Analyzing Ford Motors' Decision To Shift Production To The US From Mexico

You are required to identify, review, analyse and critique International Business Practice of a real organization of your choice. You should utilize your knowledge of international business to undertake an analysis of the reported practice or action of a real organisation. You may choose an organisation from the local environment or from overseas. Business press is full of reports about different aspects of international business actions implemented by local and global organisations.

There are several external factors which play an important role in establishing the different pillars of the business. The factors which will be discussed will play a vital role in establishing the business as well as expanding the business towards different direction such their objectives can be met up properly. The external environmental factors influence the business decisions. In this report the case of Ford motors has been discussed. Recently the organisation had made a major decision to stop its $1.6 billion investment in Mexico and invest $700 million in the US to create 700 jobs. This decision has been influenced by several factors and these will be discussed in the report

In 2016, Ford had planned to invest $1.6 billion in Mexico so as to shift its production from Michigan to Mexico. This was done so as to save costs. The organisation has been facing challenges across the globe and therefore needed to focus on cost cutting. However, this decision was not welcome by the President elect Donald Trump and he threatened Ford that the organisation would be slapped a 35% tax for the cars manufactured in Mexico and sold in the US. The US has been a major market for Ford and therefore this would mean further losses for the organisation. Economists stated that this would not have been possible as these policies cannot be implemented for a single US company. However, Trump re-iterated through a twitter post “Make in USA or pay broader taxes”.

In the US the pay rate for an average worker in this industry is approximately $28 per hour and in Mexico this is approximately $5.5 an hour. There has been a slump in the sales of cars recently and this had influenced the decision of Ford to shift its production to Mexico. However, this year Ford scrapped its plans and further planned to invest $700 million in the US and also create 700 new jobs. According to Ford, this decision has not been influenced by Trump’s decision to raise taxes but however, political influences have significant role in organisational strategies (CNN, 2017) 

Political: Political factors have major influence on the decision making process of an organisation. In this case it could be seen that the political decision to raise taxes had influenced the decision to invest $700 million in the USA

Economy- This factor influences the health of the business in one form or in another form. The economy of the organization and the business changes on the basis of politics, war, terrorism, fluctuations in the value of currency as well (Banica and Hagui, 2015, p.79). In this case the economic reasons were in the form of lower labour rates in Mexico which influenced the decision to invest $1.6 billion in Mexico

Social: There has been high demand of cars in the US and the US market has provided Ford with high sales. Thus a 35% raise in tax in the US market would mean higher losses and therefore Ford decided to shift back to the US

PESTEL

Legal-The laws of the place will determine the nature of the business. Sometimes some changes in the laws will influence the organizational behavior in different aspects such that they need to reframe their strategies and policies. The new policies and strategies should be made in accordance with the new rules and regulations that have been applied by the Government of that particular place (Belás, et al. 2014, p.22).

Technology- The technologies that have been implemented into the organization will be helpful in determining the guiding strategies that are required for the expansion of the organization. In this regard, the organization should manage and implement the capital and resources in such a manner that all the trends of the business and the market are followed in a perfect manner (Cohen and Kietzmann, 2014, p.279).

Environmental: There has been high focus on reducing carbon foot prints and this is the main reason for the launch of electric vehicles and hybrid cars. The US market provides high opportunity for this segment and thus the decision to shift production to US and invest $700 million to increase its capacity of electric cars has been taken

The political decision making process can be applied to this specific case. The role of the government according to the traditionalist views has been to intervene in the market economy so as to maximize the social welfare. The government according to this theory is an exogenous agency which acts in order to correct market failures and to provide legal and regulatory framework for the market place. In this case the US has been facing challenges of job cuts and high unemployment rates and therefore it is the role of the government to ensure higher jobs in the market. However, there are other theories which further illustrate how the political influence is there in the market economy. According to the rational choice model, individual actors make strategic decisions which are based on rational choices and these are done in order to enhance their own competitiveness in the market. In this case the election campaign of Donald Trump had been to create more jobs in the US and therefore the decision to influence Ford has been in that direction. Further, Ford also ensured that it complies with the government so that it can win political favours and thus be ahead in the market competition.

The systems model also illustrates how the state and the market economy are components of the entire social system and the analysis is done in order to understand the inter-relationships between these sub-systems. The neo-Marxist theory illustrates close relationships between state bureaucracy and the industries. The state needs to control the industries but at the same time also needs to encourage the industries so as to maximize the social welfare. In this case the regulation was done so as to ensure that Ford does not shift its production. At the same time Ford would also enjoy subsidies and other government favours in the future and this would be beneficial for the organisation in the future. It can also be illustrated that Ford will also save $900 million as the investment is $700 million within the US.

Appropriate Theory

The theories that have been discussed help in understanding market economics and how organisational decision making is influenced by the government interventions. In this case Ford has been influenced to create more jobs in the US and this is for the social welfare of the state and Ford will enjoy favours from the Government and thus this will be economically viable for the organisation. It can be seen how the decision making process is interrelated and thus the systems theory illustrates how the business decision was under all such factors  

The company Ford has been established in 1903 and played and important role in the world of automobile industry with its grate varieties of cars and specifications at the same time (moronic et al. 2015, p.2199). Ford mainly started to sell their products with the method of large scale manufacturing and also proper management that would help the company in managing and balancing the workforces in the correct form. On the basis of the selling point it is the second largest company in US and fifth largest car Production Company on a world ranking. These facts have been published in various kinds of business journals and magazines like Forbes, fortune, etc. According to Fortune 500, the total amount of revenue that has been generated by Forbes has been listed upto 118.3 billion dollar (https://www.forbes.com/companies/ford-motor/). It has been found out that in the year of 2008, Ford has produced 5.532 million automobiles and has provided employment to 213,000 people in their 90 plants around the world (Prajogo, 2016, p.241). During the year of automotive crisis and problems, Ford has made a profit of 2.7 billion dollar (https://www.forbes.com/sites/joannmuller/2017/02/10/the-real-reason-behind-fords-billion-dollar-bet-on-a-self-driving-car-start-up/#5e15575c6148). The activities of Ford mainly focus on total quality control and management such that the quality as well as quantity of the products that they are manufactured is not hampered. Several changes have taken place in the environment and the business strategies, therefore the leaders of the company also need to channelize and direct their employees in the right direction. In order to provide right direction, the managers and governing body of the organization need to incorporate some changes in their managerial as well as in the operational strategies such that they can cope up with the changes of the environment (Reylonds and Rohlin, 2014, p.32).

Ford’s vision is “people working together as a lean, global enterprise for automotive leadership”. In this regard, the magnitude of the automotive leadership is measured on the basis of the satisfaction level of the customers, employees and investors and as well as of the different other kinds of stakeholders (Russ et al. 2016, p.1557).

Accelerate the pace of progress- The pace of the work and the performance that has been delivered by Ford cannot be hampered by minimizing or reducing the quality of the products. The full benefits that the strategies provide are studied and analyzed in the correct mannerso the strengths and weaknesses of the employees can be channelized in the proper way. The managers are responsible to see that the operational excellences are channelized in the right direction so that all the priorities are addressed and they are found to be profitable for the organization.

Company Profile

Deliver product excellence with passion- The product and the quality of the product serves as the lifeline of the company. So the strategies need to be build up in such a manner that all the distinguishable features and the lineup of the products can be done in the correct manner. The development plans and projects are built up in keeping in mind about the global platforms of the customers and the global markets in which they need to perform. The platforms and the backgrounds on which the activities are carried out depend on the growth of the next stages and that will also be beneficial in generating the revenue for the drive and growth of the profit as well (Scholes, 2015, p.98). 

Drive innovation in every part of the business- Ford is an automobile company which needs to change their technologies periodically. All the sectors of business is changing in a rapid manner so in order to cope up with these changes Ford also need to upgrade their technologies in order to provide world class service as well as sustain in this competitive environment. They apply all the upgraded technologies that the customers demand in the products to meet the requirements of the future as well (Speakman and Rysova, 2015, p.65).

Conclusion

In order to see that the drive results are properly monitored or not, Ford establishes a program called Creating value Roadmap. This will also guide the organization to change the plans and the strategies accordingly to the changes of the working environment. This process helps in monitoring and evaluating all the risk factors that will address all the global elements of business. This will also help in reframing the strategies of the company. The strategy of the business consists of the following elements like revenues, objectives, financial indicators of the business which will analyses the profitability of the stakeholders. In this regard, once the business strategies and the plans are decided and objectives are set all the business parameters will be decided at the right time. Once the objectives are set, the business procedures are reviewed for a specific period of time which will allow the policy makers of the company to design and analyses their strategies in the correct way. This will also allow them to work and respond correctly to the changes of the organization which have taken place externally or internally. Ford company believes in hierarchy as a matter of fact the organizational policies of the company need to be planned in the correct manner. The hierarchy of the company is segregated into the following sector:

Corporate hierarchy- the organization believes in traditional hierarchy. In Ford the executive vice presidents of the company reports to CEO of the company. This has clarified the fact that the traditional business strategies are followed from top to bottom of the company.

Regional Geographic decision- All the business departments and the sectors are categorized according to the demographics and geographies of the organization

Global functional groups- The specific business functions are performed by specific employees. 

Reference list

Banica, L. and Hagiu, A., 2015. Big Data In Business Environment. Scientific Bulletin-Economic Sciences, 14(1), pp.79-86.

Becker, K., 2017. Editorial. Journal of Transnational Management, 22(1), pp.1-3.

Belás, J., Bartos, P., Habánik, J. and Novák, P., 2014. Significant attributes of the business environment in small and meduim-sized enterprises. Economics & Sociology, 7(3), p.22.

Cohen, B. and Kietzmann, J., 2014. Ride on! Mobility business models for the sharing economy. Organization & Environment, 27(3), pp.279-296.

Crane, A., Palazzo, G., Spence, L.J. and Matten, D., 2014. Contesting the value of “creating shared value”. California management review, 56(2), pp.130-153.

Hamilton, L. and Webster, P., 2015. The international business environment. Oxford University Press, USA.

Huang-Horowitz, N.C., 2015. Public relations in the small business environment: Creating identity and building reputation. Public Relations Review, 41(3), pp.345-353.

Kolk, A., 2016. The social responsibility of international business: From ethics and the environment to CSR and sustainable development. Journal of World Business, 51(1), pp.23-34.

Lee, J., Kao, H.A. and Yang, S., 2014.Service innovation and smart analytics for industry 4.0 and big data environment. ProcediaCirp, 16, pp.3-8.

Lieberman, J., Siedel, G., Warner, D. and Mayer, D., 2016. Business law and the legal environment.

Menychtas, A., Vogel, J., Giessmann, A., Gatzioura, A., Gomez, S.G., Moulos, V., Junker, F., Müller, M., Kyriazis, D., Stanoevska-Slabeva, K. and Varvarigou, T., 2014. 4CaaSt marketplace: An advanced business environment for trading cloud services. Future Generation Computer Systems, 41, pp.104-120.

Moroni, I., Arruda, A. and Araujo, K., 2015. The Design and Technological Innovation: How to Understand the Growth of Startups Companies in Competitive Business Environment. Procedia Manufacturing, 3, pp.2199-2204.

Prajogo, D.I., 2016. The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics, 171, pp.241-249.

Reynolds, C.L. and Rohlin, S., 2014. Do location?based tax incentives improve quality of life and quality of business environment?. Journal of Regional Science, 54(1), pp.1-32.

Russ, H., Kuilboer, J.P. and Ashrafi, N., 2016. Business Intelligence in the Music Industry Value Chain: Ensuring Sustainability in a Turbulent Business Environment. In Business Intelligence: Concepts, Methodologies, Tools, and Applications (pp. 1557-1571). IGI Global.

Savrul, M., Incekara, A. and Sener, S., 2014. The potential of E-commerce for SMEs in a globalizing business environment. Procedia-Social and Behavioral Sciences, 150, pp.35-45.

Scholes, M.S., 2015. Taxes and business strategy.Prentice Hall.