Cases in Management

MAN Diesel & Turbo launches MAN

Truck in Pakistan

Submitted by
Group #

A4

Submitted to
Mr. Talha Salam

Dated: 05/05/2014

MAN Diesel & Turbo Launches MAN

Truck in Pakistan
MachinenfavrikAuvsburg-Nurnberg (MAN) SE is a German mechanical engineering company
and parent company of the MAN group. MAN Diesel & Turbo Pakistan primarily deals in engines
(marine applications) & gas turbines (Power plants). The company recently launched its Truck business in
Pakistani market. With significant shift from agriculture to service base, the country direly requires
vibrant transportation system (vehicles as well as road infrastructures). The strategic geopolitical location
of Pakistan and a significant number of development projects in the pipeline coupled with the potential
for becoming a transit point for trade between the central Asian, South East Asian and Chinese economies
makes the truck industry of Pakistan ripe with opportunities. The company was faced with stiff
competition from local players in the truck industry, who are backed by the government and the NHA
(National Highway Authority).

Pakistan
Geography
Pakistan is the 36th largest nation having a total area of 796,095square kilometers(307,374 square
miles). In the South it has a 1,064 kilometer coastline along the Arabian Sea. Between the latitudes 23 o37oN and longitudes 61o-78oE it shares borders with Iran and Afghanistan in the West, India in the East
and China in the Northeast, while Tajikistan is separated by a mere 18 kilometer strip of land called the
Wakhan corridor.
In a nutshell it occupies a strategic position in the region and has the potential to connect the
important regions of South Asia, Central Asia and Middle East. The history of the land area falling within
the territorial boundaries of present day Pakistan substantiates this assertion as it is replete with foreign
incursions from the North, the West and even the South. Its road links with all the surrounding
neighboring countries, the land locked Afghanistan, the Central Asian Republics, and a preferred sea link
to Western China makes this distinction even in a purely business perspective, both unique and
formidable. The ongoing disturbed political situation in Afghanistan and the presence of a large number
of US and NATO troops under the legal cover of International Security Assistance Force (ISAF) has
accentuated the centrality of Pakistans location and its indispensability in regional trade and support
activity.

Economy
Pakistan has a semi-industrialized economy with discernable shift from agriculture to service
base where former contributes only 20% and latter 53% of the GDP. An effective and vibrant transport
system contributes directly in economic well being of a country. Today, road transport is the backbone of
Pakistans transport system. It accounts for 90 percent of national passenger traffic and 95 percent of
freight transport. The passenger and freight demand has been growing at a steady pace. On one hand
where it assists in enhancement of supply chain, on the other it generates revenues for the government
exchequer in direct/indirect taxes on vehicles and related industry.
Efficacy of a sound transport system is heavily contingent upon quality and size of a countrys
road network. Successive governments have invested in construction of the countrys only motorway. So
far four sections have come up on ground (M-1, M-2, M-3 and M-9). It is envisioned to eventually stretch
from Peshawar in the North to the Gwadar port in the South. While Peshawar via Torkhum provides a
gateway to Afghanistan, in the West another road joins Grand Trunk or GT Road (N-5) at Hasanabdal,
near historic city of Taxila. This road meanders through Abbottabad to eventually transform into the
Karakoram Highway (KKH) and provides a vital strategic route on the foot prints of fabled Silk route to
China, in the North East.
The government of Pakistan under a phased but continuous plan is upgrading and widening this,
one of the countrys only three, strategic road(s). Once a link up is complete this could well be the only
ground link between Western China and an all weather sea port tremendously truncating a circuitous
and far lengthier sea route via Chinese ports in its Eastern provinces. Similarly, the recently completed
Makran Coastal Highway (N-10) links Karachi to Gwadar and beyond. In total, Pakistan has 17
federalized highways, 4 completed sections of motorway and three strategic roads (KKH: S-1; KohalaMuzafarabad: S-2; Muzafarabad-Chakothi: S-3). Today total length of the existing road network is about
259,618 Km of which 179,290 Km is classified as high type roads and 80,328 Km as low type roads.
At present, the national highways constitute just 4% of the total road network they get 80% of all
the commercial traffic. Pakistan is the worlds 6 th most populous country with population estimated at 196
million (2014), whereas the neighboring Afghanistans population stands at 31.8 million, Chinas at 1.35
billion, Irans at 80.8 billion and Indias at1.23 billion. 1 But the whole region is not connected properly.
As reported in the Economic Survey of Pakistan - 2010 more than 40% of Pakistans horticultural
produce go waste due to inadequate transportation system. Afghanistan has a national trucking fleet of

1 The World: Population (2014)- http://www.geoba.se/population.php?pc=world&type=28

100,000 vehicles whereas Pakistan has only 250,000 vehicles. When compared on a geographic and
population based level, this number is dismally low and indicates the potential this sector has in Pakistan.

Company Background
History
MAN Group is a multinational based in Germany with a rich history that goes back 250 years;
see Exhibit 1-2 for company history (twin roots and company timeline). MAN Group has been
engineering the future since 17582 and has succeeded in powering the world. (See Exhibit 3 for
technology timeline)

MAN Group
MAN Group is one of Europes leading commercial vehicle, engine and mechanical engineering
companies, generating annual revenues of around 15.7 billion euro, employing a workforce of
approximately 53,500 in 120 countries. It offers a range of innovative products such as trucks, buses,
diesel engines, turbo machinery, special gear units and complete power plant solutions with all its
corporate divisions at leading market positions; see Exhibit 4 for MANs leading business areas. MANs
strategy focuses on creating sustainable enhanced value in its fast growing business areas of Commercial
Vehicles and Power Engineering.3
It has two main divisions. MAN SE and MAN AG while MAN Latin America is considered a
separate unit. MAN SE has subgroup; MAN Diesel & Turbo SE and the subgroup of MAN AG is MAN
Truck & Bus AG. (See Figure 1 for Company Divisions)

MAN Diesel & Turbo (MD&T)

Initially MAN Diesel and MAN Turbo were two separate subgroups with MAN Diesel focusing
on diesel engines while MAN Turbo focused on gas and steam turbines and compressors. In 2010, both
the divisions were combined to form one single subgroup; MAN Diesel & Turbo SE. This subgroup is the
worlds leading supplier of large diesel engines and turbo machinery for maritime and stationary
applications, including a wide range of products with varying specifications. The MAN PrimeServ brand
2"MAN Group | MAN SE."MAN Group | MAN SE. http://www.corporate.man.eu/en/ (accessed April 19,
2014).
3"Company structure of MAN | MAN SE."Company structure of MAN | MAN SE.
http://www.corporate.man.eu/en/company/man-at-a-glance/structure/Overview.html (accessed April 19,
2014).

provides their customers across the globe with after sale services with the company operating in more
than 100 international locations.4

MAN Latin America

This subgroup is actually the largest truck manufacturer in Brazil and a leading supplier of
commercial vehicles and bus chassis with one of the most advanced production facilities throughout the
world that are marketed under both Volkswagen and MAN brands.

MAN Truck & Bus AG

Its the largest company under MAN Group and leading provider of commercial vehicles and
transport solutions. Its product range is wide including specialized, heavy duty commercial vehicles.
MAN Truck and Bus tends to provide customers with extensive range of services and that too from a
single source.

Figure 1: MANs Company Divisions

MAN Group

MAN SE

MAN AG

MAN Diesel & Turbo

SE

MAN Truck & Bus AG

MAN Latin America

MAN Diesel & Turbo Pakistan

MAN Diesel & Turbo Pakistan (Pvt.) Ltd. is a 100% subsidiary of MAN Diesel & Turbo SE that
was established in 2008 to serve its customers base in Pakistan. Their aim was to offer their customers
the best products and technology with principal objective of serving customer needs of best after sales
service and technical support.5Under the PrimeServ brand, the company provides after sales services and
support for the entire range of engines and turbo machinery.
4Footnote 3

As they are the manufacturers of all these products (engines and turbo machinery), they also
supply genuine parts, field services, technical support, over haul and training to their customers to help
keep their equipment and business run flawlessly.6
In 2008, the company in Pakistan operated under MAN SEs subgroup MAN Turbo (at that point
in time there were two separate subgroups MAN Diesel and MAN Turbo); see Exhibit 5 for MANs
Divisional Structure in 2008 and in 2010. The company in Pakistan focused on engines; low speed (80200 RMP) and medium speed engines (600-900 RPM) that were typically used in Marine engines (50%
share worldwide making MAN global market leader) and power plants (thermal energy i.e. gas turbines).
In Pakistan, 80% of the market share was held between two companies, General Electric and SIEMENS
while from the remaining 20%, 15% was held by WARTSILA (an aggressive competitor of MAN Group
in Pakistan and around the globe) and 5% by MAN Pakistan. 7
Before coming to Pakistan, MAN already had installed base, providing furnace oil solutions at
Atlas Power Plant with eleven MAN 18V48/60 engines and a ten-year operation and maintenance
contract, HUBCO Power Plant in Narowal with same number of engines and a six-year long term service
agreement8, SEPCOL and Gaddoon of around 700-800 RPM (total of 30-35 machines installed in
Pakistan on Turbo division). Hence, establishing themselves here was a move to satisfy their customer
base in Pakistans market.

Government Policy Statement

In 2011-2012, the government policy changed. The policy statement being Not to invest in
furnace oil solutions; this affected what MD&T was anticipating in the Pakistani market and the
company faced problem in terms of growth. MD&T now had to come up with a plan to facilitate its
growth in Pakistan and the option decided was to introduce MAN Truck into the Pakistani Market. See
Figure 2 for MAN Truck & Buss product offerings.
5"MAN Diesel & Turbo SE - MAN DIESEL & TURBO PAKISTAN." MAN Diesel & Turbo SE - MAN
DIESEL & TURBO PAKISTAN. http://www.mandieselturbo.com/pakistan (accessed April 21, 2014)
6Company data
7 Company data
8"MAN Diesel, Turbo Pakistan expands services" The Daily Mail.
http://dailymailnews.com/0313/30/Business/index.php?id=3 (accessed April 20, 2014).

Figure 2: MAN Truck & Buss Product Offering Types

MAN Truck & Bus

MAN Truck

Rigid

MAN Bus

High Speed Engines

Tractor

Diesel Based Solutions

Gas Based Solutions

Marine Based Solutions

See Exhibit 6 for details on types of trucks (Rigid and Tractor)

The Launch
MAN Truck was successfully launched on March 28, 2013 in Pakistan with its latest product,
TGS WW. At the launch,David van Graan, Head of MAN Center Middle East and Vice President Sales
and Marketing said:
MAN Diesel & Turbo Pakistans exceptional performance and impeccable credentials were key factors
when MAN Truck & Bus decided to choose itsrepresentative in Pakistan. We see Pakistan as an important
market with a lot of potential and I am confident that we can deliver a world class value proposition
through MAN Diesel & Turbo Pakistan backed by a MAN trained service team, customer oriented mindset, and our innovative brand heritage to emerge as the leading player in Pakistans commercial vehicle
industry.9
Dr. Stephan Timmermann, responsible for the Strategic Business Units Marine Systems and the
After Sales Division PrimeServ in the MAN Diesel & Turbo Executive Board added, Pakistan is an
9"MAN Diesel, Turbo Pakistan expands services" The Daily Mail.
http://dailymailnews.com/0313/30/Business/index.php?id=3 (accessed April 20, 2014).

important market for all our business areas and opportunities arise from the infrastructure projects
starting in the near future coupled with the trade corridor opening from India to Central Asian
countries.10
Imran Ghani, Managing Director of MAN Pakistan also reflected that, Pakistan is among the
D-8 countries with an annual growth rate of 7.5% GDP for 2000-2007. This led to high demand of power
in the country and MAN Diesel & Turbo decided to have its representation in Pakistan which has proved
to be the right decision reflected by profitable growth in the last four years and In context of this
growth, MAN Diesel & Turbo Pakistan finds it the right combination to grow the business in the field of
commercial vehicles.11

Truck Market of Pakistan

The Trucking Policy by the Engineering Design Bureau declares this sector to be an Industry.
The Freight Forwarding has already been declared to be an industry by the Government in the year 2005
which covers the soft portion of trucking operations. Pakistans truck manufacturing sector consists of 12
manufacturers, out of which six plants are operational, four are producing mini trucks and two are closed.
The six production plants that are operational are all located in Karachi. These manufacturers
manufacture 16 various models of trucks and 11 models of prime movers. There is no manufacturer who
manufactures any variant bigger than the 360HP/PS prime movers.
Most of prime movers either comply with Euro-1 or up to Euro-II, whereas modern countries
have reached up to Euro-VI. These are the European emission standards that define the acceptable limits
for exhaust emissions of new vehicles sold in EU member states. Historically, the overall annual plant
utilization has varied between 15.9% and 31.4% over the last eight years.

Problems Faced by Prime Movers in Pakistans Truck Market

The issues and barriers that prime movers face in the Pakistans truck market are:

Fleet Composition & Technology

Currently there is a population of around 173,300 trucks plying on the roads. The poor state of
technology, presence of old & obsolete fleet and rigid trucks dominantly 2 & 3 axle suspensions, the
sector cannot be expected to get integrated to international trade routes.
10 Footnote 8
11 Footnote 8

The present state of affairs prevailing in this sector is largely due to the absence of requisite polices and
non-existence of an intelligent transport system.

Trucking Sector's Non-Recognition as an 'Industry'

Until recently, in spite of the repeated demands from the stakeholders to formalize this sector, the
trucking sector was not declared as an Industry due to its weak overall structure. Ownership of trucks is
limited which hinders profitability and acquisition of modern trucks. This also results in overloading.
The trucking Sector has been marginalized in Pakistan and is in almost fragmented state, with no concept
of corporatization that can bring about related benefits.

Financing / Leasing Issues

Presently, the sector obtains financing through informal practices which are largely controlled by
a few investors who are responsible for obsolete and old truck fleets in the country. Low cost financing by
the banks and leasing companies, as available for cars and the light vehicles segment, is not available to
this sector. The main source of financing for small operators is private financiers who charge very high
interest and demand short repayment periods.

Insurance Problems
The insurance companies are not ready to provide insurance cover to truck operators. There are
three main types of insurance relevant to the sector, namely;
(a) Cargo insurance
(b) Vehicle insurance
(c) Personal insurance.
Insurance companies are not providing any type of cover to the transport sector because of the
fact that individual truckers do not fulfill the legal requirements for insurance. The sector is therefore not
being encouraged by the Insurance Companies.

Freight Charges
An unhealthy and intense internal competition prevails in the sector, which compels it to operate
at very low profits. The increase in the fuel prices during the last few years has depressed revenue per
loaded km of an articulated truck which in real terms has declined by an average of 1.4% per annum. This
is because of the unbalanced land freight demand in Pakistan, largely due to dependence on seasonal
transportation of agricultural goods.

High Truck Operating Cost and Low Profits

A large population of trucks is old and structurally weak, with the drivers having a tendency of
overloading these trucks which are in bad shape already. The freight rates are low, due to which the
profitability is low. Therefore no re-investment is possible with such low profitability levels.

Serviceability
Low quality of service is seriously impeding Pakistans trade competitiveness both at internal and
cross-border levels. With only two ports in the South of country, the delivery times are longer as
compared to other countries. The up-country movement of a Pakistani truck from the Karachi Port takes
3-4 days which is twice the time taken in Europe or East Asia for a similar journey.

Motor Vehicle Examination (MVE)

Motor Vehicle Examination is a provincial function and is being governed through Provincial
Motor Vehicle Ordinance 1965 Section-39, Provincial Motor Vehicle Rules 1969 Section-35 and National
Highway Safety Ordinance (NHSO-2000). Weak regulations and poor enforcement of Motor Vehicle
Laws is a great setback to our system. MVE has no proper testing workshops and skilled human resource
to examine the vehicles and their offices are located in congested areas in most of the cities. As such, no
physical inspection of vehicles is conducted and the MVE is reduced to being merely a rubber stamp
function.

Axle Load Management

The illegal modification of trucks by non- qualified road side fabricators, low freight rates due to
unhealthy competition and prevalence of ineffective vehicle examination system in the country results in
overloading of vehicles which damages the roads and causes accidents. According to an estimate, 70% of
the 2, 3 axle trucks and 40% of 4, 5 and 6 axle trucks are overloaded.

Road Deterioration
Roads deterioration and damages due to overloading are imposing huge infrastructure
maintenance cost as well as slow travel times and high fuel costs.

Poor Registration System

Further, due to non-existence of a uniform, standardized and regulated registration system, it has
become difficult to assess the number and categories of rigid, articulated and multi-axle trucks plying on
the road.

Logistics Planning and Trans-Freight Stations

National Highway Authority (NHA) and Urban Planning Departments have failed to develop
proper transport planning in urban areas. There is no concept of Trans Freight Stations (TFS) in Pakistan
that could make multiple facilities available at one place. Large trucks are allowed to travel within the

cities and are a cause of unchecked congestion. World over, the concept of TFS, or dedicated facilities,
has helped develop and streamline the logistics planning systems. So far no such system has been
introduced in Pakistan which could provide facilities at dedicated sites to support operations in the trade
distribution chain along with providing facilities to the truck drivers, such as rest areas etc. Other support
facilities at TFS like Workshops, Outlets of MVE's and E&T Department (E&TD) functions, etc. could
counter the problems associated with large vehicles entering into the main cities for obtaining various
services.

Drivers Training, Licensing & Other Issues

Currently there are no training institutes for the proper training of drivers in accordance with
international standards and best practices applicable to driving a truck. 80% drivers are trained on old
trucks, and are not aware of the modern systems, requirements and rules & regulations for trans-border
trade. Although truck drivers play an important role in freight movement and the overall trade activity,
they are one of the most neglected segments of our society, with no access to medical and other support
facilities. Their working hours are stretched and there are no proper rest and re-creational facilities for
them. This leads to inefficiency, high accident rates and low productivity.

Absence of National Standards for Trucks and Trailers

There are no standards for trucks and trailers plying on the roads. The Motor Vehicle Examiners
have no yardsticks against which to match the specifications and performance of the vehicle being
examined. Illegal and unauthorized modifications that use sub-standard materials and technically flawed
practices are being carried out by road side fabricators. These practices damage OEMs specifications and
are a major safety hazard and cause of road accidents.

Anti-Aerodynamic Design
Owing to the prevailing non-scientific culture and absence of National Standards &Specifications
for Trucks/ Trailers, trucks plying on Pakistani roads have bodies which do not conform to any rule of
aerodynamics. According to an estimate, resistance to air flow created by such truck bodies increases fuel
consumption by at least 15 to 20 percent.

Border Clearance
The border clearance procedures are non-standardized, cumbersome and time consuming adding
to the cost and time of operations.

Import of Used Parts

The serious flaws in the system need to be corrected in relation to import of parts and components
in scrap form / sub-standard condition. In spite of regulations and checking by almost five government
agencies, such parts and components are being released and supplied to the open market in large
quantities.

Environmental Protection
Most of the trucks do not comply with Euro Specifications, which are the most widely accepted
standards. The world has moved to Euro 4 & 5 environment friendly engines, while in Pakistan,
compliance with even Euro- 1 standard has not been introduced. Similarly availability of sulphur free
diesel is another challenge that requires to be addressed.

Price and spare parts issue

Local transporter is totally biased towards low initial purchase price, free and cheap availability
of spares and after sales support. Their overriding consideration is that their truck should be such that
could be repaired on road side between Karachi to Peshawar virtually anywhere in Pakistan.

Price set by older players of market

Price based strategy followed by the older players in the market, and vulnerable mindsets falling
to it, is a considerable threat once viewed in the backdrop of MAN high end product and its price.

The Truck Market Segmentation and Existing Players in Pakistan

Segmentation
The truck market primarily consists of three basic segments; light duty, medium duty and heavy duty
segments, within which further are divided into the following:

Long Haulage (Transport):

Construction (Dump trucks)
Municipality (Fire engines, Cranes)
Distribution (Light duty-beverages, FMCGs)
Military

MAN Trucks are European trucks, that are typically medium and heavy duty trucks offered in Pakistan.

Existing Players
Pakistans Truck market consists of following players:

Volvo (Swedish)

Daewoo (Korean) Afzal Motors manufactures truck (previously acquired by TATA Motors)
Hino (Japanese)-manufactures trucks as well as buses- Hino Pak Karachi
FAW (Chinese)-manufactures Alhaaj motors in Karachi
Kamaz (Russian)
Howo (Chinese)
ISUZU (Japanese)-assembled in Pakistan
Master Motor Corporation- manufactures and assembles automobiles having ISO certification

Volvo
It is Swedish brand operating in Pakistan for about 30 years. It had previously set up a
manufacturing plant in Pakistan in 1996, but had to withdraw from manufacturing activities from Pakistan
due to the slump in the demand for trucks in the wake of the economic sanctions imposed upon the
country as a result of the atomic tests of 1998.Now Volvo operates as a dealer of Nissan UDtrucks as it
has acquired Nissan UD worldwide and is importing Nissan from Japan. It has an agreement with
Gandhara Nissan to assemble Nissan trucks in Pakistan in Pakistan. Volvo has made this move in order to
compete with the cost effective solutions provided by Hino and FAW by bringing in a low end truck
instead of importing Volvos own trucks that are too expensive for the Pakistani market.

Daewoo Trucks Pakistan

In Pakistan, Daewoo Trucks are being exclusively, distributed and manufactured by Afzal Motors
Pvt. Ltd., Karachi, Pakistan.12

HINO Pak Motors Limited

It is engaged in assembling, manufacturing and marketing of world renowned HINO trucks and
buses in Pakistan. Toyota Tsusho Corporation and Hino Motors Japan with the collaboration of Al
Futtaim group U.A.E and P.A.C.O Pakistan created Hino Pak Motors Limited in the year 1986. The
company is having top positions in domestic market for heavy transport vehicles and strictly adheres to
quality control and standards in manufacturing superior vehicles. 13

FAW Motors China

FAW produces commercial vehicles in Pakistan that include light, medium, and heavy duty
trucks, passenger cars, SUVs, and luxury tourist coaches with its head office situated at Karachi.

ISUZU
12"Afzal Motors. http://afzalmotors.com.pk/ (accessed April 22, 2014).
13 Hino Pak Motors Limited. http://hinopak.com/ (accessed April 21, 2014).

It is a Japanese company that assembles its vehicles in Pakistan which are then distributed by
Gandhara Industries Ltd. who are the sole distributors of ISUZU in the market. Its customer base includes
Sind Police, Pakistan Air Force, FC Quetta and Peshawar.14

Master Motor Corporation Limited:

MMCL plant is situated in N.W.I Zone, Port Qasim Karachi, and the company is engaged in
manufacturing and assembling of automobiles having an ISO certification. MMCL is a subsidiary of
Master Group of Companies; The Company is an authorized manufacturer and assembler of Japanese and
Chinese commercial vehicles including Mitsubishi Fuso, Yuejin, and Foton. Master Motor produces
commercial vehicle from 1.5 tons of loading capacity to 60 tons, other than that company is also offers
mobile workshop facility.15

MAN Truck in Pakistans Truck Industry

The Pakistani market presents a unique opportunity for European truck manufacturers. They
produce state of the art trucks that have a longer life, greater resistance to wear and tear, more load
carrying capacity and greater compliance to quality, safety and emission standards. The presence of
MANs Prime Serve facility for turbo chargers is an added advantage as it can serve as platform to launch
new initiatives and act as its support base. Another point worth noting is the presence of Asian routes in
Pakistan; see Exhibit 7. These routes link Southeast Asian countries to Central Asian countries, provide
many land locked countries in the region access to an all year deep sea port, and as a consequence turn the
country into a strategic transit point for all sorts of trade and transport between the emerging economic
powerhouses of the region. This factor is playing an important role in uplifting the economy of Pakistan
by generating economic activity and employment. The routes create potential for truck market to grow
and opportunities for the companies like MAN to enter with quality products. As of now there is no
significant quantity of prime movers being exported from Pakistan and all the locally produced
(assembled) trucks are sold locally.
According to AnsMahmood, sales manager of MAN Trucks:
Truck sales serve as an important indicator of contraction or expansion of an economy as trucks
move commodities, which are dependent on the well being of the economy and in developing countries
there is a huge growth and development potential and where there is development, there exists a need for
14"Gandhara Industries Ltd. http://www.gil.com.pk/ (accessed April 27, 2014).
15 Master Motor Corporation. http://www.mmcl.com.pk/ (accessed April 22, 2014)

transportation, not only of people but of commodities as well; thus making Pakistan an attractive truck
market.
However, MAN Truck serves a niche segment which requires trucks to be imported. The
production time is 60 days and the delivery time is 30 days as the order goes into queue. The reason for
such a long period for delivery is that there is only one production facility (one of many) that serves the
needs of this region.16

MAN Trucks target segment, Competitors and Government Regulations

In terms of broader segments, there are two main segments: transport (60% of the market) and
distribution (40%). MAN Truck cannot technically target distribution because it consists of light duty
trucks; the largest player in this segment being the Japanese truck company, ISUZU which is locally
assembled in Pakistan. These distribution trucks typically move within the cities or at the maximum
between adjoining cities and deliver goods typically from the distribution points to the retail outlets. The
ISUZU MPR sells for Rs. 2 million to Rs. 2.2 million, whereas MANs CBU (complete built unit) is
worth 40,000 that translates to Rs. 5.43 million. The MAN truck is further subjected to a 60% duty,
making it cost 5 times the competition.
Of the 60% of transport segment, 40% consists of long haulage trucks. This is the heavy duty
segment, having completely different dynamics. It consists of local players having their own assemblies
and sales and distribution channels. These trucks are priced at Rs. 6 million to Rs. 8 million whereas
Mans truck is priced at Rs. 13 million to Rs. 14 million, which affects the sales. Furthermore the NHA
regulations prevent MANs trucks, which have lower life cycle cost (in terms of fuel consumption, load
carrying capacity, wear and tear, lube oil consumption, operating cost, payback period, etc.) from
attaining their full potential in this segment, as they do not allow them to carry at full capacity; see
Exhibit 8 for Allowable Load Limits Enforced by NHSO-2000.
Also, there exists a clout of vested interests by the local players on the Regulatory authority
(NHA), which has the genuine concern in them because they generate employment and provide cash
circulation in the economy. Thus that 40% too, is difficult to capture. The remaining 20% is where
MANs trucks compete. This 20% is where the market requires specialized trucks like those used for
construction purposes. Such trucks have to deal with extreme loads, wear and tear threat, and
uneven/uncertain terrain. In addition to the trucks needed during construction, MAN provides other

16Interview with AnsMahmood, Sales Manager, MAN Truck (April 21,2014)

specialized trucks like required in firefighting, mining, and oil & gas applications. Apart from these
categories, one of the oldest and the biggest client of MAN in terms of truck purchase is the military.

Arriving at the decision

MAN Pakistan was primarily dealing in diesel and turbo related products prior to the launch of its
truck and bus business. In order for the firm to stay competitive and generate sustainable growth in the
long run, it was imperative to keep offering continuous new product offering to the market from time to
time. An important source of revenues was the after sales services that were required by customers some
time after the sale. The setting up and upgradation of power plants in the country during the 1990s and in
2007-2008 revealed the unpredictable cyclic nature of this business, which was completely dependent on
government policy and actions regarding development. Additionally, the company was selling products on
the diesel and turbo front that were as much as 25 years old (in terms of their initial introduction
globally). Revenues from this business were steadily flowing in at the time, but the company foresaw
reduction in the volume of this business in the next 4-5 years, thus posing a threat to the sustainable
growth of the company.
The company converted this threat into an opportunity. As a group, MAN was operating across
many product categories globally. Additionally, the government of Pakistan in 2009, began promoting
CNG buses due to advantages of lowered fuel costs and near harmless emissions, reducing the import
duty on such vehicles to 0%. MAN started out with buses and then began focusing on the trucks. The
company employed the surplus cash at hand in the form of profits from the diesel and turbo business in
order to establish the truck and bus division that was expected to break even within three years. Once they
were done capitalizing on their strengths, they looked towards the market to find a considerable gap that
they could fill using their competitive prowess in truck manufacturing. The most important factor that
customers looked for when purchasing trucks was after sales support being offered by the manufacturer.
MAN did not favor selling distribution and long haulage trucks in Pakistan partly due to the fact that such
vehicles required workshops within cities and on highways respectively. Specialized trucks on the other
hand (e.g. fire trucks and construction trucks) required the customer to build support and service points at
the place where these are employed (e.g. fire station and construction sites respectively). This was one of
the reasons why MAN targeted this niche segment, as it freed MAN from providing service workshops
and thus reduced their costs.
Pricing was another factor on which the decision to enter the market depended. Price was the
main reason why MAN did not venture into the distribution truck and the long haulage truck market
segment. The locally assembled trucks being offered in this segment by the various players were of

significantly lower prices compared to trucks having similar specifications that could be offered by MAN
(due to differences in quality and imposition of import duties on European trucks). But in the case of
specialized trucks, price was not an issue as the customers in this segment required high quality, reliable
trucks and value products having lesser lifetime costs (due to greater load carrying capacity, resistance to
wear and tear and durability). Here is where the European imported trucks come into play. Among the
European truck manufacturers, MAN has the added advantage of itself being present in the market, thus
eliminating the need to have other members in the supply chain (such as dealers, agents and distributers)
and therefore have greater profit margins as well as lower prices with respect to the competition.

The Big Question:

Was MAN Diesel and Turbo justified in entering the already crowded and highly competitive
truck industry? Should they forgo the 80% of the market share they have conceded due to reasons
mentioned above or should they go for a bigger piece of the pie? What if anything can be done to
consolidate in the current market segment and increase MANs share?

Exhibit 1: Twin Roots of MAN

1758 :

1840:

St. Ankthonyironworks,
Oberhausen

SanderscheMaschinenFabrik, Augsburg

1873:

1908:

Gutehoffnungshtte(GH
H) go public

M.A.N Maschinenfabrik
Augsburg-Nrnberg

1921: GHH acquires majority share of M.A.N.

1986: M.A.N. merges with GHH, renamed MAN AG, based in Munich, Germany; individual
divisions restructured as public limited companies
2006: Concentration on the four business areas; Commercial Vehicles, Diesel Engines, Turbo
machinery and Industrial Services
Exhibit 2: Company Timeline
1750-

1758

"St. Antony ironworks commences operation in Oberhausen as the first heavy-

1782
1805
1808

industry enterprise in the Ruhr region

The "GuteHoffnung" (Good Hope) ironworks starts up in Oberhausen
Establishment of "Sulzer-Escher Wyss" works in Zurich
Merger of the three ironworks St. Antony, GuteHoffnung and Neue Essen to form

1824

Httengewerkschaft und Handlung Jacobi (Iron Mining and Trading Company),

1825-

1840-1844

Oberhausen
Sander'scheMaschinenfabrik established in Augsburg, Klett& Comp. established in

1849
1900-

Nuremberg and Sander'sche changes its name to C.

1908

1924

Reichenbach'scheMaschinenfabrik, Augsburg
VereinigteMaschinenfabrik Augsburg und MaschinenbaugesellschaftNrnberg A.G., Augsburg renamed Maschinenfabrik Augsburg-Nrnberg AG, Augsburg

1914-1918

(M.A.N.)
Loss of key foreign branches and patent rights, production facilities reduced

(First World
War)
1915

Foundation of Lastwagenwerke M.A.N.-Saurer (LWW) truck plant. Start of

commercial vehicle production in Lindau
M.A.N. joins up with GHH
Loss of all foreign operations, heavy war damage, the Allied Forces take control of

1925-

1920
1939-1945

1949

(Second

1950-

World War)
1955-1971

M.A.N. truck plant opened in Munich, Takeover of Automobilwerke AG Bssing,

1974
1985-

1988

Braunschweig
Acquisition of a 50% interest in the French diesel-engine manufacturer S.E.M.T.

1994
2000-

2000

Pielstick (currently: 100%)

Takeover of the brands NEOPLAN (bus), ERF and Star (truck); acquisition of

2004

2005-

all GHH companies

Alstom Engines diesel activities in Great Britain; takeover of Sulzer Turbo,

2001

Switzerland
Redemption of the companys own preference shares; formation of the

2006

"NEOMAN" Bus Group and the "MAN TURBO" Group

Conversion of MAN B&W Diesel AG into a European Company renamed "MAN

2008

Diesel SE
In 2008, MAN celebrated its 250th anniversary, making it one of the world's oldest

2009

industrial companies. The St. Antony iron and steel works in Oberhausen started
operations on October 18, 1758. Since then MAN has played a major role in
2009
20102012

2010
2011-2012

German industrial history

The new subgroup MAN Latin America is formed following acquisition of VWs
Brazilian truck and bus activities; MAN becomes a European Company (SE)
MAN Diesel and MAN Turbo merge to become MAN Diesel & Turbo
MAN Nutzfahrzeuge changes its name to MAN Truck & Bus AG; Volkswagen AG
becomes MAN's majority shareholder and later Volkswagen increases its share of
voting rights in MAN SE to 75.03 percent

Source: "MAN Timeline | MAN SE." MAN Timeline | MAN SE.

http://www.corporate.man.eu/en/company/history/man-timeline/MAN-Timeline.html(accessed April 20,
2014).
Exhibit 3: Technology Timeline
1750-

1787-1814

Rails supplied for the Rauendahl coal track, Germanys first horse-powered railway

1824
1825-

1839-1845

and Delivery of the first steam engine

Delivery of the first locomotive and First high-speed book-printing press

1849
1850-

1893-1900

Together with Maschinenfabrik Augsburg Aktiengesellschaft, Rudolf Diesel builds

1924

1925-

the worlds first diesel engine; construction of the Mngsten Railway Bridge and
1904-1924

Production of steam turbines begins

First GHH steam turbine, First "Roland" sheetfed offset printing press and First

1926-1937

diesel engine truck with direct fuel injection plus the first low-frame omnibus
Construction of the first three-axle truck: S1H6 model, Back then the world's most

1949

powerful heavy-duty truck with 140/150 hp, Development work begins on exhaustgas turbochargers for diesel engines and Development of the all-wheel drive for

1950-

1950-1952

1974

utility vehicles
First supercharged diesel engine, 46% efficiency ratio, First German diesel truck
with exhaust-gas turbocharger and First German diesel truck with exhaust gas

1970-1971

turbocharger
The worlds largest metal extruder; first sheetfed offset printing press to be
constructed in series; production of tube reactors for chemical plants begins, The
worlds largest planetary marine transmission and The New Technology Division

1985-

1982

1994

becomes involved in the European Launcher/ ARIANE space project

First heavy, two-stroke diesel engine with an efficiency ratio of over 50%, Delivery
of nine four-stroke diesel engines for the "Queen Elizabeth II, the worlds largest
diesel-electric drive for a civilian liner, First low-floor articulated bus with
continuous low-level platform and Market launch of the MAN Lion's Star (Coach

1995-

1997-1998

of the Year 1994)

he worlds first 10-stage geared compressor; 100th ARIANE flight; first CSP plant

1999

in Europe and Delivery of the first component for the X-38 orbital glider; NL 263

2000-

chosen as Bus of the Year; construction of a supermagnet for CERN

The one millionth MAN commercial vehicle rolls off the line; presentation of the

2000

2004

new Trucknology Generation TG-A (Truck of the Year 2001); presentation of the
2004

first plateless digital printing system "DICOweb" at the drupa trade fair
MAN Nutzfahrzeuge launches its new engine generation D20 Common Rail

20052009

2005
2007

Bus of the Year Award for the MAN Lion's City

Market launch of the TGS and TGX in the heavy-duty series (Truck of the Year

2010-

2010

2008)
"Concept S" design study presented at the IAA Commercial Vehicles trade fair

2012

2011-2012
MAN and Sinotruk launch joint truck brand SITRAK; the MAN TGX is nominated
Green Truck 2011.
Premiere of the new generation of Euro 6 trucks and of buses

Source: "MAN Timeline | MAN SE." MAN Timeline | MAN SE.

http://www.corporate.man.eu/en/company/history/man-timeline/MAN-Timeline.html(accessed April 20,
2014).
Exhibit 4: MANs Leading Business Areas
Commercial Vehicles

Diesel Engines

Trucks

2-stroke

Buses

4-stroke

Engines

CP-propellers

Services

Turbochargers

Service

Turbomachinery

Industrial Services

Compressors

Contracting

Turbines

Logistics

Reactors

Service platform

Services

Source: Company Data

Exhibit 5: MANs Divisional Structure in 2008 and in 2010

a) 2008

MAN Group

MAN SE
MAN AG

MAN Truck & Bus AG

MAN Diesel (Engines)

MAN Latin America

MAN Turbo (Gas turbines, steam turbines and compressors)

MAN Pakistan (Pvt.) Ltd.

b) 2010

MAN Group

MAN SE

MAN AG

MAN Diesel & Turbo

SE

MAN Truck & Bus AG

MAN Diesel & Turbo Pakistan (Pvt.) Ltd.

Source: Company Data

MAN Latin America

Exhibit 6: Types of trucks (Rigid and Tractor)

Rigid:

Tractor:
A variant of truck that drags a load (trailer/container

A rigid is what is known as a "straight truck". It

on wheels) by means of a hook mechanism. The

does not pull a trailer, rather carries the load

truck as a whole has two or more twisting

(containers) on itself.

(articulated) parts. Load carrying capacity increases

when the load is towed rather than carried.

Source: Company Data

Exhibit 7: Asian Highway Routes

Source: Company data

AH-1 : TorkhamPeshawarRawalpindiLahore Wagah Border (India-520 Km)
AH-2 : LahoreSahiwalMultanRohriSukkur(Quetta) Sariab-LakpassNokundiTaftan (Iran-1763 Km)
AH-4 : KarachiHyderabadRohriLahoreRawalpindiHasanabdalAbbottabadKhunjrab (China-1391 Km)
AH-7 : KarachiKalatQuettaChaman (Afghanistan-816 Km)
AH-51 : QuettaD.I. KhanPeshawar (862 Km)

Exhibit 8: Allowable Load Limits Enforced by NHSO-2000.

Source: Company data

Instructors Manual
Case Overview/Synopsis:
MachinenfavrikAuvsburg-Nurnberg (MAN) SE is a German mechanical engineering company
and parent company of the MAN group. MAN diesel & Turbo Pakistan primarily deals in engines (marine
applications) & gas turbines (Power plants). The company recently launched its Truck business in
Pakistani market. With significant shift from agriculture to service base, the country direly requires
vibrant transportation system (vehicles as well as road infrastructures). The strategic geopolitical location
of Pakistan and a significant number of development projects in the pipeline coupled with the potential
for becoming a transit point for trade between the central Asian, South East Asian and Chinese economies
makes the truck industry of Pakistan ripe with opportunities. The developmental projects would require
large fleets of trucks for transportation of material. Additionally, these would contribute to uplifting the
economy by generating employment and economic activity. This would lead to greater flow of
commodities within the country, which would place great stress on the existing logistics infrastructures
(trucks & roads), thus creating the need for more and better quality trucks.
The industry is faced with severe impediments (technological, financing/leasing, insurance, low
margins, serviceability, road quality and registration issues), is highly underdeveloped and unexploited,
with local players having a major chunk of the market share (due to their local assembly options and thus
no import duty). As the company has no assembly operations in the country, it basically imports trucks
from Europe. These trucks are not ideally suitable for distribution and long haulage purposes due to high
price (with added import duty) and high load carrying capacity (as opposed to lower limits set by the
NHA). The segment that it can compete in is that of specialized trucks, which constitutes approximately
20% of the total industry.
In this segment, MAN truck has a unique advantage of having an existing company (MAN Diesel
& Turbo) prior to the launch of MAN truck. This frees the company from dealing with other additional
members in the supply chain (e.g. dealers, agents and distributors), thus reducing their costs, making
MANs trucks the cheapest among the European trucks being imported into Pakistan. MAN Diesel
&Turbos venture into the truck market was a very risky one which required strategic planning, analysis
and decision-making. They had to compete with players having local assembly in the company, strong
distribution channels, and well established reputations in the minds of the consumers. One of the major
hurdles was the consumer mindset of preferring low cost over quality. But the company found a strong

foothold in a niche segment (specialized trucks), due to the specific quality and reliability requirements of
the customers.

Learning Objectives:
Nature ofmanagement related complexities real life organizations face during the diversification
of their business.
Application of managerial tools and models for the purpose of analyzing, evaluating and
exploiting opportunities to achieve sustainable growth and competitiveness.
Problems and issues faced by foreign companies with no production or assembly operations in
the local markets and how they can turn this disadvantage into sustainable competitive advantage.
(Suggestions from the readers are required)
The strategic implications of long-term risky ventures in highly competitive market settings.

Topics, subject areas, level for which the case is suited:

Topics & Subject areas:

Management
Strategic Decision Making Process
Sustainable Growth
Sustainable Competitive Advantage
Application of analytical tools such as :
o SWOT analysis
o Porters Five Forces Model
o Ansoffs Matrix
o TOWS Analysis
o Strategic Management Process
o Competitive Profile Matrix
o PESTEL Analysis
o VRIO
o IE Matrix
o BCG Matrix
o RBV

Levels:
Undergraduate
Graduate
Post-Graduate

Note for instructor:

1. Most of the contextual data presented in the case was based on a narrative directly quoted by
company personnel.