2. Why Defence?
FDI Regulations
• Currently, FDI in defense stands at 26%
• Proposals have been made to further ease it to 49%
• Government has shown interest in increasing FDI inflows in defense which is currently
low (less than 0.01% of total FDI inflows)
• Higher investment may be considered in state of the art technology
Relaxation in Defense Offset Policy (DOP)
• Foreign vendors can offset credits by transfer of technology
• Indigenization limit lowered to 30%
Contract for purchasing transport aircraft by IAF
•
•
•
•
Why
Defence?
Contract worth Rs 11,897 crore to replace AVROS by 56 new transport aircrafts
Emphasis on developing private players in aircraft manufacturing
Private players encouraged to form JV’s with foreign players
Previous backlogs of PSU in delivering previous orders
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
3. The Global Shift in Defence Power (1
of 2)
The Strategic Landscape Reshaped, 1991 -Expenditure on Defense, Long Term Growth in Military Spending
Country-wise 2012
1991 vs. 2011
The past 20 years saw dramatic changes on the
battlefield and the beginnings of an equally dramatic
shift in economic power
The world’s attention shifted to the Greater Middle
East
Innovations in defence technology and operations
have marked these past two decades of conflict
Developing countries are emerging as true
competitors to the developed economies with regard
to their innovation and technical prowess, R&D
expenses, etc.
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
4. The Global Shift in Defence Power (2
of 2)
Global Defense Spending shifting away from the US
Expected Changes in Defence Spending (2022)
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
5. Is there a bright future for India’s Defence Industry?
Factors setting India’s Defence Demand
Changing geopolitical scenarios on India’s
borders would necessitate continual augmentation
of its defense equipment
New procurement would be necessary to replace
obsolete equipment & to achieve combat readiness
Internal security requirements would drive
demand for homeland-security equipment
Increased government expenditure on defence is
likely to continue in the foreseeable future
The entry of new companies in the market would
increase competition and innovation, further driving
growth
India: The Largest Importer of Arms
75% of India’s weapons’ purchases are imports and India
is now the largest importer of arms
5-Step Formula to create a sustainable Defence Ecosystem
FDI in Defence
Choose core capabilities
Accelerate capability building
Enable the optimal industry structure and conduct
Improve procurement processes
Drive a performance orientation in government
defence entities
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
FDI cap has been maintained
at 26% in the Defence sector
Any FDI proposal beyond
26%, which brings state-ofthe-art technology would be
considered by the CCS on a
case to case basis
Alliance
Management
Termination
6. The Mahindra Group
Group Companies
Overview
Presence in 10
Companies
business sectors
Mahindra Aerospace
Vision is to become a globally recognized
manufacturer of aircraft and a tier 1 supplier of
components and assemblies
In partnership with the National Aerospace
Laboratories, already developing a new 5-seat light
utility aircraft
Mahindra Aerospace
Aerostaff Australia
one of the world’s premier suppliers of close
Companies
tolerance high-precision sheet metal and value Mahindra Aerospace
added products to Aerospace and Defence
Aerostaff Australia
customers
Gipps Aero Products
directly supply the assembly lines of the Boeing
Products
737, Gulfstream G150, and the world’s most
Aircraft
advanced fighter aircraft, the Lockheed-Martin F35 Joint Strike Fighter
MPV case for Axe
Marksmanto enter into JV for transport aircraft Products
Rakshak
Business
Mahindra Aerospace
Gipps Aero
Favorable Goverment regulations
Sea
handles all aspects of aircraft development,
Diversify its product portfolio in Defense sector
production, marketing and after-sales support
Sea
Torpedo
Already operating in defense sector and in manufacturing of small aircrafts
develops and manufactures a family of 2-20-seat
mines technology to manufacturing large aircraft cariers
Decoy
Aquire state-of-the-art
utility aircraft which is sold in more than 30
Launchers
Inability of foreign firms to enter India on their own
countries
Was founded in 1945 as a steel trading company
Companies
Today, the& Mahindra-Defense Division
Mahindra Group is $16.2 billion global corporation
provide total than 155,000 people entire globe of
Employees more solutions for the across range
Group flagship company, Mahindra vehicles andis their
light combat and armoured & Mahindra a
leader in tractor and utility vehicle space
derivatives for defence and security forces
largest private-sector supplier of bullet-proof
vehicles in the country
Defence Land Systems
Defense
manufacture world-class military vehicles, select
artillery systems, and other land system weapons at
Companies
competitively low costs
Mahindra & Mahindra-Defense Division
Products
Defence Land Systems
Land
Products
Land
Sea
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
7. Partner Selection (1 of 2)
Eligible Partners
Company Name
World Rank*
Home Country
Embraer
23
Brazil
Airbus
2
Spain
Ilyushin
-
Russia
CASA
2
Spain
Already has a Joint Venture with Tata Advance Systems for
3
USA
constructing aerostructures
Lockheed Martin
Saab
Alenia Aeronuatica
Part of the Italian conglomerate Finmeccanica, which is
39
Sweden
facing charges of paying bribes to swing the contract to
supply 12 9
VVIP helicopters to India Italy
in favour of its UKbased subsidiary, AgustaWestland
-
STE Ukraine
Ukraine
* As per Candesic report - THE WORLD’s TOP 100 AEROSPACE & DEFENCE COMPANIES - 2012
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
8. Partner Selection (2 of 2)
Airbus or CASA
Both are subsidiaries of EADS (European Aeronautic Defence and Space Company N.V.)
EADS is World’s 2nd Rank Air Defence company
Airbus has expressed its interest in the IAF deal of 56 aircrafts
Partner Selected: Airbus Military
Business Case for Airbus Military to form JV with Mahindra Aerospace
Conglomerate with 70 years of experience. Knowledge about Indian industry and politico-regulatory framework
Already built up Aerostructure facility
Parent company is involved in defense sector
Acquired companies outside India for cross country presence- Aerostaff Australia and GippsAero
Directly supply the assembly lines of the Boeing 737, Gulfstream G150, and the world’s most advanced fighter
aircraft, the Lockheed-Martin F-35 Joint Strike Fighter
Enable Airbus to fulfil offsets for any defence exports to India
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
9. Alliance Negotiation
Stages of Deal Negotiation
Preparation for
Preparation for
Negotiation
Negotiation
Building the
Building the
Negotiation Team
Negotiation Team
Conducting the
Conducting the
Negotiation
Negotiation
The early negotiationsCooperative Goal Strategy to create a win-win other, clarify expected benefits,the JV is
• should allow the parties to get to know each situation for both partners as and identify
shared goals and objectives with the long-term objective and its is not just a manufacturing facility created
formed
Strategy
The prenegotiation stage should cost synergies proprietary knowledge that needs to be protected, so before
to tap into have identified
disclosing proprietary data, managers should ensure their competitive advantage is adequately protected
• the partner should be used while Scope of License Territories and Royalties
Negotiating History of Granting of Technology Licenses,conducting Negotiations
• Capital Allocation issues, New product a plan for achieving them
Hard/Soft Issues
Emerge from these negotiations with a clear focus on goals anddevelopment
• Letter of Intent
Core Team
Other Key Members
• Manufacturing
• Marketing
• Technological
Technology
• Finance Structure
Market Issues
• Term Sheet containing Time Frame and Schedules, Obligations & Rights of each party,
Aim/ConstraintsR&D
•
Financing & Pricing terms, Intellectual Legal Non Solicitation clauses
• Property,
• Ownership of
• Product
• Board
technology
Lifecycle
Representation
• Timeline for completion of Negotiation Stage
• Cost Sharing
• Division of
Road-Map• Royalty Rights
• Do not plan for more than 10% of lifespan of alliance
Resources
• Legal Rights
• Legal Liabilities
•
• Parties should sign the Non Disclosure agreement. Mechanism for
Business
Trust
• This will build trust against any chances of Technology leakages as well help in
Mahindra Aerospace Due Diligence of in executives from Mahindra Defence
performing should bring each other’s capabilityexpansion
Division who have experience in dealing with Indian Government
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
10. Alliance Management
Alliance Benefits Proposition
Partner Selection
Mapping strategic fit between Mahindra and
Airbus
Sensitivity to Cultural Differences
Understanding finer aspects and nuances of
Indian and French cultures
Benefit both sides
Mahindra – Technology, R and D Expertise
Airbus – Market Access, Government Approvals
Structured Decision Making
Enhanced Learning
Mahindra - Airbus
Board of Directors
Top Management Roles and Selection
Alliance Manager Responsibilities
Management Committee
Executives
Mahindra Defence Division who
External from Government before can beRole have
Role
Internal employed
dealt with Indian
Encouraging organizational
Selection of Alliance
Identify mid level managers who would serve as interface
reciprocal behavior through operational leveloversee regular
Manager to management
between top level and
frequent interactions,
operations with requisite
amicable resolution of
experience
Alliance Manager Roleand expertise –
differences
Executive from Mahindra
Defence Division
Establish congenial working atmosphere
Trust
Organization building exercises, Personal Relationships
Resource Allocation for
Bridge cultural differences (Indo-French)
Commitment to create
shaping shared strategic
Monitor Partner Contribution
shared value through close
intent
at multipleAllocation
Resource levels
interaction
Corrective Action
of partner firms
Regulate Information Flows
Identification of new sector Maintain links at all extremely
Defence
associated with levels,
strategic opportunities toinformation, careful systems
Recasting reward monitoring
sensitive
further strengthen alliance leakage
required to avoid (incentives on winning and
and leverage on Strategic Viability, Flexibility
successfully completing
Reassess partner
strengths Changes in External Environment – Ex: Current
government orders)
regulations permit 26% FDI which could change in
future based on which action can be taken
Changes in Internal Environment
Representation from both sides
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination
11. Termination
Grow It
• Mahindra will acquire state of the art technology in manufacturing transport aircraft
• Airbus can build a strong relationship with Mahindra
• Airbus can build its manufacturing facilities for other products in India to tap the labor
arbitrage
• By maintaining a strong relationship with Indian conglomerates it can tap the opportunities to
grab a larger share of rapidly increasing defense budget of India
Fix It
• Mahindra and Airbus will follow the contractual terms: Building 16 transport aircrafts with
30% indigenous material and remaining 40 carriers with 60% indigenous material
• Mahindra using its experience will bid for the project and Airbus manufactures the aircraft
Exit
• JV does not win the bid for the contract
• JV wins the bid and 56 aircraft are supplied to complete the project, the purpose of forming JV
would be completed
• PSU’s are allowed to take part and Airbus decides to form a JV with HAL or BEML
Why
Defence?
External
Environment
Business
Case
Partner
Selection
Alliance
Negotiation
Alliance
Management
Termination