Expanding a Global Vision in a Local Market: The E-Transformation of Ford-Argentina[1]

In early July 2001 Richard Canny, two months into his new post as president of Ford-Argentina, was driving to his office and thinking about a report soon to be presented at the Ford Motor Company’s South American e-Board meeting and distributed throughout his company. The report would state his policies and priorities for Ford-Argentina’s progress in the use of web technologies to communicate with customers (internet); with suppliers, dealers, stockholders and others outside the company (extranets); and internally, within Ford itself (intranet).

Ford Motor Company, the world’s second largest motor vehicle manufacturer, with revenues approaching $15 billion in 2000, had operations in 200 markets and approximately 345,000 employees on six continents. Immersed in a fiercely competitive, global industry, it was faced with the need to continue to improve quality and shorten development cycles while dramatically lowering the costs of developing and building vehicles. In the late 1990s, looking for ways to take advantage of its size and multi-country presence, Ford embarked on an ambitious process of reinventing itself as a global organization with two major strategic foci: customer satisfaction and e-business.

With these ambitious plans came big challenges. Ford’s new global approach to business required using technology to overcome the constraints usually imposed by geography on information flow within the organization. Teams on different continents needed to be able to work together as if they were in the same building. The vision was based on tailoring products and services to individual markets by levering technology, particularly web technologies, and efficiencies around the world.

At Ford-Argentina, as its marketing manager recalled,

Our obligation was to crystallize Ford’s objectives [customer satisfaction and e-business] in Argentina. Yet we also knew that we couldn’t wait to have corporate priority to engage in these initiatives. There are important differences between working at Ford’s headquarters in Dearborn, Michigan, and in its subsidiary in Buenos Aires, Argentina. In Michigan, they began by setting an organizational unit and assigning resources, all dedicated to develop an e-business mega-plan. Here, we were forced to improvise. We really didn’t begin with objectives, but with broad expectations. We wanted to associate the Internet with our branding to help us position as technology focused innovators and provide us with visibility.

We have moved further than we initially anticipated. We experimented and learned. Our initial approach was business-to-consumer. But in Argentina there are only 2 million Internet users, and of these only 37 percent are interested in topics related to vehicles. Now we are improving our internal administrative processes. We are getting better and more up-to-date information about our customers. We are making our processes more transparent from the factory to the dealership, and from the dealership to the customer. We are giving our clients the opportunity not to feel cheated. But we are still trying to understand the potential of the Internet in adding value.

Since Ford-Argentina’s public web site ( was launched in October 1998, progress had been rapid. Coordinated initially by the marketing division, the subsidiary’s Internet presence was used to reinforce customers’ awareness of and regard for the brand. The company quickly learned to take advantage of the Internet to supplement its sales efforts. However, rather than aiming at selling over the Internet, Ford-Argentina aimed to make its site “drive and feel like a Ford”—and use it to steer potential new-car owners to a traditional dealer. By doing so, it preserved its traditional face-to-face interaction with customers and avoided conflict with its dealers. Furthermore, Ford-Argentina also used the Internet to launch and position new vehicle models, and was beginning to take advantage of the data gathered about customers to provide them with information on their own terms. The company was using that information in adaptive profiling, mass customization, and one-to-one marketing. Ford-Argentina was beginning to apply customer life-cycle analysis and was focusing on customer retention.

By the end of 1999, Ford Motor Company realized the need to have consistent e-business policies and practices worldwide. However, its management was also conscious that different regions of the world have different realities with respect to Internet adoption and e-business (and different attitudes toward the balance between electronic and physical contact). In South America, a regional e-board, constituted by the various presidents of Ford’s South American subsidiaries, and a regional e-business executive committee were established to make all major decisions about brand positioning and technology. The execution was to be local and flexible enough to ensure that local differences were accounted for. However, very soon well-defined goals and a detailed plan with clear deadlines were required to be laid out. Resources were provided, but with very specific purposes, and not to be squandered on competing projects. And broader cross-functional committees, with goals attached to the annual performance evaluation of each member, were assigned to keep the e-projects moving. Another director of Ford-Argentina reflected,

Given the economic situation of Argentina [which had had more than two years of recession and stagnation], receiving this funds infusion from the corporation was helpful. Otherwise we probably would have had to cut our Internet initiatives. For our e-business budget for 2001, 70 percent is from the corporation, and 30 percent is local. But how much of this budget will be available next year? That’s not clear at this point.

Until then, it appeared that Ford was betting on the web, without debating about the relevance of technology itself or about spending money on e-initiatives. However, as the motor vehicle industry became ever more competitive and Ford continued its quest for ever lower costs, the watchword for web use in Ford would be focus on value to the core business, focus on management of information content to make it most useful.

Canny, who became president of Ford-Argentina after his predecessor was named director of global marketing and relocated in Dearborn, Michigan, joined Ford in 1983 in his home nation, Australia. He served in different positions in manufacturing, quality, marketing and sales, customer relations, and finances. In 1994, Canny was relocated to the United States, where he spent two and a half years as part of the company’s international marketing task force “Ford 2000.” As part of this initiative he went to India and China in support of Ford’s marketing strategic planning group. From 1997 to 2001, he was the Operations Director of Ford-Malaysia.

Upon his arrival in Argentina, in May 2001, Canny reviewed the achievements of the e-initiatives in Argentina in the past few years. The results to date seemed to show that web technologies could contribute value to Ford-Argentina’s core business. More importantly, he felt that the initial results had created excitement within the organization about this new technology. The use of these tools was spreading gradually to other parts of the company. At the same time, he feared that if employees were stretched too thin in adapting a host of e-business initiatives to make the “e” part of the organizational culture, Ford-Argentina could lose sight of its fundamental mission: building quality vehicles as efficiently as possible. He reflected,

When you are working on all these initiatives, who’s working on the product? Therefore now is more about priorities on what initiatives to embark in. Maintaining focus is critical. Extracting maximum business value in accordance to the specific business environment is the central challenge of this ongoing deployment of web technologies.

As Canny entered the last segment of the highway to his office, he was stopped by a group of activists who were striking to demand new economic policies on the part of the Argentine government. As his car was stopped, his surroundings reminded him of a fact to be kept in mind as Ford Argentina implemented this and other technologies: Ford-Argentina was part of Ford Motor Company and was in the business of building, selling, and servicing automobiles, but in Argentina.

Background

The Motor Vehicle Industry

Since the 1970s, the big three motor vehicle manufacturers in the United States—General Motors, Ford, and Chrysler—had seen their marker encroached upon by the expansion of foreign-based auto manufacturers, such as Toyota and Honda. By 2001 the motor vehicle industry worldwide was highly competitive. Its main trends included

  • Highly globalized production. Although manufacturers varied in their degree of market presence in different geographical regions, the battle for advantage in the industry was fast becoming global in character. On average 41 percent of the motor vehicles sold in the world were going outside the country where they were produced. (U.S. 37 percent, Europe 39 percent, Asia 53 percent). In addition, the motor vehicle part suppliers were also becoming more international by joint venture and agreement among companies. This had resulted in the sprouting of mega suppliers (such as Valeo y Magnetii Marelli) and in merges among regional suppliers. The number of direct suppliers had dropped as many suppliers with limited national capital disappeared or were relegated to be part of a second or third supply chain strata.
  • Highly concentrated production. There had been merges between General Motors, Isuzu Motors, Fuji Heavy Industries (Subaru), Suzuki Motors, and Fiat Auto; Ford, Jaguar, Land-Rover, Lincoln, Mazda, Mercury, and Volvo; Daimler-Benz AG and Chrysler; and Volkswagen AG and Audi AG.
  • High price-competition. The accumulated investments and improvements in productivity had increased until world motor vehicle production capacity exceeded demand by over 30 percent. The result was strong competition, reflected mainly in lower prices.
  • Exploitation of economies of scale. Most motor vehicle manufacturers were using the same platform[2] to create different models. In 1997 there were 100 platforms; it was expected that by 2002 there would be only 60. There was a corresponding decrease in differentiation among vehicles. In addition, manufacturers were sharing components among plants located in different regions of the world. In this rationalization process the most modern versions of the basic vehicles developed in developed countries were being introduced in emerging markets.
  • Saturation of traditional markets, such as the United States and Japan. Emerging markets displayed a more dynamic performance and better possibility for growth in the near future, but developing nations, eager to create wealth and job-producing sectors, were encouraging development of their own export-oriented auto industries.
  • High speed to market on new product development. The life cycle of a model had been reduced from seven years to four.
  • Reduction of distribution cost. Because dealers’ cost structure was typically heavily loaded by personnel cost, the low margins and high distribution costs had encouraged concentration and consolidation of dealers, squeezing the “mom and pops” and shifting to a wholesale/retail format focused on customer convenience.
  • Technology adoption. Technology was being adopted specially to manage branding (to inform, educate, and entertain), customers (providing fast, convenient, and tailorable access to a vast source of information, and the analysis of point of sale data for improved customer understanding), and logistics and distribution cost (providing information about vehicles, rather than the vehicles themselves, thus permitting lower inventories).

In this context, motor vehicle manufacturers were adopting strategies that combined (a) reorganizing their value chain to make it more suitable to the new conditions of competitiveness and profitability; (b) internationalizing production so as to strengthen market share in greater potential markets; (c) adjusting production structures to better serve the various great commercial blocks or regions in the worldwide economy; and (d) developing an international network of integrated production that would link regional providers of vehicle parts. Many of the motor vehicle manufacturers felt that it was crucial to establish a base of production in each region of the world in order to ensure a tight bond with the market and better satisfy local demand.

The Motor Vehicle Industry in the Mercosur Region

In the early 1990s, the Mercosur free trade agreement among Argentina, Brazil, Paraguay, and Uruguay strengthened the development of the regional motor vehicle industry and helped it attract new investors. The benefits granted by the governments of the region to the manufacturers, by means of norms and political promotions, lowered prices and reduced the risks of the investments. In addition, the concept of Mercosur was in alignment with the new pattern of globalization, in which a regional presence was being perceived as fundamental. Thus, the region was able to capture a great inflow of capital investment from American and European companies already established there and from newcomers, as well as from companies that had stopped doing business in South America in the late 1980s.

The potential size of the Mercosur market—more than 200 million inhabitants and a combined gross domestic product (GDP) of around one trillion dollars in 2001—and the potential for expansion to other Latin American markets influenced a strategic change in the perspective of the region’s motor vehicle companies. In the early 1990s, motor vehicle manufacturers simply adapted to the growth of demand by taking advantage of established capacity and making partial improvements to solve critical supply problems. However, by 1994, they began to build “state of the art” plants for the production of new models. These investments were carried out within a frame of specialization and supplemented profitability of the region by the implementation of the program of Mercosur’s economic integration policies and protections. Productivity made a spectacular jump (157 percent and 127 percent in Argentina and Brazil respectively), with an average of 15 cars per plant (see Exhibit) per worker—still low compared to the average of the Japanese plants (50 vehicles per worker). Mercosur exports tripled in the 1990s compared to the average for the 1980s. The Mercosur market was the main destiny for two-thirds of the vehicles produced in the region. Imports doubled compared to the previous decade. The regional commerce of the automotive sector in the Mercosur was of less than 9 percent in 1986 to near 58 percent in 1996.

The Motor Vehicle Industry in Argentina

Early in the 1990s, the motor vehicle industry in Argentina began to experience an important transformation. A group of international motor vehicle manufacturers located projects in Argentina, aiming to expand their regional market operations, especially in Brazil. Two phases can be distinguished in this process: from 1991 to 1994 and from 1995 to 2001.

First Phase: 1991 to 1994. This phase was characterized by expanding production in a context of strong economic growth. At the beginning of the 1990s there were only six motor vehicle companies in Argentina: Autolatina (manufacturing Ford and Volkswagen vehicles), CIADEA (manufacturing Renault vehicles), Sevel (manufacturing Fiat and Peugeot vehicles), Iveco, Mercedes Benz, and Scania. Of these companies only the first three manufactured vehicles within the country. During this period the production of motor vehicles increased more than 190 percent (See Exhibit). Vehicle importation also grew, reaching almost $850 million by 1994. Sales grew from 96,000 units in 1990 to 508,000 units in 1994. To satisfy the manufacturers’ needs, the motor vehicle parts industry also drastically increased production. Most manufacturers began to focus on small and medium vehicles while discontinuing the production of their largest models; by 1994, small and medium vehicles represented 73 percent of the total national production, up from 69 percent in 1992.

The end of this period saw many of the motor vehicle companies that had left the country during the 1980s returning. Volkswagen and Ford, for example, which had once had independent presences in Argentina, had joined efforts in 1985 to create Autolatina. In 1995 Autolatina was dissolved, and Volkswagen and Ford once again adopted independent plans. Meanwhile General Motors, Toyota, and Chrysler, which had never done business in Argentina, initiated exploratory actions there. Between 1992 and 1994, estimated total invesements in the industry reached $700 million.

Second Phase: 1995 to 2001. This second phase began with a fall in the local demand for motor vehicles in 1995, owing to a recession caused by the Mexican devaluation of December 1994. Between 1994 and 2001, national sales and production decreased 35.5 percent and 30.2 percent, respectively. In addition, given that the focus was on new and small and medium size models, the demand for old models fell, triggering a consolidation of suppliers of parts and components to no more than 130 companies.

By 2001, motor vehicle production and commerce in Argentina had the following characteristics:

  • By 2001, 32 percent of households had a motor vehicle; only 5 percent had more than one. Since 1998 the ratio of inhabitants per motor vehicle had held constant at 5.5, the lowest in all Latin America, but substantially higher than ratios in the United States (1.3) and Japan (1.9).
  • Motor vehicles paid 47.31 percent of their value in taxes.
  • Each manufacturer produced only one or two models, but from each model’s platform of production derived numerous versions directed toward different market segments, allowing economies of scale.
  • In 1990, models offered in Argentina had been launched in the country of origin 15 years earlier. By 2001, this lag time had decreased to 3 years or less.
  • Since 1990, the prices of motor vehicles had decreased 30 percent.
  • On average, a vehicle was delivered within 10 days of purchase—a time shorter than in most European countries.
  • Production was supplementing Brazilian branches’ supply to capture economies of scale by increasing exportations to that country.
  • Export agreements were in place with other Latin American countries. For example, in 2001, the governments of Mexico and Argentina signed an agreement allowing companies that had manufacturing plants in both countries to import or export 18,000 units, paying 8 percent of the vehicle’s value in taxes, whereas companies that carried out business in only one of the countries were given a quota of only 1000 units.
  • In 2000 there were over 700 vehicle dealers, down form 1,200 in the early 1990s.

Ford Motor Company and Its Internet Strategy

Since Henry Ford had incorporated in 1903, Ford Motor Company had been headquartered in Dearborn, Michigan. In January 1999, when Jacques Nasser was appointed chairman and CEO of Ford, the company had produced more than 250 million vehicles. Its brands included Aston Martin, Ford, Jaguar, Lincoln, Mazda, and Mercury, and its vehicle-related services included Ford Credit and Quality Care. Although Ford obtained significant revenues and profits from its financial services subsidiaries, the company’s core business had remained the design and manufacture of vehicles for sale on the consumer market.