Pawan Kumar Goenka witnessed some major moves in the auto industry in his early career years. He was a principal research engineer with General Motors (GM) in Detroit for 14 years before switching to the Mahindra & Mahindra (M&M) group, a US$16.2 billion conglomerate based in Mumbai, with more than 155,000 people in over 100 countries and a leadership position in utility vehicles, information technology, tractors and vacation ownership. M&M has been also expanding its presence in the automotive industry, aerospace, components, consulting services, defense, energy, financial services, logistics, real estate, retail and two-wheelers.
At M&M, Goenka spent his first 10 years in engineering and product development. In 2003, he was made chief operating officer of the automotive sector. He is currently president of both the automotive and farm equipment sectors. This gives him the biggest share — 77% — of the M&M group’s turnover. He also has unprecedented freedom to operate in a family-managed organization. “In 10 years of general management and a leadership position, I have gotten many opportunities and a lot of support from [chairman] Anand [Mahindra] and the board,” he says. “I can grow grapes or sell trucks and not get confused.” Goenka spoke to India Knowledge at Wharton on a range of issues.
An edited transcript of the conversation follows.
India Knowledge at Wharton: The state of the automotive sector is often regarded as a proxy for the entire economy. Auto sales have been falling in India. What does it say to you about the Indian economy?
Pawan Goenka: The industrial scenario in general and the auto industry in particular have been going through tough and troubled times. In fact, in FY2013 [financial year 2013, April 2012 to March 2013], seven out of 12 industry sub-segments shrank and only 14 of the 32 auto original equipment manufacturers (OEMs) in India posted volume growth. Today, the Indian auto industry is facing an extremely challenging situation in the form of a prolonged slowdown. Sales for medium and heavy commercial vehicles have declined for 16 consecutive months, while passenger car sales have declined for eight consecutive months, including the first quarter of FY14.
These are very difficult times for the industry, but there is hope in the form of a good monsoon. Further, with the festive season, we do expect some good news by the time we close the year.
If we analyze the root cause of what is ailing the industry, we find that demand for mobility solutions still exists and products satisfying varied customer segments are also available. The slowdown is partly due to the volatile economic environment — uncertainty over economic growth, high vehicle financing rates and high inflation — leading to people making fewer discretionary purchases, and rising fuel prices.
But I have confidence in the India growth story.
India Knowledge at Wharton: In this environment, what are the immediate and long-term prospects of M&M’s automotive and farm equipment divisions?
Goenka: For our automotive business, we aspire to grow the brand globally in the utility vehicle (UV) space. This includes sports UVs and pick-up trucks. We intend to do this by building our own capabilities and also synergizing with Ssangyong [a Korean company taken over by M&M]. In the domestic market, our focus is to be a full range player and a good competitor across all product segments ranging from three wheelers to large commercial vehicles. Sustainable mobility is another focus area for us, and our intent is to have a leading presence in the electric vehicle (EV) space through our company Mahindra Reva.
On the tractor front, we are already the world’s largest company by volume and have a very good presence in some niche segments in China and the U.S. Going forward, our focus will be to grow the product portfolio and, more importantly, to build the brand in the international markets.
Our farm equipment business cherishes the long-term aspiration of delivering “farm-tech prosperity”. This aspiration requires us to go beyond the traditional product range of tractors and other farm mechanization solutions. Today, we are actively focusing on developing our agri-business which includes seeds, crop care, water management solutions and exporting farm produce.
India Knowledge at Wharton: You had overtaken Tata Motors in passenger cars. What is the situation today? What are your ambitions?
Goenka: Our aspiration is to have sustainable and profitable growth, which M&M has delivered consistently over the past 10 years or so. Our aspiration is to grow our brand both outside and within India, which is progressing well….
On Tata Motors, what I can say is that the company has deep-rooted strengths and is a strong player in the domestic and internal markets. The company is presently undergoing a transformation and I expect it to emerge stronger.
India Knowledge at Wharton: Can you describe your international footprint?
Goenka: We sell our products in more than 40 countries globally. In FY13 we sold over 145,000 vehicles and tractors outside our home markets, which are India and Korea. This number translates to about 15% of our total global volume.
In the automotive business, we have a very good presence in South Africa through our own subsidiary, Mahindra South Africa. Other countries where our products have good acceptance are Sri Lanka, Nepal, Chile, Brazil and Peru. Through Ssangyong, our presence is spread across Australia, Russia, parts of Europe and China.
In the tractor business, we have manufacturing operations in the U.S. and China through our companies Mahindra China and Mahindra USA. In the U.S., we are the third largest tractor company in the relevant segment.
India Knowledge at Wharton: You are the only company in the world to straddle the entire spectrum from two-wheelers to commercial vehicles to tractors. Surely you need different corporate strategies and cultures to tackle these different markets?
Goenka: Yes, each business has different strategies as the target customers and the competitive landscape is different. However, what lies underneath is the common fabric of Mahindra….
While the front end for each business calls for different positioning and go-to-market strategies, at the back end it is a different story. Our focus is to leverage synergies across multiple fronts — sourcing, logistics, IT infrastructure and talent management. The benefits are wide ranging, including more efficient management of working capital, cross learning and significant synergy in product development. Thanks to synergies, we have now become a formidable force when it comes to procurement, manufacturing, supply chain and brand spends.
We have a reasonably decentralized operating structure, where each business is responsible for its strategy, growth and P&L.
India Knowledge at Wharton: Will you give the rationale for your two-wheeler and electric car ventures?
Goenka: We are a full-range player offering a wide spectrum of mobility solutions, from small-size personal mobility vehicles to heavy-duty trucks and tippers…. In the future, we believe that electric vehicles will be at the core of sustainable mobility solutions and the recently-launched Mahindra e2o is the first step in that direction. So what we offer is very different from any other Indian manufacturer. We are a one-stop shop for every mobility requirement.
India Knowledge at Wharton: I understand you have plans to get into agri-inputs and micro-irrigation?
Goenka: With respect to our farm business, we have always said that we want to go beyond tractor mechanization and provide agri solutions across the value chain…. We constantly look at opportunities that will benefit our farmers [and] improve their yields. Agri-inputs and micro-irrigation play key roles.
India Knowledge at Wharton: Your takeover of Ssangyong of Korea has been a financial drain — when do you expect to turn the corner and what are your plans?
Goenka: Acquisition of Ssangyong was a very significant step taken by us as a part of our globalization strategy. The objective is to leverage synergies in the areas of technology, product development, sourcing and channel. A strong product portfolio is the backbone of our plans and, overall, we are ahead in the plans we had set out. We have made very good progress on areas such as the development of a new engine family and an all-new vehicle platform. Further, the company has had a positive change in consumer perception through a slew of new launches and refreshes. Efforts are underway for an early turnaround of the company to improve its corporate value.
India Knowledge at Wharton: Your joint ventures with foreign auto majors (Mahindra-Renault, Mahindra-Navistar, Mahindra-Ford) have all ended with M&M buying out the partner. What went wrong?
Goenka: I have always said that our experience with joint ventures [JVs] has been very good. All the three JVs — the Ford JV, the Renault JV and the Navistar JV — have done for the Mahindras what they endeavored to do. I can say the same for our partners Ford and Renault, but clearly not for Navistar. What the JVs did not do was give direct, bottom-line results. But in terms of what they were supposed to deliver, they did well.
The Ford JV gave Ford an entry into the Indian market and gave Mahindra the knowledge of modern manufacturing and product development.
The Renault JV gave Renault entry into the Indian market and gave Mahindra entry into the passenger car market and updated our knowledge of manufacturing and procurement.
The Navistar JV gave Mahindra the confidence to get into the heavy commercial vehicle (HCV) market. Unfortunately, Navistar had to exit the JV because of issues in their home market.
We still have good relations with all three companies and continue to work to explore areas of cooperation. Going forward, we are open to alliances for the right reasons.
India Knowledge at Wharton: Your background is in R&D. How important is R&D in the automobile industry in India?
Goenka: Our focus on developing in-house R&D capabilities has always been key for us. With the launch of the Scorpio, we were the first Indian OEM to have fully developed a product completely indigenously. MRV, our brand-new technology and product development centre at Chennai, is now fully operational. The XUV500, which was launched in September 2011, was completely developed at MRV.
India Knowledge at Wharton: You have been a supporter of “frugal engineering” — innovating to reduce the final product price. The Logan (introduced in collaboration with Renault) is held as a key example of such “frugality”. Can you sell a “frugal” car in the U.S.?
Goenka: To set things in the right perspective, the frugal approach we talk about is not about cutting corners on quality or the final output quality. Frugal engineering is more to do with maximizing the value of the money we spend. Frugal would mean that we sometimes question an unnecessary expense of a few cents, but [we do] not question spends of one thousand dollars [when it] gives us value worth that of two thousand dollars.
As we look at our product development plan, [including] how many engineers report on the project, how many vehicles we need to build for testing, where do we get certain components [and] which equipment do we buy, we look at what we can do without. These elements have to do the most important job at hand, albeit without compromising on quality because the consumer should never feel any difference between frugal and otherwise regular engineering.
India Knowledge at Wharton: You are a professional entering a family-run business. You are now heading the largest and most important cluster — the automotive and farm equipment sector which accounts for 77% of the consolidated income and 66% of the profit. How difficult was it?
Goenka: That’s the evolution that has happened for me on the personal front and I can say that there are three distinct parts of my career and at that point of time, I wouldn’t have traded that part of my career for anything else.
So the first part in GM, the first 14 years of my career, I was in pure R&D work. I had a very enjoyable stint, good career growth and all that was great at that time. The second part in Mahindra from 1993 to 2003, was about 10 years of engineering, product development work, which was a lot of learning for me. I would not trade those 10 years for anything else. From 2003 till [now has been] 10 years of general management and leadership position, and I have gotten so many opportunities — some successful, some not so successful and lot of support from Anand and the board, getting me into a situation where I can grow grapes or sell trucks and not get confused.
India Knowledge at Wharton: Is M&M an example of the changes happening in Indian family-run businesses? Or is M&M a different story because chairman Anand Mahindra has no sons to inherit?
Goenka: M&M has the lineage of being a US$16.2 billion federation of companies [that started from] being just an assembly plant 60 years back. Each business has its own strong leadership team, which is professional.
India Knowledge at Wharton: You came back from the U.S. to join M&M. In the auto sector there has been a large number of expats joining Indian companies and the local operations of foreign companies. Why is this so prominent in the auto sector?
Goenka: I would primarily attribute this trend to the economic shift toward India and other emerging markets, which offer more interesting and lucrative assignments. Further, it also enhances different cultural skill sets among individuals and hence an assignment in India is core to one’s career development.
Having said that, the automotive industry in India is still in a development phase and the potential for the future is immense. This has led to OEMs and suppliers from every automotive producing country to have an India presence. Today, the Indian industry has a healthy mix of nationalities such as French, Americans and Japanese to name a few.
India Knowledge at Wharton: How do you see M&M compared with global auto majors a decade from now or two decade from now?
Goenka: More than M&M, I would like to see the Indian automotive industry take center stage on the global landscape. It should design and develop world-class products that become industry benchmarks and excite customers globally. The industry should be an aspirational workplace where global talent would aspire to work. And if the country gets there, I am sure Mahindra will be right in the front leading that change.