11 November 2016 07:43:31 IST

Ford gets set to enter new phase in India

Technology centre will go hand in hand with exploring mobility options

It was barely two months ago when Mark Fields, President and CEO of Ford Motor Company, made a reference to India during the course of a presentation. The occasion was ‘Investor Day’ back home in Michigan where a host of issues ranging from mobility to autonomous cars were discussed.

Fields dwelt on the emerging markets strategy where the group of countries included India, Russia, Latin America, ASEAN, the Middle East and Africa. While Russia and South America were ‘positioned for market recovery’, ASEAN was termed ‘profitable’ (even while exiting Indonesia and Thailand).

The Middle East and Africa were likewise on the ‘path to profitable growth’. In the case of India, Fields indicated the company was ‘reviewing alternatives’ with domestic growth ‘below plan’.

Fast forward to Tuesday this week when William Clay Ford Jr, Executive Chairman, visited India to announce that his company was setting up a global technology centre that would ‘make Chennai a true hub of innovation for Ford around the world’ and the third global product development center in Asia-Pacific.

Yet, the fact remains that for a company which has been around for nearly two decades, Ford has had little to write home about in its India tenure. There were trailblazers like the Ikon and, more recently, Figo and EcoSport except that none of these products could sustain the momentum in the world’s most competitive automobile arena.

Thus, while a technology centre in India will be critical to the overall global planning strategy, Ford has had little success to show on the market share front. This is equally true for its American counterpart, General Motors, which has little to show during its long innings of over two decades.

In this backdrop, how does one interpret what Ford’s leadership team said about India on Investor Day and the more recent move to commission a technology centre? Before answering that, one also needs to get back to 2015 when Ford spoke of its own mobility vision at Palo Alto, California.

This was the time the company made it amply clear that while emerging markets were critical growth engines, there were allied challenges to cope with. These pertained to growing urbanisation and the accompanying pressure on transport.

As a result, automakers like Ford are beginning to realise that with the likes of Uber entering the mobility space, people will need a real good reason to buy a car. Given that parking is expensive and difficult in most cities, it makes more sense to opt for solutions like Uber and, in the Indian context, Ola too.

Ford’s newly created arm on mobility recently invested in Bengaluru-based Zoomcar, a car rental start-up, which clearly reflected its priorities. And while there is no question that selling cars will continue to be the core business for Ford, it will have to balance this goal with the global reality of changing mobility dynamics. This perhaps defines India’s position right now even while it will continue to be a relevant manufacturing region for the American carmaker. After all, it is a key export hub for small cars and fits in well with the One Ford plan which envisages fewer global platforms and building regional competencies.

In the case of India, compact cars work best and it is a skill that can be leveraged to meet the needs of other markets such as South Africa, Latin America and ASEAN. They have similar challenges like India in terms of an optimal value proposition for cars. It is here that India’s strengths will be tapped to meet Ford’s requirements and also puts in perspective the rationale of setting up a technology centre.

In a way, this is what Volkswagen is also attempting with its renewed strategy for emerging markets where a competitive cost structure is the biggest hurdle for Western carmakers. Despite this, they cannot afford to ignore these regions which offer tremendous growth potential. It is precisely for this reason that VW is developing a blueprint for emerging markets where countries like India will play a key role.

This is where a technology centre, on the lines of what Ford will set up in Chennai and what a host of other automakers already have in their portfolio, is the best bet going forward for VW. It wasn’t for nothing that Carlos Ghosn, the CEO of Renault-Nissan, saluted the Tata Nano and the term ‘frugal engineering’ became fashionable.

Coming back to Ford, does this mean that the company will go a lot slower with manufacturing in India? It does have two plants which are doing more on the export front rather than meeting the needs of the domestic market. This is true for other automakers such as Nissan, VW and GM too which have robust hubs in place here.

Going forward, Ford will wait for the Indian market to evolve further where affluence levels will increase and people will graduate beyond small cars. There will also be shifts happening from the sizable two-wheeler market (nearly 18 million units annually today) to cars which will also offer opportunities. Finally, in a country, where car penetration levels are still less than 20 per thousand people, the sky is the limit.

Like other carmakers, Ford would like to wait for the market to mature pretty much on the lines of what China went through many years earlier. At the same time, it will explore options like Zoomcar before getting into the next phase of aggressive product development. What will remain unchanged, however, is the presence of fierce rivals such as Suzuki and Hyundai and this is where Ford will have its work cut out.