Case study: Global Strategy of Ford

When Ford CEO Alan Mulally arrived at the Company after a long time working at Boeing, he was
surprised that the company produced a model for European market and another completely different one
for the US market. “Can you imagine that there is a Boeing 737 for Europe and one 737 for the United
States?” he wondered at the time. By conducting this strategy, Ford was unable to buy common parts for
all vehicles, they could not share product development costs and could not use its European factories to
make cars for the United States, or vice versa. In a business where production scale is important, this
strategy results in high operating costs. It is not the only problem with the European and US market. The
company tried to design and build different model of cars for different regions in the world.
Ford’s long-standing strategy of regional models was based on the assumption that consumers in
different regions had different tastes and preferences, which required considerable local customization.
Americans were argued to love their trucks and SUVs while Europeans preferred smaller, fuel-efficient
cars. Despite accepting this difference, Mulally still couldn’t make clear why small-car models like the
Focus or the Escape SUVs, sold in different regions, were not built on the same platform and did not share
common parts. In fact, this strategy probably had more to do with the autonomy of different regions
within Ford’s organizational structure – a fact that was deeply embedded in Ford’s history as one of the
world’s oldest corporations.
When the global financial crisis rocked the world’s automobile industry between 2008 and 2009 and
anticipated the steepest drop in sales since the Great Depression, Mulally decided that Ford had to
change its long-standing strategy to get its costs under control. Moreover, he felt that there was no way
that Ford would be able to compete effectively in the large developing markets of China and India unless
Ford leveraged its global scale to produce low-cost cars. Mulally decided to come up with One Ford
strategy, aiming to create a common platform that Ford can be used anywhere in the world.
Under this strategy, new models like the Fiesta, Focus 2013 and Escape share a common design, are built
on a common platform, use the same parts, and are built in identical factories all around the world.
Ultimately, Ford hopes to have only 5 platforms to deliver sales of more than 6 million vehicles by 2016.
In 2006, Ford had 15 platforms that accounted for sales of 6.6 million vehicles. By pursuing this new
strategy, Ford can attain larger-scale production of components and parts. Ford has stated that it will take
about one-third out of the $1 billion cost of developing a new-car model and should significantly reduce
its $50 billion annual budget for components and parts. In addition, because the different factories
producing these cars are identical in all respects, useful knowledge acquired through experience in one
factory can quickly be transferred to other factories, resulting in system-wide cost savings.
What Ford hopes is that this strategy will reduce costs sufficiently to enable the company to make greater
profit margins in developed markets and be able to achieve good profit margins at lower price points in
hypercompetitive developing nations such as China, now the world’s largest car market, where Ford
currently trails its global rivals such as General Motors and Volkswagen. Indeed, the strategy is also
central to Mulally’s perspective for growing Ford’s sales from 5.5 million to 8 million cars in the middle of
this decade.
Questions:
1. What was the initial global strategy that Ford use? Why did they conduct this strategy?
2. What is the latter global strategy of Ford? What benefits does the new global strategy bring to Ford?