Nowadays, international business has been paying more and more attention on the growth and creation of values. Where the global competition is fierce, enterprises tend to make full of the global resources, and surprisingly, it works. Therefore, a lot of companies today have concentrated on the process of globalization and are managing to expand their business internationally, which has made up an important part of their marketing strategies (Justin, 2008). For example, the Ford motor is trying to establish its different businesses in different places of the world, as long as it helps improve efficiency.
In 1901, the Henry Ford Company was founded, which became the Ford Motor Company later. Through decades, the Ford Motor has gone through thin and thick and developed into one of the biggest and leading automobile companies (Gerhard, 2011). However, due to the high US health care costs for an aging workforce, declining market share and an over dependence on reducing SUV sales, the Ford Motor has gone through a decline in its sales and its status was also downgraded a lot in 2005. In order to change this situation and achieve sustainable development, the Ford Motor has taken a lot of measures, including expanding more and more of its businesses into foreign countries by mode of foreign direct investment (Les & Jim & James, 2010).
2. Ford Motor’s main drivers in terms of foreign direct investment when accessing foreign markets and its buyers
2.1 background information of the foreign direct investment
FDI has been defined as a cross-border movement of funds, technology, etc for companies to get or enlarge their control over the assets that can create values or make profits for them. In fact, foreign direct investment has become an important way for transferring international capital from country to country. What’s more, through the past decades, foreign direct investment has grown quickly.
2.2 main drivers for Ford Motor’s FDI
As for the main drivers for Ford Motor’s FDI, there are a lot of different opinions. Generally speaking, there are two main drivers for Ford Motor’s direct investment to foreign countries—the revenue-related ones and the cost-related ones (Marco, 2006).
2.2.1 The revenue-related drivers
By directly investing to foreign countries, the Ford Motor is managing to enter into markets where there promises better benefits for it (Jonathan & Colin, 2006). What’s more, the Ford Motor is able to enlarge the demands for its products in the country where it invests. Another driver is related to the restrictions for trade and international diversification. Besides, foreign direct investment is also an effective way for entering into a foreign market (Ehud & Amit, 2011). When the Ford Motor has already entered the market, the delivery times of its products will be reduced. In addition to these, there would be fewer tariffs for the Ford Motor in terms of trade with the host country. However, when speaking of foreign direct investment, to build new factories in the host countries is one mode, which means that the fixed costs of assets will be increased. Generally speaking, there would be a trade-off between the two.
2.2.2 The cost-related drivers
There are a lot of factors that are driving the Ford Motor to invest abroad. And these factors are mostly cost-related. For example, through foreign direct investment, the Ford Motor is able to realize the economies of scale. What’s more, by investing in other countries, the Ford Motor is allowed the access to many benefits that are only possible by mode of foreign direct investment (Thomas, 2006). For example, the Ford Motor can make use of the local workers to minimize its labor costs. What’s more, it can also learn from the advanced technologies in the host country. More importantly, the raw materials in the host country can also be used by the Ford Motor to support its production in that it will save the costs of transporting the raw materials from its mother country.
3. key external environmental issues impacting on Ford Motor when accessing foreign markets
The foreign direct investment has posed a lot of market opportunities and production and resource opportunities as well as threats on the companies. During the past decades, trade barriers have reduced a lot while the opportunities of productivity and resource have increased due to some certain advantages in the countries. What’s more, researches have shown that the globalization of business is positively related to the profitability of the companies.
Since each country has its own competitive advantages over others, it is generally accepted that an analysis and understanding of the local environment is necessary to a company’s development strategy (Hwa, 2008). These environmental factors are assessed in the market of the host country in order that the companies can adopt the right mode and build the right structure for their international businesses. The below table shows a variety of environmental factors that influence the Ford Motor when it is accessing a foreign market.
Political factors the stability of the local government, policies for tax, etc
Social-cultural factors consuming capacities, education, and income of consumers
Economic factors the degree of inflation, money policies, and tariffs
Environmental factors policies relating to the dealing with wastes
Technological factors technology advancement in the local market
Legal factors Laws relating to employment, bilateral contracts
Take one political factor as an example. When the Ford Motor is accessing Chinese market, one of its major concerns was the stability of Chinese government stabilities. Generally speaking, Chinese government is stable and has a free market economy. Both the political and economic situations ensure that Chinese economy enjoys a stable increase and is not disturbed by the degree of inflation on the whole. All these should promise the Ford Motor an increase for its profits. In china, as the politics are stable and economy is keeping developing, people’s wealth is keeping rising, which means that their buying will grow and the market for car consuming will expand (Kenneth, 2008).
Legal factors include employment laws and bilateral contracts between countries. By foreign direct investment, Ford Motor is establishing direct contact with its foreign clients, especially with those whose country has already established bilateral contracts with it. With bilateral contracts, the host countries are giving special favors to the Ford Motor, which include easy market entry and fewer tariffs. What’s more, with the development of multinational business, the Ford Motor will become stronger and stronger in foreign direct investment and its profits will grow more and more.
4. Opportunities and challenges for Ford Motor when doing business in emerging markets
4.1 Definition of emerging markets
By emerging markets, people refer to mainly those under-developed and developing countries. Besides, it also includes those non-western economies. The emerging markets are also known as newly industrialized countries that are going through rapid industrialization and are enjoying high annual growth rates.
The emerging markets are keeping offering huge opportunities for multinational companies (Francis, 2007). Being a company in the automotive industry, the Ford Motor has been faced with a lot of advantages in market entry and products sales in the emerging markets rather than in developed ones.
4.2.1 More government support
Generally speaking, the emerging economies are offering more support to the Ford Motor as it is equipped with advanced technologies and management styles (Lausberg, 2010). On the one hand, the Ford Motor’s makes a technology transfer to the emerging markets, which will help them grow quickly and get rid of the poor situations. On the other hand, by direct investment, the Ford Motor usually builds up a lot of factories in the local area, which will increase the rate of employment and tax in the country.