Porters Five Forces of Ford and the World Automobile Industry in 2009 - Case Study Example

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This paper analyzes Porter’s Five Forces of Ford and the world automobile industry in 2009. The automobile industry has a higher scope compared to other industries within the global market. The increase in demand for automobiles has been the driving factor for a high scope of the industry…
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Porters Five Forces of Ford and the World Automobile Industry in 2009
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Download file to see previous pages Ford’s main products include cars, trucks, and SUVs with different types of brands such as Jaguar, Volvo, Ford, Mercury, Lincoln, Aston-Martin, and Land Rover amongst others. Ford also has a finance division, parts, and service department, and they own Hertz Corporation, being the largest car rental firm in the world.
In 2003, Ford was second after a pre-tax profit of about $ 1.3 billion despite a $ 1.1 billion loss in North America. Nevertheless, the company experienced significant losses between 2000 and 2008 attributed to rising costs of commodities, ongoing and rising healthcare expenses, lagging behind of sales of vehicles, and bailing out of major parts suppliers from bankruptcy such as Visteon. Ford recorded huge losses in the fiscal years 2000 to 2008 as shown in fig. 1. The following is Porter’s Five Forces analysis explaining this trend. Various models used in industry and firm analysis to develop the right managerial strategy. Strategic management is complex due to dynamism and turbulence in the business environment. Nonetheless, through Porter’s five forces model, organizations are able to identify areas requiring overhauling for effective and efficient performance (Blake, Cucuzza, Rishi, 2003, p. 11). Like many other firms, Ford’s strategic management can be enhanced through deeper insight into five forces that have been reducing their competitive advantage from 2006 to date hence recording such huge losses.
Porter described a competitive advantage as significantly influenced by five forces; the bargaining power of buyers, the bargaining power of suppliers, the intensity of competition rivalry, threats of new entrants, and threats of substitutes. These same forces led to Ford’s current economical situation (Windecker, 2004). In each of the below forces, a conclusion regarding rating in a scale of 1 to 5, 1 being very weak and 5 very strong are provided. The full scale is as follows; There is a high intensity of competition coupled with increasing demand for automotive products in major markets. Hence, consumers have a variety of firms to choose from unlike during classical time when there were limited manufacturers. United States of America and European Union consumers have a high bargaining power necessitated by the availability of information regarding various products (Grant, 2010, p. 49). The buyers in the automotive industry are powerful due to the unavailability of the grand proliferation of companies that manufacture automotive. In addition, the largest automotive manufacturers within the US have approximately 90% value shipped hence adding value to the product. Another important feature of the automotive industry in the US is the fair standardization of parts used in the assembling of products (Waraniak, 2001). Moreover, the industry is highly characterized by backward integration. All these features have led to the high bargaining power of buyers as most of the products are of almost the same qualities. Consumers in the automotive industry have higher bargaining power because natures of automotive commodities are fairly standardized. In addition, consumers incur low costs of switching when selecting an automotive product amongst competing brands (Waller, 2004, p. 19). Fair standardization and low switching costs are the factors that contribute to the higher bargaining power of buyers in the automotive industry. ...Download file to see next pagesRead More
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