Ford vs. General Motors in Asia - Assignment Example

Q1. What grade would you give CEO for the job he has done as CEO of ford & CEO of GM? Support your answer based on how well (or not so well) he has performed the five tasks of strategic management. Ans. Ford By the 1990s, the Ford Motor Company had realized that the future for survival and growth in the automobile sector lay in Asia and Asia-Pacific. Over production, and increased competition, availability of used cars, and many other factors had led to saturation in the European and North American car market. With full exploitation of the conventional markets, the growth of auto industry shrunk to a mere 0.7% in 1998. Companies including Ford and GM made strategic plans to exploit the Asian market especially that of China and India. On the performance of Ford in the Asian Car Market, we would give the Ford CEO, a less than satisfactory grade. Though the Ford presence in Asia began in earlier part of the 20th century but it was more less a part of its global vision. However, it was only in the 90s that company went into an overdrive to establish production facilities in Asia, sell some of the modernized variants of cars available in the rest of the world in the by gone era. Strategic Management The Five Tasks of Defining businesses are: Stating a mission, and forming a strategic mission. Setting measurable objectives Crafting a strategy to achieve objectives Implementing and executing a strategy Evaluating performance, reviewing new developments, and initiating corrective adjustments. Stating a mission, and forming a strategic mission. Ford has been lacking in stating mission objectivity of operating Asia. The strategic mission of Ford is to maintain a global vision but in the current scenario its needs to thrash out an Asia-centric policy because it is not only the biggest potential automobile market but also is a low cost area. Setting measurable objectives Ford’s entry into Asia was more need driven and frantic and lacks a long term planning. Ford introduced into India, the variant of internationally acclaimed Ford Fiesta, in the late 1970s, as its vital marketing weapon. It is another matter that the car met with a huge response, but to introduce a car of 1970s era, in the cut-throat competitive world of Indian car market today, is nothing less than ridiculous. Indian auto-market dominated by small Japanese and Korean industry needed a small fuel efficient vehicle from Ford. The same car was a total flop in Asia. Though now, Ford dreams of capturing a 10% market share (GM) in Asia by 2010, yet it has no custom made car to suit local conditions, in the thriving Indian, Chinese, Indo-China, South-east Asian, Japanese market. Ground realities in each Asian country are different and Ford needs to strategize accordingly. Hence, the company is awfully lacking in setting measurable targets. Crafting a strategy As mentioned earlier Ford’s Asian strategy is lacking in coherence, consistency, and commitment. The company’s attitude can be best described as frantic, as it fends of competition, from earlier arriving and well-entrenched competition in big Indian and Asian markets and remains shy of the Japanese mainland. The Japan based Mazda arm of Ford could have been more fruitfully exploited to give competition to the Korean and Japanese lean technologies. Ford doesn’t have a separate division to spearhead its Asian operations. Even the fiscal results are clubbed with low-performing Latin American and African markets. Implementing and executing a strategy The business strategy of Ford lacks focus, innovation, planning and initiative. By 1990s, there were only three Ford manufacturing plants in whereas Asian countries offer the most economical production conditions. The company has to enter into quick tie-ups with local manufacturers, effect acquisitions or go alone. Besides, the company has to strengthen its market and after sales services. All cars of the Ford stable should be available to the Asian customer. Evaluating performance, reviewing new developments, and initiating corrective adjustments. Ford has to go develop a Vision Asia that is much different from the Western model. The consumer in most Asian countries needs an optimization of economy and luxury and a choice. Ford shouldn’t enter the risky finance and credit market of China because of ambiguous rules of Chinese governments. It should, on the other hand, enter into strategic tie-ups with local banking and finance corporations in each Asian country to boost its sales graph. The income figures before (taxes) from combined Latin American, Africa, and Asian Pacific markets was a measly $276 million and 55 $ million in the net global losses of 4853 $ million and 1996 $ million in 2004 and 2004 respectively. This is not due to a less loss making Asian arm of Ford, but because of its smaller presence in Asia. Ford has to shed its conservative attitude and adopt an innovative and a pro-active Asian auto market policy to stay in business. If augmented well, the Asian markets could, well become a critical factor in the global success of Ford. GM I give the CEO GM, a higher grade than the Ford CEO in strategic management of the company in Asia. The performance of GM has been almost satisfactory in past decade, though it is on a downswing currently. The company has exhibited an ‘early bird’ attitude in China and clung on to exploit the potential. Unlike Ford, GM has an Asia-Pacific Division to look after its interests in Asia. GM has a multi-pronged strategy for the Asian market. Though the company suffered major losses in it global operations, the company is serious about staging a turnaround in its fortunes by becoming an Asia-centric entity. In the words of Jack Smith, CEO, GM, in 1994, “global integration is an opportunity not a problem.” Stating a mission, and forming a strategic mission. GM has a Asian vision but it is more confined to activities in China. GM has to emerge from its Chinese obsession to see the entire Asia as a potential market zone. Setting measurable objectives GM Asia-Pacific is one of its four global arms. GM cashed on its arrival and was successful in becoming the second-biggest automaker of China. The company acquired the Daewoo brand in India to augment its Indian operations. It has maintained a strong presence in Asia with its production facilities, sales and service network. It has believed in generating profits by delivering higher number of units in maximum variety. With Suzuki, the company has a vision to develop sub-compact, environment friendly and fuel efficient cars. Crafting a strategy Till now GM has successfully crafted a policy of dominating the Chinese and the Indian markets and staying away from highly competitive Japanese and Korean markets. It has made strategic tie-ups with Chinese corporations to give value added services to buyers. In early days of Indian liberalization, GM tied up with an old hand, Hindustan Motors to introduce one of its successful European models the Opel Astra. Implementing and executing a strategy GM has earnestly applied itself in the execution of its strategy. In China, the company is the biggest foreign car manufacturer. In India, it has made its presence by acquisition of Daewoo and being a leading sales and service provider of cars of different shapes and sizes. Evaluating performance, reviewing new developments, and initiating corrective adjustments. Despite heavy investments in Asia-Pacific region, a large volume turn around the net losses suffered by GM in Asia in auto business is a small $220 million compared to its total losses pegged at $10,228 million. Its market shared has risen from 4.9% in 2003 to 5.8% in 2005. However, the dropping of net margins of GM Asia-Pacific from 10.8% in 2003 to 2.0% in 2005 should give enough reason for introspection to GM. Though GM is doing well in many countries of Asia but it has failed to open its account in the Japanese market despite technological acquisitions over there. Q 2. Has Ford’s strategy resulted in a sustainable competitive advantage over rivals GM? If so, what is the nature and source of the advantage? Ans. Definitely, Ford’s strategy has resulted in a sustainable competitive advantage over its traditional rivals GM. GM has a very strong US presence. Often, the brand GM, much to the annoyance of the company, is associated with US only. Charles E. Wilson, a former GM Chairman had stated: “What is good for General Motors is good for the country, and what’s good for the country is good for the General Motors.” However, the ‘country’ in the original speech had stood for USA and stands for USA till today. Despite its best efforts it has not been able to develop a global brand following. On the other hand, though Ford too maintains a strong US base, it has significant presence all over the world. Ford has acquired this competitive advantage by doing activities much other than business in the developing and developed world. It has associated itself with community projects, invested in education and health of the people worldwide. Ford does a little bit extra work than GM to become popular amongst the global customer. This gives Ford a competitive advantage which it exploits to the maximum. Q3. What was CEO’s original strategic vision for Ford & GM in China? Is his present strategic vision for GM & Ford different from the one he had in the 1997s? How many times has his strategic vision changed? Is his present strategic vision likely to undergo further evolution? Ans. The Chinese foray of Ford and GM throws up some interesting facets of strategic management. GM GM entered into the Chinese market by staging strategic tie-ups with Chinese companies. The law in 1997 mandated foreign collaboration with a ratio equity sharing of 50:50. GM collaborated with Shanghai Automotive Industry Corporation Group (SAIC) and invested $ 1.5 Billion. Other venture of GM in China was Pan Asia Technical Automotive Sedan. GM began with a limited portfolio of introducing Buick Regal and Buick Excellent. For the first five years it was a smooth run for GM in China. But now the tactics of GM in China have changed. Chinese auto-market is set to grow and surpass the US by 2025 in production volumes. The Korean and Japanese car manufacturers are introducing smaller and fuel efficient cars in China. The phase of piggy back riding for GM in China is over. It has deep penetration into the Chinese territory. It no longer requires the support of local companies to develop its customer relations. GM is all set to go whole hogs and go alone in China. GM is now focusing on developing more manufacturing units in China to supply a range of vehicles not only to the Chinese market to the international market. The strategic vision of the CEO in China has change only once and that too after the first smooth run of five years beginning in 1997. By 2004, the competition started to strangulate GM and it opted for changing of tacks. Ford in China The story of Ford in China in 2007 is similar to what it was in 1997. In 1997 it yearned for its share of pie in the Chinese market, and it continues to do so now. Following the GM, Ford too tried to effect strategic tie-ups with Chinese companies to gain a foothold. But none of the Ford’s larger commercial vehicles or its sedan Fiesta found takers in China. Then it tried to bring 13 other models which too failed. But now Ford is more hectically pursuing the goal of becoming a leading manufacturer of China by establishing ancillaries in association with Chinese markets. Ford expects to produce more commercially viable cars and engines in China, with the help of Mazda Motors Corporation and Changan Group. Ford is in now mood of shedding its conservative mood in China and is more active to spot opportunities. From a reluctant retailer in China, Ford is now a determined manufacturer. There is an overall change in the mindset of the CEO. Q.4 Assess the main opportunities and threats that confronted the company in 1995 in India, and make 3 recommendations to the CEO concerning the most important strategic actions that the company should undertake in the next 3 years Ans. In 1995, when Ford and GM were making their first inroads into the Indian territory they faced a situation quite different from now. The Indian auto-market was dominated by the government controlled Maruti Udyog Limited. MUL was Suzuki-Indian government car collaboration to manufacture small cars for the Indian middle class. The Maruti was exempt from excise duties. Maruti had a well entrenched sales and service department. The trade liberalization policy was new and government of India was protective about its company, the Maruti Udyog. Foreign investment was allowed only though co-equal Indian partners. Since the companies were new to India, they cobbled up alliances with small companies like Hindustan Motors and Mahindra and Mahindra to get a foothold in the Indian market. Surely, the Ford Escort and Opel Astra introduced by Ford and Opel Astra were runaway successes. The opportunity existed due to absence of sedans and luxury saloons. The middle class Indian had the money power to buy sedans. The big car segment was the biggest opportunity that existed in 1995. The CEOs of Ford are recommended to make the following decisions in the next three years to gain competitive advantage in India. 1. The sedan market of the automobiles in India is saturated. The companies should focus on selling compact cars in competition to the smaller cars of Hyundai and Suzuki. They should try to make small, cost effective car and fuel efficient car that could well serve as the replacement of the big two-wheeler market. 2. Maruti still holds a superior position due to its efficient after sales and service, and distributor network spread out all over the country. GM and Ford should concentrate on improving their sales and service network. 3. Indian commercial vehicle segment of heavy and light trucks still doesn’t have much competition with a local company Tata Motors holding sway over it. The CEO should focus to retail commercial vehicles more than the passenger cars. Read More