Ford Motor Company: Five Forces Analysis (Porter’s Model)

Ford Motor Company Five Forces Analysis, Porters, competition, power buyers, suppliers, threat, substitution, entrants case study
A 2013 Ford Fusion. The Five Forces analysis of Ford Motor Company reveals that competition is the most important concern in the firm’s industry environment. (Photo: Public Domain)

Ford Motor Company maintains its position as one of the biggest automobile manufacturers in the world by reforming its strategies to address the issues shown in this Five Forces analysis. Michael Porter developed the Five Forces analysis model for analyzing the external factors in firms’ industry environments. Ford needs to develop policies and approaches that respond to the most significant forces based on the external factors in the global automotive industry. This Five Forces analysis of Ford Motor Company identifies the most important external factors and how they impact the business, thereby also providing input for managerial decision-making.

Ford Motor Company needs to prioritize the most significant of the Five Forces, which in this analysis is shown to be competitive rivalry. The other forces are also significant but with lower intensities of impact on Ford.

Overview: Ford Motor Company’s Five Forces Analysis

Ford Motor Company’s Five Forces analysis shows that competitive rivalry or competition is the most significant external force in the automotive industry environment. The following are the intensities of the five forces in influencing Ford’s business:

  1. Competitive rivalry or competition (strong force)
  2. Bargaining power of buyers or customers (moderate force)
  3. Bargaining power of suppliers (moderate force)
  4. Threat of substitutes or substitution (moderate force)
  5. Threat of new entrants or new entry (weak force)

The results of the Five Forces analysis of Ford Motor Company show that competition or competitive rivalry is the most significant issue for the business. For long-term viability in the automotive industry environment, Ford must prioritize strategic solutions to develop competitive advantage. For example, innovative products can boost the company’s sales performance. As such, Ford must prioritize R&D investment to maximize innovation processes.

Competitive Rivalry or Competition with Ford (Strong Force)

Ford Motor Company faces tough competition. This aspect of the Five Forces analysis refers to competing firms that influence the industry environment. The following are the external factors that contribute to the strong force of competitive rivalry against Ford:

  • High aggressiveness of firms (strong force)
  • High exit barriers (strong force)
  • Moderate number of firms (moderate force)

Ford needs to compete against top players (e.g. Toyota) that aggressively innovate and market their products. Also, the automotive industry has high exit barriers, which means that firms would rather keep competing with Ford than to close their business, because of the high costs and investments. Such a condition exerts a strong force of competition against Ford. In addition, Ford must compete against a moderate number of firms, especially a few large ones like General Motors. Based on this aspect of the Five Forces analysis, Ford must maximize its competitive advantage to address the external factors linked to competition.

Bargaining Power of Ford’s Customers/Buyers (Moderate Force)

Ford’s customers significantly influence the business. This aspect of the Five Forces analysis pertains to the effects of buyers on businesses and the industry environment. The external factors that contribute to the moderate bargaining power of Ford’s customers are as follows:

  • Moderate switching costs (moderate force)
  • Moderate size of individual purchases (moderate force)
  • Moderate availability of substitutes (moderate force)

Ford Motor Company’s customers face moderate switching costs, which are the consequences of moving from one firm to another. In this case, customers can easily transfer to other firms, although infrequently because automobiles are big-ticket items. Also, each purchase of Ford’s products is moderate in terms of its price and contribution to the company’s revenues. Thus, even a small change in customer’s demand can have significant consequences on Ford. In addition, the moderate availability of substitutes gives customers the option to move away from Ford. Thus, Ford Motor Company must maximize customer satisfaction to address the external factors in this aspect of the Five Forces analysis.

Bargaining Power of Ford’s Suppliers (Moderate Force)

Suppliers exert moderate influence on Ford Motor Company. The impact of suppliers and their demands on firms are considered in this aspect of the Five Forces analysis. In Ford’s case, the following external factors contribute to the moderate bargaining power of suppliers:

  • Moderate overall supply (moderate force)
  • Moderate population of suppliers (moderate force)
  • Low forward vertical integration (weak force)

The moderate overall supply and moderate population of suppliers give suppliers significant but limited bargaining power on firms like Ford. Also, most of these suppliers have low forward vertical integration, which means that they do not own or control the distribution and sale of their products to Ford. The suppliers’ bargaining power is further weakened because of Ford’s backward vertical integration through the Ford River Rouge Complex. Through the Complex, Ford produces some of the materials it uses to manufacture cars and related finished products. Thus, this aspect of the Five Forces analysis shows that Ford must consider the significant but limited external factors linked to suppliers’ effect on the business.

Threat of Substitutes or Substitution (Moderate Force)

Ford Motor Company experiences the effects of the substitutes to its products. This aspect of the Five Forces analysis refers to the extent substitution threatens firms and the industry environment. The following external factors contribute to the moderate threat of substitution against Ford:

  • Moderate availability of substitutes (moderate force)
  • Moderate switching costs (moderate force)
  • Low performance of substitutes (weak force)

There are considerable substitutes to Ford’s products, including public transportation and bicycles. However, these substitutes are not always available or appropriate in certain areas or situations. In addition, the switching costs are moderate because, even through Ford’s customers can shift to using these substitutes, they cannot easily do so when they are still paying for their car loans. Also, in many instances, these substitutes have lower performance than Ford’s products in terms of convenience and safety. Based on this aspect of the Five Forces analysis, Ford needs to address suppliers as a second-priority external threat.

Threat of New Entrants or New Entry (Weak Force)

Ford Motor Company feels the effects of new entrants on its industry environment. The impact of new firms is considered in this aspect of the Five Forces analysis. The external factors that contribute to the weak threat of new entrants against Ford are as follows:

  • High capital costs (weak force)
  • High cost of doing business (weak force)
  • High cost of brand development (weak force)

Companies like Ford commit to huge spending to set up and maintain their businesses and facilities. These costs are a barrier to entry that weakens the threat of new entrants. In addition, it is costly to develop a strong brand comparable to Ford’s, thereby making it difficult for new entrants to effectively compete against industry giants. Based on this aspect of the Five Forces analysis, external factors present only a weak threat against Ford.

References
  • Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review88(5), 28-29.
  • Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review24(1), 32-45.
  • Ford Motor Company (2015). Supporting One Ford.
  • Ford Motor Company Form 10-K, 2014.
  • Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change15(5), 213-229.
  • Maybury, M. T., & Belardo, S. (1992, January). Five forces. In System Sciences, 1992. Proceedings of the Twenty-Fifth Hawaii International Conference on (Vol. 4, pp. 579-588). IEEE.
  • Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. GRIN Verlag.
  • U.S. Department of Commerce (2015). The Automotive Industry in the United States.