M&M eyeing South Africa, Asean to serve as alternate manufacturing base

Mahindra and Mahindra (M&M) has identified two regions, South Africa and an ASEAN (Association of South East Asian Nation) country, for a potential manufacturing base outside India. The company’s recent move of setting up an assembly plant in South Africa is a step forward towards a long-term strategy, Arvind Matthew, chief of international operations, Mahindra and Mahindra, told Business Standard. The Anand Mahindra –led firm first announced its plans of creating alternative manufacturing bases outside India in March 2017. It had said the move was prompted by the need to globalise its footprint, de-risk and ride out inevitable market fluctuations in the local market.  

“We are looking at creating a couple of bases outside India,” said Mathew, pointing out that the firm has made reasonable progress in South Africa, a market it has been selling its pickups and SUVs in for almost decade and a half, while it’s going slow in terms of identifying a base in Asean, owing to the competitive intensity and the Japanese stronghold in the region.    

The company envisages having a full-scale manufacturing presence in South Africa, but it “will take one step at a time,” and consider it only after the market turns into a reasonable volume.

On 25 May, Mahindra said it is setting up a vehicle assembly facility in Durban, KwaZulu-Natal. Located in the Dube Tradeport Special Economic Zone (SEZ) next to the King Shaka Airport in KwaZulu-Natal, the unit would assemble the complete range of Mahindra single and double cab pick-ups. The facility has been constructed in partnership with AIH Logistics. Mahindra has made an initial investment of R10 million in facilities and equipment. The facility will commence trial production in May 2018 and start full production in July 2018.

Mahindra aims to source 40 per cent of the components, measured by value, of its pick-up range from local component suppliers. The company’s market share in South Africa, which it entered in 2004, has been growing, PTI reported on May 28 quoting Rajesh Gupta, the newly-appointed chief executive officer of Mahindra South Africa. In the last five years alone‚ it has grown its market share by a compound annual growth rate (CAGR) of over 4.6 per cent a year‚ which puts it in the league of the five fastest-growing companies in the same period, Gupta told PTI. Since it first entered the region, Mahindra Group has been stepping up its presence across the verticals it's present in including passenger vehicles, tractors, backhoe loaders, gen sets etc.

“It’s a market we know and understand well by now. We also have a vendor base here,” said Mathew, pointing out that this makes it one of the potential manufacturing bases outside India. But the volume from the region should be large enough – 10,000 units a month -- to merit the same. Presently, South Africa is the third largest market for M&M after Bangladesh and Sri Lanka.

To have an assembly facility or some kind of manufacturing presence when selling outside one’s home market is important in the new world order. 

Manufacturing companies can no longer be content with merely appointing a local distributor. In many cases, protectionism is driven by political reasons but for some countries, like South Africa, it's being driven by a genuine commitment by the government to create jobs. M&M has always seen South Africa as ‘a second home’ and a base from where it could grow its market share in the continent said Mathew.

M&M’s arch-rival Tata Motors already has a plant in South Africa. The Tata group flagship has been assembling models from its passenger and commercial vehicle line-up since 2011. It has recently announced setting up an assembly plant in Bangladesh.