Ford Motor Company (FMC, Ford, or the company) has a prominent place in the auto manufacturing business. The auto industry is complex and highly competitive. This report uses the PEST and Five Forces analyses to highlight the external business dynamics of Ford, which is one of the industrial leaders.
External Five Forces Analysis
Porter's Five Factors analysis is a strategic management outline that evaluates a business' competition. The five-factor analysis involves the assessment of factors within industrial organization economics, which point out the attractiveness or unattractiveness of the industry in terms of the intensity of competition. The Five Factors analysis assess the following factors:
The threat of New Entrants
The threat of entrants within Porter's outline denotes emerging firms intending to join an industry. Ford faces a moderate new entrants' threat because the auto manufacturing industry has
high entry barriers. The industry is capital intensive. Therefore, a startup needs a lot of capital investment for setting up and maintaining production lines and for acquiring auto-components, and raw material. Ford international presence requires the company to invest significantly to ensure smooth operations at the production line and in the supply chain to meet market demand (Ford Motor Company [Ford], 2018). Additionally, the industry is highly regulated (Wolfgram & Christiansen, 2016). As a result, emerging firms will find it difficult to match Ford efficiency, unless they can afford to raise substantial capital to lower some of these entry barriers.
There is an emerging trend in the industry increasing demand for electric cars though. To keep up with these developments, Ford's management outlined a plan to introduce 40 electric cars to its portfolio at a cost of $40 billion by 2022 (Carey & White, 2018). Few new entrants will manage to raise such amount of capital to keep up with Ford. The only serious threat of entrants originates from technological advancements that have seen tech companies such as Google and Uber entering the industry with innovative products such as self-driving cars. Due to their financial ability, these companies raise the threat level to moderate.
Power of Buyers
Vehicle consumers possess great power in the auto industry. They not only have numerous similar dealers to choose from but also do not incur any actual cost by deciding to walk away without finalizing a purchase. This fact implies that car customers have nothing to hold them from seeking a competitor's products (Krause Research Fund, 2016).
Power of Suppliers
The bargaining power of suppliers is limited by the many suppliers available in the industry. In addition, a company like Ford is a well-established and has an extensive network of suppliers from around the globe. The company also has a host of joint ventures with various components manufacturers in China, Turkey, Germany, and Thailand (Ford Motor Company, 2018). Also, being a large-scale company, Ford has the power to negotiate better prices. On the other hand, suppliers have a large influence on profitability due to the impact of vehicles components (Wolfgram & Christiansen, 2016). The main challenge that auto companies face regarding the supply chain is the high cost of switching suppliers. This concern arises from the fact that auto parts require specific and complex modalities to fabricate, which gives suppliers some power for manufacturers are likely not to pay a high price to move to another supplier. As such, Ford faces a moderate threat in relation to suppliers bargaining power.
Threat of substitutes
Most motor vehicle consumers lack a choice for a better substitute product. Options for prospective car buyers are also constraints because some people opt to rely on public transportation. This phenomenon is well-spread in countries with developed public transport systems like Europe (Wolfgram & Christiansen, 2016). The advent of tech companies like Uber and Lyft provides young people with the option of hailing ride-sharing services, which causes them to not buy their own cars (Wolfgram & Christiansen, 2016).
Therefore, Ford faces a modest level of threat from substitute products. Ford enjoys moderate threat from substitutes because the quality and design of vehicles are decisive measures in the selection of a substitute. These factors have been pivotal strategies for Ford, which strives to have an edge over its competitors (Ford, 2018).
Rivalry Among Competitors
The automotive industry is a mature global business. The rivalry is, therefore, very high with numerous established manufacturers from across the world. Consumers are thus spoiled with choices when it comes to buying a car, especially new buyers. People who already own automobiles have a likelihood to return to the company they bought their current cars due to customer loyalty. At the moment, Ford enjoys 48% prospects that current Ford owners are recurring customers (Edmunds, 2018). Despite this, the company faces fierce competition from top manufacturers, including General Motors, Fiat-Chrysler, Toyota, and Honda (Krause Fund Research). These companies have a global presence, are big-scale manufacturers, have diverse products, and have domestic and worldwide appeal to consumers (Wolfgram & Christiansen, 2016).
In recent time, cash-rich tech companies have joined the industry with world-changing innovations such as autonomous cars (Krause, 2016; Ford, 2018). This development has intensified the level of competition. To mitigate the competition, Ford has invested in numerous projects including an innovative customer care system (Cisco Systems, Inc., 2007), investment to R&D for the development of all-electric vehicles (Ford, 2018), and Ford Credit that offers to finance to prospective clients (Ford, 2018). These innovative plans have the potential to lure new customers while keeping the current clientele satisfied thus loyal.
The PEST analysis is a strategic management framework that evaluates the political, economic, socio-cultural, and technological factors within which a business operates.
Ford must assess and address political factors as an external environment. Government policies are pertinent issues that influence businesses, both as opportunities or threats, including:
Governmental Incentives. Many countries have policies that offer incentives to vehicle manufacturers who are likely to adopt technologies that would lead to fuel efficiency. For instance, South Korea is offering an incentive for early adoption (Ford, 2018). Ford could use these sorts of opportunities to propel innovation such as the development of sustainable environmentally friendly products.
Tax Cut in the US and Foreign Tax Credits. The Trump administration enacted the Tax Cuts and Jobs Act of 2017, which give corporations huge tax cuts. The company also enjoy foreign tax credits in the countries it operates. In 2017, tax cuts and credits accounted for an estimated 6.4% drop in tax liabilities. The Tax Cuts and Jobs Act of 2017 saved Ford $398 million (Ford, 2018). These benefits cuts operations cost. Ford, therefore, has an opportunity to use these paybacks to support its production, R&D, and marketing segments.
Increasing Regulations. Due to the increasing threat of climate change, global authorities are enacting stringent laws to regulate emissions and enhance fuel efficiency. For instance, the federal Clean Air Act and Federal and California Emission Standards require vehicles to have onboard diagnostic systems that monitor emission and components (Ford, 2018). These systems are complex and develop issues over time, which could increase the rate of recalls and warranty cost (Ford, 2018). Other US requirements include the greenhouse gas emissions standards that limit heavy-duty vehicles emissions and primarily affect Ford's pick-up trucks and vans, buses and delivery trucks (Ford, 2018). Ford foresees that these new standards could be challenging to adhere to, presenting a challenge to continued offering of its full portfolio of heavy-duty truck (Ford, 2018). The magnitude increases given that Ford derives profitability from the sale of heavy-duty trucks in the US (Ford, 2018).
Increasing Tariffs. President Trump's administration actively advocates for the increase in tariffs for various products imported from several countries. For instance, the federal government imposed 25% and 10% tariffs on steel and aluminum respectively (Ferris, 2018). These metals are the backbone of the auto industry, which means automotive firms are experiencing higher costs. In a 26th September 2018 interview Ford's CEO, Jim Hackett, reported that the company had lost $1 billion in profits (Ferris, 2018, para. 2).
Ford must always be aware of the threat or opportunity changing economic conditions present. In 2017, South America experienced an economic growth that drove up sales by 29% (Ford, 2018). Ford should invest more in this market, which has a greater potential to continue growing. Ford has a greater opportunity to improve on its 2017 sales in South America by exploiting favorable governmental policies in Brazil, where the majority of Ford's exists. Brazil has previously offered and continue to offer Ford's federal and state incentives (Ford, 2018).
A lingering economic threat to business lies with the ever-fluctuating international exchange rates. The largest risk of adverse exchange rates originates from Britain, due to the uncertainty the looming Brexit causing that has disrupted the sterling (Ford, 2018). Other poor exchange rates effects could arise from the Canadian dollar, Chinese renminbi, and Argentinian peso (Ford, 2018).
FMC's macro-environment is influenced by various social circumstances. The increasing demand for hybrid and electric vehicles presents an opportunity for driving up sales. According to a study by Musti and Kockelman, fuel economy accounts for 28% of attributes consumers consider when deciding to buy a car due to increase in the importance of social preferences among consumers (as cited in Lai, Liu, Sun, Zhang, & Xu, 2015, p. 12567). Additionally, the world has seen big changes in demographic factors. In the US, Hispanics are growing in numbers, which is leading to an expansion in the automobiles market. In 2014, for instance, automotive manufacturers in the US, including Nissan and Honda, increased their spending on Hispanic by 17.6% ($3.8 billion) (Llopis, 2015). Individual of multicultural heritage almost account for 40% of automobile sales in the US (Llopis, 2015). Ford's has an opportunity to shift its strategies to attract this healthy emerging market.
Technological Factors in Ford's Business
Today, the global population has an insatiable appetite for products with enabling technologies. Ford, having seen this opportunity, sought Cisco Systems, Inc. help in developing an innovative customer service system. The system allows in-car communication between Ford's representative and car owners whenever there is an issue (Cisco Systems, Inc., 2007). Through Sync, the system allows a Ford employee to diagnose the problem remotely (Cisco Systems, Inc., 2007). The platform allows for the collaboration between Ford's customer care staff and dealers during vehicle service and has an intuitive self-service website (Cisco Systems, Inc., 2007). The overall effects of this innovative system include an increase in customer satisfaction and attitude towards Ford, quick delivery of solutions, and reduction in the cost of maintaining different databases (the system collaborates all data in Ford's call centers and in the website) (Cisco Systems, Inc., 2007). This p...
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