Question

Read the following mini case on Ford taken from the textbook and answer the question at the bottom that immediately follows the case.

Learning From Mistakes

Since Ford entered the Chinese market in 2001, the U.S. automaker's strategic focus on China has yet to pay off. Ford had initial success in China, mostly based on a world car approach that aimed at selling similar cars around the world. This global approach took advantage of leveraging economies of scale in design and manufacturing to save costs. At its peak, Ford was the sixth-largest car company in China in 2014 with almost 5 percent of the Chinese car market. However, Ford's car sales have dwindled ever since. In early 2018, Ford plunged to 18th place among car manufacturers in China. To make matters worse, Ford posted a rare net financial loss in its China business in the first three months of that year.

The Chinese car market is now the largest in the world and Chinese customers demand different cars than North American and European customers. This change in demand has led to more market fragmentation, making global strategies less viable. Specifically, Chinese customers seek out cars with technological innovations such as Internet connectivity and best-in-class fuel economy. As a result of the increasing sophistication of Chinese customers, China is now home to the largest number of electric vehicles in the world.

Until recently, Ford's engineering and design work was located outside of China. This distance between the Chinese market and Ford's engineering and design prowess may have contributed to Ford's lack of appeal to Chinese customers. A Chinese proverb says that "distant water won't quench your thirst." In the same way, Ford's initial decision to locate key value chain activities outside of China may have caused issues with understanding the needs and wants of Chinese customers.

Ford responded to the recent challenges by separating the Chinese business from the broader Ford operation in the Asia Pacific region. The new China business will directly report to the Ford global headquarters in Dearborn, Michigan. Ford also named a new top executive to lead the China business, industry veteran Anning Chen, who brings ample local knowledge of the Chinese market from a previous position at Chery Jaguar Land Rover. Overall, Ford plans to address its recent challenges in China by launching 50 new vehicles for the Chinese market by 2025. While some analysts fear that the influx of new models will increase the complexity and cost of Ford cars, Ford's new China strategy finally pays greater attention to the local needs of the largest and most important car market in the world.

QUESTION - How should Ford compete against local Chinese car manufacturers such as Geely, who are uniquely positioned to understand and satisfy local customer tastes?

Answer 1

To compete with local Chinese manufacturers like Geely, Ford should focus on understanding and meeting local customer tastes, leveraging economies of scale, and embracing technological innovations such as electric vehicles and internet connectivity.

Step-by-step explanation:

To compete against local Chinese car manufacturers like Geely, Ford should focus on tailoring its products to meet the local tastes and technological preferences of the Chinese market. Given that globalization has increased competition and lowered market concentration, as shown by the increase in competitors such as Toyota, Honda, and Nissan, Ford must innovate and respond quickly to consumer demands. By combining economies of scale with local market understanding, Ford can leverage its global experience while adapting to the unique requirements of the Chinese market. Partnerships or collaboration with local firms, along with investing in understanding and predicting consumer trends, will also be imperative.

Ford's decision to make China a separate business unit and appoint Anning Chen with his local expertise indicates a move towards localization and understanding customer preferences. This strategy aligns with the global trend where international trade allows large car factories to make and sell their products around the world, while facing competition from a broader range of players contributing to better innovation and consumer responsiveness.

Finally, to compete effectively, Ford should also focus on the increasing demand for electric vehicles in China, considering that China is home to the largest number of electric vehicles worldwide. Integrating technological innovations, such as internet connectivity and achieving best-in-class fuel economy, will match the sophistication of the Chinese customers and counter local competition more effectively.