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FORD ASIA
An Investment Opportunity

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! Executive Summary
The aim of this report is to review the primary factors of concern to assist the Colourful Corporation CEO in determining a prospective $200m investment in an Asian Ford manufacturing operation/s. ! Whilst the Asian continent is too large to consider singularly, this report has identied India and China as the most likely nations for this investment opportunity. Therefore, this report focuses more specically on the factors that relate to these two countries.! A narrow approach to research has been applied, focussing on Ford operations in Asia, culture, politics and law. The data from this research identies a number of weakness requiring further investigation to better inform the investment decision. These include the need to identify the exact location, investment vehicle, cultural/politcal gaps and coporate governance framework for the investment.!

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Executive Summary Aim Introduction Ford in Asia! Differences in Culture! Politics and Law! Conclusion Recommendations Identify! Control! Network! References 3 5 5 5 6 8 9 10 10 10 10 11

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Aim
The aim of this document is to review the primary factors of concern to assist the Colourful Corporation CEO in determining a prospective $200m investment in an Asian Ford manufacturing operation/s.!

Introduction
With an outstanding track record in creating shareholder value through successful investments, the Colourful Corporation CEO is today considering a prospective $200m investment in a Ford manufacturing operation/s in the Asia region. Whilst it is not yet clear which plant is in question or the context for which the investment will be made, it is possible to determine some of the considerations to apply for an investment in the Asia region. ! The Ford Motor Company is an established American auto manufacturer that has also established multiple manufacturing plants across Asia. These manufacturing plants are spread across Thailand, China, Malaysia, India, Vietnam, Taiwan and Philippines (Ford Annual Report 2013), each providing diverse production services including manufacture, assembly of both vehicles and engines. Ford has recently made the decision to move its global R&D capability to Shanghai China (Barris 2014), demonstrating a commitment to the region (Murphy 2014).! Whilst there are a myriad of factors, this report will focus on the nancial, political, cultural, structural and legal considerations, to ultimately determine that control is of primary concern for this investment portfolio.!

Ford in Asia!
As illustrated in Figure 1 below, Ford operates diverse manufacturing capabilities right across the Asian continent. This presents further complexity in diverse geographic, demographic, cultural, economic and political systems demanding further research once the exact manufacturing plant for the $200m investment is identied."!

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Figure 1 Country China China China India India Malaysia Philippines Taiwan Thailand Vietnam City Nanjing Nanchang Shanghai Chennai Gujarat Selangor Santa Rosa Chung Li Pleukdang Hai Duong Plant Engines Vehicles R&D Vehicles Opening 2015 Vehicles Currently Closed Vehicles & Engines Vehicles Vehicles

Figure 1 Source: (Murphy 2014)

It is worth noting that half of the manufacturing plants listed in Figure 1 are based in China and India. Factories in other locations are not only fewer, but also produce a smaller product line, or as in the case of the Philippine plant, have been shut down (Remo 2012). ! This likelihood therefore, that the plant in question is in either China or India, has informed the research in this document to focus on these two countries to provide a more concise evaluation of the issues which will most impact the investment. It is important to note that the global R&D capability is also located in China (Murphy 2014), and may form part of the investment portfolio.!

Differences in Culture!
Regardless of which Asian country the manufacturing plant in concern is located in, there is likely to be a signicant gap in the cultural context that will impact HRM, culture and ethics. With a focus on both China and India, Figure 2 illustrates Hofstedes cultural dimensions of which we will discuss the two with the greatest differences, namely individualism and pragmatism (Hofstede 1994). !

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Figure 2 Australia 90 China India

90 80 77 61 66 56 51 40 30 20 21

87 71 51

67.5

45

48 36

22.5

24 26

Power Distance

Individualism

Masculinity

Uncertainty Avoidance

Pragmatism

Indulgence

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Individualism

Figure 2 Source: (Hostede 1994)

This Individualism dimension fundamentally addresses the degree of interdependence a society maintains among its members. It considers self image as the differences betweenI or We.! With a score of 90 for Australia, compared to only 48 and 20 for India and China respectively, individualism is much more important to Australians than that of our Asian counterparts. As a result, our HRM and corporate culture may demand greater considerations for acting in accordance with the greater good of the group. For example, enforcing our current hiring practices of merit over nepotism, may need stronger governance and focus.!

Pragmatism
This dimension describes whether things that happen around us, require explanation or may be left to non-factual reasoning (Hofstede 1994). For example faith compared to science, when explaining everyday phenomenon. This will have an

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implication on how our organisation communicates the decision making process to our Asian peers. ! With merely 21 points in this dimension, Australia scores low compared to both India and China with 51 and 87 respectively. Whilst absolute truths are important in Australia, they are less important in China and India, as a result, we must be cognisant that the factual information provided to us, may not be measure to our expectation of fact. ! On the other hand, Chinas score of 87 in this dimension, demonstrates a very strong preference for pragmatism compared to Australia, which may result in more a more rigid approach to thriftiness and risk appetite, inuencing the way our $200m investment may be managed locally. It may be important to agree on the level of risk required so that the correct rate of return is realised. !

Politics and Law!

China and India, whilst sharing the title of the worlds most populous nations, differ signicantly on political frameworks. China has recently amended its communist corporations law to allow for greater foreign investment, whilst India retains a regulation where foreign corporations are only granted 49% ownership (FDI India 2014) in their local operation. For example, the Jaguar and Land Rover Group is 51% owned by the Indian Tata Motor Corporation (Rutherford 2008). This may present a potential loss of control risk where the investment is directed by a local agent and/or shareholder/s at their discretion.! Furthermore, corruption in both countries is present in varying degrees, most recently publicised by Stern Hu for bribery charges in China (Garnaut & Liu 2010). It is important that we apply increased rigidity to our corporate governance to counter the cultural dimension of individualism increasing the risk corruption.!

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Conclusion
It is concluded that:! - further investigation is required to determine the exact location of the proposed investment.! - further investigation is required to determine the exact investment vehicle, e.g., manufacturing plant, R&D or otherwise.! - further investigation is required to determine cultural, legal and political gaps between the Australian and prospective Asian operations.! - more research to determine an improved frameworks of corporate governance to counter the risks of maintaining control and corruption.#

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Recommendations!
Identify!
It is important to determine the exact manufacturing operation in questions, so that detailed research may be conducted specically for that nation addressing issues of politics, law and culture may be determined. !

Control!
Regardless of which Asian nation is in question, there is likely to be an increased loss of control requiring strong frameworks of governance to our investment. In addition, it may be possible to seek an moratorium or amendment to local legislation to meet this loss of control risk. !

Network!
It is advisable for the CEO to continue discussions and demonstrate interest so that the above need for further information, and research conducted, may be satised. !

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References

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"2013 Annual Report" (PDF). USA: Google Finance. March 14, 2013. Retrieved August 2, 2013 Barris, M., 2014, Ford to expand R&D to china: Report, China Daily USA, 07 March, 2014, New York Fdiindia.in. 2014. FDI India. [online] Available at: http://fdiindia.in [Accessed: 23 Mar 2014]. Garnaut, J., & Liu S., 2010, , R., 2008, "Stern sentenced to 10 years by Chinese court ", The Age, March 29, 2010, The Age, Melbourne Hofstede, Geert (1984). Culture's Consequences: International Di"erences in Work-Related Values (2nd ed.). Beverly Hills CA: SAGE Publications. ISBN#0-8039-1444-X. Murphy, C., 2014, Ford to expand China research and development facility, The Wall Street Journal, March 5 2014, New York Remo, A. R., 2012, "Ford to close Philippine assembly plant". Philippine Daily Inquirer. Archived from the original on 2013-06-25. Rutherford, R., 2008, "Mike Rutherford ponders Tata's takeover of Land Rover and Jaguar". The Daily Telegraph, March, 29, 2008 (Telegraph Media Group)

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