The PartnersJames B. Treece and Karen Lowry Miller
To Yoshihiro Wada, communication is often a matter of playing the percentages. When the president of Mazda Motors Corp. meets with Americans from Ford Motor Co., Mazda's one-quarter owner and frequent joint-venture partner, Wada figures 20% of the meaning is lost between him and his interpreter. Of the remaining 80%, another 20% is lost between the interpreter and the Americans. Left with about a two-thirds understanding, Wada says, he works extra hard to make sure his message is getting through.
Two-thirds comprehension may hardly seem worth the bother. But not when you consider the potential benefits of international alliances for auto makers today. The price tag for developing a new car can easily reach $2 billion, a huge incentive for finding the right partner to share the burden. Strategic tie-ins can help companies gain valuable access to new markets or new technologies. They let smaller companies realize big economies of scale when ordering components. And perhaps most important, bigger companies--namely, American ones--can often learn important manufacturing techniques from working side-by-side with a Japanese partner.
Yet while international joint ventures make great sense, often they don't make great profits. After years of arguments, General Motors Corp. is selling its half-ownership in Korea's Daewoo Motor Co. The auto giant must also bail out loss-plagued Isuzu, in which it owns a 37.5% stake, at a time when GM has no cash to spare. The list of cross-cultural disappointments goes on: Chrysler-Mitsubishi, Chrysler-Maserati, and Fiat-Nissan, have all produced at least as much rancor as rewards. With U.S.-Japan ties frayed, especially over auto trade, links between American and Japanese carmakers are under extra strain.
STANDING STRONG. Ford-Mazda is the exception. Their 13-year marriage has weathered disagreements over specific projects, trade disputes between Japan and the U.S., and even allegations by the Big Three last year that Mazda and other Japanese auto makers were dumping minivans in the U.S. The alliance, founded when Ford stepped in to rescue the struggling Japanese carmaker in 1979, stands strong. The two cooperate on new vehicles and exchange valuable expertise--Ford in international marketing and finance, Mazda in manufacturing and product development. "When you compare this relationship to others, it stands out on all the possible measures of success," says Kathryn Rudie Harrigan, professor of strategic management at Columbia University's school of business. "They really are getting down and doing things in the marketplace."
For Ford, the payoff has come partly in the form of sales. Ford is now the best-selling foreign nameplate in Japan, with more than 72,000 cars and trucks a year sold through the dealer network it jointly owns with Mazda. But the alliance is also teaching Ford some practical lessons that it's applying elsewhere in its business. When Ford built its plant in Hermosillo, Mexico, seven years ago, it used Mazda's superefficient Hofu (Japan) factory as a blueprint. The Hermosillo plant quickly became one of Ford's top-ranking plants for quality and a model for renovating other facilities.
Ford and Mazda have worked jointly en 10 current auto models, usually with Ford doing most of the styling and Mazda making key engineering contributions. For Ford, these cars include the vastly improved Ford Escort and Mercury Tracer models, the subcompact Festiva, the sporty Ford Probe and Mercury Capri, and the off-road Explorer. The Ford-aided Mazdas are the MX-6, 323, Protege, and Navajo.
AT ODDS. In all, one of every four Ford cars sold in the U.S. last year benefited from some degree of Mazda involvement--in everything from manufacturing methods to steering design--while two of every five Mazdas had some Ford influence. Next year, in a first, Ford will begin supplying Mazda with a U.S.-built pickup for sale in the U.S. It will replace Mazda's imported B-series trucks.
Now, Ford is using its relationship with Mazda as the pattern for joint ventures around the world. Already, it's applying lessons from the Mazda linkage to budding relationships with Volkswagen and Nissan Motor Co. Starting with Autolatina, a 1986 Ford-VW joint venture in Brazil and Argentina, the U.S. and German carmakers have expanded their ties to include a minivan plant in Portugal. With Nissan, Ford will launch a minivan in the U.S. this fall and an off-road vehicle in Europe a year later. Both alliances are being modeled after Ford-Mazda, with senior managers overseeing relations as well as specific projects.
Translating the success of Ford-Mazda in the U.S. and Asia to other countries will be tough, though. For instance, Ford of Europe Inc. is running into major snags as it negotiates to supply Mazda with small cars for sale on the Continent. The deal would guarantee Ford extra sales for a new car line while giving Mazda access to a key market where quotas limit Japanese imports.
But the talks are bogged down and behind schedule as Ford's European managers grapple with the same doubts about aiding a competitor that bedeviled early attempts at Ford-Mazda cooperation. "The concern is always there that one party will benefit unfairly from what you're about to do," says David R. Gunderson, a former Ford of Europe marketing research director who now serves as a Mazda board member and liaison between the two companies.
Ford and Mazda can call on some hard-learned principles for managing a successful strategic alliance (table, page 104), many of which would apply to ties in any industry. Underlying them all is the idea that benign neglect is no basis for a partnership. Says Ford President Philip E. Benton Jr.: "There's a lot of hard work in making it work." To help smooth future deals, Ford and Mazda have even developed a set of Basic Business Principles. These tenets outline how to price a deal and how to share development costs, for example. Says an admiring Richard D. Recchia, executive vice-president of Mitsubishi Motor Sales of America Inc.: "I wouldn't be surprised if the Ford-Mazda relationship were a pattern for a lot of others."
MUTUAL BENEFIT. In choosing what to work on jointly, the partners operate on a project-by-project basis, with ideas coming from people throughout both organizations. The main criterion for approving an idea is that it benefits both companies. "It will be fairly obvious whether a new product might benefit from a partner or not," says Benton. If something sounds promising, product-development people from both sides start talking. But management always monitors the talks to make sure neither side violates the principle of remaining independent. "They don't want to be part of Ford, and we don't want to be part of Mazda," Benton explains.
The Navajo project is indicative of how the relationship works. Back in the spring of 1987, Mazda, which didn't have a sport-utility vehicle of its own, decided it wanted to buy from Ford a modified version of its upcoming Explorer off-road vehicle. Ford was glad to oblige, partly because it was a chance to prove it could be trusted to manufacture Mazda's pickups in 1993.
This was a role reversal for Mazda. "For the first time, we were the purchaser, making requests to the manufacturer in terms of quality and so on," says Takuma Marukawa, head of joint product planning and development for the Navajo. He says it took some getting used to, but because they had already worked together on several Fords based on Mazda engineering, "both sides know well that there are differences between our systems."
With the first new Explorer set to roll off the production line in February, 1990, the design was mostly complete. In March, 1989, a team of engineers from Mazda gathered to evaluate the first Navajo prototype at the Ford plant near Louisville. The comments were brutal. The Japanese festooned the car with 400 triangular stickers, color-coded to indicate problems in everything from fit and finish to design, with criticisms scribbled on them. After two days, there were so many stickers "you could hardly see the paint," recalls Phong T. Vu, head of the Ford team.
Ford liked many of the changes, though it nixed a good percentage, such as Mazda's demands for flashier bumpers. Decisions usually came down to money. Making changes to the production line for no more than 18,000 Navajos--vs. the 200,000 Explorers Ford planned to build each year--would add too much to the cost. Although the Explorer comes as either a sporty two-door or a more practical four-door, the Navajo is only a two-door. Most of the other differences between the two are cosmetic: headlights, wheels, and upholstery. But in a few cases, the Ford team used Mazda's requests to push for changes to the Explorer that they had wanted but had been denied by their higher-ups. At one point, the Ford team even videotaped Mazda engineers walking around a prototype, pointing out problems such as its sluggish steering, to replay to truck operations managers back in Dearborn, Mich. As a result, the steering was improved on both the Explorer and the Navajo.
JUST KIDDING. Communication between the two groups could be hard at times, but they did their best to lighten the mood. There was a lot of arm-flailing and miming to get messages across. And one Saturday, as the Mazda group worked in the Louisville plant, the lights suddenly went out and the doors and windows slammed shut. They thought they were locked in for the weekend--until they were introduced to the American tradition of April Fool's Day.
On Aug. 6, 1990, two years of fine-tuning later, the first Navajo came off the line. The Navajo won Motor Trend magazine's 1991 "Truck of the Year" award, but it hasn't been an unqualified success. First-year sales hit only 11,404 Navajos, well short of the 18,000 goal. Clark J. Vitulli, senior vice-president and general manager of Mazda Motors of America, blames a slump in the two-door off-road segment. Privately, though, some Mazda marketers complain that even with Mazda's input, the vehicle was basically designed to appeal to domestic-car buyers, not the import buyers who shop for Mazdas. Mazda is keeping that in mind while designing the pickup Ford is to manufacture. The Mazda version will have a totally different exterior, for instance, and the suspension may be tuned differently than on the Ford.
If the Ford-Mazda partnership eventually blossomed into a happy marriage, it began as an on-again, off-again relationship. Ford started buying Mazda trucks for sale in Asia in 1971. That same year, Henry Ford II approached Mazda, then known as Toyo Kogyo Co., about buying a stake in the company. He was rebuffed. But when the oil crisis of 1973 unmasked Mazda's rotary engines as gas guzzlers, decimating sales, Mazda desperately needed a helping hand. In 1977, Mazda's lead lender, Sumitomo Bank, put Managing Director Sotoo Tatsumi in charge of getting Ford's help. He flew to Michigan for a meeting with Philip Caldwell, then Ford's vice-chairman, and Donald E. Petersen, then vice-president and head of international business. They said Ford wasn't interested. But their one-hour meeting stretched all day as Tatsumi pressed his case for the advantages of a tie-up and the Ford executives canceled other appointments to listen.
By 1979, months after the fall of the Shah of Iran and the second oil crisis, Ford saw the allure of the small-car maker and bought a 25% stake, worth about $130 million. To help pay for it, Ford swapped land in Yokohama, Japan, where it had built an assembly plant in 1925. Protectionist laws passed in 1936 had effectively closed the plant, and Tokyo had never allowed Ford to reopen its operations in Japan. In addition to dividends on its 25% stake, which totaled $14.3 million last year, Ford gets to name three outside directors to Mazda's board, while a fourth Ford employee is transferred to Mazda to become a Mazda employee and a high-ranking inside director. Ford's share in Mazda is now worth around $1 billion.
FIERCE SQUABBLES. In its early years, the alliance didn't exactly run with the famous Mazda hummmm. Often, national and corporate cultural differences stood in the partners' path. Even the way that each side gave presentations was a matter of dispute. The Americans chafed at the Japanese style of presenting conclusions only after lengthy explanations of how they arrived at their decisions.
At times, too, the competitive squabbles were fierce. Ford coveted Mazda's rotary engine for use in a sports car, but Mazda wouldn't share the design. On another occasion, Ford refused to let Mazda copy an innovative window design for one of its own models. Senior executives on both sides had to prod nay-saying middle managers, who didn't want to open new car and truck projects to scrutiny by a competitor. Sumitomo Bank often had to step in and mediate. After more than a decade, though, most of the spats and misunderstandings are behind them. "They don't need us so much anymore," says Sumitomo's Tatsumi, now chairman of the bank.
Nevertheless, competition between the two is inevitable. Ford is a mass-marketer of cars, while Mazda is a niche-marketer. Wisely, each keeps certain products off-limits to the other. Mazda dearly wanted a four-door Navajo, but Ford refused: The four-door was to be its first real challenger to Jeep's Cherokee, and Ford wanted it as an exclusive. Conversely, says Mazda Vice-Chairman Norimasa Furuta: "Some models, like the Miata, we keep to ourselves."
Still, Ford and Mazda have taught each other plenty. Ford used to hire outside specialty shops to build prototypes of new models. But Mazda saw prototypes as a step toward manufacturing--proof that a car could meet quality standards and be built efficiently. So when Ford and Mazda built the new Escort back in 1989, all prototypes used genuine suppliers' parts and were assembled by Ford workers on lines set up to replicate the final assembly line. Applying that lesson, Ford built prototypes of its new 1992 Taurus and Sable sedans on the same assembly line alongside the old models.
Ford found the whole Escort program especially eye-opening when it came to supplier relations. Ford thought it was tough with its suppliers but realized it had been tough only on price, whereas Mazda is demanding on quality and delivery dates but sometimes bends on prices. The Escort program also reminded Ford of the benefits of working with fewer vendors. Ford has adopted a similar tack in North America, where it will cut its 1,200 suppliers by 300 by 1995.
BRIGHT IDEAS. After seeing how Mazda benefits from the many small ideas produced by its workers, Ford overhauled the cumbersome suggestion program at its Escort-building Wayne (Mich.) plant. Now, ideas are written up by the team member with the best proposal-writing skills or by a supervisor. At its Hermosillo plant, Ford followed Mazda practice and built a nearby stamping plant. In Ford's previous system, centralized stamping plants turned out hundreds of thousands of door panels, say, which were then shipped to several assembly plants. But the panels were often damaged in transit. The Mercury Tracer made in Hermosillo quickly became recognized as Ford's best-built car.
The revelations have flowed in the other direction, too. Ford gave Mazda access to some sophisticated computer programs for measuring noise and vibration, as well as electronic systems that help control engine emissions. Mazda hopes to profit from Ford's marketing knowhow, too. Working together on the Navajo/Explorer, Mazda got a close look at the customer surveys Ford had collected on the old Bronco II, the Explorer's predecessor. Ford had used the surveys to show engineers which components or vehicle systems, such as heating and air conditioning, customers felt strongest about. Mazda came away so impressed that last year it adopted the Ford system wholesale, even retaining the same Detroit-based research firm to compile the data.
At other times, the partners have given each other a helping hand of the most practical sort. When a stamping press at Mazda's Flat Rock (Mich.) plant broke down two years ago, Mazda called over to Ford's nearby plant in Woodhaven and asked to use its stamping press. No problem, said Ford. Mazda was able to keep the Flat Rock line moving. On other occasions, when local assembly plants ran low on small bolts or other parts, they have borrowed emergency truckloads from each other.
What's the secret? "The most important point is for people to meet face-to-face and freely talk," explains President Wada. Much of the credit for keeping everyone talking belongs to the four men who monitor the alliance, W. Wayne Booker, Gunderson, Wada, and Shigeo Kasuga, the man they call "Mr. SMSG," as in senior management strategy group. Kasuga, a director with primary responsibility for the Ford alliance, earned his nickname at a meeting of the group in Florida four years ago. When a fire alarm interrupted the session at 2 in the morning, he was the only one of the executives who remembered to bring the meeting's documents out of the building to safety.
PARTY TIME. The partners hold a three-day SMSG meeting once every eight months. It includes the top three executives from Ford and Mazda, plus some half-dozen other operating heads. The first two days are all business, but the third is always reserved for getting to know each other informally. Although Mazda executives have been disappointed by how few top Ford executives like to play golf, both groups seem to have a taste for California wines: At the party closing each day's session last time, the managers toasted each other with Chateau Montelena Chardonnay and Stag's Leap Cabernet Sauvignon.
The SMSG meetings are part of a yearlong parade of meetings and get-togethers. Four months after each SMSG meeting, Ford Chairman Harold A. "Red" Poling, Mazda Chairman Kenichi Yamamoto, and their two closest lieutenants meet to discuss industry and economic trends and broad strategies for cooperation. Twice a year, the heads of product planning and development meet, as do the production and production engineering vice-presidents. In between, there are hundreds of joint product-planning sessions. The jointly owned Autorama dealer network in Japan was conceived at one of the SMSG meetings. But other successful project ideas have perked up from below. Kasuga estimates that only five ideas survive from every 1,000 suggestions, but that's fine with him. "The experience of failure is an important lesson to us," he says.
Sometimes they agree to disagree. Ford and Mazda negotiated over a minivan for three years in the 1980s. Both wanted a new model with the engine up front, instead of under or between the seats. But Ford wanted a front-wheel-drive model, and Mazda insisted on rear-wheel drive. Finally, they simply dropped it. While Mazda developed its MPV, Ford negotiated a joint project with Nissan. Going on sale this fall as the Mercury Villager and Nissan Quest, the minivan was engineered and designed by Nissan. Engines and body panels produced at Nissan's plant in Smyrna, Tenn., will be used to assemble the vehicles at a renovated Ford plantin Ohio.
Ford and Mazda may have hit an impasse over their plans for Europe, too. The two were supposed to have signed a deal by the end of 1991, but it has now been put off until midyear or later. If the agreement slips beyond that, the whole project could be in jeopardy, because there would be little time to develop the expected model--based on a revised European Escort--for the planned 1995 unveiling.
At first, Mazda officials wanted a unique car based on one of their models, but Ford finally convinced them that European volumes wouldn't justify it. And the two partners have recently been quibbling over the cost of the project. More ominously, some Ford officials are questioning the very notion of working as partners with Mazda in Europe. "There may be a spillover benefit in future products," says one Ford executive. "But there is a downside: We are assisting a competitor to get into a market in much more depth than they would on their own."
SOFTENED BLOW. To the senior people within the Ford-Mazda partnership, that kind of talk is painfully narrow-minded. But dealing with friction between Japan and the West is all part of making the allegiance work. A perfect example is the minivan "dumping" controversy. The Mazda MPV was one of the vans the Big Three recently charged were being dumped in the U.S. at prices below cost. In a preliminary ruling on Dec. 20, the Commerce Dept. found that MPVs were being dumped, but only at 7% below cost, far less than the maximum 30% the U.S. industry had alleged.
The process has been a strain on Ford-Mazda ties, to say the least. Benton tried to ease things by delivering a letter to Mazda's then-President Norimasa Furuta informing Mazda of the impending antidumping petition one day before it was filed in Washington. That, and the fact that the filing was seen as an industrywide political move, softened the blow of Ford's participation. But it was still a blow. "If I said we weren't disappointed, that would be a lie," says current President Wada. "But we understand." A marriage counselor couldn't have said it any better.
FORD IN JAPAN, MAZDA IN AMERICA 1925 Ford forms a subsidiary in Japan. Assembly begins in a waterfront warehouse in Yokohama 1931 Japanese machine-tool maker Toyo Kogyo, 11-year-old predecessor to Mazda Motors Corp., begins producing three-wheeled trucks 1967 Mazda introduces the rotary engine. It is later unmasked as a gas-guzzler and sales nosedive. Ford rescues the floundering carmaker by acquiring 25% of it in 1979 1986 Ford opens plant in Hermosillo, Mexico, modeled after Mazda's Hofu (Japan) factory. It assembles the Mercury Tracer, soon recognized as Ford's best-built car 1987 Mazda begins building the Mazda MX-6 and the Ford Probe sport coupes at a plant in Flat Rock, Mich. It is the only Japanese plant in the U.S. to negotiate with the United Auto Workers 1989 Ford and Mazda buy Autorama, a chain of import-car dealerships in Japan 1990 Ford launches a new Escort, engineered primarily by Mazda and built by Ford in the U.S. Later, Mazda begins selling the Navajo off-road vehicle, built by Ford 1992 With 75% domestic content, the new MX-6 and Probe will be the first `domestic' cars built by a Japanese plant in the U.S. Mazda is to begin production this winter DATA: BW, COMPANY REPORTSSECRETS TO THEIR SUCCESS 1 Keep top management involved: The boss must set a tone for the relationship. Otherwise middle managers will resist ceding partial control of a project to a partner 2 Meet often, and often informally: Meetings should be at all levels and should include time for socializing. Trust can't be built solely around a boardroom table 3 Use a matchmaker: A third party can mediate disputes, suggest new ways of approaching the partner, and offer an independent sounding board 4 Maintain your independence: Independence helps both parties hone the areas of expertise that made them desirable partners in the first place 5 Allow no `sacrifice' deals: Every project must be viable for each partner. It is up to senior management to see that an overall balance is maintained 6 Appoint a monitor: Someone must take primary responsibility for monitoring all aspects of the alliance 7 Anticipate cultural differences: They may be corporate, or national. Stay flexible, and try to place culturally sensitive executives in key posts DATA: BW
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