Business environment analysis takes into account the market and nonmarket factors that affect the performance of an organization. The results of the process can be used to establish appropriate business strategies that are important for competitive advantage. It also enables an organization to identify areas of improvement to ensure increased profitability and success (Baron, 2010). This paper analyzes the market and nonmarket factors of Ford Motor Company. The areas covered in this study can be outlined as follows:
Industry Composition and Concentration
Ford Motor Company is one of the oldest motor vehicle manufacturers and assemblers in the U.S. The organization traces its roots to the initiatives of its founder, Henry Ford, who first established the Cadillac Motor Company in 1901 and finally launched the Ford Motor Company in 1903. Since its inception, the organization has remained one of the dominant players in the U.S. automotive industry. The company has also managed to spread its wings to other parts of the world by offering a wide variety of motor vehicle and automotive products (Bresnahan, 2005).
About industry composition, the company operates in a free market structure where competition determines the performance of the industry. It is perfectly competitive; hence the organization’s business strategies are aimed at countering the intense competition in the sector. The composition of the automotive industry is determined by its competitive forces. The factors also influence the profitability and performance of the companies. For instance, the threat of new entrants is a factor that affects the performance of the automotive industry. New entrants come with new products, which may influence consumers to change their choices of the products (Baron, 2010). Another factor of competition that affects the automotive industry is the bargaining power of the buyers. In this case, customers tend to determine the products that are produced by an organization. Ford has experienced the effect of the buyers’ power in some of its motor vehicle products. For example, the organization reduced the production of heavy vehicle brands due to awareness of fuel efficiency among the consumers (Bresnahan, 2005).
Industry concentration in the automotive sector is another element that greatly influences the business environment of an organization. The industry is highly concentrated due to the dominance of a few companies. The companies at the top of the hierarchy such as Ford, Chrysler, and General Motors dominate the market share of the automotive industry. The hierarchy of the companies may not change very easily since the three organizations have good competitive strategies. However, as an organization that is prepared for a merger arrangement, Ford has to maintain the market dominance to sustain its key brands in the market (Daniels, & Radebaugh, 2007).
Industry Growth and Geographic Dispersion
The concentration of the automotive industry indicates that there is intense competition between the three major companies. However, there is a low concentration among the companies at the bottom of the hierarchy since their products do not attract many consumers compared to the big three. Moreover, the big organizations enjoy great geographic dispersion in the industry (Bresnahan, 2005). The industry has experienced significant growth due to the increasing demand for automotive products around the world. The industry is well spread to all the countries of the world. The growth of the automotive companies started in the developed countries such as the U.S. and the countries in the European region. Most companies that dominate the sector were established in America. For instance, Ford was started in Detroit as a vehicle manufacturing organization. By 1938, Ford had expanded its operations to major markets in the United States and became a dominant company in the country in 1939. After establishing its roots in the United States, Ford expanded into nearby countries such as Canada and Mexico. By 1989, the company had established more than 70 branches in 30 countries across the world. Its rapid expansion indicates that there was a high demand for automotive products around the world (Shaw, 2012).
It is important to note that the automotive industry is one of the sectors that are growing at a faster rate compared to other sectors. In the past, the industry did not experience significant growth due to low demand for the products. Most consumers were unaware of the value of motor vehicle products. For example, Ford only experienced a high demand for its products during the Second World War where motor vehicles were used to ferry soldiers to the battleground. At present, the industry is expanding at a very high rate. The demand for motor vehicle products in contemporary society has greatly increased. Vehicles have become an integral part of human life, which influences economic productivity and lifestyle. Growth and geographic dispersion in the future are expected to increase. The companies in the industry target the global market due to increasing competition in the domestic market. The global market presents potential growth opportunities. For instance, the developing countries, which are still in the industrialization stage, will provide a high demand for the products. The industry will also respond to future customer requirements around the world since most consumers in the sector will be influenced by price and fuel efficiency. This, therefore, makes Ford a good candidate for a merger arrangement. An organization that will merge with the company must embrace the future trends in the industry. Despite the lucrative opportunities for global expansion and growth, consumers in the industry have become more sensitive to issues such as environmental conservation and safety (Boddewyn, 2003).
Competition and Profitability
Competition in the automotive industry is mainly characterized by free-market competitive factors such as barriers of entry, bargaining power of suppliers, and the bargaining power of the buyers. In addition to these factors, the competitive aspect of the industry is also affected by the general economic conditions in the world. For instance, during the financial crisis, the industry witnessed a significant decline in performance due to low demand and poor performance of stocks. Government regulations also contribute to the competitiveness of the industry. These factors will be considered in the analysis of the company before the merger arrangement. The very factors also affect the profitability in the industry. Ford’s revenues from 2009 to 2012 were in the range of $ 103,868 million to $ 126,567 million. The figures were slightly below the average revenues in the industry that ranged from$130,890 to $ 152,789 million. The net profits of the organization were in the range of $ 11, 908, 053 million to $ 18,708,124 million (Bloomberg Businessweek, 2012). The average profits in the industry ranged from $18,506,200 to 20,407,246 million. The average revenues and profitability figures indicate that the automotive industry is experiencing a significant increase in income. The company that will merge with Ford will be influenced by the profit trends (Bloomberg Businessweek, 2012).
While market issues directly influence the performance and success of the company, nonmarket factors are very important since they affect the organization’s image in society. This analysis embraces the four main issues that emanate from the nonmarket environment. The factors include issues, institutions, interests, and information. Issues are factors of the nonmarket environment that affect how the company relates to society. For instance, environmental issues dominate the list of factors that affect the company. Ford has to produce environmentally friendly products. Health issues also affect the nonmarket environment since the organization has to produce motor vehicles that are fit for human use (Roger, 2002).
Institutions are entities that ensure the issues of the organization are observed. For instance, environmental organizations can establish a set of laws to regulate the operations of the organization. National environmental agencies are some of the institutions that regulate the operations of the company. Interests are nonmarket factors that emanate from groups and individuals who are concerned about the economic conditions of the company (Boddewyn, 2003). Ford’s interests mainly stem from the shareholders, the managers, the government, employees, and the members of the public sphere. Information results from the reaction of the interested groups and individuals on how the organization responds to the various issues. Information on Ford’s nonmarket environment mainly dwells on how the company responds to environmental issues, government regulations, changes in economic conditions, and health issues. Another aspect of information that is held by the organization relates to its response to corporate social responsibility. These factors will be considered by the merger partner of the organization. The factors influence how the general public perceives the company and its products (Daniels & Radebaugh, 2007).
Addressing Nonmarket Issues
Ford addresses the aforementioned issues according to their requirements. However, there are notable differences in how the company responds to the issues as compared to the industry in which it operates. For instance, the organization responds to environmental issues by training employees on environmental elements that affect the organization. On the other hand, most companies in the industry only focus on environmental requirements that affect their products. Ford has also been at the forefront in promoting environmental awareness among the employees and consumers of its products (Shaw, 2012). The company responds to the interest of the shareholders by holding annual general meetings, which must include representatives of the shareholders. It also releases quarterly reports on performance to the shareholders. This approach is not very common among the companies in the sector since most organizations only provide annual reports to the shareholders (Michael, 2008).
Ford also responds to the factors in the nonmarket environment by embracing the health requirements related to its products. It trains its employees on how to develop motor vehicles that are safe for human use. Compared to other organizations in the industry, Ford has been very effective in developing efficient motor vehicles. For example, the company has few cases of product recalls compared to its rivals such as Toyota and Chrysler. The situation indicates that the company is concerned about consumer ratings on its products (Boddewyn, 2003).
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