Ford and Mazda Motors Alliance
Table of Contents
Strategic Rationale for Relationship
International alliances or joint ventures between automobile manufacturers are necessary, although in many instances they do not generate profits (Luo & Tung 20007). For example, the partnership between General Motors and Isuzu has been a liability to the former company because it has been forced to continuously bail out the latter. The list of failed ventures does not stop at that point. In particular, DaimlerChrysler, Chrysler-Mitsubishi, and Fiat-Nissan are some of the illustrative cases of how joint ventures or partnerships in the auto industry falter. However, it is argued that some alliances yield positive results as demonstrated by the case of Ford and Mazda strategic partnership.
Despite the above extrapolation that relations among automakers have not yielded positive results, the case of Ford-Mazda is an exception. The pact was initially marred by disagreements about trade disputes between Japan and the US, specific projects, and dumping allegations (it was alleged that the deal facilitated the dumping of Japanese vans into the US) (Treece 2003). The partnership was established when Ford decided to rescue the Japanese automaker in 1979. Ford bought a 33.4% stake in Mazda to allow for cooperation on production of new vehicles and an exchange of expertise (PR Newswire nd). Ford became responsible for international marketing and finance, while Mazda had to execute manufacturing, as well as product development. Hence, the choice of Mazda and Ford is based on the successful venture unlike others in the industry.
Now, the two companies work together on ten auto models. Whereas Ford is responsible for styling, Mazda concentrates on the engineering aspect. The cars that have been developed jointly include the Ford Escort, Mercury Tracer, Festiva, Ford Probe, the Tribute, Mercury Capri, and Explorer. Moreover, Ford has aided Mazda in the production of MX-6, Navajo and Protégé (Treece 2003). It is observed that Mazda draws benefits due to the fact that 1 in every 4 Ford cars is sold in the US.
Based on the above introduction, the agreement to a strategic alliance was made to rescue Mazda, which was facing problems. At the time, the automaker was ailing financially. Hence, working with Ford allowed it to return back to business. Given that Ford had superior car designs, and Mazda was competitive in the engineering field, forming an alliance was a positive move that would facilitate the sharing of each company’s strengths to move forward (Treece 2003). In effect, the venture would also allow the organisations overcome their individual weaknesses. For instance, Mazda would resolve its declining market presence.
The joint venture was necessary to strengthen the relationship between the two entities by increasing their competitiveness (Chang-Ran 2008). Through such move, it was possible to improve on competitiveness through the enhancement of efficiency and benefiting from economies of scope. While maintaining separate identities, it was possible to gain from the benefits of product differentiation. At the same time, the benefits associated with effective resource use would follow.
Opportunities, Threats and Consequences
Prior to the increase of the stake in Mazda, Ford had initially invested in the company (Treece 2003). Hence, when Mazda was facing problems, the Ford Company had an opportunity to increase its holding in the company (White 2013). Whereas the move presented Ford an opportunity to increase its investment, it posed a great threat, as well. The position is held given that not all alliance ventures succeed (Marginson 2002). Investing in a declining firm is fraught with challenges which an investor must assess before arriving at a decision to invest. Nevertheless, as already pointed, the events surrounding Mazda presented Ford the opportunity to enhance its competitiveness. Similarly, the Mazda Company would attain similar gains. Such benefits would emanate from efficiency improvements, increase in economies of scale, effective resource use, and identity separation.
When two or more entities come together, the opportunity for improved integration exists (Luo & Tung 20007). In practice, such move allows the companies to offer customers a wider product choice given that it is easier to improve manufacturing, product development, distribution, purchasing, among other core business functions.
From the partnership, both Mazda and Ford have benefited from the establishment of a synchronised cycle arrangement that facilitates sharing of baseline designs and expertise on engineering (Autoblog 2010). A plan of such kind is critical in boosting the performance of the entities. In particular, the two companies have freed more resources leading to the creation of differentiated products. Thus, the two organisations would serve diverse customer needs. In addition, the two companies reached an agreement on progressively working towards increasing the commonality of their power trains and other platforms in order to reduce the scope of their activities without lowering the number of products offered to the customers (Boschert 2006).
Based on the relationship between the organisations, the possibility to increase cooperation on strategic functioning arose. From the alliance, it would be possible to maximise the use of existing resources. In particular, the two companies established the AutoAlliance Thailand (AAT) Plant on the Rayong Peninsula in Thailand and AutoAlliance International (AAI) Plant in Flat Rock, Michigan (Crowe 2014). The alliance would also facilitate the opening of a new communication channel. Through sharing of the best practices and benchmarking, the companies would be in a position to increase productivity.
Additionally, the alliance presented Ford and Mazda the opportunity to re-orient their distribution channels in anticipation of positive results. In particular, the venture would provide a possibility for strengthening of distribution networks, and improving sales/profits following reduced costs associated to the network (Brinkley 2003a). Mazda provides excellent capability on production and product engineering in small volume, while Ford addresses the same issue on high volume processing and marketing sales (Treece 2003). Hence, the companies would gain from the partnership.
The two companies have reputable brands having been in business for a long duration. The partnership, which spans over a period of forty years, began following the commencement of automatic transmissions in 1969. By 1979, Ford had acquired a ten percent sake in Mazda (Treece 2003). By 1993, a strategic alliance had been established.
For a long time, the two sides of the alliance strived to overcome numerous fights, cultural variations, hidden motives and suspicions (Chang-Ran 2008). Eventually, problems with Ford would form a basis for releasing 20% of its stake in the company. However, using Mazda expertise in engineering, the Ford carmaker managed to return to profitability slowly (Chang-Ran 2008). In particular, the Ford Company has acquired restructuring skills from Mazda.
Cultural differences were a threat to the partnership. In particular, the acquisition of a controlling stake in Mazda would become a reason for reorganisation of the company leading to a potential loss of the Japanese identity, as well as the reducing of the workforce (Bak 2003 and Karel, Haslam &Williams 1992). There was also a threat that Ford would undermine the engineering culture of Mazda.
Ford tightened the management practices of Mazda by the introduction of western management practices (Treece 2003). In particular, financial controls were tightened to improve marketing. Assets were sold, the line of production was trimmed and the sales channels were consolidated from five to two. The changes led to the realisation of profits by 1999. Each year after 2000, Mazda has been generating profits (Treece 2003).
Although the relationship has yielded positive results, bad feelings characterise the union. In particular, Mazda views Ford as using it to train managers who do not support the former company’s interests (Treece 2003). Perhaps, the decision to retain their unique identities might go beyond the strategic view of providing customers with a variety of products and maintaining product differentiation to include the wariness of being swallowed.
It is noted that in 1979 Mazda was a small player in the auto-world (Brinkley 2003). Hence, joining hands with Ford would facilitate its entry into the global arena. Understood differently, the Mazda Company would transition from a small niche entity to a global automaker. At the time, Ford was also looking to gain expertise in the production of small automobiles. Subsequently, the two companies saw each other as logical partners.
Competition vs. Cooperation
Competition comes in different forms. When analysing markets or businesses, the term refers to the pursuit of a share of customers or clients (Dess, Lumpkin, Eisner & McNamara 2012). Entities engage in production with a view of gaining control of markets. Even if a company does not acquire large-scale control, obtaining dominance in a given market niche often serves an important role. Thus, organisations’ pursuit to increase sales defines competition in markets. On the contrary, cooperation entails entities working together towards the attainment of agreed objectives (Dess, et al. 2012). The term deviates from competition given that cooperation focuses on striking a united approach to secure a collective gain. Thus, the difference between the two terms is the benefits acquired. Whereas competition is for individual/selfish gains, cooperation invokes the pursuit of mutual benefit.
Based on the case of Ford and Mazda, it is apparent that before making a decision to work together they were competitors. The two companies are producers of automobiles. Whereas, Ford seems to have a global presence, Mazda was visible within Japan. In this regard, it is arguable that Mazda would not provide adequate competition to Ford. Nevertheless, Mazda had intentions of gaining a share in the global automobile world. On such basis the two companies were competitors.
It is also noted that both entities had different capacities/capabilities. Whereas Ford was superior in design, Mazda enjoyed expertise in engineering. In addition, Ford had an advantage in big voluminous production unlike Mazda which had leverage on small-scale ventures. Thus, the two would not be viewed as competitors from such perspective. In essence, the two would benefit from working together or cooperating. As previously mentioned, Mazda did not have a global presence. Hence, cooperating with Ford would be important in bringing the automobile into the global market. Based on the above accounts, the logical process would entail the two companies cooperating instead of competing.
Globalisation and Localisation
Localisation has been used in the world of economics to refer to the process or the act of tailoring products or services towards the expectations of regional/local conventions (Dess, et al. 2012). For instance, it is accepted that cultural variations influence consumption choices and patterns. Consequently, an entity that succeeds in the market is the one that studies the market conditions to understand what the customer requires before manufacturing a product. In the absence of streamlining production with local expectations, the possibility of gaining market control declines. On the other hand, globalisation deals with firms focusing on mass production given that the world is moving towards a convergence (Dess, et al. 2012). For an entity to succeed in the world stage, it must move beyond local circumstances in its product development. A global producer focuses on the manufacturing of products that meet diverse tastes and preferences.
Given that Mazda was predominantly working within the Japanese market, it is arguable that it had localised its production and product development. It might explain its inability to break into the global market at the initial stages. Having realised the obstacle, welcoming Ford, which had a global presence, would prove a significant step towards overcoming the localisation constraint. It is acknowledged that although advantageous in serving localised markets, the focus can rarely allow a firm to progress in international circles. Given that Ford was already advanced in the global market, the alliance with Mazda was only required for the purpose of improving its engineering capacity. The same would generate gains for the two parties because global operations would allow for the enjoyment of benefits attributable to large-scale operations.
Application of Models
When analysing an industry, several models are significant. Such frameworks include: Pestel, Swot, Porter’s five forces, Value chain and VIRO. Under the Pestel model, political, economic, social, technological, environmental, and legal attributes are assessed. Socio-cultural variables include social responsibility, population, cultural differences, and consumer movement affect the industry (Birkenmaier 20001). Many people pay attention to prices, car brand, mileage, style, design, availability of spares and other related concerns (Walter 2008). Age is also considered as one of the factors as different categories of people have dissimilar tastes. Regarding technology, such aspects as fuel consumption pose a concern. Competitors, such as Honda and Toyota, are ahead by producing hybrid cars (Highfill, Baki, Green & Smith 2012). On the issue of economics, factors such as inflation, taxation, pricing, purchasing power, and development play an important role in influencing consumption. Environmental factors include fuel economy, emissions, and pollution. Finally, political/legal issues border influence demand, for instance, giving preference to hybrid cars.
Porter’s Five Forces demonstrate various threats (Porter 2008). The first threat borders on entry (Hoskisson nd). Being so specific, the automobile industry has many barriers to entry. The requirements are expensive and voluminous. Secondly, the bargaining power of buyers in the automobile sector is moderately high. Factors, such as design, appearance, and price influence customer choices (Walter 2008). The existence of many brands accords users moderate power (OPPAPERS.com 2012). The bargaining power of suppliers is limited in the industry given that many parts are required to produce a vehicle. Players can switch between/among suppliers easily. Fourthly, rivalry among firms is high. The threat of substitutes is also high given the high number of brands that exist.
Barker (2002) identified some of the opportunities and threats as follows: increasing oil prices, increasing demand for luxury, expanding technology, emerging markets, and demand for environment friendly cars. According to Birkenmaier (2001), the threats to the industry are: new regulations on emissions, increased competition, product recalls, customer care and fuel efficiency, and poor alliances and declining market share.
The two entities joined together in order to overcome the weaknesses they had. The benefits would flow either way. For instance, Ford would gain by learning from Mazda. Engineers working for the US-based firm were often embroiled in design issues leading to the need to find a solution to the problem caused by the concern (Treece 2003). However, Mazda did not encourage delays as it kept each party focused on the target. Thus, Ford would learn from the effective management approach employed by Mazda.
Secondly, cost reduction was an important motif that persuaded the companies to enter a strategic alliance. Based on the estimates by Ford, working with Mazda led to saving approximately one billion US dollars on motor vehicle designing and production (Treece 2003). In addition, the alliance was critical in allowing for gains associated to specialised competencies. In particular, Ford was not involved in the production of small-sized vehicles. However, through the alliance, the company began processing such automobiles.
In addition, the automakers were able to attain specific objectives. For instance, both companies reduced the level of their exposure to risk. For example, Ford would now enter the small-sized vehicle niche which is profitable but with high risks. Working with Mazda which had experience in the segment decreased the risk Ford would encounter.
Mazda has also gained tremendously from the working arrangement. Apart from benefiting from specialised competencies, the company would also avoid unnecessary competition. Being a niche player, Mazda would encounter problems competing with bigger entities, such as Toyota. However, allying to Ford made it easier for Mazda to begin competition at a global level. Mazda also made entry into the world scene owing to the alliance.
Despite being regarded as the most successful alliances in the motor industry, the union has experienced a number of paradoxes. The case revolving around the Navaho model, which was launched in 1990, is illustrative (Treece 2003). The Ford Company manufactured the car based on the Ford Explorer model. In 1994, Ford announced that it would cease supplying the Mazda Navaho to Mazda in order to meet the demand for Explorer. Later Mazda experienced a financial crisis in the middle of the 1990s. The problem was attributed to over-expansionary measures, cost proliferation, and market recession.
In order to solve the problems, Mazda adopted effective management controls. Ford was required to align with the new structure. Additionally, it took bold steps to restore the Mazda group’s financial health. In particular, it trimmed the expansionary approach, and resulted in releasing many employees from the Japanese firm (Treece 2003). Although a threat to the viability of the alliance, the two companies were able to overcome the crisis more effective. From the above information, it is evident that adopting managerial measures, such as restructuring, are critical in helping the organisations move forward.
Another paradox emerges in the sense that the working culture in the two home countries of the entities varied considerably. Whereas Ford was a famous, US-based company, Mazda is Japanese-based, niche organisation. Thus, the two organisations’ collaborative venture was among the least expected. Following the unprecedented failure of other alliances, such as the one between Daimler Chrysler and Mercedes and other cases, the performance of Ford-Mazda has proved to be an exception. In order to overcome related problems, conducting a SWOT analysis as suggested by Chermack & Kasshanna (2007) would be significant in identifying gaps in institutional capacity so that they could be addressed when working together.
In addition, differences were present regarding the success levels of the companies. It is already observed that Mazda was a niche player, while Ford was a global entity. Whereas, Mazda was superior in engineering, Ford was popular in designing. Moreover, Mazda was in financial troubles although it had an effective management system. On the contrary, Ford was poor in engineering and management. As a strategic partner, Ford assisted Mazda in overcoming its financial distress by implementing restructuring measures and disposing its none-performing units. The decision by Ford that the Mazda European dealer should sell Ford products under Mazda names alongside with Mazda from the Japan plant threatened the alliance but did not manage to destroy it. Setting out clear expectations and the procedures to be followed would be critical in addressing the problems of such kind.