Thursday 23 May 2013

Ford homes in on emerging markets

Global strategy expert Michael Mol believes Ford’s decision to close its Australian operation shows it is honing its strategy on emerging markets and its American home market.

After 88 years of manufacturing in Australia Ford announced it will cease production there in 2016.

Professor Mol, a Professor of Strategic Management at Warwick Business School, UK, says the car industry is undergoing a transformation with more emphasis on emerging markets.

“Since the financial crisis struck in 2007 the car industry has been badly affected and is looking to the emerging markets to re-stimulate growth,” said Professor Mol.

“Shutting its Australian manufacturing operation is very unfortunate for that country, but it makes strategic sense. The production costs are high and demand in Australia is falling so it makes sense to move this elsewhere.

“The day before this announcement Ford also revealed it was increasing production in North America by 200,000, showing its continuing commitment to its home market. This is the kind of large scale operation that car manufacturers need now, so they can scale up or down quickly to respond to demand.”

Professor Mol also believes there is a change in consumer demand that Ford is responding to.

“The shift to emerging markets also brings it a demand for different models, ones Ford Australia is not producing,” said Professor Mol. “In emerging markets like China the demand is for high-end luxury brands or at the other end of the scale for cheap, small cars, these are the two growing areas, not the mid-sized range.

“Cost is a big part of the decision by Ford to shut down its Australian operation, but also Australia, just like Europe holds an ever-decreasing skills advantage over emerging markets. Countries like Thailand and China have upgraded the skills of their workforce over the last few years and when that is combined with the strong Australian dollar and the increasing production costs, it made Ford’s decision inevitable.

“Historically the car industry has looked at national markets, but these days it takes a global outlook. The car industry has gone through substantial change over the last few years because of the financial crisis. There has been a major shift of focus towards Brazil, China and other emerging markets.”                                

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