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Globalization, Offshoring Are Key To Ford's Turnaround

Ford Motor Co.'s plan to cut 34,000 jobs to help restore profitability is just the beginning of the automaker's campaign to ensure its competitiveness in the 21st century. And while labor unions and some media commentators will frame the move as more proof that American workers are being sold out, the truth is more complex--though not by much.

The simple fact is that Ford, with its high-cost infrastructure, burdensome union contracts, and short-sighted focus on pushing gas-guzzling SUVs, is on the verge of becoming a global also-ran. More nimble competitors from China, Japan—even South Korea—are eating Ford's lunch in emerging markets and in the United States.

If that continues, a lot more than 34,000 Ford workers are going to be out of jobs.

The bottom line is that car buyers, wherever they live, now want a reliable, low-cost, fuel-efficient vehicle and they don't care where it's made. That's why Hyundai sales in the United States rose 9% last year while Ford—the home team—saw U.S. sales decline 4%.

To its credit, Ford has finally acknowledged its predicament and is taking the right steps. It's putting itself in a position to build the right cars in the right places and deliver them globally. Its new Fiesta model was designed by a core group of engineers in India, with contributions from teams in the United Kingdom, Australia, and Germany. Its price and quality are intended to meet head on competition from Hyundai for the lucrative South Asian market.

Ford's turnaround must also include pushing more of its IT, manufacturing, and support operations into other markets that promise big growth. Beyond India, there is Eastern Europe and China—where Ford's sales increased 46% last year. When I spoke with IT officials at Ford before Christmas, they were mulling a decision to centralize help-desk operations in Romania.

That wouldn't just make economic sense, it would be a smart marketing move. Consumers are more likely to buy a car if they themselves, or someone they know, works for the company that built it. Ford's extensive operations in Canada are part of the reason it has great brand loyalty there and why Canadians don't see Ford as a "foreign" automaker, even though it is.

Despite widespread criticism, Ford is finally headed in the right direction. To be sure, its restructuring will be painful for affected workers. The alternative, however, would be worse. If the company were to stick with the status quo, it would only be a matter of time before its lack of global competitiveness would result in even bigger cuts and maybe a Chapter 11 filing. That would really hurt.

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