Environment Industry Marketing

Environment Industry Marketing The report is about the analysis of the environment of automobile industry and the marketing strategy for Ford Motor Company. It initiates with examining of external environment of automobile industry by using PEST analysis and Porters five forces analysis. After the internal analyses that focus on the resource audit on brand, products, markets, technology, people and son on, the value chain analysis of the company will be conduct. Then the generic competitive strategies would be discussed through SWOT analysis, Ansoff Matrix and BCG Matrix in order to identify the general business strategy taken by the Ford Company. After specifying the company strategy by those analysis tools, the strategic evaluations would be drawn together with the strategy control methods. Finally, a suggested recommendation for the company future development will be mentioned at the end of the report. I. INTRODUCTION 1.1 Aim of The Report This report aim to identify the external environmental of the global automobile industry, measure and evaluate viable and sustainable marketing strategies using by the Ford Motor Company. Through appropriate theoretical concepts and models, together with appropriate methodologies, the organization within its contextual setting will be carefully examined, and justify recommendation will be mentioned. Though the report, how a successful corporation is operated and how its business strategy is implemented and controlled will be understood. 1.2 Company Background Ford Motor Company is an American multinational corporation and one of the worlds largest automaker based on worldwide vehicle sales. It has manufactures and distributes automobiles in 200 markets across six continents and has about 300,000 employees and 108 plants worldwide[1]. Ford now encompasses many global brands, including Lincoln and Mercury of the US, Jaguar and Land Rover of the UK, and Volvo of Sweden and one-third controlling interest in Mazda as well[1]. Ford introduced methods for large-scale manufacturing of cars under different brands and large-scale management of an industrial workforce and its combination of highly efficient factories and low prices revolutionized manufacturing had made the company successfully become a world leading auto manufacture. 1.3 Rational of Company Selection Automobile industry is a consistant developing industry in the global in the 21st century. Ford Company is a world leading automobile manufacture, which has its business all over the world. To analysis the global automobile industry environment and the development strategy for such a world famous company would be a greate help to understand how business strategies are generated, implementated and controlled and meanwhile to see how would the company do to keep its business perform well when facing a complicated environment and a decline market. 1.4 Company Vision, Mission and Value The companys vision is to become the worlds leading company for automotive products and services. And the companys mission is to become a global, diverse family with a proud heritage, passionately committed to providing outstanding products and services. And together with a company value that do the right thing for our people, our environment and our society, but above all for our customers[2]. Based on its vision, mission and company value, the Ford Company is endeavor to keep its leading position in the global, and make effort to provide excellent products and services that satisfied its customers. Approaches that be taken to fulfill it goals and objectives with considering the harmony of business environment and modern society. II.EXTERNAL ANALYSIS 2.1Environmental Analysis 2.1.1 Industry Background The world automobile industry has well developed for many decades and stable progress was made during recent years. Now the automotive manufacturing sector produce over 60 million vehicles every year[3] and contribute about 2.45 trillion Euro annual revenues[4]. There are numerous world famous carmakers all round the global, and although the competition in automobile industry becomes more and more fierce, it is still one of the biggest markets in global industry. 2.1.2 PEST Analysis Finlay[5] point out that remote environment affect businesses by an indirect way and would cause changes in a companys operation. The automobile industry touches on a wide range of aspects, such as manufacture, supply chain, retailing and so on. As a result, many factors such as government policies, local regulations, and social culture differences would influence this industry. By modeling the remote environment with PEST analysis (see appendix I), factors that would affect the global automobile industry would be examined. 2.1.2.1 Political and Legal .Competition Policy Anti-monopoly policies such as the EU competition policy tack several barriers to competition to make sure firms operate under a certain legal framework[6]. This policy has force a perfect competition in automobile industry and will absolutely affect auto manufactures marketing strategy to some extend through preventing firms from colluding by price-fixing and as well controlling the size of firms. . Environment Legislations Nowadays, much attention has been devoted to the environmental issues. Organization such as European Environmental Liability Directive has formulated many laws and regulations for environment protection[7]. Those legislations force manufactures to think over the environmental damage their operations may bring along, so that manufactures have to take action to protect the environment. . Automobile Industry Legislations and Policies First, regulations in many regions have introduced different emission limits for diesel and gasoline vehicles. Since 2005, all automobiles have to reach the Euro 4 emission standard in European countries[8]. And in America, stricter emission standard is set since 2005[9]. Besides, some governments are encouraging automakers to produce environmental friendly vehicles. For example, UK government had asked automobile manufactures to design new ultra low carbon family car in 2003[10], which says can be the step stone of the new generation fuel efficiency cars. .Taxation With the imposition of a fuel tax, consumers will have to think more carefully about their purchasing decisions. In the global, many countries has very high fuel tax, such as in the UK, it has took tax higher up to 81.5% of the total price of fuel[11]. And in Europe, EU has imposed a minimum taxation of 0.287 Euro per liter on gasoline[12]. As a result of such a high fuel tax, the usage of cars would be reduced to a great extent for many people. 2.1.2.2 Economic .Economic Growth and Inflation For these years, the global economy is growing steady. Predictors say that the average world growth rate of 4.9 percent in the period 2003-2006 will continue at least for the next two years[13]. In terms of inflation, there is a survey shows that an increasing global inflation with the annual rate of consumer price inflation in the U.S. went up to 4.2 percent in May,2007; 2.2 percent in Great Britain and 2.5 percent in the Euro zone[14]. As a result of the increasing inflation, people may prefer to spend their money right now instead of saving money in the bank and it would encourage people to consume products such as automobiles. .Trade Globalisation has removed many barriers to cross-border activities and international trade can create great opportunities for local businesses to expanding their business into new areas overseas to meet a whole new set of potential customers[15]. The ever-closer international business relationship would provide the manufacture more cost-effective resources and meanwhile provide customers the opportunities of wider choices. .Labour Force The unemployment number in the global is increasing every year. It is said that no matter in the developed countries like United States and the United Kingdom or in the developing countries in China, and India, they are generating less employment than it has in the past even though economic growth is strong[16]. So, in many places all around the world, the speed of job creation cannot catch up with the pace of population growth. This large number of unemployment indicates that many people may have not have steady income to afford a car. .Personal Income and Distribution of Wealth Despite a high and growing global average income[17], global distribution of wealth, consumption, and opportunity still remain severely unbalanced. The wealthiest 20 percent of the population consumes 80 percent of the resources[18]. As a result, people who could afford an upper class product only account for a small proportion of the total population and most people only has the average income. 2.1.2.3 Social-cultural .Demographics population Although recent long-term demographic projections suggest a fast deceleration of global population growth, evidence shows that the number of elderly people is growing fast[19]. As a result, manufactures should consider product that oriented to the elderly. household Some experts claim that there was a decline in the average size of household in the 21st century[20]. Due to the increasing number of elder people and the smaller size of household, I think the small car may become the main stream for its practicality. .Private and Public Transportation Though the public transportation may not be the first choice of some people, it is still the best substitute of private transportation such as private cars. This is especially true when increasing automobile usage generates some negative impacts such as congestion, traffic accidents and additional vehicle emissions. So some government is tending to shift people away from private transportation to public transportation with the effort that improving the performance[21]. .Environment Issues Environmental problems that touch us all has now has drawn the attention of public. People become more awareness about environment issues such as air pollution and greenhouse gas emission. For example, Public are informed by many channels about the impacts of transport can bring, such as the climate change, human health affections and loss of biodiversity [22]. As a result, consumers may become more cautious when purchasing cars. Meanwhile it is obviously the usage of environmental friendly products would turn up an increasing trend. .Other Social Concerns car parking Parking can be a big problem for many drivers. It is always hard to find a place for parking and the price charged for parking is sometimes goes very high [23]. As a result, some people would rather to use public transportation instead of using their private cars. road safety Road accident is always a big issue for drivers. Take UK for example, according to the 2005 annual report of UK department of transportation[24], there is a total number of casualties in 2005 were 271,017 with a number of 3,201 people killed and 28,954 injured. The high risk of driving would influence consumers decision on purchasing. public health Recent years some diseases such as SARS had challenged social stability[25]. This had effect peoples customs and their behavior to some extend. For example, there is a sharp decrease of public transportation usage rate during the period of SARS in 2003. These public health issues more or less have influenced the global automobile market. 2.1.2.4 Technology .New Energy Since increasing attention has paid to environmental issues, researchers are searching actively for new exploitable resources that can instead of petrol and diesel. Bio-fuels are one of the most favorite substitutes at current, which says made from renewable resources such as agricultural crops or waste. They are more environmental friendly and can be refined as conventional petrol that used in todays engines[26]. Another substitute is natural gas that is relatively cleaner compare with other alternatives. Besides, it is claimed that natural gas is not only a cheap energy, but also can well suited to motoring uses[27]. In addition, Lewin[28] believe hydrogen fuel cell cars that will hit the market in near future and many automakers are planning to launch this kind of product. Besides, solar power is also a feasible substitute for carmakers. It is claimed that the very first solar power deal for reviving car batteries had made by a Canadian manufacturer of solar panels with the VW[29]. .Computer Aided Design Program Wernle and Bolduc[30] point out that vehicles design in the new century must be distinctive and alluring so that it would win a ideal market share. It is always a hard and time consuming process for car designer to design a car that not only combine with great comfort and safety performance, but also has unique style. Now, with the help of some computer programs such as Alias it would save much time for automakers to get cars to market quicker by reducing the number of clay models and prototypes[30]. . GPS and Car Navigation System It is report that Garmin Ltd., the largest GPS device maker in the world had sold around 5 million units in 2006 for personal navigation equipment[31]. Nowadays, GPS becomes more and more important to car drivers in every day life. With the help of GPS system information associated by odometers, gyroscopes[32], a car navigation systems can get drivers wherever they want to go. Information is transmitted by autonomous navigation systems without the participation of an external server by the use of a two-way communication between navigation center and the onboard vehicle sensors. The system can calculate the optimal route automatically and then give necessary guides and some programmes even can provide users with additional information such as hotels and shopping malls showing on its digital maps. As GPS and car navigation system has widely accepted by many people, it will become an important factor when people making their consideration. 2.2 The Structural Analysis of Industries Competition between firms is crucial to modern economies[33]. In competitive environment, there is a set of external influences which is able to affect organisations action[34]. Organisations have to fully understand that environment in order to make effort to create competitive advantage so that to achieve success. In the following part, Porters five-forces (see appendix II) approach will be used to examining the competitive environment. 2.2.1 The Threat of Entry Johnson[34] suggest that the barriers to entry determine the threat of entry. If the barriers are high then the threat of entry would be relatively low[35]. The entrance barriers in global car industry can be proposed as following: . Economies of Scale Since the ever falling car price[36], in order to reduce cost, many carmakers keep increasing their output volume. For example, Toyota Motor Manufacturing had increased from 220,000 to 285,000 on Toyota Corolla and Avensis models in UK 2004 annual production capacity and Mazdas domestic production capacity has increased by 14 percent in the same year[37]. Thus, new entrants who want to come in this industry have to come in with either at a large scale and risk strong reaction from existing companies or they have to come in at a small scale and accept a cost disadvantage[35]. . Production Differentiation For carmakers, it is always hard to create distinctive products, as the basic techniques of car manufacturing are no longer a secret for few manufactures. Now the focus is gradually turning to safety[38], style, comfort and new technology for example a computer control panel such as providing the driver with telematics, GPS[39] because of the quality gap among the different manufacture become narrower. As a result, it would obviously more time consuming and would spend more money for those carmakers to design a new model that is different from the competitors. .Capital requirement of Entry To entry the automotive industry requires not only advanced technological but also enormous capital[40]. It costs a lot on designing a new model, production, distribution and so on. And the larger the scale the company has the more capital would be spent. So entrants who want to come into this industry should first make sure if they have enough money. . Cost Disadvantages Independent of Scale Porter[35] state that established companies may have cost advantages such as proprietary product technology, favorable locations, favorable access to raw materials. Many famous carmakers have already established their cost advantages. Take the example of Ford, it spend around 450 million on automotive research and development in Britain to keep advanced technology every year. As a result, it is difficult for a competitor who does not have cost advantages to break into the industry. To sum up, the entry barriers in world automobile industry is relative high, so it is not an easy work for new entrants to come in to this field. 2.2.2 Bargaining Power of Suppliers Suppliers may have strong power over the industry if the industry is dominated by few suppliers or the switching costs is high to change one from another [34]. When considering the components segment of automobile industry, it is now facing a globalization trend. Rivals not only exist in the domestic market, but also rise from abroad, which means that the components segment is full of competition and the bargaining power of suppliers would be reduced. Beside, car companies are now seeking component makers and original equipment manufacturers in some developing countries such as India, China and Far East in order to save money[41]. Honda, which used to source major part of its components from UK suppliers, for example, is now reducing its UK vendor base. As a result, this worldwide sourcing trend has become a threat that limited the power of suppliers. In addition, in auto industry there is a trend of allying with other manufacturers to share design and development costs recently. It is said that vehicle manufactures are working together much closer with their partners and try to develop vehicle platforms jointly. Most of large car manufacturers like Ford, GM, and Volkswagen have cut down their number of platforms[42] and some models will use the same platform in order to reduce cost. Manufacturers can not only reduce their manufacturing cost to some extend by this way, but also would become more powerful when bargaining with components suppliers because increasing volumes of components may need. And meanwhile it may help manufacturers reduce raw material costs. In a word, the bargaining power of suppliers in global automobile industry is low. It is an opportunity for many car manufacturers that provide a chance of planning their purchasing strategy better and more profitable. 2.2.3 Bargaining Power of Buyers According to Porters[35] theory, buyers have the power of forcing down prices, bargaining for higher quality and more service, and playing competitors against each other. In the following part, the bargaining power of buyer in global industry will be discussed from several different aspects. .Products Differentiation As in global car market the product differentiation is not very obvious due to the auto manufacture acknowledge is no longer a secret. There are lots of carmakers in this market, and the basic functions of their products are almost the same and the only differences would be the design and some other additional functions. So customers can always find alternative supplier who offers a cheaper price, gives the most satisfied product, and provides the best customer service. . Importance of Purchasing If the product is very important for the buyers, the bargaining power of buyers may relative high[35]. In automobile market, the importance of purchasing seems rather low. Statistic shows that in developed countries, the average ownership of cars is quite high, take Britain as an example, statistic shows that 3 in 4 households have access to a car and over half (52%) of all rural households had two or more cars in 2005[43]. So in those countries to purchasing a new car may not be so necessary for most of the families. . Information Searching If buyers have full information about product, demand, market price, their bargaining power would be greater than those with less information[35]. We are now entering a great new era of information. People can seek product information through various methods, such as friends, sales assistant and different medias. And it is said that individuals especially those who are highly involved with the purchase of a product are thought to be more active on information searching[44]. Todays mass media, no matter the newspapers, magazines, radio, or television, all contain a large amount of information. Besides, the entering of Internet era has simplified the process of information searching process to a great extend. All these factors mentioned above have provided consumers with more information. What it comes down to me is that in automobile industry, the car manufacturers marketing strategy would be effected by the relative high customer bargaining power. 2.2.4 Pressure From Substitute Products Substitutes play a limitation role in industry[35], it provide the same function as the product of the industry to restrains industry making profit. There are several means would be the substitute products of automobile. . Public Transportation Public transportation would come first to most of people when thinking about the substitute of private cars. More and more people are willing to give up cars and use public transportation especially when the service of public transportation is better. Besides, since there are increasing number of SOHO workers, many people choose to work at home by Internet. So they do not need a car to drive to work, thus the significance of owning a car is decreased. . Car renting and Car Sharing Today, the ever-rising petrol price becomes another factor that forces many people reduce the usage rate of their cars. Many people choose to rent a car for travel or share one car between friends instead of driving alone. As a result, demand of purchasing a car would be decreased and there is increasing demand for car rental especially now some rental firms have provided more complete and customerizedservices[45]. To summarize, public transportation, car renting and car sharing could be some of the substitute methods of owning private cars. All of these means have pressed threaten on the world auto industry. 2.2.5 Intensity of Rivalry Among Existing Competitions Porter[35] point out that rivalry occurs for the reason that one or more competitors feels pressure or sees the opportunity to improve position. In global automobile industry, rivalry among the competitors is very strong and the major competitors are closely balanced so that the rivalry is increasing intense. Besides old rivals such as General Motors, Ford, Volkswagen, those Japanese carmaker like Toyota and Honda now are gaining stronger power in this industry. Because there is little differentiation among the products, when deciding purchasing, one rival is always compared to another constantly in price, quality, durability, and many other aspects. As a result, in order to gain market share in the automobile industry, company should provide better product as well as better service so that it could take the market share from their competitors. 2.3 Strategic Group Analysis To identify strategic groups which has similar strategic characteristics, following similar strategies or competing on similar bases can help to understand the most direct competitors and of any given organization and also can help identify potential opportunities and threats[34]. Strategic groups in automobile industry can be identified according to the products class and status such as those upper class manufactures such as BMW, Mercedes Benz, and up medium, medium and lower medium manufactures such as Honda, Ford and other market segment such as racing car and so on. In different regions, each groups power are vary. It is essential to Ford Company to identify different situation in different places all over the world, so that the business strategy can be chosen properly. III. INTERNAL ANALYSIS 3.1 Resource Audit Resource audit is useful in understanding strategic capability according to Johnson[34]. To identify the availability of resource that can be used is important for a business. In the following, the resource of Ford Company would be examined. 3.1.1 Brand The Ford Motor Company controls the many car marques wouldwide, such as Jaguar, , Land Rover, Lincoln, Mazda, and Volvo[1]. Through acquisition, Ford Company got control of some famous brands such as Land Rover, Jaguar and Volvo. Based on the customer knowledge and trust of those upper class brands, the sales of other segments and brands of Ford car had been promoted[46]. By building the image of Combining solid refined design and the best new technologies available[2], the company becomes a powerful rival in the market, and the brand has widely accepted by many people. 3.1.2 Products and Market Ford has numerous locations where Ford vehicles are developed, manufactured, sold or distributed[47]. These plant and office locations work to provide a basis of the companys leading position in car market for many years, which take responsibility in manufacturing vehicles and power products, technological developing, purchasing and distribution its products all around the world. Although with high cost-effective Ford models such as Transit, Fiesta and Focus that have become the best seller for many years[82], there would be a problem of shrinking of market and declining in profitability recent years. 3.1.3 Finance According to Ford Company 2006 annual report[48], although the company is at loss during the year for the unsatisfied performance in North American market, the situation in Europe market is still profitable with the sales of vehicles that generated the major income and cash of the companys automotive sectors revenue. In addition, the interest on finance receivables generated the primary income of the companys financial services sectors revenue. Based on its vehicles and financial service sales, the company has the ability to support some technology development or have some further investment such as diesel engineering[49]. 3.1.4 Technology Ford invests heavily in new technology. In Britain only, it spends around 450 million on automotive research and development annually. In Dunton Technical Centre, it has the largest automotive design and engineering facility in the UK and one of the most advanced facilities of its kind in Europe[47]. The emphasis on technology enables the company have a solid basis of product development. As a result, competitive advantage through new technique, programmes such as digital in-vehicle system called Sync created with Microsoft[50] that is turning out this summer is a good example. 3.1.5 People In order to equip its employees with stronger capability, Ford offers well equipped learning resource centers and training programmes for all employees. These human resource management actions has not only trained sufficient qualified employees for the company, but also provided a base for producing conversations of companys strategic change[51]. On the other hand, recent bad performance forced Ford Company to shear its employees. It is said that a downsized Ford would shed up to 30,000 jobs and 14 factories by 2012 in order to be more innovative[86]. 3.2 Value Chain Analysis Value chain (see appendix III) analysis has been widely adopted as a way of understanding the relationship between strategic capability and organisations resources. As to Ford Company, in its very early years, the company has controlled the entire value chain[52], now it endeavors to integrate its multi-tiered value chain which include chief elements such as real-time quality feedback from the market to tier, inventory reduction, transaction reduction, collaborative visual design studios, rapid customer feedback, accelerated time to market[53]. Through those actions, the resource utilization is enhanced so there would be less resource is wasted during the production and transaction. Besides, the cost efficiency has increased by building the economies of scale, reducing supply cost and effective communications between suppliers and buyers. In addition, a carefully planned marketing mix and a better service would promote effectiveness, such as the efforts that the Ford Company put on CarsDirect and online selling[54]. IV. GENERIC COMPETITIVE STRATEGIES 4.1 SWOT Analysis 4.1.1 Strengthens Companys Large Scale Ford Company is one of the largest automotive manufacturers in the world. It manufactures and distributes automobiles in 200 markets across six continents[1]. The large size has brought the company economies of scale as well as name recognition and customer trust. Product Diversity Through acquisition, Ford Company now has owned many world famous brands include Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo[1]. The companys products has penetrated into every segments of auto industry and each brands has its own strengthens in different segment, such as Land Rover is famous of its 4X4 vehicle and Lincoln is a well know luxury car. Profitable Financial Services Division The financial services division, Ford Motor Credit, plays a key role in keeping the company afloat. Even the automotive division are reported at loss[48], there is evidence that the financial services still remain profit. As a result, the revenue made by financial services division would be a great help when its automotive sector is not performing well. Strategic Alliance By cooperating with some strategic alliance, the company can benefit a lot from the advantages of their partners. Ford has announced to start offering Sony-branded audio systems in Ford and Mercury automobiles[55] and Microsoft software will be used for the Ford Sync radios[56]. Besides, Ford Company also support racing teams such as NASCAR[57]