Risks Underlying Ford Motor’s Expansion To China Essays Example
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If there is an aspect that a prospective company should never overlook is the aspect of seeking to expand the market to the international platform. Globalization has wiped out the national and cultural boundaries, and thus reducing the world into a single marketplace. Mrak (2010) asserts that with globalization, businesses have been exposed to a plethora of marketing opportunities across the world. Furthermore, the uninterrupted advancement in technology being experienced throughout the world has facilitated the capabilities the opportunities of international markets. For instance, air travel and the advent of the internet have eased global communication and thus the potential for managing a global business from a remote location is apparent (Twarowska and Kąkol, 2013). Besides, companies need to expand their markets internationally and globally in order to avoid their reliance on the local and national markets. Companies can offset the decline in local and national demand for their products with upturns in consumer demand in the international platform by expanding markets internationally. Expanded markets also translate to an elevation of the customer base and hence greater profits. The international expansion of markets also emerges as a strategy to ensure that the survival of a company is assured. Globalization has enabled companies to market their products in all regions of the world, and this poses serious threats to companies that operate in the domestic scope only. Global companies have economies of scale and thus may offer products at lower costs as opposed to the domestic companies and this jeopardizes the survival of the domestic companies, thus the urgent need to expand to global markets in order to be competitive (Peter, Mika and Tomi, 2012). However, expanding to new markets entails a colossal of risks and companies should take this into consideration. Ford Motor Company remarkably endures the risks of expanding its market in China (Gearen, 2006). Ford Motor is based in Dearborn, Michigan and as part of its global marketing strategy, it manufactures and distributed automobiles in across six continents (Yang, 2014). However, Ford’s market expansion efforts to the international platform have brought forth a number of risk factors in terms of political, cultural and financial categories, especially in China. This discussion will delineate the political, cultural and financial risk factors that inherent in Ford’s expansion to China.
Ford Motor faces a significant political risk in its attempt to expand its markets to China. Despite the disparity in markets across the world, the liberalization and diffusion of policies have made it possible for companies like Ford to penetrate markets that are different from the U.S. market. Nonetheless, Ford still faces political risks as it expands to the novel institutional environment in China (Holburn, 2001). Over the years, there has been a trade dispute between the U.S. and China as it is traced following the entry of China into the World Trade Organization (WTO). China entered the WTO in 2001 and made an agreement with the U.S. that the U.S. would continue to treat it as a non-market economy for twelve years. What this meant is that the U.S. would increase tariffs and quota on Chinese imports as it deemed right, albeit on an impermanent basis. In essence, the U.S. aimed to protect the domestic manufacturers. Even before the agreement period lapsed, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) filed a petition to complain about the low-priced passenger and truck tires imported from China were injurious to their businesses since they were experiencing hefty losses. The duty on Chinese imports was increased by the Obama administration to deal with this issue. China responded to the adjustment of the duty by seeking formal consultation at the WTO, which marked the beginning of the trade dispute. Since the dispute was never resolved, the trade dispute between China and the U.S. has been more real than ever with vengeance moves from both sides. For instance, China plans to file a petition against the unfair subsidization among the U.S. automakers by the U.S. government (Tang, 2009). This implies that China will also increase the duty on U.S. imports in order to fulfill the vengeance mission and this poses substantial risk on Ford since the eventual price of the automobiles marketed in China is anticipated to be high. As such, consumers will be inclined to buy inexpensive local automobiles rather than the Ford brand.
Moreover, the increased automobile emission regulations present risks to the expansion of Ford to China. Across the world, the automotive industry is in the spotlight for the damage it causes to the environment through emissions. The various national governments are responsible for setting the emission regulations and standards, which are different from country to country. Several countries have made a proposal for additional regulations on automobile emissions. For instance, China is in the process of adopting the “China IV” standards that are akin to the Euro IV standards. Automobiles that fail to meet and abide by the emission standards and regulations will be prohibited from being sold in China (Gilligan, 2010). Even though, Ford has been meticulous in ensuring that its automobiles meet the emission standards by making substantial modifications to the product cycle plan of their automotive (Ford Motor Company, 2015). However, the meeting of these emission costs comes at a significant cost and a further increase in the automobile emission standards and regulations in China will exacerbate the situation for Ford. The implication of additional emission standards and regulations in China is that new technology has to be employed, and the cost of the new technology has to be integrated into the final price of the Ford automotive. As such, the Ford brand risks lacking adequate market due to the high prices.
Furthermore, the laxity of the intellectual property rights (IPR), especially to foreigners, in China sets great political risks for Ford in its bid to expand its market presence in China. China’s automobile market is open to international companies; however, the government allowed for his on purpose. The government stipulates that foreign players in the automotive market can only enter the Chinese automotive market through joint ventures with domestic partners. The essence of this initiative was to enable Chinese automakers to tap the management and technological expertise of the foreign partners, whereas the foreigners gained access to the immense market in China. However, the foreign partners have achieved their end as compared to the local partners. As a result, domestic automakers in China have resolved to outright copying (Tang, 2009). The Chinese government is reluctant in providing adequate IPR protection for foreign partners because they regard them as people who are getting more than their share of the Chinese market. In fact, the U.S. has even placed China on its “priority Watch” list concerning inadequate the enforcement of IPR and, other than the U.S., other international players have also cried foul. The implication of the slackness of IPR protection in China on the expansion efforts of Ford is that the Chinese automakers will imitate the design of the Ford brand and no action will be taken against the Chinese violators since the Chinese government seems to sanctify IPR violations openly (Zhi, 2004). This risk puts Ford in a disadvantaged position since their design will be imitated by domestic auto manufacturers in China and be sold at low costs and hence damaging the market for the Ford brand.
Ford also faces cultural risks in the course of expanding into China. There exists a degree of disparity between the U.S. and Chinese culture. Whereas the Americans are individualists, whereby people’s purchasing decisions are self-centered and not influenced by other parties, the Chinese are collectivists in the sense that their purchasing decisions greatly depend on what their family members and friends own. Universally, consumers consider price, fuel economy, brand, exterior styling, and after-sale-services factors before making a decision to buy a vehicle. However, given the fact that most of the Chinese consumers are first buyers and hence at the onset of developing their purchasing preferences, several of the consumers have the tendency of purchasing the most prevalent brand among family and friends (Ban, 2005). It implies that the bestselling brand will continue to dominate the Chinese market without necessary changing any attribute of its automotive. Unfortunately, Ford traces General Motor (GM) in terms of market share in China. As such, the GM brand is more prevalent than Ford regardless of the technological prowess employed in the Ford brand (Canis and Morris, 2013). This cultural risk renders the efforts of Ford to expand its market in China inefficient, and unless the sales of Ford surpass those of GM in China, the culture will continue to put Ford in a disadvantaged position.
The Chinese culture, unlike the U.S. culture, condemns extravagant spending. Several Chinese still regard cars as luxuries. As such, these individuals tend to save their money in order to purchase homes and to effectively pay for pricey medical care and education, which they deem to be of ultimate importance (Haley, 2003). Apparently, Ford risks lacking enough buyers for its automotive in China because the Chinese culture endorses conservatism in the sense that priority is given to more grave factors rather than purchasing cars.
It is also worthwhile to consider the financial risks that Ford is exposed to as it expands to China. The automotive industry in China has been enhanced due to the Foreign Direct Investment (FDI) aspect that China has taken advantage. Foreigner investors have been prevalent in the Chinese automotive industry due to the market opportunities that China has demonstrated over the years (Wang, 2013). The Chinese government, in a bid to tap international technology, has offered tax incentives to foreign investors in regard to research and development (R&D). Actually, the Chinese government announced that it will invest over $1.46 billion in automotive R&D technology innovation and R&D, something that has boosted the capacities of domestic automakers in China (Buckley et al., 2007). What is more is that the Chinese government has also required that at least 50m percent of the government vehicles have to be domestic makes besides offering domestic manufacturers special treatment in terms of grant and loan financing. On the other hand, The U.S. government has offered loans to GM and Chrysler to a tune of $ 60 billion, whereas Ford has received nothing (Tang, 2009). It means that Ford is not receiving sufficient financial support in order to compete fairly in the Chinese automotive market, and this is a significant financial risk that cannot be overemphasized.
The currency policy of China has also been a major issue of concern when considering trade between the U.S. and China. China is accused of continuing undervaluing its currency against the U.S. dollar (Ford Motor Company, 2015). The intent of this unfair move is to have the Chinese exports to the U.S. to be cheap whereas the U.S. exports to China to be expensive. There has been a great trade deficit between the two countries, and the American manufacturers who export their products to China have been hurt to a greater extent (Chen and Tian, 2011). In the same vein, Ford risks having its brand being less preferred to the domestic automotive brands due to the price factor.
Other financial risks that underlie Ford’s expansion to China include the volatile fuel prices and the personal loan policy in China. The global fuel prices are volatile and since people in China will anticipate that the fuel prices will increase, they will have a less incentive to buy vehicles, and the situation is worse for foreign brands, such as Ford. The personal policy in China limits the borrowing capacity of individuals with an end effect of hampering personal efforts to buy automotive, such as the Ford Brand (Oliver, Holweg and Luo, 2009). This financial risk strains the potential market share benefits of Ford in China.
In conclusion, Ford’s move to expand its market presence in China is justified; however, there are implicit risks involved. The political risks include the trade dispute between the U.S. and China, which may lead to the imposition of high taxes on the Ford brand when imported to China for marketing. The anticipation of more rigorous automobile emission standards in China is also a significant political risk. Also, the remissness in IPR protection in China poses a colossal political risk. The conservative culture of the Chinese will not enable Ford to achieve its expected market share in China since priority id gives to factors like education, health, and housing (Ng, Schipper & Chen, 2010). In light of financial risk, Chinese domestic automakers receive an adequate financial incentive, unlike Ford. The undervaluing of the Chinese currency also means that the Ford brand will be relatively expensive as compared to the local automotive brands. It is apparent that Ford needs to take necessary measures to counter the risk befalling them compounding these risk factors. It is recommended that Ford should increase their market stimuli in China since the Chinese buyers are just beginning to develop an automotive purchasing preference (Xiao, 2011). Similarly, it is recommended that Ford should aim at building a sound customer relation network in its marketing operations in China so as to subdue GM in sales and thus increase its sales as per the culture of the Chinese people (Soliman, 2011). Finally, it is recommended that Ford should rethink its automotive design in that alternative energy sources are considered such as compressed natural gas and electricity. In so doing, the emission standards will be met and even surpassed since these alternative energy sources have lower emissions as compared to gasoline (Ng et al., 2010). Unless, Ford addresses these risks and implements recommendations, the future is bleak concerning its market presence in China.
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