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Ford Motor Company, a global car manufacturer headquartered in Dearborn Michigan, is now facing the challenges of increasing isolationism and potential risk in international tra<\/span>de. <\/span><\/p>\n Ford is the second largest US-based automaker with extensive product lines from sedan, SUV, trucks & vans, and commercial vehicles. It is a multinational company with sales coverage, R&D centers, and manufacturing footprints across the world, including North America, Europe, Asia, South America, and Africa. Its supply chain is extremely complicated as the company aims to optimize its profitability by leveraging component supplies and vehicle assembly plant in many different locations. <\/span><\/p>\n From business perspective, such decision normally includes following aspects. First is volume. Investing to build a plant or product line in an area demand the sales volume to be large enough to amortize the investment. Second is tax and tariff. The level of tax and tariff, particularly if there is a free trade zone, is a key factor to consider when deciding export versus import. Third is labor and material cost. Dramatic cost differences across countries have resulted in shift of manufacturing from developed to developing countries.<\/span><\/p>\n Recent trend in isolationism of international trade will further increase the difficulty of making such decisions, which is further amplified by the long investment horizon of plant or manufacturing line and the uncertainty of the political landscape that might change over time. The uncertainties in trading are happening globally, such as the policy change of new US administration, renegotiation of NAFTA [1]<\/span><\/sup>, Brexit and the uncertainties of trading environment in EU, and the regulation policy for electric cars in China.<\/span><\/p>\n One recent example is that the new Trump administration tries to push for more jobs staying in US. He criticized Ford for investing in Mexican jobs at the expense of American ones and has threatened to increase tariff for car importing from Mexico, which will dramatically change the business equation of where to invest for next plant. Initially, Ford planned to manufacture next generation Focus in a new plant in Mexico. However, in Jan 2017, Ford announced that it would cancel its $1.6 billion investment in this project, which would bring back 700 jobs to US. [2]<\/span><\/sup> In Mar 2017, Ford announced a further $1.2 billion investment to build three new plants in Michigan, which would create 130 new jobs. [3]<\/span><\/sup> However, in Jun 2017, with its new CEO onboard, Ford announced that it would start importing next generation Focus from China instead of locally producing in US, which would save $1 billion and would be able to spend more money expanding American plants that make high-profit trucks and S.U.V.s. The administration responded by saying that the president wants to create a tax system that encourages companies to bring jobs and factories back here. [4]<\/span><\/sup><\/span><\/span><\/p>\n The series of actions taken by Ford illustrate the challenges its management is experiencing to predict long-term trend of international trade, to deal with the pressure from current administration, and to make investment decisions that will make business sense in the long run. On the one hand, the company is making effort to communicate and establish good relationship with the government. This is crucial as tariff is not the only leverage that the government has \u2013 it might also, for instance, use the regulation of emission as a bargain power to push the company to bring back more investment and jobs in US. On the other hand, given the dramatic hit on business case by pulling its global footprint back to US and given the uncertainty of how fast the new policy will be implemented and how long it will last with current administration, it is a tough investment choice for the company. <\/span><\/p>\n I have two further recommendations.<\/span><\/p>\n First, Ford should weigh more on long-term strategy instead of reacting to short-term changes. Since it is usually very heavy upfront investments that will impact the operation in the following decades, the company cannot make decisions that don\u2019t make business sense in the long run just to react to current administration, unless the company believes that the mega trend is really going towards that direction.<\/span><\/p>\n Second, given the increasing investment in emerging business such as electric vehicle and autonomous driving, Ford can have differentiated strategy when building new plants in different locations. For instance, Ford can keep cost sensitive models in developing countries while setting up new plants in US for electric vehicles or future autonomous vehicles. This will help the company maintain competitive cost structure in related segments, invest in new technology and advanced plants in US, and create new jobs domestically.<\/span><\/p>\n One remaining question I have is how should the company work with its suppliers to make sure their footprint strategies are well aligned to achieve synergy across the supply chain in order to better react to the dynamic trading environment at the moment.<\/span><\/p>\n \u00a0<\/span><\/p>\n Reference: <\/span><\/p>\n [1] What a Changing NAFTA Could Mean for Doing Business in Mexico, 性视界 Business Review, <\/span>https:\/\/hbr.org\/2017\/06\/what-a-changing-nafta-could-mean-for-doing-business-in-mexico<\/a><\/span><\/p>\n [2] Ford Cancels Plans for New $1.6 Billion Mexico Plant, Bloomberg, <\/span>https:\/\/www.bloomberg.com\/news\/articles\/2017-11-08\/apple-is-said-to-ramp-up-work-on-augmented-reality-headset<\/a><\/span><\/p>\n [3] Ford Investing $1.2 Billion in Plants as Trump Touts Jobs, Bloomberg, <\/span>https:\/\/www.bloomberg.com\/news\/articles\/2017-03-28\/ford-investing-in-three-michigan-plants-trump-says-on-twitter<\/a><\/span><\/p>\n