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.
188.8.131.52 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.
184.108.40.206 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.
220.127.116.11 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.
18.104.22.168 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.
22.214.171.124 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.