ISM CASE STUDY: GROUP 7: Abhishek Awasthi, Yogesh Sapkota, Anushka Sharma, Aman Yadav, Mayank Shrivastav SEC - G MBA-IB (2011-13) COMPANY: FORD MOTORS
TOPIC: FORD MOTORS EXPANSION STRATEGY IN INDIA
Our group will be preparing a case study on the company Ford Motors, which is one of the largest and amongst the fastest growing automobile companies globally. In our case study we will be elaborating, what Ford Motors did in order to escape bankruptcy when US economy weakened and fuel prices continued to rise. We will try to incorporate all those aspects and dimensions where the companies have won its competitive advantage over its competitors.
CASE STUDY ON FORD MOTORS
Ford Motors is one of three leading automotive manufacturing companies in the United States. Based in Michigan in 1903 by Henry ford and grew to reach revenue of $150 billion and more than 370,000 employees by 1996. Ford had secured 25% US automobile market in 1998. It is ranked as a 2 nd largest automobile manufacturer in the United States and the fifth-largest in the world rankings as of 2010. Ford is ranked at number eight in the 2010 Fortune 500 list based on its global global revenues in 2009. As of 2010, the company earned earned the profit of $ 6.6 Billion which was utilized to manage its debt requirement of $33.6 Billion. In the year 2007, the company earned more quality survey awards than any other automaker. The company domain “ford.com” had more than 11 million annual visitors by the year
2008 according to the US national survey.
FORD ON THE VERGE OF BANKRUPCY
The company’s performance from the year 1999 took a plunge. Its market share dropped
from 25% to 14%, the market value of its products fell. The company was at the verge of collapse. High debt, failed market image, retracting customers and sky rocketing operational costs were the some of the issues Ford Motors was facing. Ford related its market failure with the increased prices of gasoline and weak US economy. The expert reviews about the market failure of Ford motors give another dimension to its failure. According to them, Ford took eyes off the market trends and consumer preferences. They emphasized only on the product lines (SUVs and trucks), they had increased operational costs and they lacked communication with the customers and appropriate market research. The products offered at Ford were free from innovation. Porter relayed that a company can gain competitive edge via cost efficiency, product diversification and focus on the goals. The company can succeed only because of its strategies it uses against the competition and how well it handle its strategies. Two types of advantages a company can master, cost efficiency and differentiation.
Today firms are keen on developing plans based on their strategies that can give them edge over their competitors. In this case study, Ford motors re-engineered its processes, devised new goals and differentiated its branding and product strategies in order to sustain in the market. Alan Mulally, the CEO of Ford Motors, took an initiative to improve the company’s image and its operations. He devised couple of strategies to come out of the black hole which was sooner or later going to eat the company out which includes One Ford, divesting other brands in the market, insulating communications strategy within the organization, changing the culture of Ford, introducing coding system for the reports and many other functional strategies. With the redefined image, and revolutionized products, the company was able to pay off some of its debts.
COMPETITION ANALYSIS
GENERAL MOTORS
The 2008 automotive industry crisis has severely affected the car makers and the credit markets as well in the form of recession, volatile oil prices and decreased rate of employment in United States and Western Europe. These factors had negative impact on the car makers and the factors that shape customers’ buying decisions. This resulted in the
delayed consumer purchasing or leasing decline in the vehicles sales around the globe. The estimated worldwide market share of General Motors was 12.4%, 13.3% and 13.5% in 2008, 2007 and 2006. These negative factors have had a drastic effect on the General Motor’s largest market.
United States. Despite these economic conditions affecting the United States in 2008, General Motors have maintained the largest market share in the United States. The company took few strategy wise changes to cope with issues relating to the declining sales and market shares. GM decentralized the decision making process to get the quick decisions in times of need. The managers running the branches across the globe are empowered to make critical decisions on company’s behalf. The company revised its
marketing goals and devised new marketing plans. It is involved in providing innovative products to the consumers with environment friendly cars. The competitive advantage of General Motors lies in the innovative cars it produces.
TOYOTA MOTORS
Toyota took over the US market with low cost automobiles to compete with the then market leaders; General Motors and Ford. It competes to serve the different market segments. Toyota products are considered to be efficient as compared to other models in terms of fuel consumption and have captured huge market segment. Toyota is also engaged in other business lines to support its business.
Toyota has secured large market share in US and Japanese. Its various vehicles are well liked in the developing markets for their efficiency and reliability. Toyota has quite a few car companies in the developing markets like Russia, China or India which gives competition to it. Toyota cars are sometimes out of the range of the people in these developing markets so these small scale regional companies are better available options to them. Toyota’s competitive edge lies in its efficient and reliable products.
FORD’S COMPETITIVE ADVANTAGE
After many decades, the company launched a new strategic plan in 2000 to focus on the 21st century. The new strategy was aimed at increasing the market share, increase the revenues earned and production of smart cars with fuel efficiency. Ford implemented the centralized decision making system. This allowed the company to concentrate on the available market opportunities both locally and internationally. With the implementation of centralized decision making system, the top management becomes more engaged in the
development of products to satisfy the customer expectations in various markets (Porter, 1986). This strategy allowed the company to improve the communication system from top to bottom. Ford Motors adopted the strategy that allowed it low production cost by cutting all the excessive cost involved in its operations. The huge expenditure on raw materials was cut down and the online manufacturing process was introduced that focuses on the development of cars on one process rather than having different segments of engineering and production. This strategy establishes cost advantage and gives the company advantage over its competitors in terms of lower cost (Porter, 1983). In the mean while company focused on producing smart cars that were not price sensitive and offered the functionality of traditional ford cars. The market position of Ford has been enhanced due to multiple factors. Firstly, since it fought hard against bankruptcy and refused governmental funding as its competitors did, the consumer trust has increased in the company and its brands. Secondly, its products are widely accepted by the consumers and integrating with the first factor, the company has increased market share. Lastly, the company has adopted the strategy to provide smart cars to the consumers it will further benefit the company in terms of market share and increased volumes (GLG Expert, 2009). Ford can benefit from the industrial recovery by offering and focusing on the consumer- oriented products and give value to them while generating reasonable profits. The demand for better fuel economic cars has increased due to high energy prices with the increasing wealth of developing world; the Ford motors currently believe in providing few automobile models to sell around the globe with some modifications; to be called world cars. Ford Fiesta is the first world car which was designed by Ford Europe and was produced in US and China. The future strategy of Ford Company is to develop more world cars with the idea of providing standardized products to its worldwide markets. The company developed its competitive edge that carried it to the future. They introduced a technology which was already in use by its competitors but with the new perspective and
modification. The tech gadget called Ford SYNC. It is a science sync-equipped in the vehicles that can connect the driver with so many options. Ford SYNC is a company fitted, fully integrated communication and entertainment system that connects the users with internet through his smart phone and allows them to make telephone calls and control music and other functions using voice commands. This system is the integrated interface developed by Ford and Microsoft that operates on Microsoft Windows Embedded Automotive operating system. Ford is currently not performing very well in the US markets but the losses are considered to be acceptable as the company has shifted its focus to profitability, small scale operations and more flexible in terms of operations. In April 2009, the company’s strategy to meet its
debts removed $ 9.9B in liabilities which makes 28% of its total. This resulted in the $2.7 billion profit for the year 2009 to the company.
RECOMMENDATIONS
Ford motor is the only one in the US auto motor industry who tried to sustain its leadership and its market position with effective strategies to match the market requirements and needs. It updated its products with latest technology gadgets and equipped its products with the latest ones. After conducting the in depth analysis of the company’s success factors, revamped
processes and other operational strategies as well as the study of case study, I came to the following recommendations for the Ford Motors that can help the company to leverage its market position and sustain profitability: 1. RESEARCH
Before designing a new model, the Ford motors should conduct a market research and survey to understand the customer preferences. Since the company is still under huge debts and has to come up again it has to keep an eye on the market trends and needs because one wrong step can lead it to the deepest pit which the company is scared of.
Instead of changing the models each year, they should bring out the quality and performance in the existing projects by improving the production operations of the company. The company should focus more on the designs of its products and come up with more diverse and efficient models.
2. INNOVATION
Japanese car makers are already providing small cars and catering to the needs of the people in the segment. Fords main competitors in this market are Toyota, Honda and others. Who are offering products that are priced low, carrying nice features and their performance is not under rated in anyway. The C-car platforms at Ford require engineering the products that are innovative to gain the attraction of large number of potential buyers.
3. GREEN VEHICLES
Due to the increased emphasis by the government of US and other countries on the production of eco-friendly cars and other vehicles, it has become extremely very important for every car maker to introduce the cars which are more fuel efficient and emit less smoke without causing harm to the environment. The Japanese Car maker, Honda, has introduced a new car called Honda Civic GX as a green car. The car has won the title of greenest car of 2011 from the American Council for an Energy-Efficient Economy.
Though Ford has also taken initiative of producing
environmental friendly cars with the production of Ford Fiesta SFE (ranked at # 7 in the ACEE list), it is desirable that the company should introduce more eco-friendly cars in order to gain competitive advantage in this front as well.
4. MARKETING
Today it is an era of marketing. Only those who market them-self well are likely to succeed in this competitive market. Ford has won the marketer of the year award by highlighting the features of the product instead of the tech gadgets installed in it. The Ford’s products are better than before with the newly devised strategies and promoted
and marketed well by Mr. Farley, VP global marketing and sales. The sales are up 17% double the industry wide gain of 8.4%. I suggest that the company should continue with the current marketing strategies and the other promotional channels it is already into. They should also engage into aggressive marketing and promotional activities to attract the customers about the newly introduced products. Savvy marketing and re-defined focus can be a good sign for this iconic company.
The company should link up with the TV
sponsorships and engage in the public relations activities to attract the general public about how concerned the company is towards the social issues.
5. PRICE
The Ford’s small world cars are intended to sell in the developing markets and the other
markets around the globe. These markets are highly price sensitive. The customers want excellent features, quality performance in the affordable prices which is why there are various regional competitors in these markets to compete with the Ford with their products priced low. We suggest Ford motors to produce the cars which are better not only in the domains of features, performance, and fuel efficiency but also in the pricing of the car. The small cars concept can achieve its goals only if the cars are priced low with all the existing features of their products.
