Indian Tractor Maker Mahindra Takes On DeereAugust 2, 2013
By Bruce Einhorn
Bloomberg Businessweek – Companies & Industries, August 01, 2013
Mahindra & Mahindra (MM:IN) is one of India’s largest conglomerates, but it’s not exactly a household name in the U.S. That used to be a problem for Richard Johnson as he tried to sell Mahindra tractors in Navasota, Tex. (pop. 7,204), about 70 miles northwest of Houston. “People would say, ‘I’ve never heard of this,’ so the first thing you had to do was go through the spiel of where they’re made and all that,” he says.
Today, almost all of Johnson’s prospective tractor customers have heard of the small machines. The company has invested to make itself appear less foreign: Mahindra sponsors Championship Bull Riding and has signed on angler and TV host Bill Dance, a member of the Professional Bass Fishing Hall of Fame, as a spokesman. Mahindra commercials appear on Fox News (FOX), the Outdoor Channel, and other heartland-friendly cable networks. “Mahindra has done a good job of really getting out there,” says Johnson, who last month opened his third outlet selling the Indian company’s tractors.
Dealers like Johnson are central to Mahindra’s plan to build a presence in the U.S. The company sold $1.68 billion worth of tractors globally last year and boasts it makes the largest number of them in the world, ahead of Deere (DE), because of its dominance in the Indian market. Mahindra Group also includes finance, hotels, and auto companies. Its software services company, Tech Mahindra (TECHM:IN), is the fifth-largest in India and in June completed the acquisition of Satyam Computer Services, doubling its revenue to $2.4 billion.
While it may be bigger than Deere globally, Mahindra has just begun competing on Deere’s U.S. home turf. The effort has required more than red-white-and-blue messaging; the company has had to modify its products, too. In India, where four out of 10 tractors are Mahindras, farmers who can’t afford big investments prefer the company’s no-nonsense equipment. American buyers expect more luxury in their tractors, so Mahindra has added automatic transmission, air-conditioning, cruise control, and sunroofs to its U.S. models.
Mahindra’s tractors in the U.S. range from the 22-horsepower Max 22, which sells for $12,690, to the new 100hp mForce, which starts at $51,875. Mahindra executives, who say they don’t want to compete on price, find other ways to lure customers away from market leaders Deere and Osaka-based Kubota (6326:JP). Following the example of Hyundai Motor (005380:KS), which used especially long product warranties to gain acceptance in the American auto market, Mahindra offers a five-year warranty on its tractors in the U.S., compared with the standard two years offered by Deere. And in 2011, Mahindra launched a finance company for its American buyers that offers zero percent financing with no money down for 84 months. Deere offers zero percent interest on 60-month loans.
The Indian company has also rolled out a military appreciation program providing U.S. and Canadian veterans and their families with $250 rebates. As Mahindra says on its website: “We appreciate your service and commitment to our country and would like to show our support.”
Until now, Indian corporations haven’t enjoyed much success in the U.S., except for information technology outsourcing firms that have opened service centers for American customers. Tata Motors (TTM), India’s top automaker, has a U.S. presence because of its 2008 acquisition of the Jaguar and Land Rover brands from Ford Motor (F). The Mumbai-based company hasn’t tried to sell its low-cost Nano or other Tata-branded cars to Americans.
Other Indian giants are coming to America. To offset slumping car sales at home, the country’s No. 1 tire maker, Apollo Tyres (APTY:IN), in June announced its $2.5 billion purchase of Findlay (Ohio)-based Cooper Tire & Rubber (CTB). The acquisition gives Apollo “immediate access” to the U.S. and Chinese markets, “which otherwise would have been tough to penetrate,” Ambrish Mishra and Himanshu Sharma, analysts at Mumbai broker JM Financial (JM:IN), wrote in a report in June. Reliance Industries (RIL:IN), which operates the world’s biggest oil refining complex, in western India, has spent $5.7 billion over the past three years on shale oil and gas projects in the U.S.
As more Indian executives consider investing in the U.S., they’ll be following the lead of Mahindra Chairman Anand Mahindra, a graduate of both Harvard University and Harvard Business School who in 2010 gave $10 million to promote humanities at the university. Anand, the grandson of one of the company’s founders and the third family member to lead it, is a frequent visitor to America—and sees the country as a major part of his strategy to build Mahindra into a global brand. “He has a passion for the U.S. market,” says Mani Iyer, president of Mahindra USA.
In the U.S., Mahindra sticks to small tractors with up to 100hp—not powerful enough for big farms, but fine for what Cleo Franklin, the marketing and strategic planning vice president, calls the company’s target demographic: “gentleman farmers,” or baby boomers buying small farms and ranches. “A lot of customers are going back to their roots,” says Franklin, who spent more than two decades with Deere and CNH Global’s (CNH) New Holland agricultural equipment unit before joining Mahindra in 2011. “That segment is truly driving a lot of our growth.”
Mahindra had 8 percent of the U.S. market for small tractors by the end of 2012, according to the company, enough to rank third behind Japan’s Kubota and Deere. Franklin says that share reached the “high single- to low double-digits” in this year’s first quarter. Mahindra has more than 400 dealers, up from 250 in 2010, and plans to have as many as 650 by 2015. Japan’s Kubota has more than 1,100 dealers in the U.S.; Deere has 1,542 outlets across North America.
U.S. expansion can be messy, as Mahindra discovered in 2010 when its plan to sell pickups and SUVs in the country fizzled before products were introduced amid a dispute with its distribution partner. That left 350 would-be dealers, many of whom say they had started outfitting showrooms, in the lurch, leading to litigation, some of which is still dragging on. Mahindra won’t comment on the suits, but Iyer says they haven’t hurt its tractor business.
Not everyone’s sold on Mahindra’s strategy. Targeting small tractors won’t yield significant profits, says BMO Capital Markets (BMO) analyst Joel Tiss, who calculates the market for tractors with 100hp or less is worth roughly $5 billion annually, or about 10 percent of the total. The U.S. will be “a long, long slog,” he says. “Coming to developed markets with a developing-market product doesn’t make a lot of sense.” In a few years, Tiss says, the gentleman farmer “will be doing something else.”
Richard Johnson isn’t buying that argument, as Navasota and other rural towns outside Houston become more popular places to live. “In the next 10 years, this area is going to grow a whole bunch,” he says. “All those people are going to be wanting small places with small tractors.”
The bottom line: India’s Mahindra, which has $16.2 billion in sales globally, is trying to carve out a niche for small tractors in the U.S.