Ford’s Exit from India: The Lessons to Learn

Market exits have not been first for India after American automotive companies such as General Motors and Harley Davidson.  After decades of formidable operations in India Ford decided to call quits. To top it all, this has not been the first time for Ford either. Since its year of incorporation in  India is 1926, it had to stop operations in 1954 due to the Indian Government policies. The current policies however seemed favorable to pull in foreign investments in Indian auto industry. Specific announcements like the production-linked incentives (PLIs) looked promising and intended to overcome cost disadvantages incurred while manufacturing Advanced Automotive Technology parts in India, enabling systemic shift from fossil fuel based transportation to environmentally cleaner EV(electronic vehicle) options . 

What could have gone wrong then? And does it have anything to do with India’s low rank in “ Ease of Starting Business “ and “Enforcing Contracts” parameters with the World Bank. 

Apparently Yes. 

The parameters such as "enforcing contracts" , “paying taxes” or “resolving insolvency” all come under institutions. Success or failure of firms specially in an emerging market context such as India’s is not determined by industry level and resource factors alone. These factors as incorporated in Porter’s Industrial View(1980) and Barney’s Resource based view(1991) lay emphasis only on the internal and external environment subject to a firm. The host country context goes missing which can be better explained by the Institutional based view of Strategy. There have been many definitions of institutions in literature such as "rules of the game’’ and ‘‘the humanly devised constraints that structure human interaction’’, given by North, 1993. In this sense, institutions can be broadly classified as formal and informal ones. And institutions in India are also characterized by absence, weaknesses and failure of institutional arrangements that support market structures. This term commonly known as “institutional voids” mostly popularized by Khanna and Papleu(1997) can be referred to one of the reasons foreign players struggle to thrive in the Indian market. Voids can be both formal pertaining government instabilities, inefficiencies and policies that adversely affect the general business environment and informal comprising of cultural cognitive dimension referring to lack of access to education by underprivileged limiting labor resources for the firm. An emerging market like India is continuously evolving and so are its institutions. The challenge is to figure out where voids exist and if they do, how do MNC’s capitalize on them.

• Collaboration with local tech firms

Multinationals  can collaborate with technology firms in the country for future product development at a lower cost  to match market expectations. There is also need for networking with local suppliers of sub auto parts to create economies of scale in production and economies of scope in design. This can help overcome the absence of open, industry-wide standards and specificity of parts and sub-systems. Ford’s Asian rival Maruti launched its corporate accelerator program Mobility & Automobile Innovation Lab (MAIL), in partnership with the Japanese seed fund and co-creation center, GHV Accelerator to look for innovative and cutting-edge solutions in the mobility and automobile space, which are futuristic and customer-oriented. 

• Social Innovation for Infrastructure voids

India is characterized by transportation deficits such as absence of improved and expanded road network. The voids can be carefully bridged by MNC’s through social innovation to address transportation needs on time. A very convenient example is that of  Tata Motors successfully bypassing the institutional void of a poor road infrastructure in India by designing an innovative truck. The vehicle is safe and environmentally sound, with the ability to make tight U-turns on narrow streets, and to carry loads to suit the needs of local commerce.

• Substitutes for energy resource deficit

 India has been facing the challenge of ever-increasing electricity demand not fulfilled by the public sector. Though leaning towards alternative fuel cars which include both hybrid and electric vehicles makes up for fossil fuel demand, collaboration with organization such as BBOXX should address the void of energy supply by providing affordable, clean energy for off-grid communities.

• Networking

Collaborating with local agencies such as Co-operative banks and Agri- societies can help build scope market expansion in tier 3 and 4 cities. MNCs can help encourage interactions inside and outside of organizations so that situated learning and sense making may emerge more informally. MNCs can encourage employees to network informally with local individuals to learn shaping institutional environments in less deterministic ways.

• The cross- cultural context

The organization culture is the primary determinant of doing and succeeding in business in any host country. It takes into account socio economic realities of the country into their performance standards, prevailing climate and HR policies. India’s collectivist culture is more relationship based which focuses on building lasting relationships. Companies like Ford, Harley Davidson and GM also come from a US based culture which is more task oriented, direct and sometimes aggressive. For such multinationals imbibing “Indian-ness” becomes necessary by working with trustworthy stakeholders. One of the main challenges in adapting to the Indian market is to meet the price conscious consumer who simultaneously demands quality products.

The managerial vision for a vibrant market as India’s is not necessarily blurred when it comes to handling institutional voids. The strategic responses in form of social innovation, building local network ties, setting up training programs for locally available labor work are opportunities to create legitimacy and serve social needs. This also reduces the cost structure which can be favorable to meet the price sensitive Indian consumer. Whenever a foreign player exits the Indian market, the reasons remain centered around market factors. For the bigger picture, understanding the presence of institutional voids which seem to continuously evolve with dynamic nature of regulations and social structures deserve more attention. This understanding would go further in building alternative business models which can meet tastes, style and preference of the consumer in the Indian market  keeping in mind different propositions for adaptation and innovation, partnerships with distributors and work around processes to meet the infrastructure, data and system gaps.

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