For his latest automotive venture, Anand Mahindra has turned Asia’s conventional industrial wisdom on its head.
Instead of assembling the product — the new GenZe electric scooter — with low-cost factory labour in Asia and exporting it to the US, India’s Mahindra & Mahindra has opted for what it calls an “all-American product”. It was designed in Silicon Valley and will be made in Ann Arbor, Michigan under the supervision of 60 relatively expensive engineers, with components from across the globe.
“This is the new animal that a global new product manufacturing set-up is going to be,” says Mahindra, the Harvard-educated billionaire who took the helm of the $16 billion Indian conglomerate as chairman three years ago. “We really felt that India didn’t have the start-up atmosphere ... We had a number of people join us from [US electric carmaker] Tesla Motors, for example, because they were excited about this and the Valley allows people just to migrate and to try out new things.”
The GenZe is a modest project for the time being. The $3,000 scooter with a computer touchscreen and power sockets for cell phones and laptops is aimed at students and young professionals and is expected to launch in Berkeley, California and Portland, Oregon in a few months, with initial annual production capacity of 20,000 units.
But the plan exemplifies the challenges facing the business models of traditional Indian manufacturers such as Mahindra, and illustrates the difficulties Narendra Modi, India’s prime minister, will have in creating millions of jobs through his ‘Make in India’ campaign of promoting the country as a low-cost alternative to China.
The Mahindra conglomerate’s existing US businesses are based largely on the competitiveness of Asian manufacturing and services: the group is the world’s largest tractor brand by volume and sells the vehicles made in India, Japan and South Korea through 525 American dealerships aimed primarily at smaller enterprises and hobby farmers. Tech Mahindra provides IT services to 360 of the Fortune 500 companies.
Mahindra is as cheerful as ever under his trademark shock of white-streaked hair, but he is grappling with an upheaval in global manufacturing that has seen the rapid rise of automation, more demand for high-tech products, and intense competition in an Indian domestic automotive market beset by economic uncertainty and unpredictable monsoon rains.
“We [in India] are not where China was when it made its decision to go in for labour-intensive manufacturing. It was in the right place at the right time. It became the world’s supplier and grew rich on the back of that. I don’t think India has that opportunity — that is our biggest problem,” he says.
“The world is moving away from simply low-cost elements. Products today are products which require a brand, which require innovation, and which have a very strong element of both IT and services involved in them.”
Mahindra explains this in terms of Barbie dolls. In the old days, it was just a doll, but in the future it could be something robotic that walks and thinks — “intelligent Barbie — it sounds like an oxymoron”, he says with a smile.
India in general, and companies such as Mahindra, are by no means excluded from this new, high-tech manufacturing world. It is true that India suffers from poor education and a desperate shortage of skills, but it also has well-known strengths in IT in geographical areas that overlap with those of the motor industry.
The two sectors are closely connected too: while the core of Mahindra’s Indian motor business is SUVs for the price-conscious local market, Tech Mahindra’s international work includes producing software for driverless vehicles.
“When people think of manufacturing, it is no longer a very simplistic framework that you can apply, a very binary one that ‘I need to make something low-cost so I go to China ... Now China’s place in the sun is gone, go to India’,” he says. “That’s not how people are going to have to think. They’re going to have to create a footprint which might be like a neural network which involves nodes in various places.
“You incubate a product in an atmosphere where that product is best incubated. So, for example, we incubated our electric scooter in California. Because it’s low-volume manufacturing but high-intelligence, intensive manufacturing, we are starting in Michigan. At a point where the volume is going to be much higher and labour is a much higher component, we will pick a different part of the world, most likely India.”
As well as struggling to devise a profitable manufacturing strategy for the future, Mahindra is grappling with the need to make sense of a highly diversified conglomerate of the sort often unpopular with focused investors and financial analysts.
With its origins in a quintessentially Indian family enterprise built in a protected post-independence economy, Mahindra not only sells IT services, tractors, trucks, cars, three-wheelers, two-wheelers and small aircraft, but is also involved in defence, renewable energy, banking, insurance, retail, real estate and holidays. Mahindra, whose own wealth is estimated by Forbes at $1.2 billion, is not shy of acquisitions.
He bought Ssangyong Motor and the scandal-hit Satyam Computer Services among others — and is constantly on the watch for the chance to buy a high-end automotive brand.
“We don’t call it a conglomerate, we call it a federation,” he says. “If you look at a spectrum between General Electric and Berkshire Hathaway, GE is a conglomerate, one single monolithic company with divisions, Berkshire Hathaway has multiple investments.”
Mahindra, in short, is more Berkshire Hathaway than GE and the boss is in no mood to abandon the safety of diversification.
“If I was sitting here and I had only one unit — an SUV diesel business — even if I was making a 25 per cent return today, your question would be, ‘Anand, are you going to survive?’ Right? Here I am. I’m seeding other parts.
“I’ve got an electric vehicle business. If the world moves, in [big cities], away from vehicles and they say only two-wheelers, and battery two-wheelers, are going to be able to survive, guess who’ll have a product? If they say electric vehicles only in Delhi tomorrow after banning 10-year-old diesel vehicles [this was announced in April by the National Green Tribunal, but the ban has been suspended for the time being], guess who has a product?”
With a hint of defensiveness, Mahindra rejects criticism by analysts of his moves into new markets and product categories. “The moment I say I’m going into scooters, they say ‘you’re crazy’. Six months later when BMW comes out with an electric scooter, it’s fine. But when Anand does it, because he’s some small guy in India, it’s not fine.”
Mahindra, of course, is not small — it has operations in 100 countries — but Mahindra the conglomerate chief still describes himself as an entrepreneur, despite, or perhaps because of, the multitude of businesses he controls.
“Our performance has borne out the fact that the model seems to work. I have been facing this question now for the past two decades and I’m still around, still have my job, so something must be working,” he says.
— Financial Times
