Case Study 1
When Ford CEO Alan Mulally arrived at the company in 2006 after a long career at Boeing, he was shocked to learn that the company produced one Ford Focus for Europe and a totally different one for the United States. “Can you imagine having one Boeing 737 for Europe and one 737 for the United States?” he said at the time. Due to this product strategy, Ford was unable to buy common parts for the vehicles, could not share development costs, and couldn’t use its European Focus plants to make cars for the United States, or vice versa. In a business where economies of scale are important, the result was high costs. Nor were these problems limited to the Ford Focus. The strategy of designing and building different cars for different regions was the standard approach at Ford.
Ford’s long-standing strategy of regional models was based upon the assumption that consumers in different regions had different tastes and preferences, which required considerable local customization. Americans, it was argued, loved their trucks and SUVs, while Europeans preferred smaller, fuel-efficient cars. Notwithstanding such differences, Mulally still could not understand why small car models like the Focus, or the Escape SUV, which were sold in different regions, were not built on the same platform and did not share common parts. In truth, the strategy probably had more to do with the autonomy of different regions within Ford’s organization—a fact that was deeply embedded in Ford’s history as one of the oldest multinational corporations.
When the global financial crisis rocked the world’s automobile industry in 2008–2009 and precipitated the steepest drop in sales since the Great Depression, Mulally decided that Ford had to change its long-standing practices in order to get its costs under control. Moreover, he felt that there was no way that Ford would be able to compete effectively in the large developing markets of China and India unless Ford leveraged its global scale to produce low-cost cars. The result was Mulally’s One Ford strategy, which aims to create a handful of car platforms that Ford can use everywhere in the world.
Under this strategy, new models—such as the 2013 Fiesta, Focus, and Escape—share a common design, are built on a common platform, use the same parts, and will be built in identical factories around the world. Ultimately, Ford hopes to have only five platforms to deliver sales of more than 6 million vehicles by 2016. In 2006, Ford had 15 platforms that accounted for sales of 6.6 million vehicles. By pursuing this strategy, Ford can share the costs of design and tooling, and it can attain much greater scale economies in the production of component parts. Ford has stated that it will take about one-third out of the $1 billion cost of developing a new car model and should significantly reduce its $50 billion annual budget for component parts. Moreover, because the different factories producing these cars are identical in all respects, useful knowledge acquired through experience in one factory can quickly be transferred to other factories, resulting in systemwide cost savings.
What Ford hopes is that this strategy will bring down costs sufficiently to enable Ford to make greater profit margins in developed markets and be able to achieve good profit margins at lower price points in hypercompetitive developing nations, such as China (now the world’s largest car market), where Ford currently trails its global rivals such as General Motors and Volkswagen. Indeed, the strategy is central to Mulally’s goal for growing Ford’s sales from 5.5 million in 2010 to 8 million by mid-decade.
Fields, appointed CEO in July 2014, joined Ford in 1989 and has been entrenched in the company’s operations for a long time, and has held various strategic and executive positions, most recently chief operating officer (COO), before taking on the president and CEO role.
Case Discussion Questions
- How would you characterize the strategy for competing internationally that ford was pursing prior to the arrival of Alan Mulally? What strategy was Mulally trying to get ford to pursue? What are the benefits of this strategy? Can you see any drawbacks?
- What would you recommend that CEO Mark Fields undertake in terms of continuing or possibly changing the global strategy that Mulally put in place? is Fields’s long-term employment with Ford a benefit or hindrance to making Ford globally competitive?
Case Study 2
Case Discussion Questions
- How would you characterize the strategy for competing internationally that Siemens was pursuing prior to the arrival of Peter Loscher? What were the benefits of this strategy? What were the costs? Why was Siemens pursuing this strategy?
- What strategy is Loscher trying to get Siemens to pursue with his streamlined “power and accountability” initiative? What are the benefits of this strategy? Can you see any drawbacks?
- Does the “power and accountability” initiative imply that Siemens will now ignore national and regional differences?
Case Study 3
Al Merritt founded MD International in 1987. A former salesman for a medical equipment company, Merritt saw an opportunity to act as an export intermediary for medical equipment manufacturers in the United States. He chose to focus on Latin America and the Caribbean, regions in which he had experience. Trade barriers were starting to fall throughout the region as Latin governments embraced a more liberal economic ideology, creating an opening for entrepreneurs such as Merritt. Local governments were also expanding their spending on health care, creating an opportunity that Merritt was poised to exploit.
Merritt located his company in south Florida to be close to his market. The company has grown to become the largest intermediary exporting medical devices to the region. Today the company sells the products of more than 30 medical manufacturers to some 600 regional distributors. While many medical equipment manufacturers don’t sell directly to the region because of the sizable marketing costs, MD can afford to because it goes into those markets with a broad portfolio of products.
The company’s success is in part due to its deep-rooted knowledge and understanding of the Latin American market. MD works very closely with teams of doctors, biomedical engineers, microbiologists, and marketing managers across Latin America to understand their needs, and what the company can do for them. The sale of products to customers is typically only the beginning of a relationship. MD International also provides hands-on training to medical personnel in the use of devices and extensive after-sales service and support.
Along the way to becoming a successful exporter, MD International has leaned heavily upon export assistance programs established by the U.S. government. For example, in the early 2000s a shipment to Venezuela was held up by the country’s customs service, demanding proof that the medical devices were not intended for military use. Within two days, staff at the U.S. Export Assistance Center in Miami arranged for the U.S. Embassy in Venezuela to have a letter written and delivered to customs, assuring that the products had no military applications, and the shipment was released. Merritt has also worked extensively with the Export–Import Bank to gain financing for its exports (the company needs to finance the inventory that it exports).
Despite these advantages, it has not all been easy going for MD International. Latin American economies have often been highly cyclical, and MD International has ridden those cycles with them. In 2001, for example, after several years of solid growth, an economic crisis in both Argentina and Brazil, coupled with a slowdown in Mexico, resulted in losses for the year and forced Merritt to layoff one-third of his staff and cut the pay of others, which included a 50 percent pay cut for himself. Things started to improve in 2002, and the weak dollar in the mid-2000s also helped to boost export sales. However, the global financial crisis of 2008- 2009 ushered in another tough period, although prior experience suggests that MD International can not only survive such downturns, but also come out stronger as weaker competitors fall by the wayside.
Case Discussion Questions
1) How does an intermediary such as MD International create value for the manufacturers who use it to sell medical equipment in foreign markets? Why do they want to use MD International rather than export directly themselves?
2) Why did MD International focus on Latin America? What are the benefits of this regional approach? What are the potential drawbacks?
3) What would it take for MD International to start exporting to other regions such as Asia or Europe? Given this, would you advise Al Merritt to continue his regional focus going forward, or to add other regions?
4) How important has government assistance been to MD International? Do you think helping firms such as MD International represents good use of taxpayer money?