Wednesday, April 4, 2012

Fiat, entering developing markets

Fiat, the Italian car company, is opening a new manufacturing plant in China in the second half of this year. The plant, a joint venture like pretty so many other major foreign manufacturing facilities in China, in will manufacture a new car targeted at the Chinese market. The fact that the factory is intended to manufacture a new car targeted at the Chinese market is interesting; what is even more interesting is that it is intended to later export this new car to European countries once production has ramped up. Across the board in the first decades of foreign investment in Chinese manufacturing facilities, and still in some sectors, locating in China was just for cost advantages in production of products targeted at wealthier markets. There is a large shift underway now with the enormous populations of developing countries increasingly seen as accessible targets for luxury items like cars. The economic power of developing countries like China and India as huge markets of consumers is a certainty of the future, but there is much uncertainty as to what exactly the future will look like and how quickly it will come. Thus entry into those markets must be an essential element of the strategy of any company like Fiat.
Getting the timing and manner of market entry right is very difficult. Fiat clearly feels that simply importing their designs will not serve them in this new market: they have chosen to design a new vehicle for this market play. The fact that they are planning to later export this new car to other geographies (in Europe, particularly) indicates that they are not merely adapting their existing products to new market conditions in a new geography, but believe that there will be important learnings from the process and their work in this new area which will in turn allow them to improve their product offerings "back home." This is enormously significant, as it represents a transformation from viewing the developing world simply as a follower to a leader in some areas.
The costs of getting the timing wrong can be great. If they are too early, they may burn cash for years until. If they are too late, they may have already missed an opportunity to catch a critical mass of customers and public mindshare.
There are also great opportunities for failure in the manner of entry and engagement with the market and target audiences. In India, Fiat partnered heavily with Tata Motors, including dealerships displaying and selling both companies' cars side by side. That effort has been deemed a failure by both sides, and is now being dissolved.

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