Globalisation and Ford Motor Company. The golden age of the company - Essay Example

?Globalisation and Ford Motor Company Background The International Monetary Fund defines globalisation as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flows, and more rapid and widespread diffusion of technology” (Hin, 2006). Globalisation is chosen as topic for this assignment since the significance of this concept is being widely questioned these days. Referring to the adverse impacts of 2009 global financial crisis, it is argued that the globalisation has not led to a rapid growth or economic convergence in the world. On the other hand, many economists hold that this process greatly slowed down economic growth, diverged income levels, and widened the gap between industrialised and developing countries. Therefore, it is reasonable to analyse the effects of globalisation in the context of a specific international company to identify the degree of its effectiveness and flaws. I have selected Ford Motor Company for this assignment as it is the US’ second largest and world’s fifth largest automaker in terms of annual vehicle sales. The company has subsidiaries across the globe and its UK subsidiary is operated under the name Ford of Britain. While analysing the history of the Ford Motor Company, it is evident that the mid to late 1990s was the golden age of the company. During this period, the company sold large number of vehicles by taking maximum advantages of a booming American economy with quickly developing stock market and relatively low fuel prices. The situation extremely changed with the dawn of the 21st century. As a result of mounting fuel prices, legacy healthcare costs, and an unstable economy, the company experienced a considerable fall in its sales volume, market shares, and ultimately in profit margins in the beginning of the new century. By 2005, the company’s bonds were downgraded by corporate bond rating agencies, citing to the threatening market condition of the firm. Ford reduced its profit margins even on luxury models since the company was forced to spend higher costs to offset declining demand. The company substantially increased its borrowing capacity to $25 million in order to meet its mounting financial requirements. The skyrocketing labour costs also hurt the profitability of the company to a great extent. The company’s 2006 annual financial statements reported the biggest loss ($12.7 billion) in the history of Ford and the company management team identified that the firm might take long time to return to its profitability track. The company remained unprofitable in the next two consecutive years. The 2008 global financial crisis worsened the growth rate of the organisation as its all policy responses went in vain due to the negative impacts of this crisis. Although the company returned to profitability in the fiscal year 2009, it is still striving to improve or even stabilise its profit margins. The Ford is also affected by environmental issues as its production processes alleged to have threatened the sustainability of the environment. To illustrate, as Miller (2008) reports, the company was fined for violating state air pollution polices in Brook Park. ` Theoretical framework Conceptually, Globalisation refers to a process through which national economies and cultures are integrated into an international economy so as to enhance international trade, direct foreign investment, migration, and technology sharing. According to the concept, globalisation greatly contributes to effective and rapid circulation of ideas, languages, and cultural ideologies. Obviously, globalisation divided the history into two; age of manual labour and age of technical labour. This concept influences nations to liberalise cross border trade regulations by pointing to the significance of foreign investment and cross-border trade for international business expansion. The theoretical framework of globalisation envisages that this process would contribute to the rapid economic restructuring, and would assist nations to improve their political as well technological relations globally. According to Devetak and Hughes (2008, p. 34), globalisation connects nations through a global network, and it assists a nation to get access to foreign markets and customers. Economic models suggest that removal of trade barriers would promote import and export activities through which a government acquires foreign investments. In the opinion of Arnold (2008, p. 300), another fascinating feature of the globalisation is that it can keep inflation level lower. Many of the economists hold the view that globalisation will greatly benefit an economy since the framework of this concept allows nations to enter a potential offshore country that might offer favourable business conditions including cheap raw materials and labour, liberal government laws, and large number of potential customers. Globalisation would build a global financial market which would assist borrowers to get better access to external financing. This external financial assistance allows organisations to expand their business globally. In addition, globalisation and thereby the global interconnectedness help nations to attract more and more investors with intent to complete their capital accumulation process successfully. This favourable economic environment would increase the volume of national and international trade transactions which in turn would boost the rapid economic development of a country. At the same time, many of the globalisation frameworks indicate that this concept may cause troubles to economies in the long run. Many economists argue that globalisation will contribute to the growth of economic class system; and such an economic environment may not benefit a country’s balanced economic growth. Since the globalisation intends to meet the interests of high and medium class people, this cross cultural trade concept would further generate a poor class having more requirements. In the opinion of Weissman (2003), globalisation makes the rich richer and the poor poorer. Since the globalisation provides wider market access to businesses, this situation may allow corporate giants to exploit domestic and traditional marketers. Opposing models of globalisation reflect that this concept would encourage people to migrate to developed countries since those countries can offer more attractive economic benefits to migrants. Subsequently, underdeveloped countries would lose their potential and skilful employees. In addition, some theoretical models illustrate that offshore production facilities and technological advancements may result in an increased unemployment rate, which is one of the major factors determining the growth of an economy. Some of the policy makers opined that the increased dependence on machineries and other technical equipments would make human work monotonous. This condition would destroy the immense potential of human power. Finally, the increased technological developments may augment environmental issues such as global warming and green house effect. Analysis While analysing the corporate history of the Ford, it is seen that the company’s ‘Ford Taurus’ dominated the American automobile market in 1992 by replacing the Honda Accord; Ford Mondeo model was announced in Europe in the same year. In addition, the company introduced its first front wheel drive car in 1995. During this era, the company brought a range of technological innovations to its product lines to make its automobiles the most selling brands in the global market. It is identified that the process of globalisation had played a significant role in assisting the company to develop innovative product features. As discussed earlier, the fruitful policies of the globalisation aided the company to offshore its production plants to the world’s different regions where it might obtain uninterrupted supply of cheap production inputs such as raw materials and labour. Globalisation and the associated tremendous developments in technology were the central elements which assisted the company to introduce technologically improved products. According to theoretical concepts, globalisation will directly lead to an industrial revolution and this process in turn will largely reduce manual labor. This concept absolutely worked in the case of Ford Motor Company, and the firm reduced its cost of production considerably on the strength of highly developed technological applications. In addition, the increased application of technology in productive activities assisted the company to augment the volume of production. Increased production volume and high rate of sales largely increased the transactional volume of the Ford Motor Company and hence the company faced difficulties with running their operations smoothly. This condition forced the organisation to develop further technologies. Porter and Miller (1985) state that every business organisation tends to deliver its services more effectively, and hence it would long for further technological developments frequently. In 1996, the Ford’s all plants in 26 countries were certified with ISO 9000 quality standards. In the subsequent years, the company discontinued many models and introduced a wide variety of technologically improved automobiles into the market. The company executed a series of mergers and acquisitions during the same period. Market analysts observed that information technology had played a notable in role in boosting the economic growth of the company during the late 20th century. Evidently, the explosive growth of information technology is one of the major outcomes of globalisation. The evolutionary growth in information technology completely restructured the communication strategies of the company and the way Ford’s official communicate. The IT developments greatly aided the Ford to carry out its managerial functions such planning, directing, organising, and controlling. However, the company’s golden age came to an end in the beginning of the 21 century and many of the economists hold the view that this economic downturn is the direct effect of globalisation. The 2008 global crisis and recession raised potential challenges to the Ford Motor Company because it extremely stunted the overall American economy. Soifer (2010, p. 163) points out, the crisis led to the collapse of a series of large financial institutions, the bailout of major banks by national governments, and downward movements in stock markets around the world. In addition, this worse situation negatively affected housing market, which in turn resulted in evictions, foreclosures, and prolonged vacancies. Furthermore, it intensified the failure of key businesses, consumer wealth declines, and economic activity downturns; and these conditions gradually developed to severe global economic recession in 2008. Frequent fuel price hikes were one of the notable impacts of the 2008 global financial crisis which kept customers out of the Ford’s showrooms. As Clark (2008) reports, although the Ford management had vehemently tried to deal the situation, its shares dived by 8%. Since consumers were concerned about the cost of petrol, they sought for more fuel efficient cars; this situation worsened the market operations of the Ford because the company lacked adequate financial resources to develop such products that time. In order to survive the situation, the Ford management reduced its work force and this strategy caused more job losses in the company. According to International Labour Organization (ILO), the crisis and related effects greatly hit the global employment sector and the ILO also forecasted continued labour market deterioration in subsequent years (International Labour Organization, 2008). In addition, the Ford management trimmed down the wage rates of its employees in order to raise additional funds to meet the company’s increasing operational expenses. Hence, the financial crisis has adversely affected the overall employment division of the Ford Motor Company. Deepak Nayyar’s theoretical framework connects the issue of unemployment and wage rate cuts to the emergence of globalisation. Adverse inflationary pressures also added fuel to the market difficulties of the company since consumers had postponed their purchases. In the opinion of Taylor (2006), in order to overcome these troublesome market issues, the company management designed a comprehensive North American restructuring plan. According to this framework, the company closed its ten plants. The company reports also indicate that nearly 30,000 employees may lose their job over the next five years. The Ford’s economic downturn resulted from the 2008 global economic crisis and recession poses questions regarding the significance of globalisation. The experience of the Ford supports the view that the globalisation would not make any improvements in employment or wage rates. Many of the globalisation models had warned policy makers that globalisation would restrict national governments from effectively regulating the trade operations. These models also strongly argued that governments would not have a significant role in international trade as they are forced to keep their national boundaries open to foreign traders. Obviously, weaker financial regulations in this regard have played a crucial role in worsening the issue (CPDS, 2003). Due to the liberal cross border policies of globalisation, the Ford obtained more operational freedom and the hence company initiated some unnecessary mergers and acquisitions on the strength of this free business environment. Market analysts point out that such thoughtless business contracts of the company were some of the major pitfalls that threatened the existence of the firm in the context of the global financial crisis. The United States maintained an immigration approach that pressured the native workers’ wages, and eventually this thoughtless strategy forced the government to support a massive indebtedness to compensate the stagnation of wages. Many of the economists hold the view that these policies really impeded the survival efforts of the Ford Motor Company during the crisis. Although, the Ford strives to ensure environmentally sustainable operations, it is still away from the concept of eco-friendly business. To illustrate, the company recently faced a lawsuit by the residents of New Jersey town over the issue of a toxic waste dump. The plaintiffs argued that this careless waste dump caused many people to suffer from cancer and skin problems. Such environmental issues of the company can also be linked to the adverse impacts of globalisation. Conclusions and recommendations Ford Motor Company faced a series of difficulties over the past few years due to the negative effects of globalisation even though the company had got benefited from it by the end of the 20th century. Some of the theoretical frameworks argue that globalisation will benefit global economy whereas some other models point out numerous pitfalls of this concept. From the analysis session, it is identified that globalisation will not benefit economies in the long run although it had fostered economic growth at the initial stages of this concept. It is evident that cross border liberalisation polices restricted governments from supervising the trade activities of nations. This unhealthy economic environment contributed to the 2008 global financial crisis. It is advisable for governments to ensure more involvement in the financial affairs of business in order to promote a sustainable economic growth. China has already formed a set of strict regulations towards foreign marketers with intent to ensure the survival of the country’s traditional industries. While scrutinising the global financial crisis and recession, it is obvious that many of the arguments of globalisation critics including that of Deepak Nayyar are factual. Nayyar has pointed out that the four dimensions of financial market internationalisation such as foreign exchange, bank lending, financial assets and government bonds significantly fuelled explosive growth in international finance. However, they had a range of adverse impacts on the global economic growth. In addition, the ratio of government debt held by foreigners increased in industrialised countries like UK, France, and Germany as a result of increased global market transactions. In short, large scale financial operations in global market caused a significant increase in public sector debt which was the root cause of 2008 global financial crisis and recession. Therefore, all the recent global market difficulties could be attributed to globalisation. Therefore, it is recommendable for economies to plan a de-globalisation process. In sum, the emergence of 2008 global financial crisis and related recession justified the authenticity of globalisation opposing models. Hence, the global economic crisis over the last few years influenced economists to conduct a review on the globalisation concept. It is advisable for economies to adapt to a new phase of capitalist imperialism characterised with the return of state intervention and protectionism. The process of de-globalisation would assist governments to minimise their dependence on trade. It will also help them delink themselves from the beleaguered global financial system to a certain extent. Evidently, many countries have already moved towards a de-globalisation process in order for achieving a stable and sustainable economic growth. To illustrate, Malaysia has planned Buy Malaysian campaign, Philippines has its own Buy Filipino campaign, whereas the US has recently designed a Buy America campaign. Referring to the Ford’ experience, it is obvious that globalisation created a range of impediments to economic uplift of economies. Moreover, this concept widened the gap between industrialised nations and developing nations and it also caused income inequalities across different sectors of a country. Since the efficacy of employment sector plays a crucial role in determining the economic growth of nations, globalisation would not be beneficial for economies as evidences suggest that this concept negatively affects employment rates. Finally, it is observed that globalisation greatly threatens the environmental sustainability as large scale production generates huge volume of industrial wastes which destroys the ecological balance. Since environmental safety must be one of the major objectives of every modern business organisation, it is advisable for firms to abstain from activities that would threaten the environmental interests of host countries. In short, a de-globalisation process is recommendable for countries to get rid of the negative impacts associated with the recent global financial crisis attributed to globalisation. References Arnold, RA 2008, Macroeconomics, South-Western Cengage Learning, USA. Clark, A 20 June 2008, ‘Automotive industry: Carmaker Ford facing dire financial crisis’, The Guardian, Viewed 06 December 2011, CPDS 2003, ‘The second failure of globalization? (2003 and 2008+)’, Viewed 06 December 2011, Devetak, R & Hughes, CW 2008, The Globalization of Political Violence: Globalization’s Shadow, Routledge, Abingdon. Hin, LK 2006, ‘Malaysian Chinese Businesses in an Era of Globalization’, L Suryadinatha, Southeast Asia’s Chinese Businesses in an Era of Globalization: Copying with the Rise of China, Institute of Southeast Asian Studies, Singapore. International Labour Organization 2008, ‘ILO says global financial crisis to increase unemployment by 20 million’, Viewed 06 December 2011, Miller, DJ 2008, ‘Ford motor fined for violating state air pollution rules in Brook Park’, Cleveland.com, Viewed 06 December 2011. Porter, ME & Millar, VE 1985, ‘How information gives you competitive advantage’, Harvard Business Review, pp.1-13, Viewed 08 November, 2011, Soifer, P 2010, Cliffs Notes: AP U. S. Government and Politics, Wiley Publishing, USA. Taylor, A 2006, ‘Ford's fight for survival’, CNN Money, Viewed 06 December 2011, Weissman, R 2003, Grotesque inequality: Corporate globalization and the global gap between rich and poor, Multinational Monitor Magazine, Viewed 06 December 2011, Read More