Ford Motor Company (NYSE:F)’s latest destination is Myanmar. The company joins the bandwagon of western companies that are increasingly targeting this market, a list which includes big names like Coca-Cola, PepsiCo, General Electric, Caterpillar, and Google. In the last month alone Vodafone and China Mobile have formed a consortium to bid for mobile licenses in Myanmar.
The situation at Myanmar
Myanmar had been shut off from the western world for over half a century on account of its oppressive military regime. But with the new quasi-civilian government taking over, this is fast changing. Many nations, including those within the European Union, have lifted their erstwhile bans.
Last year the US government relaxed certain restrictions that previously did not allow investment in Myanmar. However, what possibly made the decision for Ford is the announcement by the Treasury in March this year that US companies can now do business with some of the country’s local banks.
Ford Motor Company (NYSE:F) will be the first big automaker to open sales and service showroom together with a spare parts warehouse in the country. The showroom will open at Yangon towards the end of the year. The company has made a deal with local conglomerate Capital Diamond Star Group for this venture.
The Blue Oval has selected its partner well. The group also has the sole import and distribution rights of PepsiCo’s flagship Pepsi , 7-Up, and Mirinda brands through another group company. That means the company is conversant with the western ways of doing business.
The first vehicles to be launched are the F-series pick-ups and the Ford Ranger. For now, Ford Motor Company (NYSE:F) will import the vehicles from the US and Thailand. The company intends to expand to all parts of the country, although it does not harbor any immediate interest in manufacturing locally.
The first mover advantage
The Myanmar auto market is small, but holds significant promise. There are some encouraging trends there that are indicators of future growth. For starters the official import figures reveal that car sales have surged by almost 50% since the government lifted import restrictions in October 2011. Still the country has one of the lowest per capita car ownership rates in the world: about 10 in 1000.
It is estimated that over 80% of the cars in Myanmar are more than 10 years old, and some models even date back four or five decades. People opt for second hand Toyota Motor Corporation (ADR) (NYSE:TM), Nissan, and Honda models. But this can change with time. The country has yet to wake up to the economic developments that have taken neighboring countries like China and India by storm.
It is almost unbelievable that less than 5% of Myanmar’s entire population of 60 million use the Internet. Once Myanmar starts catching up with the rest of the world, the worn out cars will start losing their appeal. People will demand new cars, warranties, and service.
This is exactly where Ford Motor Company (NYSE:F) will want to cash in. The company expects good demand for its passenger cars, trucks, and SUVs.
Ford’s presence in Asia pacific
Ford’s entry is Myanmar is part of its plan to grow its presence in the Asia-Pacific region. China, India, Australia and South Africa, together with the Southeast Asian countries of Indonesia, Malaysia, Philippines, Thailand, and Vietnam, make up Ford’s Asia Pacific Africa segment. This segment sold over 1 million vehicles in 2012.
In the five Southeast Asian countries Ford Motor Company (NYSE:F)’s wholesale volumes in 2012 were 95,000 vehicles, up from 74,000 in 2011. The company held approximately a 2.6% market share.
These markets are becoming increasingly important in the context of the ongoing European turmoil, as well as Ford Motor Company (NYSE:F)’s plans to sell 8 million vehicles annually by 2015.