Strategic Audit of Ford Automobile Company in the Middle East - Case Study Example

Strategic Audit of Ford Automobile Company in the Middle East Name Course Tutor Date Strategic Audit of Ford Automobile Company in the Middle East Executive summary This report is written to present a strategic audit of Ford automobile company in the Middle East. It will cover the Macro-environmental analysis (PESTLE analysis), competitive analysis (Porter's five forces) and the SWOT analysis. The Ford Motor Company is a multinational auto manufacturer founded in 1903 and based in Michigan, in the US (Scribd, 2013). The company sells commercial and automobiles vehicles under the brand of Ford and majority of luxury vehicles under Lincoln brand. Ford has a stake of 2.1% in Mazda a Japanese company, a stake of 15% in the Aston Martin Company of the UK, a stake of 49% in Jiagling, Chinese company and a range of joint-ventures in China, Thailand, Turkey and Russia (Muller, 2010). The market presence of Ford in the Middle East has generally been smaller, partially owing to past Arab boycotts of corporations working with Israel (Scribd, 2013). However, Ford and Lincoln automobiles are today marketed and sold in ten nations in that region, Kuwait, UAE and Saudi Arabia, being the biggest markets. Kerwin (2002, p.49) claims that it has been accomplished that because of the stiff competition in that industry, and owing to the adjustments in the environmental facets, Ford Motor Company requires focusing on enhancing on their weaknesses so as to avoid and prevail over the threats. Table of Contents Strategic Audit of Ford Automobile Company in the Middle East 2 Executive summary 2 Table of Contents 3 1.0 Introduction 4 2.0 PESTEL analysis 4 2.1 Political 5 2.2 Economic 5 2.3 Social 6 2.4 The Technological environment 7 2.5 Legal 8 3.0 Competitive Analysis 9 3.2 The bargaining power of suppliers 10 3.3 The threat of substitutes 10 3.4 The competitive rivalry 11 3.5 The bargaining power of buyers 11 4.0 SWOT analysis 12 4.1 Strengths 12 4.2 Weaknesses 13 4.3 Opportunities 14 4.4 Threats 14 5.0 Conclusion 15 6.0 References 15 7.0 Appendix 17 1.0 Introduction The auto industry is one of the most competitive industries in the world because of several companies within this industry (Jurevicius, 2013). In this industry, globalization started early enough and all what the companies does is to change strategy quite frequently to gain the competitive advantage. Changing markets require new strategic reactions which need new changes to be made to the existing structures at any particular time. According to Muller (2010) auto report indicates that in 2003, Ford through its distributor in the Saudi Arabia sold up to 100,000 Ford and Lincoln automobiles since starting its operations 1986. This shows that the company has potential to do well in future markets in the Middle East. This can be driven by management assurance and strategic plan where management uses unique competencies and identifies the value proposition in initiative in the region (Jurevicius, 2013). This industry can be described as a consolidated one. Based on the information, this report carries out the strategic audit of the Ford automobile company in the Middle East. 2.0 PESTEL analysis For Strategic purposes, Ford Motor Company must understand the changes that have taken place in the Middle East business environment where it is operating and how it influences their decisions and actions. Facets to take into consideration are Political, Economical, Social, Technological, Environmental and Legal environmental. 2.1 Political Middle East countries like UAE, Saudi Arabia holds strong views on the stability and law on taxes, trading agreements and economic policies (Terterov, 2006). This is because they understand that strict laws are the pillar of their growth in the recent years. However, the stability is threatened by issues like dictatorship, unemployment and terrorism. Recently, dictatorship in the Middle East has resulted to “Arab Spring” in Syria and Yemen (Scribd, 2013). Conflicts have also been going on between Palestine and Israel for a very long time. According to Scribd (2013), bad Politics have also been mentioned as some of the causes of Terrorism in Afghanistan, Iran Iraq and Yemen. This is also fueled by political ties with different countries in the West; in particular the U.S. all these issues have affected businesses in the Middle East (Jurevicius, (2013). However, the recent past has improved its foreign policy with the Middle East. In 2003, President George Bush suggested a plan to enhance trade and investment in the Middle East and to improve economic transformations in that region. This is the same year that Ford registered an improvement in the sale of its Automobiles to 100, 000 ever since (Muller, 2010). The U.S has realized how important some markets like the Saudi Arabia, Qatar and UAE are important markets for its products. This is a major boost to the Ford Motor company, which now uses strong political ties to market its products in the developed countries like the UAE and the Saudi Arabia (Terterov, 2006). 2.2 Economic NCB (2013) posits that Middle East economies composed of both very poor people, mainly from Gaza and Yemen and extremely wealthy countries like Qatar, Saudi Arabia and UAE. According to CIA World Factbook of 2007, all countries of the Middle East are keeping a positive growth rate. The World Bank's World Development Indicators report published 2009 shows that the three biggest Middle East economies by 2008 were Turkey with a nominal GDP of $ 794,228,000,000, Saudi Arabia with $467,601,000,000 and Iran with $ 385, 143, 000, 000 (World Bank, 2011). The economy of Saudi Arabia, which has maintained great growth is projected to attain US $754.7 billion in 2017 (NCB, 2013). This means income is likely to grow and most middle income earners will also be able to have disposable income to buy luxury goods like cars. A country like Saudi Arabia, which is regarded as a high income economy with strong business performance will be able to form a great market for Ford. This is a great opportunity for design outstanding cars and carries out thorough market to increase their saleS in this industry. However, they will be facing strong competitors which flock the region. It is true that most countries in the middle East Import cars with Japanese cars toping the list with 60% of the imports, European BMW, Mercedes and Volkswagen having 18 % and the U.S Ford and CMC having only 6.5% (NCB, 2013) (Appendix 1). Even though, Japanese car maker Toyota still holds the largest share of the market, U.S companies like Ford can advanced in the coming years through segmentation, improved quality and using competitive prices (Naughton, 2013). The rise in the demand for Japanese automobiles that uses less petrol compared to the majority of American automobiles has implied that automobile producers have to cut their prices so as to sell their cars and to uphold their share of the markets. 2.3 Social Middle East is strongly multicultural owing to the growth in the region and lifestyle. Terterov (2006) argues that the population collection of several of different nationalities has influenced a varied and exciting cultural life. However, for organizations, this implies that they have to put more emphasis to the reality that the business atmosphere is simply as multicultural as community in itself. Although many foreign corporations join the diversified employees on a daily basis, and the business environment is perhaps still dominated and controlled by the Arabic culture of business (Terterov, 2006). However, motor companies in the Middle East are increasingly turning out to be more “westernized” in their business culture and operations, in general. This removes a challenge of workforce diversity in terms of cultural different on the side of Ford Motor Company management. Another issue is that influence automobiles sales is the income distribution. In most cases, the automobiles usually sell their products to the clients with higher disposable income. Middle East countries have high oil revenues, which strengthen their fiscal position and increase their disposable income (Terterov, 2006). The car is a symbol of status and the model influences how people perceive an individual as such Ford stand a chance of selling their SUVs which are in fact classy. Pollution is another concern for the motor industry. With the recent survey in an industry that showing that countries in the produces a lot of smoke in the atmosphere, with several smokes coming from vehicles, some of these countries now are now putting strong measures to curb this situation (Jurevicius, 2013). The research on car make firm’s support of environmental protection is for the good of health of the general public. This declaration is also made to the public by recent statistics which ranks the U.A.E to be the second country emitting more carbon in the world just behind its neighbor Bahrain (Tripp, Harvey & Margaret, 2002). Ford through its initiative ECOnetic is now designing cars which reduce the quantity of smoke emitted into the atmosphere (Jurevicius, 2013). 2.4 The Technological environment One of the major forces which shape people’s way of doing things is the technology. Scribd (2013) asserts that car makers now compete in the platform of technology, from production, marketing to sales. With the current economic growth in most countries in the Middle, most notable, UAE, Saudi Arabia and Qatar, technological advancement have generally been given much focus by these governments (Tripp, Harvey & Margaret, 2002). As such, the infrastructure in these countries is functioning well, but also requires consistent developments so as to be in line with the rapid development in the west. Ford can use such opportunities mostly in Dubai to produce and market rapidly to compete in the market (Scribd, 2013). Perhaps, the current competitive environment is maintained by technology, which promotes research and development in the spirit of innovation at its best in the Middle East. 2.5 Legal Health, safety, tariff and tax regulations are the different legal aspects that have and will influence Ford motors operations (Scribd, 2013). In 1998, the United Nations Economic Commission enforced the Global Agreement on the Vehicle Regulations that resulted to curbing of the emissions of carbon II oxide that an automobile can eject into the atmosphere and this ensured that every motor company must maintain the level (Terterov, 2006). Additionally, the Middle East countries are strict on the environmental laws since Bahrain and UAE were ranked one and Two in terms of CO2 emission (Terterov, 2006). Ford has to adhere to these laws because they impose strict restriction on foreign nations to get their markets so as to attempt to uphold the exports and enforce new precautions of competition law. According to Tripp, Harvey & Margaret (2002) Saudi Arabia and UAE have for a long time recognized the significance of reliable and stable legal mechanisms in attracting foreign businesses. The efficiency, transparency and integrity of the authorities and courts have contributed considerably to its growth (Terterov, 2006). 3.0 Competitive Analysis The competitive environment in the motor is a crucial determinant of the Middle East market attractiveness of the market. This is because if there are several companies selling similar products that Ford company is providing, it would imply that they will be very low profitability owing to the firm’s less authority to influence the price of the market (Scribd, 2013). In fact, this is what have Ford has been facing because Toyota has the largest market share followed by Nissan Company. Nevertheless, this paper use Porter's five forces model to help gauge the attractiveness of the industry for entry or exit in target markets, evaluate the competitive trends and plan for the prospective strategy (Kotler, 2003). 3.1 The threat of entry The strength of threat of entry relies on the barriers existing and on the response from current competitors which entrants can anticipate. If barriers high and new entrants can anticipate sharp reactions from the established competitors, apparently the new entrants will not be a serious threat (Scribd, 2013). In the Middle East, out of the 18 countries, there is no known country which makes cars. This means these markets are left for the foreign countries most. However, a new entrant can hardly make any challenge for the established companies like Toyota, Nissan, Ford, CMC, Volkswagen and Mercedes (Jurevicius, 2013). Though, it is for the existing market player to surpass the largest player in terms of market share. This means that fear for threat of entry in the motor industry in the Middle East is not stronger. Also, product differentiation is wide enough to offer a niche market for new entrant for operating. Therefore, Ford can only use the narrow differentiation, that is making SUVs with low fuel consumption, and differentiated pricing to surpass Toyota. This is because demand for the SUV’s increased by 17% over in the recent period, with the biggest market shares attained by Toyota and Ford (NCB, 2013). 3.2 The bargaining power of suppliers The supplier’s concentration and the existence of substitute suppliers are important factors in indicating supplier power that makes the supplier to increase the price of supplied product to get more profits (NCB, 2013). The bargaining power of suppliers in the automobile industry in the Middle East can be considered to be moderate on the basis of the following assessment. According to NCB (2013), most middle countries import vehicles or vehicle parts and assemble them in respective countries. This means companies operating in these countries are distribution centers of “sub-plants” and have to be supplied with automobile parts in plenty from the country of origin. So far, the Ford is yet to establish itself in the trucks’ segment well in the Middle East, and is believed to have not many customers; hence suppliers do not have high bargaining power. However, on the SUVs, Ford comes number in terms of sales after Toyota, meaning suppliers have a higher bargaining power (NCB, 2013). On the other hand, due to the fact that every market player has its standards different from competitors, this mean there could be a lot of switching cost from various suppliers. This will mean Ford can influence the market to its advantage and create a low supplier bargaining power. 3.3 The threat of substitutes Scribd (2013) contends that in the automobile industry, substitutes are mainly trains and airlines. In this context, it's only by using train which is cheap and can rival the motor industry. In the real sense, the two substitutes cannot affect the sale of motor vehicles, but economic situation does (Scribd, 2013). Maybe the substitutes of motor vehicles here can be assessed through the perspective of low fuel consumption and higher fuel consumption. As such, low fuel consumption cars as opposed to large trucks, which are considered marketable because people would like to own cars, but mostly the ones which are not expensive to manage. Ford would do very well in this segment. 3.4 The competitive rivalry Competitive rivalry is the continuous form of competitive acts and competitive reactions takes place amongst the top players in the Middle East market as they force for the advantageous position in the market. Hitt, Ireland & Hoskisson (2011p.130) claim that, it is vital for the leading companies to know competitive rivalry since it’s the factor which influences the companies’ capability to gain and maintain competitive advantages. Even though there is no domestic produce in 18 Middle East countries and the industry is import based, this market is like the global automobile market and has the presence of leading car manufacturer such as Toyota, Nissan, Volkswagen, Mercedes, CMC and even Ford (NCB, 2013). In this industry, Ford has a great opportunity of performing well because there is no fear of monopoly of domestic producers but just like any other competition of established firms. 3.5 The bargaining power of buyers In the Middle East markets, there are several producers with many customer bases (Terterov, 2006). Meaning there is high bargaining power among customers (Kotler, 2003). This means the Ford must differentiate its product while proving value so as to attract customers who feel Toyota and the rest of the competitors do not offer value for their money. Muller (2010) claims that Ford must be aware that in a situation where customers have the bargaining power as this, they can influence the market decision and prices. As such cost switching will help them compete in the market. The motor vehicle is a luxury product which consumer can choose to buy or not to buy, hence the bargaining power of buyers tend to be high (Muller, 2010). 4.0 SWOT analysis Hitt, Ireland & Hoskisson (2011) argue that SWOT analysis is a critical method, which almost each organization need nowadays. It presents the detail concept of the company’s competitive advantage and the area in which it is has a weakness. SWOT analysis of the Ford Motor Company focuses on key points of any companies which want to get a grip of a market and gain competitive advantage (Scribd, 2013). For Ford Company, it concerns how it can use its strengths and minimize its weaknesses in Middle East automobile industry. 4.1 Strengths Ford Motor Company is among the top ten automobile companies in the world. It manufactures its products in the US and also has a global presence (Scribd, 2013). Ford Company has various brands operating under it that comprises of Ford, Aston Martin, Land Rover and Jaguar, etc. This demonstrates that, it is the major strength of this company as its strong brand is recognized all over the world (Muller, 2010). Similarly, the company also has a strong reputation both home and abroad, and will not have a problem in getting into new targets markets of the Middle East. Terterov (2006) says that after the region being ranked top of the most countries which emits C02 into the air and pollutes it, these countries now has strict measures both for local and foreign countries on reduction of pollution. Ford can be easily accepted in the region because of its ECOnetic initiative. This initiative aims to produce extremely fuel-efficient engines by enhancing current engines and new hybrid engines (Koenig, 2008). The initiative has led to production of Ford Fiesta, which is presently the car emitting CO2 in the air. The result of this initiative has also led to the manufacture of Ford Focus ECOnetic with better fuel utilization than Toyota Prius (Koenig, 2008). At present, Ford stands as ranked the second largest car maker in the U S and fourth globally (Muller, 2010). This definition describes its share of market in the world market. This did not come easily but due to sound financial management and performance. Today, the firm has a high profit margin compared to rivals with highest liquidity ratio. Strength lies in ‘One Ford’ approach which it has embraced. The automaker no longer manufactures customized vehicles for various regions. However, it concentrate on developing and engineering the automobile which fits various regional tastes, preferences and regulations (Jurevicius, 2013). Ford has also experienced considerable growth in the larger Asia, in particular China. Ford, though not considered the strongest industry player in China, the company has had momentous growth in 2012; a growth of 46% (Jurevicius, 2013). This growth can now be focused on the Middle East in some countries like Qatar, UAE and Bahrain which are growing so fast. 4.2 Weaknesses With the rise of European and Japanese automakers, Ford’s sales have decreased, and they have not managed to counter the competition appropriately (Scribd, 2013). In the past, the company has also experienced bad reputation with regards to environmental record. Ford Company has been condemned for poor attempts to reduce environmental pollution. The University of Massachusetts Amherst has previously ranked Ford as the 7th worst polluter of air because of its producing plants (Scribd, 2013). Another institution, The Environmental Protection Agency of U.S also connected Ford to the 42 toxic waste companies (Jurevicius, 2013). However, Ford through ECOnetic initiative is currently rectifying its reputation. 4.3 Opportunities According to Koenig (2008), Ford now has a positive approach towards “green” automobiles. Cars which are fuel wasteful and emit large amounts of CO2 strongly pollute air and affect the atmosphere. Customers are responsive of this negative effect and are now preferring “green” automobiles, which emit less CO2, and are fuel-resourceful. Ford Focus ECOnetic and Ford Fiesta with flexible hybrid engines will be a good business because of rising cost of the fuel even in the Middle East (Koenig, 2008). With the rise in traffic jams in the Middle East more so in Dubai, individuals are moving towards smaller automobiles, which Ford Motors now make giving the company a greater opportunity to market. 4.4 Threats Some market analysts project that future fuel cost could drop owing to the establishment of shale gas (Koenig, 2008). This would have a negative impact on Ford since it focuses on flex fuel and fuel-efficient hybrid cars which are not attractive when the fuel cost is low. Jurevicius (2013) affirms that Ford currently is facing a stiff competition in the Middle East with other established companies like the Toyota and Nissan. Intense competition is also in the small car segment with the hybrid engines. Unpredictable exchange rates in the world are another threat that Ford could face. The profits might reduce due to appreciating dollar against currencies used in the Middle East (Jurevicius, 2013). Lastly the increasing cost of raw material could affect production and operations of the Ford motor company (Scribd, 2013). The cost of raw metals may force a lift of the costs for auto manufacturers and lead to squeezed revenues in this market. On the other hand, it could compel the company to increase the price of its products, and in turn it could drive away customers. 5.0 Conclusion For Ford to do well in the global market and to be specific the Middle East, such factors as market environment, strength, threat and opportunities must be clearly evaluated. It is obvious that Ford Motor Company continues its operations as one of the best firms in the automobile industry despite fierce competition in the sector. By targeting at a rapidly growing market in the Middle East and small fuel-efficient segment, Ford Motor Company in the coming years will be concentrating on penetrating the current market by expanding the investments in its marketing efforts in terms of enhanced promotional events, product providing and expansion of distribution channel. However, in terms of the industry and market rivalry, one major threat is the stiff competition emerging from the Japanese company Toyota which might drive out some players including Ford. 6.0 References Hitt, M. A., Ireland, R. D. & Hoskisson, R. E. (2011). Strategic Management: Competitiveness & Globalization, Concepts. 9th edition, Mason: South – Western. Cengage Learning. p.130 Jurevicius, O. (2013). SWOT analysis of Ford. Retrieved 31st Jan 2013 from http://www.strategicmanagementinsight.com/swot-analyses/ford-swot-analysis.html Kerwin, K. (2002). Ford: Luxury is job one. Business Week, November. No.11, pp.48-50 Koenig, B. (2008). Ford to Cut New-Car Greenhouse Emissions 30% by 2020. Bloomberg. Kotler, P. (2003). Marketing Management, Eleventh Edition. Prentice Hall International Editions. Muller, J. (2010). Ford Family's Stake Is Smaller, But They're Richer and Still Firmly in Control. Retrieved 31st Jan 2013 from http://www.forbes.com/sites/joannmuller/2010/12/02/ford- familys-stake-is-smaller-but-theyre-richer-and-remain-firmly-in-control/ Naughton, K. (2013). Ford Outsells Toyota in China as $4.9 Billion Bet Pays". Bloomberg NCB. (2013). Automotive Sector to Resume Expansion in the Medium Term. Retrieved 31st Jan 2013 from http://saudieconomicsurvey.com/wp-content/uploads/2012/07/NCB-Saudi- Automotive-Sector-Review-2012.pdf Scribd. (2013). Strategic Analysis on Ford motor. Retrieved 31st Jan 2013 from http://www.scribd.com/doc/39882905/Strategic-Analysis-on-Ford-motor Terterov, M (2006). Doing Business with the United Arab Emirates, Second Edition. GMB Publishing Ltd. And contributors. Tripp, H. & Margaret. (2002). Success Secrets To Maximize Business in the United Arab Emirates. Times Media Private Ltd. World Bank. (2011). Gross domestic product 2010. Retrieved 31st Jan 2013 from http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf 7.0 Appendix Appendix 1: Automobile market share by country of origin into the Saudi Arabia market Source: (NCB, 2013) From the study, it is evident that Ford Motor Company is able to use its strengths and opportunities as to create a competitive advantage in the Middle East market. For instance, an extensively differentiated product line has helped the firm to have a more international presence in the past. I believe its current strategies to can help it penetrate also other markets. This can be achieved, through designing the fuel efficient cars and giving competitive prices for their customers, which are as per with those being provided by their main competitors. Read More