Ford Motor Company's Expansion in Mexico: A Business Report

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BUSINESS ORGANISATIONS AND ENVIRONMENTS IN A GLOBAL CONTEXT

Table of Contents
INTRODUCTION............................................................................................................................. 3
FORD MOTOR COMPANY OVERVIEW............................................................................................4
MEXICO.......................................................................................................................................... 6
ANALYTICAL FRAMEWORKS...........................................................................................................8
PESTEL ANALYSIS....................................................................................................................... 8
PORTER FIVE FORCES...............................................................................................................10
DATA ANALYSIS............................................................................................................................12
MEXICO FDI INFLOWS..............................................................................................................12
TOP FDI INVESTORS IN MEXICO...............................................................................................13
SUMMARY OF FORD INCOME..................................................................................................14
GLOBAL ASSEMBLY UNITS OF FORD........................................................................................ 15
CONCLUSION............................................................................................................................... 16
REFERENCES.................................................................................................................................17
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INTRODUCTION
The globalisation process has opened up the economy of the world and the greatest
beneficiaries of this phenomenon are multinational companies like Ford. This report will assess
the environment for FDI investments in Mexico and the possibilities of Ford to expand its
operations further in the country. Mexico is the 10th largest economy of the world and the
sector of manufacturing and automobile has registered fast growth in the preceding years. The
primary focus of this report is to analyse the economic metrics of Mexico such as Growth rate,
population, major industries and the key economic parameters so that investment possibilities
for Ford motors can be identified. The report will assess the political and socio-political
environment of Mexico and how these factors may influence the expansion plans of Ford
motors. A detailed analysis of FDI figures and company performance-related data is done with
the help of graphs and charts.
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FORD MOTOR COMPANY OVERVIEW
Ford is an international automaker which was started 116 years ago in the year 1903 by Henry
Ford. The company has its headquarters in Michigan, the U.S. The commercial and automobile
vehicles are sold under the brand name Ford while luxury cars of the company are sold under
the brand name Lincoln (Macdonald, 2017). Ford is the fifth largest car company in the world
and second-largest in the United States. In 2018, FORD Civic was the highest-selling model of
the company worldwide.
LEGAL FORM: Public Company
RANGE OF PRODUCTS AND SERVICES: The Company manufactures a wide range of passenger
cars, trucks and tractors. Ford has also specialized in producing automotive parts and
accessories which are exported in different countries of the world (FORD Annual report, 2018).
MARKET SHARE (2018):
 United States- 14.1%
 United Kingdom- 13.7%
 Europe-7.2%
 The Middle East and Africa- 3.0%
 Asia pacific-2.5%
MAJOR COMPETITORS: Key competitors on global level include General Motors Company,
Hyundai-Kia Automotive Group, Fiat Chrysler Automobiles, Renault-Nissan and Honda Motor
Company.
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INTERNATIONAL OPERATIONS: The overseas operations of Ford Company are divided into five
geographical regions namely: North America, South America, Europe, Middle East &Africa, and
the Asia Pacific. In total, the company is present in more than 200 countries (FORD Annual
report, 2018).
FINANCIAL PERFORMANCE:
 Revenue in 2017- $ 156.8 billion
 Revenue in 2018- $ 160.3 billion
 Retail sales in 2018- 2.5 million units sold.
VALUE PER SHARE: The value per share of Ford is $ 10.51; it is the value of total funds of the
company invested, divided by the number of outstanding shares.
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MEXICO
CONTINENT/NEIGHBOURING COUNTRIES:
Mexico is a country in South America with an area of around 2,000,000 square kilometres. The
northern border is shared by the United States. The western and southern portion is bordered
by the pacific sea and the eastern portion is bordered by the Gulf of Mexico.
OFFICIAL LANGUAGE: The primary language spoken in Mexico is Spanish moreover other 68
regional languages are also spoken in the country.
POPULATION: In 2018, the population of the country was 123.5 million. Mexico is the tenth
populous country in the world. Large population works as a supporting factor for the Mexican
economy as plenty of workforces is available for the industries (Hoshino, 2010).
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GROSS DOMESTIC PRODUCT (GDP): Nominal GDP count of the company is $2.5 Trillion; Mexico
constitutes around 2% of the total world GDP. The GDP of Mexico is 15th largest in the world
and is continuously increasing in size (World economic outlook, 2019).
IMPORTANT SECTORS OF ECONOMY: GDP of an economy is calculated based on three sectors-
Agriculture, Industry and Services. The agricultural production of the country contributes only
3.5% of the gross GDP. While industries of Mexico account for 33.8%.The highest share in the
GDP is contributed by the services sector which is around 62.7%.
UNEMPLOYMENT RATE: The current employment rate in Mexico is 3.4%. Mining and
construction are the highest jobs-generating sectors in the economy of Mexico. Besides, Oil and
gas sector in Mexico also provides large scale employment to the local population.
INFLATION RATE: The inflation rate in Mexico is 2018 was 6.0% (CPI). Meanwhile, recently the
inflation rate has been decreased to about 4.30 %. The primary reason for the decline in the
inflation rate is the new tariff on energy declared by the government (World Economic Outlook,
2019).
INTEREST RATE: 7.25% is the current interest rate in Mexico. When the interest rate of a
country is high, it attracts larger FDI investments. This happens so because when the interest
rate is high, the demand for the country’s currency is increased.
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ANALYTICAL FRAMEWORKS
PESTEL ANALYSIS
Political factors
These factors are associated with the political situation in the country and the decision making
of the leaders. When Ford establishes a factory line in a foreign land, a range of administrative
permissions needs to be taken. The regional power arrangement may also make an impact on
the local operations of the company (Angelucci, 2015). Mass strikes and seizures can severely
impact the profitability of the company and therefore it is necessary to analyse all these
political power games deeply before pursuing any big investments in the country.
Economic factors
The economy of Mexico is primarily dominated by the service sector. The share of the service
sector in the gross GDP of the country is over 70%. High growth in the service sector indicates
that the labour market of Mexico is developed and FORD motors will find it comparatively easy
to get talented workforce for its operations. The company hit the global recession in 2009 due
to which the economy was dangerously down (Cimoli, 2013). However, a strong focus of
industrial development led the company to survive the crisis. As the automotive industry is one
of the most developed sectors of Mexico, FORD motors can benefit from these situations.
Social factors
Mexico is a developing economy and the people are experiencing an increase in their
disposable income. A Ford motor has strong a strong possibility of developing the car market in
the region by the help of better values and marketing techniques. The middle-class families of
Mexico are switching for some spacious car to accommodate their growing family needs and
the SUV cars of Ford can be viable options for such customers (Correa et al., 2012). Besides,
there is a great demand for electric cars and electric car models of Ford like Ford Focus, Ford
Mustang and Lincoln Aviator can be presented as an option for the customers.
Technological factors
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New technologies in cars tend to reduce the pollution caused by the burning of fuel. Electric
cars are the new trend in the Mexican market and the company need to develop such electric
cars which can be driven for long distances in minimum charging. Also, reducing the weight of
the battery is a challenge which needs to be addressed with the help of focused research and
development efforts (Macdonald, 2017). Safety of the passengers is also a concern and newer
technology related to safety bags need to be explored. Some advancement related to artificial
intelligence can also be implemented in the upcoming cars to make them more fast and
efficient.
Environmental factors
The factors related to environmental pollution have gained much importance than ever. The
focus is on making zero-emission cars with the help of electric and hybrid car technologies. Ford
has already launched several electric car models and there is a strong business possibility in this
car segment. Also, the manufacturing facilities of the company should be able to support
sustainably (Contreras et al., 2010). Factory lines of the company require a huge amount of
energy, water and raw materials. All these resources are fetched from nature and it is necessary
to make efforts to reduce the use of energy and make the function more sustainable.
Legal factors
The legal factors may be associated with several areas for a car manufacturing company like
Ford. A first legal obligation is to provide a safe and secure workplace to the employees and
follow the rules and regulation related to minimum wages and work hours. The employees
must be given adequate leaves so that they can fulfil their family responsibilities. Other legal
obligations are related to emission norms and the pollution caused by the manufacturing
activities of the company (Levy, 2010). It is necessary to ensure that the effluents from the
industries are treated well before discharging it in an open environment. The emissions from
the cars should also not cross a certain level stipulated by the concerned authorities.
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PORTER FIVE FORCES
COMPETITIVE RIVALRY (STRONG FORCE)
Ford Motor faces tough competition in Mexico from companies like Volkswagen, Nissan, Honda
and Toyota. Aggressive policies from the top players like Toyota and Honda requires an
innovative approach by Ford so that it can catch the imagination of the customers (FORD
Annual report, 2018). To prevent switching the two key areas are the use of better technology
and improving the quality of after-sales services. The research and development activities need
to be focused on
BARGAINING POWER OF CUSTOMERS (MODERATE FORCE)
Customers are an important part of the business of Ford. The customers of Ford include both
retail and industrial buyers. The industrial buyers deal with automotive parts and accessories.
The switching power of both retail and industrial customers is quite effective and it is necessary
to keep a check on the current demand of the customers. Besides, new technology also needs
to be incorporated to stay competitive in business.
BARGAINING POWER OF SUPPLIERS (MODERATE FORCE)
Suppliers play a crucial role in the business of Ford. These suppliers provide raw material and
transport semi-finished goods from warehouse to the factory. Ford believes in maintaining a
strong relationship with the vendors and suppliers and provides appropriate incentives so that
they can be associated with the business for a long time (Macdonald, 2017). The bargaining
power of the suppliers is a weak force as Ford is an established name in the automotive
industry.
THREAT OF SUBSTITUTION (STRONG FORCE)
With a large number of option available in the market in different segments such as a small
family car, SUVs, hybrid and electric vehicle, the threat of substitution is strong. Focus on
technology and better marketing programs can be effective in addressing this threat. The
company should also need to be creative in its approach and incorporate cutting edge
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technology in the car models to make an edge over rival companies like Honda, Chevrolet,
Nissan and Toyota.
THREAT OF NEW ENTRANTS (WEAK FORCE)
A new entry in the business is not a strong matter of concern for Ford. Establishing a
manufacturing plant for a car requires huge investments and it is difficult for a new company to
challenge the existence of established players (Correa et al., 2012). Most successful car
companies like Ford, Toyota and general motors are in the market for a long time and have
establishes their names due to a constant focus on quality.
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DATA ANALYSIS
MEXICO FDI INFLOWS
Figure 1: FDI Inflows in Mexico
[Source UNCTAD, 2019]
The bar graph shows a large amount of foreign direct investments in the last three years.
However, the FDI investments in 2018 is a bit low than the FDI investments last year but still,
these figures show that the largest companies in the world are willing to invest in the country.
The FDI investments are called as a stable investment and are very beneficial for the economy.
These investments are used to make buildings, bridges and other such infrastructure which
helps in the economic and social development of the country.
The biggest companies of the world like Apple, Microsoft and Facebook have established their
business units in Mexico and the investments by these multinational companies are
continuously increasing (Macdonald, 2017). Very soon the country is expected to expand the
size of its economy. The FDI investments by the companies are a great source of revenue for
the government and help in improving public services such as hospital, roads, dams, and public
transport. Ford also employs a large number of people in its business units which further help in
the economic development of the nation.
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