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China -- Motor Skills

China -- Motor Skills

Henry Ford sold his first car in China, a Model-T, just one year after the last emperor of the Qing dynasty, 6-year-old Pu Yi, was forced to abdicate by the republican reformists of Sun Yatsen. The company failed to capitalise on its early toehold, however. Historical, political and economic events forced the automaker to leave China for 30 years. Though Ford reestablished import sales in 1979, it wasn't until 1993 that Ford Motor (China) Ltd., ensconced in a new five-story building in Beijing, began selling vehicles through its own mainland dealerships. And it started building its first vehicle in China, the 12-passenger Transit van, just last December.

The late start has left Ford with less than 1 percent of the Chinese market where it faces formidable competition from entrenched rivals such as Volkswagen, which has been a China player since the mid-1980s and owns an estimated 55 per cent of the market. Ford is also competing with domestic manufacturers like Shanghai Automotive Co. But the future prospects are dramatic. There is currently only 1 automobile for every 100 people in China, compared with 75 vehicles per 100 people in the United States. With a population of 1.2 billion, "They all don't have to be ready to buy a motor vehicle to create a large potential for an industry," says Vaughn Koshkarian, chairman and CEO of Ford Motor (China) and a vice president of Ford Motor Co. in Dearborn, Michigan. By 2010, Ford estimates that current total China sales of 1.6 million vehicles per year will climb to 5 or 6 million annually, placing China just behind North America, Europe and Japan as the world's fourth-largest auto market. Koshkarian's goal is to capture 10 per cent of that market within 10 years.

This ambitious target, coupled with today's reality of relatively low sales volume, requires a business strategy that balances investment for growth with a disciplined approach to operations that's compatible with current cost constraints. In fact, for many ventures, balancing investment for potential payoff with the limitations of current revenue is the fundamental challenge in China. "It doesn't do any good to spend a billion dollars here and sell only 20,000 units," Koshkarian says. "We try to gauge what demand will be and match that. Keeping costs low, not getting ahead of yourself and establishing a viable business structure that allows [us] to operate in a way that makes sense" are Ford's goals, he says.

These goals hinge to a large degree on an information technology strategy that is aligned and configured for the unique challenges of a new market. Ford's IT strategy in China is part of its overall long-term business strategy in new growth markets that it calls a "reasoned approach." Ford intends to invest in these markets by creating businesses that are financially sound at the start, robust enough to withstand the variability in a region and able to grow as the market grows. Under this approach, the company follows an IT strategy in China that is cost-conscious, reality-based and rapidly deployable. This may sound obvious, but a dismaying number of Western companies fail to realise that the same business and IT strategies that work great at home do not necessarily translate well to emerging markets and developing nations.

Even if Ford wanted to pour money into China regardless of market realities, it is constrained by the dictates of the government and the limitations of its Chinese venture partners. Since automobile and auto component manufacturing is considered an essential, or "pillar," Chinese industry requiring protection by the central government, Beijing requires foreign automakers to partner with domestic firms to gain access to the market. In addition, the Western firm is often enjoined from owning a majority of the partnership equity. Consequently, most of Ford's partnerships in China are at best a 50-50 split, with the joint venture partners required by law to match each other's capital investments. As a result, Ford's investment levels are constrained by its Chinese automobile and component partners, which have limited means.

Awaiting Growth

Another justification for Ford's reasoned IT strategy is the unpredictability of the Chinese market. Koshkarian admits that Ford hasn't been successful of late in predicting China's automobile market growth, which has been flat for the past two or three years. The flatness, according to Koshkarian, is a result of Beijing's current economic priorities. For now, development of roads is taking a back seat to the need to develop new housing. Other growth -- inhibiting factors the government has yet to address are the prohibitive vehicle taxes, which can add 100 percent or more to the purchase price, and the unavailability of consumer financing for auto purchases. Whether and when priorities will shift and constraints will be removed is at best an educated guess, but in the meantime, "IT can help provide discipline to the business," Koshkarian says.

Ford Motor Co. Executive Director and CIO Bernard "Bud" Mathaisel characterises China's IT strategy as a balanced, scaleable approach. "What it does for us is dampen the oscillations of the market," says Mathaisel, who is based in Allen Park, Michigan, and is responsible for Ford's worldwide IT systems. "We don't end up saying we're going to do this massive operation in this region of the world, put in this big infrastructure and then three to five years later say, 'Gee, it was a big disappointment and now we've got this high fixed cost.'"Instead, Ford has deployed a scaleable infrastructure that supports relatively modest systems tuned to today's market, with the capability to shoulder more robust applications when and if they are warranted. "Should China get to the point where we have plants that produce a new vehicle every 50-something seconds, then we'll have the infrastructure to be able to support it. But we aren't going to start out that way," Mathaisel says.

Simpler Systems

Ford's China IT infrastructure is based on enterprise resource planning (ERP), a cross-functional system of integrated processes and applications, but not a behemoth package like SAP, which Ford is considering deploying in North America. Instead, Ford has adopted Mfg/Pro, a more modest ERP investment from Carpenteria, California-based QAD Inc. Mfg/Pro, which integrates financial, manufacturing, inventory and sales data, is Ford's standard platform for all new markets. Having such a standard allows Ford to replicate business processes and leverage lessons learned from one country to another.

For example, the processes of inventory tracking and bills of material are common from market to market and easily replicable. Local languages and practices unique to a country, such as tariffs, customs and government-mandated financial reporting can be automated by extensions to the same standard software.

Ford also gains valuable knowledge each time it deploys the Mfg/Pro package in a country. For instance, experience the company gained deploying the sales, distribution and financial functions of Mfg/Pro in Thailand was used to smooth the deployment in Ford's China joint ventures. Similarly, the knowledge gained from India's and Belarus's rollout of the software's manufacturing logistics functions was valuable in China as well.

Overall, replication pays off in speedy, lower-cost rollouts. Ford boasts that it recently brought Mfg/Pro modules online in just four months in two of its China joint ventures and also in Vietnam and Korea. Try that with a big, costly package.

Tag-Team Approach

That kind of speed would be unlikely without replication, which itself would be impossible without a global new-markets IT team-Ford's structural secret of success in China and other frontiers.

The new-markets team is led from the United States, but the staff is spread around the world. Its multilingual members introduce process reengineering and IT tools, particularly ERP, to Ford's operations around the world. "These people are extremely versatile in that they can talk business process and IT packages. They aren't programmer people at all; they are more process people who know about IT," says Bipin Patel, Asia-Pacific and new-markets manager for Ford's Process Leadership group, whose bailiwick includes China, Taiwan, India, Thailand, Vietnam, Malaysia, Korea, the Philippines, Australia and New Zealand, and Eastern European countries Russia, Turkey and Belarus.

Patel sees the team as a Ford competitive advantage. "We use a package that's commercially available; anybody in China can buy it," he says. "The trick and advantage come in the implementation, in how fast we are putting it in."By its nature, the new-markets team is expert in no single country. To address local needs, the ongoing hassles of system support and the necessity to reinforce proper use of technology, Ford relies on locally based IT professionals. In Ford China's five joint venture partnerships and in the home office in Beijing, 40 to 50 native Chinese-most of them fresh-faced twentysomethings-assemble the hardware infrastructure, install the networks and help launch the software. Ford's local efforts are overseen by Systems Director Li Tseng, a Taiwan native and the only expatriate in the IT group, who reports to both Patel and Koshkarian. Tseng and IT managers at the joint ventures tackle the often frustrating tasks of finding and hiring scarce IT professionals, prying new phone lines from the grasp of bureaucratic telecom authorities, connecting the China operations to Ford's global data network and -- with help from the new-markets team -- persuading end users to learn and adopt new processes and systems. For Tseng and for Ford China, the last is the toughest challenge in executing the IT strategy.

Expect Resistance

"When we implement a system with an existing venture partner, we are usually implementing a new process as well," Tseng says. "When you go in with a new process, you inject a kind of culture shock." ERP, for example, introduces a concept that one's work affects the next person's, and that efficiency depends on integration. That's a splash of scalding tea on Chinese workers' territoriality and predilection to protect their jobs by hoarding data. Also, Chinese employees are accustomed to reporting to a single boss who is mentor, coach and commander. With integrated processes, employees often report to multiple managers across functions.

Tseng advises that it's best to lobby for change from the top down when dealing with resistant managers and staff from the Chinese-partner side of the joint venture. "If upper management shows support, then people will participate more enthusiastically," Tseng says.

Even with such lobbying, resistance to change is still a problem for Ford China, Tseng admits. Users may fail to enter all the data the system requires or may not enter it on a timely basis. They may do their work manually, using the technology redundantly or sporadically. The consequence is that the integration payoff from implementing ERP fails to materialise and, in a vicious circle, undermines Ford's arguments for convincing employees to use the system.

"We have to explain to them it's a two-way street. The more you put into the system, the more you get back from the system," says Tseng.

Resistance clearly frustrates Koshkarian, who repeatedly emphasises the need for discipline. "The reality is the technology has to make sense, and it has to be applied," he says. "You really must have a commitment to do that, to help [the staff] apply IT and make sure the discipline is in place to get real benefit from it."Though it's a trial to coax users to change their practices and make the most of new systems, Ford should take heart from the fact that in the 84 years between the sale of that first Model-T and the first China Transit, China has gone from a dynastic empire to a closed Communist republic to a cautiously open-door economy aspiring to regional and global leadership. Its people know change.

Under the Hood

Ford Motor (China) Ltd.

Headquarters: Beijing

Investment: US$300 million

Sales: $US 150 million annually from components (Ford does not disclose vehicle sales by country)Vehicle Market Share: Less than 1 percentCurrent Business Ventures:-- 11 wholly owned dealerships-- 44 service centres-- 2 parts warehouses-- 5 auto component manufacturing joint ventures-- Equity manufacturing partnership with Jiangling Motors Corp. to build the first Chinese/foreign-designed vehicle, the Transit van-- Negotiations underway to build passenger carsCurrent IT Initiatives:-- Implement and support Mfg/Pro system and integrated ERP processes-- Connect all joint ventures to Ford's global data network-- Solve Ford's year 2000 problems-- Test and implement Internet system for dealers and service centres to order vehicles and parts and track ordersUnsafe at Any SpeedAnyone who has survived a hair-raising thrill ride down Beijing streets choked with swerving, kill-or-be-killed taxis, fume-spewing, growling trucks, rickety three-wheeled motor bikes, death-defying bicyclists and the occasional burro-powered cabbage cart would say the last thing this city needs is more vehicles. And Shanghai is even worse.

China forbids foreigners to drive its streets without special permission, and with good reason-even finger-flipping Boston and New York City drivers would be reduced to tears by these mean streets. According to emotionally scarred expatriates, the average driver in China has only three years' experience behind the wheel, and it shows. For instance, don't expect anyone to stop at a red light. At least a half-dozen cars will run the red before anyone gets even a notion of stopping. And vehicles turning right-from any lane-never slow down, let alone stop. There are no walk signals to regulate pedestrians; it's up to you to decide when to wade into the melee.

What does the law have to say about all this? Very little. You are more likely to be pulled over for slowing down for a pedestrian and creating a traffic hazard. Neither the police nor anybody else seems to get upset. There's no road rage, no curse-outs. It's just part of life in a metropolis with 11 million inhabitants.

It's not as though cars are cheap and expendable in China, either. The ubiquitous Volkswagen Santana, a boxy, no-frills sedan, costs 120,000 to 200,000 RMB, or roughly $US 14,500 to $US 24,000. That's about two or three years' salary for one of Beijing's young urban professionals.

Unperturbed, Ford is negotiating a new joint venture agreement to produce passenger cars in China, and General Motors Corp. is building a colossal Buick plant on the fringes of Shanghai.

With more cars coming to join the battle in the streets, the best advice for folks needing to do business in China may be to invest in a good videoconferencing system-and stay home.

Government Relations Is Job Two

Quality is still behind the wheel at Ford, but in China, the government is a back-seat driver. Multinational companies wishing to succeed in China must curry favour with the central and local governments, which are still the main customer, regulator and sometimes even the business partner for any foreign-backed enterprise.

"That's the reality of doing business here, particularly in our industry, which has a high level of control," says Ford Motor (China) Ltd. Chairman and CEO Vaughn Koshkarian. Every day Koshkarian passes by a framed photo of Henry Ford II greeting Deng Xiaoping to reach his office, where Koshkarian has hung his own photos of himself posing with current Chinese leaders like President Jiang Zemin and various vice premiers. Ford sponsors or supports more than a dozen business, education and humanitarian programs intended to benefit China and its automotive industry, not to mention do a little good for Ford.

"Occasionally we will write a check for a good cause, but the majority of our efforts are focused on things that make a difference to our industry and where we can have the best, lasting impact," Koshkarian explains. Most Ford-sponsored programs typically emphasise science and technology, such as the Ford China R&D Fund, which provides Chinese universities grants for automotive-related research, and the Ford China Visiting Engineer/Scientist Program, which annually brings 10 Chinese scientists and engineers abroad to study at Ford labs in the United States and elsewhere.

Ford's C3P Laboratory at Shanghai's prestigious engineering school, Jiaotong University (alma mater of President Jiang, coincidentally), is a state-of-the-art training centre for advanced, integrated applications of computer-aided design, manufacturing and engineering (the three "Cs"), and product information management (the "P"). In 1996, Ford donated the $US 1 million facility, which has a welcoming alcove where staff and visitors must swap their street shoes for clean sandals. In fact, the lab is more polished and impressive than the peeling college building that houses it. A faculty of six, under the direction of renowned professor Ruan Xue-Yu, train personnel from various Ford China ventures to use these automobile design applications, and the plan is to develop new technology at the lab.

"You really aren't going to be successful in a country like China unless you are there as part of the process of developing technology and training people," says Dennis Schuetzle, director of research and technology for Ford's China operations. In many of Ford's negotiations with state-owned venture partners, the Chinese will ask Ford to give them technology such as the C3P applications, according to Schuetzle. "Our philosophy is, we're not going to give you technology; we're going to bring technology in and work with you to develop the capability further, so we both benefit," he says. "That sells very well."(Executive Editor Richard Pastore can be reached at rpastore@cio.com.)

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