When Mahindra and Mahindra (M&M) bought a majority stake in little-known South Korean automaker SsangYong Motor in 2011, many had to hit Google search. Sang who? Once they knew, the question was ‘why?’ This wasn’t a trophy buy—SsangYong had a limited range of SUVs and just one sedan, oddly named the Chairman. Nor did it offer M&M a pathway to the lucrative markets of Europe and North America. In fact, it wasn’t even a major player in its home country; that would be GM Korea, Hyundai Motor, and Kia Motors. And, worse, SsangYong had just filed for bankruptcy. The consensus then was, this was a bad shopping decision. Except, it wasn’t—as we now know.

Six years after acquiring a 70% stake for 522 billion South Korean won ($464 million or roughly Rs 2,100 crore at that time), M&M’s day out in South Korea has finally paid off. SsangYong, a company set up in 1954, recorded its highest sales in 14 years in 2016, and after years of being in the red is now making a profit.

Make no mistake, this was no impulsive buy. SsangYong’s turnaround, as much as it underlines M&M’s business prowess in international markets, is a vindication of the man behind the scenes: Pawan Goenka, M&M’s managing director, and chairman of the board at SsangYong Motor. Goenka, Mahindra Group chairman Anand Mahindra’s man on the job, saw something that many did not. “I believed that if we were to somehow take the best of Indian [management] style and the best of Korean style, and blend them, it would be very powerful,” Goenka says.

To Goenka, SsangYong needed no introduction. A decade before the acquisition, M&M had held talks with the Korean company on a licence agreement to sell its Rexton SUV in India. Goenka went to South Korea three times in a bid to strike a deal, but the two sides could not reach an agreement.

Still, M&M didn’t lose interest. It was clear why the Indian automaker was keen on SsangYong. One, both made similar vehicles: SUVs. Two, the Rexton could help the maker of the Bolero and Scorpio fill a void in its catalogue: a premium vehicle.

So, when the opportunity for an acquisition cropped up in January 2011 when SsangYong filed for bankruptcy after its Chinese owners SAIC Motor failed to arrest its slide, Goenka had the groundwork covered for M&M. “I had come to understand and know the company, culture and its products,” Goenka says.

There is also a subplot in the story. This wasn’t the first time M&M had the option to buy SsangYong—after years of losing money, the Korean company was put on the block in 2007. But then, M&M was eyeing the coveted, but struggling, British automaker Jaguar Land Rover (JLR), and hence stayed away. A year later, JLR was acquired by Tata Motors, which managed to turn the business around.

M&M then turned its sights back on SsangYong. Now, by turning SsangYong’s business around in six years under its management, M&M proved its South Korean venture was more than just a consolation prize.

But how did M&M achieve what SsangYong’s previous owners, SAIC Motor—46th in the 2016 Fortune Global 500—couldn’t?

Goenka’s short answer: M&M does not impose itself on SsangYong. This is in contrast to the top-down management style adopted by SAIC. “We decided the key management would have to remain Korean,” he says. Barring a few like chief financial officer (CFO) Vasudev Tumbe, and director and board member Rajeev Dubey, the decision makers at SsangYong are mostly Korean nationals. The operations of the company are headed by SsangYong’s CEO, Choi Johng-sik. Goenka is the chairman of the board of directors that oversees the company.

This trust in local talent extends to the lower rungs as well. In 2009, a couple of years before M&M came into the picture, SsangYong’s factory in the city of Pyeongtaek in Gyeonggi Province, witnessed many days of violent union protest. According to a report in The Korea Times, the workers were protesting the management’s plans to “lay off 36% of its workforce as part of restructuring efforts to stay afloat and avoid liquidation”.

Though the union was disbanded before the acquisition, Goenka says M&M “reversed the layoffs” and re-hired 455 workers, including those put on unpaid leave. The plan is to “continue hiring back others as well”, he says. Goenka adds the company has an agreement with the current union on re-hiring being linked to sales and revenue growth.

Zia Mody, founding partner of law firm AZB & Partners, and one of the foremost corporate lawyers in India, says M&M’s man-management strategy is similar to Tata Motors’ after it acquired South Korean truck manufacturer Daewoo Commercial Vehicle in 2004. Mody, who has worked with many international deals, says in such cases the key is not the legal framework, but “one of culture”. She says both M&M and Tata got it right in their automotive deals.

But there is more to SsangYong’s turnaround than M&M’s man-management skills. After all, SsangYong’s revenue wouldn’t have increased from $1.8 billion in 2010 to around $3 billion in 2016 with mere HR solutions. To be sure, an investment of $1 billion SsangYong made through internal accruals between 2011 and 2016 helped. But for a deeper understanding, one needs to look at SsangYong’s products—the cars it makes, and how it makes them.

When M&M came in, it identified the strengths and weaknesses in SsangYong’s portfolio and scrapped three poor performing models—the Actyon, Kyron, and Chairman H—and gave some existing models a massive makeover. But the turning point came in January 2015 when it launched the Tivoli, a compact SUV. It was “perhaps the biggest factor in SsangYong’s turnaround”, says Goenka.

When SsangYong launched the Tivoli, the interests of car buyers across the world were changing. Compact SUVs—or ‘crossovers’ to use the industry term—were replacing sedans as the most sought after by urban buyers. And the Tivoli, with its desirable design, slick interiors, and features such as stability control and heated mirrors, proved to be better value for money—at the equivalent of around Rs 13 lakh in Korea—compared to competitors such as the Kia Soul.

Launched in January 2015, the Tivoli marked SsangYong’s turnaround, winning customers with its attractive packaging and affordable price.
Launched in January 2015, the Tivoli marked SsangYong’s turnaround, winning customers with its attractive packaging and affordable price.

Last year, SsangYong sold around 85,000 Tivolis, or more than half of its total car sales of over 150,000 cars. So far, since its launch in January 2015, the company has sold over 160,000 Tivolis.

The Tivoli helped SsangYong regain the confidence of dealers, says Abdul Majeed, partner, automotive, at consultancy firm PwC. “They were clearly told that it would be backed with marketing and sales muscle—that wasn’t the case with the earlier owners,” Majeed says.

Significantly, the Tivoli also proved to be the vehicle that took SsangYong to international markets. The company says the model has been popular in Europe, Central and South America, and Iran.

M&M didn’t stop at SsangYong’s product portfolio. It also effected some changes to make the Korean company’s operations more efficient. To begin with, sourcing of auto parts, especially for engine development, was aligned because M&M and SsangYong were in the business of making similar vehicles: SUVs. “It works in two ways,” says Hemant Sikka, executive vice president, chief purchase officer and head allied businesses, M&M. For example, he says, there are many suppliers from India, such as Bharat Forge, who have won orders for SsangYong. Similarly, Korean suppliers such as GMB and Digen provide parts for Mahindra vehicles.

Sikka says this common sourcing programme saved SsangYong and M&M “substantial costs”. The strategy, he points out, is to make the best use of each other’s vendor base to cut costs and reduce the processing time. “This is just the beginning. Going forward we will be implementing sourcing synergy for vehicle level parts as well.”

M&M and SsangYong have also used their combined might to develop a new petrol engine. Though the company hasn’t given an estimate of the project, it says had SsangYong gone alone, it would have cost the company an additional $60 million over five years. The engine, when ready, will be used in both Mahindra- and SsangYong-branded vehicles.

This synergy between the companies, as M&M terms it, reflects directly on SsangYong’s bottom line. The company reported a net profit of around $50 million in 2016—its first profitable year in nine years. Also, it cut SsangYong’s financial debt from 350 billion won at the end of 2010, just before M&M’s takeover, to around 190 billion won by the end of 2016.

Yet, there has been a blip in M&M’s SsangYong operations. And that strangely has been in India. SsangYong’s only model to be launched in India, a large SUV called the Rexton, has failed to attract buyers. Over the last six years, only 5,000 Rexton models have been sold in the country.

That, however, could change. SsangYong’s global success, the Tivoli, could do well in India, considering the popularity of compact SUVs such as the Renault Duster and the Hyundai Creta. SsangYong is also developing a premium SUV, code-named Y400, but M&M didn’t comment on any possible launch in India.

Nevertheless, one thing is certain: In its second coming in India, SsangYong won’t be an unknown entity, but a winner in its own right.