IBE mid-Term Test

Amit Kumar
Roll No 9
Section A

Case on Autolatina: A Failed International Partnership

Q1. What were the motives and objectives of Ford entering its collaborative venture
with Volkswagen?
Answer:
a. The main motive of the collaboration was to share risks of entering potentially
lucrative Latin American market by combining operations. Brazil was considered the
representative market of Latin America but yet it was a volatile market in terms of
operations and politics. Thus the JV was to share and hedge the risks.
b. Further, Ford was pressurized by Brazilian Government to fully commit to autoindustry in Brazil. They initially didnt want full automotive operations (e.g.:
manufacturing plants) probably because of limited economic growth, import
restrictions and operational risks involved. Thus they wanted to use Volkswagens
existing plants.
c. Also, Volkswagen is known for its advanced German engineering and technology
which Ford wanted to leverage.
d. The Brazil government imposed high import tariffs on the foreign players. So through
JV they wanted to serve the highly protected markets
e. They wanted to offer variety of cars to customer segments and superior technological
innovations compared to local car makers.

Q2. What type of collaborative venture Ford entered with Volkswagen. What were the
advantages and disadvantages for this venture from Fords perspective?
Answer:
The Brazilian auto-industry had problems of protectionism, import tariffs and volatile
markets. Thus the two companies had been considering some hedged presence in Latin
American market with Brazil being the biggest one.
To achieve this, they entered a Co-appetitive Joint Venture with Volkswagen. Volkswagen
focused on smaller vehicles. Ford focused on larger vehicles including trucks.
The advantages were as follows:
In the closed-to-import markets of Argentina and Brazil, Ford and Volkswagen could
attain economies of scale and other efficiencies by combining their organizations, by

using common components, and by eventually building Ford and Volkswagen

vehicles off common platforms.
Ford gained access to lucrative Brazilian market without investing in operations and
technology.
Ford got access to Volkswagens superior technology like Ford Versailles which was
actually derived from Volkswagen Santana.
Ford was able to bank upon common Sales & Marketing teams and specialists hired
for integration.

The disadvantages of Fords policy were as follows:

When Brazilian economy opened to foreign car makers in a big way in 1992; Ford
Brazil was unprepared for the resulting competition.
Further all the new entrants and its erstwhile partner focused on small car segment.
The small car segment was a mass segment with huge revenue potential. But due to
this JV, Ford had negligible presence in small car segment.
Due to this JV, Ford brand became synonymous with large and expensive
automobiles. Brand image suffered a lot when the JV with Volkswagen was broken.
Volkswagen didnt share its subcompact designs and other technical competencies
with Ford. So, Ford had to start over again to compete with other small-car makers.

Q3. What strengths did Ford and Volkswagen bring to the Autolatina venture? Did
these firms have any weakness? Please elaborate.
Answer:
Volkswagen had advance German technology and Ford was financially savvy. These two
key strengths brought success to the Auto Latinas venture.
Autolatina was hugely successful earlier in the protected Brazilian economy but it failed
later. The weaknesses in firms strategy were as follows:
o Unable to cope with market dynamics: The implementation of new laws and
trade rules like MERCOSUR led to exponential growth in foreign investment in
Brazilian auto sector from major MNCs. The new players focused on their
specific segments and strengths like small compact cars. They were not prepared
for the competition with these players like GM, Fiat etc.
o Cultural Issues: Corporate culture is a major issue for any organization. In
Autolatina, There was a clash arisen between the management of Volkswagen and
Ford, because they were from America and Germany.
o Changing customer choices and economy: In a competitive market, customers
preference should be given priority. In Brazilian market, customer prefers lower

cost small cars. But unfortunately, Autolatina failed to meet the customer demand.
Ford specially lost out on the expanding small car segments.

Q4. Did Ford commit any blunders in its Latin American operations? Please
specify.
Answer: Ford committed many blunders in its Latin American operations. These were
as follows:
a. Ford failed to realize the potential of Latin American markets. It didnt invest in
technology, operations or supply chain initially. Much later, the $1.1 Billion
investment came too late.
b. Ford didnt focus on the small, compact car segment. For an emerging economy;
this segment is usually very lucrative and first entry of most customers to cars.
c. Ford continued focusing on larger cars and trucks even afar dissolution of its JV.
Thus its brand image was formed as an expensive car maker which no one buys or
cares.
d. Ford relied on technological designs from Volkswagen but they were not shared to
Ford. So, it only had monetary benefits and not the technological benefits and
access it had hoped for.
e. Due to all these reasons, Ford lost its early mover advantage in Latin America to
newer players.
Q5. What can other managers learn from Fords experience regarding international
collaborative ventures? What should Ford do now?
Answer:
The important lessons learnt from Fords example are as follows:
a. JVs should be equal partnerships with assets fairly distributed. But in Fords case;
technical and operational assets (e.g.: compacts designs, manufacturing plants) lied
with VOLKSWAGEN.
b. Management of a JV should have clearly defined goals and strategies at the onset.

The failure of this JV was due to weak underlying rationale, differing objectives of
partners, poor planning, shifting environmental conditions like consumer behavior and
economy.
Ford should take the following steps:

Listen to its customers and dealers requirement. Move towards car sizes and designs
which are required by its customers.

Invest in technology and operations especially for compact, small car segments. This
will also help to salvage Fords brand image and keep it Relevant in Latin American
markets.

Marketing its core competencies in large vehicles and trucks and introducing
technological innovations in this segment to establish competitive advantage.