International Business Strategy for Ford Case Study - Essay Example

? International Business Strategy for Ford Case Study Table of Contents Question 4 PEST Analysis of Ford 4 Political forces 4 Economic forces 4 Social Factors 6 Technological Forces 7 Opportunities of Ford Company 8 Threat of Ford Company 8 Barriers to Entry 9 Question 2 9 Strengths 9 Weaknesses 10 Ford’s Strategies to Address Internal Weaknesses 10 Key Strategic Resources and Core Competencies 11 Question 3 15 SAF Framework 15 Question 4 20 References 23 Question 1 PEST Analysis of Ford Political forces The political forces influence the strategic decisions of Ford Motor. Government regulations and laws are now more concerned with the production of eco-friendly automobiles. The whole industry is concerned with the environmental issues such as reduction of the pollution levels of cars. This regulation led to the development of an all-electric car. Ford also started to build electric cars. The political forces facing this industry are getting more and more severe. There are many groups in the society which are demanding stricter environmental norms for the automobile industry (Hoffman, 2012, p. 211). Ford has so far done a good job in maintaining the image as a worker’s truck. Ford has attracted the attention of other social and economic groups which have high-class luxury vehicles. Ford operates in many international countries such as Australia, Japan, UK and America where the business operations are conducive. In 1975, the Corporate Average Fuel Economy took effect, and Ford was able to abide by the regulations. Non-compliance with these laws caused heavy fines, which would prove costly to the company. This made Ford manufacturer one of the most fuel efficient and environmentally friendly cars. The Government also discourages Ford to fully automate its operation which would otherwise result in increase of the unemployment rate. Economic forces The leading manufacturers of the vehicles were mainly companies from United States, Western European and Japanese companies. Ford used to produce more vehicles outside their home country than within their own country. The auto industry remained fragmented. In 2010, there were a total of 18 manufacturers with their annual output being more than 1 million vehicles. 3-firm concentration ratio which is measured by the units of production was around 31.5 percent. There were many mergers and acquisitions in the auto industry; still they faced new competition from other countries especially India and China. Figure 1: Mergers & Acquisitions among the major automobile manufacturers. (Source: Ledderhos, 2003, p.68) (Source: Ledderhos, 2003, p.67) Strong competition from the companies forced Ford to go for cost reduction through economies of scope, economies of scale, worldwide outsourcing, off-shoring, just-in-time scheduling and collaboration. In spite of the many cost reduction techniques, the major automakers were still unable to rival the low cost automakers from India, China and elsewhere. The euro zone crisis further exasperated the problem of Ford (Ireland, Hoskisson and Hitt, 2010, p. 75). Social Factors The social factors which affect Ford are the changes in the social classes in the world market. With increasing globalisation the car market is witnessing increase in spending from the middle and upper middle income families all across the world. The lines between the social strata are diminishing. Hence companies all around the world are now targeting the middle income group to increase their volume sales. This helps the motor company in expanding their market across the world. This results in more manufacturers coming out with products which cater to the middle income people and results in rise in competition (Stead, Stead and Starik, 2004, p. 89). The consumers are now demanding better quality, safer vehicles at lower prices which have forced Ford Company to produce cars at cheaper ways like outsourcing the parts of their production in outside countries. Hence the company needs to adopt new processes and methods of creating attractive, unique automobiles which appeal to the consumers. Technological Forces The automobile industry is characterized by uncertainty over the technology and design of motor car. The internal combustion engine competed against the steam propulsion technology and electric motors (Hewitt, 2008, p. 32). Introduction of transmission system, brakes, and steering systems indicated the remarkable range in the technologies and design in the automobile sector. Over the years the designs and technologies have converged. Model T of Ford with its water-cooled, front-mounted and four-cylinder engine showed the dominant design in the cars. Throughout the twentieth century the convergence continued with the emergence of new and improved technologies (Johnson, Scholes and Whittington, 2008, p. 431). Like the launch of Air-cooled engines in VW Beetle. After that Power trains with four cylinders came in the larger cars. Following that front-wheel drive became the standard in the smaller cars. Like this the Technological progress in the auto industry was incremental in nature, like the introduction of new safety features, new materials, multivalve, electronic fuel injection, satellite navigation systems, variable suspension, intelligent monitoring systems. Opportunities of Ford Company Ford Company forecasted high demand in the major markets across the world. Major growth was forecasted in the alternative transport modes which included shared car ownership. This indicated the decline in the private use of the automobiles. Ford Company has indicated that in the industrialized countries like Latin America and Asia there will be major growth in their sales figure. Many market analysts have predicted that there will be intense competition among the established auto makers. This is indicated by the mergers and Acquisitions which is happening. Launch of all electric cars represents major prospects for the company since it opens them to a whole new segment of customers (Hitt, Ireland and Hoskisson, 2012, p. 223). This sector now has little market share, less environmental regulations and less environmental concerns. Depleting of oil reserves also presents another opportunity to this type of electric vehicle. There has been success in terms of both profit and sales margins of many small cars like Fiat Cinquecento and BMW Mini. The consumer preference in US is shifting with more emphasis on aesthetics, fuel economy and safety. This presents an opportunity for Ford to capture new market and improve their profitability. Threat of Ford Company The company is facing tough competition from other companies. Though the economic conditions across Europe are slowly recovering, the demand from the European countries is still in a slack. Hence the company has to face low sales volume across European countries. The investment into the hybrid and electric cars can be a threat to the company also. If the cars are not accepted by the consumers, the entire investment can earn no interest at all. Figure 2: Sales Figure of Ford Company ($ billion) Barriers to Entry Threat of Barriers to Entry is low. The increasing complexity of the automobile industry makes it difficult for any new players from entering into the industry. They need to make huge capital investment and also achieve economies of scale. Without it, the company will not be able to make much profit. Any new player has to amortize the huge development cost over a large number of automobiles to make profit. Besides the established players have already established distribution centres, have entered into contract with the franchisees. Hence for a new player it will be difficult to enter into the market. Question 2 This part of the report will conduct an internal environment analysis of Ford Motor Company. Strengths Ford is one of the leading automakers in this world. The organization has great reputation in both home and international market place. Effective product development and eco-centric approach helped the organization to attain significant growth rate. Implementation of “One Ford” approach after the crisis helped the organization to manufacture single and streamlines line-up for several vehicle models around the globe. The demand for its vehicles is significantly growing among the people of both developing and third world countries. The organization made significant profit after the crisis. The “One Ford” strategy of the organization helped the organization to reduce both operational cost and time. The organization cut down its workforce from 295,000 to 148,000 to reduce operation cost. High automation and introduction of small cars according to the current market trend increased the profitability of the organization in the post-crisis era (Krach, 2008, p.72). Weaknesses The organization has been criticized for its lesser efforts to decrease the level of environmental pollution. High operational cost structure and lost market share in European market can be considered as one of the major weaknesses of Ford Motors. Despite several advantages, the organization faced huge ethical issues after the crisis era (Boone and Kurtz, 2010, p.34). Massive job cut affected the organizational culture of the organization. Too much automation forced the management to reduce the employee strength. Massive job cut without prior reason created workplace conflicts between the managers and employees. High employee turnover is the major issues for the organization. Ford’s Strategies to Address Internal Weaknesses The organization adopted several strategies to address its internal weaknesses. The global automobile industry faced huge downturn and market losses due to the financial crisis of 2007-08. This financial crisis also affected the business performance of Ford Motor Company. The organization faced a huge loss of 14.7 billion US dollar in the year 2008. However, the organization has been able to turnaround from that stage. The organization started to offer fuel efficient small cars for the consumers in order to meet the current market demand and back the affected purchasing power of people. In addition to this, the organization was facing huge legal problems due to its limited effort to decrease the environmental pollution (West, Ford and Ibrahim, 2010, p.95). The organization tried to introduce eco-friendly green cars and fuel efficient cars to address the environmental issues. The organization is also trying to introduce electric cars to avoid the consumption of fossil fuels. It is true that high consumption of fossil fuel can increase the carbon emission level. The organization is trying to introduce electric and fuel efficient green cars to address these particular weaknesses. Ford Motor Company took the initiative to reduce the strength of workforce in order to reduce the business operation cost. In addition to this, the organization adopted and implemented new advanced technological tools and processes in business operation in order to produce high quality cars in low price level. However, the organization could not address its major weaknesses like high employee turnover as the management of the organization adopted the retrenchment strategy. It actually affected the brand image and workplace performance of the organization. Key Strategic Resources and Core Competencies Value chain analysis and VRIO model has been adopted in this part of the study in order to determine the core competencies and key strategic resources of Ford Motor Company. Value Chain Analysis This analytical tool can help Ford motor company to determine its internal aspects and core competencies. Human Resource Management The organization is facing critical issues in human resource management as the management of the organization is going for massive job cuts in order to reduce the overall business operation cost. Technology Development Ford Motor Company is adopting advanced technology in business operation processes to maintain the flexibility of the manufacturing process of the organization. In addition to this, the organization always tries to source effective technological processes and tools in order to maintain the efficiency in each and every business operation processes (Folsom and Boulware, 2009, p.436). Procurement Strong and effective relationship with global suppliers is helping the organization to maintain efficiency and business operation cost. Inbound Logistics Strong logistics and supply chain network helped the organization to reduce lead time and cost. One Ford approach helped to bring efficacy in the inbound logistics. Operation Significant adoption of differentiation and cost leadership strategy helped the organization to gain competitive advantages and develop potential global client base. Outbound Logistics The organization effectively depends upon the collaborative relationship with the external first tier suppliers to source effective resources in low cost. Marketing The organization is focusing on merger and acquisition strategy in international market places to gain competitive advantages (Hill and Jones, 2008, p.208). Joint marketing agreements and aggressive marketing strategies are helping the organization to create significant awareness about new products in the mind of target customers. Sales The sales growth rate of Ford Motor Company is increasing due to adoption of new strategies in the business operation processes after the crisis. VRIO Model This model has been applied in this study in order to determine the key strategic resources of Ford Motor Company. Resource Valuable Rare Costly to Imitate Organized to Capture Value Implications Production and Distribution Capability Yes No No Yes Sustained Competitive Advantages. Cost leadership and Economy of Scale Yes No No Yes Sustained Competitive Advantage. Expertise in Manufacturing Technology Yes No Yes Yes Sustained Competitive Advantage. Differentiation and Brand value Yes No Yes Yes Sustained Competitive Advantage. Global Distribution and Supply Chain Network Yes No Yes Yes Sustained Competitive Advantage. Research and Development Team Yes Yes Yes Yes Sustained Competitive advantages. Leading carrier relationships in global market place Yes No Yes Yes Temporary Competitive Advantages. Supremacy in Large Market No Yes Yes Yes Temporary Competitive Advantages. Quality control and Brand Image Yes No Yes Yes Temporary Competitive Advantages. Effective Engineering Competence Yes No No Yes Temporary Competitive Advantages. Capital Management in Profitable Manner No No No Yes Temporary Competitive Advantages. Employee-Management Relation No Yes Yes Yes Temporary Competitive Advantages Question 3 Global automobile industry is considered as one of the potential and saturated industry as several organizations within the industry are trying to implement unique business operation processes in order to gain significant competitive advantages. SAF Framework A strategy assessment framework has been implemented in this part of the study in order to determine the progression of Ford Motor Company with respect to the changes in several external and internal environmental factors. Strategy evaluation or assessment matrix can be categorized into two different parts, such as internal evaluation or assessment framework and external evaluation or assessment framework. Internal Evaluation or Assessment Framework of SAF Recent financial crisis and economic recession affected the business performance of the organization. It is true that entire automobile industry around the globe faced huge loss due to the reduced market demand and constant hike in fuel prices. Internal evaluation framework has been developed for Ford Motor Company based on its previous and present performances and position within the industry. It is true that the Ford Motor Company has able to address its several internal weaknesses and issues. Previously the organization was concerned about the use of advanced technology. In addition to this, the organization failed to produce and introduce fuel efficient and small cars. Demand for fuel efficient and green cars was significantly increasing among the people around the globe (Vollert, 2003, p.78). The business performance and productivity of the organization seriously affected during the era of financial crisis and economic recession. After this crisis, the organization adopted different strategy. Low business operation cost and effective introduction of fuel efficient small cars helped the organization to gain effective competitive advantages and develop potential client base. Following table is all about the company profitability of several leading firms within the global automobile industry. It is clear from the above table that the Ford Motor Company faced huge business loss between the year 2009 and 2010. However, newly developed strategies like new product development, introduction of fuel efficient and small cars, integration of advanced technology in the business operation processes, and the introduction of low business operation cost strategy helped the organization to retain its market share and existing customers. These strategies helped the organization to increase its profitability. Major weaknesses of the organization are high workplace conflicts. Massive job cut is the major reason behind the issue. The management of the organization decided to focus on automation process in the business operation. Therefore, the organizations went for job cutting strategy in order to balance the business operation cost (Chai, 2009, p.34). It is true that implementation of advanced technology is considered as highly cost associated business operation process. Therefore, they tried to limit the strength of workforce by introducing advanced technology in the business operation processes. In terms of business profit maximization, this strategy became successful for Ford Motor Company. But the organization faced legal issues due to this strategy. In addition to this, it developed problems like workplace conflicts and inadequate communication process between the top management and employees of the organization. This issue affected the brand image of the organization among the stakeholders of the organization. External Evaluation or Assessment Framework Industry external environmental factors are highly volatile and these changes are affecting the performance of entire automobile industry around the globe. Following external evaluation or assessment framework will determine the position of Ford Motor Company based on the impact of external factors on the business performance. It is clear from the above framework that the low purchasing power of people is affecting the sales of the organization. The recent financial crisis and global economic recession affected the global economic environment. Limited purchasing power and low disposable income of people are the major consequences of economic slowdown in the Central Asia, Middle East Asia and Latin America. Now-a-days, people are trying to buy fuel efficient and small cars due to constant hike in fuel price and high price of the large cars (Kupper, 2008, p.65). People are avoiding the consumption of large vehicles. It is true that several organizations are considering this issue in strategy development process, but negative mindset of people towards this industry due to affected economic environment is hampering the business performance of Ford Motor Company. However, Ford Motor Company has succeeded to overcome the developed issues and problems that were affecting the business performance of the organization. The organization faced huge business losses between the year 2000 and 2010. In addition to this, lack of differentiation, new product development, high price of vehicles and lack of introduction of small fuel efficient cars influenced its potential clients and customers to switch over different automobile brand. It was important for the organization to develop new strategies and address the issues in order to gain retain existing customers base and maintain business profitability. The organization gain huge political support from the government of the countries as these countries were facing economic challenges. It is true that automobile industry is a significant contributor to the growth of the economy of a country. In addition to this, Ford Motor Company understood the demand of people regarding consumption of vehicles. Demand for low priced and fuel efficient cars was highly increasing among the people due to the economic slowdown (Lennie and Tacchi, 2013, p.98). The organization implemented operational cost reduction strategy in the business operation process. In addition to this, integration of advanced technology in each and every business operation process helped the organization to offer modern and low priced cars for the customers. Implementation of green strategy and advanced technological tool is helping the organization to create huge brand awareness among the people within the society. Question 4 Disruptive technology is an innovation which improves any product or service in ways which is unexpected to the market, like lowering of prices or improving the design for new consumers. Products which are based on disruptive technologies are simpler, cheaper to produce, better performing, smaller and more convenient to use. In the beginning of the 20th century, first electrically powered cars and buses were launched. Around 28 percent of all the automobiles in the US were electric. Hence the main focus at that time was on the hybrid and all-electric cars. The government wanted the automakers to concentrate on green initiatives. Hence majority of the automobiles concentrated on reducing the emission through adoption of new technology which can make the environment less polluted as these electrically powered buses and cars came into existence. Through the introduction of these cars and buses were incremental in nature. The first hybrid car was developed by Ferdinand Porsche around 1897. It had an internal combustion engine which was powered by an electric motor. Then Toyota and Audi came out with their own version of hybrid cars in 1997. The launch of such all-electric and hybrid cars were much anticipated in the automobile industry though it got delayed. During this time there were many neighbourhood electric vehicles like site-transport vehicles, golf carts and maintenance vehicles. At the beginning of 2012, all the leading automobile manufacturers had their all-electric models in the development phase, though the only product which was mass-marketed was the Mitsubishi iMiEvs and Nissan Leaf. Ford Motor Company is a global automotive company they manufacture and distributes automobiles across six continents mainly in the central and Middle East, Asia and Latin America. The company has around 159,000 employees with total 70 plants globally. Ford Company has engaged itself with a number of CSR initiatives so that it can give back to the society something in return for the resources it has taken from them. Ford Foundation Visionaries Awards are given by the company to present awards to those leaders who have worked for the key social issues and thus have offered pathways for improved economic opportunities. It has resulted in increased social participation for the company. Ford announced $ 100,000 for 12 social innovators who through their constant effort and extraordinary vision improved the lives of millions of people. Ford has strived to reduce emission from their automobiles. Hence they have come out with hybrid and all-electric cars. This has reduced the emission standard to a great extent. In 2009, Ford had called for reducing the CO2 emission by 30 percent by 2020. In 2009, Ford had called for introduction of new models which will achieve best-in-class fuel economy. Ford also plans to cut the global water usage by 24 percent which will improve the energy efficiency in North America by 4.5 percent. Ford believes that the best way to make them sustain their profitability is to make their business model ad products more sustainable (Mullerat, 2011, p. 23). Ford reports the company’s progress towards their CO2 reduction goal annual in their CSR report. Ford discusses about its approaches towards their climate change policies, their fuel and vehicle technologies, ways to improve their fuel efficiency etc. This helps the company in facing the challenges of the industry. Ford also gives scholarship prizes to the school and college students who are enrolled in any accredited U.S. college or university. The first place winner gets $ 3,000 scholarships; the second place receives $ 2000 scholarship while the third receives $ 1,000. This shows that Ford Company is actively engaged into their CSR efforts (Paetzold, 2010, p. 21). Ford Company is now focusing on growing their sales volume by introducing new products across the world. The company has launched a new strategy plan to focus on new countries. Their new strategy was aimed at increasing the revenues earned, increasing their market share, production of hybrid and all-electric fuel efficiency. Ford also decided to implement all centralized decision making process so that they can concentrate on market opportunities both locally as well as internationally. With this process the top management of the company will become more engaged with the development of new products in the middle and central east. The company has to compete with the low products manufactured in Asian markets like China and Asia. Ford has also adopted its competitive strategy such that it can produce their cars at low cost by cutting down on the excessive cost involved in the production process. They have to cut down on the huge expenditure on raw materials through the introduction of online manufacturing process and focussing on one process rather than focusing on different segments of production and engineering. This strategy helps the company in establishing cost advantage so that the company can use it against its competitors. 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