Environmental Scanning

Introduction

Ford Motors operates in the global market. Since its inception, it operated different brands such as Ford, Lincoln, Mazda, Mercury and Volvo. The company’s primary markets are in the U.S and Europe. The business aims at building products designed for the global market instead of regional ones. It accomplishes the goal by increasing the number of product lines around the world. As a result, it faces several challenges and opportunities in regards to the business environment. Such matters include threat of new entrants and substitute products, and rivalry among existing firms, bargaining power of buyers, suppliers as well as other stakeholders. The issues are significant because they influence the business’ performance, survival and competitive edge.

Threats of New Entrants

The-threat-of-new-entrants aspect analyzes entry barriers in the market. An industry with higher barriers reduces the risk from new competitors than the industry with a low barrier of entry. The reason is that new entrants to an industry increase competition for the market share. For example, a new competitor has no existing customers, and, as a result, shares them with existing firms. Secondly, factors to consider in the analysis include brand identity, switching costs, capital and regulation as well as absolute cost advantage.

Ford takes a significant place in the auto manufacturing industry. As a result, the threat of new entrants is low. The reason is that the capital requirement is high for the business. Secondly, new firms have no brand equity to leverage in developing market share. Additionally, new regulations require dealerships to align with motor brands. As a result, dealers consider well-established brands such as Ford, and it will ensure profitable ventures. Other factors that reduce the threat include government regulations. For example, it is expensive to invest in various regulations such as safety, emissions and EPA. Finally, the distribution of automobile parts and vehicles is expensive, and development and implementation of such strategies may take years. For example, establishing regional centers or dealerships requires huge investments and planning. The above gives an opportunity for Ford in developing its brand in different markets. For example, Ford has a strong financial and brand base, which it can capitalizes to venture into regional markets.

Threat of Substitute Products or Services

A substitute is a product or service that performs similar functions as the one in question. As a result, substitute products have an elastic demand hence increasing consumer price, which results in low sales. Therefore, the price of a substitute acts as a ceiling in the business. Secondly, an attractive price of a substitute inhibits a business from obtaining the profits possible. Finally, substitute products cause low switching. As a result, the lower the switching cost, the higher the threat of substitute.

The threat of substitute products is moderate. For example, in the case scenario, new cars result in high switching costs since they are not same as the used ones. For example, 70% of new car purchases involve a used car. In the entitlement, dealers assume the risk associated with vehicle by selling at a price higher than the trade value. Secondly, in the motor business, there are many similar car brands. Examples include Toyota, where one can establish a similar brand to Mazda. 

Rivalry among Existing Firms

Rivalry among existing firms exists, as a result of price, product innovation and marketing, which reduce potential profits to other firms. Additionally, it is also a result of a large number of competing firms and slow growth in the business. Thus, margins are low, and pressure between rivalries is high. In the motor industry, rivalry among existing firms is high resulting in regional price clashes, campaign and product developments, innovation and profitability. Even though firms adopt different core competences and varying business models, they do not perform equally. However, market players follow market leaders such as Ford and duplicate features, which increase rivalry. For example, another firm such as BMW and Toyota has a similar strategy to Ford in developing vehicles on a global platform.

Secondly, the business consists of long-established firms. For example, in 1990, GM had 35% market share while Ford was second at 24%. Toyota held 8% and in 2005, 13%. As Ford’s market share declined so did the revenues.  The above outcomes show that historically, there are a few long-existing firms competing for the market share, and, as a result, increased rivalry in the business.

Bargaining Power of Buyers

Consumer bargaining power is the ability to negotiate or influence the selling price of products and services. Industries with many suppliers but few buyers, or consumers, have the power to set the price. The reason is that the supply is higher than the market, and, as a result, buyers have much bargaining power. Secondly, in industries with few buyers depending significantly on the input from the seller, consumers have a low bargaining power.

In Ford’s situation, the consumer bargaining power is moderate because it is high in many markets while low in others. The second reason is that it also depends on car dealerships.  For example, in America where the brand is well-established, consumer bargaining power is high. However, in other markets it is low since the brand faces competition from other business.

Bargaining Power of Suppliers

In the motor industry, bargaining power of suppliers refers to the ability of entities that provide parts and components for manufacturing vehicles to negotiate for better terms. In the case scenario, the emergence of electronic car parts results in a reduced need for local carmakers. As a result, suppliers depend on corporations. Additionally, the motor industry consists of well-established firms that sign contracts with suppliers, and, as a result, suppliers have little or no chance in negotiating prices. Therefore, it is an opportunity for the firm to agree on the cost with suppliers and avoid fluctuating operating costs.

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