Ford re-entered India in 1995 as Mahindra Ford India Limited (MFIL), a Joint Venture on equal share with Mahindra & Mahindra. Later it became Ford India Pvt Ltd with 72 % stake. The company has recently announced the closing of their Indian operations. Following are the highlights:
- Their vehicle assembly unit at Sanad, Gujarat will be closed by the end of the year 2021.
- Their Vehicle and engine manufacturing unit at Chennai will be wound up by September 2022.
- Their motor manufacturing unit at Sanad will cater exclusively to exports.
- Sales of their imported vehicles in India would remain.
- Ford India’s presence in business solutions will also continue.
Reasons for Exit
Some of the reasons cited by MD, Ford India, for Ford’s Exit from India are:
- The company has not been able to grow on the expected lines and piled up losses over years.
- No visible and sustainable growth in near future.
- An investment of about $ 2.5 billion has resulted in accumulated operating losses of around $ 2 billion over the last decade.
Flawed Product Strategy
The main reason for the Ford’s failure is their flawed product strategy. Though some of its iconic brands such as Ford Ikon, Ford Fiesta, Ford Figo and EcoSport have achieved some success, they missed in volume to take on the challenge posed by Hyundai or Maruti Suzuki. When the Chennai plant was not fully utilized, the company went on to set up Gujrat plant with further investment.
Ford Misjudged Indian Market
Ford has also misjudged the Indian market. Ford Escort was the first model to be introduced in India and this model was a sedan which was not a popular model in India. Further Ford was misjudged India’s potential and underestimated the complexities of operating in India. One important factor that the foreign auto mobile companies should note is that India preferred domestically manufactured components in their automobiles whereas most of the components were imported in case of Ford.
Tale of Two Companies
It will not be out of place here to compare the performance Ford and Hyundai who entered Indian market around same time i.e. 1996 and have set up manufacturing facilities in Chennai. Ford was a well-known brand while Hyundai was lesser known. But the story reversed in the Indian context just a quarter century.
- The lesser known brand, Hyundai, succeeded and captured the second place in car manufacturing after Maruti. It now enjoys 18% market share.
- The well-known brand, Ford, became a failure in India and could capture only 2% of the market share.
Is India a Graveyard for American Auto Majors?
Typically, in the Indian market, while big players struggled to get a foot hold, new entrants Hyundai, Kia and MG have reaped success. Like Ford, previously GM and Harley-Davidson, two other big US automakers also had left India. What could be the reason for these reversals for the big players? There is a lot of difference between the US and Indian markets. What is good for America need not be for India. For Instance, as against size and engine power which matter the most in US, fuel efficiency, low cost and re-sale value are the criteria for Indian market. Perhaps Ford was too late to learn this aspect.
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To be successful in business in developing countries, one needs to understand the basics of the host country. Analyse in light of the situation mentioned above?
Do you think the exit of the US automobile majors would adversely affect the ‘Make in India’ Initiative? Why?
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