Globalization Effects on Ford Motor Company Essay

Introduction

This paper aims to describe the actual and potential impacts of globalization on the motor vehicle industry and particularly on Ford Motor Company (FMC). In particular, my focus was on the growing international concern about environmental problems and its implications for car manufactures and FMC. Secondly, it is necessary to show how the management of this company tries to address these challenges. However, at first I need to define such term as globalization and explain its peculiarities. Overall, it can be interpreted from economic, technological, cultural and social perspectives (Held, 2000, p 91).

In this paper, we will to rely on the definition, provided by the European Commission. This organization defines globalization as the process in which financial and investment markets of different counties become interconnected and interdependent due to the deregulation and erasure of national borders (European Commission as cited in Held, 2000, p 92). This process has affected every form of industry, including those companies which manufacture automobiles (Giddens, 2000). The driving force of globalization is free trade policies, which allow no or little intervention of the government into the affairs of private business; more importantly, they ensure free flow of goods, services, technologies, and human resources from one country to another (Gomes, 2003, p 103).

Secondly, the adoption of free trade agreements such as NAFTA¹ led to the lowering of import taxes and quotas (Davilla-Villers, 1998, p 41; Bazak et al, 1998, unpaged). Therefore, car manufacturers are able to enhance their operational performance (Howell, 2000). There are other benefits that can be derived by the representative of automobile industry, for example, the opportunity to outsource the company’s business processes to third parties (Amar, 2003; Johnson et al, 1994). The companies operating in the globalized world can establish new channels and networks in order to market their products and/or services to consumers (Howell, 2000; Hufbauer & Schott, 1993).

Overall, such process as globalization has enabled many companies to decrease their operational costs and expenses (Howell, 2000; cited in Jarnie, 2002, p. 1). Nevertheless, the globalization has also presented them with several difficulties. One of them is the increased competition among car manufactures (Fan, 2009). As it has been noted before, free trade agreements lower import quotas and taxes, and as a result, many international companies, can better explore new markets (Davilla-Villers, 1998, p 41).

As a matter of fact, Ford Motor Company faced such a problem several decades ago, when Japanese car manufactures, especially Toyota, began to dominate the US market (Fan, 2009, p 20). Due to this fact, car manufactures have to improve their customer care, production process, quality control and post-sales services (Fan, 2009). One should also take into consideration that international community has grown more aware about the harmful effects of automobile industry on the environment (Roberts, 2005). People set new demands and standards for the car design and production (Bergman & Sager 2008). This is an example of the so-called ethical consumerism which means that the customers should pay more attention to the company’s attitude towards the needs of society and environment (Nicholls & Opal, 2005, p.187).

Furthermore, car manufactures are forced to adopt new technologies by the governments of many countries (European Commission, 2010). The thing is that many advanced economies, for example, the United States or the UK are dangerously dependent on oil supplies, which are not inexhaustible (Roberts, 2005, p 41). Thus, in order to survive in this new economic, social, political environment, car manufactures have to take a new stance to environmental issues in order to retain their profitability or even survive (Fan, 2009). Without paying due attention to the needs of the community and environment, even the most profitable enterprise will enviably lose its competitive advantage (Nicholls & Opal, 2005).

Such situation can be observed not only in the United States, but in many advanced economies like countries in of the European Union, Canada, Japan, or Australia (Nicholls & Opal, 2005). These countries are the biggest consumers of motor vehicles in the world, and there is no car manufacturer which can afford to lose these markets as it will strongly affect their profit margin (Maxton & Wormald, 2004, p 8). Ford Motor Company is not an exception from this rule. These are the key issues that are going to be analyzed in this paper.

Actual and Potential Impacts of Globalization

In itself, the process of globalization provides car manufactures with an opportunity to reduce operational expenses and find new markets (Held, 2000). In other words, modern enterprises can “produce at one place at one price and sell at another place, perhaps at a higher price” (Rodrik, 2000; cited in Jarnie, 2002, p. 11). To a great extent, globalization can be regarded as a positive force in the development of automotive industry (Odaka, 1993; Adams, 2002).

Ford Motor Company, as one of its representatives has also benefited from as now it has access to those markets which were unavailable previously; in particular, we need to speak about Asia (Odaka, 1993). Furthermore, the company managed to find new suppliers of car components and they provide the best ratio of price and quality (Vaidya, 2006, p 446). One should bear in mind that the distinguishing feature of globalized markets is rapid flow of capital (Friedman, 1999; cited in Jarnie, 2002). This means that the companies can make financial transaction as quickly as possible, without having to cope with bureaucracy, red tape or any other form of governmental interference into the private sector (Gomes, 2003). Thus, we can say that globalization also speeds up the performance of the private organizations (Gomes, 2003).

Yet, one should also bear in mind that globalization has also allowed customers to choose among different car manufactures, who now have to raise their quality standards (Fan, 2009). Eco-friendliness is one of these standards, as the growing number of people is more concerned with health problems, related to gas emissions, such as asthma or coronary diseases (Watson et al, 1988, p 441, 605).

In addition to that, hydrocarbon emissions contain elements which are reactive with ozone layer of the outer atmosphere (ACEEE, 2010). When eroded, ozone leaks direct Ultraviolet (UV) rays to the earth surface. Large amounts of UV rays act as predisposing factor for skin cancer on humans and animals (ACEEE, 2010). Automobile industry has contributed greatly in the destruction of ozone layer and some countries are developing policies to address this challenge (ACEEE, 2010).

Judging from these facts we can deduce that the company that will be able to reduce gas emission, will eventually secure the trust and support of both customers and the government. II is quite possible for to argue that Ford Motor Company as well as other representatives of the automotive industry has already faced with the necessity to introduce changes in the production process (Ford Motor Company 2010). The thing is that the US and European legislators have recently passed laws, compelling the companies to reduce carbon gas emissions (Miller & Spoolman, 2008).

For example, we can refer to the emission standards, established in the EU. They are applicable to passenger cars, trucks, buses and so forth (European Commission, 2010, unpaed). Those, car manufactures, which cannot meet them, will not be allowed to sell their products on the territory of the EU (European Commission, 2010). Thus, it will not be an overstatement to say that the ability to address environmental problems is important not only for the public image of the enterprise, but also for its financial performance or even survival, and in this case, we should speak not only about Ford, but the whole industry.

In addition to that, I would like to speak about the Kyoto Protocol; this international treaty requires governments of various countries to implement policies that would allow to reduce greenhouse effect (Callan & Thomas, 2007). The United States denunciated this treaty in 2001 because it could produce negative effects on the economy of the country, and especially on the industrial enterprises (Callan & Thomas, 2007, p 15). Nevertheless, car manufactures should not disregard the Kyoto, because the government of the United States may eventually ratify this agreement and this will require them to implement even greater changes in the process of production, because the Kyoto Protocol sets very high emission standards (Callan & Thomas, 2007, p 15).

The management of Ford Motor Company tries to address these concerns in different ways. First of all the company is currently manufacturing Ford Focus in a way they can be modified to use E85/M85 fuel, which is less harmful for the environment (Ford Motor Company, 2010, p 1). Such a strategy will enable the company to sell its cars in those countries as the United States or the United Kingdom where governments pay extra attention to the environmental protection and to compliance with emission standards (Callan & Thomas, 2007).

Ford Fusion hybrid has found a ready market in the U.S and Europe due to its ability to reduce CO­₂ emission and fuel efficiency: the company has already sold more ten million Ford Fusions across the United States (Green Car Congress, 2010, unpaged). These statistical data proves the point that eco-friendly cars are becoming increasingly popular. Moreover, there is great likelihood that they will become the main means of transportation in the years to come.

While speaking about Ford’s incentives to promote environment protection, we may also refer to their attempts to produce electric vehicles, which would reduce the emission of to a minimum (Green Car Congress, 2010). Naturally, at the present moment these cars are at the stage of design, and they do not enjoy great demand among customers, but they are the very cutting edge of the automotive industry.

These examples show that Ford Motor Company has been able to respond to the environmental problems. Nonetheless, it is quite probable that gas emission standards in the United States or the EU will be raised even higher, and this corporation will have to design new vehicles.

Globalization Effect on Ford’s Approach to CSR

In this part of the paper, I would like to show how globalization has influenced Ford’s approach to corporate social responsibility, and these changes are reflected in their manufacturing process. First, as it has been noted earlier, the company launched the production of eco-friendly cars, such as Ford Fusion and Ford E-Series (Ford Motor Company. 2010). The production and use of such vehicles can minimize the harmful impact of automotive industry on the environment because they consume lesser amounts of gasoline (Ford Motor Company. 2010; Burns, 2000). This is only one of the many steps, taken by the management of Ford Motor Company in effort to protect environment and retain competitive advantage.

Furthermore, according to the data, published by Wall Street Journal, (a periodical that publishing financial news) in the first five month of the year Ford auto sales eco-friendly cars such as Ford Fusion hybrid and Ford E-Series will constitute approximately fifteen percent of total production (Anonymous, 2010, unpaged). It should be mentioned that Ford tries to make their vehicles more recyclable, for instance, new 2011 Ford Explorer will be 85 per cent recyclable(Ford Motor Company, 2010, unpaged). In turn this will decrease the volume of waste products (Ford Motor Company, 2010, unpaged).

In order to meet the changing demands of the customers, the company has also begun to pay more attention to the use of biofuels (Soetaert & Vandamme, 2009; Worldwatch Institute, 2007), At the present stage, the use of befouls has not become very widespread and there is no large-scale producer of such energy source and Ford Motor Company continues to invest capital in this sphere (Renneberg & Demain 2008, p 187).

More importantly, the management intends to manufacture 250.000 flex-fuel cars² (Renneberg & Demain 2008, p 187). One has to bear in mind that this project entails a great number of risks because the management does not know for sure whether these new products will enjoy demand of the customers (Renneberg & Demain 2008, p 187). This initiative proves that the management of Ford Motor Company thinks not only about short-term gains, but also about future strategies of this corporation.

Again, there are two motives behind these activities: on the one hand, the company wants to minimize the pollution of the environment; on the other, the policy can make Ford independent of factors such as political instability in the Middle East or oil prices, which increase on a regular basis (Roberts, 2005). So, it is quite possible for us to argue the ability to manufacture eco-friendly vehicles can make automotive industry less vulnerable or sensitive to political and economic changes such as fluctuations of oil prices and political situation in the Middle East (Roberts, 2005).

This is one of those situations when the company is affected by political, social and environmental forces of globalization at the same time. Furthermore, Ford is not the only enterprise that is affected in this way: General Motors and Toyota also attempt to modernize the production process and make it less damaging for nature (Nieuwenhuis & Wells, 2003).

We also need to point mention that, this enterprise does not disregard such issue as conservation of water. They admit that the scarcity of global water resources will become one of the most stressing global problems (Ford Motor Company, 2010, unpaged). In effort to solve this issue, this enterprise has constructed engine plants, which reduce waste water generation by 95 per cent (Ford Motor Company, 2010). Moreover, during the period between 2005 and 2010, this corporation has decreased overall water usage by 53 per cent (Ford Motor Company, 2010, unpaged).

Judging from these examples, I can conclude that the attempts to preserve environment impact virtually every aspect of the production process. This evidence also indicates that this corporation at least tries to act as a responsible corporate citizen. Yet, one should take it into account that such attitude can be explained by the genuine concern for environment and by the company’s effort to retain its completive advantage over its rivals. The increasing importance of corporate social responsibility in the automotive industry compels Ford to use eco-friendly technologies: the thing is that Ford’s competitors, for example, Toyota, have already launched the production of flex-fuel vehicles (Nieuwenhui & Wells, 2003, p 83).

Hence, it is possible to argue such forces of globalization as increased competitiveness and concern for the environment protection compels the main representatives of automotive industry to introduce changes into the process of production and waste management. In addition to that there are two groups which put pressure on them: 1) the governments of various countries that set emission standards; 2) the buyers, whose power is very strong (Habelberg & Rieple, 2008). In this case, the term buyer power can be defined as the ability to influence the decisions of the company (Habelberg & Rieple, 2008).

Conclusion

In pursuit of global market command and share, companies are forced to rethink their strategies and product development in order to satisfy diverse tastes and to comply with different policies and regulations. Though global market sound as a place of common interests and tastes, different cultural and economic background dictated among other things preferences and buying powers of different clientele. Companies such as Ford are able to survive turbulent market due to their ability to identify these preferences and demands of their customers and making goods to their specifications. There are challenges relating to globalizations, such as the hollowing of the multinational corporations. It may result to structuring of the company capital form.

Considering the automobile industry that is almost totally dependent on natural petroleum products, fuel has not been ubiquitous in the world. Apart from these, environmental activists and governments are concerned with pollution of the natural environment by oil related emissions from industries and automobiles. CO₂ and other emissions containing carcinogenic benzene and sulfur and hydrocarbons are said to be depleting O₃ (Ozone) at a very fast rate and counteractive actions are necessary.

Agencies such as EPA³ in the U.S and state environmental authorities are requiring auto makers and industries to reduce and eradicate emissions which are hazards to the human lives and the environment. For the purpose of the future, the company can continue controlling more markets by constructing more products that satisfy the customer in multiple markets.

Its vehicles are globally sold and they are powered by petroleum products whose pricing and distribution depend on global politics. To comply with global market demands on environment protection and sustainability, Ford has opted for alternative sources of power for is cars such as M85, E85, biofuels, hybrid cars and other upcoming sources such as algae⁴. This will in turn enable Ford to sell its cars throughout the world because of the options they give their owners in terms of power sources and eco-friendly environmental management.

Overall, judging from this analysis, it is possible to argue that the use of ecologically-safe technologies should not be viewed as some ephemeral trend or some whim of modern consumers. More likely, it is the indispensable condition for the successful performance of the enterprise.

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Footnotes

1. North American Free Trade Agreement.
2. Those vehicles that use both gasoline and ethanol.
3. The US Environment Protection Agency.
4. A form of seaweed that can be used as an energy source.