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Mahindra-Renault Joint Venture Overview

1) Mahindra and Renault formed a joint venture called Mahindra Renault Limited in 2007, with Mahindra owning 51% and Renault owning 49%. 2) The joint venture aimed to produce Renault's low-cost Logan vehicle in India by leveraging Mahindra's manufacturing experience and supplier network. 3) However, the venture failed to meet sales targets. Key issues included importing engines from France which increased costs, and an inability to position the Logan as a true low-cost family vehicle in the competitive Indian market. The joint venture ended in 2010.

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Omkar Mulekar
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78 views4 pages

Mahindra-Renault Joint Venture Overview

1) Mahindra and Renault formed a joint venture called Mahindra Renault Limited in 2007, with Mahindra owning 51% and Renault owning 49%. 2) The joint venture aimed to produce Renault's low-cost Logan vehicle in India by leveraging Mahindra's manufacturing experience and supplier network. 3) However, the venture failed to meet sales targets. Key issues included importing engines from France which increased costs, and an inability to position the Logan as a true low-cost family vehicle in the competitive Indian market. The joint venture ended in 2010.

Uploaded by

Omkar Mulekar
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Name: Omkar Mulekar

Roll No.: 11824


Course: BMS-MBA
Semester: 9
Subject: Global Competitiveness & Strategic Alliance
Topic: Strategic Alliance of ICICI Bank & Fairfax Financial Holdings Ltd.
Professor: Dr. Jia Makhija
Mahindra Renault Joint Venture

Mahindra:
Mahindra & Mahindra Limited is an Indian multinational automotive manufacturing
corporation headquartered in Mumbai, Maharashtra, India. It was established in 1945 as
Muhammad & Mahindra and later renamed as Mahindra and Mahindra. It is one of the
largest vehicle manufacturers by production in India and the largest manufacturer of tractors
in the world. It is a part of the Mahindra Group, an Indian conglomerate. It was ranked 17th
on a list of top companies in India by Fortune India 500 in 2018. Its major competitors in the
Indian market include Maruti Suzuki and Tata Motors.

Renault:
Groupe Renault, also known as the Renault Group in English; legally Renault S.A.) is a
French multinational automobile manufacturer established in 1899. The company produces a
range of cars and vans, and in the past has manufactured trucks, tractors, tanks,
buses/coaches, aircraft and aircraft engines, and auto rail vehicles.
According to the Organization Internationale des Constructeurs d'Automobiles, in 2016
Renault was the ninth biggest automaker in the world by production volume. By 2017, the
Renault–Nissan–Mitsubishi Alliance had become the world's biggest seller of light vehicles.
Headquartered in Boulogne-Billancourt, near Paris, the Renault group is made up of the
namesake Renault marque and subsidiaries, Alpine, Renault Sport (Gordini), Automobile
Dacia from Romania, Renault Samsung Motors from South Korea, and AvtoVAZ from
Russia. Renault has a 43.4% stake with several votes in Nissan of Japan, and a 1.55% stake in
Daimler AG of Germany (since 2012, Renault manufactures engines for the Daimler's
Mercedes A-Class and B-Class cars). Renault also owns subsidiaries RCI Banque
(automotive financing), Renault Retail Group (automotive distribution) and Motrio
(automotive parts). Renault has various joint ventures, including Oyak-Renault (Turkey),
Renault Pars (Iran). The French state owns a 15% share of Renault.
Renault Trucks, previously known as Renault Véhicules Industriels, has been part of Volvo
since 2001. Renault Agriculture became 100% owned by German agricultural equipment
manufacturer CLAAS in 2008.
Together Renault and Nissan invested €4 billion (US$5.16 billion) in eight electric vehicles
over three to four years beginning in 2011. Since the launch of the Renault electric program,
the group has sold more than 273,000 electric vehicles worldwide through December 2019.

Type of Alliance:
Mahindra Renault Limited was a joint venture between India's largest utility vehicle
manufacturer Mahindra & Mahindra Limited & Renault S.A. of France (51% & 49%
respectively). The joint venture was formed in 2007. The alliance is a Narrowly Defined
Alliance as both the parent companies; Mahindra & Mahindra Limited and Renault S.A.
involved only their R&D Departments, Marketing Departments, Finance Departments and
their Car Automobile Manufacturing Departments.

Mahindra-Renault:
Mahindra Renault Limited was a joint venture between India's largest utility vehicle
manufacturer Mahindra & Mahindra Limited & Renault S.A. of France (51% & 49%
respectively). The joint venture was formed in 2007. Renault designers visualized a robust,
low-cost car, under €5000, which became a big hit in Europe. M&M thought of snatching the
opportunity in India. Renault - important expertise about design, engineering & construction,
innovative and safe vehicles worldwide. M&M - wide cost-effective supplier base, brand
name, experience. Thus M&M entered into a JV with Renault in 2005 to take advantage of
each other’s strengths and capture the Indian market. The JV, 51% owned by Mahindra &
Mahindra and 49% by Renault, then set up a state-of-the-art manufacturing plant in Nashik in
Maharashtra, India to roll out their Logan in 2007.

Reasons for Joint Venture:


Mahindra Group a US $ 2.5 billion company is the market leader in multi-utility vehicles and
tractors in India. Mahindra and Mahindra had 55 years of manufacturing experience. M&M
had built its high network of distributors and suppliers in India efficiently. Mahindra group
had built a strong base in technology, engineering, marketing and finance (Mahindra
intertrade and M&M financial services Ltd.). It also has a significant presence in key sectors
of the Indian economy. High presence in automotive components, information technology &
telecom (Mahindra British Telecom), and infrastructure development (Mahindra GESCO,
Mahindra Holidays & Resorts India Ltd.). Mahindra had a reputation of providing TATA
Motors the platform to harness the automotive growth in India. M&M had not much presence
in Sedan segment i.e., C-segment so Renault had no fears of having conflicts of interest.
Mahindra as a brand was a trusted brand in India. With the leverage of Mahindra as a brand
Renault was also leveraging its own brand in Logan, as the joint venture was called
Mahindra-Renault. The transfer of knowledge and technology was mutually beneficial for
Renault and Mahindra, it was good symbiotic relationship.

Lifecycle of the Joint Venture:


Formation:
In the beginning of 2005 Renault designers visualized a low-cost car that was to retail for
under Euro 5000. The car had quite good features however it looked robust and trustworthy
compared to the sleek beauties manufactured by the Japanese and the Koreans. The car
became a big hit and enjoyed pampering from buyers in most parts of Europe. Europeans
liked the car’s no-frill appeal. Renault thought of entering into Indian market, when it
analysed the companies, it sought upon Mahindra and Mahindra which was the main force
behind the Tata Group. Mahindra and Mahindra helped Tata Motors for over ten years
helping them build the modern-day passenger vehicle. Mahindra also in seeing the future
prospects of snatching the opportunity and mark its presence in Indian market started
working in unison with Renault and started building and selling the Logan in India.
Operations:
Both Mahindra and Renault shared the profit of gaining knowledge and expertise. M&M
would get all important expertise needed to build monocoque or unitary construction.
Renault, on the other hand, would gain direct knowledge of the cost-effective supplier base
that Mahindra enjoyed in India. A labour-intensive car plant was established as against a fully
automated one to analyse the quality and cost-effective work force available in India. The
two groups concluded a framework agreement for setting up a joint venture in India with
Mahindra retaining a 51 per cent share and Renault 49 per cent. The JV will be called
Mahindra Renault Ltd. The estimated project amount was 125 million Euros. With other
European automotive counterparties like Fiat and Skoda had little presence this venture was
also seen a major competition to them.
End-of-Alliance:
Despite the positive attitude shown by this venture it was not a successful attempt to grab the
vision. The main reason for its failure is the poor marketing strategies used by Logan such as
pricing margin and poor localization. The expected sales of the car after its launched were
30,000 units per year or 2,500 a month. But instead, the company managed to sell not more
than 500 units per month. This fact suggests that this joint venture is a complete failure
achieving only 20% of its forecasted target. The result of this failure is the expected losses of
Rs 490 crore in the year 2009 on sales of Rs 740 crore. One of the major reasons for the
failure of this joint venture is the price margin issue. The brand tried to establish itself as a
“low-price tag” car but failed to do so as it faced tremendous competition from its
competitors like Maruti Suzuki & Tata motors who had already successfully established
themselves with that tag. There were other factors contributing to the failure, such as, the
company imported the engines from France which added to the production cost of the unit.
They failed to understand the image of the brand and the car ended as tourist vehicle in Metro
cities rather than complete family car. On 15 April. 2010 Mahindra & Mahindra and Renault
together announced restructuring plans by which Mahindra would buy Renault's share in the
joint venture and Renault would continue to provide the support for M&M through license
agreement and continue to be supplier of key components.

Conclusion:
The biggest lesson that can be learnt from this Joint Venture is that the companies had
everything in terms of capital, human resources, research and development etc. but their
timing was wrong in terms of launch of their product and their Market Research was little off
the mark as they did not really take into consideration their competitors and their product
line. Their profits were dependent on a very thin margin which vanished during the 2008
Financial Crisis. When both the companies parted their ways, they became competitors in the
SUV car segment and have been fierce competitors ever since.

Common questions

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The global financial crisis exacerbated the already thin profit margins of the joint venture, making it difficult to sustain operations. The crisis highlighted vulnerabilities in their pricing models and reliance on projected sales that did not materialize, leading to significant financial losses and the eventual restructuring of the joint venture in order to mitigate the financial strain they were under .

Following the dissolution of the JV, Mahindra refocused its strategic efforts to strengthen its presence and competitiveness in the SUV segment, where it faced direct competition with Renault. This shift likely involved refining its product offerings and leveraging its brand reputation and distributor network to capitalize on market opportunities in SUVs, which had been a stronghold for Mahindra .

The venture failed due to poor marketing strategies, particularly an ineffective pricing margin and poor localization of the product, as well as increased production costs from importing engines from France. Additionally, competition from established low-cost car manufacturers such as Maruti Suzuki and Tata Motors was underestimated. These challenges highlighted a misalignment with market demands and a lack of understanding of brand positioning within the target demographic .

Mahindra & Mahindra (M&M) entered the joint venture with Renault to leverage its strong distribution network, experience, and trusted brand in India, while Renault contributed its expertise in design, engineering, and construction of innovative vehicles. M&M could benefit from Renault's advanced vehicle technology and Renault gained access to a cost-effective supplier base and M&M's established market presence .

The alliance aimed to strengthen Renault's brand by leveraging Mahindra's established and trusted brand reputation in India. However, the failure to effectively position the Logan as a low-cost family car demonstrated the difficulties in branding strategy when entering a competitive market with strong domestic players. This misalignment affected Renault’s perception and highlighted the importance of aligning branding strategies with market expectations and existing competitors .

The failure of the Mahindra-Renault JV underscores the critical role of thorough marketing research, as their market positioning and strategy did not adequately consider the competitive landscape dominated by established players like Maruti Suzuki and Tata Motors. Ineffective research led to a lack of insight into consumer preferences and price sensitivity, which are crucial in emerging markets, ultimately contributing to the JV's failure .

Despite its dissolution, the JV was beneficial in the exchange of valuable knowledge and technical skills. Mahindra gained expertise in building monocoque constructions, and Renault accessed Mahindra's cost-effective supplier base and insights into the Indian market dynamics. The JV laid the groundwork for future strategic initiatives and strengthened each company’s capabilities .

To better align with the competitive landscape, Mahindra & Renault could have focused on deeper market analysis to understand consumer preferences and pricing strategies of competitors. Investments in localizing production to reduce costs and enhancing their marketing strategy to differentiate the Logan from competitors could have added value. This might have allowed the joint venture to better capture the intended market segment and improve sales performance .

Key lessons from the Mahindra-Renault experience include the importance of aligning strategic goals and market research with local consumer demands and competitive dynamics. Joint ventures must also focus on localizing production and cost structures to enhance competitiveness. Additionally, clear communication and an adaptive approach to market entry strategies are critical to navigating challenges and capturing intended market segments effectively .

Renault's stake in international companies such as Nissan and Daimler, and its various joint ventures, reflect its strategy to leverage global partnerships for technological, financial, and market expansion benefits. This diversification in ownership and joint ventures facilitates risk spreading, access to innovation, and entry into new markets with local expertise, as seen in its engagement with Mahindra & Mahindra. These partnerships are crucial for Renault to maintain its competitive edge globally .

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