Asia's Choice

Asia's Choice: Open Markets or Government Control?
Remarks

Mei-Wei Cheng

Asia's Choice: Open Markets or Government Control?

Asia Society's 10th Annual Corporate Conference
Shangri-La Hotel, Makati City
February 24-26, 1999

Good morning. It's a pleasure to be participating in today's panel discussion.

First and foremost, I would like to reiterate Ford Motor Company's commitment to Asian markets for the long term, and that includes continuation of our startup and expansion plans presently in place.

The region's economic troubles have not shaken our confidence in the importance of Asia as a cornerstone in our worldwide plans.

As a truly global automotive company with manufacturing operations in 35 countries and sales in more than 200 countries, we remain convinced that Asia is the world's largest automotive growth market. Although this growth may be slower than we thought just a few years ago, we continue to position ourselves for the long-term future.

Frankly, we learned some valuable lessons from our withdrawals from certain countries 15-20 years ago, and we now much better understand the importance of maintaining our long-term commitment to customers in each of our markets.

So, despite the uncertainty in the financial markets, we are proceeding with establishing operations in the Philippines, which we began in late 1997. Likewise, we are proceeding with all of our plans throughout the region, despite the economic setbacks in several of the countries.

Using the Philippines as an example, let me explain how we proceed with our plans. First we judged the Philippine political and economic situation to be encouraging and believed that any delay in establishing operations would make the market even tougher to enter and would allow our competitors to become further entrenched.

Fortunately, the Philippine government understood the importance of a new direct foreign investment and the economic benefits that a new export-oriented automotive company would bring.

The Philippine government worked closely with us to develop a win-win situation that permitted Ford to establish a vehicle assembly operation and committed Ford to integrate Philippine-manufactured components into our global supply system.

Even though our plant here will not open until the end of the year, our plans call for annual purchases of more than $200 hundred million dollars in Philippine parts and components. And we expect our global purchases to rise dramatically after our plant goes on line. The new production facility will initially have assembly capacity for 25,000 vehicles and car engines.

Throughout Asia we have assessed the potential growth prospects and product needs in various markets and started forming joint ventures and making investments that we viewed as appropriate for each market. In Thailand, we joined with our partner Mazda to form a joint venture and build a greenfield stamping and assembly plant with the capacity to produce 135,000 small pickup trucks for sale in the Thai market as well as for export. And we have established an assembly facility in Vietnam to meet local demand there.

In Japan, as you all know, we increased our equity and management participation in Mazda a few years ago, and both Ford and Mazda are enjoying the fruits of our expanded cooperation.

Last year we began selling the China Transit, jointly developed with and produced at Jiangling Motors Company in China. For owns 30% of the equity in JMC, and we have a model cooperation there to modify and adapt Ford's global technology for use of local components and manufacturing expertise, making vehicles ideally suited to customer needs and driving conditions in China. Furthermore, and important to our overall Asian strategy, we have established five component ventures in China, and we have cooperation from most of our large global suppliers to buy parts and components from them that they manufacture in China.

India is another large market that we judged needed a large-scale operation. We began assembly of the European Escort in the assembly plant of our joint venture partner. The second part of our India strategy is a new green field stamping and assembly plant we are building to manufacture a new small car designed exclusively for the Indian market and for other export markets. This new plant will initially be capable of building up to 50,000 units a year and is designed for expansion to 100,000 units.

Our regional strategy calls for evaluating markets, determining their potential and then growing them wisely and prudently, and implementing synergistic processes for our more mature operations (such as Australia and Taiwan) to assist in the development of our newer operations. This regional approach will facilitate stronger and more robust growth.

This approach means targeting the level of investment - tailoring manufacturing, assembly and marketing operations to a size and complexity that makes sense for the market. Like our vehicle platforms, our lean manufacturing facilities in the region are built to be flexible and scaleable. They can be expanded efficiently and cost effectively when the market demands it.

Or strategy is customer focused - providing exciting products at affordable prices. Now, granted, we have some more work to do to achieve such products for some of the entry-level customers in the region, but we're working aggressively on this, and we believe you'll be excited to see Ford products as they are introduced in the future.

Making affordably products will mean that we aggressively use what we call "complementation," where we develop a synergy between close geographic markets and cross-ship products between nations to increase product offerings.

The opportunity for regional exports enables us to build manufacturing facilities in low-volume markets - an effort that APEC and ASEAN support. We believe our investment strategy will enable us and our suppliers to compete regionally and globally over the long term.

Rather than abandoning our customers or any country in the region, we have fine tuned our expansion strategy. We are not slowing down. We are doing our part to work through the down turn in the economy, but we also believe there are many areas of government policy where additional changes would hasten the recovery.

As a global company, Ford believes that government has an important role to play in providing favorable conditions for economic growth. At the same time, our experience has been that our customers, our suppliers and Ford benefit most when markets rather than governments determine what is sold, at what price and under which conditions.

For Ford, that means more liberalized trade, investment and distribution rules, tax reform, transparency in the way governmental policies are made and harmonization of standards and regulations whenever possible. We are please to be working integrally with the Joint Commission on Commerce and Trade between the U.S. and China to establish harmonization and equivalency of standards in China. We are also pleased that China's Premier Zhu Rongji will be visiting the U.S. in April, and we are hopeful that significant progress can be achieved in the near term for China's accession to WTO. We extend our kudos to China for maintaining stability of the RMB and proceeding with their internal reforms, even though the Asia economic crisis is affecting their external trade.

Here in the ASEAN region, governments agree with this approach and have committed themselves, through the ASEAN Free Trade Area (AFTA), and its industrialization programs (AICO) to these principles. It is a major accomplishment, but still a work in progress.

The transition to ASEAN free trade will allow larger scale production of components and vehicles in the various ASEAN countries. This will, in turn, permit duty-free entry of ASEAN products throughout the region, lowering costs to consumers and making ASEAN suppliers more efficient in cost and quality.

Incentives are only one step to provide encouragement for investment. To make our ASEAN plan work, we will consider the total enterprise costs - that is investment, manufacturing, tariffs, taxes and the logistical cost of transporting parts between countries. The Philippines, for example, must meet its commitments to eliminate local content rules by January 2000. Such regulations drive manufacturers to focus on domestic market volumes rather than force them to transform and integrate local companies into their regional and global market plans.

Effective government policies can play an important role in developing a suitable business climate. Governmental policies can create a dynamic business environment, encourage market growth with regional access (implementing AFTA, for example) and provide the impetus for competitive growth. This also provides the foundation for long-term investor confidence.

That confidence must be built first in key industrial sectors that can provide a boost for other dependent sectors - a "trickle down" theory of confidence building.

New investment and modernization programs must constantly be encouraged. Around the world, countries compete for new investment with tax abatement programs, employment incentives and investment grants. Creating a competitive incentive package and linking it to investor performance is key to reducing the risks of new investment.

Government policies must be fluid - changing to push industry forward, while carefully cultivating measures that reinforce the sound principles of sustainable resources and environmental stewardship. Necessary changes must be made in a way that is transparent and consistent with the overall direction of competitive growth and liberalization.

We need to have an open and fair regional market structure that promotes trade and investment along the ASEAN nations. We strongly believe that only by creating a level playing field will the automotive industry in Asia prosper.

Together business and government can pave the way to economic prosperity. But to do so, business and government must adopt strategies that encompass the new world order of the 21st century. We at Ford are enthusiastically engaged in working cooperatively with host governments throughout the region to assure a strong future for the region, and thereby continuously improving choices for Ford customers throughout the region.

Thank you.