Introduction
In the case study provided for analysis, the author writes that Ford Motor Company seriously miscalculated the investments and the pledged production volume. Two car factories built in India are designed to produce 400 thousand cars a year, but they are loaded only by 20%: 80 thousand cars a year come off the assembly lines, and half go for export (Ford Motor Company, 2022). According to the head of Ford Corporation, Jim Farley, over the past ten years, the loss in India has exceeded $ 2 billion (Ford Motor Company, 2022).
The primary purpose of this report is to analyze the essence of ownership advantages, evaluate the company’s economic activity in the host market in India, and develop recommendations based on information about the Ford Motor Company. The first concept chosen for analysis is the priority for stable FDI inflows, and the second chosen concept is internationalising.
Ownership Advantages
Stable FDI Inflows
One of the key ownership advantages of the company is the priority for stable FDI inflows. Ford Motor Company does not abandon its plans to pay the owners even in a crisis (Haralayya, 2022). Therefore, the company’s FDI Inflows regularly bring reasonable, stable payments regardless of the state of the market. This negatively contributed to the growth of the company. As a result, it may start operating at a loss. For example, from 2000 to 2009, Ford Motor Company lost $10 on each car produced (He et al., 2019).
Theoretical Perspective
This approach contradicts the business theory of the irrelevance of trends in international business. The theory justifies the passive role of stable FDI inflows since it assumes that for a company operating in a perfect market, the payment of stable FDI inflows is a secondary element of financial policy that does not affect the value (Ford Motor Company, 2022). The theory of the irrelevance of FDI inflows is based on various assumptions specific to the economic environment. Among them are transaction costs and current information regarding future investment opportunities (He et al., 2019). They should influence the payment of stable FDI inflows by causing them to fluctuate to maintain the company’s stable operation as a whole.
Focus on Long-Term Achievements
Another key ownership advantage of the company is the focus on the future rather than current results. The company monitors changes in the market and takes timely actions to improve the welfare of its shareholders. This may not contribute to the company’s growth in the short term, causing a drop in sales at Ford Motor Company (Ford Motor Company, 2022). However, in the long run, it turns out to be beneficial, since timely internationalization can strengthen the company’s position in the market in the future (Schulze and Zellweger, 2021).
Theoretical Perspective
In business theories, internationalization is considered a process of adapting a company’s internal structures, regardless of its scale and organizational and legal form, to the conditions of existence and development of the external environment that is constantly changing under the influence of various factors. The external environment conditions are internationalising, and the struggle for survival is increasing. Scholars argue that it is necessary to constantly optimize their internal organization to achieve greater sustainability of development.
Internationalising also makes it possible to maximize the economic effect with minimal costs. For example, during the trade war between China and the United States, there was a drop in sales in the Ford automotive sector due to internationalization (Ford Motor Company, 2022). The company began to actively invest in electric vehicles, thereby increasing the company’s expenses (Schulze and Zellweger, 2021). However, the company’s net profit grew.
Host Market Location
Opportunities
When working in the Indian market, Ford Motor Company should consider several features. This direction has many possibilities, but it is also possible to identify significant nuances that make it challenging to work in this location. Among the advantages, one can highlight the potential opportunity to create a start-up from scratch when placing foreign capital (Csíki et al., 2019).
In addition, various niches and industries for investing funds and low wages resulted in low business development costs for Ford. At the same time, foreign investors are ready to invest in start-ups in India with a volume of $500 million, and the government of India has launched the national Start-Up India program, which also supports innovative production in the country (Csíki et al., 2019). Thus, India, as a host market, offers Ford Motor Company the opportunity to implement new projects, for example, necessary during the business’s restructuring. High competition can be distinguished due to the willingness of foreign entrepreneurs to pour significant amounts into profitable projects, which stimulates technological progress for the Ford company.
Threats
However, India has a very weak energy complex, which results in constant power failures. Due to problems in this sector, India’s annual losses amount to about $68 billion (Alvstam et al., 2020). At the same time, the energy complex is paramount in the automotive industry, and such technical issues create serious problems for Ford. Therefore, significant losses are observed when investing in this country due to the unsettled operation of engineering systems and interruptions. Ford also has difficulties developing technological projects due to a lack of equipment and tools (Alvstam et al., 2020). It also slows down the company’s work, innovative production, and restructuring process.
There are also problems in the country’s medical, financial, and banking sectors, which affect the quality of services provided to employees. In India, according to statistics, there is only one doctor per 1,700 people, making medical care difficult in an industrial accident, and the company loses a specialist for a long time (Lopes, 2022). Banking services for the population in agricultural areas are practically inaccessible (Ford Motor Company, 2022). Therefore, Ford has problems paying for raw materials and withdrawing funds, negatively affecting the company’s profits.
Entry Mode
Ford’s Entry Strategy
Ford’s entry strategy was universal – it is safe and less costly compared to alternative localization options available to Ford for its internationalization in the Indian market. At the same time, alternative options consisting of localization are more profitable. The Asian market, except for China, Japan, and Singapore, is characterized by low purchasing power. This is due not only to the economies of countries, but also to many young people, students, and recent graduates. This is also typical for the automotive industry. Customers in India want to get European quality, but not at European prices (Verbeke and Fariborzi, 2019). The strategy for Ford’s entry into the company’s local market was to reduce the cost of cars by reducing the period of use and offering trial periods.
Alternatives & Comparison with Ford’s Initial Strategy
Alternative strategies that Ford could adopt could include rapid restructuring based on the behavior of local businesses. This strategy is more time-consuming and involves a regular and thorough study of local businesses (Tomac et al., 2019). However, it could pay off in the long run. India has suffered from the pandemic no less than others: deaths, lockdowns, and business closures. However, other cataclysms in the country may affect companies, and these cannot be predicted.
Moreover, entering the Indian market could be carried out by recruiting local employees instead of enlisting the services of employees who know the local language. This is because customers prefer local foreigners and trust them more. However, Ford did not choose this strategy, and due to a lack of understanding of cultural characteristics, at best, it is possible to sell one lead out of ten (Ford Motor Company, 2022).
Therefore, Ford’s alternative economic strategies based on an instant change when observing the behavior of local companies would be more successful. For example, if, when working with the retail of automotive parts, Indian online stores begin to work through marketplaces, Ford also needs to move there (Verbeke and Fariborzi, 2019) immediately.
The company should not forget about local peculiarities when building a plan, for example, about many holidays in India (Sanci et al., 2022). These days, the business is not functioning at all. Before calling or sending an email, it is necessary to familiarize the managers with the calendar, because by choosing a day for communication without prior research, they may not receive a response due to the official weekend (Sanci et al., 2022). Considering all the essential local nuances, Ford could be the basis for an alternative course of action in India instead of following a universal strategy.
Conclusions
Even though Ford is not in the best position due to decreased trust and openness towards the company due to its crisis, going abroad is an investment in the future. Entering the Indian market opens up new opportunities for internationalising and developing new economic ideas for the company. Cheap labor makes it possible to reduce losses when testing new products and production methods significantly. However, working in the local car market in India is imperfect and has many disadvantages. Ford’s business finds itself in a losing position due to its isolation from the local culture and employees, and the application of a universal approach that does not consider the numerous nuances of Indian economic culture.
Recommendations
Suitable recommendations that Ford’s board of directors can consider in planning the company’s future may include a closer acquaintance with the local market. The universal strategy of entering the foreign market adopted by the company at the moment is bladeless but unproductive. It is necessary to make a map of local competitors and evaluate patterns of consumer behavior in the Indian business niche. Also, increasing the percentage of local workers will allow the localization process to proceed faster and more effectively. Thus, the transition from a universal to a local economic strategy should be the next step taken by Ford in the Indian market.
Reference List
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Csíki, O., Horváth, R. and Szász, L. (2019) ‘A study of regional-level location factors of car manufacturing companies in the EU’, Acta Oeconomica, 69(S2), pp. 13–39.
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