Ford Motor Co. is pouring significant resources into its Indian operations, a market with tremendous growth potential that the auto maker hopes to exploit.

Over the last two years, Ford has invested $500 million in its Maraimalai, Nagar, India, plant to facilitate updates and ready it for production of the highly anticipated Figo small car, which was designed for India’s needs but also targeted for export to other countries including South Africa.

In the last decade, Ford has pumped nearly $1 billion into its Indian operations to modernize facilities, the auto maker says.

The sub-B car category, where the Figo competes, comprises more than 70% of India’s total new-car sales, Ford says. The Figo shares some platforms, as well as tooling, with the last-generation Ford Fiesta, which has been sold in India since 2006, the auto maker says.

In all, the auto maker plans to introduce eight new models in India by mid-decade and also establish the country as a major export hub that will supply product to 50 countries.

“In the next 10 years, we expect India to be the third-largest automotive market in the world, behind China and the U.S.,” Joe Hinrichs, president, Ford Asia Pacific and Africa, tells Ward’s. “India and China are the fastest-growing large auto markets in the world at the moment.

“China’s growth rates are starting to stabilize at steady increases, while India’s growth is the highest it has ever been,” he says, noting Ford expects 70% of its growth in the next 10 years to come from the Asia/Pacific regions and Africa.

In the first half of the fiscal year, from April to September, Ford says its Indian subsidiary saw a 237% surge in sales, compared with year-ago, to 47,902 units, more than triple year-ago’s 14,209.

The Figo has a lot to do with Ford’s success in India, Hinrichs says. “We’ve sold more than 30,000 in the 25 weeks since its introduction.”

With the addition of the Figo, Ford now manufactures five products out of its Indian plant, including the Ikon, new Fiesta, Fusion and Endeavor. To accommodate the rapid growth, the auto maker has opened 28 new dealer showrooms in 24 Indian cities, a move it says will “improve market availability and service facilities for its full line of vehicles.”

The new retail stores bring Ford’s total dealerships to 167, located in 97 cities across India. In the last two years, the number of cities with a Ford outlet has jumped more than 30%. “We will continue to expand our (dealer) footprint to 200 outlets by the financial year end,” Hinrichs says.

Ford also is positioning India to be a major producer of engines. The Maraimalai plant in June delivered its first batch of 1.4L and 1.6L gas engines to AutoAlliance Thailand Co. Ltd., Ford’s Thai joint-venture with Mazda Motor Corp. Ford has been exporting diesel powertrains to South Africa since 2008.

“The first shipment of 1,000 (gasoline) engines is a significant first step in our goal to become a major production and export hub of diesel and (gasoline) engines,” Michael Boneham, Ford India president and managing director, says in a statement.

Plans call for engine exports to increase to 2,500 per month, with volumes expected to build as demand grows into 2011, the auto maker says.

Ford India also is “discussing and reviewing” export opportunities for vehicle and powertrain components to the Asia/Pacific region and Africa, Boneham says.

The Indian strategy follows CEO Alan Mulally’s “One Ford” plan, which was designed to leverage Ford’s global resources. In fact, the initiative was a key factor in Ford’s rapid expansion in India.

“We can bring so many vehicles to the Indian market because of our One Ford product strategy, with a strong emphasis on competing in the small-car market worldwide,” Hinrichs says.

“We could not have done this in the past, as markets the size of India couldn’t afford unique vehicles to meet the demands of customers. Now, we have global products being developed that can serve the heart of the Indian car market.”

To date, Ford has avoided major obstacles in its Indian expansion plans. But as volumes increase, the auto maker is keeping an eye on several situations that could throw a wrench into the works. India’s supply base, for example, is not as extensive as those developed countries and could be stretched too thin in the near future.

“I was recently in New Delhi and kept hearing that suppliers need to expand in order to keep up with the OEMs,” Hinrichs says. “Our concern is that suppliers are able to grow capacity quickly without sacrificing quality or on-time deliveries.”

Indian components makers currently supply parts worth $26 billion. They now are drawing up plans to increase their turnover more than fourfold to $113 billion, inclusive of exports of $30 billion. To reach that level, they say they will have to invest $35 billion over the next decade.

Jayant Davar-president of India’s Automotive Component Manufacturers Assn., tells attendees at at an automotive conference in September. “We will have to create modern designs and build frugal engineering capabilities.”

Suppliers face increasing complexities and risks from such rapid growth in a highly competitive and demanding environment, he adds.

Hinrichs declines comment on how the supplier situation will unfold, but says the Indian economy is strong, having weathered the global recession better than most.

Yet, despite the continued growth, per-capita income remains low, he adds, noting there is a need for “massive infrastructure investments” to support future growth.

– with Sudhakar Shah in New Delhi