Ford Five Forces Analysis & Recommendations (Porter’s Model)

Ford Five Forces Analysis, competition, power customers, suppliers, threat substitution, new entry, automotive business case study
A 2013 Ford Fusion. This Five Forces analysis of Ford Motor Company reveals that competition is the most important concern in the automotive 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 providing input for managerial decision-making. The achievement of strategic objectives based on Ford’s mission and vision depends on how the Five Forces shape the competitive pressure on the company.

Ford Motor Company needs to prioritize the most significant of the Five Forces, which in this external analysis is shown to be competitive rivalry. The other forces are also significant but with lower intensities of impact on the automaker. The differences among the Five Forces influence the priorities and objectives of Ford’s generic competitive strategy and intensive growth strategies. For instance, the weakness of the threat of new entry determined in this Five Forces analysis means that the automotive company’s strategies tend to prioritize the effect of the other forces, such as competition and the bargaining power of customers.

Summary & Recommendations: Five Forces Analysis of Ford

This Five Forces analysis of Ford Motor Company 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

Recommendations. The results of this 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. Moreover, competitive strategies must effectively use business strengths, like innovation capacity and the other competencies shown in the SWOT analysis of Ford. These automotive business strengths can limit the adverse effects of the competitive situation determined in this Five Forces analysis.

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 affecting Ford:

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

Ford competes with other large multinational automobile manufacturers, such as Toyota, General Motors, BMW, and Tesla. These competitors 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, in consideration for the high cost of investment. Such a condition exerts a strong force of competition against the company. In addition, the automaker must compete against a moderate number of firms, especially a few large ones. 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 for automobile buyers (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 preferences and the corresponding market demand can have significant consequences for the automotive company. In addition, the moderate availability of substitutes gives customers the option to move away from Ford. Thus, the automotive business must maximize customer satisfaction to mitigate the effects of the external factors in this aspect of the Five Forces analysis. To limit the impact of buyer power, the company’s strategic development must consider the sociocultural trends that affect customers’ perception and buying decisions. The PESTEL/PESTLE analysis of Ford presents the numerous trends that can influence how customers use their bargaining power, as defined in this 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 automotive suppliers (moderate force)
  • Suppliers’ low forward vertical integration (weak force)

The moderate overall supply and moderate population of suppliers give suppliers significant but limited bargaining power over Ford. Also, many 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 the company’s backward vertical integration through its facilities, such as the ones in the Ford River Rouge Complex. Through this vertical integration, the company 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. The automaker can implement strategies that limit the effects of suppler power. For instance, supply chain management in Ford’s operations management can push for a more diversified supply chain to reduce the bargaining power of individual suppliers determined in this Five Forces analysis.

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 that substitution threatens firms. The following external factors contribute to the moderate threat of substitution to Ford:

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

There are considerable substitutes to Ford’s products, including public transportation, bicycles, and motorcycles, like those from Harley-Davidson. However, these substitutes are not always available or appropriate in certain areas or situations. In addition, the switching costs are moderate because, even though Ford’s customers can shift to using these substitutes, they are unlikely to readily 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 substitutes 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 to Ford are as follows:

  • High capital costs (weak force)
  • Automakers’ high cost of doing business (weak force)
  • High cost of automotive brand development (weak force)

Automotive 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. This condition makes 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. Although new entry is a weak threat, the company can apply measures to further reduce or limit this threat. For example, Ford’s marketing strategy and its implementation in the marketing mix (4P) can involve aggressive campaigns to augment the existing entry barriers described in this Five Forces analysis.