When young Anand Mahindra -- now managing director of $3.27 billion (market cap) Mahindra & Mahindra, the flagship of his family's business group in Mumbai -- returned from the U.S., armed with an M.B.A. from Harvard, it wasn't to an India of entrepreneurial license.
He recalls enduring a strike as general manager of a group company in late 1984.
"My wife and I got death threats, and I remember thinking, 'Oh my God! What the hell am I doing back here!'" he says, looking back to those days at Mahindra Ugine Steel.
Mahindra, 50, has come a long way since. At his current post he's transformed a stodgy, conservative outfit making tractors and off-road vehicles into a multinational corporation with a presence on several continents.
In 2005, M&M started producing tractors in China through an acquisition. Also last year it tied up with France's Renault to manufacture one of its passenger cars, the Logan, in India. And earlier this year it took over the largest auto-forging company in the U.K.
"The globalization strategy got crystallized in the last two to two and a half years with Anand Mahindra at the helm of affairs," says Srinivas Rao, an auto analyst at Enam Securities in Mumbai.
That strategy holds promise but also much risk: It is pitting this Indian company, not yet big enough to qualify for the Forbes Global 2000 List, against the toughest vehicle producers in the world.
By The Numbers
Open Road: India's Golden Quadrilateral and new export opportunities are making the country an automaker's paradise.
$25 billion: Size of the Indian vehicle industry in 2005.
$65 billion: Expected size in ten years.
$20 billion: Expected auto component exports by 2015.
Sources: Society of Indian Automobile Manufacturers; Automotive Component Manufacturers Association of India.
For now it would seem that M&M is firing on all the right cylinders. A robust tractor market in India, a burgeoning passenger-car market in Asia and an ongoing boom in auto-component exports are all expected to further boost its revenues, which grew by $400 million to $1.5 billion in fiscal 2005.
Moreover, as highway construction gains speed in India -- the so-called Golden Quadrilateral project is linking major urban centers with 3,700 miles of multilane thoroughfares -- M&M hopes to put more wheels on those roads.
"M&M straddles every segment in the auto industry," says Randhir Kochhar, partner at the auto group at Ernst & Young India. "It has the brand strength and the financial strength to diversify its markets. And it has a big focus on the components segment [like gears and forgings, for example]. That's going to be a large engine of growth."
Mahindra's ambitions are drawn from Jack Welch's dictum at GE: to be number one or number two in whatever business he's in. "We decided that we weren't going to be in any business that wasn't global," he says. "You're not safe if you're only at home. You can't compete in a small pool anymore."
Business wasn't Mahindra's first foray. Even though he had the genes -- M&M was founded by his paternal grandfather, J.C. Mahindra, and his granduncle K.C. Mahindra -- he went to architecture school in Mumbai for two years and then to Harvard, where he majored in filmmaking and photography.
As part of his thesis he filmed the Kumbh Mela (a large Indian pilgrimage) and followed a holy man around.
"Once I did well in films, I decided to go back to business," says Mahindra, who did his undergraduate degree on full scholarship (the Reserve Bank of India at the time wouldn't allow money out for such purposes) and graduated with high honors. "I'd proved to myself that I didn't need daddy's help to succeed." He moved on to Harvard Biz in 1979.
"I had a lot to learn," he says. "It was like being in a competitive hothouse. Every day you would walk into this gladiatorial arena. It made the rest of business life seem easy."
Some days easier than others. The strike at the steel company, where he'd started as an executive assistant to a director, was par for the management course in India of the 1980s.
But Mahindra persevered and in 1991 came into his own as deputy managing director at M&M. By then, hemmed in by a rising fiscal deficit and depleting foreign reserves, India started opening up its economy. Competition picked up. The lumbering, bureaucratic processes associated with starting and running a business became more relaxed. Foreign investments started flowing in.
As the macroeconomic environment turned around, Mahindra began reforming the work culture at his company. "The unions were strong. They'd negotiated a workload, and if the workers finished everything in two hours, they'd spend the rest of the time sleeping or playing cards," he says.
In 1991 Mahindra stood tough. Bonuses that were traditionally given during the fall festival of Diwali would be linked to productivity. "We were already up the creek," he says.
The workers started a demonstration at the Mumbai factory. Mahindra and senior managers, including the head of manufacturing, holed up in his office. After three hours he came out to negotiate. "I said there were going to be no more free lunches," he says. "I told them that change is going to happen."
The workers heard him out. The demonstration never escalated to a strike, and Mahindra linked bonuses to performance.
Productivity has been increasing steadily since then. In 1994 the company found that while it used to take 1,230 workers to manufacture 70 engines a day, this had improved to the point where 760 workers produced 125 engines a day.
But while shop floor practices were upgraded through the 1990s, the company still went through a rough patch around 2001. Tractor sales fell off dramatically during a bust in Indian agriculture. The stock price hit its alltime low.
Mahindra unleashed a slew of cost cuts, from renegotiating price contracts with raw materials suppliers to slashing travel allowances for middle and senior managers. He propped up the profit margin (before exceptional items) -- taking it from 6% in 2001 -- 02 to 10.2% in 2004 -- 05 -- by expanding exports and promoting new products. And he sexed up M&M's lineup by rolling out a new sport utility vehicle, the Scorpio.
The SUV contributed nearly a fifth of the company's unit volume in fiscal 2005 and may reach 22% this year, even with higher fuel prices. While revenue figures aren't available, analysts say that the Scorpio -- at a base price of about $16,000 -- is the most expensive vehicle in the Mahindra stable and it contributes significantly to the top line.
The Scorpio -- Mahindra's pet project -- was developed from scratch for just $120 million, maybe a fifth of what it would take in Detroit. Yet it's still the single largest product investment the company has made. It was a trial by fire for Mahindra after he bailed out of a joint venture with Ford Motor and gave M&M a leadership spot in the Indian urban SUV market, alongside Tata Motors and Toyota.
The making of Scorpio is now a case study at the Harvard Business School. Mahindra roped in suppliers to do the designing and the testing. For instance, the Scorpio got its gas engine from Renault, its claddings from Michigan-based Visteon Corp. and its front axle from troubled Dana Corp. of Ohio.
It also signifies M&M's global quest. Scorpio has been launched in parts of Europe and the Middle East, and is trying to create a splash in South Africa.
"We decided to go in with a local partner after having studied the market," says Pravin Shah, executive vice president at M&M. "This was the best possible way for an unknown brand like ours to enter a sophisticated and demanding [emerging] market like South Africa."
The company is bracing for a tough battle there because there are more than 40 auto brands, both global and domestic. Ford, Toyota and Nissan already have manufacturing facilities.
The auto group is trying to leverage M&M's experience in tractor frames to build better SUVs. "I should be smoking some illegal substance if I said that we want to become the world's largest automaker," laughs Mahindra. "But we certainly want to be one of the top-rated makers of rugged and reliable SUVs. We want to take over the Land Rover [mid-price] mantle. You've got to have a Mahindra in your garage."
In fact, it's the tractors -- 30% of M&M's sales -- that are also the primary international wedge. The company has been the market leader in the sector in India for over two decades.
Mahindra, whose company is less than a tenth the size (in revenues) of world leader Deere & Co. of Illinois, audaciously wants to be number one in the world -- in unit terms -- by 2010. M&M's internal research suggests this will mean almost doubling this year's expected output of 85,000 tractors. The company also seeks to double the export share of tractors, now 10%.
Though still small in international terms, M&M can take heart that it is the largest tractormaker in one of the world's largest tractor markets. Nearly 250,000 were sold last year in India, with its many independent farmers, according to the Tractor Manufacturers' Association, an Indian trade group. That's more than in the U.S. India's tractors have much lower horsepower than those in the U.S. or Western Europe, because farms are smaller. Also, lower horsepower costs less.
The U.S. is a key market for M&M exports. It has 270 dealerships in the U.S. and two assembly plants in Texas and Georgia. M&M sells its less-than-70hp tractors for about $10,000 to hobby farmers. Mahindra USA recorded $128 million in revenues last year.
Now M&M is eyeing China, as well. Last year it took an 80% stake in Jiangling Tractor. In addition to selling in the Chinese market, M&M wants to use the country as a base to export tractors to the U.S. It has also started buying components from China.
Meanwhile M&M is trying to gain a foothold in Europe through the proposed acquisition of Romanian tractor major Tractorul. The takeover is awaiting clearance from the European Union.
"They have the building blocks of a global strategy," says Rao from Enam Securities. "They do have the organization structure in place, and the growth is disciplined."
Meantime, in trying to penetrate its domestic market more fully, M&M also faces global competition. India's number two tractor company -- Tractors & Farm Equipment Ltd. in Chennai -- has a collaboration with Georgia tractor major Agco Corp.
And Deere recently bought out its joint venture partner Larsen & Toubro. Its factory in Pune employs 900. "The foreign players are using India as a manufacturing base, both for tractors and for engines," says R.C. Jain, head of the tractor trade association.
What a difference 20 years makes.
Trucks and buses too
In yet another stride toward globalization M&M has entered a joint venture with International Truck & Engine -- a subsidiary of Navistar International of Illinois -- to manufacture trucks and buses for the Indian and, eventually, the Asian markets.
The first batch of heavy trucks will be produced with technology from Navistar, a leading maker of commercial trucks and buses. "We want to expand globally, and we'd like to use India as an export base," says Deepak Kapur, president of the truck group at Navistar.
"We chose M&M because we see it as a very sound brand. We see it as a company with high integrity." The joint venture has started an engineering center to do design work for U.S. trucks. It's also going to source components worth at least $100 million through the partnership from Indian manufacturers by 2007.
Mahindra officials are counting on the arrangement to help as India enjoys better highways, which will increase the demand for trucks. Currently, buses and trucks make up only 4% of M&M's vehicle volume.
"The next two years are going to be very strong, and we expect a nice little boom," says Anand Mahindra.