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Concepts in Conducting Business Inter-Global Economy Essay

Concepts in Conducting Business Inter-Global Economy

            The level of competitiveness in the global economy is quite high and virtually all international businesses are advising new strategies or concepts so as to remain on the competitive edge. These include;

 Disposal of part or the whole business- Ford motor would like to dispose of its troubled Jaquar, Land rover brands and the British luxury brands including Volvo1. These brands have not been performing well and hence their sale would boost the company’s financial position as Ford would continue to supply engines and other support to the buyer2.

            Negotiations – these are important in reaching a consensus. Ford motors have been involved in various negotiations either directly or indirectly through Goldman Sachs and HSBC4 despite the fact that these negotiations have not been fruitful. Many companies such as Italian Automaker Fiat and French Automaker Renault have denied in recent days that they are in active discussions with Ford with Fiat risking a lower credit rating3 as a result of the purchase.

Marketing Concept – this deals with pricing, promotion and distribution of goods and services. There are three types of marketing strategies; product, place and cause related marketing. The marketing concept consists of the customers,

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profitability and integration. Pricing is very important to Ford Motor. Common pricing models include cost based, price based, skimming, penetration pricing and discounting. The company uses cost based plus pricing by starting with the cost of producing the good and then adding a mark-up to the cost of the product. Ford is interested in selling the three brands but only at the right price which would solve part of the company’s financial problem5.

Starting an organization a small business

            A vast majority of the big international businesses started small by entrepreneurs. The basic challenge is how to raise the required capital. Financing an enterprise is a complex undertaking whereby the entrepreneur accesses the financing needs and determines whether the funds are needed for long or short term needs. The businesses want to obtain the lowest cost with the least amount of risk while the lenders and investors want the highest possible return on their investment at the lowest risk. This will vary over time because interest rates fluctuate. Most businesses such as Ford Motor require a huge initial capital outlay a factor which deters many entrepreneurs from venturing into the motor industry. Ford Company was started in 1903, by Henry Ford as a small company in the United States with only 12 investors and today is one of the biggest players in the motor industry.

            Most small businesses are in the form of sole proprietors and partnerships as they are easy to establish. The entrepreneurs would enjoy benefits such as controlling one’s destiny, building potential, unlimited profits, recognition and doing what he/she enjoys.

Managing a Business

            This requires specific management skills in addition to knowledge of key business practices. Leadership trait, decision making, and employee management are vital for the success for business. Any decision taken by the management could have a disastrous effect on the company for instance, Jacques Nassar, the former Chief Executive Officer moved Halewood from Ford of Europe’s to PAG’s whose plan was to turn out more than 100,000 Jaquar X-types per year6. This plan did not work out forcing the company to incur other expenses in connection with building a new Freelandar sport-utility vehicle in Halewood to improve the position. The current CEO Alan Mulally is not a fun of luxury brands including Volvo which he sees as being inconsistent with the culture and operating mission of the company.

Managing Employees

            This includes recruiting, hiring, training, development, remuneration, trade unions and handling motivational needs. Employees are a very vital resource to an organization.  There are various styles of management such as management by exception (MBE) and management by objectives (MB0). MBO is popularly used by organizations including Ford Motors which involves setting goals, action planning, implementing plans and reviewing performance. An organization starts by handling the staffing needs; job descriptions and specifications these then results to the staffing and demographic challenges of skilled labor shortage, downsizing and rightsizing and quality of work and life. Ford maintains its skilled labor by revising its pay systems offering career development programs and educational programs. Demographic challenges include work force diversity, immigration, aging population, diversity initiatives, gender issues, glass ceiling, sexism and sexual harassment. Employee benefits and services are also vital. These include; insurance, retirement benefits, employee stock ownership, stock options, family benefits and employee assistant benefits. Insurance is the most common benefit. A substantial compensation in the form of life and health insurance is offered. Under employee ownership stock, the company places a certain amount of its stocks in some or on all of its employees, with each employee entitled to certain share.

Developing Marketing Strategies to Satisfy Customers

            This is one of the issues surrounding Ford Motor. “Every one knows Ford wants to sell Jaquar, Land rover and Volvo – but can it afford to be picky about who buys them”8. Every vehicle model is tailored to meet the customer’s needs. This raises the question on how to market and distribute the product. Distribution strategy includes an overall plan for moving products to buyers as most firms don’t sell directly to final users. Marketing strategies include push and pull strategies. If the focus is on the intermediaries the producer uses a push strategy to persuade wholesalers and retailers to carry the products while if the focus is on the end users the producer uses a pull strategy to appeal directly to the ultimate customer using direct mail, contests and discount coupons. Marketing strategies greatly enhances the company’s competitive position. The current CEO of Ford Motors is highly focused on beefing up the Ford brand to compete globally against Toyota Motor7.

Managing Financial Information and Resources

            Financial information needs to be handled with great care as competitors can use such information to the disadvantage of the company. Access to such information especially the current is normally through the registered users. Resources include raw materials, employees and other assets which are used in the generation of income. Planning for a firm’s current and future needs is the foundation of financial management which is done in a financial plan that shows the funds a firm will need for a period of time as well as the sources and uses of those funds. Managers include a company’s cash flow by monitoring its working capital accounts: cash, inventory, accounts receivable and accounts payable. In addition to these they develop a budget which is the company’s blueprint for a given period which is often one year. Cost management is one of the greatest tools used by the company in managing its resources. Many engineering and production synergies have been knitted together between Jaquar and Land rover to lower cost, including sharing engines, transmissions and purchasing9.


David Kiley. Detroit’s Worst-Kept Secret. Business Week. Available at: http://www.businessweek.com/autos/content/jun2007/bw20070611_689333.htm?chan=rss_topStories_ssi_5. Accessed on 20:06:2007


Detroit’s Worst-Kept Secret

Everyone knows that Ford wants to sell Jaguar, Land Rover, and Volvo—but can it afford to be picky about who buys them?8

by David Kiley

Ford Motor (F) has been looking for buyers for its troubled Jaguar and Land Rover brands since last fall1. But recent media reports that the automaker has engaged Goldman Sachs (GS), Morgan Stanley (MS), and HSBC (HBC)4 to screen buyers for the British luxury brands—indeed, the entire Premier Auto Group (PAG) including Volvo—and that it has been in talks with Fiat (FIA) to buy the British brands, have fanned the flames of speculation that Ford will almost certainly unload its luxury brands.

It is highly unlikely that all three brands would go to the same bidder, because while Jaguar and Land Rover share many operational efficiencies, Volvo does not. And there is far more likelihood that Jaguar and Land Rover will be sold and that Volvo will remain under Ford’s umbrella. The British press has reported that British private equity firm Alchemy Partners is readying a bid for close to $6 billion. Alchemy tried to buy the British Rover Group from nearly a decade ago. But it was outmaneuvered by another British investment firm, the Phoenix Group.

Billions Lost Despite Best Efforts

Ford has been toiling to restructure, retool, and reorganize Land Rover and Jaguar for years. Dragged down principally by Jaguar, PAG as a whole has lost billions over the last decade. Land Rover, say Ford officials, is posting an operating profit these days largely on the popularity of the $57,950 Range Rover Sport, whose high profit-per-vehicle is making up for losses elsewhere.

Ford has been knitting together as many engineering and production synergies as possible between Jaguar and Land Rover to lower costs, including sharing engines, transmissions, and purchasing9. But Land Rover is still saddled with its out-of-date and overstaffed Solihull manufacturing complex in Britain. High labor costs, a weak dollar, and a strong British labor union that often makes it impossible for automakers to close unneeded plants have made a more meaningful financial turnaround elusive.

Jaguar has been equally beset by too much production capacity, especially the Halewood (England) plant that used to make Ford Escorts. Under former Ford Chief Executive Jacques Nasser, Halewood was moved from Ford of Europe’s books to PAG’s, and the plan was for the large plant to turn out more than 100,000 Jaguar X-Types per year6. The X-Type was not a success, though, and Jag has been stuck with the consequences ever since. Now, Ford is also building the new LR2/Freelander sport-utility vehicle in Halewood to improve the plant’s bottom line.

A Return to the “Blue Oval”

But Ford is not in a position to take chances on the success of those brands when the rest of the company is literally fighting for survival. Ford CEO Alan Mulally, who took over last September, is no fan of the luxury brands, including Volvo, which he sees as being at odds with Ford’s culture and operating mission. “We have to get Ford aligned with itself globally and focus on polishing the Ford blue oval,” Mulally said in a recent interview with Business Week. The CEO says with much less enthusiasm that Ford “is committed to Jaguar and Land Rover and the product plans in place.” But it has been an open secret that the British brands in particular are for sale.

Alchemy’s anticipated price of nearly $6 billion for Jaguar and Land Rover could be overpaying. One senior PAG executive who asked not to be named thought a buyer could have both brands for “a tuppence.”

Ford management and the board are motivated sellers, but they want to see some return for the billions invested and lost in Land Rover and Jaguar. Because Ford would have to continue to supply engines and other support to the buyer2, it is likely that Ford would retain 10% to 20% of the brands, as it did when it sold Aston Martin to a private equity investor earlier this year.

Reasons to Buy

Both Italian automaker Fiat and French automaker Renault have denied in recent days that they are in active discussions with Ford. Fiat, according to a press report, backed off because acquiring the brands would lower its credit rating3. Renault would probably face the same issue. Renault CEO Carlos Ghosn told Business Week last September that he would like to talk to Ford about the British brands(see BusinessWeek.com, 9/25/06, “Grading Ghosn”). But he publicly said last November that he was no longer interested.

Why all the interest in two unprofitable, troublesome British brands? No doubt Alchemy is interested for the same reasons it acquired Land Rover: It’s motivated partly by British nationalism and partly by the opportunity to siphon off some profit after Ford has already done a lot of the heavy lifting in terms of restructuring. Alchemy management, for example, believes it is in a better position than Ford to extract concessions from British labor. Then it can capitalize on milking the new-product investments Ford has already made before potentially selling the brands off to Chinese automakers. Ford is forever hamstrung with British labor and the British government over reductions because Ford is the biggest automaker in Britain. And if labor doesn’t get the deal it wants at Jaguar and Land Rover, it can threaten strikes at Ford’s other plants.

Press reports out of Sweden last month said that Ford was in talks to sell Volvo to German automaker BMW. Both companies issued statements denying the reports.

There is no question that Ford is interested in selling all three brands, but only at the right price. The automaker lost $12.6 billion last year and has mortgaged its buildings and intellectual properties to amass enough cash and credit lines to see it through continued losses this year and next year. The company projects it will be profitable by 2009. Even so, a $6 billion jolt to its reserves from the sale of the British brands and a possible $7 billion to $9 billion jolt from the sale of Volvo would be a welcome cushion5. And Mulally would likely jump at the chance to unload the brands for real cash. It would also solve part of Ford’s problem, as CEO Mulally sees it, of being too distracted by businesses and brands that have little to do with Ford’s recovery. The new CEO is focused like a laser on beefing up the Ford brand to compete globally against Toyota Motor (TM)7.

Misguided Motivations?

What is fascinating is the interest that so many companies have in these established brands. Toyota, the industry’s profit leader, has been almost religious in ignoring the temptation to buy other brands. In the last 20 years, Toyota has launched the Lexus luxury brand and the Scion niche brand. Both have been runaway sales and profit successes (see BusinessWeek.com, 6/7/07, “Toyota, Take the Wheel”). Meantime, Daimler (DCX) was burned by its $38 billion acquisition of Chrysler, which it recently sold to private equity, and Ford has suffered after buying its stable of European brands.

Automakers steadily benchmark Toyota’s manufacturing and production systems. Surprisingly, the Japanese company’s savvy for not making acquisitions and building new businesses with a clean sheet of paper are not often emulated. Toyota is so protective of its systems and culture that it has never shown any interest in buying another car company outright.

Ford management was beguiled by Jaguar in 1989 when General Motors (GM) was showing interest in buying it and its own Lincoln premium brand was slipping badly. Ford had high-ranking executives of British birth who were enamored of Jaguar despite its poor quality and ancient manufacturing facilities. It got the itch to shop for brands again in 1999 and 2000, when it acquired Land Rover and Volvo. Now Ford is hoping that there are buyers out there who have still not gone to school on Ford’s mistakes or Toyota’s success.

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