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Company Profile

Ford Motor Company was founded in 1903 by automotive and industrial


pioneer Henry Ford in Dearborn, Michigan. Being first to implement a
moving assembly line for automotive manufacturing, Ford was able to
more efficiently mass produce their products than their competitors. In
1908 the Model T was introduced and went on to sell over 15 million
vehicles, firmly establishing Ford as the major player in the early
automotive industry with 50% market share by the 1920s. The company
went public 1956 and since then has grown to be a significant presence in
the global automotive market.1

Financial ratios are useful indicators of a firm’s performance and financial


situation (Friedlob & Schleifer, 2003). Ratios can be used to analyze
trends and to compare a firm’s financials to other firms. Although there is
an abundant amount of ratios, we will only be looking at the ones that are
most important when analyzing Ford Motors activities and results for the
last 3years.

Profitability Ratios

Based on the results(See Appendix 1), the recession has really taken its
toll on Ford motors. The general decline in nits profitability ratios suggest
that the company has not been performing well in recent times. In actual
fact, the company's financial conditions began to decline since 2005
which was even before the recession. The negative earnings per share
(EPS), profit margin, return on assets raises an alarm. The low profitability
is also responsible for the low fixed and total assets turnover ratios.
Return on equity however shows a slight improvement which can also be
a result of the recent re-engineering process by the company.

Liquidity Ratios

The company's Current ratio is low but not alarming (see financial
statement in Appendix 1), the general expectation is for current assets to
cover current liabilities at company's quick ratio of 1.26 is quite good as it
suggests that the company will be able to meet its urgent current
liabilities as they fall due even without having to dispose of inventories.
Inventory turnover appears to have been steady within the same range
over the last 5 years and receivables turnover poses no problem. The
company is relatively liquid despite its low profitability

Solvency Ratios

1 http://www.conceptcarz.com/view/makeHistory/50,17272/Ford_History.aspx
Accessed 11 November, 2009

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The company's low profitability(See Apendix 1) also poses a problem in
the Times interest earned as there is a possibility that the company might
not be able to generate enough profits to meet up with repayment of
interests on loans. This could be an issue as failure to repay interest
and/or capital leaves the company vulnerable to bankruptcy procedure by
its creditors. The trend over the last 3 years also shows a serious decline
in some years. The company also appears to be highly geared from the
other solvency ratios and this goes further to confirm initial worries.

The company needs to address its profitability problems urgently so as to


remain competitive and achieve meaningful growth in the immediate
future. This will require a lot and some of the ways I have identified are
explained below:

Operating expenses and other expenses are on the high side and there is
need to try and achieve a reduction to improve profitability. The company
should conduct an intensive process audit to identify and eradicate
unnecessary processes. This will help to reduce labour hour and eliminate
wastage during production.

Managing Operational Management in the Global Market

Business today operates in a global environment (Agarwal, 2004). This


environment forces companies, regardless of location or primary market
base, are now expected to consider the rest of the world in their
competitive strategy analysis. Porter (1986) also asserted that firms
cannot isolate themselves from or ignore external factors such as
economic trends, competitive situations or technology innovation in other
countries, especially if some of their competitors are competing or are
located in those countries.

Global organizations face a complex set of challenges characterized by


diversity both inside and outside the organization (Maznevski et al, 2007;
p2).

Prior to the economic crisis of 2007, Ford has become one of the most
globalized of the automakers with research and design facilities as well as
manufacturers and marketing operations around the world (Albaum et al,
2004;p).With its advantages in low costing, high volume, and availability
of parts for service, it was able to rapidly expand its market (Leontiades
2000; p22-23).

External Environment Challenges

Economic Environment

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Doole and Lowe (2008) emphasizes how important it is for Global
managers to understand the economic development in countries where it
wants to expand to and how they impact on the overall strategy of the
Firm (Doole &Lowe, 2008;pp 12-13). This knowledge is important at a
world level in terms of the world trading infrastructure such as world
institutions and trade agreements developed to foster international trade,
at a regional level in terms of regional trade integration and at a
country/market level (Doole &Lowe, 2008; pp 12-13).

b) Technological Challenges

A peculiar trend which was prevalent in the last decade, besides


globalization, was a limited number of producers which emerged due to
diversity among products and uniformity across national markets
(Agarwal, 2004). Amid global conditions that amount to an economic and
industry crisis, the world’s auto-makers still consider innovation and
technology to be the most important trend over the next five years.
Fuel efficiency improvements, alternative fuel technologies and
environmental pressures are considered the three most influential trends
that managers needs to focus on to combat operational challenges (Kpmg
Global Auto Executive Survey, 2009; p27-28)2

d) Political and Macroeconomics Challenges

According to Stuger-Noguez (2002), political uncertainties include all


possible changes in economic policies in either side of the border. Agarwal
(2004) explains how getting hit with unexpected or unreasonable currency
devaluations in the foreign countries in which they operate is a nightmare
for global operations managers. Managing exposure to changes in
nominal and real exchange rates is a task which the global operations
manager must master.

Doole & Lowe (2008) affirmed that politics is intrinsically linked to a


government’s attitude to business and the freedom within which it allows
firms to operate. Doole & Lowe noted that unstable political regimes
exposes foreign businesses to a variety of risks that they would generally
not face in the home market therefore posing sometimes difficult
challenges.

2 www.kpmg.com/.../Momentum-KPMG-Auto-Executive-Survey-2009.pdf
[accessed 19 October, 2009

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Going Global

In a recent paper (Alexander & Korine, 2008) asserts that economic


globalization has come to be viewed by some as the best hope for world
stability, and others as the greatest threat. Columbus (2003) also
maintained that “economic globalization has become an unavoidable
reality which all companies must accept”. Alexander & Korine(2008) found
that going global is a trend that almost everyone acknowledges that
businesses of all types must embrace yet, even as companies are being
told that the future lies in globalization, some are still severely punished
for their international moves. Gluckler (2005) also contended that
globalization has gone from the purview of the largest multinationals to an
imperative for mid-size and even small companies. For many, going global
is not a future growth strategy, but rather a near-term survival
mechanism3.

Companies today operate in a very competitive global marketplace.


Relentless cost pressure combined with a flood of new market entrants,
lowered trade barriers, and stagnant or overcrowded home markets have
forced companies of all sizes to push the global envelope (Gluckler, 2005).
But as Spulber (2007) stated the question for companies is not whether to
tap the global market but when? Spulber claims that the global market is
not just about a matter of challenging competition, but global markets
representing a wide array of opportunities (2007:4). Whilst another
researcher Giddens (2000) cited in Blossfeld(2007) found that for
companies enjoying local successes, going global is a tough call with
tremendous pressure to join the first-to-market frenzy and dive into all the
interesting technical infrastructure that goes with a full globalization
initiative. A report by Deloitte4 (2005), also agrees that it is sometimes the
smaller companies and suppliers that often face the daunting prospect of
“go global or go away.” The review claimed that the extended global
enterprise requires new ways of structuring and managing operations.
Successful global deployment can lead to significant rewards, but
achieving them also involves grappling with unfamiliar risks (Deloitte,
2005).

Ford’s decision to open foreign operations was driven by several


factors.

3 http://www.deloitte.com/dtt/article/0,1002,sid%3D26675%26cid%3D88472,00.html
4 http://www.deloitte.com/assets/Dcom-SouthAfrica/Local
%20Assets/Documents/ZA_Industries_Manufacturing_yearbook.pdf accessed 6
November, 2009

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Ford’s marketing-seeking strategy in foreign locations was as a result of
the company’s goal to expand sales, which it derived from the mass
production rationale ( Studer-Noguez,2002, p50).

Ford also preferred exporting cars and parts from the parent company to
foreign markets to manufacturing abroad, so as to avoid such investment
risks as political changes, different work cultures, and currency
adjustments. Ford was also willing to open small assembly plants, as they
did not have major cost disadvantages owing to the labour-intensive
character of assembly (Doz ,1980:75).

Wilkins & Hill (1964:361) cited in Studer-Noguez(2002) explained that


Ford’s risk minimizing strategy provided access to markets without having
to incur and huge financial costs and risks from establishing
manufacturing operations unless a significant demand for their vehicles
was guaranteed. After establishing operations in different countries, Ford
uses first-mover, location, internalization, and knowledge advantages
there to compete with its rival automakers (Wilkins&Hill: 1964).

STAKEHOLDER OR SHAREHOLDERS?

Due to the effects of Globalization, there has been an increased need for
firms to incorporate the concerns and needs of stakeholder groups within
the organization’s strategic outlook or otherwise risk losing societal
legitimacy (Werther&Chandler, 2006; pp25-54).

Although recognizing that profits are necessary for any business to


survive, it is also important to note that for profit organizations are only
able to obtain those profits because of the society(Kotler &Lee,2005,p).

According to the KPMG 5International Survey of Corporate Responsibility


Reporting 2005, there has been a dramatic change in the type of
Corporate responsibility (CR) reporting, which has changed from purely
environmental reporting up until 1999, to sustainability reporting(social,
environmental & economic), and which has now become mainstream
among large companies.

Werther & Chandler (2006) defines Corporate Social Responsibility as the


“activities undertaken by businesses that enhance their value in the
5http://investingforthesoul.com/ar/KPMG-World-Survey-on-Corporate-Social-
Responsibility-Reporting.htm accessed 10 November, 2009

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community and society and thus benefit their reputation and brand”.
While, Hopkins (2001) views CSR as “concern with treating the
stakeholders of the firm ethically or in a responsible manner ‘Ethically or
responsible’ means treating stakeholders in a manner deemed
acceptable” (p. 17).

A commonly invoked justification of CSR is in the idea of multiple


stakeholders: employees, suppliers, creditors, consumers, and regulatory
authorities in corporations of which shareholders form only one group
(Werther & Chandler, 2006,p26).

Such opinions, however, contradict the traditional view of the corporation


as a vehicle to create value for shareholders (Friedman, 1970). This view
implies that corporate managers’ fiduciary duty is solely to further the
interests of shareholders – under the assumption that other stakeholders’
interests are taken care of and protected by laws and regulations with
which companies have to comply in their pursuit of profit(Vogel,2005;
p13). Burdening companies with other objectives beyond profit
maximization within confines of the law would adversely affect their
efficiency and thus diminish social welfare – hence the famous dictum of
Polishchuk 2009) L. Corporate Social Responsibility vs. Government Regulation: Institutional Analysis with an Application to Russia. 2009. LIA
Milton Friedman (1970) that “the social responsibility
Working Paper Series, WP10/2009/01, 24 p.

of business is to increase its profits”. 6

Modern interpretations of CSR reconciles these seemingly contradictory


positions by concluding that socially responsible behaviour is in
companies’ ultimate self-interest – it allows corporations “to do well by
doing good”(Kotler & Lee, 2005;p 1-2). This could be of two types. The
first, known as “free lunch” is a direct “coincidence of wants”,7 when
actions that companies take in pursuit of their immediate business
objectives cause positive externalities and thus just happen to be in other
stakeholders’ interests as well (Polishchuk, 2009).

However, Consumers are more knowledgeable today about climate


change, in due time that the concept of sustainability will unite concepts
such as social good and environmental stewardship with the goal of
financial gain (Estes,2009 ;p15)

Reconciling the Stakeholder and Shareholder Needs

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http://extranet.isnie.org/uploads/isnie2009/polishchuk.doc
[accessed 4 November, 2009]
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The recent past has reinforced two fundamental beliefs. The first is that
the business of business is precisely to maximize its shareholder value by
increasing its intrinsic value. The second is that maximizing value involves
managing both performance in the short term and the company's long-
term health (Dobbs, 2005).

The more shareholder value a company creates in an effectively regulated


market, the better the company serves all its stakeholders (Dobbs 2005).
He further argued that the wider stakeholder benefits of managing for
long-term-value creation: the companies that created the most
shareholder value over the past 15 years also created the most
employment and invested the most in R&D8 (Dobbs 2005).

Ford Motor has long held the view that to be successful it also needs to be
environmentally and socially responsible (Sustainability Report, 2009).
This vision of sustainability was further emphasised by Bill Ford in 2005.
Mr Ford identified that sustainability was going to be a long term strategic
priority and there was a clear business case for reducing resource use and
developing innovative "green" and safer products and technologies.

Ford’s approach to corporate social responsibility (CSR) was first


communicated in its inaugural corporate citizenship report in 19999. In
the report, Ford started to explore the issue of transparency,
accountability and sustainable development. Since then Ford has
recognised that corporate citizenship was becoming more associated with
the narrower focus of philanthropy and not the business issue of
sustainability. Ford now has adopted a more integrated approach to CSR
and renamed its CSR 2004/05 report "Our Route to Sustainability".

As William Ford10 (2009) stated in Ford’s Corporate Sustainability Report


“Our economic and environmental goals are aligned. In fact, we believe
that the best way for us to be more profitable is to make our business and
products more sustainable.”

8 https://www.mckinseyquarterly.com/ghost.aspx?
ID=/Corporate_Finance/Valuation/Managing_value_and_performance_1595#
[accessed 26 October, 2009]
9 http://www.article13.com/A13_ContentList.asp?strAction=GetPublication&PNID=1336
[accessed 10 November. 2009]
10 www.ford.com/go/sustainability
[accessed 6 November, 2009]

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Recommended Strategic Priorities

Positioning Ford as a market leader in both product and service quality. In my


opinion, the focus should be placed on upgrading its supply chain management. As a
market leader, Ford’s supply chain ought not to stop at being fast or cost-effective
but should be responsive enough to respond to any change in the markets, be it
change in supply or demand or unexpected market change. Ford Motor’s SCM should
also be able to advance as political changes occur, economic progress, technological
advances and globalization trends restructure markets. Also putting into
consideration, different supply chain designs for its different product lines. In the
wake of the financial crisis, low-cost or high speed supply chains are not flexible

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enough to respond to the different and unknown effects of globalization. The
automobile industry is survival of the fittest and most innovative. Ford also needs to
optimize its supply chain to align the interests of all the firms in its supply chain with
its own. Because each player make the most out of its own interests, and therefore
optimizes the supply chain’s performance.

The second priority concerns product innovation. The product plan should be
broadened even beyond the Electric/Hybrid cars. The simple fact is that Ford, with its
high-cost infrastructure, burdensome union contracts, and short-sighted focus on
pushing gas-guzzling SUVs, is on the verge of losing its fresh ideas which Henry Ford
was known for. More nimble competitors from China, Japan—even South Korea—are
eating Ford's lunch in emerging markets and in the United States. The bottom line is
that car buyers, wherever they live, now want a reliable, low-cost, fuel-efficient
vehicle and they don't care where it's made. That's why the Japanese companies
sales in the United States keeps rising while Ford—the home team—saw U.S. sales
decline.

Ford's turnaround must also include pushing more of its IT, manufacturing, and
support operations into other markets that promise big growth. Beyond India, there
is Eastern Europe, Africa and China. Also centralizing help-desk operations in
countries where they want to set up production wouldn't just make economic sense;
it would be a smart marketing move. Consumers are more likely to buy a car the
company is indigenous. Ford's extensive operations in Canada are part of the reason
it has great brand loyalty there and that’s why Canadians don't see Ford as a
"foreign" automaker, even though it is (Stugner- Noguez, 2002).

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