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Ford Motors Strategic Analysis

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Strategic Analysis of Ford Motors

Ford Motors is among the most renowned automotive brands of the world. Known as an innovative vehicle brand, the company has achieved a leading position in the automobile industry. The auto industry has grown highly challenging and competitive. Apart from research and development, marketing has also become a major focus area for brands. Ford has continued to grow its revenue for several consecutive years. It owns both Ford and Lincoln brands and sold more than 6.6 million vehicles at wholesales worldwide in 2017.

The US is the largest market for Ford followed by China. The brand was incorporated in Delaware in 1919. It is a global company based in Dearborn, Michigan with around 202,000 employees. The company makes and sells a full line of Ford cars, trucks, sport utility vehicles (“SUVs”), electrified vehicles, and Lincoln luxury vehicles.  The revenue of the brand has steadily increased over the past several years. It reached 156.78 Billion in 2017, rising from 151.8 Billion in 2016.  2017 was a year of transition for Ford. The brand is aggressively focusing on reducing costs as well as reallocating capital and resources to the markets with the highest potential. Its president and CEO is Jim Hackett. Read more about Ford Motors in this SWOT Analysis.

Strengths:

– Brand image and equity:

Ford has got a strong brand image as an automotive brand focused on innovation, passenger safety and product quality. Brand image is an important strength in the vehicle industry and translates into a high level of popularity and customer loyalty. Ford is considered a reliable brand whose popularity is quite high in the American market. A high level of brand equity has led to consistent performance over the previous eight years.

– Strong manufacturing capabilities and supply chain:

Ford has got strong manufacturing capabilities and a well managed supply chain. These are critical strengths for any vehicle maker.  The brand has 61 manufacturing facilities all around the globe. Out of these 61, 31 are located in North America, 8 in South America, 16 in Europe as well as 2 in Middle East and 4 in Asia Pacific. Total 39 of its manufacturing facilities are a part of its zero waste fill program. 

– Large product portfolio:

Ford has a large product portfolio that  includes SUVs, trucks, cars and luxury vehicles. The brand makes and sells a full range of Ford cars, trucks, sport utility vehicles (“SUVs”), electrified vehicles, and Lincoln luxury vehicles.  Apart from that, it also provides financial services through Ford Motor Credit Company LLC (“Ford Credit”), and is pursuing leadership positions in electrification, autonomous vehicles, and mobility solutions.

– Strong focus on innovation:

Ford has also retained a very strong focus on product innovation. Apart from a heavy spending on research and development, the brand has focused on R&D in several areas and most importantly electrical vehicles, autonomous driving and AI. The brand increased its R&D expenditure to 8 Billion dollars in 2017 from 7.3 Billion dollars in 2016. It is pursuing a leadership position in autonomous driving and electrical vehicles.

– Strong position in US and China markets:

Ford has retained a strong position in both US and China markets. These two are the hottest markets for vehicle brands. In the US market, sales of Ford vehicles have remained consistent for the last three years at 2.6 million units. In China however, the sales fell from 1.3 million vehicles in 2016 to 1.2 million vehicles in 2017.

– Strong financial position:

Ford’s financial performance has improved consistently over previous several years. Its total revenues grew from $149,558 million in 2015 to $151,800 million in 2016 and to $ 156,776 million in 2017. The net income attributable to Ford Motor company also improved from $4.6 Billion in 2016 to $7.6 Billion in 2017. 

 – Strong marketing capabilities:

Strong marketing and branding are also critical strengths of Ford leading to higher brand recognition and popularity in key markets. The brand has always marketed itself as an innovative and consumer friendly brand. It also spends a large sum sum on marketing and promotions of its products and brand. Its advertising expenses for 2017 were 4.1 Billion dollars.

#Weaknesses:

Product recalls:

Frequent product recalls can taint a brand’s image and pose a major risk to its reputation. In 2018, Ford had to recall 550000 vehicles due to gear shift problems. This problem affects Ford Fusion and Ford Escape models. These models were recalled previously a few times too.

Weak position in India and other emerging markets:

Ford’s position is not as strong in India as it is in China or US. Its total sales in India were only around 100K units. The brand would need to work upon making its position stronger in the emerging markets.

#Opportunities:

AI and autonomous driving:

AI and autonomous driving are some hot areas that most vehicle brands are focusing upon to bring their autonomous driving vehicles first of all on the road. Ford is also investing in this areas as it presents a significant opportunity. Its plan is to begin production of fully autonomous vehicles for commercial use, such as ride hailing or package delivery, by 2021.  The brand has advanced its capabilities a lot in this area during the recent years.

Digital marketing opportunities:

Digital technology presents significant opportunities for vehicle brands who can utilize it for better marketing as well as customer and supplier engagement. The brand can use digital channels to better engage its customers as well as suppliers.

Supply chain digitisation:

Supply chains in the vehicle industry are generally very complex and require efficient management. However, one important thing that  vehicle brands must do is to digitally manage their supply chains. It enables them to save costs as well as ensure timely availability of raw materials. Digitally engaging the suppliers also helps build stronger and long lasting relationships.

Electrical vehicles:

The demand and popularity of electrical vehicles and hybrids is growing all around the world. As such the brands focusing on this area will find their sales growing in the close future. To speed up the design and development of battery electric vehicles, in 2017 Ford created “Team Edison,” a dedicated electric vehicle team to bring together technology, product development and advanced manufacturing to create leading-edge battery electric vehicles for customers around the world. The company recently announced a joint venture with Zotye, a pioneer in the Chinese all-electric vehicle segment. The sales of electric vehicles is poised to grow in near future which means focusing on this area will bring attractive returns for Ford.

#Threats:

Intense competition:

Competition in the automotive industry has kept intensifying meaning higher pressure related to product design,  quality, innovation, and marketing. The key competitors of Ford Motors with a global presence include Fiat Chrysler Automobiles, General Motors Company, Groupe PSA, Honda Motor Company, Hyundai-Kia Automotive Group, Renault-Nissan B.V., Suzuki Motor Corporation, Toyota Motor Corporation, and Volkswagen AG Group.  So, there are a large number of competitors in the market and most of them have formidable technological and manufacturing capabilities. They also enjoy high level customer loyalty and have a large customer base. Overall, competition is one of the biggest threats before Ford Motors.

Regulatory threats:

Regulatory and legal threats have also increased manifold leading to a rise in compliance-related pressure on vehicle brands. From labor to passenger safety and product quality as well as the environment, the number of laws in these areas and the level of legal scrutiny around the globe has increased. Any brand wants to avoid a tussle with law. Ford also remains cautious about legal liabilities and focuses on compliance in local markets throughout the globe. Legal hassles can be very costly and can even result in fines worth billions which was proved in the case of VW.

Rising costs of raw materials and labor:

In this decade, the cost of raw materials and labor all around the world has grown. This has led to higher operational costs as well as higher costs of HR. Every brand needs skilled HR as well as good quality raw material for production. However, these have become more costly than ever creating pressures on the vehicle brands’ profit margins.

#PESTEL Analysis of Ford Motors

Political:

The role of political forces in the international business environment has grown bigger. Governments and government agencies around the globe have increased the level of control and oversight applied over businesses. The large businesses especially are facing higher level of regulation and scrutiny around the globe. The rise of digital technology and shared economy have brought several changes. Governments have grown quite aggressive about their control over the digital economy. Political factors affect businesses in other ways too and not just taxes. Ford is an international brand with a large and global supply chain as well as distribution network.  Political environment of key markets affects its sales and distribution. Political stability leads to better supply and higher sales. On the other hand political instability can lead to lower sales and supply chain disruption. So, while the role of political forces has always been important in the context of international business, sometimes political regulations can take a challenging shape. Overregulation can become a barrier to profitable growth. Ford being an international brand cannot remain unaffected by the political changes happening across it key markets. 

Economic:

Economic factors have always played a central role in shaping the fate of businesses. This became evident during the economic recession when several major brands of vehicles had to be bailed out through government support. During the recession, millions of people lost employment and the level  of spending had fallen to pathetic levels. This resulted in lower sales and profits for vehicle brands. The recession has passed and the world economy is back on track. Now, people are spending more on shopping. China and India have emerged as some of the largest markets for automobiles.  All the large and global automobile brands are focusing on these two markets for faster growth and higher sales. Increased employment and higher levels economic activity in key markets is driving sales higher. US and China are the largest markets for Ford which is geared for faster growth through innovation. Competition is also an important factor that is affecting the growth and market share of automobile businesses like Ford.

Social:

The role of social factors has grown highlighted in the 21st century. Sociocultural factors have become more important than ever in the context of business. It is why brands are keeping them in sight while formulating their business marketing and sales strategies for various regions. Changing social trends and other sociocultural factors too affect the growth and success of businesses. The rise of the millennial generation and the middle class have also led to major changes in demand patterns. the demand for SUVs and environment friendly vehicles has grown. These are some of the important focus areas for Ford.  In its marketing strategy to a brand like Ford cares for the regional culture and taste. Apart from everything a good and strong social image is important for any business in the 21st century. A strong image in the society means higher popularity and customer loyalty.

Technological:

Technology is now more central to business than ever and one of the biggest sources of competitive advantage for any brand. This is also a reason that vehicle brands are spending so much on research and innovation. Ford’s Research and development expenses increased to 8 Billion dollars in 2017.  The role of technology in the automobile industry has grown bigger. From AI to autonomous mobility and environment-friendly vehicles, Ford is investing in all these areas to become the leading global brand of automobiles. People around the world are looking for cars that are technologically efficient as well as low in emissions. In terms of marketing too, digital technology and social media are playing a bigger and better role. All brands are using digital channels and social media for reaching their target audience.

Environmental:

Environment is also a central concern in the context of automotive business. Governments around the world are more cautious about the environmental impact of business. They have framed stricter laws regarding environment and environmental impact of businesses.  Vehicle brands have to remain cautious about compliance with environmental laws or be ready to bear the fines which can run into Billions. Moreover, environmental responsibility is good for a business’s image. It is why businesses are investing more on social responsibility and environmental protection. Apart from reducing vehicle emissions, the brand is also investing in the advancement of sustainable materials as well as operating in an eco-efficient manner.

Legal:

Legal issues are now also going more central to business. The net of law has grown stricter around the world. Governments are dealing aggressively with businesses. VW incurred a major fine for noncompliance a year ago. From emission regulations to labor, passenger safety and environment, laws are stiffer in all these areas and every brand has to comply. Noncompliance can result in fines that can run into billions.  Moreover, the laws can differ from market to market and one central team is not sufficient to deal with legal issues. It is why brands like Ford have legal teams to deal with laws and compliance in each market. So, overall the role of legal factors in the vehicle industry has substantially grown in this decade.

#Five Forces Analysis of Ford Motors:

Bargaining power of suppliers:

The bargaining power of suppliers in the automobile industry is low. It is mainly because apart from being smaller in size, the suppliers are scattered all over the world. Ford purchases a large variety of raw material from its suppliers in all corners of the world. It has entered contractual relationships with many of them. However, compared to Ford these suppliers are much smaller in size and do not hold any significant financial clout. Based on these factors the bargaining power of its suppliers is low. Other factors that moderate the bargaining power of suppliers are Ford’s brand image, global presence and large size.

Bargaining power of buyers:

The bargaining power of buyers has increased a lot over time. It is because of several factors including higher availability of information as well as increased competition. Nowadays, the level of competition in the vehicle industry is very high and apart from that the 21st-century customer is a well-informed customer. People have several options before them and they would evaluate each one carefully before making a final purchase decision. Moreover, the size of individual purchases in the vehicle industry is generally large. This also leads to brands spending more on marketing, sales and customer service.

Threat from substitute products:

The threat of substitutes for the automobile industry comes mainly from the rival brands and other government and private means of transportation. Since there are several brands operating in the automotive industry, the level of competition is high and so is the threat from substitute products for Ford Motors. Ford’s brand image, product quality and other factors like its global presence and excellent customer service moderate this threat to an extent. The overall threat from substitute products is moderately high.

Threat from new entrants:

The vehicle industry has no or very little space for new players. It is because the competition is already intense and brands are aggressively sending on innovation and market expansion. Any new player would need to spend billions to create a vehicle brand and position it in the market. Apart from technological infrastructure and skilled human resources, a vehicle brand also has to spend a lot on marketing and sales. There are other hurdles to entry into the automobile industry too. Legal and regulatory constraints also act as entry barriers and deter new brands from entering the market. Moreover, the existing brands are aggressive about market share and are even forming alliances for faster growth. So, the overall threat from new brands is near zero.

Competitive Rivalry between existing players:

The level of competitive rivalry between the existing players is very high. The number of brands in the automotive industry is high. Every brand is aggressive about market share and spends a lot on marketing and innovation. In every segment from passenger cars to luxury vehicles the level of competition is very high. Ford spends a lot on marketing as well as research and innovation to stay ahead. It has acquired a leading position in the market and to retain it, the brand has to focus on innovation as well as brand image.

#Value Chain Analysis of Ford Motors:

#Primary activities:

Inbound logistics:

Ford has manufacturing and assembly plants throughout the world from Africa to USA and China. It collects raw materials from its suppliers which is delivered to its assembly plants with the help of logistics providers. DHL is among the main logistic partners of Ford. It ahs played a major role in its European supply chain. Ford Motor Company has awarded a new contract to DHL. Under this contract DHL will provide freight management services under its Lead Logistics Partner solution. As a part of the contract, DHL Supply Chain will manage the movement of prototype parts from suppliers to Ford’s R&D locations globally (DHL, 2017).

Outbound logistics:

Logistics plays a major role in Ford’s supply chain network whether inbound or outbound. The assembled vehicles are shipped from Ford’s manufacturing plants to its dealerships in an environmentally efficient manner. Ford has used a balanced mix of transport solutions with a focus on reducing road miles as well as optimizing efficiencies. It collaborates with its logistics patterns and industry to accurately measure and improve the impact of transport down its supply chain.

Operations:

Ford is a global brand with its offices, assembly plants and dealerships operating around the world. Based on Geographic locations, it has divided its business into five segments that include North America, South America, Europe, Middle East & Africa, and the Asia Pacific. Its main properties include manufacturing and assembly facilities, distribution centers, warehouses, sales or administrative offices, and engineering centers. Apart from that it owns substantially all of its US and Non-US manufacturing and assembly facilities. However, most of its part distribution centers outside the US are either leased or provided by vendors. Ford has 61 manufacturing plants as of 2017 whose distribution is given in the following table:

The Number of Ford manufacturing plants (2017):

North America – 31

South America – 8

Europe – 16

Middle East & Africa – 2

Asia Pacific – 4

Total – 61 ( Based on Ford Motors Annual Report 2017)

Marketing and sales:

Growing competition in the automobile industry has led to higher focus on marketing and sales. Ford Motors spends a large amount on advertising and sales promotions every year.  Its advertising expenditure has remained higher than 4 billion for the last three years. In 2017, its expenditure on advertising was 4.1 Billion dollars. Apart from advertising the brand also uses events ad auto shows for promotion of its product and brands.

#Support Activities:

Technology:

Technology is one of the most important factors in the vehicle industry. It is a source of competitive advantage as well as the main factor behind fast growth. Ford has managed some excellent technological capabilities down its manufacturing and supply chain. It is working on further improving its manufacturing efficiency through investment in technology and the implementation of a world class IT system.

Infrastructure:

Infrastructure has an important role in the management and growth of businesses. Its total assets were worth 157.8 Billion dollars in 2017. It is led by James P Hackett as its CEO. Bob Shanks is Ford Motors’ CFO.

HRM:

Ford currently has around 202,000 employees. In the 21st century employees can be a major source of competitive advantage for any brand. Ford also focuses a lot on innovative HRM and invests  in the development of its Human Capital.

Procurement:

Ford obtains raw materials from thousands of suppliers from around the globe. Global procurement at Ford allows it to contribute to local economies, encourage entrepreneurship and thus enrich livelihoods. It also helps the brand secure a sustainable supply of materials, goods and services through responsible sourcing.

#VRIO Analysis of Ford Motors:

Key resources and capabilities:

  • Global presence: – Ford is a global brand with a large network of suppliers, vendors, and distributors.
  • Brand image and customer loyalty: The brand has built a strong image of an innovative brand whose main focus is the convenience and safety of passengers.
  • Technological capabilities:: Ford has built strong technological capabilities including manufacturing and supply chain. Apart from that it is also implementing a world class IT system.
  • Skilled  HR: HR is a critical strength in this era and Ford has focused on hiring a string and skilled HR.
  • Strong supply chain: A strong supply chain is the backbone of a vehicle manufacturing company. Ford has managed strong relationships with its suppliers.

Resources/Capabilities:

Valuable

Rare

Difficult to Imitate

Exploited

Implication

Global Presence

Yes

No

No

Yes

Temporary advantage

Brand image & Customer loyalty

Yes

Yes

yes

Yes

Competitive advantage

technological capabilities

Yes

Yes

Yes

Yes

Competitive advantage

Skilled HR

Yes

Yes

No

Yes

Temporary advantage

Strong supply chain

Yes

Yes

Yes

Yes

Competitive advantage

#Core competencies:

Technological capabilities:

Ford has got strong technological capabilities and spends a large sum on R&D. In 2017, it spent 8 Billion dollars on research and development. The brand is also working on building manufacturing efficiency and implementation of world class IT system.

Supply chain:

Excellent supply chain management is also an important competency of Ford Motors, that has helped it achieve an edge. It has formed long term and strong relationships with its suppliers to ensure continued availability of raw materials. It is also using IT and other forms of technology for the efficient management of its supply chain network.

Brand image:

Brand image is an important competency for a brand operating in the global environment. Ford has built a strong brand image that has helped it achieve high level popularity as well as strong customer loyalty.

Global presence:

Ford is a global brand with a global supply chain and distribution network. The brand is operational across a large number of companies worldwide.

#Financial Analysis:

Ford’s revenue has continued to increase consistently over the past 4 years. In 2017, its revenue grew to 156.8 Billion dollars from 151.8 Billion dollars the previous year. Net Income of the brand took a dip in 2016 but then rose again in 2017. It was 4.6 billion in 2016 and then rose to 7.6 Billion in 2017. The fourth quarter of 2017 was especially good when it sprung to profits. Net income during the fourth quarter was 2.4 Billions which was much better than the same period a year ago.  Fourth quarter revenue was 7 percent higher than previous year at 41.3 Billion dollars. Its pretax profits in the Asia Pacific region reduced, partly because of the reduced sales volume in China and lower pricing across the industry.

#Conclusion:

Ford is among the most innovative global brands of automotives. The brand has been performing well consistently for past several years. Its revenues and net income have risen from 2016 to 2017. Now the brand is focusing on future of mobility to be among the first to enter autonomous vehicle market. Ford spends a large sum on research and development. It also has strong manufacturing capabilities. Overall, the brand is in a  strong position to transition into the new era of mobility. 2017 remained an year of transition at Ford. The main challenges that are making the task tough for automotive giant are competition and the high level of legal and regulatory barriers. Ford must focus on the emerging markets to grow its presence there for faster growth. Managing prices of its products could also help it grow its customer base in the fast developing economies of Asia.