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Truck-plant union wary of ventures with India


MUMBAI, India – Northeast Indiana supplied the engineering know-how. India chipped in the low production costs.

Together they hope to turn out a line of medium- and heavy-duty trucks starting next year.

International Truck and Engine Corp. and its Indian partner, Mahindra & Mahindra Ltd., teamed up to build trucks that will carry goods across India. The companies invested about $200 million to design and produce trucks for the Asian nation’s growing market, Pawan Goenka, president of Mahindra & Mahindra’s automotive sector, said in an interview with The Journal Gazette. Their joint venture, Mahindra International Ltd., is slated to roll out its new truck lineup in the second half of 2009.

International Truck’s Fort Wayne design and engineering center is helping to create, test and analyze the Indian truck designs, said Ramin Younessi, vice president of business and product operations for International Truck’s parent company, Navistar International Corp. The local operation employed 925 as of March 31.

The joint venture is after a valuable prize – a share of the growing Indian truck market. Already one of the largest truck markets in the world, India is projected to reach annual sales of 400,000 to 500,000 trucks in the next five years, Younessi said. As India’s 1.1 billion residents see their buying power increase, the country needs more trucks to distribute consumer goods.

“So it’s a glamorous market to be in in terms of volumes, and the profitability numbers are not bad,” he said.

But International Truck’s Fort Wayne union leaders are concerned the company’s Indian joint venture will lead to more American jobs being shifted overseas – a phenomenon called outsourcing.

International Truck has outsourced more work the past five to six years, the same period when it negotiated and began the joint venture, said Mike Coil, bargaining committee chairman for United Auto Workers Local 2911. The union represents about 300 workers at International Truck’s Fort Wayne operation.

Coil said some employees have left the company because of job-security concerns, including outsourcing. About 30 union members have left International Truck since the union settled a strike in December, he said.

International Truck outsources some assignments to Mahindra’s contract engineering division, which the company says is separate from the joint venture. But the work goes to the same Indian city as the joint venture’s assignments, Coil said. In this confusing atmosphere, he said the company could shift overflow work from the joint venture to Mahindra contract employees.

“The lines are blurred,” Coil said.

International Truck, like its competitors, uses outsourcing to handle bursts of short-term assignments efficiently, Younessi said. The joint venture is separate and serves a different purpose. Entering overseas markets helps the company make more sales, he said.

The mature American diesel truck market offers fewer opportunities for growth than developing countries such as India and China, said Charles Dhanaraj, associate professor of management and Schmenner Faculty Fellow in International Business at Indiana University-Purdue University Indianapolis. American companies want to sell trucks in these growing markets, but developing nations can’t afford to pay for a truck exported from the United States. That makes it attractive for U.S. companies to form joint ventures and produce trucks in the markets they want to serve, he said.

Navistar turned to a longtime business partner to break into this new market, Younessi said. When the company was called International Harvester Co., both it and Mahindra & Mahindra manufactured tractors. The companies sold each other tractor parts. That relationship dated back to the 1940s and gave the partners a foundation for their joint venture.

Mahindra already had a light-duty truck line and an established dealer network. But the company didn’t have experience building the heavier trucks that the Indian market was starting to demand, Goenka said. International Truck produces larger trucks for the North American market and could share its knowledge with Mahindra, he said.

International Truck and other companies tend to look for local partners rather than venturing into the Indian market alone, said Vijay Khatri, an assistant professor at Indiana University’s Kelley School of Business. A local partner can help companies understand India’s diverse demographics and many languages, he said. Without one, setting up a service-and-distribution network to cover the vast Indian countryside would require a large investment.

Most American companies prefer to form a partnership instead of building their own infrastructure and brand reputation from scratch, Dhanaraj said.

“You’re better off riding on an existing network that’s got the credibility,” he said.

Companies forming joint ventures must be careful to avoid pursuing one partner’s agenda over the other’s, Dhanaraj said. If one company has more control over the joint venture’s direction than the partner, the deal may fall apart. But Mahindra has experience with international business relationships that should help make this joint venture work, he said.

Unlike some other joint ventures, Goenka said Mahindra and International Truck designed their new truck line together instead of reproducing a product from another market. International Truck provided the initial engineering design. Mahindra engineers added styling to suit the local market, he said. International Truck tested and analyzed the designs.

Navistar said the partnership would provide parts sourcing and engineering services to International Truck.

And in November, Navistar announced a second joint venture – Mahindra International Engines Ltd. – that will produce diesel engines for the medium- and heavy-duty trucks.

Another Mahindra subsidiary, Mahindra Engineering Services, handles some outsourced International Truck engineering work, but Younessi said that is separate from the two joint ventures. International Truck employed the equivalent of 210 to 220 engineers and designers in India as of two weeks ago, he said.

Outsourced assignments take longer to complete because of the distance, and the finished work often is of poor quality, the union’s Coil said. If Fort Wayne workers find problems in a finished assignment, they must send it back to India to be fixed. Considering the trip from Fort Wayne to India takes about 24 hours, he said it can take five days for an assignment to be completed and returned to Fort Wayne.

Fort Wayne union leaders say local engineers wind up taking responsibility for teaching Indian contract workers about American quality standards. Fort Wayne workers are blamed if they miss a deadline because outsourced work had to be redone several times, said Dan VanDame, of UAW Local 2911’s bargaining committee.

International Truck’s workload varies, depending on its current projects. Sometimes short-term work swamps the Fort Wayne staff, Younessi said. The company hires outside firms to complete some assignments rather than hiring and later laying off local engineers.

“To avoid hiring and layoffs and that kind of instability, you outsource it,” he said, “and so we outsource it to Mahindra Engineering Services.”

Companies can save money by outsourcing work to countries where engineers earn less. Mahindra’s entry-level engineers typically earn $12,000 to $13,000 a year, Goenka said. Their salaries can double to $25,000 within five or six years.

Navistar does not release wage information. International Truck’s local union members earn a median wage of $57,915 a year, Coil said.

Mahindra International actually supports jobs in Fort Wayne, Goenka said. The Indian workers rely on a Fort Wayne support staff of 10 to 12 engineers, he said. Three more International Truck employees are working at the joint venture plants in Pune, east of Mumbai.

The joint venture won’t be the only one vying for a share of the Indian truck market, which grew 30 percent to 40 percent in 2006. Although Indian truck sales fell last year, Goenka said the earlier growth caught the attention of international truck manufacturers.

Columbus-based Cummins Inc. is producing medium- and heavy-duty truck engines for India’s leading truck producer, Tata Motors. Daimler Trucks formed a joint venture with another Indian company, Hero Group, last year. Volvo has a truck plant in southern India.

“So it’s going to become quite crowded,” Goenka said.

But Mahindra International is confident its medium- and heavy-duty trucks will gain traction in the marketplace, Goenka said. Its factory will initially produce 50,000 of these trucks a year. That production level would give Mahindra International a 15 percent share of the Indian market, he said. The company already produces 20,000 light-duty trucks a year.

Mahindra and Navistar officials declined to release details about the medium- and heavy-duty trucks, including the price, because of competitive concerns. Mahindra International’s existing light-duty trucks cost $12,000 to $13,000 each, Goenka said.

The truck line could be marketed in Africa, Eastern Europe and the Mideast as well as India, Goenka said.

“We’re trying to use the high-end knowledge of Fort Wayne and the low costs of India to create value for both companies,” he said.