International Business

(Ford vs Volkswagen)

Ford Motor Company (“Ford”) is a United States based automotive company employing
186,000 people worldwide, with operations in North America and over 125 countries
worldwide, The Company has achieved a leading position in the automotive industry
especially in the United States and Europe with its innovative vehicle brand. The business of
the Company involves selling automotive and commercial vehicles including new hybrid and
electrical vehicles, SUVs, trucks & vans under the Ford brand and luxury vehicles under
Lincoln brand.

The business of Ford is divided into three divisions: Automotive, Ford credit and Ford
mobility. The revenue of the Company mainly generated from the Automotive division,
followed by Ford credit and Ford mobility divisions. The United States is Ford’s largest sales
market, Ford became the best-selling commercial vehicle brand for the 11th consecutive year
in the United States. China is the second largest sales market for Ford. However, the
economic conflict between the United States and China has raised the concern of Ford in the
China market. The United Kingdom was traditionally Ford's largest European market. Due to
the United Kingdom’s exit from the European Union, Ford’s supply chains have been
disrupted. Three plants operating in the United Kingdom have been cut off from assembly
locations in the European Union.
The mission statement of Ford is to create vehicles, technologies, and services that help to
improve people’s lives in order for people to live better. The company believes that freedom
of movement drives human progress, and smart vehicles are being developed for a smart
world to address the mobility challenge.

In terms of organisational arrangement, Ford uses global area division arrangement where
global division managers are responsible for all business operations in their designated
regional markets. Each division focuses on regional needs in order to meet the desires of their
customers. Every division focusing on their own region and cater to the needs of the local
market allows for a more flexible and fast response to local environment changes, this will
also help to utilize local market opportunities with quick responsiveness. Geographical
proximity provides easy communications channels and coordination as they are local. This
structure also provides a comprehensive view of all business activities in the region, assisting
in the development of a uniform region image. A global product division provides the most
benefits to Ford and its diverse customer base.

However, there is a risk of overlooking the significant unique conditions or needs of global
markets resulting from the simplification of the Company’s approach to its markets on this
organisation structure. Overemphasising on regional differences and regional egoism also be
a weakness of this organisational arrangement. Due to local adaption, there is a risk of low-
cost efficiency and low economies of scale. Functions and resources are duplicated in each
region due to a lack of global synergy effects. As a result, the diffusion of technological
innovations within the organisation may be slow, and the "not invented here syndrome" may
act as a barrier on transfer of knowledge. Furthermore, synergy effects and economies of
scale are frequently underutilised.

Volkswagen is a German multinational automotive manufacturer, one of the leading multi

brands in the automotive industry in the world. Volkswagen employed a total of 120,000
people in Germany making the company one of the most well-organized labour-represented
companies in Germany and the world.

The business of Volkswagen includes vehicle and component development for the company's
models, production and sale of vehicles to Volkswagen Passenger Cars and Volkswagen
Commercial Vehicles in particular to passenger cars and light commercial vehicles.
Volkswagen also holds the interests in Audi, SEAT, Skoda, Bentley, Bugatti, Porsche,
Lamborghini and other major companies in Germany and internationally. The Company’s
business activities are divided into two segments: Automotive and Financial Services.
Automotive Division handling passenger cars, commercial vehicles and power engineering
business whereas the Financial Services Division mainly engaged in vehicle leasing, dealer
and customer financing, insurances and banking activities, mobility offerings and fleet
management. The Volkswagen brand manufactures a wide range of models, including global
and regional products catered for big markets such as Europe, China and Latin America.

Global product division structure has been used by Volkswagen as its organisational
arrangement in coordinating its worldwide operation. Every division has their own
responsibilities for all functions concerning the product group. The transfer of knowledge on
the product group is high and this assists to develop substantial expertise on their specific
product.  The product structure also enables flexibility in response to changes in product
requirements and increases the efficiencies in production to achieve economies of scale.
Needs that are similar across markets are normally highlighted.

Volkswagen has its separate board of directors, management system, marketing strategies and
annual report showing that they are decentralised with tasks delegated to every employee of
the Company. Based on Hofstede's model of Cultural Dimension, Volkswagen has a lower
power distance. Cultural differences have a significant impact on multinational companies
and lower power distance results in higher problem-solving behaviour with managers or
executives as all ranking employees usually work together to solve problems when problems
occur. This will promote entrepreneurial behaviour among the employees. Decentralised
decision-making systems also allow effective communication between the management and
operations. 

However, there is waste of resources on this organisation structure as all functions such as
management, marketing and production are duplicated. Functional skills and in some cases,
its own physical operations facilities need to be set up. The transfer of knowledge on
functions, regions and other fields is limited. The coordination and cooperation between
different product divisions become more complicated and difficult due to divisional egoism
risk and hence regional knowledge has to be established in each product unit.

Based on the above analysis, Volkswagen should have a more modern arrangement as
compared to Ford. The global area division arrangement adopted by Ford has low
information flows between different regions.  Slower diffusion of technology creates a barrier
in technologically dynamic environments and is a major issue in the automotive industry.

Volkswagen has maintained its image and at same time balanced the centralized control.
Volkswagen maintained a lower power distance resulting in higher problem-solving and
entrepreneurial behaviour among the employees. Managers responsible for all value chain
activities for the product in terms of development, marketing and production which facilitate
the cross-functional collaboration. One of the main benefits of global product arrangement is
the achievement of economies of scale in production, this has made Volkswagen to be more
productive and efficient when it comes to vehicle production and be more cost effective. 

Ford has formed a strong global presence and runs its business globally through a substantial
distribution network. The business model of Ford has some unique strengths, including a
strong manufacturing and supplier network. In order for the products to go into market in the
most efficient way, Ford can consider expanding its European market through joint ventures
with a well-established company in Germany. Entering a new market through joint ventures
will lead to decrease of costs and risks. Germany is the largest economy in Europe and
fourth-largest in the world. It is also one of the world's top ten most innovative countries,
with a strong emphasis on using science for economic benefit. Germany’s first standard
manufacturing, well-developed and reliable infrastructure and communication, advanced
transportation networks that enable Ford to access the domestic and international markets fast
and easy. Germany's legal environment is stable and transparent, providing investors with a
secure legal framework which enables investors to enforce and protect their rights and
intellectual property. Having applied this structure in Germany, Ford is able to achieve a low-
cost approach to improve its competitiveness and increase the firm’s efficiency. Operations
built close to the European markets due to the geographical location of Germany enable Ford
to save the costs on transportation and warehousing.  

For Volkswagen, it can consider entering the Latin America market by setting up a wholly
owned subsidiary in Brazil as Brazil is becoming one of the most desired economies in Latin
America for international investors. As the government objective is to create a more
favourable business environment and conditions for foreign investors, all eyes are on Brazil.
Furthermore, Brazil has better infrastructure and transportation facilities as compared to its
neighbouring countries. By establishing a wholly owned subsidiary in Brazil, Volkswagen is
able to access other countries in the region easily and this allows the company to take
advantage of its strategic trade agreements. Volkswagen became profitable primarily through
the production of automotive parts. With this mode of entry, Volkswagen is also able to
manage and control some risks associated hence producing its vehicles and automotive parts
more efficiently to achieve economies of scale and fully utilise synergy effects.

Globalisation has increased the similarity of managerial practices, especially on strategy.

Management practices are copied and used by all the nations and transnational organisations.
Continued globalisation resulting in companies adopting more Convergence practices in the
future. Hence, in order to succeed in the coming years, Volkswagen and Ford need to make
some changes in response to the global business environment and enable them to compete in
the global marketplace. Cultural conflicts also need to be dealt with by Ford and Volkswagen
as culture eats strategy for breakfast. Although technology is smoothing out the bump of
culture, the cultural conflict still is a common issue in multinational companies.

Another challenge in the automotive industry is the impact from the Covid-19 pandemic
which started in early 2020. The onslaught of the pandemic greatly aggravated the
automotive industry's existing challenges, causing unprecedented uncertainty among market
participants which include Ford and Volkswagen. As the pandemic disrupts normal business
and operation with production shutdown, the impact on the automotive supply chain is
substantial. Automotive companies need to remain focused and nimble to better navigate this
crisis even though the sector has begun to improve compared to the disastrous situation in the
last two years.

(1638 words)

List of Reference:

1. Fred Luthans & Jonathan P. Doh (Eds) (2011), International Management – Culture,
Strategy and Behaviour (8th edition). New York, McGraw-Hill Irwin.

2. Mathilde Carlier (4 August 2021), Transportation & Logistics - Vehicles & Road
Traffic, Retrieved from https://www.statista.com/statistics/475637/vehicle-sales-of-
ford-in-leading-countries/

3. Nathaniel Smithson (8 September 2018), Ford Motor Company’s Organizational

Structure Analysis, Retrieved from http://panmore.com/ford-motor-company-
organizational-structure-analysis

4. Ebrary.net (n.d.), Global Area Structure, Retrieved from

https://ebrary.net/21333/management/global_area_structure#305

5. Ebrary.net (n.d.), Global Product Structure, Retrieved from

https://ebrary.net/21332/management/global_product_structure