GM AND F ORD ’ S P URSUIT OF D IFFERENT B ENEFITS F ROM G LOBAL M ARKETING GL OB
ID: 435092 • Letter: G
Question
GM AND FORD’S PURSUIT OF DIFFERENT BENEFITS FROM GLOBAL MARKETING
GLOBAL MARKETING THOUGHT: THE 1990s
Ford and General Motors have approached globalization dif- ferently. In its quest for a “world car,” Ford developed the so-called Ford 2000 program by creating five new vehicle centers—four in the United States and one in Europe—each responsible for designing and developing a different type of car worldwide. Ford’s plan was put to test when it built a mid- size world car in 1993 known as the Mondeo in Europe and the Ford Contour in North America. Its plan was to manu- facture 700,000 cars a year in Europe and North America for nearly a decade with only a “refreshing” after 4 or 5 years. Ford executives say they can no longer afford to duplicate efforts and they want to emulate the Japanese, who develop cars that with minor variations can be sold around the world. While the Mondeo/Contour sold 642,000 units in the first 2 years in Europe, it had disappointing sales in the United States, attributed to its comparably higher price relative to the car’s predecessors. Successful product development efforts require that the company avoid two problems that can arise from pur- suing global design. First, the high cost of designing products or components that are acceptable in many settings could negatively affect efficiency. Second, the product, in this case a “world car,” may be low cost but meet the lowest common denominator of taste in all countries.
Alternatively, General Motors took a more regional tack by retaining strong regional operations that develop distinctly different cars for their own. If a car has a strong crossover potential, engineers and marketers cross the Atlantic to suggest customization. Thus, Cadillac got an Americanized version of the Opel Omega small luxury sedan developed by GM’s Opel subsidiary in Germany. GM managers contend that ad hoc efforts are cheaper and more flexible. One senior executive at Ford of Europe countered that “doing two conventional car programs would have cost substantially more than doing one global program.”
The two automakers’ contrasting product development and marketing programs in the 1990s illustrate the traditionally viewed tradeoffs of efficiency and effectiveness, global stan- dardization versus customization, market segmentation versus product differentiation, and product orientation versus cus- tomer orientation. These debates are framed by the tension between bending demand to the will of supply (i.e., driving the market) versus adjusting to market demand (i.e., driven by the market).
It is difficult to conclude that one strategy is always better than the other. One has to be reminded that while the Ford Mondeo/Contour project cost $6 billion and took 6 years to develop, potential cost savings from the global strategy could also be enormous for years to come. On the other hand, GM’s regional strategy could also make sense if regional taste differ- ences remain so large that a Ford-style global strategy could, indeed, end up producing a “blandmobile” that hits the lowest common denominator of taste in different markets.
Which was a winning strategy in the 1990s? Ford’s ex-president, Jacques Nasser, wanted to keep the efficiencies generated from central thinking about design and production. But he wanted to reintroduce the market focus in regions across the globe that will give Ford stronger brands and more appeal- ing products. The Ford 2000 was a good idea carried a bit too far. Ford Contour was discontinued from the U.S. market in 2001. Ford is now trying to redefine the Ford 2000 program with a heightened emphasis on the company’s brands and to give the various regional and brand units more autonomy.
GLOBAL MARKETING THOUGHT: THE 2000s
The first decade of the twenty-first century proved to be period of struggle and retrenchment for both Ford and GM as they faced eroding U.S. market share, soaring gasoline prices, and an overdependence on declining sales of sport utility vehicles
Case 8 • Global Marketing Strategies
(SUVs) as well as high U.S. healthcare costs for their aging workforce. By 2005, both Ford and GM’s corporate bonds had been downgraded to junk status. In order to shore up its cash flow, Ford had to sell its luxury brands, Aston Martin and Volvo, ending its intended goal to build strong luxury divisions. While Ford managed to further reduce debt and maintain cash flow by a debt-for-equity exchange, GM filed for bankruptcy in 2009. While in bankruptcy, GM shed Hummer, Pontiac, Saturn, and Saab to streamline its operations. With the U.S. government’s financial backing (i.e., the government’s majority ownership), GM appeared from bankruptcy and made an initial public offering in 2010 to continue its business and returned to profitability in 2011. During this period, both automakers were busy dealing with their own survival issues and as a result, they did not develop any clear strategic vision other than cutting costs and streamlining operations.
GLOBAL MARKETING THOUGHT: THE 2010s
The automobile industry today is a growth industry in emerg- ing markets. Only about 12 percent of the earth’s 7 billion people enjoy the benefits of vehicle ownership, and industry growth remains positive at about 20 percent per decade, with the potential for global annual sales of 96 million vehicles by 2016. Most of this expansion will occur in emerging markets such as China, India, Russia, and Brazil.
General Motors’ strategy in China and other Asian mar- kets is very aggressive. Alliances have been the key to its marketing strategies. For example, GM earlier acquired the majority of Korea’s Daewoo Motor Company’s automotive assets in 2002. At the same time, the company has used an approach that is more akin to a “loose confederation” in join- ing recently with other partners such as Suzuki, Fuji, and Fiat. GM has a minority equity stake in each of these companies. In addition, GM has major joint ventures in both China and Russia. GM’s alliance strategy and its initiatives to develop new markets are key elements in the company’s approach to globalization. Alliances afford the opportunity for com- ponent and architecture sharing as well as the reduction in
Sources: Larry J. Howell and Jamie C. Hsu, “Globalization within the Auto Industry,” Research Technology Management, 45, July/August 2002, pp. 43–49; “Where Are the Hot Cars?” Business Week, June 24, 2002, pp. 66–67; “Small Carmakers Rise in Large China Market,” China Daily, June 3, 2005; Jill Jusko, “Counterfeiters Be Gone,” “Can Global Automakers Learn from Their Mistakes?,” Business- Week.com, June 16, 2008; “Autos: China Auto Sales Up 17% in First Half Year,” ChinaDialy.com, July 10, 2008; “Autos: GM, Ford: China H1 Sales Up Steadily,” ChinaDaily.com, July 9, 2008; “China 2011 Car Sales up 5.2 Percent,” Reuters, January 16, 2012; “2nd UPDATE: GM, Ford China Sales Exceed Industry Forecast,” Wall Street Journal, January 9, 2012; “Global Auto Forecasts 77.2 Million in 2012 and 96 Million in 2016,” NextBigFigure.com, January 3, 2012; “GM Seen Planning Global Reorganization Against ‘Fiefdoms’,” Bloomberg.com, August 17, 2012; and “China Car Sales Growth Slows Further,” Wall Street Journal, January 12, 2016.
R&D costs that will be critical for manufacturers look- ing ahead to hybrid vehicle technology and, ultimately, hydrogen-based fuel-cell vehicles. By pulling together the tal- ents and resources from its global R&D network, GM has been able to reduce redundancy, accelerate ongoing development, and jump-start new development. Nevertheless, globaliza- tion entails risks from many quarters: economics, political forces, energy, and national differences in social and cultural norms. Consequently, GM is now focusing on the recruitment and empowerment of an international executive team, which will help accelerate the globalization process. For example, in Australia, GM operates through a subsidiary Holden, and it is closely integrated into GM’s global manufacturing and marketing strategies. In other words, GM is now planning a reorganization that would move it away from long-entrenched regional authority toward a structure built on global functions to improve efficiency. Power would shift from regional chiefs to global leaders in areas such as marketing, purchasing, and product development.
Ford is also planning to boost its worldwide sales volumes, putting it close to parity with GM and Toyota. But the task will not be easy. The company faces a variety of challenges, including the need to revive its long-struggling Lincoln brand and rebuild its European operations for the past decade. Its new global goal calls for a much stronger market position in emerging markets, including China where Ford has been able to capture only 4 percent market share as opposed to GM’s 15 percent. Although Ford once tried to emulate GM’s regional strategy focus, a new management team at Ford has shaken up its management structure and transformed its operations from a network of regional fiefdoms into a truly integrated global entity. Again, we see a much clearer efficiency-seeking strategy at work.
In the promising growing economy, car demand in China is shifting away from large sedans long favored by government officials to economy models demanded by families. GM and Ford face harsh competition from both homegrown and Korean and Japanese automakers.
Car sales in China climbed 5.2 percent in 2011, the slowest pace since the turn of the century when the nation’s car culture started to take off. This rate is much lower than that of 2007 and 2008, which reached 22.3 percent and 17.1 percent, respec- tively. Still, according to the China Association of Automobile Manufacturers, a total of 14.5 million sedans, SUVs, and mul- tipurpose vehicles were shipped to dealers in 2011. Amid a slowing economy and a less favorable domestic policy envi- ronment that caused this drop, GM and Ford still exceeded an industry group’s forecast for total vehicle sales growth in China, suggesting that demand for some foreign brands con- tinues to grow in the market. Ford’s vehicle sales in China rose 7 percent to 519,390 units in 2011, following growth of 40 percent in 2010. GM’s sales in China rose 8.3 percent to 2.55 million in 2011. China’s car sales reached a new high in 2015, but due to a recent recessionary cooling-off of the Chinese economy, growth in vehicle sales has slowed and demand in the world’s largest auto market is expected to cool further in 2016 and beyond. With looming overcapacity, it could result in more severe competition among foreign automakers.
Although we cannot say that General Motors’ and Ford’s global strategies are converging to emphasize manufacturing and marketing efficiency, one thing is clear. When the cost and competitive pressures are mounting, the companies have to emphasize operational efficiency on a global scale. And as the growth markets have shifted from developed countries to emerging markets, the automakers have to shift their focal marketing strategy to these new markets. As a result, the new markets’ customer needs and tastes are increasingly shaping the automakers’ product development strategy.
DISCUSSION QUESTIONS
1. Discuss what is missing in GM’s and Ford’s global strategy.
2. Evaluate GM’s going eco-friendly in China and discuss the possible global strategy for GM and Ford in an era of oil shortages.
3. Do you think GM’s success in China was largely helped by its joint ventures? If so, do you think the approach can be applied in other emerging markets? Explain your answer.
4. Evaluate Ford’s decision to expand its factory and assem- bly plant in China. To what extent do you think Ford’s move will help the company gain better position in the market as compared to its GM counterpart?
Explanation / Answer
1. In case of GM, the company was aiming at attaining the benefits of global marketing with the efforts of capitalizing it structurally over time. Ford on the other hand was focusing on the fads of the global marketing strategy. They were missing on a major strategic point i.e. capitalizing the manufacturing of low cost cars in developing countries like China and India.
2. GM went ecofriendly in China with the objective of exploring the field of energy efficient and eco-friendly automotive technologies. GM was also focusing on searching alternatives for fuel pathways that can be economically affordable, technologically feasible and ecologically sustainable.
In the era of global oil shortage, both GM and Ford must adopt technologically advanced manufacturing approach of producing electric cars instead of traditionally oil consuming cars. Electric cars are the future of the world as the rate of oil in global reserves is depleting and both GM and Ford must consider this as viable opportunity.
3. Yes, in my views, the initial GM’s success was attributed to its strategy of entering into joint ventures with established local companies in the country. Joint venture is one of the most capitalized way of entering into a new market. The company gets the support of the loyal customer base of the local company. Later when it gains popularity and recognition, it can break the joint venture and play solo in the market.
This approach can be applicable in any emerging market in which an established firm is running and ready to enter into a joint venture.
4. Ford’s decision to expand its factory and assembly plant in China can be a good way to capture the Chinese market. This is because then the Government of China will also support Ford’s interventions, as that will help generating employment opportunities in the country. Chinese citizens will also be able to trust the company and hence Ford’s position will become better in the Chinese market.
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