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Ford Motor Company External Business Environment Analysis

Matthew Leteff

UMGC

Dr. Kathy Frisbie

BMGT 495

March 16, 2022

Ford Motor External Environment Analysis

Porter’s Five Forces Model

The Porter’s Five Forces model is a critical tool for evaluating the performance of any industry (Edwards, 2014). The technique lends itself to scanning through the industry's external environment to assess the influence of factors such as the power of suppliers and buyers, the threats of substitutes and new entrants in the industry, and the competitive Rivalry among industry players.  Comment by Kathy Frisbie: Is this our course eBook? The citation should be (The Saylor Foundation, 2014, p. X).Page/para info required for all citations in this course, except videos and podcasts.

Rivalry among competitors in the industry: Competitors operate in the same sector and produce similar if not the same goods and services. Firms in the same industry employ many techniques to compete and gain market clout (Bruijl, 2018). To sustain the existing market base and infiltrate into new markets, the companies engage in new offerings, price wars, and massive advertisements.

The threat of prospective new entrants: The entry of new firms impends the prominence of the existing companies by increasing the industry competitiveness and reducing the profit potentials. New firms can enter the industry through various ways, for instance, foreign companies entering new geographical areas, novel companies started by entrepreneurs, or suppliers deciding to compete with their customers.Comment by Kathy Frisbie: Course materials needed to support this definition.

The threat of substitutes for products offered by the industry: Substitutes are goods and services that are different from those provided by the competitor but serve the same purpose as those provided by the industry. Substitutes can have a massive swing on the industry profits; however, this is pegged on the effectiveness of the substitutes to serve the customer's needs.Comment by Kathy Frisbie: Course materials needed to support this definition.

The bargaining power of suppliers: Suppliers are the providers of essential raw materials that the industry needs to create goods and services for the customers. Therefore, the conduct of the suppliers has an immense influence on the industry's performance. For instance, the degree of the industry competitors' powers relative to the suppliers drives and controls the price of inputs which eventually dictates the cost of the products and services of the industry.Comment by Kathy Frisbie: Course materials needed to support this definition.

Power of buyers in the industry: The power of the buyers influences the production and demand of the industry products and services. If the relative strength of the buyers in the sector is more significant than for the competitors, the firms in the market may be forced to reduce prices, which may result in the decreased profit potential of the industry.Comment by Kathy Frisbie: Course materials needed to support this definition.

Porter’s Five Forces for Automobile Industry

Competitive Rivalry in the Automobile industry: The intensity of competition among firms in the automobile industry stems from factors such as brand recognition and investment in research and development, which is the precursor of introducing high-end products (Bruijl, et al.,2018). The industry competitiveness has also been influenced by market concentration. The automobile market is highly concentrated, with five firms, Volkswagen, Toyota, Ford, Daimler, and General Motors, controlling over 50% of the industry revenue. In this regard, the competition in the automobile industry is moderate since major players still report impressive revenue and profits.

The threat of new entrants in the automobile industry: The risk of new entrants in the automobile industry is weak. This low threat of entrants is influenced by the strength of the existing brands, the heavy investment costs, and high-end technology requirements. The low risk of new entrants gives the existing companies better opportunities to report high revenue and profits.Comment by Kathy Frisbie: Agreed. But is there support for this from the industry research?

The threat of substitutes for automobile products: The risk of replacements for automobile products is determined by the availability and affordability of other means of transport and technological advancement. With the increased environmental concern, firms have focused on EVs, thus mooting out the threat of the customers' shift to other substitute products. In light of this information, the threat of substitutes for the industry products is weak, making the industry more profitable.Comment by Kathy Frisbie: Agreed. But is there support for this from the industry research?

The power of suppliers: The bargaining power of suppliers in the automobile industry is influenced by the number of suppliers and the suppliers’ substitutability. Due to high technology in the automobile industry, suppliers have become knowledge partners and solution providers, thus increasing their bargaining powers. Therefore the power of suppliers is moderate. Comment by Kathy Frisbie: Agreed. But is there support for this from the industry research?Comment by Kathy Frisbie: It would be worth noting the microchip shortage that has halted production in recent months.

The power of buyers: The power of buyers is influenced by the global economic outlook, the frequency of purchase, and the customers' propensity towards a particular brand. The buyers in this industry are individuals and government or corporations who buy a fleet of vehicles. Due to low shifting costs, the bargaining power of buyers in the automobile industry is vital. This influences and drives the price and profit earned by industry players.Comment by Kathy Frisbie: Agreed. But is there support for this from the industry research?Comment by Kathy Frisbie: What is the profit potential for this industry overall? Consider that the entire purpose of this analysis is to determine an industry’s profit potential (The Saylor Foundation, 2014, p. 88).

Ford Motor Company Porter’s Five Forces Analysis

Competitive Rivalry: Ford Motor is confronted with fierce competition from other established firms in the industry. The key competitors of Ford are General Motors, Toyota, and Volkswagen, among others. The competitors of Ford, such as Volkswagen and Toyota, invested $ 16.5billion, $ 10.21billion, and $ in R&D in 2021 (Fortsch, et al., 2022). This investment was higher than Ford's investment which stood at $ 7.1billion over the same period. In light of this information, Ford Motor's competitor's Rivalry is intense, which is likely to affect the company's market clout and revenue.

Threats of potential new entrants: Ford Motor is not threatened by the prospective new players since the cost of establishing an automobile plant and technological demands are very high. As such, the risk of new firms infiltrating the industry and competing to reduce the market clout of Ford Motor is weak. Due to the impotent threats of new entrants, the profitability of Ford Motor is not jeopardized.Comment by Kathy Frisbie: Agreed. But is there support for this from the company research?

The threats of substitutes for Ford Motor’s Products: Firms in the industry producers closely differentiated products; therefore, customers can easily switch to the competitors’ products. As such, the threat against Ford Motor's development is moderate. Comment by Kathy Frisbie: Agreed. But is there support for this from the company research?

Suppliers' bargaining power: Suppliers influence Ford Motor's operation; however, this impact is moderate. The moderate supplier population and the moderate overall supply provide the suppliers with moderate bargaining power over Ford Motor. Additionally, the influence of suppliers against Ford is curtailed by the low level of forwarding vertical integration. Most of Ford's suppliers do not directly own or control the supply of inputs to Ford. The company has also implemented backward vertical integration, which enables it to produce some of the inputs through its Ford River Rouge Complex, thus suppressing the bargaining power of the suppliers (Bruijl, 2018). The company can acquire inputs cost-effectively, thus sustaining the profit potential.

The bargaining power of buyers: The influence of customers on the operation of Ford is epitomized through moderate switching cost to the competitors' products, availability of substitutes, and the moderate size of individual purchases. Due to many firms in the industry, buyers can quickly move to the competitors' products. To this end, the power of buyers to the operation of Ford Motor is moderate.Comment by Kathy Frisbie: Agreed. But is there support for this from the company research?Consider the price sensitivity (The Saylor Foundation, 2014, p. 96).

Competitive Analysis

Competitive analysis entails combing the industry to identify the key competitors, factors influencing competition, and intensity. Ford Motor Company competes against other established firms, such as General Motors, Toyota, and Honda. The competitors in the industry are companies that produce similar goods and services. These companies use a raft of moves and strategies such as new offerings, price cuts, and aggressive research and development to compete with Ford Motor. For instance, Honda’s CR-V model is a nifty vehicle with an upscale interior and is more spacious to accommodate tons of cargo and space for over four people (Fortsch,et al.,2022). Comparable Ford's Escape model has a sleek exterior design and provides powertrain options. Comment by Kathy Frisbie: Consider also the following factors to determine your top competitors: market share, who has major influence over trends, who seems to have influence with the government, who is at the forefront of innovation, who is experiencing growth versus decline (Kirkwood, 2013).

On the other hand, Toyota Company manufactures high-quality products using cutting edge; for instance, some of the Toyota brands, such as Tundra and Avalon, are known for their reliability and are considered durable. The company holds over 5,675 global patents associated with hydrogen fuel cells, enabling it to produce some of the most reliable green cars in the market. Besides its success, Toyota has faced serious product recalls, which affects its global reputation.Comment by Kathy Frisbie: Support needed here. Citing the company website would suffice.

General Motors is another key competitor of Ford; its competitive advantage lies in its vast product portfolio, which spans from its various car models such as Cadillac and Chevrolet. The GMC 2021 Sierra 1500 model is a versatile vehicle with multiple powertrain options, making it more competitive. However, both Ford and GMC have exited the Indian market, likely reducing their market share. Comment by Kathy Frisbie: Support needed here. Citing the company website would suffice.

Critical Success Factors for Automobile Industry

Critical success factors are the elements that define or derive the growth of the project or industry (Gedam, et al., 2021). The automobile industry’s growth is governed by;

Innovation: Firms in the automobile industry are highly innovative and produce highly innovative vehicles that meet the dynamic needs of the customers. With the increased demand for safe driving, firms have accelerated their innovativeness to meet demand.Comment by Kathy Frisbie: Support needed for this factor.

Heavy investment in Research and Development: The automobile industry is highly complex and dynamic. To respond to these dynamics, companies in the industry have engaged in intensive R&D, which is the hallmark of the industry's success. For instance, the rolling out of EV vehicles by companies like Tesla primarily stems from massive R&D ( Lee,et al.,2021).

Product range and development: Most of the companies in the automobile industry have a wide range of product portfolios, which increases the market span, enabling the industry's success. For instance, Ford Motor produces a wide range of vehicles, such as Ford Trucks Lincoln vehicles.Comment by Kathy Frisbie: Support needed for this factor.

High-quality products: The success of the firms in the automobile industry stems from the production of high-quality vehicles that responds to the customer's preferences. For instance, Stalwart Lexus, made by Toyota and Ford's Fiesta, is considered the highest quality.Comment by Kathy Frisbie: Support needed for this factor.

Brand reputation: The automobile industry is dominated by firms that have created and sustained strong brand names. These brands resonate with the customers' preferences, and customers will always like to be associated with specific brands. For instance, companies like Ford, General Motors, and Toyota have strong global appeal, which has been the precursor of the industry's success.Comment by Kathy Frisbie: Support needed for this factor.

Substantial market share: The global automobile revenue is estimated to be over $ 2.7trillion as of 2021. This high revenue has given the firms in the industry an impetus for growth and success. A firm with a substantial market share dictates the market prices and has the clout to resist pressures in the market (Yang, et al.,2021). The global market grip has been the critical success factor for the automobile industry.

Distribution Networks: Firms in the automobile industry have well-integrated distribution networks that make the supply chain more effective and timely. For instance, the production of SUVs is concentrated in North America. Still, due to the effective distribution, the vehicles are distributed to the Asian market, where the demand has escalated.Comment by Kathy Frisbie: Support needed for this factor.

Compliance: The automobile industry is highly regulated to guarantee the safety and quality of the products. The regulations dictate how the vehicles are designed and manufacture. For instance, emission laws have become a global concern, and automobile makers have been forced to insert catalytic converters to reduce car emissions. Comment by Kathy Frisbie: Support needed for this factor.Comment by Kathy Frisbie: Consider also some others as suggested by Jurevicius (2013): clear strategic direction, union relations, successful new introductions, skilled workforce, efficient production

Competitor Profile Matrix

When developing CPM, the critical success factors are assigned weights that range from 0.0 to 1.0.with the critical success factor being given the highest importance ( Edwards, 2014).  To critically evaluate each success factor, ratings from 1-4 are done with 4 implying major strength, 3- means little power, 2 is minor weakness, and one significant drawback. The scores are obtained by multiplying the weights with the ratings. A company with the highest total score is considered more substantial than its competitors.Comment by Kathy Frisbie: How did you determine these weights? See Half Time Report for Week Four.How did you determine the ratings? See Half Time Report for Week Four.Don’t overthink this! The support for your weights and ratings could be the same support you used for your CSFs in the previous section!Comment by Kathy Frisbie: What are the implications of the 2.93 score for Ford?

Partial SWOT (OT) Analysis

Opportunities and Threats TableComment by Kathy Frisbie: EACH of these opportunities and threats should have citations from industry/company research for support. See assignment directions.

Ford Motor Company opportunities and threats Analysis

OpportunitiesComment by Kathy Frisbie: The opportunities and threats in this analysis here don’t entirely match those in your table.

Increase Customer Base: There is a growing demand for SUVs in the Asian market, especially in China. This growth offers a more excellent avenue for Ford to penetrate the market and increase its customer base. For instance, the company's data shows that its sales in China will increase by over 25% in 2020.

Eco-friendly Vehicle: The market trend shows that the future of the automobile industry rests in the production of eco-friendly products. As such, Ford Motor has invested massively in R&D to profit from the opportunity. For example, the Company's Fusion Hybrid model has already captured the market.

Autonomous driving: As demand for safe driving increases, it offers an opportunity for the growth of Ford Motor (Lee et al., 2021). The company has already taken a step to explore the opportunity through its alliance with Argo Al, the corporation that will develop self-driving technology. Comment by Kathy Frisbie: Consider also that the advantages and disadvantages of your competitor’s products are your threats and opportunities (Valentin, 2001, p. 55).Consider also forces that impact customer value such as changes in customer perceptions, socially induced changes, and technology-induced changes (Valentin, 2001, p. 58).Consider also forces that impact resources and capabilities such as access and exploitation (Valentin, 2001, p. 61).Consider also dynamic competitive forces such as market growth, differential in technological potential, and advances in process technologies (Valentin, 2001, p. 61).Barriers to entry in your industry are considered opportunities (Barney, 1991, p. 104).

Threats

High Competition: Ford Motor is confronted with throttling competition from other established firms in the industry, such as Toyota, GMC, and Tesla, among others. The competitors engage in heavy R&D as a way of gaining a competitive advantage.

Market Uncertainty: Since the advent of Covid 19, the automobile market has remained volatile, leading to a drop in global sales. For instance, Ford's sales dropped by about 13% in 2020 compared to a similar period in 2019.

Strong labor unions: The emergence of vocal labor unions in countries like Canada imposes immense pressure on the operation of Ford (Conrad & Graham, 2021). For instance, in 2020, due to mounting pressure from the Canadian labor union, it forced the company to invest close to $ 1.4billion in its two plants in Canada to avoid the looming industrial action by the union.

External Factor Evaluation (EFE) Analysis

Developing the (EFE) involves assessing the external factors of the industry. These external factors are assigned weights in a range of 0.00 to 1.00, and the impact external factor on the company performance is rated (Zulkarnain, et al.,2018). The rating of 1-4 and the overall effects of each factor score are obtained by multiplying the weights with ratings. A factor with a higher score is considered a more significant impact on the company. From the external factor evaluation matrix, increasing demand for EVs has a higher score of 0.8, which offers a more fantastic opportunity for Ford Motor. On the other hand, increased competition in the Automobile industry has the highest score of 0.66; thus, it presents a more significant threat to Ford Motor.Comment by Kathy Frisbie: Support from course materials required here.Comment by Kathy Frisbie: Good justification…remember support from industry or company research is also required here as part of your justification. Don’t overthink this! The support for your weights and ratings could be the same support you used for your OT Analysis!

Conclusion

Critical evaluation of the external environment of the business provides the managers with important information that can be used to formulate business strategies. Through the application of tools of analysis such as Porter's Five Forces Model and Partial SWOT, this report has explored the external environment of Ford Motor to give insight for strategic formulation.

ReferencesComment by Kathy Frisbie: Matt, while it is noted that you have strong industry and company research for support, it is also noted that no course materials were used for support in this assignment. To improve your grade in Project 3, consider demonstrating a balance between use of course materials and use of company research. See the announcement from week 1 (Focal Company Assignments) for more on how to do this.

Bruijl, G. H. T. (2018). The relevance of Porter's five forces in today's innovative and changing business environment. Available at SSRN 3192207

Conrad, K., & Graham, J. D. (2021). The Benefits and Costs of Automotive Regulations for Low-Income Americans. Journal of Benefit-Cost Analysis, 12(3), 518-549.

Edwards, J. (2014). Mastering strategic management.

Fortsch, S. M., Choi, J. H., & Khapalova, E. A. (2022). Competition can help predict sales. Journal of Forecasting, 41(2), 331-344.

Gedam, V. V., Raut, R. D., Lopes de Sousa Jabbour, A. B., Narkhede, B. E., & Grebinevych, O. (2021). Sustainable manufacturing and green human resources: Critical success factors in the automotive sector. Business Strategy and the Environment, 30(2), 1296-1313.

Lee, S., Alsoubie, F., & Daim, T. U. (2021). Technology Intelligence Map: Autonomous Car. In Roadmapping Future (pp. 383-398). Springer, Cham.

Yang, G., Cavaliere, M., Zhu, C., & Perc, M. (2021). Strategically positioning cooperators can facilitate the contagion of cooperation. Scientific reports, 11(1), 1-12.

Zulkarnain, A., Wahyuningtias, D., & Putranto, T. S. (2018, March). Analysis of IFE, EFE and QSPM matrix on business development strategy. In IOP Conference Series: Earth and Environmental Science (Vol. 126, No. 1, p. 012062). IOP Publishing.

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