Nowadays, to successfully deal with uncertainty in the external environment and achieve strategic competitiveness, all the firms must be aware of and clearly understand their external environment. The external environment of a company can be broken down into 3 segments, which are general environment analysis, industry analysis and competitor analysis. General environment analysis is to support the managers to identify firm’s opportunities and threats in the industry. Industry analysis focused on the determinants that will affect a firm’s profitability by all its decision made while competitor analysis is to analyse the competitors’ within the same industry in order to create an effective competitive strategies to compete with them in the market.
The general environment can be classified into 6 environment segments which are political, economic, sociocultural, technological, environmental, and legal. Although Ford cannot directly manage all these segments in its general environment, Ford can gather the relevant information needed through this PESTEL analysis in order to take the actions such as development and implementation of management strategies that suit the company. In this chapter, we focused on the general environment analysis of Ford.
As a company that operates internationally, political has become an important factor that Ford need to manage as it is risky than other factors. A stable political environment could bring a lot of benefit to a country and even increase the sales of the company that incorporates in that country. For example, Asia Pacific region has a stable political environment compare to another region during the past years. By operating their business in these countries especially in China, India and Southeast Asia, Ford is able to achieve an excellent financial performance.
According to the news in Shanghai, Ford has surpassed 1 million of sales in August 2016 in Asia Pacific region. Besides, the sales in this region also increase by 22 percent and the market share increased 4.1 percent. Thus, this proved that a stable political environment would bring the increase of sales for the business operates in their country. In contrast, countries in Europe have less stable political environment compared to the countries in the Asia Pacific, and so the financial performance is less satisfactory.
If the politic is not stable for a country, the problems such as disturbance of supply chain and distribution network will arise and affect the business’ operation. Besides, political instability also having many hidden risks and the uncertainty always remains. On the other hand, it would increase the confidence of the foreign companies to invest in those countries with stable politic and economic environment. There are many factors that would influence the profitability of Ford such as rules and regulations of the business environment, and also the local government’s perspective towards the foreign investment and corporation. Furthermore, most of the government would support the companies like Ford which are doing business globally to promote innovative, fuel efficient and environment eco-friendly vehicles.
In order to compete and perform well in the industry, Ford must be aware of the nature and direction of the economy. The economic factor is crucial for a firm as it let the firm to compute the market and profitability performance. In the financial crisis in 2008, the automobile industry has suffered deliberately due to the economic decline. However, this situation has become better since then.
By expanding into the developing countries such as India, China, and Southeast Asia, Ford is able to increase the company’s sales and market performance in the automobile industry. These countries are able to revive the economy that suffering recession as they perform well and adopt good trading strategies. The economic growth in these countries has caused many foreign brands enter the Asian market and partner with the local brands. As the result, the employment rate increases and the local workers have a higher dispensable income. Besides, this will be positively affecting the customer purchasing intention since they have more income to buy the expensive goods such as the automobile. Thus, this indirectly produces an opportunity for Ford to increase its growth and profitability.
The employment rate is one of the crucial factors that affect Ford in terms of economic. Beside employment rate, the other factor that will affect the sales of Ford is oil prices. As customers are price sensitive, oil prices will affect the customers distinctly. Customers definitely would not buy a car that has a large fuel consumption as the price of oil is expensive. Thus, Ford has put a lot of effort to create fuel-efficient vehicles and vehicles that run on alternative energy such as an electric car to satisfy customers demand and increase profitability.
Sociocultural is also one of the crucial factors that will affect the business especially for those companies that incorporate internationally such as Ford. Since Ford is doing its business globally, the management needs to use different marketing strategies to serve the markets with different culture. Besides, cautious is very important as any small mistake may lead to a huge problem in the future. The management should also review all the details including the slogan for advertising to avoid the failure and influence the company image. Investing in corporate social responsibility is a good way to increase the company image and environmental protection. It is important for a company to have a good image as this would affect the sales and the profitability of the company. Thus, Ford may increase the customer demand for hybrid and electric vehicles through good marketing and management strategies.
Besides, customer services have become more important in the light of the information will go viral through the social media. Recently, most of the companies have focused towards the commitment to the customers and satisfy the customers’ needs. The brands that are more focused on their customer service, especially after sales services, as well as the friendliness of the staff, would directly affect their profit. Thus, sociocultural is important for a globally incorporated company especially like Ford to effectively target the customers and market their automobiles as the customers’ preferences are influenced by the social and cultural.
In the automotive industry, there is nothing more important than the passenger safety. Thus, the companies, especially in automotive industry, should put more effort in the technology that they used in their vehicles. Car manufacturer such as Ford is investing a lot of money and effort in technology to provide the safety and convenience to their customers. Besides, technology also affects the attractiveness of the vehicles. Nowadays, people tend to look for the vehicles that have low consumption of fuel and emission of carbon.
New technology such as the driverless car has been innovated in the era of technology today. Many customers are keen to wait for the arrival of the driverless car. According to the news, Ford has decided to spend $1 billion on this technology and expected to introduce the car in 2021 after all the testing phase has been done. This technology has created the competitiveness in the automobile industry. The car manufacturers compete aggressively and invest a lot of funds in this technology. This is because they want to become the first mover in the market and gain advantages by introducing their products faster than other competitors.
However, problems such as limited alternative fuel station in the country may affect the sales and profitability of car manufacturer that provided alternative-fuel vehicles. Thus, to success in the industry, Ford need to solve this problem in order to generate more profit and increase the company’s growth in the future.
Compliance with laws is crucial for a corporation to survive in the industry. This is because laws and regulations can affect the companies’ profitability hugely and the freedom of the companies to run their business. The examples of laws that would affect the profitability of a company are product quality, labor, safety, environmental and so on.
Among these laws, product quality is the most important factor in the automobile industry. Small defected components in the vehicles may cause a huge problem for the company if car accident or death occurred. Thus, Ford has to check the quality and test the vehicles before selling to the customers. Defect vehicles or components that discovered before sent to the customer is better and would decrease the additional cost to recall the car.
In facts, Ford has faced a lot of issues regarding the faulty transmission, airbags and so on in the past. Nevertheless, Ford has improved their ethics in doing their business globally and also improved their legal and regulatory compliance.
Furthermore, legal factors may have a huge effect on the business who breach the laws. Besides legal tussle, they might need to pay a huge amount of fines and this may result in losses or even bankruptcy. For example, Ford had paid a fine in millions due to the Ford Pinto case.