Environment Industry Marketing
The report is about the analysis of the environment of automobile industry and the marketing strategy for Ford Motor Company. It initiates with examining of external environment of automobile industry by using PEST analysis and Porter’s five forces analysis. After the internal analyses that focus on the resource audit on brand, products, markets, technology, people and son on, the value chain analysis of the company will be conduct. Then the generic competitive strategies would be discussed through SWOT analysis, Ansoff Matrix and BCG Matrix in order to identify the general business strategy taken by the Ford Company. After specifying the company strategy by those analysis tools, the strategic evaluations would be drawn together with the strategy control methods. Finally, a suggested recommendation for the company future development will be mentioned at the end of the report.
1.1 Aim of The Report
This report aim to identify the external environmental of the global automobile industry, measure and evaluate viable and sustainable marketing strategies using by the Ford Motor Company. Through appropriate theoretical concepts and models, together with appropriate methodologies, the organization within its contextual setting will be carefully examined, and justify recommendation will be mentioned. Though the report, how a successful corporation is operated and how its business strategy is implemented and controlled will be understood.
1.2 Company Background
Ford Motor Company is an American multinational corporation and one of the world’s largest automaker based on worldwide vehicle sales. It has manufactures and distributes automobiles in 200 markets across six continents and has about 300,000 employees and 108 plants worldwide. Ford now encompasses many global brands, including Lincoln and Mercury of the US, Jaguar and Land Rover of the UK, and Volvo of Sweden and one-third controlling interest in Mazda as well. Ford introduced methods for large-scale manufacturing of cars under different brands and large-scale management of an industrial workforce and its combination of highly efficient factories and low prices revolutionized manufacturing had made the company successfully become a world leading auto manufacture.
1.3 Rational of Company Selection
Automobile industry is a consistant developing industry in the global in the 21st century. Ford Company is a world leading automobile manufacture, which has its business all over the world. To analysis the global automobile industry environment and the development strategy for such a world famous company would be a greate help to understand how business strategies are generated, implementated and controlled and meanwhile to see how would the company do to keep its business perform well when facing a complicated environment and a decline market.
1.4 Company Vision, Mission and Value
The company’s vision is ‘to become the world’s leading company for automotive products and services.’ And the company’s mission is to become a ‘global, diverse family with a proud heritage, passionately committed to providing outstanding products and services.’ And together with a company value that ‘do the right thing for our people, our environment and our society, but above all for our customers.
Based on its vision, mission and company value, the Ford Company is endeavor to keep its leading position in the global, and make effort to provide excellent products and services that satisfied its customers. Approaches that be taken to fulfill it goals and objectives with considering the harmony of business environment and modern society.
2.1.1 Industry Background
The world automobile industry has well developed for many decades and stable progress was made during recent years. Now the automotive manufacturing sector produce over 60 million vehicles every year and contribute about 2.45 trillion Euro annual revenues. There are numerous world famous carmakers all round the global, and although the competition in automobile industry becomes more and more fierce, it is still one of the biggest markets in global industry.
2.1.2 PEST Analysis
Finlay point out that remote environment affect businesses by an indirect way and would cause changes in a company’s operation. The automobile industry touches on a wide range of aspects, such as manufacture, supply chain, retailing and so on. As a result, many factors such as government policies, local regulations, and social culture differences would influence this industry. By modeling the remote environment with PEST analysis (see appendix I), factors that would affect the global automobile industry would be examined.
220.127.116.11 Political and Legal
Anti-monopoly policies such as the EU competition policy tack several barriers to competition to make sure firms operate under a certain legal framework. This policy has force a perfect competition in automobile industry and will absolutely affect auto manufactures’ marketing strategy to some extend through preventing firms from colluding by price-fixing and as well controlling the size of firms.
. Environment Legislations
Nowadays, much attention has been devoted to the environmental issues. Organization such as European Environmental Liability Directive has formulated many laws and regulations for environment protection. Those legislations force manufactures to think over the environmental damage their operations may bring along, so that manufactures have to take action to protect the environment.
. Automobile Industry Legislations and Policies
First, regulations in many regions have introduced different emission limits for diesel and gasoline vehicles. Since 2005, all automobiles have to reach the Euro 4 emission standard in European countries. And in America, stricter emission standard is set since 2005.
Besides, some governments are encouraging automakers to produce environmental friendly vehicles. For example, UK government had asked automobile manufactures to design new ultra low carbon family car in 2003, which says can be the step stone of the new generation fuel efficiency cars.
With the imposition of a fuel tax, consumers will have to think more carefully about their purchasing decisions. In the global, many countries has very high fuel tax, such as in the UK, it has took tax higher up to 81.5% of the total price of fuel. And in Europe, EU has imposed a minimum taxation of 0.287 Euro per liter on gasoline. As a result of such a high fuel tax, the usage of cars would be reduced to a great extent for many people.
.Economic Growth and Inflation
For these years, the global economy is growing steady. Predictors say that the average world growth rate of 4.9 percent in the period 2003-2006 will continue at least for the next two years.
In terms of inflation, there is a survey shows that an increasing global inflation with the annual rate of consumer price inflation in the U.S. went up to 4.2 percent in May,2007; 2.2 percent in Great Britain and 2.5 percent in the Euro zone. As a result of the increasing inflation, people may prefer to spend their money right now instead of saving money in the bank and it would encourage people to consume products such as automobiles.
Globalisation has removed many barriers to cross-border activities and international trade can create great opportunities for local businesses to expanding their business into new areas overseas to meet a whole new set of potential customers.
The ever-closer international business relationship would provide the manufacture more cost-effective resources and meanwhile provide customers the opportunities of wider choices.
The unemployment number in the global is increasing every year. It is said that no matter in the developed countries like United States and the United Kingdom or in the developing countries in China, and India, they are generating less employment than it has in the past even though economic growth is strong. So, in many places all around the world, the speed of job creation cannot catch up with the pace of population growth. This large number of unemployment indicates that many people may have not have steady income to afford a car.
.Personal Income and Distribution of Wealth
Despite a high and growing global average income, global distribution of wealth, consumption, and opportunity still remain severely unbalanced. The wealthiest 20 percent of the population consumes 80 percent of the resources. As a result, people who could afford an upper class product only account for a small proportion of the total population and most people only has the average income.
Although recent long-term demographic projections suggest a fast deceleration of global population growth, evidence shows that the number of elderly people is growing fast. As a result, manufactures should consider product that oriented to the elderly.
Some experts claim that there was a decline in the average size of household in the 21st century.
Due to the increasing number of elder people and the smaller size of household, I think the small car may become the main stream for its practicality.
.Private and Public Transportation
Though the public transportation may not be the first choice of some people, it is still the best substitute of private transportation such as private cars. This is especially true when increasing automobile usage generates some negative impacts such as congestion, traffic accidents and additional vehicle emissions. So some government is tending to shift people away from private transportation to public transportation with the effort that improving the performance.
Environmental problems that touch us all has now has drawn the attention of public. People become more awareness about environment issues such as air pollution and greenhouse gas emission. For example, Public are informed by many channels about the impacts of transport can bring, such as the climate change, human health affections and loss of biodiversity . As a result, consumers may become more cautious when purchasing cars. Meanwhile it is obviously the usage of environmental friendly products would turn up an increasing trend.
.Other Social Concerns
Parking can be a big problem for many drivers. It is always hard to find a place for parking and the price charged for parking is sometimes goes very high . As a result, some people would rather to use public transportation instead of using their private cars.
Road accident is always a big issue for drivers. Take UK for example, according to the 2005 annual report of UK department of transportation, there is a total number of casualties in 2005 were 271,017 with a number of 3,201 people killed and 28,954 injured. The high risk of driving would influence consumers’ decision on purchasing.
Recent years some diseases such as SARS had challenged social stability. This had effect people’s customs and their behavior to some extend. For example, there is a sharp decrease of public transportation usage rate during the period of SARS in 2003. These public health issues more or less have influenced the global automobile market.
Since increasing attention has paid to environmental issues, researchers are searching actively for new exploitable resources that can instead of petrol and diesel.
Bio-fuels are one of the most favorite substitutes at current, which says made from renewable resources such as agricultural crops or waste. They are more environmental friendly and can be refined as conventional petrol that used in today’s engines.
Another substitute is natural gas that is relatively cleaner compare with other alternatives. Besides, it is claimed that natural gas is not only a cheap energy, but also can well suited to motoring uses.
In addition, Lewin believe hydrogen fuel cell cars that will hit the market in near future and many automakers are planning to launch this kind of product.
Besides, solar power is also a feasible substitute for carmakers. It is claimed that the very first solar power deal for reviving car batteries had made by a Canadian manufacturer of solar panels with the VW.
.Computer Aided Design Program
Wernle and Bolduc point out that vehicles design in the new century must be distinctive and alluring so that it would win a ideal market share. It is always a hard and time consuming process for car designer to design a car that not only combine with great comfort and safety performance, but also has unique style. Now, with the help of some computer programs such as Alias it would save much time for automakers to get cars to market quicker by reducing the number of clay models and prototypes.
. GPS and Car Navigation System
It is report that Garmin Ltd., the largest GPS device maker in the world had sold around 5 million units in 2006 for personal navigation equipment. Nowadays, GPS becomes more and more important to car drivers in every day life. With the help of GPS system information associated by odometers, gyroscopes, a car navigation systems can get drivers wherever they want to go. Information is transmitted by autonomous navigation systems without the participation of an external server by the use of a two-way communication between navigation center and the onboard vehicle sensors. The system can calculate the optimal route automatically and then give necessary guides and some programmes even can provide users with additional information such as hotels and shopping malls showing on its digital maps. As GPS and car navigation system has widely accepted by many people, it will become an important factor when people making their consideration.
2.2 The Structural Analysis of Industries
Competition between firms is crucial to modern economies. In competitive environment, there is a set of external influences which is able to affect organisations’ action. Organisations have to fully understand that environment in order to make effort to create competitive advantage so that to achieve success. In the following part, Porter’s five-forces’ (see appendix II) approach will be used to examining the competitive environment.
2.2.1 The Threat of Entry
Johnson suggest that the barriers to entry determine the threat of entry. If the barriers are high then the threat of entry would be relatively low.
The entrance barriers in global car industry can be proposed as following:
. Economies of Scale
Since the ever falling car price, in order to reduce cost, many carmakers keep increasing their output volume. For example, Toyota Motor Manufacturing had increased from 220,000 to 285,000 on Toyota Corolla and Avensis models in UK 2004 annual production capacity and Mazda’s domestic production capacity has increased by 14 percent in the same year. Thus, new entrants who want to come in this industry have to come in with either at a large scale and risk strong reaction from existing companies or they have to come in at a small scale and accept a cost disadvantage.
. Production Differentiation
For carmakers, it is always hard to create distinctive products, as the basic techniques of car manufacturing are no longer a secret for few manufactures. Now the focus is gradually turning to safety, style, comfort and new technology for example a computer control panel such as providing the driver with telematics, GPS because of the quality gap among the different manufacture become narrower. As a result, it would obviously more time consuming and would spend more money for those carmakers to design a new model that is different from the competitors’.
.Capital requirement of Entry
To entry the automotive industry requires not only advanced technological but also enormous capital. It costs a lot on designing a new model, production, distribution and so on. And the larger the scale the company has the more capital would be spent. So entrants who want to come into this industry should first make sure if they have enough money.
. Cost Disadvantages Independent of Scale
Porter state that established companies may have cost advantages such as proprietary product technology, favorable locations, favorable access to raw materials. Many famous carmakers have already established their cost advantages. Take the example of Ford, it spend around 450 million on automotive research and development in Britain to keep advanced technology every year. As a result, it is difficult for a competitor who does not have cost advantages to break into the industry.
To sum up, the entry barriers in world automobile industry is relative high, so it is not an easy work for new entrants to come in to this field.
2.2.2 Bargaining Power of Suppliers
Suppliers may have strong power over the industry if the industry is dominated by few suppliers or the switching costs is high to change one from another .
When considering the components segment of automobile industry, it is now facing a globalization trend. Rivals not only exist in the domestic market, but also rise from abroad, which means that the components segment is full of competition and the bargaining power of suppliers would be reduced.
Beside, car companies are now seeking component makers and original equipment manufacturers in some developing countries such as India, China and Far East in order to save money. Honda, which used to source major part of its components from UK suppliers, for example, is now reducing its UK vendor base. As a result, this worldwide sourcing trend has become a threat that limited the power of suppliers.
In addition, in auto industry there is a trend of allying with other manufacturers to share design and development costs recently. It is said that vehicle manufactures are working together much closer with their partners and try to develop vehicle platforms jointly. Most of large car manufacturers like Ford, GM, and Volkswagen have cut down their number of platforms and some models will use the same platform in order to reduce cost. Manufacturers can not only reduce their manufacturing cost to some extend by this way, but also would become more powerful when bargaining with components suppliers because increasing volumes of components may need. And meanwhile it may help manufacturers reduce raw material costs.
In a word, the bargaining power of suppliers in global automobile industry is low. It is an opportunity for many car manufacturers that provide a chance of planning their purchasing strategy better and more profitable.
2.2.3 Bargaining Power of Buyers
According to Porter’s theory, buyers have the power of forcing down prices, bargaining for higher quality and more service, and playing competitors against each other. In the following part, the bargaining power of buyer in global industry will be discussed from several different aspects.
As in global car market the product differentiation is not very obvious due to the auto manufacture acknowledge is no longer a secret. There are lots of carmakers in this market, and the basic functions of their products are almost the same and the only differences would be the design and some other additional functions. So customers can always find alternative supplier who offers a cheaper price, gives the most satisfied product, and provides the best customer service.
. Importance of Purchasing
If the product is very important for the buyers, the bargaining power of buyers may relative high. In automobile market, the importance of purchasing seems rather low. Statistic shows that in developed countries, the average ownership of cars is quite high, take Britain as an example, statistic shows that 3 in 4 households have access to a car and over half (52%) of all rural households had two or more cars in 2005. So in those countries to purchasing a new car may not be so necessary for most of the families.
. Information Searching
If buyers have full information about product, demand, market price, their bargaining power would be greater than those with less information. We are now entering a great new era of information. People can seek product information through various methods, such as friends, sales assistant and different medias. And it is said that individuals especially those who are highly involved with the purchase of a product are thought to be more active on information searching. Today’s mass media, no matter the newspapers, magazines, radio, or television, all contain a large amount of information. Besides, the entering of Internet era has simplified the process of information searching process to a great extend. All these factors mentioned above have provided consumers with more information.
What it comes down to me is that in automobile industry, the car manufacturers’ marketing strategy would be effected by the relative high customer bargaining power.
2.2.4 Pressure From Substitute Products
Substitutes play a limitation role in industry, it provide the same function as the product of the industry to restrains industry making profit. There are several means would be the substitute products of automobile.
. Public Transportation
Public transportation would come first to most of people when thinking about the substitute of private cars. More and more people are willing to give up cars and use public transportation especially when the service of public transportation is better.
Besides, since there are increasing number of SOHO workers, many people choose to work at home by Internet. So they do not need a car to drive to work, thus the significance of owning a car is decreased.
. Car renting and Car Sharing
Today, the ever-rising petrol price becomes another factor that forces many people reduce the usage rate of their cars. Many people choose to rent a car for travel or share one car between friends instead of driving alone. As a result, demand of purchasing a car would be decreased and there is increasing demand for car rental especially now some rental firms have provided more complete and customerizedservices.
To summarize, public transportation, car renting and car sharing could be some of the substitute methods of owning private cars. All of these means have pressed threaten on the world auto industry.
2.2.5 Intensity of Rivalry Among Existing Competitions
Porter point out that rivalry occurs for the reason that one or more competitors feels pressure or sees the opportunity to improve position. In global automobile industry, rivalry among the competitors is very strong and the major competitors are closely balanced so that the rivalry is increasing intense. Besides old rivals such as General Motors, Ford, Volkswagen, those Japanese carmaker like Toyota and Honda now are gaining stronger power in this industry. Because there is little differentiation among the products, when deciding purchasing, one rival is always compared to another constantly in price, quality, durability, and many other aspects. As a result, in order to gain market share in the automobile industry, company should provide better product as well as better service so that it could take the market share from their competitors.
2.3 Strategic Group Analysis
To identify strategic groups which has similar strategic characteristics, following similar strategies or competing on similar bases can help to understand the most direct competitors and of any given organization and also can help identify potential opportunities and threats.
Strategic groups in automobile industry can be identified according to the product’s class and status such as those upper class manufactures such as BMW, Mercedes Benz, and up medium, medium and lower medium manufactures such as Honda, Ford and other market segment such as racing car and so on. In different regions, each groups’ power are vary. It is essential to Ford Company to identify different situation in different places all over the world, so that the business strategy can be chosen properly.
III. INTERNAL ANALYSIS
3.1 Resource Audit
Resource audit is useful in understanding strategic capability according to Johnson. To identify the availability of resource that can be used is important for a business. In the following, the resource of Ford Company would be examined.
The Ford Motor Company controls the many car marques wouldwide, such as Jaguar, , Land Rover, Lincoln, Mazda, and Volvo.
Through acquisition, Ford Company got control of some famous brands such as Land Rover, Jaguar and Volvo. Based on the customer knowledge and trust of those upper class brands, the sales of other segments and brands of Ford car had been promoted. By building the image of Combining solid refined design and the best new technologies available, the company becomes a powerful rival in the market, and the brand has widely accepted by many people.
3.1.2 Products and Market
Ford has numerous locations where Ford vehicles are developed, manufactured, sold or distributed. These plant and office locations work to provide a basis of the company’s leading position in car market for many years, which take responsibility in manufacturing vehicles and power products, technological developing, purchasing and distribution its products all around the world. Although with high cost-effective Ford models such as Transit, Fiesta and Focus that have become the best seller for many years, there would be a problem of shrinking of market and declining in profitability recent years.
According to Ford Company 2006 annual report, although the company is at loss during the year for the unsatisfied performance in North American market, the situation in Europe market is still profitable with the sales of vehicles that generated the major income and cash of the company’s automotive sectors’ revenue. In addition, the interest on finance receivables generated the primary income of the company’s financial services sector’s revenue. Based on its vehicles and financial service sales, the company has the ability to support some technology development or have some further investment such as diesel engineering.
Ford invests heavily in new technology. In Britain only, it spends around 450 million on automotive research and development annually. In Dunton Technical Centre, it has the largest automotive design and engineering facility in the UK and one of the most advanced facilities of its kind in Europe. The emphasis on technology enables the company have a solid basis of product development. As a result, competitive advantage through new technique, programmes such as digital in-vehicle system called Sync created with Microsoft that is turning out this summer is a good example.
In order to equip its employees with stronger capability, Ford offers well equipped learning resource centers and training programmes for all employees. These human resource management actions has not only trained sufficient qualified employees for the company, but also provided a base for producing conversations of company’s strategic change. On the other hand, recent bad performance forced Ford Company to shear its employees. It is said that a downsized Ford would shed up to 30,000 jobs and 14 factories by 2012 in order to be more innovative.
3.2 Value Chain Analysis
Value chain (see appendix III) analysis has been widely adopted as a way of understanding the relationship between strategic capability and organisation’s resources.
As to Ford Company, in its very early years, the company has controlled the entire value chain, now it endeavors to integrate its multi-tiered value chain which include chief elements such as real-time quality feedback from the market to tier, inventory reduction, transaction reduction, collaborative visual design studios, rapid customer feedback, accelerated time to market. Through those actions, the resource utilization is enhanced so there would be less resource is wasted during the production and transaction. Besides, the cost efficiency has increased by building the economies of scale, reducing supply cost and effective communications between suppliers and buyers. In addition, a carefully planned marketing mix and a better service would promote effectiveness, such as the efforts that the Ford Company put on CarsDirect and online selling.
IV. GENERIC COMPETITIVE STRATEGIES
4.1 SWOT Analysis
Company’s Large Scale
Ford Company is one of the largest automotive manufacturers in the world. It manufactures and distributes automobiles in 200 markets across six continents. The large size has brought the company economies of scale as well as name recognition and customer trust.
Through acquisition, Ford Company now has owned many world famous brands include Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. The company’s products has penetrated into every segments of auto industry and each brands has its own strengthens in different segment, such as Land Rover is famous of its 4X4 vehicle and Lincoln is a well know luxury car.
Profitable Financial Services Division
The financial services division, Ford Motor Credit, plays a key role in keeping the company afloat. Even the automotive division are reported at loss, there is evidence that the financial services still remain profit. As a result, the revenue made by financial services division would be a great help when its automotive sector is not performing well.
By cooperating with some strategic alliance, the company can benefit a lot from the advantages of their partners’. Ford has announced to start offering Sony-branded audio systems in Ford and Mercury automobiles and Microsoft software will be used for the Ford Sync radios. Besides, Ford Company also support racing teams such as NASCAR and it also participated in sport event such as formula one for many years and it is one of the leading manufacturer in automotive racing. This achievement has brought good reputation to the company.
Bad Proformance in US market
As an American car manufacture, Ford Company done badly in its domestic market recent years. The disappointing performance in the US market has affect the company’s operations to a great extend.
Decline in Profitability
The company’s profitability has declined in recent years. The company recorded revenues of $160,123 million during the fiscal year ended December 2006, a decrease of 9.5% over 2005 according to the 2006 annual report. In addition, the 2006 annual report also shows that the company’s average revenue growth during fiscal 2006 stood at negative of 9.5% which is lower than the industry average of 10.2% during the same period.
Decline in Market Share
Though Ford is the one of the biggest carmaker, its performance is not that satisfied, as it has lost its market share in the few years. Evidence shows that Ford may fall from 2nd to fourth place in market share in 2007 behind General Motors, Toyota, and Chrysler. The decline in overall market share would primarily due to decline in company’s retail market share in my opinion. As a result, continued declines in company’s market share would cause a substantial bad effect on company financial condition and its operations.
Ford has recalled a number of vehicles in 2007 owing to various reasons. It is reported that 37,400 has been recalled 2008-model-year F-Series Super Duty trucks with 6.4-liter diesel engines following reports of tailpipe fires and recalled nearly 527,000 Ford Escape from the 2001-04 model years because the antilock brake system poses a safety hazard. These products recalls has influenced the sales to some extent because customers would begin to doubt the quality and durability of the products.
Environmental Friendly Products
Nowadays, as a result of the increasing awareness of environmental issues, governments has issued many environment protection regulations such as set more strict emission standard and consumers also began to show their willingness of purchasing environmental friendly products. As a result, the clearer and more fuel-efficient cars would be an opportunity in the future. Ford Company had set up a centre to spearhead the development of hybrid vehicles in Gothenburg, Sweden. The centre is part of a global initiative to speed up the introduction of fuel-efficient hybrid vehicles.
Opportunities in China
China has a great market potential with a continuously developing economy and based on a large population. In China, especially those coastal cities, the life standard is increasing dramatically, and purchasing a car has become a common issue for many middle class families. With its partners Changan Automotive Corp. and Mazda Motor Corp., Ford is achieving more growth. It is said that the joint venture’s sales more than doubled in 2006, and all Ford Motor brands (Ford, Lincoln, Land Rover, Jaguar and Volvo and the commercial Transit) had posted sales 86.6% higher than in 2005. The good momentum of Chinese market provides big opportunities to the company to make profit in this potential market.
Rising Raw Material Price
It is said that manufacturers will pay more for raw materials. The company’s raw material cost is increasing due to rise in prices of aluminum and steel and McKay suggest that a combination of factors led it to believe most metals would be stronger in the short to medium term. As a result, the company may have to spend more on those essential raw materials for its production.
Stricter Emission Standards
The European Union adopted Euro3 and Euro4 as comprehensive emissions regulations for passenger vehicles and heavy and light commercial vehicles in 1999 and In 2005, the European Union created a new emission standard (Euro5) and is more strict on requirements for gasoline vehicles and diesel vehicles, which will become effective starting around 2009. Because of the more and more strict emission standard, the company have to design and produce more fuel-efficient vehicles in order to match those standards.
Ford’s market share has declined thanks to fierce competition among its old rivals and the newly coming Japanese companies. Not only its old rivals such as GM and VW are trying their best to provide better products and services to their customers, meanwhile, these Japanese vehicle manufacturers such as Toyota and Honda now have established a strong market position in the passenger cars segment, and even intend to march light trucks segment where Ford may used to be strong. This situation has threaten the Ford Company’s market to a great extent.
4.2 Strategic Options
‘Specific strategic options for development ‘are most usefully considered in the context of the overall generic strategy which an organization is pursuing’ pointed by Johnson. Depend on the pervious examining on the competitive environment; the generic strategies of Ford Company will be discussed in the following.
4.2.1 Porter’s Genetic Strategy
Porter argues that cost leadership strategy, differentiation strategy and focus strategy are three fundamental methods that enable a firm to achieve sustainable competitive advantage.
18.104.22.168 Cost Leadership
Cost leadership can help a company to be an ‘above-average performer’ and enable the company the availability of commanding prices suggested by Porter, and elements like economies of scale, experience, location, timing all can be the cost drivers.
It reckons that the Ford Company’s labor costs account for just about 9% of its total costs of production, and transport to customers that are mostly reasonably local or at least in the same continent, which are a further 2%. Based on these, again with a heavy investment in automation, the company has the ability to compete with low-cost manufacturers. Besides, in order to control the overall cost, Ford had cut its supplier to get lower costs by doing business with fewer, more capable suppliers.
Porter defines differentiation as ‘to be unique in its industry along some dimensions that are widely valued by buyers.’ Differentiation can be achieved by unique product, price, distribution, promotion, service and so on.
Along with technology innovation such as the emerge of Ford Model U, product differentiation can be found in car designing that change and grow with customers’ budget, needs, activities and personality. It is manufactured using processes and materials that are safe, productive and restorative, and it runs on clean, renewable energy. Besides, services such as finance service and vehicle purchase programme also make the company distinctive from others.
22.214.171.124 Focus Strategy
A focus strategy is based on narrow competitive scope within an industry. The focuser select a particular segment or group of segments then tailor their products to meet the need of customer better.
As there are so many brands under the Ford Company, each brand may focus on a certain segment so that the customers would not be dispersed, and it is easier to satisfy those particular needs of their target customers. For example, Land Rover is famous of its off-road vehicles; Lincoln is the representative of luxury cars and Ford is performing better in medium class segment.
4.2.2 Alternative Directions for Strategy Development
In this section, the strategic directions that Ford Company would used will be set out based on the Ansoff Matrix (see appendix IV). By use this framework, the way that can achieve growth through product strategy can be identified.
126.96.36.199 Market Penetration
Market penetration in existing markets with present products is through winning competitor’s customers by more effective promotion or distribution, or cutting prices.
Cutting price would attract more customers. The cost-efficient orientation can be found in Ford brand such as the cost-saving advantages of the new Mondeo is the key sell point that from cheaper insurance to lower fuel consumption.
Ford’s more luxury brands such as Land Rover prefer the using of promotion rather than price-cutting in order to keep its brand image in their customers’ mind. Take Land Rover as an example, for the promotion of its latest Freelander 2 in Great Britain it use heavy TV advertisement as well as direct mail pack related to the ads.
Besides, Ford now has focused on the value pricing, which accomplished chiefly by cutting the sticker price. Through value pricing, transaction prices (the figure actually paid (or financed) by the buyer) is closer to sticker prices and consequently customers would feel more valuable and the huge rebates paid to customers would be reduced as well, which creates a cost advantage.
188.8.131.52 Market Development
A market development method the organization maintains its present products and at the same time venturing into new market areas, which include entering new market segments, exploiting new product functions and spreading into new geographical areas.
The switch to produce other product is not easy for automakers, so develop new market is a wise choice when present market is becoming saturated. As the unsatisfied sales performance on the US market in recent years, Ford is now ready to develop its market in South Africa and Asia (especially in China and India). Ford is planning to eliminate its old corporate structures which known as the autonomous business units, and merge its automotive operations worldwide. The company established Western markets which offer only limited growth possibilities and have an attempt to grow outside its traditional markets where tend to be more market potential. Ford has ready set up assembly operations in such countries as China, India, Vietnam, Poland and Belarus and South Africa as well as an important part of its global expansion programme.
184.108.40.206 Product Development
According to Jobber, product development involves the development of new products for existing markets, including extending existing product lines to offer greater choice and product replacement that offers new models or brands.
Ford is always seeking a way of developing its products. This year, with the Ford Flex that introduced in March, the Ford’s global product development system comes to the market. The system uses computer-created virtual tools instead of expensive and time-consuming physical prototype testing and the company hopes that up to 80 percent will come under the virtual umbrella in the next few years. With the help of the new system, new models would more easier designed and face to the public in less time.
Besides, Ford also endeavored to seek some environmental friendly products instead of the old ones to suit to the worldwide environment protection issues. It was the first American automobile maker to launch a hybrid vehicle. It is report that Its Escape hybrid sports utility vehicle produces 80% less smog than ordinary vehicles.
Through product development, the Ford would improve its products in order to satisfy customers’ need and wants better, so that the performance of the company can be enhanced.
Diversification is the option that concerns the development of new products in new markets. It is suggested as the most risky option, but also can be the most rewarding one.
Ford’s financial service sector is a brand new product in its un-reached market. However, when the company’s automotive division is reporting at loss, the financial service division is still reported profit. Now the financial services division is considered as a main factor that ‘keeps debt ball rolling’. As a result, in order to keep the company afloat, it is important to keep the good performance of the financial service sector.
4.2.3 BCG Matrix
In the following, the portfolio planning of Ford Company would be examined through BCG Matrix (see appendix V). By using BCG Matrix, decisions regarding the choice of which brands to build, hold, harvest or divest would be decided.
The Ford Company BCG Matrix can be identified as the following way (see table 1):
Ford Company’s main brand Ford performs well in the medium/lower market, especially in the European market and in China. Several models have become the best seller in the market recent years. As a result, it is possible to invest more on them in order to achieve further development. Bill Ford had point out that Chinese market has large potential, so Ford Company now has pay more attention on Chinese market. Besides, as a wider acceptance of Japanese cars, Mazda also becomes a star brand. Some people believe that Ford should enlarge the share in Mazda in order to increase the capability to compete with other brands such as Toyota or Honda.
However, in the growing non-luxury market, Volvo and Mercury may own fewer market share compare with Ford and Mazda. The profitability may not so satisfy with these two brands, so they become question marks and require further consideration on investment. Ford Company choose not to divest these brands but try to build them and attempt to turn the question marks into stars to obtain more share in upper medium market.
In the shrinking higher auto market, Ford’s Lincoln and Land Rover have relative high market share. Customer loyalty towards these brands is high, so in the segment they still have their power to be the cash cow to provide liquid funds. It is wise to hold the sales and market share of cash cows so that excess cash would be used to fund the development of stars or question marks.
On the other hand, another luxury brand Jaguar may be the dog product of the company that needs to harvest or divest. Ford Company finally decides to sell the Jaguar brand in order to generate a positive cash flow to fund other brands and operation.
V. EVALUATION AND CONTROL
5.1 Strategic Evaluation
It is important to evaluate corporate strategies to ensure that a company is achieving its goals through right direction. To examine if the business objectives, plans and policies are appropriate is essential for the organization development. There are three major criteria of evaluating business strategies: suitability, acceptability and feasibility.
Suitability concerned about if the strategies fit the environment and the organization capability and to see if the strategies can meet the expectations of stakeholders.
In terms of business-level strategies, Ford Company takes the advantage of its large scale and makes the best of its diversity of brands to enhance its business profile and enlarge its business area. Each brand under the Ford Company can have their own target market and customers, and at the same time different marketing strategy can be used to boost sales. This strategy is fitting well with the corporate development that ensure a solid basis of its growth. Besides, Ford Company’s generic strategies can be considered successful for the perfect performance in its businesses especially in its star brands such as Ford and Mazda.
As to the product development and international expansion strategies, Ford Company’s different growth strategy through that used on different target market can be considered in the right direction. By using market penetration strategy through lowing the cost and provide a cost-efficient Ford brand products and increasing the promotion of its luxury auto brands, the market position would be well protected. Besides, by exploiting market in some developing country and new products development, market development and product development strategy is well received. In addition, the diversification is found effective in its financial service sector where bring lots of profit every year.
And for portfolio management, it is reasonable for Ford Company to maintain its stars and sell several brands that has limited future development potential in order to obtain enough money to fund other brands.
Acceptability is concerned with the expected performance outcomes of a strategy in terms of return, risk and stakeholder reactions. As Ford Company’s financial performance can be found now on the downward, according to company’s annual report(2006), the company’s developing strategy should be carefully examined to see the market prospect. For example, although the hybrid vehicle may have potential in the future, the right time to put to much effort on this kind of product may not yet come. If the company spends too much money on it, there would be a financial risk. So, in order to ensure a solid expansion in the future, market penetration strategy would first be considered. In addition, as the financial service sector is performance well, it is the right time to strengthen this market in order to win more profit to support the company’s operation.
Feasibility is concerned with whether an organization has the resources and competences to deliver a strategy.
Ford Company’s financial performance can be found now not such satisfied. According to company’s annual report(2006), the company is seen a downward trend. Both the sales and the market share are found declined. As a result of this, the company’s developing strategy may confront difficulties. The company would not have sufficient funds to support its product development strategies as well as the international expansion strategy.
Besides, The competitor’s situation is an important factor that would impact the company’s strategy. Although most of Ford’s main rivals such as Volkswagen, Renault and Peugeot have also found decline, the Japanese carmaker Toyota still in growth. And Toyota is the major rival that compete with Ford on its most potential hybrid vehicle market. This situation would effect the product development of the Ford Company, as a result, the company should take action to prevent further decline in order to maintain strength to compete with its rivals.
5.2 Strategic Control
After critical evaluating of the company strategy and comparing the actual performance with desired results, feedback would be generate for management in order to decide how to take corrective actions.
After experienced a difficult year in 2006, Ford Company is taking dramatic steps to transform its business by improving cost structure, raising product quality, obtaining financing and refilling product line with new vehicles. The company hoped that good results could be seen through these strategic controls.
Besides, Ford’s regional operations that run as largely autonomous business units in the past are considered to be changed due to inefficiencies past systems. In December 2006, the company announced an organizational realignment that aim to improve operation effectiveness had puts additional focus on markets and customers and emphasis on better leveraging its global assets and capabilities. By sharing vehicle architectures and components globally, and taking full advantage of global economies of scale, the company will leverage its resources worldwide more efficiently.
In addition, because of the bad performance in the North America Market, the company has decided to fix its business in that area. A $5 billion reduction in annual operating costs by 2008 would be put into effect. At the same time, the company is accelerating new product development, it is said that it will speed up the time it takes new products to market by 30 to 50 percent. And the most recent decision made by Ford Company that to sell Jaguar and Land Rover is another methods to make money which can used to restructure the company’s North American operation because it bring the company billions of funds if they successfully sell the two brands.
Based from pervious analysis and evaluation of Ford Company’s strategies, here comes some recommendations.
On business-level strategy, it should keep on seizing opportunities of new business and by using its advantages on corporate scale to expand business area. Opportunities exist not only in its traditional markets in those western countries, big potential can be found in other region such as Latin America and Asia. Besides, the financial service sector is found full of potential, so emphasis could be put in this area in order to generate more funds to support its auto sector.
Besides, the company should strengthen its core business, new products that are more cost-effective and distinctive could be concentrated on in order to boost the sales and revenues by overcoming rivals’. Besides, some star business of the company should still be paid attention to, such as to keep Ford’s market position in China, strengthen the sales of 2006 best seller such as Ford Fiesta, Mondeo, Focus in the European market, make effort to keep these models being the market leader. Meanwhile, production cost should be strictly controlled to achieve higher margin. Some plans that focus on a relatively small market such as the hybrid vehicles would be postponed after the company’s performance is turnaround to positive.
In addition, if the selling of Land Rover and Jaguar still can not obtain enough capital to fulfill the insufficient funds to restructure the North America operation, the company would have to choose to sell Volvo in order to lighten the burden of operate such a big company and generate enough money to continue its business.
After a detailed analysis of the Ford Motor Company, conclusion may draw at that the multinational company adheres its mission and vision, through consistent strategies as well as the continuing global development to achieve its business goals and objectives. Although its recent years’ bad performance had brought some difficulties to the company, strategic changes ‘start with a solid foundation of team work and an unwavering focus on customer’ would hopefully bring dramatic results. The overall development of Ford Company’s strategy and the way of controlling its business can be learned from many aspects.
II. Porter’s 5 Forces Critique
Porter states that the key aspect of a company’s environment is the industry it competes because of industry structure has a strong influence on determining the competitive rules and the company’s strategies. He also points out that outside forces usually affect all the firms in the industry, which depends on five basic competitive forces(figure 2).
Source: Porter, M. (1980) Competitive Strategy: Techniques for Analysing Industries and Competitors, MacMillan.
According to this framework, the intensity of competition determines a firm’s profitability potential whereas the potential profits are determined by the relative bargaining power of the firms and their customers and suppliers in the industry. According to McGee’s idea, these are five fundamental forces that influence the attractiveness of the industry and affect its profitability.
A value chain(see figure 3) links a set of value-creating activities that begin with raw materials, and from suppliers then move on to some valued-added producing and marketing activities, and at the end the distributors get the final goods then pass to the hand of the consumer.
A systematic analysis of individual value activities can lead to a better understanding of a organisation’s capability.
IV. Ansoff Matrix
According to Jobber, Anosoff Matrix is a useful method to examine growth opportunities. By combining present and new products, and present and new market into a 2×2 matrix, four product strategies known as market penetration or expansion, market development, product development and diversification are revealed(see figure 4 ).
V. The Boston Consulting Group Growth-Share Matrix
According to Jobber, BCG matrix(see figure 5) provides guidelines for strategic thinking. By assessing the position of a business in its industry, a company can begin to consider the appropriate strategic objective for each line as well as the investment priorities.
Figure 5 The Boston Consulting Group Growth-Share Matrix
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