Why Did Ford Fail in India?

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Many American companies are successful at operating in other countries far away from the US and have become true multinationals. However there are some firms that have failed miserably in their expansion in overseas markets. They failed for a variety of reasons ranging from not respecting local culture and customs to trying to impose American style work rules and policies that may not always be accepted by local workers. A classic case in point the US retail giant Walmart(WMT). The behemoth is the largest employer in the country and is well respected by the general population and the government. In fact, in many states and cities and towns local politicians dream of luring a store to their locations for the taxes and economic activities it would produce. However Walmart’s foray into Germany did not go well for many reasons that I discussed in an article in 2013. After years of getting into trouble there the retailer pulled out many years ago.

One of the recent US firms that could not conquer a foreign market is the auto maker Ford(F). This past September Ford announced that it was ending its operations in the emerging market of India after decades of trying to make it work. Below is an excerpt from a Reuters article:

NEW DELHI, Sept 17 (Reuters) – When Ford Motor Co (F.N) built its first factory in India in the mid-1990s, U.S. carmakers believed they were buying into a boom – the next China.

The economy had been liberalised in 1991, the government was welcoming investors, and the middle class was expected to fuel a consumption frenzy. Rising disposable income would help foreign carmakers to a market share of as much as 10%, forecasters said.

It never happened.

Last week, Ford took a $2 billion hit to stop making cars in India, following compatriots General Motors Co (GM.N) and Harley-Davidson Inc (HOG.N) in closing factories in the country.

Among foreigners that remain, Japan’s Nissan Motor Co Ltd (7201.T) and even Germany’s Volkswagen AG (VOWG_p.DE) – the world’s biggest automaker by sales – each hold less than 1% of a car market once forecast to be the third-largest by 2020, after China and the United States, with annual sales of 5 million.

Instead, sales have stagnated at about 3 million cars. The growth rate has slowed to 3.6% in the last decade versus 12% a decade earlier.

Ford’s retreat marks the end of an Indian dream for U.S. carmakers. It also follows its exit from Brazil announced in January, reflecting an industry pivot from emerging markets to what is now widely seen as make-or-break investment in electric vehicles.

Some of the reasons for the failure of Ford in India include:
  • Misjudging India’s potential.
  • Not understanding the complexities of government policies in a huge country that favor domestic procurement.
  • Inability to understand the culture and adapt to produce small, cheap and fuel-efficient cars.  According to the Reuters article, 95% of cars sold there are price below $20,000.
  • High cost of ownership and maintenance and repair costs.
  • Lower tax on smaller cars made it difficult for larger car makers like Ford to compete.
  • Of all the foreign auto companies that invested in India over the past 25 years, only South Korea auto maker Hyundai was successful due to it portfolio of small cars and understands the needs of the Indian consumer.
  • Trying to produce and sell sedans made for US and European markets at relatively high prices will not work in an emerging country like India where consumers are price conscious.
Overall after investing over $4.5 billion in India Ford decided to call it quits. The failure of Ford in both India and Brazil would be interesting case studies for American business to learn from.
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Disclosure: No positions

Six Differences Between The Dow and The S&P 500 Indices

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The two major benchmark indices of the US equity market are the Dow Jones Industrial Average, popularly known as the Dow Jones and the S&P 500. The Dow Jones is the oldest index founded in 1896 and is comprised of 30 blue-chip companies. The S&P 500 offers more depth and is more representative of the US economy. It contains 500 companies from a wide-variety of industries. According to S&P, the covers approximately 80% of available market capitalization. About $13.5 Trillion of assets was benchmarked against the S&P 500 at the end of 2020. With that brief intro below are the key six differences between the Dow and the S&P 500:

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Source: S&P Global

Though the indices differ in many ways, in terms of performance both the indices have tracked each other as shown in the chart below:

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Source: S&P Global

So when following the equity markets, it does not matter which index one follows. However most people follow the S&P 500 for the reasons mentioned above.

The top ETF that is benchmarked against the S&P 500 is the SPDR® S&P 500® ETF Trust (SPY). This massive ETF has an asset base of over $436 billion and the expense ratio is very small at 0.0945%. Since the ET mirrors the index, it has a major weighting in Information Technology as shown in the sector breakdown below:

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Source: SSGA

The SPDR® Dow Jones® Industrial Average ETF Trust (DIA) tracks the Dow Index. The assets under management for this fund is over $29.0 billion. As most investors prefer the S&P 500, SPY is huge in size compared to DIA.

For investors that do not want to pick individual stocks, these two ETFs offer excellent alternatives to invest passively in the corresponding index.

Disclosure: No positions

Comparing the Equity Markets of U.S. and Canada

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The sectors composition of the US and Canadian equity markets differ widely. The Canadian market as represented by the TSX index is heavy in energy, financials and materials. Together these sectors make up over two-thirds of the index. On the other hand, the S&P 500 is highly concentrated in the information technology sector. Overall the Canadian market is dominated by cyclical sectors which tend to move up and down with the economy. When the economy expands, cyclicals grow and vice versa. Counter-cyclical sectors do not move in lockstep with the economy. Example of this sector include utilities and consumer staples. Consumers depend on them regardless of the state of the economy.

The following chart shows the comparison of the US and Canadian equity markets:

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Source: What’s the relationship between the stock market and the economy?, RBC Asset Management

Following a strategy based on the sector composition of the markets, investors looking to profit from growth in US equities can go with with US mega caps such as Amazon(AMZN), Microsoft(MSFT), Apple(AAPL), etc. Similarly, those that want to diversify and add stocks from Canada are wise to add banks like Bank of Nova Scotia (BNS), Royal Bank of Canada (RY), Suncor Energy Inc (SU), etc.

Disclosure: Long BNS, RY

Because Every Country is The Most Beautiful at Something: Infographic

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A cool infographic showing the countries of the world noted with their best “thing” landed in my inbox recently. The chart compiled by authors at “Information is Beautiful” site ranked countries based on a variety of factors such as health, nature, safety, renewables, etc. Canada for example is top country for most top 100 box office hit productions. This is not surprising since Hollywood makes many movies in Canada substituting Toronto for instance for many large US cities. Moreover most people can’t notice the difference when cities such as Toronto or Montreal is shown as LA or Atlanta or other cities. Language and other factors add additional benefits as well. Similarly Chile is noted for being the best in green tourism.

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Source: Information is Beautiful

The above link has an interactive version of the chart.

The Competitive Advantages of Frontier Markets: Infographic

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In the universe of equity markets, the developed world has the most advanced and efficient market. Emerging markets occupy the next place followed by frontier markets. Most major emerging markets are widely followed and get major coverage in the media as well. However frontier markets do not get as much attention since these markets are considered to be the wild west of investing.

The index provider MSCI currently classifies 27 countries as frontier markets in the MSCI Frontier Markets Index. These include markets like Vietnam, Morocco, Bahrain, Iceland, Kazakhstan, etc. Other notable countries in the frontier markets include Colombia, Peru, Argentina, Philippines, etc. According to Schroders, frontier markets offer some of the exciting investment opportunities in the world due to their competitive advantages over other markets. The following is an infographic showing some of the competitive advantages of these markets:

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Source: Schroders

Related ETF:

  • iShares MSCI Frontier and Select EM ETF (FM)

Disclosure: No positions