Category: Ford

Introduction

Ford Motor Company was established in 1903 by Henry Ford. The company is based in Michigan and it is one of the three market leaders in the United States of America in the automotive industry. By 1996 Ford’s revenue base had grown to over $150 billion and employed an estimated three hundred and seventy thousand employees. The success of the company was interrupted in the 1970s after the invasion of America’s motor market by competitors from Japan such as Honda and Toyota who offered cheap vehicles that were also economical in fuel consumption.

In response to this, Ford decided to take an expansion strategy in which they acquired the Volvo model from Sweden in an attempt to gain a competitive edge over their competitors. They also adopted a business reengineering process dabbed Ford 2000 which sought to reduce the number of their vehicle centers to five and which were supposed to cover operations involving two hundred countries.

The aim of this also was to reduce the amount of redundancy in the company by making use of the information technology as the driving force and the link that connected Ford to the centers scattered in different countries (Monks, Robert and Nell, Minow 579).

The main focus of the company in the process of development of the information technology infrastructure was the implementation of a setup that would support TCP/IP protocol of communication that complied with the requirements of the department of defense in the United States of America. This communication network for the Ford Company was mainly meant to allow communication of files rather than sending e-mails as was the case with other companies.

Throughout this period, there was a conscious effort by Ford motors to develop an integration of the global enterprise network that would be cost-effective. This network was meant to provide a link between the company’s headquarters and the branches that were spread across the world.

The company also increased the amount of information that was accessible on their website, created a business to a business model which would be used by business partners to interact with the company’s intranet, and developed of intelligent applications on the web that would help in the process of promotion of the business and reduction of costs of operations.

Ford motors also realized the cost reduction benefits that could be accrued by cooperating with some of its competitors in the motor industry such as general motors and the Chrysler. Through this cooperation, there was establishment of certificate referred to as the automotive exchange of network (Monks, Robert and Nell, Minow 581).

The aim of this communication protocol was to provide a standard for communication that would provide a unified way through which automotive manufacturers could communicate to the industry. Since then Ford has continued to transform its business model through re-engineering and other activities that are aimed at improvement of market position of this company.

Value Investor versus Growth Investors

Investors in the stock market can be classified as either growth investors or value investors. A value investor in the type of an investor who buys stock at cheap prices holds them until their value appreciates. The main aim of the value investor is to purchase share below the intrinsic value of such shares. Therefore, the intrinsic value of the company’s shares must be below the prices prevailing in the market for the shares of the company (Montier, James 344).

On the other hand, a growth investor is the kind of an investor who invests in the shares of a fast growing company regardless of the industry in which it operates. The main aim of the investor in this case is to get shares of a company that has growth sustainability and then leave these shares to grow in value with the growth of the company. Therefore, accurate estimation of growth is required for this approach to be successful.

The expectation of the value investor is low and the undervaluation of the stock is considered to be as a result of factors that are temporary in nature. However, the growth investors invest with high expectations that the company whose shares he invests will experience growth. He however bets that the expectations are too low and hopes these expectations would rise in the course of time. He has the belief that the expectations will continue to rise as the company continues to perform beyond expectations of the investors.

Value investors expect cash flow that is depressed. The main focus of this kind of investors is the value of assets which they use if they need to calculate the intrinsic value of their shares. They require making multiple decisions on when shares should be bought and the most appropriate time when shares should be sold in order to have a real reflection of expectations (Montier, James 354).

On the other hand the expectations of the growth investors are on the cash flows that are fast growing. Therefore they require high revenues growth driven by high rate of unit growth. They also believe in the ability of the company in which they invest to make enhanced value more than that which the market implies.

Value investor is more risk averse as compared to the growth investor. Absolute returns are the main expectation of the value investor who appears to be sensitive to the preservation of capital. Therefore, the value investors cannot take a bet about the future since they have that belief that future cannot be predicted with certainty. Therefore, they regard payment for the future as unrealistic. Growth investors on their part remains sensitive to growth rate changes with the main aim being to deliver relative performance that is more superior.

Determination of the Intrinsic Value

Intrinsic value of a share refers to the present value of the cash flow expected from that particular share. To get the intrinsic value of the share, the first step involves discounting of cash flows generated by the shares, by the use of an acceptable discounting rate, k. Therefore, by using dividend discount model, the intrinsic value of Ford stocks can be obtained as follows (Damodaran and Aswath 677);

V=D₁/(1+k)+D₂/(1+k)²+……+ D_n/(1+k)ⁿ

For long term investors, the formulae above will be used to determine the intrinsic value of their shares. D in this formula refers to dividends paid, k refers to the expected return and V is the intrinsic value of the shares.

Assuming an investor bought 2000 shares of equity from Ford Motors Company, at $10.01 per share. This will give that investor a value of $20,200. The divided paid were $0.19796 for each shares held by the investor. Therefore, the dividend yield will be equal to 1.96%. This gives that investor a total of $395.95 in dividends. Assuming k to be equal to 10%, the intrinsic value of the Ford motors will be given as below, with assumption that constant dividends are received consequently for two years.

V=0.19796/(1+0.1)+ 0.19796 (1+0.1)²

=0.19796/(1.1)+ 0.19796 (1.21)

=0.1800+0.1630

=0.3436 Therefore, the intrinsic value of the stock will be $0.3436.

Determination of the Market Value of the Stock Based on the Intrinsic Value Calculated Above

The market value of Ford motors shares is $10.01 while the intrinsic value of the company’s share is $0.3436. It is observed that the market value exceeds the intrinsic value of the company’s share. This therefore means that the company’s shares are over-valued.

Recommendations

From the above observation the value of Ford share is quite above what it should be. The main reason for this may be due to the returns expected by investors which exceed the returns that the company is able to pay to investors by a large margin. Therefore, the company’s stock should trade at a price below this. Any investor who might invest in these shares at this time will be paying more than what market can price for a share with similar characteristics.

As a result of this, I would not advice an investor to use his money to invest in this stock since he can get a fair deal for his money elsewhere. However, I would advice a stock holder with Ford to sell his share at the prevailing market price since he will be in a better position to get a better bargain for his investment. By selling his shares at the prevailing market price, he will get more than the value of such shares.

Works Cited

Damodaran, Aswath. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. New York: John Wiley & Sons. 2012. Print.

Monks, Robert and Nell, Minow. Corporate Governance. New York: John Wiley & Sons. 2011. Print.

Montier, James. Value Investing: Tools and Techniques for Intelligent Investment. New York: John Wiley and Sons. 2011. Print.

Introduction

The company under analysis is Ford Motor Company. It is renowned for its pioneering role in Just in Time logistics; however, the model has brought a lot of challenges that the organisation needed to deal with in order to stay competitive.

Ford has an international presence in over 200 countries. The organisation’s ability to surmount global logistical issues serves as an example to other businesses that are yet to consolidate their networks.

Challenges that have been handled

Ford Motor Company invented assembly line production and was a pioneer in lean manufacture. Its Just-in-time model was an exceptional way of making automobiles in the first and second half of the twentieth century. Despite these achievements, a number of logistical problems emerged as the company continued its operations in the last half of the twentieth century as well as the 2000s.

First, since the company used the JIT model, it always had a small amount of inventory inside its plants. Consequently, mistakes made in the supply chain reverberated in production and this slowed down efficiency.

The firm had the option of paying for inventory in order to curb delays in production. However, this would undermine the essence of the company‘s success, and would also lead to increases in operational costs (Patridge 2011).

A second problem that the firm had was to coordinate its supplier network. Prior to organisational change, the firm would merely focus on certain component suppliers or vendors that could provide maximum value to the firm’s supply chain. Optimisation efforts were isolated and scarcely linked to each other. It was clear that the business was not taking advantage of the many sources of tradeoffs.

However, consolidating these efforts was not going to be an easy task. One Ford automobile normally passes through three plants and may consist of over 2000 components from hundreds of suppliers. Therefore, the organisation needed to consider lead times for all their components. It also needed to account for the shipment capabilities of its vendors as well as its own transporters.

Sometimes, carriers would be involved in the process, so their lead times also needed to be incorporated into optimisation efforts. Ford needed to consider costs as well as the operational characteristics of its supply chain partners. These complexities could either be addressed holistically or on the basis of each variable; Ford decided to use both approaches.

Ford also had a wide choice of suppliers that could sell its component parts. Therefore, the organisation had the problem of deciding which ones were the most cost effective and efficient ones. Issues of proximity as well as geographical location of the suppliers needed to be taken into consideration.

All the challenges confronted by Ford revolved around two major concepts: cost containment and timely delivery.

Nordas et. al. (2006) explain that “the time it takes to handle one’s logistics has an adverse effect on whether one can export time-sensitive products or whether a firm can stay competitive”. Das and Handfield (1997) add that in the global supply chain more logistical problems are likely to arise when firms manage their logistic through JIT.

Problems yet to be solved

While most of the concerns in Ford revolve around sourcing of parts, it is still essential to consider the other aspect of global logistics management, which is customer demand. A firm’s supply chain has an enormous effect on a company’s ability to meet customer demand. Most of Ford’ initiatives meet their own production demands but they are yet to integrate global consumers’ needs.

Currently, Ford has been outpaced by several automakers in the market; chief among these is Toyota. Some analysts say that Toyota perfected Ford’s lean system, so its philosophy is responsible for its success.

Others believe that a lot of logistical efficiencies stem from having the Toyota’s production in Asia. Whatever the reason may be, Ford ought to think of insightful ways of superseding its competitors’ performance, and logistics is one route.

Solutions

One of the strategies that the company used in order to revamp its logistics is the technological route. Ford partnered with an IT firm called SAP, which specialises in the provision of logistics services to manufacturers. The vendor placed Ford’s inbound variables in their software program.

The automaker’s supplier locations, transport times, target inventories in manufacturing plants, material costs, dock schedules, and container sizes were all recorded and analysed for tradeoffs. Ford was able to forecast logistics costs with an accuracy of – or + 2%. With this technological approach, the company was also able to assess the effects of any new developments in its supply network.

As a result, the company now responds quickly to logistics changes among the suppliers. The main figures that have now been quantified include delivery frequencies, load configurations, outbound routes, inbound routes and quantities of parts per load. Now Ford has managed to reduce time wastage in air freight. It makes a lot of savings in inbound logistics too (Patridge 2011).

Aside from holistically working on its supply chain, the company decided to take full control of its freight networks rather than allow a supplier to optimise it for the company. This has caused the firm to work on delivery and collection across all channels. In this approach, the company made its routes efficient so that outbound and inbound goods could be effectively transported.

First, the organisation established regional distribution centres where deliveries from vendors were coordinated. If several vehicles intended on going to the same supplier in order to deliver their products to multiple assembly plants, then the regional centres would detect this problem immediately. They would reduce the number of trucks so that only the bare minimum was used.

Additionally, the company has established collection points where one truck visits all the major supply routes and then brings the parts to Ford’s premises. Not only does this strategy reduce the number of trips made, but it also saves on money and time used to collect supplies.

Since the organisation also relied on freight providers, it needed to establish mechanisms for making the model effective. Ford got into contracts with its carriers in order to allow them to carry freight from third parties in their return journeys. This allowed Ford to negotiate lower prices.

Many forwarders often charge their primary consumers more money if their trucks have to come back empty. The firm has also worked on improving the load density for most of its finished automobiles in each conveyance. This has ascertained that few conveyances are used and that the company remains successful.

Road transport is not the only method that has been optimised by this organisation. It has also worked on other alternatives. First, the company uses rail and sea transport in order to avoid time wastage that comes with the use of road transport alone.

However, because rail transport often works in conjunction with road transport, then the organisation has instated the use of SWAP bodies. These are containers that workers can carry from a railway system into a truck. Easy transition saves time and contributes towards maintenance of the just in time model (Patridge 2011).

Concerning the issue of sourcing manufacturers for the company’s products, Ford has solved the problem by dealing with supplier parks. These are manufacturers in the Southern American region. The United States has a Free Trade Agreement with Mexico. Consequently, auto parts can flow freely between these two nations without payment of tariffs.

By selecting a supplier that is in close proximity to most of Ford’s assembly plants, the organisation has ascertained that most of its components arrive on time. Therefore, the problem of maintaining its just-in-time production model has been addressed. Another reason for the sourcing of parts from Mexico and other regions in close proximity to Ford’s major plants is the nature of the components themselves.

Most automobile parts are quite fragile yet they are still heavy and occupy plenty of space. Examples of such parts include car engines, seats, panels and many more. Any cargo that requires special transport arrangements owing to its unique traits is likely to be expensive.

Therefore, if an automaker can find suppliers in close proximity to it, such as Mexico and North America, then it can save on plenty of transportation costs. This was true for the North American branch of the organisation. The same is also true for the Ford Taiwan; since the branch is in close proximity to several component manufacturers in China, then it opted to source for parts from China rather than other parts of the world.

Regardless of the increased level of regional clustering between Ford and its suppliers, certain parts still come from industry leaders. For instance, electronic items are usually sourced from Europe and Asia. Ford opted to use Asian suppliers because electronic components do not require unique transport arrangements like certain car parts.

Therefore, the organisation uses air freight to ensure that its Just-in-time models are sustained. Some of the common products that Ford gets from Japan include exterior lights, semiconductors and injection moulds.

In order to ensure that maximum benefit is derived from the organisation’s supply chain, Ford has decided to organise its assembly plants along major markets. In the past, production largely centred on the US. However, now that Asia’s economy is growing, it only makes sense to work with individuals in this group. Therefore, regional manufacturing revolves around key areas such as India, the US and Japan.

The company’s global supply chain is a result of trade offs between global integration and separate supply chains. To some extent, the company has a global supply chain as seen through its centralised management, the use of suppliers from different parts of the world, and implementation of IT systems throughout the company. Conversely, Ford still has separate supply chains because it realises that one size does not fit all.

Business units and assembly plants have their specific needs that can be met effectively through the use of a customised approach. The main priorities for Ford are increasing the visibility of its supply chain as well as optimising it.

In selecting such a mixed model, Ford has had to forego certain benefits of having one system. Currently, the organisation is not enjoying standardisation advantages. It has also forfeited pricing rules to regional centres.

Future solutions or recommendations

The organisation ought to work with its major distributors in order to ensure that they have enough stock to accommodate Ford customers’ needs. If stock levels are below the expected level, then air freight should be considered. The organisation could have safety stock that would protect it from interruption.

Perhaps another radical approach to production in Ford would be to move away from the supplier-oriented push system to the pull system among consumers. Current supply chains are not flexible and it is difficult to assess inventory until it reaches it destination. If Ford altered its distribution system by creating warehouses in key markets, then it will have changed to a pull system.

The warehouses could be controlled by third party logistic providers and they can consolidate transport between the centres and key global markets (Diederichs & Leopoldseder 2008).

Ford should also be aware of the fact that buyers in developing or underdeveloped nations operate under very different circumstances. Therefore, its distributors may struggle to deliver on time. Developing nations have numerous logistics companies, most of which are briefcase corporations. Additionally, carriers and transporters do not abide by the law.

Many of them will overload trucks in order to make as much as possible from a certain trip. It is essential for Ford to realise that customers who import vehicles directly from the plants are likely to experience these problems.

Therefore, the organisation should warn first-time buyers about it. It should also encourage consumers to use its authorised partners or distributors. When distributors get to such countries, they ought to set the standard for excellence by following the law.

Organisations that operate in low-cost regions may sometimes ignore the cost savings that emanate from carrying out production in those sectors. Inefficiency may not be evident in labour but it affects Ford through delays and higher supply chain costs.

The company has established mechanisms for reduction of lead times inside North America. Now it should consider reduction of lead times for products sourced from different parts of the World, such as Asia. It should start by reducing it by half and then move from there.

Lessons learnt

The case study has provided a series of lessons in international trade logistics. First, the organisation has shown that not all supply chain solutions should be applied to the entire global market. Different markets require different service levels, so companies do not have choose between integrated or separate global supply chains; they can opt for both options.

Second, the just in time model requires a thorough orientation of logistics management. Organisations should not give up control of their transportation needs to third parties. Ford decided to take it upon itself to look for loopholes and areas of improvement. Proximity to one’s suppliers is a good idea, especially if the goods involved require special transport arrangements or are too delicate.

Nonetheless, one must still be open to distant vendors if the cost and quality advantages supersede the ones available near home. The case study also proves that information technology is crucial in international supply chain management. Not only does the approach increase logistical visibility, but it also facilitates in-depth analysis of potential cost-saving areas.

Global businesses should be ready to use local resources or talent when the need arises. Ford established assembly plants in Asia after realising that it could make plenty of cost savings. Consequently, organisations should move supply chains close to new markets even if this differs from their initial strategy.

This organisation’s failures also serve as lessons for stakeholders in the logistics industry. Initially, Ford was a logistics leader whose methods were respected and revered in the auto industry. However, the company became complacent and let other competitors surpass its supply chain innovativeness.

Companies must not be rigid in their approach to logistics management. They should also anticipate change and look for new ways of improving product delivery. Sometimes organisations should be willing to reorient their entire supply chain when the time is right. Ford needs a dramatic turnaround from the push system in order to place the consumer at the heart of production.

Conclusion

Ford was confronted with time-related problems in supply chain management. As a result, the company chose to adopt technological approaches, clustered-regional supply chain management, and sourcing of components from efficient manufacturers in Asia. It also took control of transportation of its supplies instead of its leaving it to vendors. However, the company is yet to compete with successful organisations like Toyota.

It also has challenges in orienting its supply chains to meet customer needs. These problems may be solved by changing to a customer-oriented pull system. Additionally, it needs to plan for inefficiencies in logistics challenges in developing countries.

References

Das, A & Handfield, R 1997, ‘Just-in-time and logistics in global outsourcing: an empirical study’, International Journal of Physical Distribution & Logistics Management, vol. 27 no. 3, pp. 244-259.

Diederichs, R & Leopoldseder, M 2008, It’s still a big world: A global supply chain problem. Web.

Nordas, H, Pinali, E & Grosso, M 2006, Logistics and time as a trade barrier. Web.

Patridge, A 2011, Auto logistics: Revving up service parts logistics operations. Web.

Abstract

The success of a business is dependent on the quality of decisions made by its managers. Different situations require different decision. A problem has different alternatives which may be taken to solve it.

External environment offers a challenge to the operation of a business since there is nothing much that an individual business can do to manipulate its effects. External environment include politics, social factors, legal frame works and ethical issues which affect the operations of a business (Wheelen $ Hunger, 1998). Toyota Company and Ford Company have their head quarters at Tokyo, Japan and Dearborn, Michigan (US) respectively.

However both the companies are facing a similar problem; change in consumer preferences in the era of financially constraint economies. How well these two companies cope/ going to cope with the environment posed by the changes in social factors is dependent on their management decisions. This paper takes a comparative analysis of how the two companies facing the same problem are coping with the problem.

Brief background of the two companies

Toyota motor company was established in 1937 in Japan by Kiichiro Toyoda. It is ranked as the world’s number one motor company in terms of sales. It assumed this position from General motors’ in 2008. The company has been facing financial difficulties in the recent past however as the world economies improve, it is recording increased sales. The current chief execute officer is Akio Toyoda.

Ford was incorporated on June 16, 1903, by a group of twelve people, however much credit is given to Henry Ford who came up with the idea. The company is ranked world’s number seven automobile company. The current managing director is Alan Mulally (Ford Company Limited official website, 2010).

Common political, social, ethical, and legal problem faced by the companies

The word is drastically changing and so do peoples need. Both in United States and in Japan, people are moving to better models of cars which are comfortable and fuel efficient. People’s needs are changing and the features that they are looking for in an automobile are changing.

Women and men are increasingly demanding for different look vehicles in terms of size, fuel consumption, shape, and comfort among others. There have been new terminologies in the industry like “a she car” or a “he model”. These are used to give differences in needs of customers. On the other hand there are increasing pressures from either country’s government that companies should produce products which are environmentally friendly.

Decisions made by management in this effect

Toyota Company

The management of the company has decided to produce products which meet the needs of all extremes. This means that instead of developing and improving their products only; they have gone to the customers and learnt what they want. They have embraced a consumer driven production. In the market there are tiny cars like Vitz which are products of Toyota and in the same market there are “big” cars like Toyota Prado from the same company.

Secondly it has embarked on continuous improvement and product differentiation of its products to make them more comfortable and fuel efficient. This is the reason why in a certain year there is a Toyota X, then the next year there is a Toyota Y, which is the same model but with minor alteration. An example is Toyota Primio old model and Toyota Primio new model (Clarke, 2010).

Thirdly the company in 2009 used a method of model replacement where it chooses a certain model which can be referred to be an old model and replace it with another model at a regulated fee. To retain customer loyalty the company in early 2010, called for faulty vehicles which had found their way to the market without proper quality (Hino, 2006).

Ford

The company has taken a different strategies than those taken by Toyota Company. Firstly instead of producing new models, the company has decided to improve on the quality of their current models. The rationale behind this move was to improve the efficiency and quality of their products, however customer needs was not more on the quality of the products but was more concerned on a different model in terms of size, consumption, and look among others.

Secondly the company decided to concentrate on a small market and sell some of its branches. In 2008 it sold its United Kingdom branch which was specialising in Jaguar and Land Rover in March 2008 to Tata limited of India. The move was aimed at getting finances to improve its products in the changing customers’ needs (Anon, 2010).

Table 1

A table analysis of the two company’s decisions

Conclusion and recommendations

Toyota motor company and Ford Motor Company are facing similar problem brought about by customer and the government though they operate from different countries. There are changing customer needs and pressure from the government to produce quality products. The approach taken by Toyota includes an aggressive marketing as it produces consumer driven products.

The resultant is an increased profit to a point that it became the world largest automobile in the world. Ford Company has taken a conservative approach where it has avoided massive sales internationally but opted to maintain a small market. This lead to the company sells some of its branches. The resultant of this decision is a reduction in revenue and loss of customer loyalty to the company’s products.

The quality of decision made by management of a company determined the destiny of the company. Managers should ensure that they choose the most appropriate alternative given a certain condition at hand. They should not rush in making decisions but should use scientific methods of decision making which follows the following step; problem identification, problem analysis, gathering of data, formulating of alternatives and finally choosing the best alternative (Bridge $ Dodds, 1975).

References

Anon. (2010). Business Economists See Positive Economic Growth in 2010. Secured Lender, 66(1), 13. Retrieved from MasterFILE Premier database.

Bridge, J. $ Dodds., J.(1975). Managerial decision making. London: Taylor & Francis

Clarke, P. (2010). Business Blog. Farmers Weekly, 152(14), 21. Retrieved from MasterFILE Premier database.

Ford Company Limited official website. (2010). Ford . Retrieved from https://www.ford.com/

Hino, S .(2006). Inside the mind of Toyota: management principles for enduring growth. Tokyo: Productivity Press.

Wheelen, L., $ Hunger, J.(1998). Strategic Management and Business Policy: Entering 21st Century Global Society. Massachusetts: Addison Wesley

Think Globally And Act Locally, Globalization And Global Market

Size of Ford’s Global Market

According to Grant, Ford enjoyed superior car sales due to a flourishing American economy, unwavering and swiftly budding stock markets, coupled with low energy prices¹.

However, towards the culmination of the preceding century, its domestic market began to waver. Grant attributes this phenomenon to corporate and market issues such as elevated cost of health care, mounting fuel prices, and irresolute economy. Rivalry from other manufacturers, like Toyota, equally posed threats.

Grant reports this ideology as the rationale behind the restructuring that is aimed at returning the company to a distinct level of effectiveness². Such a fresh economic and investment policy lead to the relocation to the overseas areas in search for inexpensive effort, unrefined resources, and a ready market. Ford Corporation was humbly established in the early years of the last century.

Hitt, Ireland & Hoskisson note that Henry Ford and colleagues instituted a company that is legendary for championing the assemblage line, industrial upheaval, and the coinage of the reputable slogan of the American reverie³. The early years of the preceding century the company saw thrust through a series of succession tribulations. It survived the subsequent fiscal recessions to emerge as one of the pinnacle carmakers of the contemporary society⁴.

American and the Global market

Currently, Ford is the fourth prevalent global carmaker. It prides itself in brands such as Lincoln, jaguar, and other countless products. Notable, it is the capacity of the company to develop personalized brands for dissimilar markets⁵. In his article, Grant denotes the wide spread global market is enjoyed by Ford. This trade spreads from the establishments of North America and Europe to the new and dynamically emergent “Chinese and Indian economies”. The conglomerate has had a significant influence on other sectors, such as Latin America.

Local market

Modi establishes that Ford has a robust presence in North America. It commands over 20% of the region’s market. Reportedly, this is comparatively large upon comprehending its dismal, 10 percentages distribute in the Japanese market. Modi et.al observe that, this is the stimuli for its gigantic promotion campaigns in the continent⁶. In the article, Modi et.al observe that the corporation intends to ascertain itself as a manufacturing force within the continent.

This is evident in the gigantic investment carried by the conglomerate in India together with china. These two nations have the advantage of cheap labor and an enormous market. Grant’s analysis established that recently more American automobiles find marketplace in the Asian continent. Furthermore, Hitt, Ireland & Hoskisson note that the continent has a supply of immeasurably skilled labor.

Responding to Dynamic Business Challenges – Strategically & Operationally

Challenges

According to Hitt, Ireland & Hoskisson, Ford’s tribulations ensued at the beginning of the preceding decade. Throughout this epoch, the company experienced an assortment of economic troubles. Towering care cost, an endlessly mounting petroleum prices, and an irresolute economy. This led to a decline in the company’s global market share prices, reduced global sales and unsustainably thin profit margin⁷. Grant observes that many of these tribulations resulted from an overreliance on the originally blossoming SUV sales. The pinnacle of this came in the year 2005 when reportedly, Ford’s shares downgraded to scrap.

Way Forward

The corporation dealt with this problem by designing a rescue strategy. Firstly, they diversified their products by introducing a new range of fuel competent automobiles. Grant reports that this was in retort to the consumer shift to “fuel-efficient vehicles” whilst responding to the international fuel crisis. Additionally, there was an intensified pursuance of other unexploited markets within “Europe and Asia”. According to Grant, Ford intensified its study in fuel-efficient autos.

This is evident in their recognition of advancement, in “lithium iron battery”, as poignant in the enhancement of future automobile technologies like the battery dependant and the hybrid automobiles. Fiscally, Ford responded to the comprehensive economic predicament by borrowing to salvage the corporation from insolvency. In light of the impending fiscal kismet, they struggled to keep together a hugely expensive labor force. Grant notes that only Ford failed to succumb to the economic downturn of preceding years.

Dealing with Recession

The premeditated map anchored by the leadership at Ford aimed at restoring the group to profitability. Modi ⁸asserts that the plan was aimed at achieving massive cuts in operation cost. The road map to achieving this reportedly ensured restructuring the Ford’s business model by plucking off non-profitable and inefficient ventures.

Although this operation helped consolidate the company’s operations, it led to lose of thousands of jobs. Since then, the firm has realized significant profits and a reported decline in company debts. Furthermore, the continuous economic growth witnessed in the Asian continent has helped lift pressure on the saturated American market.

Bowner’s article reports that the financial difficulties witnessed in the foregoing two years significantly affect the automobile industry. All the leading U.S. automobile manufacturers received rescue packages from the state. While a majority filled for impoverishment, Ford stood on its own.

Bowner reports that Ford survived the recession through massive borrowing and careful planning and expenditure. The recession lasted a short duration, and two years later, Ford announced its first profits in years. Reportedly, the auto industry is still suffering from the shadows of the recession.

Foreign automakers still command a whopping chunk of the market. The three corporations expect substantial profits in the coming years and Ford is expectedly going to announce full recovery. Grant observes that the year 2008 witnessed some of the worst fiscal downturns ever experienced in the entire globe. The slump’s effects are still present and will predictably last long into the prospect. Grant associates this with the record “foreign direct investment” proceeding the year before recession.

Conclusion

Ford started as humble company back in the commencement of twentieth century. Through the visionary leadership of its authoritarian executives, it championed the first assemblage line technology that revolutionized the global auto industry.

It managed to endure the slump preceding the First World War. After WWII, the company embarked into massive scientific revolutions. The biggest test the auto industry ever experienced was the recession of the 2009. While many multinationals in the American continent failed to foresee it, Ford had envisioned it and formulated a plan that could save the company.

This is particularly evident in its ability to stay put midst fiscal turmoil. The brave leaders at Ford reputed for announcing irreproachable results hardly two years after the recession. Additionally, the company managed to identify non-profitable branches, and cut them off to offload high operations cost. Browner reports an ongoing rehiring of workers. Ireland & Hoskisson report that the company stands a favorable chance of securing a sizeable portion of the Asian market.

Endnotes

1. Robert Grant, Ford and the World Automobile Industry.
2. Ibid.
3. Robert Hitt, Ireland Duane and Michael Hoskisson, Strategic management: competitiveness and globalization: cases (Ohio, OH: South Western Cengage, 2008), 124.
4. Ibid.
5. Robert Grant, Ford and the World Automobile Industry.
6. Modi Chirag, Zein Rashad and Leslie Kramer, Comparison of Asian and North American Automobile Manufacturing practices.
7. Robert Hitt, Ireland Duane and Michael Hoskisson, Strategic management. p. 124.
8. Modi Chirag , Zein Rashad, and Leslie Kramer, Comparison of Asian and North American Automobile Manufacturing practices.

Bibliography

Bowner, Rick. “Automotive Industry Crisis.” The New York Times, last modified. Web.

Grant, Robert. “Ford and the World Automobile Industry.” Blackwell publishing. Web.

Modi, Chirag, Zein, Rashad and Kramer, Leslie. Comparison of Asian and North American Automobile Manufacturing practices. Web.

Robert, Hitt, Ireland, Duane and Hoskisson, Michael. Strategic management: competitiveness and globalization: cases. Ohio, OH: South Western Cengage, 2008 124.

Introduction

Ford Motor Company was incorporated on June 16, 1903 when Henry Ford and other eleven business associates signed articles of association and memorandum of understanding. The capital of the company was $28,000 (Nevins & Frank, 1962). It was listed in American stock exchange on February 24, 1956. The number of employees today is approximately 300,000 who are distributed in its 108 plants worldwide.

The headquarters for the company is Dearborn, Michigan (US). As market changes, there is a change in the technology adopted and currently the company is on track of making electric motor vehicles. It enjoys a strong brand name, which works to its benefit in today’s motor industry.

Its first managing director was Henry Ford while the current managing director is Alan Mulally. This paper takes a look at the mythology of Ford Motor Company; it will give a brief history of the company’s founder (Ford Company Limited official website, 2010).

Henry Ford

He was born on 30^th July, 1863. Henry was the initiator of Ford Company and an esteemed American entrepreneur. He was born to William Ford (1826–1905) and Mary Litogot Ford (1839–1876), in Greenfield Township near Detroit, Michigan.

In 1888, he got married to Clara Ala Bryant (1865–1950) and was blessed with one child called Edsel Bryant Ford (1893–1943). A professional engineer, Ford worked as a chief engineer (1883) with Edison Illuminating Company. He is said to be an aggressive intelligent man. He died 7^th April, 1947(Baldwin, 2000).

Henry at 25 years

Henry in 1919.

Mission statement and vision of Ford Motor Company

The mission and vision statement of the company is as follows.

The company aims at continuously improving its processes to satisfy the needs of various classes of customers that it enjoys. To do this it empowers its staffs through appropriate training and offering a good career path. There is an environmental policy, which is managed at a departmental level where the company is responsive to dangers that its processes would cause to the environment. This is on top of its social corporate responsibilities.

Basic Product Classes

Ford is an American motor vehicle producing company which employs different strategies to remain competitive in motor industry. It manufactures passenger cars and trucks for various purposes. Currently, there are eight brands from the company, which are Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury, and Volvo.

Ford motor vehicle model are known to be fuel efficient and last longer (Rubenstein, 1992). They are made in response to the needs of customers and every measure taken to ensure that customer feedback is acted upon.

A timeline of Ford “firsts” which consist of stated accomplishments by Ford that were initiated by other automobile companies.

Ford has been producing different brands with some being a success whereas others have failed. It has also sold some of its branches to international firms for instance, it sold Jaguar (in March 2008) to Tata limited (of India); the sold plant was in United Kingdom.

The above is a sample diagram of a ford model of 1919 pickup. The company is known for production of long distance trucks.

Reference List

Baldwin, N. (2000). Henry Ford and the Jews: The Mass Production of Hate; PublicAffairs, ISBN 1-58648-163-0

Ford Company Limited official website (2010). Ford. Retrieved from https://www.ford.com/

Nevins, A., and Frank, E. (1962). Ford: Decline and Rebirth, 1933-1962. New York: Charles Scribners’ Sons.

Rubenstein, M. (1992). The Changing U.S. Auto Industry: A Geographical Analysis. London: Routledge.

Company: Ford

Overview

Italy is geographically positioned in Europe. The country’s capital city is the renowned city of Rome. Italy’s population is estimated as over 61.2 million people. The country takes pride in a parliamentary form of government. Moreover, the country trades with Euro (EUR) as its main currency. Since the year 2011, the country’s GDP shows that the main economic sectors are service delivery, industry and agriculture. In addition, the country’s both import and export are associated with the United States, France, Germany, China and Spain.

Economic Situation

Weak Economic Performance

Italy’s economic performance has been in decline since the Eurozone economic turmoil in the year 2012 (Lane 52). The subsequent economic struggles in Greece had a negative impact on both external and internal demands in Italy. In fact, the economic struggles reduced business and consumer confidence in the country.

This factor has a negative impact on Ford’s operations in Italy. With a declining demand for automotive products and reduction in industrial production, Ford would suffer huge losses of the company ventures in Italy in 2013. The general economic performance in Eurozone affects consumer spending. This is attributed to the increasing unemployment rate. Ford manufactures high quality products, and consumers in Italy cannot spend money on expensive automotive.

International Competitiveness

Italy’s position in international competitiveness has been deteriorating since the year 2011 (Smeral 8). The fact that the country has lost at least 20% of the market share in international exports is discouraging. In this respect, Italy has avoided conducting business with countries that do not pose competitiveness in terms of costs and price change. Such countries include Germany and the United States. In this regard, it would not make economic sense to have Ford’s venture in the Italian market.

Inflation Rates

In the year 2012, the inflation rate in Italy had increased incredibly. A major reason for the increasing inflation rate was the rise of energy costs. An increase of the value added tax (VAT) also influenced the high inflation rate.

During this period, the demand for automotive products was stable, but the decreasing demand for trend in the year 2013 is a sign of reduced inflation rate. In this regard, a demand for imports in Italy will reduce in the year 2013. A projected decrease of inflation by 1.6% would influence the demand for Ford’s products in the country.

Unemployment

Unemployment in Italy has been on the rise since the year 2012. By November of 2012, unemployment had risen by 11.1%, which is 25% higher than the previous year (Checchi 148). The current labor laws in Italy seek to protect employees who only work on a permanent contract.

In this respect, companies like Ford and similar businesses are unable to invest in uncertain labor environment. In fact, this makes it difficult for companies like Ford and automotive businesses to manufacture and sell automotive products in Italy. Ford’s success in Italy requires constant availability of labor and stable market.

Bank lending and interest rates

The Eurozone crisis in the year 2012 led to restrained bank lending. The Italian economy has depended on the European Central Bank to fund government projects, and bail out major economic sectors. The increasing lending rates provided by Italian banks are making it difficult for investors to increase their capital base.

Companies like Ford or automotive businesses require support from financial and lending institutions during an economic meltdown. Such support was evidenced in the United States when the government bailed General Motors from receivership and total bankruptcy. Currently, the lending institutions in Italy cannot support Ford or bail out a foreign investor in the automotive industry.

Italy’s interest rates are determined by the European Central Bank. Interest rates in the year 2001 were recorded as 4.8 % compared to 0.5% in the year 2013 (Spaventa 9). The projected reduction of interest rates in the year 2014 might increase the business opportunities for Ford and automotive business in Italy. However, the current interest rates are still high and cause a decline of the automotive business in Italy. Moreover, the high interest rates are causing the weakening of the Euro in the region and especially in Italy.

GDP

It is estimated that the country’s GDP reduced by 0.1% between August and September of 2013. Until the year 2013, Italy’s GDP has always averaged 0.6% since the year 1960. From the year 1992, Italy’s expansion of trade within the European Union has seen its GDP reduce significantly. This may be due to its low international competitiveness and the global economic meltdown. The increased public spending in Italy is not favorable for automotive business and Ford.

Fig 1.0 Sample Italy’s GDP graphical representation

Demand

The demand for Ford vehicles in Europe has been high for the past two decades. By targeting market segments in Germany, France, Spain and Italy, Ford’s sales volume rose by 2.3% by the end of August 2013. However, a decrease of automotive sales in Europe declined by 5.7 % during the same period. This is an indication that Ford’s sales volume may be reducing if the current economic factors remain constant.

Works Cited

Checchi, Daniele. “Labor market and inequality trends in Italy.” The Politics of Structural Reforms: Social and Industrial Policy Change in Italy and Japan. Ed. Magara, Hideko and Sacchi, Stefano. Boston: Edward Elgar Publishing, 2013. 148-170. Print.

Lane, R. Philip. “The European sovereign debt crisis.” The Journal of Economic Perspectives 26.3 (2012): 49-67. Print.

Smeral, Egon. “The impact of the financial and economic crisis on European tourism.” Journal of Travel Research 48.1 (2009): 3-13. Print.

Spaventa, Lugi. “The growth of public debt in Italy: past experience, perspectives and policy problems.” PSL Quarterly Review 66.266 (2013). Print.

Introduction

Marketing refers to the “management process through which goods and services are developed and sold to customers”. Marketing activities include product development, setting prices, identification of distribution channels, and implementing promotional strategies. These activities are often executed by marketing managers in most companies.

This paper will highlight the marketing principles that can be used to market Ford F-150 SVT in the United States and China. Ford F-150 SVT is a truck model manufactured by Ford Motor Company in the United States. Ford F-150 SVT can gain market share in China because it provides the four utilities of customer value and the demand for trucks in China is high.

Description of Ford F-150 SVT

The four utilities of customer value include “functionality, time, place, and ease of possession”. Functionality refers to the tangible attributes of a product such as its durability, color, and safety.

Ford F-150 SVT has several in-built safety mechanisms such as front and rear cameras to ease navigation and hill descent control to prevent accidents when driving on steep terrain (Ford Motor Company, 2013). The truck is also available in several colors to satisfy the tastes and preferences of different customers. Similarly, the truck has manual and automatic gearbox options to ease its use.

Time utility refers to customers’ ability to access a product whenever they need it. Ford Motor Company has established a global distribution network to ensure that Ford F-150 SVT gets to the market at the right time.

The company also focuses on mass production of trucks to avoid delays in fulfilling orders (Ford Motor Company, 2013). Ford Motor Company has also partnered with independent distributors in countries where it does not operate to sell Ford F-150 SVT.

Place utility “includes where and how the product or service is delivered”. Ford F-150 SVT is sold through the company’s website and show rooms. Once the truck is purchased, the company arranges for shipment to the customer.

The ease of possession utility refers to the procedures that lead to acquisition of a product. In order to ease possession, Ford Motor Company allows its customers to acquire the truck in several ways. These include leasing, cash purchase, and hire purchase. Moreover, the truck has a warranty to encourage customers to purchase it.

Ford F-150 SVT’s Target Market

In the United States, the target market for the truck includes construction companies, security companies, and individuals. Construction and security companies use the truck to transport equipment and materials to various sites (Ford Motor Company, 2013).

The truck’s off-road capabilities enhance travelling to construction sites in remote areas that have poor road network. Since Ford F-150 SVT is a low cost model, its target market among individuals includes middle-income earners who are interested in both comfort and extra space to carry their luggage when travelling.

The truck is also popular among individuals with large families, as well as, people who prefer to travel to remote areas such as wild parks and forests during their holidays.

In China, Ford F-150 SVT’s target market includes companies in the construction and manufacturing industries. Moreover, the truck can be used by farmers and medium-sized businesses that are not able to purchase large trucks. Farmers are likely to prefer the truck because of its ability to travel in the country’s rough terrain (Ford Motor Company, 2013).

Competition in Ford F-150 SVT Truck Category

Ford F-150 SVT competes with several truck models in the United States and China. In the United States, the truck’s main competitors include Toyota Hilux, Isuzu Dmax, and Nissan Navara. Toyota Hilux and Isuzu Dmax are competing based on price. Their manufacturers are low cost producers who are able to charge competitive prices.

Besides, Toyota Hilux has a strong brand image that is known for durability and reliability. Isuzu Dmax is known for both comfort and low prices in the United States. Nissan Navara competes with other models based on quality and price. In this regard, Ford F-150 SVT faces high competition in the United States since most producers of medium-sized trucks are focusing on product differentiation.

The competition faced by Ford F-150 SVT in China is very high. The Chinese car market has several medium-sized truck models whose prices are very low. This reduces customers’ switching costs since they can easily shift from one model to another.

The Chinese market is also characterized with price sensitive customers. This makes local models more competitive than Ford F-150 SVT. In this regard, Ford F-150 SVT competes based on its qualities that are superior to those of the Chinese truck models.

Segmentation, Targeting and Positioning

Segmentation is the process of using shared attributes to classify or categorize customers in a given market. Demographic and psychographic segmentation are relevant to the Chinese market since the customers’ purchasing behavior is mainly influenced by their income levels and perception of products.

Demographic segmentation involves categorizing customers according to attributes such as sex, age, income, and occupation. In this context, the Chinese market can be segmented according to customers’ income and their occupation in order to identify the group that is likely to purchase Ford F-150 SVT.

Psychographic segmentation involves categorizing customers according to their interests, activities, lifestyles, perceptions, and opinions. In this case, the Chinese market can be segmented based on customers’ lifestyles and perceptions.

Targeting refers to the process of selecting the right market segment. In demographic segmentation, the right group to target includes the high and middle-income earners in China. This choice is justified by the fact that high and middle-income earners are not likely to be sensitive to price changes. Consequently, they are likely to consider the non-price attributes of Ford F-150 SVT in their purchase decisions.

In addition, occupation is a relevant factor for choosing the right market segment. In this case, the segment that should be targeted includes owners of small and medium-sized businesses who are able to afford high quality trucks. In psychographic segmentation, the right group includes the customers who believe that American trucks such as Ford F-150 SVT are superior to local trucks.

Additionally, individuals who are interested in outdoor recreational activities such as visiting tourist attractions are likely to purchase Ford F-150 SVT because it offers comfort, style, durability, and off-road capabilities.

Positioning refers to the process of “identifying the most appropriate marketing mix for a given target market”. Customers in the Chinese market are interested in product quality and price. Thus, the most appropriate elements of the marketing mix for the segments identified in the foregoing paragraph are product and price.

In this regard, Ford F-150 SVT will be positioned as a high quality, luxurious, versatile, and durable medium-sized truck. Given the high competition in the industry, it will be important to position Ford F-150 SVT as a truck that offers superior qualities at affordable prices.

Environmental Facts and Trends in the Chinese Market

In the microenvironment, the factors that are likely to influence the sales of Ford F-150 SVT are high competitive rivalry and high bargaining power of the buyers (customers). The competition in the market is very high because there are very many sellers of medium sized trucks. The competition is also high because firms are focusing on product differentiation and cost leadership.

The high competition is likely to affect the sales of Ford F-150 SVT negatively. Customers have high bargaining power because their switching costs are low. Specifically, the customers can easily change from one truck model to another in order to enjoy benefits such as low prices and high quality. Thus, Ford F-150 SVT might not penetrate the market if its qualities fail to satisfy the needs of the market.

In the macro environment, the factors that are likely to affect the sales of Ford F-150 include social, political, and economic variables. China has experienced rapid economic growth in the last two decades.

This has resulted into an increase in business activities, emergence of a large middle-class, and improved purchasing power among citizens. This can be illustrated by the fact that China is the largest market for cars in the world. Thus, high economic growth in China is likely to boost the sales of Ford F-150 SVT.

High regulation is the most important political factor that is likely to affect the sales of Ford F-150 SVT in China. The government of China has imposed high import duties on imported vehicles in order to protect its automotive industry. In addition, foreign car manufacturers that intend to produce vehicles in China must partner with local producers in order to be licensed to operate.

Thus, exporting Ford F-150 to China will reduce its competitiveness due to the high import duties. Although collaborating with a local producer seems appropriate, the partnership can lead to a brand war that will ultimately reduce the competitiveness of Ford F-150 SVT.

The social factors that are likely to influence the sales of Ford F-150 SVT include customers’ perception of imported cars and customers’ lifestyles. The low-income earners believe that foreign trucks are more expensive than local brands.

This perception is likely to discourage the purchase of Ford F-150 among the low-income earners. By contrast, the middle and high-income earners believe that imported trucks have superior qualities.

Thus, they are likely to purchase foreign brands even if they are sold at a premium price. This will boost the sales of Ford F-150 SVT in China. The rising demand for tourism products such as park visits is also likely to boost the sales of Ford F-150.

Marketing Campaign for Ford F-150 in China

Marketing promotion refers to the “coordinated series of steps that are taken to promote a product”. The four elements of marketing mix can be used to promote Ford F-150 SVT in China in the following ways. Ford F-150 SVT will be positioned as a high quality brand.

In order to keep this brand promise, the design and production team will take into account the needs of the Chinese market such as fuel efficiency. In addition, the sales team will organize free test drives to enable customers to verify the qualities of the truck.

Penetration pricing will be employed to enable the truck to gain market share in China. This will involve setting relatively low prices in order to attract customers. Discounts will be provided to encourage cash and bulk purchases. These strategies are important because customers in China are price sensitive. Thus, charging low prices will help in overcoming competition.

Selecting the most appropriate distribution channel (place) will be integral in the process of marketing Ford F-150 SVT in China. In this regard, the truck will be distributed through Ford Motor Company’s retail outlets and independent distributors. The rationale of this strategy is that China has a vast geographical area.

Thus, partnering with local distributors will help in reducing distribution costs. Moreover, local distributors have a good knowledge of the market, which will enable them to sell the truck easily. Ford Motor Company’s retail outlets will also be used to train local distributors on the truck’s qualities and capabilities. Undoubtedly, having adequate product knowledge will improve local distributors’ ability to sell the truck.

Promotional activities will also help in marketing Ford F-150 SVT. The promotional activities that will be used include advertising, public relations, and providing free after-sales services such as repairs for a limited period. The objective of the promotions will be to increase product awareness and sales.

The effectiveness of the marketing campaign will be measured by predefined sales metrics. These include the generated sales leads, sales volume, and market share.

Ethical Marketing Considerations

The ethical concerns that will be addressed in the marketing plan for Ford F-150 SVT will help in promoting fair competition and protecting the truck’s brand image. Unethical marketing activities such as price fixing, price collusion, and predatory pricing will be avoided since they are illegal and discourage competition.

Moreover, marketing promotion will focus on the use of adverts with appropriate content. Thus, inappropriate content such as sex messages will be avoided in the truck’s adverts.

Conclusion

Ford F-150 SVT can gain market share in China since it provides the utilities of customer value. In addition, robust economic growth will boost its sales in China. However, an effective marketing plan must be developed in order to take advantage of the opportunities in the Chinese market.

In this regard, Ford F-150 SVT should be positioned as a truck that provides superior qualities at low costs. This will help in overcoming competition, thereby enabling the truck to gain market share. Moreover, the marketing campaign should focus on creating brand awareness in order to increase sales in China.

References

Cant, M., Strydom, J., & Jooste, C. (2009). Marketing management. New York, NY: John Wiley and Sons.

Chemev, A. (2012). Strategic marketing management. New York, NY: McGraw-Hill.

Ding, Q., & Akoorie, M. (2013). The characteristics and historical development path of the globalizing Chinese automotive industry. Journal of Technology Management in China, 8(2), 83-104.

Ford Motor Company. (2013). Model: F-150 SVT. Web.

Lee, K., & Choi, J. (2013). Automobile industry, guanxi, and social networks in China: Emperical study of 32 automakers and 477 parts suppliers. Chinese Management Studies, 7(2), 155-171.

Roberto, M., Guo, G., & Jiang, C. (2011). Chang’an Automobile and the Chinese automotive industry. Journal of Technology Management in China, 7(2), 23-28.

Executive Summary

The following report focuses on the automobile industry analysis. This industry is viewed by many analysts as inherently interesting owing to its massive and competitive nature. Due to changes in the global trends and oil reserves, the automobile industry should be re-structured.

Method of Analysis of the Automobile Industry

This can be done by focusing on the historical description of the industry. In this report, Porter’s Five Forces Model has been used in the analysis to help in deeper understanding of the automobile industry. In this discussion, three market leaders have been chosen for the analysis. These top three companies are General Motors, Toyota and Ford (History of the Automobile, 2005).

Industry Overview

The industrial growth and expansion of the automobile are majorly influenced by vehicle components, fuel innovation, market changes, societal infrastructure, business structures, suppliers, and manufacturing practices.

For instance, the recent consumer empowerment and increasing sophistication trends have prompted the automobile makers and dealers to search for new markets, which are specialized, among the ones that are already saturated with customer diversity bases.

A good example of such a market is that of the United States. Therefore, it is important to venture in the newly emerging markets, especially in the Latin America and South East Asia (History of the Automobile, 2005).

This will promote the automobile dealers to establish production facilities in the overseas. Such establishments will in turn lead to business strategic partnerships and global alliances with foreign automobile dealers.

Using Porter’s Five Forces Model to analyze the Automobile industry

Michael Porter came up with five major forces, which influence the industrial performance. The forces identified are barriers to entry, supplier power, degree of rivalry, buyer power and threats of substitutes.

Considering other industries that operate under the free market and capitalistic economy, analyzing the automobile industry through the use of Porter’s Five Forces is very important to understand the market dynamics (Freyssenet & Shimizu, 2003). However, in this discussion, the main focus is on the analysis of the barriers to entry that exist in the automobile industry.

Barriers to Entry

The automobile industry has high entry barriers that only allow fewer firms to enter in the market. In fact, there are small numbers of firms that dominate the automobile industry since there are several barriers to entry. In such business environments, there are high economic rents, which make the automobile industry attractive to many investors, both the local and foreign.

However, firms such as the restaurants have few entry barriers due to low economic rents, which make them less attractive to the potential investors. The analysis presents some entry barriers that exist in the automobile industry (Freyssenet & Shimizu, 2003).

Working Capital Requirement

Every newly established company faces the threat of start up capital. It is such substantial barriers that are evidenced in the automobile industry. The working capital that is required so that a new company can set up a manufacturing capacity, which helps in achieving the intended level of production is prohibited.

Therefore, it is not easy to attain the minimum efficient scale of production. The limitation can be attributed to the nature of the automobile industry that has a very specialized manufacturing facility.

In case the automobile manufacturing facility fails, it is not easy to re-tool it. It is only possible for the new companies to enter the automobile industry through mergers, acquisition and strategic partnership arrangements (Hiroaka, 2001).

The start up capital is tied for the daily operation of the business, and this money is not invested elsewhere. Therefore, it is difficult for the small and up-coming companies to get enough money to finance their daily operation. This can force them to rely on borrowings from various financial institutions that offer loans at high interest rates.

Economies of Scale

The economies of scale that exist in the automobile industry create a high barrier to entry. Firms that operate in the automobile industry must meet the required scale size. Though, the firms can achieve the economies of scale, they do not enjoy the associated learning curve benefits in the short run. It is a difficult task for the firms to prove the existence and probably the non-existence of the economies of scale, which is not tangible in nature (Freyssenet, M. & Shimizu, 2003).

Brand Identity

It is a big challenge to the small firms in the automobile industries since their brand identity is still very low. For instance, the automobile buyers often make buying decision based on the company’s brand identity. This presents a major entry barrier in the industry (Freyssenet & Shimizu, 2003).

In such cases, the small companies tend to incur a lot of expenses against the sales revenue. Such a downward trend on the revenue earning discourages other small firms from entering the market.

Absolute Cost Advantages

Legal constraints such patents and copyrights in the automobile industry present a very high barrier to entry, and these are created by the legislation of the government. These government documents create monopoly in the industry, thus barring the new entrants.

References

Freyssenet, M. & Shimizu, K. (2003).Globalization or Regionalization of the European Car Industry? New York, NY: Palgrave Macmillan.

Hiroaka, L. S (2001). Global Alliances in the Motor Vehicle Industry. Westport, CT: Quorum Books.

History of the Automobile (2005). Retrieved from https://www.thoughtco.com/history-of-car-assembly-line-4072559

Abstract

Honda Motors and Ford Motors corporations are automotive industries that contribute substantially to the world economy. Both internal and external factors are very essential in determining the economic progress of an organization. This work aims at discussing the SWOT analyses of the two firms and gives recommended strategies that should be implemented so as to ensure that both the companies remain economically viable.

Ford Motor Corporation. Introduction

Ford Manufacturing Company is the third biggest global automotive industry (Billstein, Fings, Kugler, and Levis, 2004, p.1); Ford, DaimlerChrysler, and General Motors form the big three US manufacturers. In addition, with about 300,000 employees, its operations are mainly within America and Europe, while headquarters are in Dearborn, Michigan (Cornell, et al, 2005).

Moreover, The Company operates in both automotive and financial services, with the major automotive vehicle brands being Ford, Land Rover, Mazda, Mercury, Volvo­­­­­­­­­­­­­­­­­­­­­­­­­­­, and Aston Martin.

Primarily, Ford’s automotive business entails the manufacture, design, development, sale, and serving of cars, trucks, and service parts. Apart from the production and sale of cars and trucks, the company also offers after sale products and services to its clients. This paper will provide the SWOT analysis of Ford Motors Corporation and Honda Motors Corporation.

Honda Motor Corporation

As was noted in Honda website (2010), Honda operates under the principle of respecting the personality and competence of each person. The Company also believes that each person coming into contact with the company, either directly or through their products should enjoy the experience. As from its formation in 1948, the company has aimed at providing high quality products at reasonable prices.

Moreover, the company’s operations are geared towards environmental protection and safety. As one of the leading automotives and one of the global’s leading motorcycle producer, Honda manufactures, develops and markets a wide range of products ranging from engines to sport cars (Honda website, 2010).

SWOT analysis for Ford motor company

Strengths

Ford Motors Company has had some strength in its operations. First, financial reports for year 2005 indicate that the company has had substantial revenue from Ford Asia and Africa, as well as Mazda; and there was an increased profit margin made from Strong Ford Asia and Africa, and Mazda in comparison to the previous years. This gave the company a promising future revenue projection.

Secondly, the company experienced strong economic growth due to the high revenue generation from Ford Europe and Premier Automotive Group (P.A.G) in 2005. This growth helped the company to compensate for revenue reduction in its American division.

Thirdly, the company is kept afloat through its profitable financial services division. For instance, between 2004 and 2005, there was more growth in the revenue of the company’s financial services division than its automotive division. Over the recent years, even though the automotive division has not been performing well, Ford Motors credit division has continued to register profits (Paul, 2006).

Weaknesses

Besides the above strengths, Ford Motors has its own pack of weaknesses. First, the North American automotive operation has a past record of poor economic performance (Cornell, et al, 2005). For example, the automotive division recorded a decline in revenue between 2004 and 2005.

The declining automotive operations in North America are because of not only rivalry from Japanese companies, but also due to a change from fuel guzzlers to more fuel efficient automobiles. Primarily, the sales of Ford Motors are mainly dependent on trucks, which are major fuel guzzlers. This has caused stagnation in the sales of trucks in the United States due to increased fuel costs.

Ford’s market share has also been taken away by Japanese based companies such as Toyota. Indeed, perpetual weakening of the company’s marketing share in North America has the potential of greatly affecting both the financial and marketing standing of the company. Secondly, there is maligned brand image of the company due to its frequent recalls.

In 2000, the company had to spend exorbitantly to replace its tires after an investigation from the United States transport department; indeed, the same prompted numerous pick up trucks and sport utility vehicles to be recalled many times in 2005 following a fire related risk due to overheating of the engine. Therefore, damaged brand image has adversely affected the company’s sales in Europe.

Thirdly, Ford has huge unfunded pension and other obligations, for instance, most of the company’s insurance obligations are unfunded. These include unfunded pension, health care and life insurance obligations. Through these unfunded obligations, the company’s cash flow would be adversely affected (Cornell, et al, 2005).

Opportunities

In 2006, Ford a strategy to improve North America’s automotive performance was launched with the purpose of ensuring the American business was client-centered, product-oriented, and efficient. The North American division is to be restructured to be copportunity of developing hybrid vehicles.

In a few years time, most of the company’s products are supposed to be changed into hybrid electric engines due to the increasing global demand for hybrid products owing to strict emission levels, mounting fuel costs and environmental enlightenment. In addition, compared to the normal gasoline and diesel engines, hybrid engines are consuming less fuel and have a reduced environmental effect.

Therefore, the Company’s focus on hybrid electric products may help it revive the North American market. Additionally, there is a growing market demand for light vehicles in India and China that is likely to enable Ford to improve its sales volume.

Threats

The threats that Ford motors faces are several: to begin with, there are rising costs of raw materials due to industry consolidation. For instance, global steel prices are likely to rise following the merger between Arcelor and Mittal. Increased oil prices have also led to a rise in polymer prices, a situation that could negatively affect the company’s profit margins.

Secondly, there is intense competition from Japanese based automotive manufacturers like Honda and Toyota in the US light vehicle market. If the company does not modify its operations, this may adversely affect Ford’s North American division.

Thirdly, Ford’s low capital spending especially in its Research and Development may not make the company counter the competition from its rivals, who might be ahead s far as global marketing is concerned.

Implementation, Ramification, and evaluation strategy for Ford Motors

Due to increased competition from its Japanese based rivals, the company ought to invest more in Research and development. This will enable it come up with sufficient strategies that can enable it counter the competition and thus restore the North American market.

Secondly, the company is supposed to increase distribution of its light vehicle products to India and China where their demand is rising (Paul, 2006). Thirdly, to avoid further recalls, the company is supposed to work hard and implement its North American plan of ensuring focus on product quality.

SWOT analysis for Honda Motor Company

Strengths

Honda’s strength is first evidenced in its thorough engagement in Research and Development, and innovation (Faul, 2008). This has made the company to explore robotics in the past. Investment into Research and Development ensures that the company continues to have a competitive cutting edge as well as perpetual production of quality products that cannot be matched (Dyck and Neubert, 2008).

Secondly, the company has taken leadership over the market share of automotive products. Retaining this market share will continue boosting the company’s revenue. Thirdly, the company has a very strong brand equity that has not suffered damage like it has happened for the case of Ford and Toyota in the past years.

Fourthly, the company’s unique and diverse products (automobiles, motorcycles and power products) have boosted both its market share and brand image. Additionally, the company has a product system that has undergone refining over the years, which helps the company to maintain its credibility and high product quality essential in market sustainability.

Weaknesses

The Company has two main weaknesses; first, it over-relies on international profits, thus subjecting the firm to the challenge of varying economies of scale that result due to econo-political factors in various countries. Secondly, it has high cost structure such that, compared to Nissan and Toyota, Honda requires a deposit for higher purchases (Faul, 2008); the result being generation of rivalry.

Opportunities

Given its ability in high Research and Development, the company is in a better position to produce both fuel efficient and environmentally friendly automobiles as per the increased customer demand. Secondly, in its global strategy, Honda should consider penetrating China due to the latter’s closeness to Japan and its cost innovation benefits.

Threats

The main threats Honda is facing are four-fold. First, the 2008 global recession has caused the company to experience slow economic growth. Secondly, external factors such as politics, government regulations, and tax among member countries may be a threat to the Company’s economic performance.

Thirdly, Honda faces competition from lower cost imported Chinese products that may affect its sales revenue. Moreover, due to unclear product differentiation, there are price wars that may put the company into the fix of whether or not to revise the cots of their products to suit consumer demands.

Implementation, Ramification, and evaluation strategy for Honda Motors

First, due to the increasing demand for eco–friendly vehicles, Honda should use its Research and Development ability to come up with products that are environmentally friendly such as battery-powered care among others (Black, 2010). Secondly, as stated by Smalls (2010), Honda hybrid battery product has been foundered to develop problems among users.

The company should aim at reviewing its production and maintain its focus on quality. Thirdly, to keep up with the changing global economies, the Company should devise both short term and long-term plans so that neither recession nor any other politically motivated factor does adversely affect its operations.

Additionally, to counter the threat of low cost Chinese products, the company should continue investing in Research and Development so as to continue inventing and producing high quality products that justify their prices.

References

Billstein, R., Fings, K., Kugler, A., and Levis, B. (2004). Working for the enemy: Ford, General Motors, and forced labor in Germany during the Second World War. NY: Berghahn Books.

Black, W. (2010). Sustainable Transportation: Problems and Solutions. New York: Guilford Press. Web.

Cornell, C. et al. (2005). Team Project – ERP Analysis: Ford purchasing system – “Everest”. Web.

Dyck, B. and Neubert, M. (2008). Management: Current practices and new directions. Boston: Cengage Learning. Web.

Faul, P. (2008). Businesses Environment: Test and Cases. New Delhi: Tata Mc-Graw Hill.

Honda Website. (2010). Company Overview: details of company’s head office. Web.

Paul, J. (2006). International Business. NY: PHI Learning Pvt. Ltd.

Smalls, R. (2010). DIY solutions to Honda hybrid battery problems. Web.

Factors that Impact the Industry

This is an analysis evaluating the Ford Motor Company (FMC) for a period of over five years. The company is established on the automotive industry providing services in designing, developing, manufacturing, marketing, and selling motor vehicles.

It brings a lot of revenues, which make it one of the world’s most important economic sectors. According to Finch (2012), the PESTEL analysis is a model used in industry forecasting to scan the external industry environment.

It is an acronym for a set of six comprehensive factors, which include the legal, environmental, social, technological, political, and economic factors often seen as the sources of opportunities or threats in SWOT analysis (Finch, 2012, p. 78).

Political factors are extrinsic environmental variables that demonstrate how the involvement of the government influences the overall competitive market or an individual company through trade restrictions, employment regulations, tax-related policies, and statutory laws on consumer protection which can favor the company, delay its growth over the first few years, or make it collapse at once.

The political stability and government efficiency in providing safe and fair markets vary extensively between countries.

Economic factors entail such characteristics as the condition and health of the prevailing economy in which the market of interest exists.

Some variables with a significant impact at the market-product level in decision making include inflation, interest rates, the unemployment level, consumer confidence, gross domestic product, discretionary income, and the rate of currency exchange.

Interest rates have a particular importance to the companies pursuing growth opportunities since the expense of direct money borrowing affects a company’s ability to expand.

Other economic factors affect the ability of a consumer to afford the product on sale making the economic stability a major determinant of the company’s growth.

Social factors classify customer’s features into two essential classes namely culture and demographics, which present a major concern (Finch, 2012, p. 80).

Culture contains the societal beliefs, attitude, and values whereas the study of population (demographics) gives a statistical description of the community’s characteristics expressed by location, age and employment. The interaction between marketing and culture is reciprocal.

Therefore, the marketing communications utilize cultural meanings by transferring them to their products in order to attract customers who hold these values. As a result, the icons and symbols establish values which are the foundation to the automotive industry.

The marketers would take the opportunity to market their motor vehicles during cultural holidays that revolve around artistic rituals affirming such practices as exchange of gifts.

Demographic characteristics of the market allow marketers to understand how the different segments of the community respond to product marketing as a result of such personal characteristics as age, sex and income.

Assessing consumer attitude enables a person to distinguish how the different demographic segments perceive certain products. This is a guideline showing the motor vehicles to design or sell to specific groups based on their preference, which can lead to acceleration of the company’s growth within five years.

All marketing managers must be conscious of the trends in the technology sector since technological factors affect marketing processes through creation of innovative systems. These systems enable interactions with customers, processing of orders, and distribution of products.

Environmental factors comprise of lifelong ecological concerns that can impact the motor industry at some point.

These concerns can be addressed by designing electrical automobiles that are environmentally conscious, which can be more acceptable than fuel guzzlers, or those contributing to air pollution through release of exhaust fume.

Finch (2012) describes legal factors as those affecting a company’s growth through rules and regulations that seek to control business organizational performance.

These regulations are imposed to govern the pricing of products and natural monopolies, which arms them with a significant influence on the company’s growth (Finch, 2012, p. 81).

Weaknesses

Weaknesses are factors relating to a fortuity in which consumers regard the company unfavorably, or make the company susceptible to competitors leaving the company at a disadvantage compared to competitors.

These are market-related and occur as an effect of liberalization which has globalized national markets increasing the threat of new entrants or competition in traditional.

Furthermore, the increase in the behavior patterns of the consumer demands single products which may not be rewarding.

Low company exposure can mean that few consumers are aware of it which can derail a company’s growth greatly especially within the initial five years. Therefore, this is a significant negative effect in the technological factors.

Strengths

The company’s strengths are either resources or skills which the company possesses in relation to the business opportunity under evaluation, or which may give the company an advantage over the others in the industry (Future Automotive Industry Structure 2015. 2003, p.26).

These include the company’s stability and predictability in a case where it has been known to produce quality automobiles enhancing brand recognition which promotes consumer loyalty.

Establishing a global presence will greatly increase the company’s chances of success as well as ensure the growth of sales within five years due to the establishment of a wide market in the different countries.

Opportunities

Some opportunities can be capitalized to enhance the company’s growth through such strategies as creating a history of product innovation and ensuring that the trend proceeds.

With the invention of electric automobile market, this can be capitalized upon to provide the world with an eco-friendly alternative that operates similarly to the original gas-guzzling vehicles (Growth markets, 2004, p. 24).

Possessing shares in the emerging markets ensures immense growth as the economies of these markets grow, and enable the consumers to afford automobiles.

References

Finch, J. (2012). Managerial Marketing. San Diego, CA: Bridgepoint Education Inc.

Future Automotive Industry Structure 2015. (2003). Web.

Growth markets: future challenges and opportunities in the automotive industry. (2004). Web.