seemed to be a perfect match. It was necessary for Mahindra to hop on to some “mother ship” (Bhan, 2010) in order to catch up technology wise. The 50-50 joint venture between Ford and Mahindra which began in 1993 (Stewart & Raman, 2008, p. 72) was set up to build the Ford Escort for the Indian market. Although the joint venture was basically limited to manufacturing of completely knocked down units, the fact that the plant was set up in Nasik, near the other Mahindra manufacturing sites, allowed Mahindra to gain a great insight and learn new technologies (Bhan, 2010). Mahindra was simply not aware of all the new technologies and through the Ford joint venture it got, at least, a peek into modern technology and was able to bring its own engineering skills “from 19th to 21st century” (Surendar et al., 2007). Ford benefitted in such a way that Mahindra was a market knowledgeable, but silent partner. Silent in such a way that Ford could do whatever it wanted in terms of factory management or production layout - Mahindra was completely inexperienced in building passenger cars as their core field had been utility vehicles (Kurtzman, 1996).

Although the major gains for Mahindra from this joint venture were assembly technology, production systems and knowledge about assembly line layouts, there was also a migratory knowledge transfer happening as Mahindra engineers were trained at Ford (see Appendix 4) and tacit knowledge was transferred as Mahindra benefitted from spillover effects and gained insights into, for example, purchase management and quality systems (Kurtzman, 1996).

As Mathews says, linking to a more advanced firm and gaining access to its knowledge and network is only part one of successfully benefitting from it. Part two is then to adapt and internalize these resources as well as deepening in­house competencies in parallel (Mathews, 2002, p. 478).

Having restructured the firm, taken productivity to a new level and learned from an experienced partner, Mahindra took its first, but small, steps towards refreshing its product portfolio to bring to life its new strategic focus on the automotive industry. Earlier, Mahindra had only refreshed vehicle models it had adapted from the jeep joint venture (Khanna et al., 2005, p. 1). Thus, the vehicles were rough, edgy and rather rural vehicles.


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Mahindra & Mahindra's capability building process
Catching up in automotive business through crisis construction
Berlin School of Economics and Law
International Business Management
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ISBN (Book)
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mahindra, catching
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Hanka Smiejczak (Author), 2011, Mahindra & Mahindra's capability building process, Munich, GRIN Verlag,


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