Strategic Alliance - Ford

Analysis of Strategic Alliance with Ford

MINOR PROJECT REPORT ON STRATEGIC ALLIANCES – FORD MOTOR COMPANY

BUILT FOR THE ROAD AHEAD.

Submitted for fulfillment of the requirement for the award of the degree of Bachelor of Business Administration To Guru Gobind Singh Indraprastha University

Under the guidance of: Mrs. Nidhi Prasad Submitted by: Sandeep Singh Sethi
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Analysis of Strategic Alliance with Ford

Roll No.: 05910601709

ANSAL INSTITUTE OF TECHNOLOGY
TO WHOMSOEVER IT MAY CONCERN
This is to certify that the minor project report titled STRATEGIC ALLIANCES – FORD MOTOR COMPANY carried out by SANDEEP SINGH has been accomplished under my guidance and supervision as a duly registered BBA student of the ANSAL INSTITUTE OF TECHNOLOGY (G.G.S I.P. University, New Delhi). This project is being submitted by him in the partial fulfillment of the requirements for the award of the Bachelor of Business Administration from I.P. University. His dissertation represents his original work and is worthy of consideration for the award of the degree of Bachelor of Business Administration. ____________________ (Name and Signature of the Internal Faculty Advisor) Title: Date:

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ACKNOWLEDGEMENT
The Project Report is the outcome of many individuals without whom it cannot be molded, so they deserve thanks. I thank my teacher, Mrs. Nidhi Prasad under whose guidance I have been able to successfully complete this project. I thank all of my friends and fellow classmates for their assistance in this project.

– Sandeep Singh

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CONTENTS
Page no. COMPANY PROFILE ………………………………………………………….. 6 ORGANIZATION STRUCTURE ……………………………………………… 6 ORGANIZATION HISTORY …………………………………………………... 7 In 1903 …………………………………………………………………….. 7
In In In In In 1908 1919 1939 1947 1950 …………………………………………………………………….. …………………………………………………………………….. …………………………………………………………………….. …………………………………………………………………….. …………………………………………………………………….. 7 8 8 8 8

COMPANY PRODUCTS ………………………………………………………. 10 EXECUTIVE SUMMARY ……………………………………………………… 11
The Strategic Alliance Boom ……………………………………………… 11

INTRODUCTION ……………………………………………….………………. 13

Scope of the Study ………………………………………………………… 14 Objective …………………………………………………………………….14 Porter’s Five Forces ………………………………………………………....17

COMPANY PROFILE (Analytical Report) ……………………………………. 19
Competitor Analysis ……………………………………………………….. 19 Sales Analysis ……………………………………………………………… 19 Recent Sales at Ford ………………………………………………………... 20 Sales Comparisons (Most Recent Fiscal Year) …………………………….. 21 Recent Stock Performance …………………………………………………. 21 Summary of company valuations …………………………………………... 22 Dividend Analysis ………………………………………………………….. 23 Profitability Analysis ………………………………………………………. 23 Profitability Comparison ………………………………………………….... 24 Inventory Analysis …………………………………………………………. 24 Research and Development ……………………………………………….... 25 Financial Position …………………………………………………………... 25 GLOBAL STRATEGY…………………………………………………….. 26

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Ford’s Promotional Leadership …………………………………………….. 27 Ford Motor Company to increase its Investment in South Africa …………. 28 BRAND MANAGEMENT AT FORD …………………………………….. 28 Applications of Brand Management in Ford’s Globalised Structure ……….. 29

INDUSTRY ANALYSIS: GLOBAL SCENARIO ……………………………… 30
Overview 30 THE LARGEST CAR PARKS IN THE WORLD ………………………… 31 United States ………………………………………………………. 31 WESTERN EUROPE ……………………………………………... 33 Japan …………………………………………………….……….... 34 India …………………………………………………….………… 36 Rest of Asia ……………………………………………………….. 37 Future trends and outlook ……………………………………….………..... 37 Porter’s Model ……………………………………………………………... 38 Porter’s generic strategy …………………………………………………… 40

LITERATURE REVIEW ………………………………………………………... 41
INTRODUCTION TO STRATEGIC ALLIANCES ………………………. 41 Summary …………………………………………………………... 41 What is a business network? ………………………………………. 41 Why network? ……………………………………………………... 41 Characteristics of a business network ……………………………... 42 What do networks do? ……………………………………………... 42 Why network now? ………………………………………………… 44 MODES OF ENTRY INTO FOREIGN MARKET ………………………... 44 Different forms of strategic alliances …………………………….... 45 CHOOSING STRATEGIC PARTNER …………………………………….. 47 Alliances and Risk …………………………………………………. 48 MANAGING STRATEGIC RISK …………………………………………. 49 RELATIONSHIP RISK IN ALLIANCES …………………………………. 49 How companies can manage relationship risk ……………………... 49 Alliance strategy ……………………………………………………. 51 A dynamic approach ………………………………………………... 51 Alliance portfolios ………………………………………………….. 52 Build capability ……………………………………………………... 52

CRITICAL ANALYSIS …………………………………………………………... 54
ALLIANCE HISTORY …………………………………………………….. 54 A BRIEF OVERVIEW OF ALLIANCE ………………………………….... 55 Ford and Mazda ……………………………………………………. 55

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Ford and Nissan: A Brief Alliance Overview …………………….... 56 Technology frontier ………………………………………………… 56 Critical analysis of Ford’s alliances ………………………………... 56

LIMITATIONS …………………………………………………………………… 60 RECOMMENDATIONS …………………………………………………………. 61 CONCLUSION ……………………………………………………………………. 65 REFERENCES ……………………………………………………………………. 66 BIBLIOGRAPHY ………………………………………………………………… 67 APPENDIX ………………………………………………………………………... 68

COMPANY PROFILE

FOUNDER ESTABLISHED SECTOR INDUSTRY HEAD OFFICE

: : : : :

Henry Ford 1903 Consumer Goods Auto Manufacturers – Major Ford Motor Co. One American Road Dearborn, MI 48126 United States Phone: 313-322-3000 Fax: 313-845-7512 6
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ORGANIZATION STRUCTURE

CHAIRMAN

:

Mr. William Clay Ford Jr.

CEO

:
:

Mr. Alan Mulally

EMPLOYEES

283,000

HISTORY

Henry Ford

IN 1903
Ford was launched in a converted factory in 1903 with $28,000 in cash from twelve investors, most notably John and Horace Dodge, who would later found the Dodge Brothers Motor Vechicle company. Henry Ford was 40 years old when he founded the 7
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Ford Motor Company, which would go on to become one of the largest and most profitable companies in the world, as well as being one of the few to survive the great depression. The largest family-controlled company in the world, the Ford Motor Company has been in continuous family control for over 100 years.

IN 1908
Henry Ford introduced the Model T. Earlier models were produced at a rate of only a few a day at a rented factory on Mack Avenue in Detroit, Michigan with groups of two or three men working on each car from components made to order by other companies.

In 1919
Edsel Ford succeeded his father as president of the company, although Henry still kept a hand in management. Although prices were kept low through highly efficient engineering, the company used an old-fashioned personalized management system, and neglected consumer demand for improved vehicles.

In 1939
The Nazis assumed day to day control of Ford factories in Germany.With Europe under siege, Henry Ford's genius would be turned to mass production for the war effort.

In 1947
Henry Ford passed away. Ernest Breech was hired and became the Executive Vice President. Then later became Board Chairman in 1955.

In 1950
Ford introduced the iconic Thunderbird in 1955 and the Edsel brand automobile line in 1958. Edsel was cancelled after less than 27 months in the marketplace in November 1960. The corporation bounced back from the failure of the Edsel by introducing its 8
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compact Ford Falcon in 1960 and the Mustang in 1964. By 1967, Ford of Europe was established. Lee Iacocca was involved with the design of several successful Ford automobiles, most notably the Ford Mustang. He was also the "moving force," as one court put it, behind the notorious Ford Pinto. He promoted other ideas which did not reach the marketplace as Ford products. Eventually, he became the president of the Ford Motor Company, but he clashed with Henry Ford II and ultimately, on July 13, 1978, he was famously fired by Henry II, despite Ford posting a $2.2 billion dollar profit for the year. In 1979 Phil Caldwell became Chairman, succeeded in 1985 by Don Petersen Harold Poling served as Chairman and CEO from 1990-1993. Alex Trotman was Chairman and CEO from 1993-1998, and Jacques Nasser served at the helm from 19992001. Henry Ford's great-grandson, William Clay Ford Jr., is the company's current Chairman of the Board and was CEO until September 5, 2006, when he named Alan mullay Boeing as his successor. As of 2006, the Ford family owns about 5 percent of Ford's shares and controls about 40 percent of the voting power through a separate class of stock. The company expects to burn through $17 billion in cash before turning a profit. The action was unprecedented in the company's 103 year history.

FORD PRODUCTS
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➢ FORD SUPER DUTY22380  47660  NA  NA  3  Pickup  Pickups

➢ FORD E-SERIES

➢ FORD TAURES ➢ Ford Taurus X ➢ Ford Ranger ➢ Ford Mustang Convertible ➢ Ford Fusion ➢ Ford Edge ➢ Ford F-150

25920 33600 NA NA 8 Vans Vans 23245 26845
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18 28 5 Sedan Sedans Sync 13995 22485 21 26 3 Pickup Pickups 19250 31845 17 26 4 Coupe Performance,Coupes,Performance

EXECUTIVE SUMMARY
Alliances are the hallmark of contemporary corporate business. Different companies including a number of global giants, Global conglomerates and reputed business 11
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groups are entering into long-term strategic alliances with other companies to enhance the prospects of their business gains and widen the base of operations throughout the world. Over the last few years- and this is too striking a fact to be lost sight of – global business alliance has emerged as an extremely significant component of overall operational strategy of various market players. Though the measure of expected success which such alliances are meant for, is yet to be analyzed in many cases, one can presuppose it by referring to what our precedents moving on this trail have achieved in the pat. No doubt, trail of alliance is not altogether smooth because it has to be paved and determined by mutually agreed business goals, long-terms as well as short-term strategies, business mission, motto and philosophy involving all those who make such alliances, but a business alliance does not offer an entirely ‘democratic’ space wherein all parties concerned do necessarily have an equal say on every matter. In other words, one has to take precedence over the other over the other even though ‘the bigger and stronger’ cannot afford to be authoritarian in its approach so as to marginalize ‘the smaller and weaker’ party. In many cases, however, a business alliance does not stand for an alliance between two parties of which one is ‘bigger and stranger’ than the other in terms of business network, operational base and resourcefulness. Such alliances are entered into by various parties concerned as alliances for ‘symbioses. It has been observed that this type of business alliance has more chances to avoid frictions and get the best out of the circumstances under which they join their hands. The Strategic Alliance Boom In the new global environment, with greater competition form more and more

products and choices, alliances are not just a planning option but a strategic necessity. As Jim Kelly, CEO of UPS, which has a number of global alliances, puts it, “The old adage ‘If you can’t beat ‘em, join ‘em,’ is being replaced by ‘Join ‘em and you can’t be beat. “In fact, new technology companies in software, biotechnology, or telecommunications are now usually “born global”. HDM, a computer mapping company, had a joint venture in Japan and development groups in Canada and Russia within two years of its formation. “Virtually everything we do is partnerships,” says Tom Parameter, president of Protein Polymer Technologies, Inc., biomaterials manufacturer in San Diego Alliances are crucial because Protein Polymer can’t build markets on its own.

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Strategic alliances are booming across the entire spectrum of industries and services and for a wide variety of purposes, According to Booz, Allen & Hamilton, the number U.S. firms with partners in Europe, Asia, and Latin America are growing at a rate of 25 percent annually. Why the boom? Here are several strategic reasons companies enter into alliances:


Fill gaps in current market and technology

 Turn excess manufacturing capacity into profits  Reduce risk and entry costs into new markets  Accelerate product introductions  Achieve economies of scale  Overcome legal and trade barriers  Extend the scope of existing operations  Cut exit costs when divesting operations Despite the many good reasons for pursuing alliances, a high percentage end in failure. A study by McKinsey & Company revealed that roughly one-third of 49 alliances failed to live up to the partner’s expectations. Yet such painful lessons are teaching companies how to craft a winning alliance. Three keys seem to be:
1.

Strategic fit: Before even considering an alliance, companies need to assess their own core competencies. Then they need to find a partner that will complement them in business lines, geographic positions, of competencies. A good example of strategic fit is AT&T and Sovintel, a Russian telephone company. The two joined forces to offer high-speed ISDN services for digitized voice, data, and video communication between the two countries. By joining together, the two telecommunications companies can offer new services for more business customers than either could do alone.

2.

A focus on the long term: Rather than joining forces to save a few dollars, strategic partners should focus more on gains that can be harvested for years to come. Corning the $5– billion-a-year glass and ceramics make, is renowned for making partnerships. It has derived half of its products from joint ventures 13
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and even defines itself as a ‘network of organizations.” That network includes German and Korean electronics giants Siemens and Samsung, and Mexico’s biggest glassmaker, Vitro.
3.

Flexibility: Alliances can last only if they’re flexible. One example of a flexible partnership is Merck’s alliances with AB Astra of Sweden. Merck started out simply with U.S. rights to its partner’s new drugs. For the next phase, Merck set up a new corporation to handle the partnership’s $500million-a-year business and sold half the equity to Astra.

INTRODUCTION
Contemporary world of business is characterized by the emergence of numerous trends and strategies of unprecedented potentials. The essential thrust of all these, as it can be seen in the way of their formulation, structuring, paradigms of execution and pragmatic fallouts, is not only on widening the horizons business operations to a formidably global extent, but also on realizing the prospects of a safe future amidst the key sectors of business and economy. Among these strategies, the strategy of global alliance has come up as perhaps the most ‘talked about’ and ‘sought after’ one, which the global business managers of different companies are striving indefatigably to work out, each in accordance with one’s set targets and objectives. The benefits and bottlenecks which the attainment of a global business alliance involves; the prerequisites and demands of such alliance; the way it compels the alliance partners of bring about fundamental policy changes in different spheres of their business operations in different spheres of their business operations; the way it inculcates in them a fresh sense of reciprocity by bringing into focus new set of operational urgencies and attitudinal imperatives arising out of the ‘merger of objects’ as well as the ‘merger of interests’; the futuristic implications of imbibing and putting into practice the terminologies of the new business sense underlying such alliance – are some of the basic issues which have been taken up by the present study. Scope of the Study This study highlights the present and future scenario of alliance with reference to the business operations of the U.S.-based automobile giant Ford in its bid to adopt the strategy of global alliance. It incorporates in its purview different aspects and dimensions of this company’s business operations in the US, Europe and Asia. As it 14
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has been brought to the fore in this study, every alliance that a company enters into doesn’t always turn out to be so successful as it is usually presupposed. The study touches upon not only the advantages but also the disadvantages of alliance by dealing with their possible implications in the context of Ford.

Objective One whole section of this study is devoted to a profile of the automobile industry as it exists today in different parts of the world. Here, an attempt has been made to dwell upon different players with their global operational network. However, the basic purpose is not to highlight the performance and strategic initiatives of different companies ‘per se’, but to emphasize the striking ‘push’ and ‘pull’ factors that constitute the fabric, contours and orientations of global automobile market on national, transnational and continental scales. This section is followed by another chapter under the heading ‘company analysis’, which aims to briefly trace the origin and evolution of Ford as a global automobile giant along with its internal restructuring and the process of structural strategic readjustment triggered by its management to reckon with the driving forces of automobile market in different contexts. The study also seeks to trace the causes of alliances being worked out by the automobiles giant Ford as part of its global business strategy. Besides the problems and deadlocks of strategic alliance have also been dealt with through the focus is largely on the problems and deadlocks faced by Ford. The study also focuses the sales trends, marketing trends, technology advancements, demand and supply situation as well as different aspects of automobile business extensively. In this regard, I deem it significant to mention a few characteristics differences between situations and patterns of European as well as American Automobile markets on the one hand and Asian market on the other. One major difference lies in what can be termed as the facility of replacement for different target groups of consumers. In European and American markets, consumers may get their old vehicles replaced by brand-new ones and thus, are able to save the cost and labour of repairing. On the other hand, the automobile consumers in the Asian markets, have considerably little access to the privilege of replacement. So, they have to take resort to repairing only when some major or minor defect occurs in their vehicles. The basic 15
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reason for this difference rests on the respective difference in the labour costs in these two contexts of marketing. As we see, the replacement facility for target consumers draws sustenance from much higher labour costs prevailing in the American as well as European markets. On the other hand, labour costs are substantially low in different Asian countries. That is why repairing is in vogue. Here, I would like to illustrate this point by presenting a brief analysis of the financial performance of Ford, the automobile giant vis-à-vis its marketing and sales situation as affected by the labour’s share or participation in them and magnitude of the labour cost factor in their accomplishment. In economic analysis, productivity is measured by relating a physical measure of output to a physical measure of labour or capital input, such as cars per employee. In many manufacturing organizations, it is not possible to identify a single physical unit of output which is produced by the firm, and in these cases output has to be measured in financial terms, such as value added per employee. In the case of Ford UK, increased productivity in physical units per employee is by 65% from 1982 to 1988. We can see that this productivity gain was made up of an increase in output of 13% and a reduction in employees of 31%, with the reduction in the workforce making the main contribution to productivity gain. Labour productivity fell in the recession, however, to 13 vehicles per employee in 1991, mirroring the falls in real sales (Table-1 in annexure) and real value added (see table-2 in annexure). Although the physical productivity calculation in Table-3 (see in annexure) is useful in assessing how Ford has performed over the last ten years, it has limited applicability when we are comparing one firm with another. This is because no two firms are the same, and in most cases there may be no single physical homogeneous unit of output. As we can see academic researchers have used a physical productivity measure – cars per employee – to compare car manufacturers, suggesting that Toyota produces twice as many cars per employee as Ford US. This calculation of physical units per employee at first seems a sensible one. To get around the problem of firms generally producing a variable output mix and also having differing degrees of vertical integration, we can use instead a financial measure of net output (value added) in relation to labour and capital input for 16
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productivity calculations. The financial measure of value added per employee automatically corrects for the degree of vertical integration and represents all physical output in one financial variable – value added. Table-4 (see annexure) illustrates this calculation for Ford UK, using the value added figures from Table-2 (see annexure) and employment from Table-3. It shows that value added generated per employee is flat from 1982 to 1984, because value added falls at the same rate as employment drops. By 1986 real value added is still at the 1984 level, but employment loss has resulted in the productivity (value added per employee) increasing. In the general economic upswing up to 1988, real value added per employee was some 75% higher than that of 1982, but in the recession, value added per employee collapsed. In addition to using real value added generated per employee to indicate the productivity of labour, we can also calculate value added generated per £ value of fixed assets, to indicate the productivity of fixed assets. This calculation for Ford UK is illustrated in Table-5 (see annexure). It can be seen from Table-5 that fixed assets at Ford UK generated £1.36 of value added in 1982, but that this fell by 18% between 1982 and 1986. Nineteen eightyeight was a peak year for Ford UK, and the value added generated by fixed assets returned to 1982 levels, only to collapse again in the subsequent recession. It is generally the case that the greatest share of the value added generated by the firm is used to pay labour. If market sales fall, labour’s share in value added will rise. This has the effect of squeezing profits, particularly as firms generally write off a constant proportion of their fixed assets as depreciation each year. The three cases in Table-6 (see annexure) represent different types of organization – a retailer of food and drink, a conglomerate specializing in growth through acquisition, and a manufacturing company. Labour’s share in value added was around 70% in each company in 1983/4, but in each case this level fell as the economy recovered in the mid-1980s. Demand conditions in the UK were favourable for Ford UK after 1983, and vehicles sold in the UK increased by 22% from 1983 to 1989, while employment fell by 31%. This combination of growing sales and reduced employment served to reduce labour’s share of value added to 45% in 1989. At this stage, as we shall see, Ford UK was 17
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generating internally a record level of cash flow and profit. The recession hit car sales hard, however, and labour’s share in value added at Ford rocketed upwards. The Ford care illustrates a fundamental point : when sales volume falls, value added generated will also fall, labour’s share of value added will increase, and profit will decline. In this situation, if there is no prospect of an immediate sales recovery, job losses are inevitable when the firm has to renormalize labour’s share of value added. Porter’s Five Forces To have a macro overview of Automobile, I will explain the five forces, which makes up the Industry structure. In Porter’s view the performance of individual corporation is determined by the extent to which they cope up with, and manipulate, the five forces which are: • • • • • The bargaining power of suppliers The bargaining power of buyer The threat of new entrants. The threat of substitute products; and Rivalry among existing firms.

In the automobile industry bargaining power of supplier is strong. It implies that in the automobile market the suppliers to the different locations and manufacturing units are the raw material, which is supplied to the automobile manufacturers in order to provide services to the end customer. If I take the suppliers of automobiles that is all the automobile manufacturing company like automobiles then it seems that suppliers have the monopoly to sell their automobiles there is very less bargaining space left with the automobiles itself. Bargaining power of buyers in the industry is strong. As we know there are many players in the market offering competitive packages to the customers, the competition is very tight. This gives more choice to the customer and its difficult to guard the customer loyalty as well. In this market scenario the bargaining power of the buyers is more than it used to be less in the past days when there were limited number of automobiles in the industry. Threat to new entrants is very much. To enter into the airlines industry and to reap profits is very difficult because it requires huge capital investment, strong 18
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infrastructure and R&D in some fields. It is quite risky for the new player as the competition is existing firms is very high and the new entrant would be in much risky position as to fight with the known brand and to make its position in the market it would not be that easy. So, for new entrants it is very difficult to enter and to reach breakeven level. There is no substitute to the product. This is the best, most enduring and popular mode of transportation and to substitute it with some other mode, which is as reliable as this is, and then it is not possible. So, there is no substitute. Last factor is rivalry among the existing firms, which is increasing in the automobile industry. More and more automobiles are fighting for their share for the same routes and destination. They are adopting different marketing tools. Not only these but other automobile giants continuously improve its services and try to set an example of excellence in the automobile industry to gain more and more market share. Rivalry is increasing day by day which in turns give rise to strategic alliances, which is one way to get rid of competition and to share the profits together. The effect of alliances/ mergers would be that it would in turn reduce competition, reduce the cost involved by sharing resources and thus reaping more profit.

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COMPANY PROFILE (Analytical Report)
Ford Motor Company. The principal activities of the Group are within two principal business segments. The Automotive segment consists of the design, manufacture, sale and service of cars, trucks, automotive components and systems. The Financial Services segment consists of vehicle-related financing, leasing and insurance, renting and leasing of cars and trucks and renting industrial and construction equipment and other activities. Visteon Corp spun-off during the second quarter of 2000. During the year, the Company purchased the Land Rover business from the BMW Group. The Company has operations in over 30 countries and sells vehicles in over 200 markets. During the year, the company sold 7.4 million vehicles throughout the world. Automotive accounted for 83% of 2000 revenues; ford credit services, 14% and rental of vehicle and equipment, 3%. Competitor Analysis Ford Motor Company operates in the Motor vehicles and car bodies sector. This analysis compares Ford with three other major automobile manufacturers : General Motors Corporation (2000 sales of $182.91 billion of which 88% was Automotive, communications services and ), DaimlerChrysler AG of Germany (2000 sales: 317.60 billion Deutsche Mark [US$144.23 billion] of which 42% was Chrysler Cars), and Toyota Motor Corporation which is based in Japan (2001 sales of 13.42 trillion Japanese Yen [US$108.07 billion] of which 89% was Automotive). Note: not all of these companies have the same fiscal year: the most recent data for each company are being used. Sales Analysis Sales levels dropped significantly in the second quarter of 2001 versus the previous year's second quarter. During the second quarter of 2001, sales at Ford totalled $42.31 billion. This is a drop of 42.0% from the $72.91 billion in sales at the company during the second quarter in 2000. This was the biggest quarterly decline in sales at Ford in the previous 33 quarters. During the first two quarters of 2001, sales totalled $84.68 billion, which is 26.9% lower than through the first two quarters of 2000.

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Ford reported sales of $170.06 billion for the year ending December of 2000. This represents an increase of 4.6% versus 1999, when the company's sales were $162.56 billion. Recent Sales at Ford
(Source: www.corporateinformation.com) See Table-6 in Appendix for complete 10 year Sales

Most of the company's 2000 sales were in its home market of the United States: in 2000, this region's sales were $118.37 billion, which is equivalent to 69.6% of total sales. In 2000, sales in the United States were up 5.3% to $118.37 billion. Although the company's overall sales increased, sales were not up in all regions of the world: sales in Europe were down 3.2% (to $32.13 billion). Ford currently has 345,991 employees. With sales of $170.06 billion, this equates to sales of US$491,527 per employee.

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Sales Comparisons (Most Recent Fiscal Year) Year Ended Dec 2000 Dec 2000 Dec 2000 Mar 2001 Sales Sales Sales/ (US$blns) Growth Emp (US$) 170.064 182.911 144.230 108.067 4.6% 3.6% 8.3% 4.2% 491,527 473,863 346,289 501,125

Company Ford General Motors Corporation DaimlerChrysler AG Toyota Motor Corporation

Largest Region the United States (69.6%) the United States (74.6%) the United States (52.0%) Japan (50.3%)

Recent Stock Performance In recent years, this stock has performed terribly. In 1999, the stock traded as high as $67.88, versus $17.13 on 12/7/01.

For the 52 weeks ending 12/7/01, the stock of this company was down 29.0% to $17.13. During the past 13 weeks, the stock has fallen 8.7%. During the past 52 weeks, the stock of Ford has performed worse than the three comparable companies, which saw changes between -16.4% and 1.2%.

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During the 12 months ending 9/30/01, earnings per share totalled $0.50 per share. Thus, the Price / Earnings ratio is 34.26. These 12 month earnings are substantially lower than the earnings per share achieved during the calendar year ending last December, when the company reported earnings of 3.80 per share. Earnings per share fell 35.2% in 2000 from 1999. Note that the earnings number includes a $.84 charge and excludes a $1.50 charge Disp in 2000 (includes a $.09 charge Dec, includes a $.07 charge Sep and includes a $.68 charge and excludes a $1.50 charge Disp Jun). This company is currently trading at 0.18 times sales. Ford is trading at 1.99 times book value. The company's price to book ratio is higher than that of all three comparable companies, which are trading between 0.97 and 1.63 times book value. Summary of company valuations Price/ Company Ford General Motors Corporation DaimlerChrysler AG Toyota Motor Corporation P/E 34.3 143.3 N/A 19.1 Book 1.99 0.97 1.16 1.63 Price/ Sales 0.18 0.16 0.30 0.84 52 Wk Pr Chg -29.00% 1.16% 1.03% -16.45%

The market capitalization of this company is $31.02 billion . The capitalization of the floating stock (i.e., that which is not closely held) is $29.80 billion .

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Dividend Analysis During the 12 months ending 9/30/01, Ford paid dividends totaling $1.05 per share. Since the stock is currently trading at $17.13, this implies a dividend yield of 6.1%. This company's dividend yield is higher than the three comparable companies (which are currently paying dividends between 0.8% and 4.8% of the stock price). During the quarter ended 9/30/01, the company paid dividends of $0.15 per share. The company has paid a dividend for 6 straight years. During the same 12 month period ended 9/30/01, the Company reported earnings of $0.50 per share. Thus, the company is paying out dividends that are higher than the earnings. Profitability Analysis On the $170.06 billion in sales reported by the company in 2000, the cost of goods sold totalled $110.81 billion, or 65.2% of sales (i.e., the gross profit was 34.8% of sales). This gross profit margin is very slightly better than the company achieved in 1999, when cost of goods sold totalled 65.4% of sales. Ford's 2000 gross profit margin of 34.8% was better than all three comparable companies (which had gross profits in 2000 between 25.2% and 28.8% of sales). The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were $35.63 billion, or 21.0% of sales. This EBITDA to sales ratio is roughly on par with what the company achieved in 1999, when the EBITDA ratio was 20.6% of sales. The three comparable companies had EBITDA margins that were all less (between 10.4% and 16.1%) than that achieved by Ford. In 2000, earnings before extraordinary items at Ford were $5.72 billion, or 3.4% of sales. This profit margin is lower than the level the company achieved in 1999, when the profit margin was 4.5% of sales. The company's return on equity in 2000 was 20.9%. This was significantly worse than the already high 31.2% return the company achieved in 1999. (Extraordinary items have been excluded). Profitability Comparison Company Year 24
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Gross EBITDA

Earns

Analysis of Strategic Alliance with Ford

Profit Margin Margin Ford Ford General Motors Corporation DaimlerChrysler AG Toyota Motor Corporation 2000 1999 2000 2000 2001 34.8% 34.6% 28.8% 25.2% 27.4% 21.0% 20.6% 16.1% 10.4% 12.1%

bef. extra 3.4% 4.5% 2.4% 1.5% 3.5%

During the second quarter of 2001, Ford reported a loss per share of $0.41. In comparison, in the second quarter of 2000, the company reported positive earnings of $1.12 per share. Ford reports profits by product line. During 2000, the itemized operating profits at all divisions were $8.23 billion, which is equal to 4.8% of total sales. Of all the product lines, Ford Credit Services had the highest operating profits in 2000, with operating profits equal to 10.6% of sales. (However, Ford Credit Services only accounts for 14% of total sales at Ford). Automotive had the lowest operating profit margin in 2000, with the operating profit equal to only 3.6% of sales. (This product line is the largest product line at Ford, accounting for approximately 85% of sales in 2000).

Inventory Analysis As of December 2000, the value of the company's inventory totaled $7.51 billion. Since the cost of goods sold was $110.81 billion for the year, the company had 25 days of inventory on hand (another way to look at this is to say that the company turned over its inventory 14.7 times per year). This is an increase in days in inventory from December 1999, when the company had $6.44 billion, which was 22 days of sales in inventory. The 25 days in inventory is lower than the three comparable companies, which had inventories between 31 and 56 days at the end of 2000.

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Analysis of Strategic Alliance with Ford

Research and Development Research and Development Expenses at Ford in 2000 were $6.80 billion, which is equivalent to 4.0% of sales. In 2000, R&D expenditures dropped both as a percentage of sales and in actual amounts: In 1999, Ford spent $7.10 billion on R&D, which was 4.4% of sales. The company's expenditures on R&D in 2000 were higher than all three comparable companies (as a percentage of sales): General Motors Corporation spent 3.6% of its sales on R&D, DaimlerChrysler AG spent 3.9%, and Toyota Motor Corporation spent 3.6%. Financial Position As of December 2000, the company's long term debt was $98.89 billion and total liabilities (i.e., all monies owed) were $261.79 billion. The long term debt to equity ratio of the company is 5.13. This is significantly higher than where the long term debt to equity ratio was in December 1999, when the long term debt to equity ratio was only 2.75. Ford does not appear to be very efficient in collecting payments: As of December 2000, the accounts receivable for the company were $83.82 billion, which is equivalent to 180 days of sales. This is higher than at the end of 1999, when Ford had 168 days of sales in accounts receivable. The 180 days of accounts receivable at Ford are higher than all three comparable companies: General Motors Corporation had 116 days, DaimlerChrysler AG had 91 days, while Toyota Motor Corporation had 133 days outstanding at the end of the fiscal year 2000. Financial Positions LT Debt/ Equity 5.13 2.18 1.15 0.43 26
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Company Ford General Motors Corporation DaimlerChrysler AG Toyota Motor Corporation

Year 2000 2000 2000 2001

Days AR 180 116 91 133

Days Inv. 25 31 56 34

R&D/ Sales 4.0% 3.6% 3.9% 3.6%

Analysis of Strategic Alliance with Ford

GLOBAL STRATEGY Ford Motor Co. has a legacy that still resounds through the industrial economy. In the past, Massive scale yielded massive economies, which yielded competitive advantage. But, as the organization grew larger, individual jobs became granular and focused. Just as old Henry's assembly line parceled an intricate manufacturing operation into discrete tasks, executives at Ford and other companies cleaved their businesses into smaller product groups, then into functional units. Since the executives at the top were the only ones who could see above the partitions, they made the decisions, nudging increasingly immobile giants along their courses. The Ford business model perpetuated stability, and, as long as the universe remained in order, it worked reasonably well. But, as Ford steers into a technology-driven global economy, its weaknesses are becoming evident. Of course, the company is still making money: Profits in 1999 hit an all-time high. But those profits resulted mostly from truck sales, and were made mostly in the United States and Canada. Elsewhere, Ford is sagging. It faces dramatic industry overcapacity and near-flat worldwide demand. As a result, its stock is now trading at less than 10 times its earnings -- just one-third the multiple accorded the Standard & Poor's 500 as a whole. As part of the automaker's cultural overhaul, Ford is embarking on a sweeping attempt to mass-manufacture leaders. It wants to build an army of "warrior-entrepreneurs" -people who have the courage and skills to topple old ideas, and who believe in change passionately enough to make it happen. This year, Ford will send about 2,500 managers to its Leadership Development Center for one of its four programs -- Capstone, Experienced Leader Challenge, Ford Business Associates, and New Business Leader -- instilling in them not just the mindset and vocabulary of a revolutionary but also the tools necessary to achieve a revolution. At the same time, through the Business Leaders Initiative, all 100,000 salaried employees worldwide will participate in business-leadership "cascades," intense exercises that combine trickle-down communications with substantive team projects.

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Analysis of Strategic Alliance with Ford

Ford’s Promotional Leadership The programs vary in their sophistication and intensity, but the urgency behind them is consistent. "You are in the vanguard of a revolution," Friedman exhorts his New Business Leader recruits. "You are the first wave of change, of how we will grow the future leadership of this company." And the programs share a few core canons. For one thing, they're all committed to "action learning.” A month before their weeklong workshop, New Business Leader trainees get an assignment. They must each identify and develop a "Quantum Idea Project" ( QIP ) that will transform Ford into a more consumer-driven, shareholder value-driven company. They must then present that idea to their peers and instructors on the first day of the workshop. After that, they have three months to get the project rolling. Some projects will hit pay dirt, maturing into truly company-changing events. Bobbie Gaunt, who entered the 1997 Capstone program just as she became president of Ford of Canada, recalls her team's mandate to uncover new sources of top-line revenue growth. One big breakthrough to lay out the value chain, and then look at its our core competencies and where the customers are going. Ford is also imbarking on plans to enter the parts-recycling business, start a for-profit driver-education program, and develop a chain of branded maintenance and repair shops. The company has done all three. But most projects won't get nearly as far. The ideas that they encompass will simply be merged into existing initiatives, or will expire without achieving any marked results at all. "In reality, there's no way that a company-changing project should get done by a frontline supervisor in three months. Even ideas that are never implemented, though, help to reset the culture at Ford. The goal, ultimately, is a company whose thousands of leaders, unencumbered by silos, engage continually in quantum ideas that extend throughout the organization. The Ford program has another core principle: leader as teacher. The program makes one a better leader by charging him/her with the task of developing other leaders. It teaches to learn. By doing so, leaders learn more about the company. What's more, we believe that today's executives ought to take responsibility for the growth of tomorrow's leaders." 28
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Analysis of Strategic Alliance with Ford

"Total leadership" is another principle behind Ford's programs. "In order for leaders to be effective in their work, we need to integrate the different roles that they play in the world," he says. "Integration makes people more focused, more concerned with results --and more creative, because they draw from different experiences." Ford Motor Company to increase its Investment in South Africa Ford Motor Company has entered into an agreement with Anglo American Corporation of South Africa Limited that will enable Ford Motor Company to significantly increase its investment in South Africa. Ford, which currently has a 45 percent equity holding in South African Motor Corporation (Pty) Ltd. (SAMCOR) will purchase Anglo American's 45 percent interest in SAMCOR in two tranches - 35 percent with immediate effect and the remaining 10 percent within the next two years. Ford will also purchase Anglo American's 25 percent stake in Ford Credit (South Africa). During the two year transitional period, Ford will continue to enjoy the support of Anglo American and benefit from Anglo's broad based knowledge, experience and expertise within the South African market. Ford has also made an offer to purchase the shares held by the SAMCOR Employees' Trust. BRAND MANAGEMENT AT FORD Brand management really is an operating system. It's a way to build equity in your brands. In the past, within Marketing and Sales, we were organized by function. To achieve this end, there used to be an advertising department, a separate activity charged with merchandising, and still another activity pricing cars and trucks. And each one of these activities was responsible for all brands. In contrast, today brand management is flipped the organizational chart on its side. As a result, within Marketing and Sales there is an individual that "owns" each brand in Ford Motor Company and that's true throughout the world. And it has resulted in the integration all activities around a common vision for the brand and here, integration implies ways and means that can be successfully put into practice to benefit the customers. That's what brand management is about - it's managing the brand in ways that benefit customers.

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Analysis of Strategic Alliance with Ford

There are several brands within Ford. It is helpful to think of the parent company as a brand which serves as an umbrella for what we call "primary" brands - like Ford car or Ford truck or Lincoln or Mercury, or Jaguar or Aston Martin. And then underneath those you have each nameplate brand. For example, one can find a number of different nameplates including Mustang, Explorer, or Mondeo in Europe. In addition, there are also supporting brands, or ancillary brands. A good example is Ford Credit or Red Carpet Lease or Motorcraft. So there are a lot of levels of brands. Brand management focuses on improving the strength of all Ford's brands at all levels. Applications of Brand Management in Ford’s Globalised Structure It can’t be ignored here that a common worldwide process to manage the brands and that certainly feeds globalization. It can do so by developing there is leverage in globalization and brand management is an effective way to get at it. Whether a brand is global depends on the product line and on the market. It can be argued that the customers for an Escort in a sophisticated market like Germany have far different needs, wants, desires and motivations than those of an emerging market. This is something the company needs to work through. In other instances, it may be clear Ford has a global brand.

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Analysis of Strategic Alliance with Ford

INDUSTRY ANALYSIS: GLOBAL SCENARIO

Overview The modern day passenger car is a modern economy's draught animal, driving the growth of upstream industries like steel, iron, aluminum, rubber, plastics, glass, and electronics and downstream industries like advertising and marketing, transport and insurance. The car industry generates large amount of employment opportunities in the economy. For example in the US, every sixth worker is involved in the making of an automobile. The world car production has increased from 44.66mn in 1996 to an estimated 48.3mn cars in 1999. Japan, Canada and USA brought about the major increase, which contribute to 53% of the world's car production. The USA and Japan are the leaders with around 42% of the total world market. However, since the last two to three years, the international passenger car industry has been witnessing an over capacity of more than 30%. The trend suggests that industry volumes may grow by just 2% or around 10mn vehicles per year. If this situation continues for the next few years the world car market may witness shakeout in the near future. Already signs towards this are being observed as the phenomenon of mergers catches on. As per industry experts the number of major players in the world car market may come down from present level of 30 to 5 in next ten to fifteen years. The recent mergers in the international car market are Ford-Volvo, Renault-Nissan, Daimler-Chrysler. A few more players are expected to join the fray in the next few years so as to strengthen their hold in the world market. Among the top car manufacturing companies General Motors and Ford Motors group of USA lead with a contribution of 15.8% and 11.6%, of world car production, respectively. Volkswagen and Toyota stand third and fourth with more than 9% contribution each to the world car production.

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Analysis of Strategic Alliance with Ford

THE LARGEST CAR PARKS IN THE WORLD United States The USA is the largest car market with a strength of around 150mn cars. Traditionally, the market has been dominated by GM and Ford. However, their dominance has recently been challenged by well-known Japanese brands like Toyota, Nissan and Honda whose combined market share is around 20.7% in January 2000. Most other brands have a nominal presence. Volkswagen, for eg, accounts for a minor 2% of the US market while others like Mercedes Benz and BMW constitute a combined share of around 2.1%. In CY99, sales of passenger cars grew by a healthy 6.9%yoy to 8,749,986 units reflecting the buoyant mood of the American economy. In fact, sales were the highest since the 8.99mn figure recorded in CY94. The market rose by some 566,701 units and, for some of the contenders in the field, there were some noteworthy gains. A number of importers recorded best-ever sales results, and the likes of Volkswagen and Audi were reporting sales which were at a twenty-year high. Some of the Japanese firms saw sales fall in what might seem a bull market, particularly Honda, Nissan, Toyota and Suzuki. But it was the performance of the likes of General Motors, Ford and Chrysler that brought the most cause for concern. Despite efforts of the 'Big 3' to give customer incentives in order to keep their showrooms busy, they recorded lackluster sales growth. In fact GM's market share dipped to 29.2% from 29.6% last year. Ford and Chrysler posted sales growth of only 2.9%yoy and 0.8%yoy. Therefore, some analysts have pointed out that the picture is not rosy as it seems for the industry. According to them, customers have preponed purchases to 1999 and in all likelihood sales may fall in 2000 and 2001. They are predicting that sales may touch 8.25mn in CY2000 and 7.84mn in CY01. Another important factor affecting car sales is the steady trend towards big, macho light trucks. In CY86, its last peak sales year, the US market bought 6.8mn more passenger cars than light trucks. In CY99, that gap dwindled to 450,000 units -- in spite of the fact that yoy car sales surged by 6.8%.

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Analysis of Strategic Alliance with Ford

Table-7: Passenger car registrations in the USA
Manufacturer General Motors Ford Honda Toyota Chrysler Nissan Volkswagen Mitsubishi Mazda Hyundai Subaru BMW Mercedes Volvo Lexus Kia Audi Infiniti Saab Jaguar Daewoo Porsche Suzuki Ferrari Rolls Royce Lotus Lamborghini Total Dec-99 195,438 123,734 65,235 64,841 53,430 26,672 23,434 17,786 11,633 13,338 13,044 11,783 14,317 12,162 7,339 5,115 6,479 4,572 2,920 4,946 2,136 2,004 1,089 66 40 9 2 683,564 Dec-98 210,106 117,293 69,756 82,922 51,732 29,437 17,816 10,361 12,021 6,862 14,638 12,161 12,010 8,546 9,695 1,785 6,284 3,935 3,542 2,472 597 1,287 810 77 35 11 3 686,194 % yoy (7.0) 5.5 (6.5) (21.8) 3.3 (9.4) 31.5 71.7 (3.2) 94.4 (10.9) (3.1) 19.2 42.3 (24.3) 186.6 3.1 16.2 (17.6) 100.1 257.8 55.7 34.4 (14.3) 14.3 (18.2) (33.3) (0.4) CY99 % share CY98 2,551,879 29.2 2,425,262 1,581,377 18.1 1,536,687 854,670 9.8 860,471 792,311 9.1 764,749 745,275 8.5 739,217 350,033 4.0 367,781 312,168 3.6 217,937 197,132 2.3 147,956 188,927 2.2 186,502 164,190 1.9 90,217 156,806 1.8 147,833 153,658 1.8 131,559 144,231 1.6 127,111 116,692 1.3 101,172 96,658 1.1 103,065 82,211 0.9 54,311 65,959 0.8 47,517 53,438 0.6 43,594 39,541 0.5 30,757 35,039 0.4 22,503 30,787 0.4 2,242 20,875 0.2 17,243 14,610 0.2 16,169 792 0.0 854 593 0.0 410 110 0.0 130 24 0.0 36 8,749,986 100.0 8,183,285 % share % yoy 29.6 5.2 18.8 2.9 10.5 (0.7) 9.3 3.6 9.0 0.8 4.5 (4.8) 2.7 43.2 1.8 33.2 2.3 1.3 1.1 82.0 1.8 6.1 1.6 16.8 1.6 13.5 1.2 15.3 1.3 (6.2) 0.7 51.4 0.6 38.8 0.5 22.6 0.4 28.6 0.3 55.7 0.0 1273.2 0.2 21.1 0.2 (9.6) 0.0 (7.3) 0.0 44.6 0.0 (15.4) 0.0 (33.3) 100.0 6.9

Source: just-auto.com

The search for something different has, perhaps, led to a situation where three of the top four models/brands are Japanese in origin. The best selling car in the USA is the Toyota 'Camry'. Camry sold 448,162 in CY99, a rise of 4.2%yoy from last year and has been able to maintain its position at the top. The Honda 'Accord' was in second place once again with 404,192 sold, just 0.8% more than the 401,071 of CY98. The top selling US model was third placed Ford 'Taurus', sales edging down by 0.7% to 368,327 from 371,074. Year 2000 started with sales of light vehicles continuing with the pace which was established in 1999. During the month, sales are up a healthy 10.1%yoy. The most surprising gain was in imported cars, up a stunning 34.7%, due largely to the success of products from Volkswagen, Toyota and Hyundai. The strong US economy has continued to benefit nearly every manufacturer and only Chrysler, Kia and Saab have reported lower sales over the same period a year ago. 33
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Analysis of Strategic Alliance with Ford

Table-8: Auto sales in the USA Category Domestic Car Domestic Truck Import Car Import Truck Total Domestic Total Import Total Industry Source: about.com January 2000 465,895 528,146 151,741 56,352 994, 041 208,093 1,202,124 January 1999 431,916 493,678 112,630 53,249 925, 594 165, 879 1,091,473 % yoy 7.9 7.0 34.7 5.8 7.4 25.4 10.1

WESTERN EUROPE In CY99, car sales crossed the 15mn mark for the first time as depicted in the table below. The figures are estimated, in the sense that for several countries actual sales are taken into consideration for the first twenty days while for the rest of the 10 days, it is estimated. It can be so that the final tally is different from what is shown in the table. However, a clear indication has emerged that sales have started to peter down in the last two months of the year with it rising by only 0.3%yoy in December 1999. In December itself – as in November – there were nine countries which posted lower yoy sales. Germany clocked sales of 3,787,679 units, some 1.4% up on the 3,735,987 figure posted in CY98. However, sales were clearly tailing off towards the end of the year. The market was stimulated a little by the need for Mercedes-Benz to put a good face on the sales of the Smart small car, and by the race to the wire between the Volkswagen Golf and the GM Opel Astra. Italy is the second biggest market in Europe, and still remains the most important market for the Fiat Group, despite efforts to alter the position. The Italian car market dipped by 1.2% in CY99, to 2,349,200 units from 2,378,592 units, despite a mild surge in December. Analysts expect that unless the Italian Government chooses to reinstate scrappage incentives (as they have been encouraged to do by Fiat), the market will continue to slide during the next two years, although not to a great extent. The UK car market is expected to fall as the market has kept well ahead of the true demand in the last two years and a correction is 34
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Analysis of Strategic Alliance with Ford

expected in the next two years. The French market is also expected to settle down after a good showing in CY99 mainly brought about by higher sales from PSA and Renault. Table-9: Countrywide estimated sales in Western Europe
Country Germany Italy United Kingdom France Spain Netherlands Belgium Switzerland Austria Sweden Portugal Greece Eire Denmark Finland Norway Luxembourg Iceland Total Dec-99 270,000 128,500 84,582 186,476 123,755 9,899 22,732 21,681 13,344 33,632 16,117 16,827 2,002 10,944 5,930 6,860 2,096 705 956,062 Dec-98 290,648 114,647 96,346 169,836 119,688 12,921 20,839 20,181 13,067 23,451 22,678 17,975 2,355 11,612 8,124 5,981 2,104 700 953,153 %yoy (7.1) 12.1 (12.2) 9.8 3.4 (23.4) 9.1 7.4 2.1 43.4 (28.9) (6.4) (15.0) (5.8) (27.0) 14.7 (0.4) 0.7 0.3 CY99 % share CY98 % share 3,787,679 25.1 3,735,987 26.0 2,349,200 15.6 2,378,592 16.6 2,197,615 14.6 2,247,403 15.6 2,148,423 14.3 1,943,553 13.5 1,408,070 9.3 1,192,530 8.3 611,767 4.1 543,057 3.8 489,621 3.3 452,129 3.1 317,909 2.1 296,945 2.1 315,112 2.1 295,865 2.1 295,151 2.0 253,430 1.8 273,224 1.8 248,398 1.7 261,711 1.7 180,145 1.3 174,198 1.2 145,702 1.0 142,343 0.9 162,495 1.1 136,324 0.9 125,751 0.9 101,114 0.7 117,977 0.8 40,412 0.3 35,928 0.3 15,323 0.1 13,593 0.1 15,065,196 100.0 14,369,480 100.0 %yoy 1.4 (1.2) (2.2) 10.5 18.1 12.7 8.3 7.1 6.5 16.5 10.0 45.3 19.6 (12.4) 8.4 (14.3) 12.5 12.7 4.8

Source: just-auto.com The market of Western Europe is spread out more or less evenly among four big players who account for more than 40% of the market. The largest player is Volkswagen, which has market share of around 11.5%. GM and Renault come in next with a market share of around 11% each. They are followed by Ford, Peugeot, Fiat, and Mercedes Benz (all with market share of more than 5%). Toyota is the highest selling Japanese brand with a market share of 3.2%.

Japan The profile of the Japanese market is very different than those of the USA and Western Europe. What marks out the market is the tight import restrictions and a strict vehicle-testing regime followed there. This means that the scrappage rate of cars is very fast and cars are replaced after a five-year period. In 1999, the car market (in terms of registrations) grew by a modest 1.5%yoy as the industry reeled under recessionary conditions in the economy. Production grew by a marginal 0.5% largely due to lower production in Honda and Nissan's plants. Exports grew by 2%yoy largely due to Toyota's performance. In terms of market share, Toyota and Honda dominate 35
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Analysis of Strategic Alliance with Ford

the market with around 42% of the pie. Nissan and Suzuki come in next with a combined share of about 24%. Other major players include Daihatsu and Mitsubishi. Table –10: Production, sales and exports of Japanese auto companies
Production Company CY99 CY98 %yoy Daihatsu 478,598 406,180 17.8 Fuji 395,042 353,161 11.9 Honda 1,143,459 1,147,337(0.3) Isuzu 37,630 46,443 (19.0) Mazda 705,134 706,562 (0.2) Mitsubishi 752,940 747,937 0.7 Nissan 1,209,072 1,353,057(10.6) Suzuki 679,143 625,084 8.6 Toyota 2,698,503 2,669,9751.1 Others 18 27 (33.3) Total 8,099,539 8,055,7630.5 Registrations/sales CY99 CY98 %yoy 341,574 292,336 16.8 219,953 192,921 14.0 611,063 588,949 3.8 1,886 2,607 (27.7) 251,805 239,902 5.0 324,603 323,810 0.2 568,170 687,321 (17.3) 410,226 359,869 14.0 1,153,368 1,139,585 1.2 271,436* 265,848* 2.1 4,154,084 4,093,148 1.5 Exports CY99 CY98 %yoy 92,560 86,764 6.7 175,235 166,625 5.2 531,445 530,297 0.2 47,427 43,270 9.6 481,960 480,205 0.4 348,627 381,289 (8.6) 550,745 593,228 (7.2) 217,948 228,536 (4.6) 1,311,503 1,173,936 11.7 3,757,450 3,684,150 2.0

* Imports / Source: japanauto.com Imports of cars to Japan rose by 3%yoy till September 1999 as larger number of European built cars from DaimlerChrysler, BMW and Renault entered the country. Imports from the U.S. rose by 17.2% due to continuing increased shipments of U.S.built Hondas and Isuzus, while that of U.S.-built cars by DaimlerChrysler, Ford and GM declined. Small/mini car models (below 2000cc) still dominate the Japanese car market as is evident from the table below.

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Analysis of Strategic Alliance with Ford

Table –11: Imported and overall car sales in Japan
Imports Small/mini cars Large cars Total % of small/mini cars Overall car market Small/mini cars Large cars Total % of small/mini cars Jan-Sep-99 37,596 168,028 205,624 18.3 2,649,349 527,650 3,176,999 83.4 Jan-Sep-98 65,850 133,744 199,594 33.0 2,498,978 577,483 3,076,461 81.2

Source: japanauto.com India India – Ford began is operation in India in 1907 when the country received its first Model A. In 1926, Ford India was established, but operations were discontinued in 1954. Ford re-entered the market in 1969, producing tractors in a joint venture with Escorts Ltd., until 1991. In 1995, Ford received government approval to establish Mahindra Ford India Limited (MFIL), a 50:50 joint venture with Mahindra & Mahindra Limited (M&M). Just 10 months after government approval, Mahindra Ford launched the best-selling European Escort. The Escort has been modified specially for Indian road and environmental conditions as well as consumer preferences. In 1997, the Ford Escort was chosen best quality car in JD Power’s India Initial Quality Survey and MFIL ranked number one in JD Power’s Customer Satisfaction Index – a rare accomplishment for any auto company around the world. In 1998, MFIL won the CSI award once again. In November 1998, Ford received approval to increase its stake in the joint venture to 92.18%. Ford brought in fresh equity into the company to bring the equity to 78% and became a subsidiary of Ford Motor Company. The company name was then changed to Ford India Ltd. Ford India Ltd. has set up a modern, integrated manufacturing facility in Maraimalai Nagar near Chennai. It is a brand new plant equipped with a modern facility comparable with automobile plants equipped with a modern facility comparable with automobile plants around the world. The plant has a capacity for manufacturing 100,000 vehicles per annum. Currently it produces the new Ford model – the Ford IKON, designed and engineered especially for India. 37
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Analysis of Strategic Alliance with Ford

Rest of Asia Toyota, Nissan, Honda and Mitsubishi have dominated the ASEAN market for the past ten years. In India, however, the story is different with Maruti in collaboration with Suzuki occupying 80% of the market till recently. These markets are diverse from the Japanese market in the sense that cars have much longer useful lives in the former (say about 20 years). In China, surprisingly, commercial vehicles and not cars are the people’s choice. The market has been very small at 3.5mn vehicles, which is dominated by Volkswagen and Daihatsu. The South Korean market is about 7.5mn vehicles strong. Due to policy restraints, almost every car on Korean roads has been designed and built locally. This scenario seems set to continue as local carmakers are opposing the entry of foreign vehicles despite an opening of the world auto trade. Future trends and outlook Firstly, the international car market is growing by around 2% pa and this set to continue for the next few years. This slow down is due to the increasing level of saturation in the largest car markets of the world. Analysts from EIU state that this saturation level may even translate into negative growth, given the recent trend of carmakers to opt for quality components which will increase the vehicle’s useful life. Secondly, the South-East Asian crisis has been a dampener to the collective fortunes of various carmakers worldwide. According to EIU estimates, some countries in the region have witnessed cumulative falls of 70% this year. In Indonesia record sales reported in 1997 are not expected to be matched until 2005. In Malaysia it is expected to be 2003 before peak sales and production volumes are repeated and in the Philippines the market will take seven years to recover. In Thailand, the market for cars and commercial vehicles is expected to fall from almost 600,000 units per year to 125,000 this year. Thirdly, the global domination by the large automotive players has slowly abated with local manufacturers getting hold over the market. Japan, western Europe and the North American Free-Trade Agreement area comprising USA, Mexico and Canada are expected to account for 71% of the global park by 2005, down from almost 77% at the start of the 1990s. This has come about, as the concept of "regio-centric" cars is becoming popular.

Porter’s Model
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Analysis of Strategic Alliance with Ford

After taking a loot at the global scenario of Ford’s business operations, we can analyse its position in the light of Porter’s model. It can be used to identify different elements of industrial structure. In 1979 and 1980 Michael Porter constructed a synthetic model to interpret the strategy formulation process (Porter, 1979, 1980 and 1985). This was made up of two overlapping concepts: industry structure and ‘generic strategy’. The first of these concepts, ‘industry structure’, describes what Porter considered to be the ‘underlying economics’ of the business. Traditional economic analysis is used to classify the relation of the business to its competitors, suppliers, distribution network, and substitute products. This classification can be presented as a check-list, against we can position Ford’s business within the automobile / industry. Understanding industry structure means understanding the competitive forces Ford is / up against. According to Porter, The strategy, wanting to position his company to cope best with its industry environment and to influence that environment in the company’s favour, must learn what makes the environment tick’.

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Analysis of Strategic Alliance with Ford

Entry Barriers Economies of scale Brand identity capital requirements Absolute cost advantages Access to distribution New Entrants

Rivalry determinants Industry growth Product differences Concentration Exit barriers Corporate stakes

Industry Competition

Suppliers Intensity of Rivalry

Buyers

Supplier concentration Differentiation of inputs Cost relative to total industry purchases Substitutes

Buyer concentration Buyer volume Buyer Information Substitute Products

Relative price Buyer propensity to substitute
Source: Colin Hasla

Using this model one can position Ford’s business operations is a large organization producing car components Ford/. Suppliers of materials might be tied into you because they supply 80% of their sales to its alone, while it might depend on a single major car assembler for 45% of its sales. The substitute product range might not be able to complete with its on cost, but new entry might be possible from overseas suppliers. It is clear that different organizations and different product will have different industrial structure, and that embedded in these structures are power relations which can promote or hinder the organization’s objective.

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Once a firm has established its position in relation to competitors, other products, suppliers, buyers and new entrants, it must sustain competitive advantage in the long run, by means of its ‘generic strategy’ Porter’s generic strategy Porter’s generic strategy is presented as a 2 × 2 matrix, characterized according to competitive scope and competitive advantage. Competitive Advantage Lower Cost Differentiation Cost Leadership Differentiation Cost Focus Differentiation Focus

Broad Target Competitive Scop Narrow Target
Source: Colin Hasla

Each generic strategy represents a particular route towards competitive advantage cost leadership, for example, requires the firm to seek out the lowest cost and price within the industry, by obtaining economics of scale. A differentiation strategy in contrast, such as design, quality, after-sales service, etc., these enable the firm to charge a premium price. Finally we have those generic strategies which focus on a particular product or market segment, and might be termed ‘niche marketing’. Focusing strategy deliver positive returns from a particular product segment rather than competitive advantage across the overall product market. Ford can focus on cost or differentiation by concentrating on particular price or non-price factors. Porter argues that ‘generic strategies’ cannot be combined, so that the firm which is ‘stuck in middle will possesses no competitive advantage. Positively choosing the ‘generic strategy’ which best fits the organization’s position relative to the ‘industry structure’ will, Porter claims, lead to an increased probability of superior performance. As far as the position of Ford in light of Porter’s model is concerned, it can be said to be in a firm place.

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LITERATURE REVIEW
INTRODUCTION TO STRATEGIC ALLIANCES Summary In this first section, we examine the concept of business networks, why they makes sense today, details on the organization established to promote them and highlights of an ambitions of an ambitious national demonstration project the CBNC has undertaken. We’ll look at the international story where many countries are much more advanced than Canada. The trends, however, are turning in your favour as interesting statistics from a survey by the Canadian Chamber of Commerce will prove. What is a business network? A business network is a group of three or more small and medium-sized enterprises (SMEs that decide to cooperate as a group in order to undertake projects, regionally, nationally or globally, that no member of the group could really do successfully by themselves. Networks are not a new concept in the world of business. Indeed, a long as there have been businesses trying to make a profit, there have been cooperative efforts among firms to develop joint products, share the expertise, provide valuable support and services to each other. What is new, however, are some tools for you to use to design and implement a business network it need not be a haphazard event. It can be carefully designed at the outset using a proven and established process with the aid of trained business network advisors. And you can also get the support and financial help of the Canadian Business Networks Coalition if your group qualifies. Why network? There are many reasons why companies join forces in a business network: • • to achieve advantage of scale, scope and speed to enhance their competitiveness in both domestic and international markets 42
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• • •

to stimulate new business opportunities to innovate and commercialize new products and services to increase exports to form new capital bases and create new business to reduce costs.

Characteristics of a business network Even though no two networks are identical, business networks have a characteristics in common. Networks form because the members require solution to shared business challenges and opportunities. Once formed, the growth of a network will depend on how well it meets the business needs of its members, and upon their long-terms commitment to the alliance. Networks are collaborative, bottom-up organizations. Unlike many other formal relationships among businesses, networks are flexible and non-hierarchical with members sharing in decision making and the design and implementation of strategies. Networks can vary in size, objective and structure. Members can range from fever than five members to more than one hundred. Objectives vary widely according to the needs of the members. And the organizational structure may be very formal, or so informal as to be almost nonexistent, or anywhere in between. What do networks do? The possibilities for inter-firm collaboration are as endless as the imagination. Here are some of projects commonly undertaken by, business networks, falling into three broad categories: 1. Input projects including:  Joint purchasing  Staff training  Joint financing  Research and development

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 Sharing resources, skills and information identifying market opportunities subcontractor and supplier linkages. 1. Operations projects including: joint processing  Joint manufacturing  Technology transfer and diffusion global quality (TQM/ISO 9000) cost reduction projects  Productivity improvement  World class bench marking. 1. Output projects including:  Innovation and design  Commercialization of new product or services  Import substitution  Marketing  Exporting  Problem solving.

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Why network now? Small and medium–sized enterprises (SMES) are emerging as a significant force in the global marketplace. New international trading agreements and the building of regional and world trading blocks mean that small business must enhance their competitiveness if then, are to survive in both the global and domestic markets. Canadian SMES, in order to remain competitive , need to re-orient their methods and operations and utilize new approaches, based on international best practices. This is why cooperation and collaboration will be vital tools for survival in the marketplace of the nest century. MODES OF ENTRY INTO FOREIGN MARKET One of the fastest growing trends in business today is the increasing numbers of strategic alliances. According to Booz and Allen and Hamilton the numbers of alliances are growing by 20% a year with 10000 new alliances being reported in 1998 alone. When kpmg an accounting firm produced its report of corporate coupling last year it concluded that 83% of mergers were unsuccessful in producing any business benefit even then mergers are on the upswing because mergers are seen as the fastest way to grow. For entrepreneur, strategic alliance are a way to work with others towards a common goal. Businesses are forging partnerships in record numbers to  Develop products  Share resources  Pool expertise  Enter new markets  Share financial risk  Get products and services to the markets faster.  Achieve advantages of scale, scope and speed.  Increase market penetration.  Diversify  Create new business. 45
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 Reduce costs.  Develop new business opportunities through new products and services.  Increase exports  Increase competitiveness in domestic and global markets. These benefits are particularly useful in an age rocked by technological innovations, global competition and downsizing. Companies participating in alliances report that as much as 18% of their revenues comes from their alliances, that number is projected to climb to 35% by 2004. In Europe according to Booz-Allen survey, many companies report as much as 45% of their revenue coming from their alliances with return on investment from their alliances to over 23%. It is not just profit that is driving this trend a fast pace industry, shrinking product life cycles, changing technology, growing need to operate on a global scale, increasing intensity of competition as mentioned earlier are motivating the alliances. Especially in a time when growing international marketing is becoming the norm, these partnerships can leverage growth through alliances with international partners, rather than take on the risk and expense that international expansion can demand. Different forms of strategic alliances • Joint venture-a type of ownership sharing very popular among international companies is the joint venture, in which a company is owned by more than one organisation. Although a joint venture is formed for the achievement of a limited objective, it may continue to operate indefinitely as the objective is redefined. Joint ventures are sometimes thought of as 50/50 companies, but often more than two organisations participated in the ownership. The type of legal organisation may be a partnership, corporation, or some other form permitted in the country of operation. When more than two organisation a participate, the resultant joint venture is sometimes called a consortium Almost every conceivable combination of partners may exist in a joint venture including the following:

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•

Two companies from the same country joining together in a foreign market, as Exxon and Mobil in Russia.

•

A foreign company joining with a local company, as sears roebuck and Simpsons in Canada.

•

Companies from two or more countries establishing a joint venture in a third country, as diamond shamrock (U.S.) and Sol Petroleo (Argentina) in Bolivia.

•

A private company and a local government forming a joint venture, as that of Philips (Dutch) with the Indonesian government.

Companies are more prone to have collaborative arrangements in countries where cultural characteristics of trust is high, have fewer barriers and have an open arrangement with the companies. • Licensing-under a licensing arrangement, a company (the licensor) grants rights to intangible to another company (the licensee) for a specific period, and in exchange, the licensee ordinarily pays a royalty to the licensor. The rights may be exclusive or non exclusive. Intangible property includes five categories • • • • • Patents, invention, formulas, processes, design, patterns Copyrights for literary, musical or artistic compositions Trademarks, trade names, brand names Franchises, licenses, contracts Methods, programs, procedures, systems, and so forth

Licensing often has an economic motive, such as the desire for faster start-up, lower costs, or access to additional resources. • Franchising-franchising is a specialized form of licensing in which the franchisor not only sells an independent franchisee the use of a trademark that is an essential asset for the franchisee’s business, but also more than nominally assists on a continuing

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basis in the operation of the business in many cases the franchisor also provides supplies. From an organisational point of view, a franchisor most often penetrates a foreign country by setting up a master franchise and giving that organisation the rights for the country or the region. The master franchise may then open outlets on its own or develop subfranchisees. For eg. Macdonald’s very successful operations in Japan are handled this way. • Contract manufacturing- an arrangement in which one firm contracts with another to produce products to its specifications but assumes responsibility for marketing. • Management contract-management contracts are a means by which a company may use part of its managerial personnel to assist a foreign company for a specified period for a fee. Management contracts may be formed when a foreign company is perceived to be able to manage an existing or new operation more efficiently than can the home country owners. For e.g. The British airport authority won contracts to manage the airports in Pittsburgh and Indianpolis. • Cooperative agreements- any sort of cooperative agreement to share information, codes, marketing etc. CHOOSING STRATEGIC PARTNER A successful strategic alliance is a partnership with a long term orientation. H. Bukshbaum, the president of boxtree communications says begin choosing a strategic partner by conducting a strategic analysis of the market sectors and target audiences that make the most sense for your organistion. Answering questions like what are the most profitable areas? Where is the greatest growth? Helps understand clearly where you are so that you can find the partners that best compliment you. Then try and find meaningful answers to questions like what’s your gut feeling about the partner you are considering? Is there synergy? Is there a natural fit in terms of values, integerity and personality? Do they have a solid understanding of your objectives and goals and are they genuinely excited about joining forces for an alliance?

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When you are looking for a partner consider checking with professional and industry organisations, professional service providers and parallel businesses in your industry. There is so many partners a can do to extend their reach and adapt. For e.g. Enron Corp. and integrated Huston based natural gas and electricity company, depends on partnerships to adapt to dramatic changes in its business. As the strategic alliances are getting hotter and hotter day by day, the failure rate is becoming hard to ignore. Last year the value of corporate partnerships was a stupendous $3 trillion, yet a depressing array of statistic exists to prove that partnerships often fail. In 1998, mitsubihi and Dailmer-Benz launched their strategic alliance. The capabilities of both these giants seemed well-matched and global competition drove them into each other’s arms. The leaders of the companies signed a deal in principle to collaborate in various areas. But no concrete projects were launched then, and no major ones were forth coming later. The alliance slowly faded away. Analysts and managers argue eternally over what caused each link up to fail. Some blame ego and clashing cultures, others cited business conflicts and ruthless competition. Before we take a detailed look on what makes alliances fail there is an aspect to be analysed, the aspect of alliances and risk.

Alliances and Risk Large companies once embraced joint ventures to share the risk of large projects, but their motives today are more diverse. risk sharing will feature among the motivation for alliances but it may not be as important as gaining access to contemplary resources, influencing industry standards or beating competition in the market. Today alliances help companies to hedge risk, mitigate the costs of responding to unpredictable trends and most importantly buy and shape options to exploit future opportunities. Alliances can help companies hedge between competing technology standards and reduce the cost of major strategic change by bringing new skill to a participating company. an alliance might be regarded as an option on future developments-a company either takes it up or discards it according to the changing conditions. Some alliances indeed enable business risks to be managed directly. 49
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Despite these attractions, relationships between companies in a joint venture are often risky in and of themselves. Alliances enable companies to but protection from business risk only by taking on additional relationship risks. MANAGING STRATEGIC RISK Following are a few ways to manage strategic risk • • • • • Lower exposure to risk Hedge your bets Reduce your transition costs Buy options on the future Manage risk directly

RELATIONSHIP RISK IN ALLIANCES We need not emphasize that a poor structure or partner choice can doom an alliance from the start nor that insufficient attention to post deal alliance management can ruin a promising relationship. How companies can manage relationship risk • • • Avoid competition the risk of conflict is high in alliances between rivals. Define the scope carefully-remember good fence makes good neighbours. Define not ignore governance-careful structuring of the alliance in advance of the deal and continual adjustment their after is the key to building a constructive relationship. • Build multiple bridges-enable relationships among partners to grow at many levels of their organisation. • Do not trust trust-personal chemistry is good and needed but it is no substitute for monitoring mechanisms, cooperation incentives and organisational alignment.

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•

Build a support system-without a support system within your own organisation your external alliances are doomed to fail.

A decade ago, IBM and Apple launched a much-touted strategic alliance, including investments in join ventures and research. Together, they would take on Intel and Microsoft. It didn’t happen. Eight years later the alliance faded away, leaving unfulfilled hopes, frayed relationships and wasted effort. Other alliances formed at high levels, often blessed with the designation “strategic”, have also failed to deliver. Analysts argue over what cause each link-;up to fail. Some blame egos and calling cultures, other cite business conflicts and ruthless competition. Yet these cases often share one factor: amid the hype, the alliance came to be seen as an end in itself, rather than as a means toward a broader goal. The failures teach one clear lesson: what matters is the strategy behind the deal, not the deal itself. For the same reason, many of today’s digital alliances will fail. In many quarters, the new economy race to “get big fast” has been reinterpreted as “get hitched fast” has been reinterpreted as “get hitched fast”. If companies cannot gain market share and strategic dominance rapidly, the argument goes, they must find partners. For dotcom business development managers, this means: sign as many deals as you can, as soon as you can. In doing so, they forget the saying “Marry in haste, repent at leisure.” Companies that succeed with alliances put strategy first and deal-making second. For example, Sun Microsystems has leveraged its capabilities impressively through a multitude of alliances survived for a long time, others were short-lived; some were narrowly focused and a few broader. Sun’s partners included Fujitsu, Toshiba, Oracle, Netscape/AOL and IBM. But none of these partners or individual alliances accounts for Sun’s success. Rather, the way Sun integrated alliances into a coherent strategy and managed tem over time allowed it to get the most from partnerships. A coherent alliance strategy also lay behind Intel’s rise. Intel made its breakthrough in the alliance with IBM to develop the PC in 1980. Plus, Intel used astute licensing to build its dominance. Its first generation of microprocessors was licensed to fewer companies; today Intel is the sole producer of its high-end processors. standards. Intel’s alliances were steps on a ladder. The real goal was creating and dominating processor

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Alliance strategy So while companies announce “strategic alliances” daily, many lack “alliance strategies”. The difference is more than semantic: an alliance lacking strategy is doomed. A coherent alliance strategy has four elements: • • • • a business strategy to shape the logic and design of alliances; a dynamic view to guide the management of each alliance; a portfolio approach to enable coordination among alliances; an internal infrastructure to maximise the value of collaboration.

At the right time and when managed well, alliances create tremendous value; at the wrong time and when managed poorly, they can be costly. A dynamic approach The example of Fuji Xerox also shows the value of a dynamic approach to managing alliances. Just as the broader strategy is more important than the initial deal this tendency of alliances to change over time is often misinterpreted as weakness. Managers complain about the high “divorce rate” in alliances and academics conduct statistical studies of their “instability”. This misses the point: the goal of an alliance is not its survival, but the success of the alliance strategy. Sometimes, strategy will call for using alliances as transitory mechanisms. At other times, the strategy may involve launching several alliances at once to see which ones are worthy of further investment and which should be terminated. Such a strategy is no different from companies holding their bets or pursuing parallel projects to develop products. The flexibility of alliances is often a strength, not a weakness. Alliance portfolios The PDA strategies also show the values of careful design and management of a portfolio of alliances. The PDAs were produced using components form several companies and selling through many channels, so alliances could reinforces and other. Again, the effectiveness of an alliances strategy depends on a strategy that transcends the individual deal.

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Some types of companies recognize the importance of a portfolio of allies. Business units that use multiple components will depend on many supply alliances and business units that sell in multiple markets will use several allies to reach different customers. Alliances a among national airlines are examples of this. Similarly, a portfolio of alliances is useful when a critical mass of “sponsors” is key to market acceptance, such as in establishing software standers. But being involved in multiple alliances is not sufficient; the company must manage the portfolio as a whole also. Two alliances of a company, with two different partners, may conflict. The same is true, in spades, of a portfolio of many alliances. A poorly designed and managed network can entangle the company and waste managers’ time. Good co-ordination, on the other hand, can save resources and diversify options for growth. How are companies facing the challenges? Pharmaceutical company Eli Lilly has an office of alliance management which helps identify alliance candidates, eventuate deals and train managers new to the field. This should lead to the company having a higher proportion of successful alliances, compared with companies adopting a more informal approach. Build capability An alliance strategy is thus more than a strategic alliance. Managers need to construct processes that root alliances in strategy and recognize that alliances will work for some things but not others. Next, they need a way to manage change. The history of alliances shows you will not get everything you wanted; but you may well get much you didn’t expect. The key is to grasp change, not ignore it. With these elements in place, the number of deals will grow and need managing. The requires prioritising among alliances and creating an organisaiton to optimize the portfolio. And the importance of a supportive internal infrastructure will also become evident. Suddenly, alliances will being to place substantial demands on resources, not least the attention of senior manager. Companies will not survive if try to do everything themselves. But they will not be served well by a headlong rush into multiple deals. Only a real alliance strategy will give them a fighting chance. Research into over 200 companies has shown that 75% of companies surveyed felt that alliance failure was caused by incompatibility of corporate culture or personality; 53
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63% reported that the failure was a result of incompatible managerial personalities; 58% attributed failure to project personality or priority differentials. Through may research, I have also found that the business justification –business reasons, value proposition, strategic business fit- for an alliance is inversely proportional to compatibility of corporate and managerial personality. In order words, as the business justification decreases in importance over time, the cultural incompatibilities increase in importance. These considerations intersect at about the three year time frame --- exactly when 55 percent of all alliances fall apart.

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CRITICAL ANALYSIS
Ford is considered one of the most thorough and successful alliance practitioners around the fortune 500. Harvard Business School Professor Michael Yoshino and Babson and Professor Srinivasa Rangan argue that, along with Motorola, Ford is the premiere large company example of how to gain from collaborations. Global pressures led ford to collaborate with Mazda and Nissan to produce low cost automatic transmissions. Fords alliance strategy has now evolved into a primary source of company–wide competitive strength. This evolutionary approach is more evident in ford’s steady and ever tightening bonds with Mazda. From an arm’s length subcontracting relationship in the early 1970’s, the relationship is now so interwined that reportedly one of every four ford models sold in the United States in 1991 had some Mazda input, and two of every five Mazda cars sold had some ford influence. Yet the collaboration is more than joint designs and parts. In 1999 Ford sold 17,694 vehicles in Japan. Ford now has 81 exclusive dealers in Japan with 178 sales outlets at the end of March 2000. ALLIANCE HISTORY Ford’s alliance-based strategy evolved with management’s realization that the company needed partners to be a global player. Partners would enable Ford to • • Share its resource burden. Exit areas in which it lacked technical expertise by handling them off to a specialist firm. • Afford opportunities for learning.

A BRIEF OVERVIEW OF ALLIANCE Ford and Mazda In late 1960’s, with Japanese market growing rapidly and Japanese automakers fast becoming a power with their low cost production factors like fewer wages and more working hours, ford looked to Japan 55
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• •

For low cost production base from which the us market might be served. To become familiar with the Japanese management and operational practices.

Ford wanted to collaborate with Mazda to learn Japanese management style of total quality and to be able to get the benefits of innovations through R&D, which has been Mazda’s priority over the years. Mazda came out with an innovation called ‘Mazda digital innovation’. This system helps to shorten overall development time in manufacturing, provides cost efficiency, improves product quality and gives ability to cope with changes by viewing and modify before manufacturing. On the other hand Mazda was looking for economies of scale, lower cost production process and greater financial capabilities. So ford and Mazda seemed right for each other. Taking note of the rapid growth in the domestic market, Ford sought to expand its presence in Japan. Limited equity participation in an existing firm was the only possibility due to government restrictions Deeming Toyota and Nissan too strong and independent to be viable candidates ford focused on Mazda. This shows that Ford entered the Japanese joint venture with a long term plan in mind and hence ford was careful in choosing Mazda as its partner because Mazda seemed to match the capabilities of ford and also would satisfy the goals which ford had in mind. The fact that Mazda was not too independent like Toyota and Nissan made ford attracted towards Mazda. Ford expanded its relationship by sourcing from Mazda small cars, to be sold in Australia, to meet rising Japanese competition in the market. Ford relationship with Mazda matured over a period of four years into a strong alliance. Even as it worked to tighten its links with Mazda, ford began to explore other prospects. It had already begun preliminary talks with Nissan and Toyota about possible cooperative deals and with Germany’s BMW about joint production of Diesel engines. For Ford these preliminary explorations were helpful in future. This way ford never stopped to find new partners for further expansion and improvement. Ford believed in never close your options. Ford and Nissan: A Brief Alliance Overview In 1988 Ford and Nissan formed a joint venture to work together on manufacturing and selling of a new minivan in the United States. They agreed that Nissan would do 56
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most of the design and engineering and ford would expand its production sites to accommodate both firms production needs. Ford has a strategy of using such working alliances to improve on component quality and hence the product quality. Technology frontier As technology stated to hold immense potential for the automobile industry, the top management realized that it was important that the firm’s researchers, engineers and product designers become familiar with the capabilities of new technology and learn to adapt to them efficiently. For this purpose ford again turned to alliances. According to then ford chairman Donald Petersen, ‘alliances are a way to ensure balance between stability and the autonomy needed to foster innovation. In the area of frontier technologies ford often held a minority of stakes in partner firms, to avoid huge risks. Critical analysis of Ford’s alliances In ford’s alliance with Mazda it is difficult to say whether the alliance is noncompetitive or not. On one hand Mazda being a niche player, the alliance is thought to be noncompetitive while on the other hand Mazda and ford do compete in certain segments. Ford and Mazda’s Alliance may have started as a noncompetitive alliance but now is seen as a competitive alliance. This suggests that alliances evolve and move from being one type to other. Ford always looked for having a substantial share of equity, so as to be able to better manage and structure the alliances as they evolve. • Resource leverage

Ford wanted it’s alliances to provide leverage to its resources, both human and physical. When ford and Nissan agreed to work together on the minivan, ford did not have sufficient numbers of engineers and technical personnel to develop the product so Nissan provided the design and engineering. This not only saved huge costs for ford but also freed up resources that could be used elsewhere. • Efficient risk management

Ford motor company efficiently used alliances to reduce risks involved, by involving Mazda and Nissan into product development alliances and taking only minority stakes

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in high-tech companies, ford was able to minimize its risk of losing heavily if a particular technology or product does not succeed. Ford has over the years used strategic alliances to be able to access a lot of different philosophies and technologies and manufacturing capacity without having to own them, hence further reducing the risk. • The alliances should fit into a prevailing strategy

Initially ford’s alliance with Mazda and Nissan was to source the global operations at an arm’s length and later as ford decided to elaborate its global presence and beat competition, the alliance became much more. Ford modified its alliances with Nissan and Mazda to suit it’s company strategy as a whole. Ford’s strategy was to remain global, so Ford senior management began to plot a global competitive strategy that would supplement the company’s internal network of subsidiaries with a network of external alliances. The role of alliances in ford’s overall strategy was to move beyond arm’s-length sourcing arrangements to more involved and risky alliances to gain the maximum benefits. • Effective involvement of top management

As Ford decided to have global operations, the top management was ready to rethink the firm’s core strategy and the role of alliances in it. With top management in agreement on expanding the scope and role of alliances ford was able to make the link with Mazda a true alliance by acquiring 25% stake and also secured the right to name up to three members to the company’s board of directors and place a senior ford manager at the senior executive level in the Mazda organisation. • Maintaining a balance between cooperation and competition.

Alliances are formed with companies that can provide some incentives to each other. As the companies grow alliances can take different forms. Firms in alliance with each other may have rivalries in the market place, but firm should find a way to collaborate and learn from each other. Ford and Mazda found ways to collaborate in areas form product design to production facility. The firms worked jointly on products such as Ford Escort, Festiva and Probe. Mazda on-site engineers helped ford’s plant designers implement Mazda’s production

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lay-out approaches in turn ford shared its highly developed and sophisticated research techniques with Mazda researchers. Competition between Ford and Mazda remains alive. For example ford refused to help Mazda develop a four door vehicle Navajo and Mazda on the other hand refused to share its sport model Miata with Ford. But the companies have managed to strike a balance between cooperation and competition. • Creating and managing a network of alliances

If an alliance works well the company gains confidence to manage and create new alliances with other companies in order to gain access or other benefits in different markets. The success of its strategic alliance with Mazda had a second-round of feedback effects on ford’s strategic policy evolution. The ability to manage a strategy alliance with a competitor like Mazda convinced ford senior managers to forge a new set of strategic alliances with other automobile companies to solve a host of strategic problems. Ford entered into alliances with Volkswagen of Germany that rationalised the production facility of the two firms in two south American countries. Ford entered into yet another alliance with Nissan motors for joint production facility in united states and Europe in which the firms would together develop two new products. After the success of its alliance with Volkswagen ford enter into an alliance with another German automaker in 1990, at the same time ford began to explore additional product development with Nissan and expanded its collaboration with Mazda to include marketing of ford cars in Japan by Mazda and Mazda cars in Europe by ford. Ford’s competitiveness is enhanced by the firms ability to conceive and implement an intricate alliance strategy. Ford motor company has efficiently used alliances with different companies to gain maximum – access to product and manufacturing technology, new markets, increasing product development capability, securing low cost sources and enhancing quality. Hence alliances should be moulded and managed in order to survive and gain the most in the world market.

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LIMITATIONS

In order to complete the present study and mobilize source materials to achieve this end, I had to come to terms with certain difficulties. As I could not overcome them to the extent to which it was required, they may figure here as limitations of this study. These limitations can be summed up as follows:  Some of the data given here may be found to be lacking precision or even, to some degree, authenticity due to the fact that they were misquoted in those sources from which they were compiled.  Some of the management personnel whom I approached as sources of crucial of relevant information for the purpose of my present study, were not keen on disclosing things which they identified as components of some hidden agenda. So, at certain points of the present study, there may be possibilities of inadequate or inaccurate analysis.  Though great precaution has been taken in verifying the figures and data that appear here, there may be some elements of aberration and flippancy in putting them here.  Strategic and Critical analytical framework that has been evolved here, may at times, show deviation from popular speculations as far as the future prospects of the company in question are concerned. So, there may be possibilities that some of the opinions expressed here, may not match the reality and may exude some sort of incoherence or imbalance.  The analysis may not draw popular support from all sections of consumers.

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RECOMMENDATIONS
Though the strategy of corporate alliance has already been recognized and imbibed by a large number of global giants as the essential source of strength and durability of their business operations, it has not proved a smooth, problem-free trial for many of them. According to a study on this subject conducted recently, it has been observed that more than fifty percent of such alliances turn out to be failures just three years after their conception. Some of the most significant reasons that lead to the failure of global business alliances are as follows: • • • Incompatibility of corporate culture or personality; Clash of managerial personality; Differing project personalities – the project is of varying levels of priority to each alliance partner. In this regard, I would like to present a set of recommendations suggested for alliance leaders by experts of this field as measures to arrest and overcome the drawbacks of global alliances as well as the possibilities of alliance failure: 1. To adopt the Mindshift Approach – a methodology that prompts are to look at critical areas and help him anticipate the behaviors that may cause alliance communication and trust to break down – can help enhance the likelihood of alliance success. The Mindshift approach enables managers to anticipate and manage different corporate and managerial personalities by recognizing the lifecycle stages of an organization, group, division or product. The Approach is also fundamental to resolving inter-divisional warfare. 2. It examines alliance partners, both internal and external and deduces cultural incompatibility. It will enable one to be more effective internally as manages and derives strength from disparate personalities and life-cycle stages. It will also increase one’s chances for the creation and management of intelligent and effective external business alliances. 3. To recognize the personality differences in his or her managers as well as the demands required by the life-cycle stage of the organization and create opportunities for success regardless of these pressures. 61
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4. To bring about changes in expectations and communication styles to fit different corporate and managerial personalities and to improve internal and external alliance effectiveness. 5. To understand the corporate and managerial personalities so that when compatibility of alliance partners and teams is considered. 6. To take into account the different behavioral and cultural preferences in order to communicate in the language of the receiver of information and align expectations accordingly. 7. To emphasize the vision, self-confidence and overall attitude of risk-taking managers who are usually identified as Adventurer managers; it involves taking into consideration both the positive enthusiasm and unrealistic impatience or overbearing rashness of these managers by the authors of global alliance. It precisely implies that the leaders of business alliances should maintain a critical equilibrium in their assessment of the adventure managers who work under them. 8. To emerge and act as charismatic leaders endowed with strength and ability to direct, control and motivate those who work as a closely knitted and organized team striving for the fruits of global alliances; here, the leaders of alliance are always required to show their courage, commitment and dashing spirit. 9. To adopt a more systematic, collaborative and proactive approaches, to make an alliance successful in this regard, the leaders of alliance are expected to show both foresight and commitment to their pivotal position and responsibilities. 10. To verify different decisions taken with the internal circle before executing them at the highest level. 11. To be able to go for sound business opportunities and capitalize on them through a strategy of time-sensitive tactics, here, an alliance leader is supposed to act with the insight and calculative power of a hawk-eyed, extremely sharp-witted, astute politician. 12. To evolve a result-oriented, agenda for business operations in alliance exuding a sense of hop, assertion for all those who work for the success of a global business alliance; on this count, global leaders of alliance will have to emerge as visionaries with profound understanding of every stage of business alliance. 62
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13. The purpose of applying the Mindshift Method is to understand how rapidly your company will respond to changes in the environment, a business downturn, or competitive forces. It also helps you get a better understanding of how the culture and relationship fit will work with your company, your mangers, and the project in contrast to theirs. To gather the necessary information, look at the following areas in question to learn more about your partner’s life-cycle stage, its corporate personality, and the Project Personality Type of the alliance. 1. Discover the stage of the life cycle that your unit, division, group, or organizations is in. This is accomplished by relating revenues or units of growth to time. 2. Determine the organization’s corporate personality. Identify the personality characteristics that best fit your group, unit, division, or company. If they belong to various stages of the life cycles, try to determine which personality type accommodates most of your company’s characteristics. 3. Look at your personal managerial characteristics to see how you fit within the stages of corporate cycles of change. Again, you may find that a blend of qualities from more than one personality type best describes you. Try to identify the single managerial type most fully descriptive of you. 4. Examine the project personality characteristics. Determine the level of importance to each partner of the existing or proposed alliance. 5. Use the diagnostic tools to analyze your actual or prospective partner as you have analyzed your own company and managers. 6. Finally, develop strategies based on observed personality differences that will allow you and your partner to communicate. This may mean adjusting or creating new management structures by changing the form of the alliance to realign goals, modifying project priorities, or realistically reformulating the project’s expectations. The Mindshift approach is a powerful means to examine corporate compatibility and to estimate the potential of success for high risk investment. 63
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CONCLUSION
In the context of global business operations in general and automobile business in particular, history has certainly changed is course to a considerable degree over the last few years. As a consequence to the paradigms shifts in the tenets of global automobile business, we have been introduced into an era of radical innovations and initiatives of which Ford presents a most striking illustration. The present study has tried to expatiate upon the alliance strategy of Ford in different contexts of global automobile market with a view to exploring the implications of change that the overall business policy of this company has undergone. The study has also paid considerable attention to salient shifts in the attitude approach and outlook of Ford’s present management as the company is absolutely poised to get away from its traditional morals and, is willing to adjust itself to the turbulent tides of contemporary global business operations. In an era characterized by the end of monopoly and emergence of oligopolistic situation in various sectors of business and industry, the automobile industry is veritably exposed to the hard realities of fierce, cut-throat competition. The future of even the most established players may be bleak or shaky on this count unless they handle the situation with keen insight, acumen and foresight. It amounts to going for and internalizing the essence of popular, prospective bandwagons and clarion calls of global business. As this study elicits, Ford is not trailing behind others is this regard. And alliances on a worldwide scale occupy a crucial place in the terrain of global strategy. But the successes of these alliances eventually depend on how far the management of Ford addresses their concerns and issues at stake.

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REFERENCES
Books • • • • Kotler, P., (2000), Marketing Management, Millennium Edition, Prentice-Hall of India Pvt. Ltd., New Delhi p.82. Lasserre, P. and Schutte, H., (1999), Strategy and Management in Asia Pacific, McGraw-Hill Publishing Co. Calingu, Luis Ma R., (1997), Strategic Management in the Asian Context, John Wiley & Sons, New York. Julie Cohen Mason, (1993), Strategic Alliances : Partnering for Success, Management Review, May, pp. 10-15, Stratford Sherman, ‘Are Strategic Alliances Working?’ Fortune, September 21, 1992, pp. 77-78, Edwin Whenmouth, ‘Rivals Become Patners: Japan Seeks Links with U.S. and European Firms,’ Industry Week February, 1993 pp. 11-12, 14, John Naisbitt, The Global Paradox (New York William Morrow, 1994), pp. 18-21; Rosabeth Moss Kantner, ‘The Power of Partnering Sales & Marketing Management, June 1997, pp. 26-28, Jim Kelly, “All Together” Now, Chief Executive November 1997. Pp. 60-63; Roberta Maynard, “Striking the Right Match,” Nations Business May 1996, p. 18. Hasla, Colin and Newle Alan, Economics in a Business Context, p.139-140.

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Articles • • • • Hammonds, Keith H., (2000), Grassroot Leadership – Ford Motor Company, FC, issue 33, p.138. Gomes-Cassees, Benjamin, (2000), Strategy must lie at the heart of alliances, Financial Times, Mastering Management, pp.14-15. Gomes-Cassees, Benjamin, (1998), Do you really have an alliance strategy, www.alliancestrategy.com Marc, L. Songini, (2001), Weak link : Small suppliers loath to spend on business partner connectivity, Computerworld, Framingham, vol. 35, issue 7, p.8-9. Baily, Donna, (2001), A nasty turn for Ford ?, Time, New York, Jan 15, vo.157, issue 2, p.45. Wallace, B., (1999), Ford will use net to sell used parts, Computerworld, Framingham, May 3, vol.33, issue 18, p.6. Alexander, G., (2001), Ford heir puts his foot down, Sunday Times, London, Feb 11, p.8. www.allianceanalyst.com, 1995, Ford evolutionary alliance strategy.

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Bibliography
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• • • • • • • • • • •

www.allianceanalyst.com www.strategic.ic.gc.ca www.allianceanalyst.com www.corporateinformation.com www.google.com www.indiainfoline.com www.cartoday.com www.entreworld.org www.smartalliances.com www.wikipedia.org www.media.ford.com

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APPENDIX Table-1: Vehicles per employee at Ford UK Year 1982 1984 1986 1988 1991 Vehicles sold (000s) 687 653 656 779 677 Employees (000s) 70 59 49 48 52 Vehicles sold Per employee 9.81 11.07 13.39 16.23 13.02

Table-2: Real sales growth at Ford UK Year Sales nominal in (£m) 3287 3585 3752 4045 4374 5211 5936 6732 7509 6191 Retail Price index as a decimal 1.21 1.27 1.33 1.42 1.46 1.52 1.60 1.72 1.89 2.00 Real sales (£m) (Col. 2 divided by Col.3) 2717 2823 2821 28.49 2996 3428 3710 3914 3973 3096 Real sales revenue index (1982=100) 100.0 103.90 103.83 104.86 110.27 126.17 136.55 144.06 146.23 113.95

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Table-3: Ford UK Value added Year Labour costs Profit pre-tax (£m) 194 178 60 160 109 317 673 483 -274 -935 Depreciat ion (£m) 192 231 165 164 182 192 201 25 301 437 Nominal value added (£m) 1096 1152 1010 1080 1082 1337 1746 1508 1322 792 Real value added 906 907 759 766 741 880 1091 877 701 396 Index of real value added (1982=100) 100 100 84 85 82 97 120 97 77 44

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

710 743 785 756 791 828 872 1000 1295 1290

Table-4: Real value added per employee at Ford UK, 1982-91 Year Value added 68
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Real value added

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1982 1984 1986 1988 1991

In real terms (£m) 906 759 741 1091 396

(000s) 70 59 49 48 52

Per employee (£) 12943 12864 15122 22729 7615

Table-5: Real value added per £ of fixed assets at Ford UK, 1982-91 Year 1982 1984 1986 1988 1991 Value added In real terms (£m) 1096 1010 1082 1746 792 Fixed assets (£m) 806 839 964 1207 2198 Value added Generated per (£) of fixed assets 1.36 1.20 1.12 1.45 0.36

Table-6: Figures expressed in billions of US Dollars
Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sales 88.286 100.132 108.521 128.439 137.137 146.991 153.627 144.416 162.558 170.064 Sales Growth -9.6% 13.4% 8.4% 18.4% 6.8% 7.2% 4.5% -6.0% 12.6% 4.6% EBITDA 11.762 13.877 18.070 25.408 27.824 29.055 33.997 32.291 33.530 35.634 % of Sales 13.3% 13.9% 16.7% 19.8% 20.3% 19.8% 22.1% 22.4% 20.6% 21.0% Inc. bef Extra -2.258 -0.502 2.529 5.308 4.139 4.446 6.920 22.071 7.237 5.719 % of Sales -2.6% -0.5% 2.3% 4.1% 3.0% 3.0% 4.5% 15.3% 4.5% 3.4% Emps n/a n/a n/a n/a n/a n/a n/a n/a n/a 345,991 Sales/ Empl n/a n/a n/a n/a n/a n/a n/a n/a n/a 491,527

1: Vehicles per employee at Ford UK

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2: Real sales growth at Ford UK

3: Ford UK Value added

4: Real value added per employee at Ford UK, 1982-91

5: Real value added per £ of fixed assets at Ford UK, 1982-91

6: Figures expressed in billions of US Dollars 70
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