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 executives manage the tensions between attention to local tastes and the desire to cut costs in multinational companies?

Answer 1

Executives in multinational companies can manage the tensions between attention to local tastes and the desire to cut costs by adopting a balanced approach. They can prioritize understanding the local needs and wants of the market they are operating in, while also finding ways to optimize costs and increase efficiency.

Step-by-step explanation:

Executives in multinational companies can manage the tensions between attention to local tastes and the desire to cut costs by adopting a balanced approach. They can prioritize understanding the local needs and wants of the market they are operating in, while also finding ways to optimize costs and increase efficiency.

One strategy is to establish local teams or subsidiaries in different markets, composed of individuals who have a deep understanding of the local culture, preferences, and trends. These teams can conduct market research, gather consumer insights, and develop products and services that cater to the specific needs of the local market.

At the same time, executives can implement cost-cutting measures by leveraging economies of scale in design, manufacturing, and supply chain management. They can centralize certain operations or collaborate with global partners to improve efficiency and reduce costs without compromising product quality.