Good Example Of Risks Underlying Ford Motor’s Expansion To China Essay

A. Abstract

This outline delineates the various risks that Ford Motors face in the course of expanding its market presence in China. The outline describes the risks under political, cultural and financial categories. The political risks have emerged from the trade dispute that has been in existence between the U.S. and China for a long period, as well as the rigorous emission standards and lenient Intellectual Property rights in China. The cultural risk emanates from the collectivism culture in China whereby Chinese people buy vehicles that are of the same brand as that of family members and friends. Finally, the financial risks deal with government incentives to Chinese automakers and increasing cost of fuel. The outline concludes by recommending that Ford should intensify its market stimuli in China besides putting more emphasis on customer relationship.

B. Introduction

a. Aspects of expanding business into new markets
i. Globalization has dictated that in order for a company to increase its customer base, it needs to seek for new markets across the global village.
ii. Advancement in technology has made communication possible across the globe in terms of transportation systems and communication networks (Twarowska and Kąkol, 2013).
iii. Expanding to new markets has become a novel trend among businesses.
b. Challenges
i. Companies committing their marketing efforts into new markets expose themselves to plethora political, cultural and financial risks surrounding new markets.
ii. Besides, the Chinese automotive market is volatile, and hence, difficult to predict.
c. Company Profile
i. Ford Motors are based in the United States (Yang, 2014).
ii. Over its history, Ford has been devoted to expanding its business in the international markets, such as China; however, there are many inherent risks: political, cultural and financial (Gearen, 2006).
C. Body
a. Political risks
i. Traditional trade disputes
1. After joining the World Trade Organization (WTO), China agreed to let the U.S. uphold its treatment towards China as a non - market economy with the effect of restricting the import of Chinese products (Tang, 2009).
2. Allied Industrial and Service Workers International Union (USW) complained about the detrimental impact of low-priced tires imports from China on their business. Also, paper and forestry complained (Tang, 2009).
3. China is expected to pay back by filing a petition on the unfair subsidization among automakers by the U.S. government and thusly, high tariffs are expected on automobiles from the U.S., such as Ford (Tang, 2009).
ii. The plans to have higher auto emission standards for novel cars in China will be detrimental to the marketing efforts of Ford (Gilligan, 2010).
iii. China has not been keen in dealing with Intellectual property (IP) rights and over the history, the Chinese government has approved IP violations of automakers in China, thus Ford will be at a risk as it ventures into the Chinese market (Zhi, 2004).
b. Cultural risks
i. Chinese people buy vehicles that satisfy their needs, such as quality, safety and inexpensive, and Ford has achieved these attributes (Ban, 2005).
ii. However, the Chinese culture of collectivism dictates that the people’s purchasing decisions are influenced by family and friends and this means that the top selling brand in China (General Motors) will be purchased instead of Ford (Canis and Morris, 2013).
c. Financial risks
i. China has increasingly capitalized on foreign direct investment in automobile manufacturing, and this puts the products of automakers in China a notch higher in regard to cheapness as compared to competitors like Ford (Wang, 2013).
ii. The transfer of international technology is fostered by China by the government through tax incentives for research and design activities, as well as financial incentives, hence placing Chinese automobiles in a better position as compared to Ford (Oliver, Holweg and Luo, 2009).
iii. The Chinese government has also given financial incentive to Chinese auto manufacturers, something that has negative implications for Fords market potential in China (Oliver, Holweg and Luo, 2009).
iv. The cost of running automobiles, such as fueling costs, that are expected to rise in the future will hamper the efforts of the Chinese consumers to buy vehicles and therefore Ford will not have an ample market in China.
v. The restricted personal loan policy in China means that consumers will not have the capacity buy personal cars imported to China by Ford and this is a significant risk to Ford (Oliver, Holweg and Luo, 2009).
D Conclusion
a. Summary of main points
i. Expansion of new markets is inevitable, and Ford is no exception in this respect; nonetheless, Ford faces sizable risks in venturing into the Chinese market.
ii. The political risks consist of the high tariffs imposed on exported automobiles in China due to the traditional trade dispute between China and the U.S., the strict emission standards for new vehicles in China and the relaxed Intellectual property rights.
iii. The cultural risks have to do with the collectivism culture of the Chinese people in the sense that the brand of automobile they buy relies on what the family members or friends; as such, General Motors is prevalent than Ford.
iv. The financial risks comprise of the stepped-up foreign direct investment in China, financial incentives on R&D, subsidies for Chinese automakers, the high cost of running and maintaining automobiles and the restricted loans access to the Chinese people. These financial factors put a ford in a disadvantaged position.
v. Recommendations:
1. Ford should increase the market stimuli in the Chinese market so as to persuade the Chinese customers to buy the Ford brand (Xiao, 2011).
2. Ford should increasingly focus on building customer relationships in China due to the collectivism culture that has a direct impact on purchasing decisions (Soliman, 2011).

References

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