Ford to export made-in-India engines to Europe and other international markets
Labour costs, have been cited as one big factor for Europe and many other developed economies across the world stuck in a recession. Here’s how it all unravels. Manufacturing is a massive industry in Europe and the United States of America. Automation notwithstanding, over the last few decades, manufacturing has been employing a large proportion of developed nations’ populations. Wages have risen steadily, improving the quality of life of those employed in the manufacturing sector while also allowing the economy to grow as some amount of this improved wages get ploughed back into the economy by means of higher purchasing power by the citizenry involved with the manufacturing sector.
The constantly increasing wages, and as a consequence, increased cost of manufacturing has put immense pressure on many manufacturing intensive sectors like the automotive industry. So, manufacturing began shifting to other parts of the world like China, India and Brazil, where labour and overall costs of production were much cheaper than in the developing world. At the outset, manufacturing of low tech goods began being outsourced to developing countries. As the technical competency of developing countries gradually increased, high technology business affairs like making automobiles and auto parts also began shifting to these countries.
At the same time, jobs began being steadily shipped out of the developed economies, which continued to spend lavishly unmindful of this fact. Even as this was happening, the quality of automobiles produced in developing nations like Brazil and India were becoming comparable to the most advanced manufacturing economies of the world like Europe and the United States. Global car makers, in a bid to stay profitable in an increasingly competitive environment have taken note of this. Here’s a striking illustration. American automaker Ford will now begin building engines in India, and a large chunk of the local production of engines will be exported to Europe and other international markets.
Ford is investing a large sum of money in the India, USD 2 billion at last count, for setting up a new greenfield car making facility at Sanand, Gujarat. Once this facility goes on stream, Ford will also export a big chunk of car production to countries across the world, apart from also exporting engines. Currently, Ford India sells about 6,000 cars every month, which translates to about 80,000 cars a year. By 2015 though, Ford India will have the capability of producing 450,000 cars a year, and 600,000 engines, from its two plants, Maramalainagar off Chennai and Sanand, in Gujarat. While the Indian car market is growing by leaps and bounds, it is highly unlikely that Ford will be able to grow its sales by five fold in the next 3 years.
So, it is pretty obvious that a big chunk of production might be headed to export markets. In the process, the India shining story, of that of the country emerging as a low cost-high quality production hub might have just gotten its latest chapter of success. Watch this space.