International -- Intl' Business: ASIA
FORD OPENS THE THROTTLE (int'l edition)
Executives of Ford Motor Co. were making great progress early this year in negotiations to build a factory in Vietnam. Ford and the Vietnamese government had even agreed on a site east of Hanoi. Then the Americans made a startling discovery: The location would become a rice paddy during growing season and would be under water.
But Ford managed to resuscitate the $102 million deal. It quietly persuaded the government to prevent farmers from growing rice in the area and came up with a way to build a plant on soggy ground. On Sept. 6, Vietnamese Prime Minister Vo Van Kiet gave the green light to Ford's joint venture, along with a separate deal for Chrysler Corp.
Ford's struggle to establish an outpost in Vietnam is part of the auto maker's boldest grab ever for Asian market share. After lagging behind the Japanese and even its Detroit rivals in Asia's emerging markets, Ford is now spending $1 billion to set up factories in China, India, Thailand, and Vietnam (table). Ford already has joint ventures in Taiwan and South Korea, in addition to a presence in Japan.
ROUGH RIDE. But it is the newest markets that offer the greatest allure. The sudden surge into those countries is part of Ford Chairman Alexander J. Trotman's ambitious plan to build Ford into an even bigger global powerhouse. Just as Trotman is aiming to topple General Motors Corp. in North America, he is setting his sights on Toyota Motor Corp. in Asia. "We clearly want a presence in Asia that is equal to Toyota, if not higher," says W. Wayne Booker, Ford's executive vice-president for international automotive operations.
Booker is in for a rough ride, particularly in Southeast Asia, where Japanese auto makers already control 90% of the market. In all of Asia, Toyota now sells one of every four vehicles on the road, while Ford has only a 2.5% sliver. But expanding that foothold is crucial because while auto markets in Europe, North America, and Japan are barely grinding upward, the emerging Asian market is growing up to 20% a year.
To catch up, Ford faces tricky challenges in picking the right business partners and gaining the management knowhow to operate in Asia. "The Japanese today have all the first-comer advantages in Asia, and the Americans have all the latecomer disadvantages," said Linda Y.C. Lim, a University of Michigan specialist on Southeast Asia.
Ford does have a Japanese card of its own to play because of a 25% stake in Mazda Motor Corp. Ford is relying on that relationship to build a $500 million joint-venture factory in Thailand. The venture, which will begin producing Mazda-designed small pickups in 1998, is tailor-made for the fast-growing Thai market, already the world's second-largest market for pickup trucks behind the U.S. Ford also jointly produces vehicles with Mazda in Malaysia and sells Ford versions of Mazda-designed vehicles in Indonesia.
But Ford also wants to assert its own identity rather than just slapping the Ford oval on Mazda vehicles. "Ford is unknown here," said Michael Dunne, president of Automotive Resources Asia in Bangkok. "They will have to put massive resources into building a sales, service, and distribution network."
SWEATBOX. Ford's dealings in China are an example of how the company is proceeding to build that kind of long-term presence. "Anyone who wants to be a player must be involved in China," says Trotman, who visited Shanghai in late August, his third trip to China this year. Ford has dealings in that city with ultrasuccessful Shanghai Automotive Industry Corp. (SAIC), which is involved in joint ventures with several different foreign companies.
In one venture, Ford is trying to help reorganize and modernize some older plants at Shanghai Yanfeng Automotive Trim Co., which is controlled by SAIC. In one plant that was built in 1971, small fans halfway up the dirty walls push a feeble breeze that doesn't reach workers laboring in late-summer heat. There is little hint of modern efficiency as employees wait their turn to pump liquid polyurethane into a car-door mold. Steering wheels, sun visors, instrument panels, and seat cushions are made as well in this crowded factory.
Meanwhile, on the other side of town, Ford is doing many of these same operations but in Yanfeng's youngest plant, built in 1991. It has three times the space, modern machines, and twice the number of employees. Ford will double its initial investment of $70 million in the factory over the next three years, says Yanfeng General Manager Robert Bertsch.
So Ford's strategy is a combination of entering traditional joint ventures with key Chinese companies--thereby pleasing a demanding Chinese government and building guanxi, or connections--while working hard to modernize and expand those companies.
It's going to take time and money. "The transition is still occurring from a socialist economy to a socialist market economy, and that has its difficulties," acknowledges Gerald Kania, chief representative at Ford's Shanghai office. Ford wants to eke more productivity out of a predominantly older workforce. It is also hiring younger, more aggressive workers and sending teams of Chinese employees on tours of Ford plants in the U.S. and Mexico.
Despite its newcomer status, Ford displayed savvy in the way it bought into
Jiangling Motors Co. in a separate deal. In August, it announced it would buy 20% of the company when the shares are floated on the Shenzhen Stock Exchange in the southern province of Guangdong, next to Hong Kong. Western analysts say the company has financial difficulties, but Ford argues that it has achieved a long-term production deal, bypassing any central government decision-making process. The two companies plan to produce a light pickup truck, passenger bus, and van by 1997.
Another edge Ford has is its presence in Taiwan, where the company has been building cars in a joint venture with the Lio Ho group since 1972 and is the market leader with a 20% share. Although Taiwan is at odds with the Chinese government, the countries have compatible cultures. The Ford Lio Ho venture frequently ships execs to the mainland to help train Ford's Chinese managers. "There is a high degree of coordination with Taiwan in developing Ford's greater China market," say Lawrence Wong, Ford Lio Ho's president.
Ford could consolidate its China position by winning a role in developing and building a luxury sedan that Shanghai authorities want to announce by yearend. GM is vying for the deal, but Ford is getting some early breaks. SAIC, which is tightly controlled by Shanghai authorities, will be the sedan's producer. That means Ford has a crucial working relationship with the key Chinese player.
FULL PLATE. Will the Great Asian Push pay off? The burst of deals already has some on Wall Street worried that Ford will sacrifice the bottom line in pursuit of global dominance. "They have an awful lot on their plate right now," says analyst David Healy of New York-based Burnham Securities Inc. "Investors hope this growth does not come at the expense of profitability."
Booker promises that Ford will earn profits on its Asian investments within five years, but rivals scoff. "I wish them luck," says Tom McDaniel, who was vice-president of GM's Asian operations from 1989 until this year.
Indeed, Ford executives might face disappointments in some of Asia's complicated markets. Politics can flatten the tires of the most well-tuned auto deals. Ford and Chrysler both failed, for political and economic reasons, in bids to win a $1 billion South China minivan project that went instead to Mercedes-Benz.
Despite the pitfalls--including rice paddies that double as plant sites--Ford is determined to win in Asia. Those hotly courted Vietnamese consumers purchased only 11,500 vehicles last year, a mere two weeks' worth of output from one of Ford's U.S. factories. But in Ford's new, expansionist view, Asians hold the key to helping it become the world's largest carmaker.
Ford's Push into Asia's Newest Markets
Paying $40 million for a 20% stake in Jiangling Motors, which will make Ford trucks and vans. Already spent $200 million on four parts plants near Shanghai.
Investing $102 million in a joint venture with Song Cong Diesel to build an auto assembly plant just east of Hanoi. Sales and service arms being established.
Forming a $500 million joint venture with Mazda Motor to build a pickup truck factory southeast of Bangkok, with production to start in mid-1998.
Spending $50 million to acquire a 7% stake in Indian auto maker Mahindra & Mahindra. An $800 million assembly plant will produce Ford-designed small cars.
DATA: COMPANY REPORTSBy Keith Naughton in Detroit with Dexter Roberts in Shanghai and Ken Stier in Hanoi and Robert Horn in Bangkok and John Winzenburg in Taipei