September - 2001 - issue > Cover

“You can do it in India, better and cheaper” is a familiar refrain echoing with harrowing frequency through India’s business landscape. But globalization and economic growth in India are about more than offshore labor and the growth of technology businesses. When a seasoned corporation like Ford Motor Company sets up in India, it isn’t really with a pool of proficient low-wage programmers in mind (though software is part of the equation).

Ford eagerly eyes India’s gradually more prosperous ranks of car-buying consumers, knowing it’s going to be hard to make money in India in the short term -- there are too many of its global competitors, including Mitsubishi, Daewoo, Toyota, Hyundai, Suzuki, Honda, Opel, Fiat and Mercedes churning out cars that appeal to the potential Indian buyer. But it is also aware that if it doesn’t lay some groundwork now, it could miss this big party and serious profits over the long term. It’s hard to ignore a few hundred million potential car owners, although that kind of metric will undoubtedly have to wait many years to become reality. For now, the kind of product Indian consumers can actually afford carries with it its own set of restrictions for a company like Ford, used to riding the popularity of $30,000 SUVs.

Independent by Region

When Lewis Booth, president of Ford Asia Pacific, is pressed about how much money Ford is making in India, and how much India actually matters to Ford’s business, he answers somewhat evasively. The actual numbers are taboo, and Booth will only say, “It’s a relatively small part of Ford, but that doesn’t make it any less important.” Certainly, Ford is selling only a few thousand vehicles a month.

Surprising evidence of Ford’s commitment to the Indian market, however, is that the automaker has developed a new car, the Ikon, specifically for India. Built with 75 percent local Indian content and suppliers in an Indian plant, the Ikon has required significant up-front investment from Ford. India also compelled Ford to comply with fairly restrictive rules as the company set up shop. Booth justifies the new market gamble and costs, saying “India is a big market with good growth potential and we’re confident that we will see a return on our investment. In a smaller market you would match your investment to the potential of the market.” In each of 15 Asia Pacific countries, Ford customizes its approach to the environment.

Ford’s keen understanding of American or European car markets obviously does little to help market the Ikon in India, where the competitors are vastly different, and the customer perceptions unique. So the goal, according to Booth, is to rapidly bring three-year-old Ford India to independence, with Indian management and employees. The result is an entity largely independent of Ford’s heart and roots in the U.S. “The global organization itself is probably a misnomer,” Booth says. “Each of us responds to the region in which we operate.” The Ikon, designed specifically for India, has actually begun to get traction in South Africa and Mexico, an unexpected bonus. No doubt that will be a strategy to offset the cost of development as the Indian market that Ikon was conceived for effectively remains small.

Ford IT
All of this is not to say that Ford hasn’t tapped into India’s potential as a center for corporate IT development and services. Ford has actually set up an IT development center in Chennai. But rather than an outsourcing center for Ford in the U.S. and Europe, as might be imagined, the India center is focused mostly on the Asia Pacific region. John Larson, Ford’s director of Asia-Pacific IT and e-business, explains that the Indian IT center is a way for Ford to achieve “an economic cost for IT that matches the region.” “We can’t afford to pay U.S. or European rates to get IT done here,” he notes.

Ford has, in fact, used a somewhat unconventional model for the center by putting in an initial investment of $10 million and leasing space in a technology park, outfitting it with Ford infrastructure, and then hiring Satyam and Covansys consultants to do the work. Larson felt he could “provide a Ford infrastructure cheaper than the infrastructure the vendors provided.” He went into India because the software expertise was more readily available than in China and the Philippines, though he warns that those countries aren’t far behind and China has much better infrastructure available.

The Chennai center does some computer aided design (CAD CAE) work, and some call center work for Ford in the U.S. and Europe. But the center’s Asia focus emphasizes the extent to which Ford is looking to have its regional subdivisions act as independent businesses. The Chennai center is not really an attempt by Ford to outsource work to a cheaper market, just to strengthen its business in India and the Asia Pacific region.

Courting the Market
Ford is in India to sell cars. And it could prove to be a tough road. The Ikon is not alone looking to tempt more affluent Indian consumers. Maruti Suzuki, the gorilla of the Indian auto market, is rapidly facing tougher competition from East and West. GM, Daewoo, Ford, Mitsubishi, Honda, Fiat and a host of others are aggressively entering India, several through partnerships with existing but antiquated Indian domestic manufacturers. Ford is working in partnership with Mahindra and Mahindra, though Booth repeatedly insists that the Ford brand is what he’s trying to cultivate in India.

Indeed brand, it seems, is the crux of Booth’s strategy. “Your success in any market is if you can produce a car that customers really desire,” he says, “because then you have a strong basis for them to buy the vehicle rather than just trying to sell it on price.” The Ikon, despite its humble appearance, falls into the higher end of the Indian auto market. One gets the sense that Booth wants the little Ikon to be a status symbol with an edgy image, the way a BMW might be perceived in the U.S. market.

The decision to develop Ikon specifically for India is clearly linked to this bold attempt to establish Ford as an attractive and exclusive Indian brand. Most other market entrants are largely selling variations of their older time-tested models, as Ford initially did with the Escort, which it sold in limited quantities in recent years. For example, the Mitsubishi Lancer that Hindustan Motors (which still sells the comically timeless Ambassador) is marketing as its super high-end offering is the older cousin of the state-of-the-art 2002 Lancer that consumers in larger markets can purchase. As always, the key is offering a specific market what it wants, and it will be interesting to see how Ikon stacks up to the models other companies have re-packaged for India.

In the end, success and even image boils down to individual dealerships on the front lines trying to attract a limited pool of customers. “We’ve been very happy with the dealer body we’ve recruited in India, it has supported the brand and the Ikon very well,” Booth explains, once again emphasizing the concept of brand.
Creating an image, after all, is what the early days of Ford’s India operations is all about. Certainly the American giant is not in it for the money, or even explosive market growth at this point. Booth admits, “Frankly we’re a little disappointed with the growth of the Indian economy.” Growth for now is flat across Asia, except for in China, where things are expanding off the charts, and booth admits that demand in most Asian markets shows no clear signs of a recovery.

It appears Booth hopes to see the day when Indian kids grow up thinking of Ford as a symbol of success and quality (rather than the conservative middle of the road image that the Ford brand projects in the U.S. market). Ford is in India, after all, because it wants to be an honored and rewarded guest at the future party of economic growth in the country. For now the Ikon, will continue to service a small market, dreaming of and waiting for bigger things to come.