The increasing role of multinational enterprises in the global economy has resulted to business men as well as researchers in these areas engaging in intensive enquiry in analyzing the most suitable strategy to be applied. Due to the complexity of market entry strategy selection process, it becomes very hard for many organizations to determine the most appropriate thereby shunning away from exploring new markets. The process is associated with strategy success, profit return, resource transfer and exposure of the firm to high risks which many organizations are not ready to risk. It is for these reasons that different researchers including Ekeledo and Sivakumar 2004, Rasheed 2005, and Jiang 2005 have engaged in research, attempting to identify factors that affect the expansion and entry modes in to new ventures by different companies.
A successful entry and expansion in any company is to greater extent determined by the entry strategy applied in relation to products being traded or introduced, available resources and size of the target market. According to Ekeledo and Sivakumar (2004), the performance of a firm and its survival is highly dependent on selection of an appropriate market entry strategy. Similarly, Pak et al (2002) postulate the importance of accurately determining an appropriate market entry strategy when they state that ‘failure to select an appropriate market entry strategy is a license to corporate failure’. Since one of the integral factors in achieving a positive outcome is selecting the appropriate market entry strategy, firms must be keen in the selection process if they are to evade failure and maximize the benefit of exploring new markets.
Ford motor company is an American multinational company that specializes in manufacturing and distribution of different model of automobile globally. Ford motor company is the second largest company in America. The company also market in Asia, Europe and America. The company consists of two main sections namely: the financial and automotive sections.
1. The financial section is concerned with operations of ford motor credit company and other financial services
2. The automotive section is concern with operations of the company in both local and international markets in North America, Asia pacific, Africa and Europe.
Ford Company is also engaged in other financial activities such as holding companies and real estate. According to Ford Motor (2011) In October 2011, the company recorded profit for the tenth consecutive quarter with profits of 1.6 billion US dollars. North America market being the most profitable market while Europe market being the least profitable
Historical Background of Ford Motor Corporation
Ford motor company is an American multinational automotive company based in Detroit, Michigan and Dearborn. The automotive company was founded by Henry Ford in 1903 when Ford Company introduced novel technology for mass production of vehicle. In 1904 the company produced one of first racing cars which were model c and 999 models. Initially Ford models only sold in north America before moving to other international market in the across world. Between 1908 and 1927 the company had sold more than 15 million cars. By the end of 1927, the company had developed a number of models including the famous Model T. The Company needed to expand internationally and by 1930,s the company had expanded to France, Germany and Great Britain. By 1932, Ford Company had sold over 4.5 million cars in Europe only.
The company had expanded international market in 1960’s and competition from other automotive multinational company such as Toyota was beginning to have effect to the total sales of the company. This forced Ford Company to become more innovative in development of their motor vehicle to stay relevant amid stiff competition. Ford motor company currently has about 166,000 employees who operate in 70 plants worldwide. The major markets for the automotive company are Asia-pacific, Europe and South America (Kuhn 1986.p, 45).
Financial Overview of the Firm
Ford motor company manufactures and sells brands of vehicles such as Ford, Mercury, Jaguar and Lincoln. Furthermore, the firm owns 34.4 percent of Mazda Motor Corporation. The company also engages in other financial activities such as car rental, through Hertz Corporation which is one of the company’s financial outlets.
Brief Financial History
The company turnover was highest in 1990’s. This was largely due to the booming American economy and low fuel prices that encouraged investment in motor vehicles. However in late 2000, there was decline in sales which resulted in low profit margins for the company. To cut cost, the company decided to drop some of its non-profitable models and cut its labor by 30,000 jobs in fourteen of its factories (Nevins & Hill, 2011).
In 2010, Ford Company made a profit of 1.69 billion US dollars reflected as 41 cents a share which was 27.7 percent increase from the previous year. Ford trucks sales contributed to the largest share of the overall total sales in 2010. In 2011, the company profit dropped to 1.65 billion US dollars. During the same year, Ford motor company entered a four year contract with the united automobile worker union. In this contract, the company pledged to employ an additional 12,000 employees and invest 6.2 billion US dollars in the American plant. John Fleming, who is the company executive vice president, indicated that all these new jobs were to be remunerated on wage contract basis. The objective of this contract was aimed at increasing production level in the US plants. Since then, Ford motor company has made significant progress in securing its automotive related debt by 14.5 billion dollars by the end of 2010 which represented 43 percent reduction (Nevins & Hill, 2011).
Generally, 2010 financial year is considered as a major turning point for the company. During this year, the company made several structure and policy advancement to remain competitive in the international automobile industry. The company projections in 2011 include effectively restructuring its outlets to maximize profit, developing and marketing new products, improving its balance sheet and leveraging the company’s global asset.
Source: (Ford motor, 2011)
Recent Company’s Developments:
Ford Company is facing stiff competition from Asian companies such as Japanese Toyota that is producing cost and yet cost effective new generation model of vehicles. These foreign competitors also pose threat to Ford market share not only in North and South American, and Europe where they mass import their brands of vehicles and also increase production capacity. Allan (2011) posited that this in turn is forcing Ford Company to be actively involved in development of modern models of vehicles that are eco friendly, fuel efficient and of quality.
Ford motor company has been more progressive in terms of innovation in recent years. In 2010 for example, the company saw the launching of 24 new or redesigned vehicles in its markets around the world. These recent model include Lincoln MKX for the North American market, redesigned C-max and new C-max for the European market among others. The company also announced its intention to invest in its major geographical market segments around the world. The Asia-Pacific-Africa segment having an investment budget of 1.7 billion US dollars, North and South American with a budget of 4.9 billion while Europe having a budget of 2.9 billion US dollars.
Global Financial Meltdown and Ford Position
The global economic climate has been responsible for decrease in profit for most multinational companies. The situation has been worse in America and Europe where the effect of fluctuating currency has caused low sales for the company’s products. The cost of production has been on the increase for the Ford Company since global recession in period of 2008 and 2008. The effects are evident to the company key products such as the most profitable model SUV models which have experienced low sales margin. This has been reflected in decrease in profits from the model which formally had contributed to 55% of total auto sales. Currency rates remain a constant problem for the company which is influence by the global macro environment (Richard & Henry, 2003).
Strategic Forecast of the Firm
The company estimates its growth as at 5 percent annually in the next five years. According to the company senior management, these developments will be possible through effective implementation of the company strategy. The strategy focuses on new product launching, low cost structure and strong company balance sheet. Ford motor company is also positive about the recovery in the global economy which promises better future business. The company estimates that in the next five years, Ford models will dominate the North America, Asia and Europe markets. The company is structuring its portfolio to remain competent in the global market.
On August 2011, Toyota motor company announced close collaboration with Toyota Motor Corporation in acceleration of consumer accessibility to new advanced hybrid of motor vehicle models of light trucks and SUV’s. The new models are eco-friendly vehicle that use both electric charged battery and at the same time fossil fuel. The two multinational companies are also working together on development of next generation standards applicable to vehicle telematics and inter-net based services.
Sales and Earnings
Similarly on August 2nd 2011, Ford company sales of the month of July were reported as follows. The total sales for the month were reflected at 180,865 units. This was 9 percent higher than previous month. This was attributed by high sales in Lincoln brand that has since grown by 40 percent year over year and Ford brand that has grown by 13 percent.
On July 2011, Ford Company announced its 2011 earnings results. These results highlighted comparative total revenue in 2010 versus those currently 2011. The gross total revenue in 2010 was reported at a total of 28.8 billion US dollars as compared to 2011 which recorded at total of 35.5 billion dollars. The net income in 2010 totaled to 2.7 billion as compared to net income in 2011 which was amounted at 2.64 billion U .S dollars (Alan, 2011).
The recent market trends uphold safety as a priority in manufacturing modern vehicles. It is for this reason that Ford motor company has heavily invested in safety in their latest models. Jason Sprawka who is the marketing manager in November 2011 acknowledged the company’s commitment to uphold safety standards. New Ford model like Escape has gone through vigorous testing to ensure safety of their customer. The company has developed new technology on safety belt and air technology. The new safety technology used by the company is known as safety canopy system. According to Richard and Henry (2003) the new system combined rollover sensors that are triggered when a vehicle is forcefully hit and curtain airbag that provide maximum safety.
Characteristics of business environment in the host country
Business environment characteristics are important to consider when deciding where an organization should base its operations. This is mainly because they affect the rate at which work is done and the efficiency. These characteristics are well defined or analyzed using the pestle analysis, which looks deeper in to the political, economical, social and technical characteristics of the host nation (Cadle 2010, p. 4). When entering the China market, there are factors that Ford had to consider, as they would determine the way the company does business. These factors include;
This deals with factors such as the employment law, registration, competition laws, nation stability, and trade regulations (Henry 2008, p. 52). Free trade flows and exchange rates make it beneficial for the company to operate in China, as it encourages consumers to invest in motor vehicles. The business laws put in place have encouraged the ford to change its rules and regulations and hence ensuring high quality cars, which translated to their customer satisfaction.
Any company looking for a place to position their business must focus on the security of the host nation. These include protection from burglary and terrorism attacks, which can destroy a company’s property in case of occurrence. The Ford Company enjoys protection by the Chinese government from terrorist attacks and also the internal security. This is very important in doing business as it determined how stable a company will be in the host nation’s economy.
The economic growth level of a nation is very important when deciding on the host nation for a company. This is because the economic policies and things such as employment and inflation affect the company’s business. China has achieved a high GDP growth of up to 8% in the recent years, therefore increasing their likely hood of people to afford cars. By the year 2006, china also promised to break the tariff barriers imposed on the imported cars, from 100% to 25% and gradually to 10%, therefore making cars more affordable to the people. According to the world economic forum on global competitiveness (2009, p. 1) on the ranking of nations based on their level of development, China is ranked among countries that are in the third stage of development. This places the company at an advantageous position to enjoy the high level of technology expertise and experienced labor, making its manufacturing processes faster and more efficient.
Economically, it is also important to consider the size of the market, where the Company is venturing in to. The size of the market where the company is venturing in is a very important factor to put in to consideration. This is because the bigger the market the more the chances of getting consumer s for the company’s products (world economic forum 2009, p. 6). China has a high population and large number of working class individuals, who believe in independence, and therefore making the market for cars large. Ford enjoys producing even luxurious cars for those holding status in the society.
By the year 2000, the GDP per capita for China had raised to over US$ 800, which meant that there were now more people, in a position of affording cars. Such a case means that the company has to consider the availability of labor for the industries. This is important as it determines whether the company will have employees working on projects around the clock. As a company, it is important to consider the availability of the labor required for the company products processing. This is a major factor as to why major corporations will be based in highly developed nations, where they are in a position to obtain the required expertise for production.
The ford enjoys its location by drawing its labor from the Chinese market due to the flexibility of the market (Adekola 2007, p. 269). The high population of China produces more labor, making it less costly and more efficient to produce in the country. This is a 24hrs economy, and the company can hire people to work on their projects in shifts and hence ensuring speed in work.
This is an important factor to consider as it focuses on the availability of the necessary technology in the host nation for the company operations (Luo 2000, p. 304). Ford has high technological advancement as compared to its competitor, which it uses in vehicle manufacturing, and this has an influence in the sales of the company cars. The state of technology in China has grown to a high level, and Ford company uses technology to offer the consumer a change to order custom designed cars, where they can customize the inside or the outside of a car online and make an order.
This platform of consumer customized cars has been very beneficial to the company as it has incorporated the customer’s ideas in their design to come up with new car models. Customized orders are delivered to the customers in a span of two months and if the car is already available, it is delivered in three weeks. The company also uses technology to advertise and display their products online for customers to see. The company also has a strategy of cooperating with other Companies to develop cars of improved quality. The company has maintained relations with Companies such as Isuzu, Toyota and Suzuki, seeking to develop its products to a level of customer satisfaction.
Ford Motors Company entered in the China market in the year 1913 using the model T, whereby, it entered into a partnership with Changan Automotive Corporation in 1921. The Changan Automotive Corporation was a China based automobiles company. The two companies formed a joint ventured called Changan Ford Automobile Corporation. Later on in the year 2006, another automobile company was dissolved into the venture, in the name of Mazda, making the name to be changed to Changan Ford Mazda Automobile line. This type of entry mode led to development of new technology, resource sharing and marketing.
The entry into China market by Ford had some advantages as well as disadvantages. The advantages of the entry included:
Ford Motor Company enjoyed the possibility of world-class quality, while maintaining the cost of production to the minimal due to the readily available labor market.
The Actions by the Chinese government also favored the Ford Mobile Company as the tariff barrier on imported cars was lifted which also included the spare parts. This however was after China joined the World Trade Organization, a timely move that benefited Ford Motors.
The abolishment of the import quota system in 2005, in which Ford Motors Company benefited out of its forming a joint venture with China based companies.
The government of China has created an enabling regulatory systems which is two-way. In one way, the government develops policies rules and regulations whereas on the other, the businesses try influence the government through lobbying (Luo 2000). There are evident caases of lobbying in China and such can act as hinderance for entry of a foreign company. Ford has therefore had to chooce the best entry mode into China so as to benefit from the enabling efforts of the gvernment as it avoid the hinderances.
Ford is still looking forward to extending its dealings in China, by opening up markets in Northern and Western China, in the cities of Shijiazhuang, Harbin and Nanning, which although less popular to outside of China, they have a potential market due to their high population.
The specific mode of entry that Ford Motors used to penetrate into the Market of China was the Strategic Alliance. With the definition of Strategic Alliance as a formal relationship among two or more organizations so as to pursue a set of mutually agreed goals, or to tackle a critical need in business with the organizations remaining independent. There are various examples of the Strategic Alliance between Ford and China. One of them is as seen in the strategic alliance existing between Ford and three of the Chinese Universities. Evidently, Chongqing University, with its favorite location is a crucial production base for Ford. Shanghai Jiaotong University is the other strategic alliance partner for Ford, especially through its reputed material and mechanical engineering strength (Luo 2000). Finally, the Nanjing University of Aeronautics and Astronautics, and is reputed for its aluminum profiling and improvements of diesel motor performance.
It was important for Ford to enter into an alliance with the universities of China as an entry point. The strategic alliance had the following purposes for Ford:
For performing and accelerating scientific research as well as talent training for enhancing fuel efficiency, reducing the car weight and advancing the material for the car and the manufacturing processes.
For establishment of long-term development in China
For establishment of foundation of Ford’s corporate social responsibility
Expectedly Ford will in return assist the Universities in it have alliance with in China in promoting education and automotive technology search and automotive capacities training provision. The strategic alliance of between Ford and the Chinese Universities as a mode of entry poses the following examples:
The Company can obtain insight to the customs and culture of the locals.
The company can introduce its new products and raise the brands.
The company obtain the advantage of lowered cost especially from benefiting out of the government-initiated programs and exemptions from costs. The labor source is also reduced.
The Ford Motors Company can benefit from the economies of scale
The company’s access to expertise, knowledge sharing and distribution channels is enhanced
Even with the possibility of the foregoing advantages to Ford out of the strategic alliance mode of entry into China, it experiences some cons in the process (Adekola, 2007). Some of the outstanding disadvantages of the strategic alliance mode of entry include:
The company will experience barriers of culture and language
There s expected conflicts in strategies, ethics, values and practices in business
There is also expected to be the distrust with the partnering company
The advantage of long-term dependency is also a possibility.
As the political class pressures industries for environment-friendly technology, the Ford motor company has its strategies in developing eco friendly designs of automobiles. The future of this multinational company is centered on more fuel-efficient vehicles. The company also considers expansion to other unexploited markets across the world. By doing this, the company will be able to have greater sales and global market share.
Adekola, A 2007, ‘Global business management a cross-cultural perspective’, Aldershot, England Burlington, VT: Ashgate.
Alan, R., 2011. Business day: ford motor company. The New York times, 30th November 2011, p.3.
Cadle, J 2010, ‘Business analysis techniques 72 essential tools for success’, London: British Computer Society.
Ekeledo, I, & Sivakumar, K, 2004,“International market entry mode strategies of manufacturing firms and service firms”, International Marketing Review, Vol. 21 No. 1, pp. 68-101.
Ford Motor Company. 2011. Annual Report. Viewed at http:www.ford.com [Accessed 30th November 2011]
Henry, A 2008, ‘Understanding strategic management’, Oxford New York: Oxford University Press.
Kuhn, A., 1986. Designing the general motors’ performance-control system: Pennsylvania: Pennsylvania state university press.
Luo, Y 2000, ‘How to enter China : choices and lessons’, Ann Arbor, MI: University of Michigan Press.
Nevins, A., & Hill, E., 2011. Ford: the times, the man, the company. New York: Charles scriber and sons.
Pak, S, 2002, “The effect of strategic motives on the choice of entry modes: An empirical test of international franchisers”, Multinational Business Review, Vol. 10 No. 1, pp. 28-36.
Rasheed, S, 2005, “Foreign entry mode and performance: The moderating effects of environment”, Journal of Small Business Management, Vol. 43 No. 1, pp. 41-54.
Richard, B., & Henry, E., 2003. The creation of Fords Empire. New York: Charles scribes and sons.
The World Economic Forum’s Global Competitiveness Network 2009, ‘Global Competitiveness Report’, World Economic Forum, pp. 1-479.