How globalization affects the international operations of Ford Motors

This chapter focuses on identifying, analyzing and discussing the themes arising from observations about how globalization affects the international operations of Ford Motor Company, especially as it relates to its Turkish operations. The goal is to draw linkages between the political, social, environmental and legal structures in turkey and the ways in which Ford Motor company operates in Turkey – in line with its larger international objectives. In between this, attempts will also be made to examine how international businesses are affected by the key forces of globalization. As a necessary prelude to the analysis and discussions featured in this chapter, the data analytical method to be used will be introduced and explained – with a view to laying forth its distinctive features and advantages and also indicating why it is best suited for the purposes of this study.

4.2 Method of Data Analysis: Thematic Analysis

The framework provided by thematic analysis is such that makes it possible to systematically define, detect and explore critical issues involved in a particular research (Bernard, 2000; Bryman and Burgess, 2004). Thematic analysis has to do with the attempt to identify recurrent patterns in the pieces of information upon which the research is based. These patterns or “themes” are clusters of somewhat inter-linked categories that communicate analogous meanings and that typically emerge through the qualitative method’s inductive analytic process (Jehn and Doucet, 1996). Indeed, a notable advantage of this method that has been suggested, and which may be applicable in the context of the present study, is that the exploratory power afforded by thematic analysis can be further enhanced if the researcher lacks prior knowledge or information about the subject of the research because in that case the researcher will not be guided by any preconceptions that may skew or bias his analysis and conclusions (Miles, and Huberman, 1994).

Viewed from the point of view of the present study, it can be reasonably argued that an inductive thematic analysis would help this researcher establish correlations between the different aspects and features of globalization vis-à-vis how they affect the business activities of international businesses that operate in otherwise heterogeneous socio-political and economic environments. Specifically, the exploratory efficacy that comes with categorization of key themes in globalization would enhance the capacity of this study to appraise Ford Motor Company and how it manages to successfully operate in the Turkish society. Key questions leading to thematic analysis of these issues would be such that seek to address the extent of synergistic cooperation between external operations of Ford Motor Company and its Turkish operations. Furthermore, the contextual implications of Turkey’s socio-political environment on ‘Ford Otosan’ will be looked at very closely in order to draw themes which would further enhance the quality of analysis and comprehensive understanding of the subject matter of this study. In these ways it is clear that the thematic data analytic method is well suited for the aims and objectives of this study because, as has been previously pointed out, it brings into focus the evolving issues arising from not only interview data, but also from the analytic themes that have been systematically identified from the recurrence views (Bryman and Burgess 2004).

4.3 Themes’ Categorization

The key themes that arose out of the research process revolve around what may broadly be described as macro and micro issues, although it must be noted that these themes are cross cutting and straddle the broad categories of issues from which they emanate. The macro issues emerged from an assessment of the implications of globalization for the Turkish economy in general. This general outlook was necessary in order to facilitate a well-grounded understanding of the larger economic framework within which the Ford Motor company operates in Turkey, and to determine the practical ways in which globalization as we know it affects business activities, particularly manufacturing, within the country. The micro issues on the other hand, involved a narrower look at the automotive sector of the Turkish economy with a view to examining the peculiarities, manpower and technical issues, and regulatory and legal framework that characterize the sector in which the object of this study operates. The micro issues further derive even more specifically from an examination of first, Ford Motor Company’s general operational background, and then specifically its operation as Ford Otosan in Turkey. The themes arising from this dual-level analysis are divided into sub-categories in this section and analyzed accordingly in order to establish a constructive basis for reaching reasonable conclusions.

4.3.1 Globalization in the Turkish Economy

The effects of globalization in a modern economy such as that of Turkey are bound to multifaceted and almost incalculable. This is especially so in light of the fact that in recent years, Turkey’s manufacturing sector has been largely export driven – with the automotive sector being the country’s largest export earner (O’ Byrne, 2010). As was adduced by Sinan Goksen, the vice president of equity research at Turkey’s Istanbul brokerage Express Invest, several international motor manufacturing companies have increasingly favoured Turkey as a viable location to establish plants and manufacture vehicles for export (O’Byrne, 2010). According to Goksen:

“the global auto manufacturers such as Ford, Renault, and Fiat that began operating in Turkey in the 1960s, and those that arrived in the 1990s – such as Honda, Hyundai and Toyota, now seek to enlarge their considerably profitable Turkish joint venture operations from just low-cost assembly to research and development…Other manufacturers such as Volkswagen and Chery are also making attempts to open production facilities in Turkey as that they can start developing new models in the country for export to global markets.”

In light of the above, it is worthwhile to note the ways in which the Turkish economy taps into the opportunities created by globalization. As implied by Goksen, the Turkish environment obviously provides lucrative opportunities for foreign manufacturers to want to set up operations in the country from where they produce for export. The character of the Turkish economy if viewed from the perspective of globalization is best understood as having evolved from deliberate institutional mechanisms set in motion by the government in conjunction with key international organizations. As explained by Ercel (2006), the emphasis on export-oriented growth for the Turkish economy originated in the 1980s, upon the advice of the World Bank and the International Monetary Fund, and out of the need to regain confidence and to achieve a stable and sustainable growth pattern, and it was based on realistic exchange rates. With this policy the bias against exportation were gradually removed and measures were instituted which focused on deregulation and privatization, competitive currency and trade, fiscal discipline, and financial liberalization. These measures were consistent with the “Washington Consensus” – a set of principles that was introduced to facilitate the growth of developing countries (Rodnik, 2003). It is thus possible to suggest that these developments may have accelerated the manifestation of globalization in the Turkish economy by providing the enabling environment and encouragement for more international businesses to establish or consolidate their operations and joint ventures in the country. Indeed, this suggestion is seemingly buttressed by Ercel (2006) who asserted that the export-oriented growth strategy, in addition to the instituted ‘Washington Consensus’ measures, resulted in incremental success for the Turkish economy as it recorded a 5.8 % annual growth rate in the years between 1981 and 1988.

Although Turkey experienced a relatively severe economic crises about a decade ago (O’ Byrne, 2010), its economy has recorded rather outstanding growth in recent years – with a 6 % growth in the last quarter of 2009 (Ibid) indicating that the country did not suffer the adverse effects of globalization as represented by the global recession that hit most economies especially in 2009. Against this positive background, it is appropriate to attempt to unearth the inherent advantages that Turkey offers trans-national corporations that invest in the country. Indeed, if it is taken for granted that the major features of the economic aspect of globalization lie in the applicability of global best practices and the possibilities for trans-national corporations to successfully operate, then as highlighted by (Yalcinkaya, 2009),

“…new technologies and novel organizational structures required for trans-national manufacturing are readily within reach in Turkey and Turkey is endowed with the capacity to provide the technological infrastructure and facilities needed for a technology-intensive production technique – as required by international capitalism…The Turkish economy is also compatible with global capitalism in terms of innovative organization forms which involves useful cooperation between trans-national corporations and local Turkish firms in processes such as franchising, subcontracting, outsourcing, mergers and acquisitions, and all kinds of joint ventures. These collaborations make it possible to enhance quality of work and entrench low costs and flexibility through the local partners’ application of production methods like lean production, and standardized management” (p.86).

In view of the presence of key prerequisites that make it possible for international business to establish operations in Turkey and make the country a major hub of manufacturing, one finds it justifiable to agree with the position of Yalcinkaya (2009) to the effect that Turkey’s peculiar form of capitalism shows some consistency with the capitalist element of globalization.

However, information provided by the Central Bank of the Republic of Turkey (2002) suggests that the Turkish economy may not have benefited on all fronts from the integration with the international system facilitated by globalization. After reviewing data showing the macroeconomic indicators of Turkey in the years between 1970 and 1999, the Central Bank of the Republic of Turkey concluded that the major causal factors for the country’s inability to benefit holistically from the integration brought about by globalization resulted from the short-term orientation of most economic policies marked by policy inconsistency and political instability.

Source: Central Bank of the Republic of Turkey (2002; p.70)

A review of the above table confirms the view that the benefits of globalization for Turkey’s economy were not felt across board. Indeed, the Central Bank of the Republic of Turkey concluded that “frequent changing of coalition governments and delayed structural reforms, particularly in the areas of public finance, public management, and the banking sector in the 1990s” also contributed to the shortfalls that characterised the economy in the decade leading up to about 2002. This further substantiates the view that globalization’s impacts in economies could have both positive and negative dimensions; some perspectives point out that increasing integration among economies predisposes the global economy to escalated crises in periods of major shocks due to the possibility that it creates strain on governments’ financial restrictions (Krugman, 2000). Indeed, the ways in which the crisis in Turkey’s economy about a decade ago was exacerbated by globalization is are further highlighted as follows:

“Another factor is related to the state of the international economy….After the global spread of capital account liberalization mechanisms that were instituted particularly in the 1990s, the vulnerability of most developing economies to external shocks increased substantially. In that sense, the economy of Turkey was not an exception as it was also affected by the adverse consequences of the economic crisis that occurred in other parts of the world, such as the 1990/1991 Gulf War and also the 1998 Russian Crisis. These externally induced shocks brought about abrupt and substantial reversals in short-term capital flows during much of the 1990s” (Central Bank of the Republic of Turkey, 2002).

In light of the above evidence, one can begin to appreciate the role of globalization in the economic crises experienced by Turkey throughout the 1990s up until about 2002 (O’ Byrne, 2010). Indeed, Ercel (2006) also added another dimension to this point of view by asserting that:

Despite the pace of integration in the world economy since the late 1990’s, and the fact that foreign direct investment as a percentage of GDP has accelerated substantially in many countries especially in China and some of the new European Union member-states, the Turkish economy did not maximize foreign direct investment over total capital flows as it only attracted 0.5 percent foreign direct investment in relation to the country’s GDP” (p.6).

Ercel (2006) concluded that, as at 2005, problems that have to do with political uncertainties, designing of appropriate exchange rate regimes, low level confidence of existing legal system, and inflationary environment created obstacles to constant and substantial foreign direct investment in Turkey. Nonetheless, it will be fundamentally erroneous to consider globalization, vis-à-vis the Turkish economic crises, in isolation of the other more intrinsic contributory factors such as the policy inconsistency and political instability that have been earlier mentioned, as well as high public sector deficits that resulted in a “highly inflationary environment” (Central Bank of the Republic of Turkey, 2010; p.58). Indeed, if it is suggested that globalization contributed in a way to causing crises in the Turkish economy in the 1990s, it can also be inferred from available data that globalization played a no less significant role in ending the crises and setting the Turkish economy on the path of considerable growth since the last decade. One of such positive roles played by globalization and the integration it promotes, as identified by Ercel (2006), can be found in the pervasive support for trade liberalization which provides greater benefits to the citizenry in a more integrated global economy. Theory and empirical evidence adduced by Ercel (2006) further reveals that such trade liberalization can be a significant catalyst for economic development especially for developing countries (p.5). A similar position have also been advanced by Stiglitz and Charlton (2005) whose study indicates that the trade liberalization that comes with globalization offers measurable benefits for the people such as increase in welfare; they however point out that its positive impacts on long-term economic growth has not been particularly significant (p.6).

Overall, the effects of globalization on the Turkish economy can be seen from two divergent angles of positive and negative – depending on how one looks at it. While some schools of thought contend that the trade liberalization, free markets and integration associated with globalization may have reduced opportunities for local businesses to compete against the trans-national corporations and international businesses, and that some local sectors of the economy can be overwhelmed by international market forces (Rodnik, 2003; Yalcinkaya, 2009), it is also evident that these measures created the enabling environment to attract more foreign direct investment and the setting up of more manufacturing plants in Turkey which enhances the country’s export profile. From the point of view of the trans-national corporations and global businesses that operate in Turkey, globalization makes it possible to tap into the technologies, manpower resources, organizational structures and free trade environment in order to successfully run viable operations and joint ventures.

4.3.2 Characterization of the Turkish Automotive Sector

The Automotive industry across the European Union constitutes one of the largest and most influential sectors of the EU economy – employing up to 12 million European Union citizens and accounting for upwards of 10 percent total manufacturing value (Pampillon, 2005). It is also a sector in which the impact of globalization is keenly felt due to the fact that auto manufacturers from all over the world have established plants in diverse locations across the world to produce vehicles and accessories that would be sold to a global market. This cross-cutting integration and delocalization of production and market base underscores the great influence of globalization on the global automotive industry, and explains why there has been considerable growth in auto production in “non-traditional” locations like Turkey which have provided considerable competition for the “traditional” production locations such as the United States, Western Europe, and Japan (Pampillon, 2005; p.8).

In Turkey specifically, the automotive industry has had a long history of mixed fortunes with foundations dating back to the 1960s during which time efforts were first put in place to conceptualize and manufacture the first Turkish-built passenger vehicle (Republic of Turkey Prime Ministry Investment Support and Promotion Agency, 2010). Along the line, and with increasing industrialization and economic progress, the automotive industry gradually grew from mere assembly-based partnerships with internationally established automobile manufacturers to a more sophisticated full-fledged industry that is characterised by internal and self-sufficient design capability as well as substantial manufacturing capacity that matches international quality and safety standards (Ibid). As has been highlighted by Tuncay­Celikel (2010), this remarkable transformation in the Turkish Automotive industry occurred over five decades and culminated in the attainment of Research & Development and design initiatives, as well as technology management and intellectual property rights – all of which are indicative of a full-fledged industry.

Represented in the Turkish automotive industry are 19 different manufacturing companies including 5 automobile manufacturers and 14 commercial vehicle manufacturers. The industry is one of the four biggest exporting sectors of the Turkish economy and accounts for approximately 500,000 jobs; it is also the foremost industry in terms of foreign investments in the Turkish economy (CIP Development Series, ND). In view of the phenomenal growth of the automotive industry and the influential position it occupies in the Turkish economy, it is worthwhile to examine the factors and characteristics that make the industry so viable, and also attempt t understand the bases for its attractiveness to large scale investors. A key feature of the automotive sector, as with most of the key sectors in the Turkish economy, is that foreign multinational companies or trans-national corporations often have to collaborate with local partners in the form of joint venture operations. In the automotive sector for instance, Ford Motor Company’s local partner is Otosan; Fiat’s local partner is TofaÅŸ; and Hyundai’s local partner is Assan (Tuncay­Celikel, 2010). According to Tuncay­Celikel (2010), part of what inspires these foreign auto makers’ decision to invest in Turkey includes the country’s “absorptive capacity, innovation and production capacities, favourable macroeconomic factors such as the country’s socio-economic conditions, developed infrastructure, relatively lower labour costs and skilled workforce, and government incentives, as well as the larger social factors such as cultural compatibility, level of commitment, and trustworthiness (p.4).

Some other attractions offered by Turkey include its membership of the European Union which removes the burden of tariffs on exports to other EU member-states, and also the country’s strategic geographical location in between Europe and Asia which makes it an attractive production base from which both continental markets can be serviced; this is more so as Europe accounts for up nearly 70% of Turkey’s automotive exports (CIP Development Series, ND). Membership of the European Union also means that the Turkish system has been synchronized with EU laws and therefore strengthens foreign investors’ confidence in the enforcement of regulations, contract terms, patent rights and fair competition. Taken together, this high level of investor attraction for Turkey perhaps explains why the country is the 5th largest motor vehicle producer in Europe and the 15th largest manufacturer in the world. Turkey is also the largest producer of buses in Europe and, in terms of commercial vehicle manufacturing it is the 9th largest in Europe and the 9th largest in the world (Republic of Turkey Prime Ministry Investment Support and Promotion Agency, 2010). There are also opportunities for further growth, particularly as it concerns sourcing production materials Turkish suppliers – especially for first-tier and aftermarket suppliers, as well as opportunities for technology transfer and joint production development for “world car” models (CIP Development Series, ND).

The outlook for Turkey’s automotive industry although largely positive, is not without areas of possibly negative growth. Despite the large investment and high productivity in the sector, problems may arise from its overdependence on European markets for exports, as well as the clear threats posed by the rapid growth of the automotive markets of China and India which also offer significant incentives to global auto manufacturers. The overdependence on the Europe market for exports makes the Turkish automotive industry vulnerable to potential fluctuations in the regional market, which can otherwise be tempered by a balanced spread in export markets. The rapid rise of China and India’s productive capacities also constitutes a major problem for Turkey especially if these countries are ale to offer much lower labour costs in addition to all the other attractions that Turkey offers to international automotive companies.

4.3.3 Ford Motor Company in Turkey

As is the case with most multinational enterprises doing business in Turkey, Ford Motor Company operates in collaboration with a local partner, Koç Group, with which it runs a joint venture called Ford Otosan – directly responsible for building and exporting ford vehicles from the base in Turkey (KOC, 2010). Ford Otosan is considered to be a significant and profitable part of Ford Motor Company’s international operations, and its origins date as far back as five decades ago (Just-auto, 2010).

According to one of the respondents interviewed for this study, Murat Yıldırım of Ford Otosan’s R & D department, Ford and Otosan are long term production partners and Otosan is particularly responsible for Research & Development initiatives as it concerns light commercial vehicles production. He further explained that:

Ford Otosan operates mainly from the Kocaeli and Ä°nönü plants; the spare parts distribution centre in Kartal, and the Gebze technology and engineering centre… The company’s production capacity is for a total of 330,000 commercial vehicles and 65,000 engines; vehicles such as the Transit and Transit Connect are manufactured in the Kocaeli plant, while the Ford Cargo and engine manufacturing takes place in the Ä°nönü plant…Ford Otosan’s operation is fully integrated, and it includes engineering, manufacturing, spare parts distribution, and sales and marketing….rising demand has resulted in an increase in capacity for Ford Otosan and it’s commercial success is the result of highest standards of engineering and production which is propelled by intellectual accumulation”.

The full-fledged nature of Ford Otosan’s operation is reflected in Yıldırım’s statement and suggests that the joint venture is almost self-sufficient and does not largely rely on Ford Motor Company’s headquarters for ideation and direction. This is particularly true in the case of light commercial vehicles, especially buses, where Ford Otosan has complete authority to initiate and conclude the vehicle development process from the Research & Development stages all the way to manufacturing, marketing, sales and distribution. As one of the four main international operations of the Ford Motor Company, the Turkish Ford Otosan factors into the globalization of the auto manufacturer’s automotive production process as illustrated in the figure below.

Yet, globalization does not necessarily mean that the same tastes and products are applicable in geographically and culturally diverse locations; peculiarities and regional preferences often need to be considered in manufacturing products that would be sold to world markets. In this light, another respondent who is a Ford Otoman manager maintained that:

“A vehicle manufacturer ought to be very familiar with regional tastes in terms of design and functionality…engineering and production need to be done with a reasonable degree of sensitivity to local markets because manufacturers cannot afford to assume that all global markets would receive the same product in the same way in all global markets; at Ford Otosan this is something we try to do: make our products consistent with the observed requirements and preferences of our local and export markets respectively….”

The above view underscores a critical aspect of globalization in terms of international businesses’ operations. In spite of the extensive political, social, and economic integration of world economies that is a definitive hallmark of globalization (Krugman, 2000; Ercel, 2006), it is fundamentally erroneous to assume that this integration of resources equates an integration in preferences or tastes. In light of this observation, it possible to argue that one of the key challenges for international corporations seeking to leverage the opportunities offered by globalization and integration is to effectively determine how best to meet the needs of the culturally heterogeneous markets for which they target their products.

CHAPTER FIVE

Conclusions

5.1 Introduction

The preceding chapter attempted an analysis and discussion of the distinct but interlinked issues pertaining to globalization as it affects the Turkish economy, and also attempted a characterization of the automotive industry in Turkey in order to discover thematic patterns and determine how the operations of Ford Motor Company fits into the sector within the purview of globalization. This concluding chapter attempts to summarize and evaluate the findings made in the course of the research, and proffer suggestions for possible improvement and further research direction.

5.2 Summary and Evaluation of Key Findings

As a result of the increasing interdependence between countries and the need for global cooperation in solving mutual political, social and economic problems, globalization has come to be generally acknowledged as a necessary and irreversible consequence of the integration of world economies and cultures. One of the spheres in which the effects of globalization is most felt is in international business where the need to expand capacity, enhance efficiency, reduce costs, leverage opportunities, and find new markets have led to the rise of trans-national corporations and multinational enterprises who have to operate in diverse locations and environments while still maintaining an international standard quality for their products. The considered case study of the Turkish automotive industry and specifically the Ford Motor Company’s Turkey operations reveal that several factors contribute to the decision of international companies to invest in particular overseas locations. In the case of Turkey, considerations such as political incentives, availability of suitably qualified and skilled man-power, low labour costs, strategic geographical location, and well-developed infrastructure have been identified as being among the factors that attracted such great investment n the country’s automotive sector (Pampillon, 2005; Tuncay­Celikel, 2010; Republic of Turkey Prime Ministry Investment Support and Promotion Agency, 2010).

Nonetheless in trying to understand how Ford Motor Company operates in Turkey with respect to the impacts of globalization on its business activities, it is necessary to condense findings from the primary and secondary data, and consider the general environment that exists in Turkey – in essence, attempting to identify the Political, Economic, Social and Technological factors that the company necessarily has to deal with by virtue of operating in the Turkish society. This analysis cannot be in isolation of external forces because globalization also makes it inevitable that political, economic, social and technological developments in one country or region may have reverberations or effects elsewhere.

Table 2: PEST Analysis for Ford Motor Company’s Turkey Joint Venture

Political

Global, national, regional, local and community trends, changes, events etc.

Easing concerns about political instability

Membership of the EU with the attendant harmonization of the legal framework

Government incentives and export promotion

Friendly investment policies deliberately formulated to attract and retain Foreign Direct Investment

Adopted legislation consistent with international rules of free trade within the context of Customs union and World Trade Organization

Economic

World, national, and local trends, changes, events, etc

Relatively liberal banking system in Turkey

Fully developed and competitive supply industry

Absence of barriers to movement of capital from Turkey to overseas

Increasing capacity due to successful ongoing Research & Development efforts and continuous investment

The receding effects of last years global economic recession and gradual increase in spending power of EU citizens

Social

Developments in society – culture, behaviour, expectations, composition, etc.

Well-educated and cosmopolitan citizenry with patriotic appetite for ‘home-built’ cars

Adequate social amenities and infrastructures

Receptive local people without xenophobic proclivities

Abundance of highly skilled workforce

Rapidly growing economy leading to an increase in market size

Entrepreneurial and go-getting individuals, mostly youth under 35 who constitute about 50% of the population

Technological

Developments in computer hardware, software, applications, and other equipments, products and processes

High prevalence of individuals with technical education

Proven innovation capacity and R & D capability among local automotive industry partners

Strong engineering development capabilities

considerable opportunities for technological transfer

significant number of suppliers for technical products such as safety, security, lighting and comfort devices

5.3 Recommendations

Due to the peculiar nature of the Turkish industry and the regulatory requirements and framework, it does appear that a significant portion of the production process is undertaken by the local partners with whom most multinational enterprises often have to collaborate on joint ventures, As such, a sustained growth in industry and export earnings depends very significantly on the ability and capacity of the local businesses and joint venture partners to develop production ideas based on innovation, knowledge and creativity. An increase in local R & D efforts is also essential in tapping into the cross-cutting benefits derivable from globalization.

One aspect of the study that did not receive sufficient attention is the full appraisal of the Turkish economy’s role in stimulating the benefits of globalization for the local people. This is especially in the sense that, as was discovered in the course of the research, most of the multinational enterprises that manufacture products in Turkey do not necessarily rely on the patronage of the local market. Rather, the country is seen largely as a production hub for export markets. In the case of Ford Otosan for example, almost 70 percent of its manufactured vehicles are exported to the EU countries (excluding Turkey) while the Asian market accounts for much of the remainder CIP Development Series, ND; Republic of Turkey Prime Ministry Investment Support and Promotion Agency, 2010). It will therefore be worthwhile for further studies in this area to explore the linkages between globalization and local consumption of locally produced goods and services – with a view to unearthing the extent to which the leveraging of local opportunities and resources by global companies translates into economic empowerment for the local population such that they are considered a key market for the locally produced goods.