You are on page 1of 14

Q: An Indian company wants to start its operations globally.

Identify the relevant


environment factors they would consider and describe how they will influence the decision?
Explain with the help on an example.

Ans: In order to understand how business operates globally, let us understand the basic concept of
“Business Environment” and what are the environmental factors affecting Indian company globally and
what the overseas opportunities are for Indian company.

Business Environment

Business is an economic act which is carried out by an organization to achieve some targets related to
production, profit, diversification, technological up gradation, expansion etc. Each business requires some
kinds of resources for the fulfillment of the targets. The fulfillment of targets of a business depends not
only on its resources but also on the business environment.

Environment by definition is something external to an individual or an organization and it is beyond the


control of an individual or an organization. Therefore, in strict sense, business environment refers to all
external factors which have a direct or indirect bearing on the activities of business. In other words,
business environment may be defined as the set of external factors such as the economic factors, socio-
cultural factors, government and legal factors, demographic factors, geographical factors, which are
uncontrollable in nature and affects the business decisions of a firm or company."

Types of Business Environment

In general Business Environment are classified as

1. Internal Environment
2. External Environment

Internal Environment consists of Employees and Managers within the organization.

External Environment consists of:

a) Society-The people in general


b) Customers
c) Government
d) Competitors
e) Investors
f) Creditors
g) Others
Following are the Environmental Factors affecting the Indian Company:

1) Social-Corporate social Responsibility of the Business

I t is social responsibility of the companies to give something to the people of India. As there is a
give & take relationship they should give their support to government of India & as well as to the
people of India.

2) Economic-Per Capita Income, Capital Formation, Resource Mobilization, Exploitation of


Natural Resources.

A company should help India to increase its GDP by creating more wealth i.e. to earn more
profit. It should also be capable of utilizing all resources & should exploit natural resources for
further development.

3) Cultural

A company should manufacture its product according to the taste of the people in which the
company is planning to launch its product. They can take a survey so that they can identify which
product they can launch & also it will help them whether they are in the right direction or not.

4) Geographical

When a company wants to go overseas they should identify in which country they should enter
which will benefit them such as the government policy, low competition, their culture and many
more factors which will help them to enhance their product globally.

5) Technological

A company should always be innovative and it should always upgrade its technology to combat
with competition they have to face with other companies.

6) Political

It refers to the political system in our country & also its stability o political process. It also deals
with government approach towards foreign investment, its law and regulation and its policies
which will be beneficial for the companies in supporting them.

7) Ecological

Now a day’s company manufactures eco friendly products which give them different dimension
in the market as it gives them unique identity to fight it out against the competition in the market
and it also attracts the customer to purchase the product as it is eco friendly.

8) Labor Market

A company should take care that the employee should be treated as per the labor law of the
respected country. They are bound to follow the rules and regulations as per the law and if they
are found that they are not treating an employee as per the law than the government can take strict
action against them.
9) Market Condition

A company should launch its product in the market at right time which will be beneficial to them.
They should do proper evaluation and forecast of the market in advance on order to earn more
revenue in that time period.

10) Location

A location of accompany is very important factor for a successful of a company. In order to


purchase the plot for setting up an industry, a company should look for other factors such as it
should reduce the transportation cost and the product should be easily accessible to the consumers
when the demand of the product rises.

Overseas Business Opportunities

Overseas business by a company refers to undertaking and expanding its commercial activities across the
national borders. It encompasses diverse nature of activities like trading (exporting and importing its
goods and services); manufacturing and marketing as well as outsourcing for production and marketing.
The main reason for making such overseas investments is to explore business opportunities abroad and
take advantage of such opportunities. Foreign markets in both developed and developing countries
provide enormous growth opportunities. For example, a number of Indian pharmaceuticals firms have
achieved a much faster growth of their overseas business. The various other reasons for investing abroad
are:-

 Competition is the main driving force behind internationalism. Until liberalization in 1991, the
Indian economy was a highly protected market. Not only that the domestic producers were
protected from foreign competition, but also domestic competition was restricted by several
policy induced entry barriers. The economic liberalization and globalization has ushered in
increased competition both domestically and internationally.

 Government policies and regulations also motivate internationalism. Many Governments offer a
number of incentives and other positive support in order to encourage foreign investments. A
restrictive domestic Government policy which limits the scope of business expansion in domestic
country and undermines their competitiveness is also an important factor for entering overseas
markets.

 Domestic demand constraints drive many companies to expand their markets beyond the national
borders. If the domestic market potential is fully tapped, the market for such products tends to be
saturated. Another type of domestic market constraint arises from the scale-economies. The
technological advances have increased the size of optimal scale of operations in many industries,
thus making it necessary to have foreign markets in addition to domestic ones. Domestic
recession often provokes the companies to explore foreign markets.

 It may also help the company to improve its domestic business, increase its market share and help
establish the image of the company
Business strategy relating to overseas investment differs from that of domestic investment due to the
differences in business environment:-

 The political environment includes the characteristics and policies of the political parties, nature
of the constitution and the governmental system. These factors vary considerably between
different nations.

 The legal system that exists in different countries across the world may be classified into
common law, civil law or code law and theocratic law. Common law is based on tradition, past
practices and legal precedents set by the courts through interpretation of statutes, legal
legislations and past rulings. Code law, on the other hand, is based on an all-inclusive system of
written rules of law. While the theocratic law is based on religious precepts. These differences in
the legal framework play a very important role in overseas investment strategy.

 Cultural differences are one of the most important factors influencing international investments.
The cultural or social environment of any country encompasses language, religion, customs,
traditions and beliefs, tastes and preferences, social stratification, social institutions, etc.

 Economic environment also varies from country to country. It broadly includes the nature and
level of development of the economy, economic resources, size of the economy, economic
systems and economic policies, economic conditions, trends in various economic indicators like
national income, per capita income, foreign trade, inflation rate, industry production, etc.

However, a firm which plans to invest abroad has to make a series of strategic decisions:-

 The first decision a company has to make is whether to expand its business abroad or not. This
decision is based on consideration of number of important factors like:-

 Present and future opportunities

 Present and future market opportunities

 The resources of the company like skill, experience, financial support, production
and marketing capabilities, etc.

 Company's objectives.
 Once the company has decided to invest abroad, the next important decision is the selection of the
most appropriate market. For this, a thorough analysis of the potentials of the various overseas
markets and their respective marketing environment is essential.

 The next important decision relates to determining the appropriate modes of entering those foreign
markets. The important foreign market entry strategies are:-

• Exporting: is the most traditional mode of entering a foreign market. It is an appropriate


strategy when any of the following conditions prevail:- (i) the volume of foreign business
is not large enough to justify production in the foreign market; (ii) cost of production in
the foreign market is high; (iii) the foreign market is characterized by production
bottlenecks like infrastructural problems, problems with materials supplies, etc; (iv) there
are political or other risks of investment in the foreign country; (v) the company has no
permanent interest in the foreign market concerned or that there is no guarantee of the
market available for a long period; (vi) foreign investment is not favored by the foreign
country concerned; (vii) licensing or contract manufacturing is not a better alternative.

• Licensing and Franchising:- are easy ways of entering the foreign markets. Under
international licensing, a firm in one country (the licensor) permits a firm in another
country (the licensee) to use its intellectual property (such as patents, trademarks,
copyrights, technology, technical know-how, marketing skill or some other specific skill).
The monetary benefit to the licensor is the royalty or fees which the licensee pays.

Franchising is a form of licensing in which a parent company (the franchiser) grants


another independent entity (the franchisee) the right to do business in a prescribed manner.
This right can take the form of selling the franchiser's products, using its name, production
and marketing techniques, or general business approach. One of the common forms of
franchising involves the franchiser supplying an important ingredient for the finished
product, like the Coca Cola supplying the syrup to the bottlers.

• Management Contracting:- is one in which the supplier brings together a package of


skills that will provide an integrated service to the client without incurring the risk and
benefit of ownership. It enables a firm to commercialize existing know-how that has been
built up with significant investments and frequently the impact of fluctuations in business
volumes can be reduced by making use of experienced personnel who otherwise would
have to be laid off. Under it the firm providing the management know-how may not have
any equity stake in the enterprise being managed.

• Turnkey Contracts:- are common in international business in the supply,erection and


commissioning of plants like in the case of oil refineries, steel mills, cement and fertilizer
plants, etc. A turnkey operation is an agreement by the seller to supply a buyer with a
facility fully equipped and ready to be operated by the buyer's personnel, who will be
trained by the seller.

• Fully Owned Manufacturing Facilities:- Companies with long term and substantial
interest in the foreign market normally establish wholly owned manufacturing facilities
there. It provides the firm with complete control over production and quality. It does not
have the risk of developing potential competitors as in the case of licensing and contract
manufacturing.

• Assembly Operations:- A manufacturer who wants to take advantages that are associated
with overseas manufacturing facilities and yet does not want to go that far may establish
overseas assembly facilities in selected markets. It represents a cross between exporting
and overseas manufacturing. It is an ideal strategy when there are economies of scale in
the manufacture of parts and components and when assembly operations are labour-
intensive and labour is cheap in the foreign country.

• Joint ventures:- is a very common strategy of entering the foreign market. It represents a
combination of subsets of assets contributed by two (or more) business entities for a
specific business purpose and a limited duration. It generally has the following
characteristics:- (i) contribution by partners of money, property, effort, knowledge, skill or
Case Study on Mahindra & Mahindra Company

History
The US$ 6.3 billion Mahindra Group is among the top 10 industrial houses in India. Mahindra &
Mahindra is the only Indian company among the top three tractor manufacturers in the world. Mahindra's
Farm Equipment Sector has recently won the Japan Quality Medal, the only tractor company worldwide
to be bestowed this honor. It also holds the distinction of being the only tractor company worldwide to
win the Deming Prize. Mahindra is the market leader in multi-utility vehicles in India. It made a
milestone entry into the passenger car segment with Logan.
The Group has a leading presence in key sectors of the Indian economy, including the financial
services, trade and logistics, automotive components, information technology, infrastructure development
and After-Market.
With over 62 years of manufacturing experience, the Mahindra Group has built a strong base in
technology, engineering, marketing and distribution which are key to its evolution as a customer-centric
organization. The Group employs over 50,000 people and has several state-of-the-art facilities in India
and overseas.
The Mahindra Group has ambitious global aspirations and has a presence on five continents.
Mahindra products are today available on every continent except Antarctica. M&M has one tractor
manufacturing plant in China, three assembly plants in the United States and one at Brisbane, Australia. It
has made strategic acquisitions across the globe including Stokes Forgings (UK), Jeco Holding AG
(Germany) and Schoneweiss & Co GmbH (Germany). Its global subsidiaries include Mahindra Europe
Srl. based in Italy, Mahindra USA Inc. and Mahindra South Africa.
M&M has entered into partnerships with international companies like Renault SA, France, and
International Truck and Engine Corporation, USA. Forbes has ranked the Mahindra Group in its Top 200
list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian
companies. Mahindra has recently been honoured with the Bombay Chamber Good Corporate Citizen
Award for 2006-07.

How it Went Global ?

Mahindra & Mahindra manufactures and markets jeeps, and had a hold over a considerable
portion of the jeep market in India in the past. It was ranked sixth in the automobile sector of India in
2004, up from the tenth rank in 2003. The following are the prominent jeeps which operate in the
Indian market currently- Mahindra-Voyager, Mahindra-Armada, and Mahindra – Commander,

Mahindra & Mahindra is now facing problems like cut-throat competition, price rise, and
sluggish market for jeeps. In terms of price competition Mahindra & Mahindra has an upper hand
compared to Tata jeeps while Tempo Trax has a comparatively low price.

Realizing the need to grow fast, the company formulated export policy. It paid off well.
They formulated plans to participation in trade fairs abroad, particularly in Hanover (Germany) and
Paris (France). This has helped popularize its vehicle in those countries. Mahindra jeeps started
selling in France and jeep export became an important marketing activity of the company. The
company started manufacturing diesel engines in collaboration with Peugeot of France.

As soon as the company came to know that Australia, Denmark, Italy, Norway, and
Sweden could prove to be potential markets, plans began to be made accordingly. The Company
estimated that it would be able to export about 2,500 jeeps annually to Australia. In order to cater to
the lower segment of the market, the Mahindra jeeps in Australia faced competition from Japanese
companies. Stringent design rules and requirements also needed to be met in Australia.

The company is confident of meeting all such requirements. The government's


liberalization policy will also be helpful. The company's new policy has to take into account
environmental factors. The export policy with special reference to export market also deserves
considerable evaluation and analysis because environmental factors such as technology, economic,
social and political influences relevant to strategic decisions operate in an industry.
Mahindra & Mahindra assessed all the opportunities in the market as well as the impact of
external environment on their strategic planning before expanding production. In 2004, Mahindra &
Mahindra showed significant improvement compared to Maruti Udyog, ranked as the number one
automobile company.

Mahindra & Mahindra Automotive Sector

The Mahindra Group’s Automotive Sector is in the business of


manufacturing and marketing utility vehicles and light
commercial vehicles, including three-wheelers. It is the market
leader in utility vehicles in India since inception, and currently
accounts for about half of India’s market for utility vehicles.

Although created in 1994 following an organizational restructuring,


the Automotive Sector can trace its antecedents back to 1954. The
iconic jeep that led American G.I.s to victory in World War II is the
very same vehicle that drove the Mahindra Group to success in

in the Automotive Sector. Mahindra & Mahindra Limited, the flagship company of the Group, was set up
as a franchise for assembling general purpose utility vehicles from Willys, USA.

Over the years, the Group has developed a large product


portfolio catering to a diverse customer base spanning rural and
semi-urban customers, defense requirements and luxurious
urban utility vehicles. In 2002, it launched the indigenously
engineered world-class sports utility vehicle-Scorpio, which
bridges the gap between style and adventure, luxury and

ruggedness, and performance and economy.

The Group exports its products to several countries in Europe, Africa, South America, South Asia
and the Middle East.
The Automotive Sector continues to be a leader in the utility vehicle segment with a diverse
portfolio that includes mass transport as well as new generation vehicles like Scorpio, Bolero and the
recently launched Xylo.

Mahindra & Mahindra’s foray into the three wheeler segment with Alpha and Champion has
also made it a leader in its category.

The International Operations of the Automotive Sector focuses on the international business.

Mahindra Renault (MRPL) announced the launch of Logan, India’s first wide body car, sporting a
host of class-defying features at an aggressive price. The Logan redefines its segment in terms of
spaciousness as well as performance, technology with the latest generation dci common rail engine. It has
been designed for the Indian market incorporating a contemporary styling and design.

Mahindra Navistar Automotives Ltd. (MNAL), a joint venture between Mahindra & Mahindra Limited
and International Truck and Engine Corporation, will manufacture trucks and buses for India and export
markets. It will also provide component sourcing and engineering services to International Truck and
Engine Corporation.

Mahindra Navistar (MNEPL) a second joint venture agreement with Mahindra & Mahindra, Ltd. focuses
on producing diesel engines for Medium and heavy Commercial vehicles in India. Beginning in 2009,
MNEPL’s advanced diesel engines will power the full line of trucks and buses produced by MNAL.

Mahindra & Mahindra Farm Equipment Sector


Farm Equipment Sector (FES) is a part of US $6.7 billion Mahindra group, which is amongst the
top 10 industrial houses in India. The group has a leading presence in key sectors of the Indian economy,
including the financial services, trade, retail and logistics, automotive components, after-market,
information technology and infrastructure development. Mahindra has recently made an entry in the two-
wheeler segment.

The Mahindra group's Farm Equipment Sector (FES) is amongst the top three tractor brands in
the world. It has won the Japan Quality Medal in 2007. It also holds the distinction of being the first
tractor company globally to win the Deming Application Prize in 2003. FES is the first tractor company
worldwide to win these honors. This shows the strong focus of FES on Quality and Customer
Satisfaction. Today, the domestic market share of FES is around 42%. (Mahindra brand: 30% and Swaraj
brand: 12%).

The motto of FES is to usher prosperity; for its customers, dealers, employees, society and all
other stakeholders.FES has 6 state-of-the-art manufacturing plants (including 2 plants of Swaraj) in India,
2 plants in China, 3 assembly plants in USA and 1 assembly plant in Australia. FES has a presence in
around 25 countries across six continents with more than 1000 dealers world-wide.

FES has a subsidiary agricultural tractor manufacturing company in India known as Mahindra
Gujarat Tractor Limited (MGTL).

Mahindra Group has commenced the Sustainability Reporting from 2008. Today, M&M group is
amongst the few Indian companies to have an A+ GRI certification. As per the commitments given by the
Group under GRI framework, significant reduction in usage of electricity, water and solid waste is called
for. To make FES employees aware on the tenants of sustainability, various initiatives like easily ible
information on sustainability, setting up of permanent sustainability corners in all FES plants, observing
of energy conservation month etc. are undertaken.

FES has a Sustainability Committee in place to take care of the implementation of GRI
requirements.

Leaders in India Poised to take on the world.


For over two decades, Mahindra Tractors is the undisputed leader of the Indian tractor market,
which is the largest tractor market in the world. A division of a US$ 6 billion conglomerate, Mahindra &
Mahindra, we began as a joint venture with International Harvester. And with that began a new era in
power, control and reliability in farm equipment manufacturing. Today, with the largest manufacturing
set up in India, Mahindra Tractors is among the top three players in the global market. And as we step
into the 25th year of excellence, we continue on our journey of cultivating golden harvests across the
globe.

Mahindra Tractors goes global

Have reached all four corners of the world. And wherever we went, we have proved ourselves
nothing less than the best. That explains the great demand for Mahindra tractors across the United States,
Australia, Chile, Serbia, Sri Lanka, Nepal, Bangladesh, Iran, Syria and a major part of the African
continent among many more.

In the US market, Mahindra USA, a subsidiary company of Mahindra tractors, sells more than
10,000 tractors annually. A nationwide network of over 300 dealers, total product support and prompt
after sales service ensure that every tractor functions for years without any hassles.

Products
The company produces tractors in three categories viz., less than 30 HP, 30-40 HP and greater
than 40 HP. It also produces farm implements like cultivators, tillers, ploughs, etc. Some of the well
known brands of M&M in the utility vehicles are the Commander, Armada, Voyager and Bolero.
SWOT ANALYSIS OF MAHINDRA & MAHINDRA

Strengths:

Over the years the company has emerged as one of the top players in the world in terms of number of
tractors sold. This gives a clear indication that the company's market share is one of its biggest
strengths.

The company's ability to introduce new products in the market and to generate sales from those new
products is a major strength. The reason being that this is very essential for any company, for its
survival in the long run.

The company has established its brand name in other countries of the world as well. This is evident
from the 40% market share that it holds in the 30-40 HP tractors market in the US.

Weaknesses:

The company is highly dependent on the rural sector, and the rural sector in turn is highly dependent on
the monsoons. As a result, if there happen to be bad monsoons (less of rains) for two consecutive years
it could have an adverse impact on the demand of tractors for the company.

Opportunities:

The government has been trying to strengthen the exports of agricultural products. As a result, the
quality of agricultural products necessarily has to be very high. For this, they need better rural and
agricultural infrastructure. This might result in an increase in demand for tractors.

In India, the penetration of tractors is 10 tractors per 1000 hectares of cropped area, which is much
below the world average of 19 tractors for the same. Thus there is scope for the demand to increase.

Threats:

The company has a history of having invested in unrelated diversifications such as telecom, holiday and
resort inns, financial services, etc. which it has hived off as subsidiaries from time to time when these
turned unmanageable. This is a cause for concern as such diversifications could divert the company's
attention from its core business. It is a dangerous tendency as it leads to destruction of shareholders
value.

The entry of foreign players in the tractors segment could pose a threat to the company as these foreign
players are technically more competitive than Mahindra & Mahindra.

PEST Analysis of Mahindra & Mahindra

Political

Since Mahindra & Mahindra operates in multiple countries across Europe, U.S.A, France, Germany,
Asia, the Middle East, and Australia, it needs to pay close attention to the political climate but also laws
and regulations in all the countries it operates in while also paying attention to regional governing bodies.
Laws governing commerce, trade, growth, and investment are dependent on the local government as well
as how successful local markets and economies will be due to regional, national and local influence.

Mahindra Navistar Automotives Ltd. (MNAL), a joint venture between Mahindra & Mahindra
Limited and International Truck and Engine Corporation, will manufacture trucks and buses for India and
export markets in beginning of 2009.

In accordance, Mahindra’s headquarters in Mumbai, India, strictly controls and regulates


operations in all dealerships and subsidiaries, in addition to knowing and abiding by all labor laws in the
multiple countries where they have manufacturing plants it has to watch political change. This will be
especially vital in the future as Mahindra & Mahindra continues to expand and grow into new markets.
The foundation of the company’s growth internationally is a deep understand of economic stimulation,
customer needs, and individual government regulations and laws. Although it is the headquarters ultimate
responsibility to make sure each individual office and branch is operating and abiding by the local laws, it
will become increasingly more important for that duty to be taken care of at the regional or even local
level.

Economic

Operating in numerous countries across the world, Mahindra & Mahindra functions with a global
economic perspective while focusing on each individual market. Because Mahindra is in a rapid growth
period, expanding or forming a joint venture in over world-wide since 2004, a global approach enables
Mahindra & Mahindra to adapt and learn from the many different regions within the whole automotive
industry. They have experience and resources from all across the globe, thus when any variable changes
in the market they can gather information and resources from all over the world to address any issues.
Mahindra & Mahindra also has to pay close attention to shifts in currency rates throughout the
world. Currency fluctuations can equate to higher or lower demands for Tata vehicles which in turn affect
profitability. It can also mean a rise in costs or a drop in returns. But they also have to pay attention to not
just the domestic currency, the rupee, but also to the dollar, euro, bhat, won, and pound, to just name a
few. Just because the rupee is strong against the dollar does not mean it is strong against all the other
currencies. Attention to currency is important because it influences where capital investment will develop
and prosper.
Social

Undoubtedly, the beliefs, opinions, and general attitude of all the stakeholders in a company will
affect how well a company performs. This includes every stakeholder from the CEO and President, down
to the line workers who screw the door panel into place, from the investor to the customer, the culture and
attitude of all these people will ultimately determine the future of a company and whether they will be
profitable or not. For this reason, Mahindra & Mahindra tends to use an integration and rarely separation
technique with foreign companies they acquire.

On the other hand, some economic issues that Mahindra & Mahindra face must also be looked at
from a more localized perspective. For instance, the market in India for cars is much different than the
market for cars in U.S.A For one, India has over one billion more people than U.S.A does, thus the
market is much larger or not as limited. Second, you must also take into affect the demographics and the
average income of each market. In U.S.A they have a higher average income per capita than Indians and
U.S.A citizens tend to drive larger and fancier cars. For this reason, Mahindra Renault might not do so
well in the U.S.A market. In summation, Mahindra & Mahindra views the economy from a global
perspective with operations across the entire globe; however, they must also maintain a local market
understanding and knowledge when it comes to product positioning and placement throughout the
different markets Mahindra & Mahindra conducts business in.

Technological

Mahindra Automotive Company and its parent company, the Mahindra & Mahindra Ltd. are
ahead of the game in the technology field. Mahindra Automotive Company follows the strategy of
continuous introduction of new products in the automotive segment. In the last seven years, 30% of the
sales volume in this segment came from products which were less than five years old. The company
continuously launches new products so that none of the competitor's products can hold the customers for
long.
In the tractors segment, the company is all set to counter the threat posed by the entry of foreign
players like New Holland and John Deere. The company has planned to introduce a wide range of tractors
and to strengthen its distribution and services network.
Conclusion

Mahindra & Mahindra has grown steadily in size and stature and evolved into a Group that
occupies a premier position in almost all key sectors of the economy. The Group's history is studded with
milestones. Each one taking the Group forward. In fact, today, its total turnover is about 6.7 billion
dollars.
But the worry factor for Mahindra tractor is that it relies more in monsoon season only. In
India, the penetration of tractors is 10 tractors per 1000 hectares of cropped area, which is much below
the world average of 19 tractors for the same. Thus there is scope for the demand to increase. They should
be more innovative in their technology to combat with foreign companies.

Mahindra is a group in a hurry, engaged in an ambitious, sustained and prolonged


penetration into the global arena. Its spirit can be encapsulated in the words of the poet Robert Frost, a
favorite of India's first Prime Minister, Pandit Jawaharlal Nehru:
"The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep, And miles to go before I sleep."
For Mahindra & Mahindra, this translates into many more milestones to be set up before it rests.