BUSINESS

ENVIRONMENT
Group - 7

Vishal Saini
Priya Tyagi
Parth Goel
Adarsh Anand
Aadarsh Aggarwala
Jayash Agarwal
Ritwika De

Exit of ford from India

Introduction:
Ford Motor Company, a prominent player in the automotive industry globally, made a comeback into
the Indian market in 1995 through a strategic joint venture with Mahindra & Mahindra. This marked
a noteworthy return following its initial exit in 1953, prompted by stringent import regulations in
India. The collaboration aimed to amalgamate Ford's international standards with localized market
insights, leading to the introduction of models such as the Ford Escort and the well-received Ford
Ikon, recognized for its robust performance.

Over the years, Ford diversified its product portfolio in India, introducing various models including
the Ford Fiesta, Figo, EcoSport, and Endeavour, catering to a diverse spectrum of customers. Despite
early achievements, Ford encountered challenges in a fiercely competitive market where brands like
Maruti Suzuki and Hyundai thrived, primarily known for their economical and fuel-efficient models.
Ford's vehicles, often perceived as premium and with higher maintenance costs, struggled to secure
a substantial market share.

The decision to withdraw from the Indian market after a 25-year stint was driven by mounting losses,
exceeding $2 billion, and a consistent decline in demand for its vehicles. Ford's departure formed
part of a broader restructuring strategy, redirecting focus towards profitable markets and segments
globally. The closure of manufacturing facilities in Chennai and Sanand impacted numerous
employees, raising pertinent questions about foreign investments within the Indian automotive
sector.

This strategic exit underscores the intricacies of the Indian automotive market, characterized by
cutthroat competition, swiftly evolving consumer preferences, and an increasing emphasis on cost-
effective and technologically advanced vehicles. Ford's experience in India serves as a compelling
example of the formidable challenges global automakers encounter when attempting to strike a
balance between overarching global strategies and the nuanced dynamics of local markets.

Sales Data for Ford in India:

Ford's trajectory in India from 2011 to 2021 is characterized by a series of pivotal products and
strategic decisions, influencing the fluctuating sales performances observed over the decade. The
introduction of the Ford Figo in 2011 marked a significant milestone, earning the prestigious title of
the 2011 Autocar Car of the Year and achieving peak sales of 78,116 units in FY2011. However, the
brand grappled with the perception of being financially burdensome to own, negatively impacting its
overall market presence.

In an effort to solidify its position, Ford embraced deep localization in 2011, aligning itself with
market leaders like Maruti Suzuki. This initiative culminated in the establishment of a new
manufacturing plant in Sanand, Gujarat. Despite these endeavors, products like the Aspire and Figo
Gen-2, operating under the 'One Ford' strategy, fell short of expectations. This led Ford to seek a local
partner by 2016.

Ford's sales performance exhibited variability over the years, with models like the EcoSport
pioneering new segments in India, such as the sub-4m monocoque crossover (SUV). Conversely,
challenges were encountered with models like the Mondeo and Fiesta Gen-2. By 2021, grappling
with diverse challenges and implementing strategic shifts, Ford ultimately declared its exit from the
Indian market.

In March 2021, Ford India saw dispatches of 7,746 units, representing a substantial increase from
preceding months. Notably, the EcoSport retained its position as Ford's best-selling model in March
2021, recording a significant year-on-year surge. However, other models in Ford's portfolio, including
the Freestyle and the Figo & Aspire twins, did not contribute significantly to the overall volumes.

This decade-long odyssey of Ford in India underscores the formidable challenges confronted by
global automakers in navigating a fiercely competitive and price-sensitive market like India. Ford's
experience serves as a compelling lesson on the critical importance of comprehending local market
dynamics, understanding consumer preferences, and recognizing the pivotal role of pricing and
product localization within the automotive sector.

Ford’s Competition:
Entering the Indian automotive market, Ford faced formidable competition, particularly from
industry leaders like Maruti Suzuki and Hyundai. These companies, well-versed in the nuances of the
Indian consumer market, boasted extensive dealer networks and offered a range of affordable and
fuel-efficient vehicles, securing a substantial market share.

Maruti Suzuki, in particular, emerged as a dominant force. Its success stemmed from a diverse model
lineup catering to various Indian market segments, exceptional fuel efficiency, budget-friendly
pricing, and minimal maintenance costs. These attributes strongly resonated with the price-
conscious Indian consumers. Maruti's enduring brand presence, cultivated over decades, played a
pivotal role in its market dominance.

Hyundai, another influential player, combined affordability, quality, and technological advancements.
Renowned for innovative design and feature-rich cars, Hyundai successfully carved out a significant
share in the Indian market. The brand appealed to consumers seeking vehicles that offered more
than basic transportation without a significant price hike.

In its quest to establish a foothold, Ford introduced models such as the Figo and EcoSport. While
these models gained popularity, Ford encountered challenges competing with Maruti Suzuki and
Hyundai in mass-market segments, particularly in compact sedans and hatchbacks. A significant
hurdle was the perception of Ford cars being more expensive to maintain and own compared to the
cost-effective options provided by competitors. This perception significantly influenced consumer
buying decisions, particularly in a market where the total cost of ownership holds paramount
importance.

Furthermore, Ford's global strategy, at times not seamlessly aligning with the unique demands of the
Indian market, impeded its ability to compete effectively. Despite accolades for build quality and
driving dynamics, Ford struggled to offer a product range as diverse and cost-effective as Maruti
Suzuki or Hyundai.

Ford's eventual exit from the Indian market can be attributed, in part, to these competitive
challenges. Despite possessing a portfolio of globally successful models, the company grappled with
adapting to the highly price-sensitive and competitive Indian market, where value for money and low
running costs are pivotal purchase drivers. This experience underscores the critical importance of
tailoring global strategies to fit local market conditions, especially in diverse and competitive markets
like India.

Business Environment Factors:

Ford's foray into the Indian market, particularly its investment in the Sanand factory, underscores
crucial elements of business environmental factors and emphasizes the significance of precise
market assessment.

1. Market Assessment and Forecasting:

 Overestimation of Market Growth: The decision to invest in the Sanand plant, designed for a
production capacity of 240,000 units per year, was based on an optimistic forecast of
substantial market growth in India. However, this anticipation turned out to be overly
optimistic, as the Indian automotive market, while sizable, proved to be highly price-sensitive
and dominated by well-established local and Asian brands.
 Mismatch with Consumer Demand: Despite their global success, the products offered by
Ford did not seamlessly align with the specific demands and preferences of Indian
consumers, who prioritize affordability and low maintenance costs.
 2. Capacity Utilization and Operational Efficiency:
 Underutilized Plant Capacity: The Sanand plant operating below its full capacity resulted in
inefficiencies and escalated operational costs. The significant fixed costs associated with
running a large manufacturing facility, coupled with lower-than-expected sales volumes,
translated into substantial financial losses.
 Impact of Market Competition: The competitive landscape, with established players like
Maruti Suzuki and Hyundai, intensified the challenge, making it difficult for Ford to secure a
substantial market share.

3. Strategic Decision Making:

 Global Strategy vs Local Adaptation: Ford's global strategic approach did not sufficiently
align with the intricacies of the Indian market. The company's product lineup and pricing
strategy were more attuned to Western markets, failing to resonate adequately with the
price-conscious Indian consumer.
 Long-term Financial Implications: The financial burden of maintaining an underutilized
facility, combined with continuous operational losses, played a pivotal role in Ford's ultimate
decision to exit the Indian market.

In conclusion, Ford's experience in India highlights the paramount importance of precise market
assessment and the necessity for global businesses to tailor their strategies to local market
conditions. It also underscores the challenges inherent in operating within highly competitive
markets with specific consumer preferences and emphasizes the enduring impact of strategic
decisions on long-term business sustainability.

Ford's Inaccurate Demand Forecast:

In the year 2010, Ford Motor Company embarked on an ambitious venture, investing $500 million to
expand its existing Chennai engine plant and establish a new car manufacturing facility in Sanand,
Gujarat. This strategic expansion, fueled by optimism surrounding the burgeoning Indian car market,
ultimately proved to be a costly misjudgment.

Optimistic Market Projections:

By 2010, India had already solidified its position as the world's fifth-largest car market, and industry
analysts foresaw explosive growth driven by a rising middle class and increasing aspirations for car
ownership. Ford, buoyed by confidence in its established American brand and commitment to
quality, aimed to capture a significant share of this anticipated growth.

Focus on Premium Segment:

Initially, Ford targeted the premium segment, believing that their robust vehicles such as the
Endeavour and Fiesta would resonate with affluent Indian buyers. Simultaneously, they introduced
the Figo as an entry into the mass market, hoping to replicate the success of their global models.

Reasons for Overestimated Demand:

 Price Sensitivity: Indian car buyers, prioritizing value and fuel efficiency, predominantly
favored compact and affordable cars. Ford's premium offerings often fell beyond this sweet
spot, facing stiff competition from well-established players like Maruti Suzuki and Hyundai.
 Market Misread: Ford underestimated the significance of brand familiarity and dealership
networks in the Indian market. Established players held a distinct advantage in these areas,
making it challenging for Ford to gain traction.
 Economic Headwinds: As Ford geared up production, the Indian economy encountered
headwinds such as escalating inflation and interest rates. This downturn in economic
conditions dampened consumer confidence and car buying demand, significantly impacting
Ford's sales projections.

Consequences of Overestimating Demand:

 Unsold Inventory: Exceeding production capacity relative to demand resulted in a mounting
stockpile of unsold vehicles for Ford. This necessitated substantial discounts, leading to
brand devaluation.
 Financial Losses: The underutilization of manufacturing facilities and the burden of excess
inventory resulted in substantial financial losses, contributing to Ford's broader challenges in
the Indian market.
 Shifting Strategy: In an attempt to adapt, Ford made a more assertive entry into the mass
market segment with the EcoSport. However, fierce competition and their brand association
with premium vehicles posed hindrances to these efforts.

In 2021, after years of grappling with financial losses and striving to break even, Ford faced the
challenging decision to exit vehicle manufacturing in India. The Sanand plant was sold to Tata
Motors, and production in Chennai came to a halt.

Technological Factors:
The global surge towards electric vehicles (EVs) has emerged as a prominent technological trend
within the automotive industry, exerting substantial influence on the strategies of major players,
including Ford. This transition is propelled by an increasing awareness of environmental concerns,
advancements in battery technology, and supportive governmental policies advocating for
sustainable transportation solutions.

Ford's undertakings in the Indian automotive market were not immune to this global shift. Although
the Indian market is still in the nascent stages of adopting EV technology, there is a discernible
upswing in interest in electric vehicles. This trend is further bolstered by government initiatives such
as the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) schemes, aiming to
stimulate EV adoption through subsidies and the development of supportive infrastructure.
As the market gradually pivoted towards EVs, Ford encountered the challenge of aligning its product
offerings and investments with this transformative trajectory. Investing in EV technology necessitates
substantial resources dedicated to research and development, manufacturing infrastructure, and the
formulation of market adaptation strategies. For Ford, striking a balance between these investments
within the framework of their overarching global strategy and the specific dynamics of the Indian
market posed a multifaceted challenge.

The escalating emphasis on EVs also introduced a new dimension to the competitive landscape, as
traditional automotive companies found themselves not only vying against each other but also
contending with new entrants specialized in electric technology. This additional layer of complexity
significantly influenced Ford's strategy in India, shaping its decisions and operations within the
region.

In summary, the technological shift towards electric vehicles emerged as a pivotal factor shaping
Ford's strategy in India, underscoring the broader challenges and opportunities faced by traditional
automakers in a rapidly evolving global automotive landscape.

Analysis of Ford’s exit from India using Porter’s 5 Forces:

Analyzing Ford's exit from the Indian market through Michael Porter's Five Forces framework
provides insights into the competitive dynamics and attractiveness of the industry:

1. Threat of New Entrants (Low):

 The Indian automobile industry required high capital investment and faced significant brand
loyalty, acting as a barrier to new entrants.
 Established players like Maruti Suzuki and Hyundai enjoyed strong distribution networks and
held substantial market share.

2. Bargaining Power of Suppliers (Moderate):

 Ford maintained a diversified supplier base, providing them with a certain degree of
leverage.
 However, escalating raw material costs and supplier consolidation in India enhanced the
bargaining power of suppliers.

3. Bargaining Power of Buyers (High):

 Price-sensitive Indian car buyers wielded considerable power, given the plethora of options
available to them.
 Ford's premium offerings faced tough competition from Maruti Suzuki and Hyundai, known
for fuel-efficient and cost-effective cars.

4. Threat of Substitutes (Moderate):

 Substitutes such as used cars and two-wheelers were readily accessible, posing a moderate
threat.
 The emergence of electric vehicles, a segment overlooked by Ford, presented a potential
substitute threat.
5. Competitive Rivalry (High):
 Intense competition prevailed, with formidable players like Maruti Suzuki, Hyundai, and Tata
Motors.
 Competitors demonstrated a better understanding of the Indian market, offering products
tailored to customer preferences.

In summary, Ford's exit from India can be attributed to the challenging landscape characterized by
low threat of new entrants, moderate bargaining power of suppliers and substitutes, high bargaining
power of buyers, and intense competitive rivalry. The established players' stronghold and the
industry's dynamics played pivotal roles in shaping Ford's strategic decision in the Indian market.

Additional Factors:
Several interwoven factors contributed to Ford's decision to exit the Indian automotive market,
encapsulating challenges related to brand perception, market segmentation, and operational
setbacks.

Brand Perception as Expensive:

 Elevated Ownership Costs: Ford grappled with the prevalent perception in India that its
vehicles incurred high maintenance and ownership costs. This perception acted as a
substantial impediment, particularly in a market where cost-effectiveness holds paramount
importance.
 Comparison with Competitors: Indian consumers routinely pitted Ford's maintenance and
running expenses against those of more established brands like Maruti Suzuki and Hyundai,
renowned for their budget-friendly offerings.

Failure in SUV Market Segmentation:

 Missed Opportunities in SUV Segment: The surge in the SUV market segment in India,
spearheaded by Korean manufacturers like Hyundai and Kia, presented significant
opportunities. These brands effectively tapped into the burgeoning consumer preference for
compact and affordable SUVs.
 Inability to Compete Effectively: Despite the success of the Ford EcoSport, the company
faltered in expanding its presence within this segment. Ford missed out on fully capitalizing
on the SUV trend in India, where competitors provided a more extensive array of options.

Operational Challenges and Joint Venture Fallout:

 Joint Venture with Mahindra & Mahindra: Ford's collaboration with Mahindra & Mahindra
aimed to streamline operational costs and develop tailor-made products for the Indian
market. However, the joint venture was terminated in 2020, largely due to the disruptions
caused by the COVID-19 pandemic.
 Impact of the Pandemic: The pandemic exacerbated existing challenges, disrupting supply
chains and sales networks. The dissolution of the joint venture meant Ford lost a strategic
opportunity to reconfigure its operations and product strategies in response to the evolving
Indian market conditions.
Conclusion:
Ford Motor Company's departure from India stands as a significant milestone in the global
automotive industry, highlighting the intricate hurdles faced by multinational corporations in
navigating local market intricacies. Ford's venture in India unfolded as a intricate interplay of
diverse elements, encompassing fierce competition from entrenched players, an erroneous
assessment of market demand resulting in excess production capacity, challenges related to
brand perception, and the inability to fully leverage emerging market segments, notably the SUV
category. The culmination of these complexities, compounded by the operational disruptions
triggered by the COVID-19 pandemic, especially the termination of the strategic joint venture
with Mahindra & Mahindra, ultimately drove Ford's resolution to exit the Indian market. This
scenario serves as a poignant illustration for global enterprises, emphasizing the critical
importance of aligning global strategies with local market nuances, maintaining adaptability, and
demonstrating the agility required to navigate through ever-evolving market landscapes.

References:
1. "The Rise and Fall of Ford India: A Comprehensive Study" - Team-BHP

2. https://www.team-bhp.com/news/rise-fall-ford-india-comprehensive-study

3. "What the Exit of Ford Motor Company from India Tells Us" - India Today Insight

4. Statista (www.statista.com)

5. https://www.indiatoday.in/india-today-insight/story/what-the-exit-of-ford-motor-company-
from-india-tells-us-1852186-2021-09-13

6. The Economic Times - "Why Ford Failed in India and What It Means for the Future of the Auto
Industry" (September 10, 2021)

7. Forbes - "The Challenges of Doing Business in India" (February 25, 2020)

8. Business Today - "The Rise of Electric Vehicles in India" (July 15, 2021)

9. Reuters - "Ford to Exit India, Stop Vehicle Manufacturing" (September 9, 2021)