Strategic Management in the Automobile Industry - Essay Example

Industry Overview: The advent of globalization and liberalization has opened doors to many businesses all over the global village. Automobile industry is one such industry which has picked up pace in the recent years. In fact, many developed countries today, trust this industry to be the most strategic and economic sector. The reason behind this being, the industry's contribution through different aspects like technology, employment, production and many other similar aspects. Many countries today are having a vast and large sector of automotive manufacturing. Thailand and Malaysia are some among them. In fact, Thailand and Malaysia have the credit of having the largest automobile sector which is also highly sophisticated. Both these countries competed in different ways in order to win the race of competition. They used individual set of strategies for the import substitution which is a part of the industrial development and also differed in their multinational strategies to a great extent. The automobile industry is considered to be one which conquers the entire industry. It has got a lot of components that contribute in the development of the nation along with technological advancements. A specific set of sequence needs to be followed in order to create a national level auto industry, especially in developing nations. This sequence is actually prescribed by the national auto industrial development. The first step of the formation of a national automobile industry would be to import completely built-up (CBU) vehicles by the distributors who are available locally. Then comes the assembling of semi/completely knock-down (CKD) vehicles by subsidiaries and licensed companies. The third step would be the assembling of CKD vehicles and the last and the final step of the sequence would be the full-scale manufacturing of the automobiles. The manufacturing would initially be limited to the domestic market and would be later spread by way of exports to other markets. Task 1 PESTLE analysis: PESTLE analysis is a useful tool for understanding the "big picture" of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats. (RAPIDBI) Political Environment: Political forces influence the legislations and government rules and regulations under which the firm operates. Economic Environment: Economic factors clearly indicate the nature and direction of the economy in which a firm operates. Progress is the key value and driver of Ford Motors. Social Environment: The social environment is an important factor as changes in the values, beliefs, attitudes, opinions and lifestyles in society create potential opportunities for an organization. The values of ford Motors is to always design an approach which helps in improving the quality of customers' lives and also to create an eco-friendly approach towards work. Technological Environment: Technological environment means the trends and developments in the technological field that might: improve production, create new product opportunities, and render the existing ones (Google). Technologically, Foed motors has always been leading the race in the automotive industry. Legal Environment: Legal factors also have to be considered by any firms before stepping into another country. Porter's five forces model - Description: The effective formulation of a strategy needs a clear understanding of competition. Competition in an industry is determined not only by existing competitors but also by other market forces such as customers, suppliers, potential entrants, and the existence of substitute products. . Michael E. Porter of the Harvard Business School has developed a framework known as the 'Five forces Model' to help analyze the business environment. Threat of New Entrants - The threat of new entrants rises as the barrier to entry is reduced in a marketplace. Though there is not much chance of new entrants entering the industry, Ford Motors still faces equal and tough competition from the other existing players. Bargaining Power of Buyers - Buyer power also acts to force prices down. The recent developments in the automotive industry are that there are so many companies who are introducing low cost cars and also the cost of luxury range cars is also decreasing. This would be a fact of concern for Ford. Bargaining Power of Suppliers - The power of suppliers is the suppliers demanding that retailers pay a certain price for their goods. The rivalry among existing players - Degree of Rivalry is the central force, which involves all the other forces. The threat of substitutes - For Ford Motors, the threat of substitutes is quite high as there are number of companies like Gm etc, who pose a threat to Ford. Regulation of heavy metals has been a concern in the pre-treatment process for several years. These regulations were initially driven from Europe, resulting in a push toward nickel-free technologies. Industry attempts to qualify a commercial nickel-free technology, without compromising overall adhesion and corrosion performance, fell short of the original objective. However, the research and development work completed toward this objective resulted in commercialization of tri-cationic pre-treatment technologies with much lower metal levels. In the United States, the Metal Products and Machinery (MP&M) initiative was published in the Federal Register in January 2001. This initiative sought to reduce effluent of chromium, nickel, manganese and zinc up to 92% from current standards by the year 2005. Although this initiative has since been revised, it does serve as an indication of future technology direction. Replacement of Chrome containing post rinses are now-a-days being done with chrome-free rinses. Some of the e players in the industry are trying and eliminating the chrome containing post rinses totally. This way they are trying and avoiding even the least percentage of their contribution towards environmental hazards. The initiative for this comes from the European End of Life Vehicle Directive. This regulation assigns European automakers full responsibility for the recycling of their vehicles at the end of its usefulness or "life." Environmental Priorities of Ford The management at Ford Motors is committed in developing cleaner, more efficient manufacturing technologies and processes. The Fumes-to-Fuel technology installed at the company's Michigan Truck Plant is one example of implementation of a technology that's environmentally friendly as well as cost-effective. While Ford is investing billions to develop technologies to enable new cars and trucks to emit less carbon dioxide (CO2), vehicle owners can help reduce CO2 emissions as well. Drive Greener Miles In order to help the customer in helping the planet, Ford has launched the Greener Miles program. Greener Miles has two components: TerraPass Program - Ford's association with TerraPass, with which it is possible for vehicle users to calculate the amount of CO2 the vehicle emits when they are driving the vehicle. If the customer is satisfied then they can purchase a TerraPass (about $30-$80 a year) that funds projects like wind energy to reduce CO2 emissions elsewhere by the same amount the customers' vehicle emits. Eco-Driving - Now-a-days, driving style has a lot to do with the greenhouse gas emissions generated when driving. By learning maintenance and driving habits that conserve fuel, people can now save money and reduce CO2 emissions with Ford's interactive Eco-Driving learning module. Competitive Issues - One of the competitive challenges that Ford Motors is the strength of the Canadian dollar, which now is close to par with the U.S. dollar but historically had been worth far less. There was a jump which was as high as US$1.10 late last year and had steadily gained ground on its American counterpart since hitting an all-time low of 61.79 U.S. cents on Jan. 21, 2002. The currency's rise reflects strong growth in the Canadian economy because of high global prices for resources such as oil, minerals and agricultural products, all things Canada produces and exports in large amounts. Question 2 (Optional Questions) Two years ago, Ford Motor Co. was the wealthiest automaker in the world. Today, it is struggling to restore profitability and protect its balance sheet. The reason for this is the company's inadequate moves which were aimed at cost-saving. Ford was faster than GM in capitalizing on the growing popularity of light trucks, which produced record unit profits for the company. Especially in Europe, the company's share with regard to the passenger car market had a continuous deterioration. Ford Motor Co. lost a staggering $12.7 billion in 2006 - an average of $1,925 for every car and truck it sold and the worst loss in the company's 103-year-history. There, the company suffered from a long legacy of mismanagement that left it without an adequate product portfolio. Nevertheless, the rewards in the U.S. market were so large that the company's record profits generated record bonuses for the men fortunate to be in the right place at the right time. Another competitive challenge that the company is facing according to its chief executive is the unfair advantages that the Japanese government allegedly bestows on its auto companies -- government-funded health care for workers, government support for the pension system and subsidies to develop the batteries needed for hybrid vehicles. The reason for this being a competitive challenge for Ford is the extraordinary claim that Japanese companies, led by Toyota Motor Corp., are thrashing Ford by building vehicles in North American factories with North American-made parts and North American workers, who receive American-style wages and health benefits. And increasingly, these Japanese brand vehicles are engineered in America by Americans. There are yet some more issues that are believed to be the real problem for Ford Motors especially for the American society is that an industrial-social system pioneered in Detroit in the 1930s has given way to another industrial-social system pioneered by Toyota in the post-World War II era. On the labour side, the UAW held a monopoly. Thanks to rising demand for cars, there were plenty of profits to go around. Periodically the three vertically integrated companies and the union engaged in a bargaining ritual to determine how to split the loot. As long as improvements in mass-production offset the ever-higher wage rates by reducing the number of labour hours per vehicle, the cost of cars for consumers held stable. The major threat for the company came when the above said arrangement came when foreign firms started investing in U.S. production facilities, beginning with Honda in Ohio in 1982, followed by Toyota in a joint venture with GM in California in 1984, and then Toyota again in its massive Georgetown, Ky., complex in 1986. Apart from all the above said issues, Ford Motors still has certain other competitive issues and threats. The leading Japanese car companies are making more money than their U.S. competitors not only because of lower costs, but because their lean design, production and purchasing system is turning out vehicles so desirable that Toyota and Honda can charge much higher prices for products in the same segment of the market. Indeed, these Japanese companies are giving wages and health packages to current workers in North America similar to those provided by their U.S. rivals, but they're selling vehicles today for $2,500 more than comparably equipped cars made by Ford and GM. References: 1. http://www.ford.com/our-values/environment/air-climate/greener-miles/greener-driving-457p 2. http://findarticles.com/p/articles/mi_m3012/is_1_182/ai_84377647 3. http://www.msnbc.msn.com/id/16804725/ 4. http://www.macleans.ca/business/wire/article.jspcontent=b0109115A 5. www.forumforthefuture.org.uk/greenfutures/articles 6. www.commtruck.ford.com/ctw/legal/legal.htm 7. http://www.washingtonpost.com/wp-dyn/content/article/2005/12/02/AR2005120201377_pf.html 8. www.competition-commission.org 9. www.autospectator.com/cars/ford-corporate 10. www.salon.com/tech 11. www.2600.com/news 12. findarticles.com/p/articles/mi_pwwi/is_200304/ai_mark03052613 - Read More