Ford's Status as a Sophisticated Global Company is More in Doubt Than Ever

Implications: Did the Ford Motor Company, which had, until the current CEO's tenure, a succession of CEOs who were not born, raised, or educated in the United States, gain any international savvy thereby? Apparently not.

Analysis: A friend of mine likes to point out that outside of the United States American citizens who are operating as agents of American companies are at a distinct disadvantage; their competitors are unfettered by the US Foreign Corrupt Practices Act. In other words they can't bribe anyone or received bribes to facilitate business transactions without doing an act which voids any contract which may be adjudicated in an American court and further which places the actor(s) at considerable risk of serious fines and even individual imprisonment.

Nonetheless the country bumpkins of the Ford Motor Company's international acquisition staff seem to have gone ahead and asked for tax and other financial concessions from the Romanian State Privatization Agency in order to bid on (and win) the right to buy and operate the former Daewoo assembly plant in Craiova, Romania.

Daewoo had great hopes for the plant in the beginning. It planned to make 200,000 cars a year, which would sell for between 8,000 and 12,000 US dollars equivalent. This would have placed the car at the high end of the price of the Romanian domestically produced Dacia and Aro over which the Daewoo vehicles towered in quality and reliability.

Daewoo didn't take into account the costs it would incur in bringing Romania's domestic OEM automotive supply base up to Daewoo standards and volumes. Daewoo also did not understand Romanian business practices or finances. For example it asked local foundries to pay for engine block molds themselves and put the cost into the parts. No local foundry was able to come up with enough money even to build a sample mold to use to make a test engine block. By the time Daewoo addressed this problem millions of dollars of time had been wasted. 

Also, for example, Daewoo shipped paint from its Korean paint subsidiary, a US PPG licensee, rather than buy the paint from the Romanian licensee of PPG. This wasted millions more dollars.

Daewoo also shipped Korean parts on Daewoo owned vessels, which could have been made and even designed in Romania so that the revenues would be booked into the Daewoo system.

The Romanian Daewoo venture collapsed when the price of the cars reached 20,000 US dollars and the market at that price was saturated at 20,000 units per year rather than 20,000 units per month.

Daewoo literally bankrupted many Romanian suppliers which had invested in property, plant, and equipment in Craiova.

The Romanian State Privatization Agency wanted to recoup some of the state's losses on property taxes and business loans, so it put such costs into the price of the acquisition. The government treasury was in no mood to hear about whether such a practice was fair or legal under standards set in far away Brussels.

Ford refused to pay these costs and miraculously they were removed. But anyone who has done business in Romania knows how that must have happened.

Ford seems to have had no interest in, or, perhaps, no ability to understand what Daewoo had done wrong. Ford simply wanted not to be left out or left behind by Renault, Chrysler, VW, and GM as they grew in eastern Europe and the large Russian market loomed nearby.

Ford seems to have ignored the EU's concerns about Romanian systemic corruption as well as US law.  It will be interesting to see of the US Justice Department becomes interested in this situation after it is investigated by the appropriate EU authorities.

The EU doesn't care about US law it is concerned about corruption in Romania.

It may well now be that Ford will never open the Craiova plant. If so, it will be following in the tradition of those who don't learn the customs of other countries when they go global.