Ford Motor Company (F)’s China Strategy

This is a very important trend, especially when you’re branching out to the less- affluent markets; Tier 3 and below markets tend to spend only $12,000 per car and have per capita incomes of $15,000.

On the other hand, even with price-sensitive consumers there are preferences for better-integrated technology, emphasis on design and a need to have an emotional bond with the customer.

Think small and local

Chinese consumers save $300 in taxes driving cars with engines smaller than 1.6 liters and Ford equipped the Mondeo (the U.S. Fusion) with the smaller 1.5-liter engine to focus on this segment.

All foreign automakers have to take a local partner, and while there is an obvious preference for smaller local manufacturers who cater to the newer, less affluent buyer, it also opens doors for foreign makers who focus on this segment

Ford, because of its late entry, can’t get much of a foothold in the developed coastal and urban areas, with most dealers already taken by GM, Volkswagen and Toyota, and has to chase the second-string, less-developed inland markets. Ironically, this market will probably show higher growth if China develops its own consumer- driven economy instead of relying only on exports.

In 2011, 87% of China’s population lived in Tier 3 or lower cities, and their market share of the Chinese market was growing faster than the Tier 1 and Tier 2 cities.

From the “do or die” approach taken by both GM and Volkswagen toward China — as the only market capable of replacing a moribund Europe and realizing their global ambitions of being Top Dog — Mulally sure has a tough fight on his hands in the middle kingdom.

The article Ford’s China Strategy originally appeared on Fool.com and is written by Bobby Shethia.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.