Issues Before Shah
Contract Assembly M&M (SA) has been in talks with a few vendors in South Africa regarding the assembly of pickup vehicles which were being shipped out of India to countries in West Africa. Local assembly would improve margins by reducing by about 25% the cost of shipping CBUs from India to African destinations. Brand equity was a major driver in the South African automobile market where consumers bought cars and trucks on the basis of brand recall. Consumers preferred global brand because South Africa had on home-grown automobile brands. M&M was accustomed to occupying the driver’s seat. The mindset of being in charge prevailed throughout the organization from the way it structured joint ventures. For two past years the company had contracted an assembly plant in Egypt for the Scorpio vehicle and another in Brazil for a pickup vehicle. Certification of the locally assembled vehicles local agencies was an area in which M%M (SA) did not have competence since it was only importing CBUs from its Indian operations.
Own Manufacturing
Setting up a manufacturing plant in South Africa would be consistent whit M&M’s mission of being a long-term player. Manufacturing was the easier part in automobiles. The real challenge particularly in South Africa was localization of content.