Ford drives into Emerging Markets

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Ford: the name resonates with success, reliability and prosperity. One in every five cars carry the blue oval badge if we go by the measure of Ford’s total sales across the world. Whilst Ford has kept up to its brand promise, globalisation, competition from Japanese and Chinese counterparts and lean production in the supply chain management have compelled the auto giant to re-think its strategy going forward.

Ford’s operations have suffered not just in the US but also in Europe. After years of profits, the company faced a loss in its market share. In Europe, the company operates 35 plants and employs almost 100,000 people, making Europe one of the most competitive markets for Ford. What makes things worse is the ubiquitous market fragmentation. Amid the economic recession, demands of consumers are seeing a shift towards small city cars. Volkswagen, Renault and Peugeot have seen much success while Ford has continued to plummet.

Restructuring

As Ford evaluates its plans, it hopes to restructure and move up the market.

Cutting costs and moving away from mass production to lean production are just some of the changes that Ford has made.

As globalisation continues to drive the world economy, it calls for organisations like Ford to manage subsidiaries carefully, in an integrated manner and tackle critical decisions around centralisation and de-centralisation.

Strategic aims of the company have to align well with consumer demands and the government regulations in regional markets.

Increasingly companies in the west see making acquisitions in the east as a way of getting access to new markets and distribution channels. Additionally an acquisition is seen as financially less risky and saving enormous development costs.

Threat from Japanese exports

A trend that’s added to Ford’s troubles is the exports by Japanese companies to Europe and the increasing number of transplant factories by the Japanese in the UK.

Ford was the very first unique company to have built car assembly plants outside its domestic base. Ford plants can be found in countries as diverse as Argentina, Brazil and China. However from 1999-2000, Ford began to struggle: difficulties arose from poor model development, excess capacity and a failure to recognise the emergence of new market segments in addition to an inability to control costs.

A disastrous performance

In 2000, Jacques Nasser, the chairman of Ford described the firm’s financial performance in Europe as near disastrous as the return on sales was no more than 0.1%. Increasing market share by extensive cost-cutting measures would be the only way for Ford to raise this figure.

This was despite the positive promises made by Nasser’s predecessor, Alexander Trotman, when he decided to turn Ford America and Ford Europe into an integrated global company by merging the US and European operations. His aim was to get rid of 20% of the top managers, instituting no fault meetings and creating multi-functional teams.

Expansion into emerging markets

To increase sales, Ford began geographical expansion in India, Vietnam and China. However this expansion brought along its own share of challenges. This would entail the U.S. and Europe to share power and a change in pricing strategy.

The cost of expansion in Asia had looming effects on its European operations. Making things even more difficult were consumers demanding more for less and giving in far more easily to the cheaper imports from the Far East. However Ford was successful in creating a new strong management team with sufficient experience and credibility to impress the markets and provide necessary leadership.

Leadership differences

There was a distinct leadership difference between Trotman ,CEO of Ford from 1993 to 1998, and his successor, Jacques Nasser. While Trotman focussed on dealing with the nuts and bolts, Nasser remained focussed on changing Ford from a car company to a consumer product and service company, pursuing profit down the value chain. However for this to take shape, cost-cutting was critical.

In order to turn vehicle operations plants into flexible bodyshops, they were all based on modular assembly, located near supplier parks and operating on a three shift pattern.

Entering joint ventures and forging new relationships

What worked really well for Ford was its ability to spread its costs across models, forge new relationships with suppliers and enter into joint ventures. Ford and Peugeot is one such joint venture that helped increase the diesel engine production. In addition, Ford and Daimler-Chrysler agreed to an engine sharing deal for European versions of the Ford Explorer.

Using social media to build new relationships

The most recent reports have suggested that Ford has recorded its biggest annual profit since 1999 and due credit must be given to how it successfully engages with its consumers through the use of social media. Personal conversations and points of engagement with customers are critical to the success of any marketing strategy.

Ford posted 11,000 videos, 15,000 Twitter messages and over 11 million social networking impressions as part of an American Ford Fiesta pre-launch social media campaign called the “Fiesta Movement”.

The campaign inspired tens of thousands of people by engaging them in an ongoing dialogue with the company.

While there have been a number of such efforts by Ford for customer acquisition, what has been missing is a strategy to extend such efforts in emerging markets and curating campaigns that would serve customers from a particular region. This is essential to cut across geographies and ethnicities and strike a common chord with the local culture.

A workforce exodus?

Japanese carmaker Nissan, Indian-owned Jaguar Land Rover, and General Motors-owned Vauxhall ruled the recently held Geneva Motor Show.

It perhaps left an image of Britain as merely presenting foreign companies with the world’s most desirable brands.

An interesting observation of the event was the increasing number of British workers climbing their way to the upper echelons of foreign companies instead of their own domestic ones. This leaves one with a poignant thought. Does expansion into emerging markets by companies like Ford mean a mass exodus of British and American employees to foreign markets? For that, let’s just wait and watch.