After Chinese Flop in Korea, Indian Rival Takes a Turn

Posted by: Bruce Einhorn on August 22, 2010

Mahindra & Mahindra knows how to make tractors. It’s the biggest tractor maker in India. The company wants to join local rival Tata Motors - owner of Jaguar and Land Rover as well as the developer of the locally-made Nano, the world’s cheapest car - as a global player in the auto industry. Mahindra on Monday is signing a preliminary agreement to buy a stake in bankrupt South Korean automaker Ssangyong Motor, Bloomberg News reports. The move is the latest step by Mahindra to build its car business: In April Mahindra bought out local joint venture partner Renault and in May bought 55 percent of Bangalore-based green-car pioneer Reva Electric Car.

If Mahindra follows through on the preliminary deal and takes control of Ssangyong, the Indian company will have the opportunity to show it can succeed where a Chinese rival failed. As Chinese companies look to expand globally through M&A, Ssangyong is the prime example of what can go wrong. SAIC Auto, the Chinese automaker from Shanghai that is one of the most successful producers of cars in China, tried to make Ssangyong the center of an overseas push back in 2004, paying more than $500 million for a 51 percent stake in the Korean automaker. Things didn’t go well after that. “In Ssangyong, it was buying a smaller company. And the acquired company was located in South Korea—next door, both geographically as well as culturally,” Anil K. Gupta and Haiyan Wang wrote in this column on Businessweek.com last year. “Yet, look at the results: bitter disputes over Korean perceptions that SAIC was an exploitative owner, criminal investigations, very little value capture by SAIC, a collapse of Ssangyong into bankruptcy protection, and a complete wipeout of SAIC’s investment.”

SAIC is GM’s Chinese partner and today is the biggest automaker in the world’s biggest auto market - yet it still couldn’t make an investment in Ssangyong work. Who knows, maybe Mahindra will do things better. The Economic Times, for instance, quotes analyst Shishir Bajpai of IIFL Wealth Management saying Ssangyong is “definitely a strategic fit for Mahindra.” He adds, “Ssangyong buy makes a lot of sense for them. It is their step towards establishing a global footprint.” Another bullish analyst, Arun Kekriwal of KRIS, says “Mahindra has ventured in many areas and their track record so far shows they have been right with their decisions and timing.” SAIC had a good track record, too. A lot of good that did. As Mahindra now branches out from its home market, it will be interesting to see what the Indian company has learned from the Chinese company’s failure.

Reader Comments

Manoj

August 22, 2010 11:30 PM

Not just tractors, Mahindra is the largest seller of SUVs in India. Tata is not just about the Nano, it also has a range of other cars and trucks & buses that out sell other rivals in India.

Husin O'Bama

August 23, 2010 5:03 AM

Only way is to move factory to India. Soko are such a nationalist lot that they will not touch a foreign produced vehicle with a ten foots pole.

Hemant

August 23, 2010 12:54 PM

don't buy into what the Indian media (including all so-called analyst) says. They don't do research or any kind of background check whatsoever. If you pay them they'll publish what you want.

peter

August 23, 2010 3:39 PM

No return for SAIC's investment you say. Obviously you haven't read any korean newspaper. It is estimated about few billion dollar worth of Ssanyong's secret has been stolen to SAIC. I will say it was great investment. Smart on chinese part. They will soon surpass American too wait and see.

John

August 23, 2010 4:14 PM

What's race & culture got to do with it? Maybe Ssangyong just sucks? (I'm Korean_American)

AJ

August 23, 2010 6:55 PM

This will definitely help Indian automotive manufacturers plant a global footprint. And its about time they do that. Developing the domestic market will take a long time and this is the right solution.

Steven

August 24, 2010 1:16 AM

SAIC was very stupid in investing in Ssangyong. Chinese companies buy another company for:
1. technology
2. brand
3. market
4. resources
Ssangyong did not fall in any of it. It does not have any technology, it is not a good brand, S. Korea has no market, and it is not a company having resource in hand.

S. Koreans are the exteme nationalists. Their worker's union is very violent. SAIC wasted $500 million in the company.

Good luck to Indians.

Husin O'Bama

August 24, 2010 2:30 AM

As the saying goes, the fools at SAIC will soon part with their money. Will the Indian be smarter in dealing with the nationalist Soko?

guru

August 24, 2010 4:15 AM

how exactly is it stolen? if SAIC bought the company then they own the IP too is that not correct.

Raj

August 24, 2010 8:45 AM

One way to add weight to this article would have been to examine how TATA motors' acquisition of bankrupt Daewoo's truck operation in S.Korea has panned out. Was there post-acquisition value capture and if so, how did the Tata's manage it.

shings

August 24, 2010 10:26 AM

I hope an Asian company would be success in Korea. It is a completely diffrent nation with China even it near China.

Flo

August 24, 2010 10:30 AM

SSangYong cars are great! Hope you can make the best out of the company.

i'm korean_canadian btw :)

HG

August 24, 2010 6:27 PM

@Hemant,
Really? How much were you paid to write this comment? You think they conjure up interviews?

Time should tell how good the acquisition is going to be for Mahindra, but I sure am optimistic about it.

ashish

August 25, 2010 6:32 PM

hope an Asian company would be success in Korea. It is a completely diffrent nation with China even it near China.
Health Bill

shirish b kokatay

August 29, 2010 2:08 PM

The veracity of the article in your magazine titled 'India's Soft Power' will be to some extent tested by this venture's outcome. After China's failure in Ssangyong venture MAhindra's success will reveal Indian managements ability to be flexible enough to succeed anywhere in the world.

ponakamad

September 4, 2010 1:05 AM

Mahindra is if i am not mistaken the largest producer of tractors by volume currently, worldwide.They have two joint (majority owned) ventures in China and are doing quite well.SAIC is now having a good stake in the Indian operations of GM -so both Mahindra and SAIC may end up competing in the Indian market for cars and SUV'S if SAIC makes any.Otherwise at this point of time Mahindra may end up doing a better job at SSANGYONG as Mahindra has been focussed on the SUV market for a long time.

Alain

September 27, 2010 4:15 AM

Korea is always a difficult place for a foreign company. Look at Michelin joint venture that failed. Look at SAIC. Renault succeded so far. Mahindra will learn from Ssangyong more about quality. The quality of Mahindra pick up is desastrous. They will learn about design, althouth the previous version of Ssangyong vehicule was more like star war toys, the new one is more geared for success. They will have to learn how to deal with violent trade union. It´s not an easy venture. Good luck Mahindra, you need it!

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