Ford and Mazda Acquisition - Synergy of Acquisition

One of the biggest acquisitions made in the automobile industry was that of Ford's move to control higher stake of Mazda. Prior to the acquisition, Mazda struggled to enter the global market. Evaluating the success of the acquisition, it is easy to say that Mazda greatly benefited from the strategy because it provided the company a better standing in the global market after the support of Ford’s infrastructure. After the acquisition was cut, both Mazda and Ford were changed by the action almost four decades ago. They were changed in terms of financial standing, economic status, market reputation, and of course, knowledge and experiential capabilities.

Synergy of the Acquisition

As a backgrounder of the acquisition, in the 1980s, most of the American manufacturers have already moved toward acquisition with Japanese manufacturers (Douma, 1997). General Motors tied up with Toyota and Chrysler with Mitsubishi. To be able to compete with these alliances, Ford also acquired Mazda. The acquisition of Mazda was a potent and just a practical one with the growing alliances that are already happening in the market. In a sense, it was a direction that must be taken by Ford to be able to stay relevant to the environment of the times. Should Ford fail to acquire Mazda, the American manufacturer could have not directly confronted the strategies taken by its competitors.

In terms of market condition, most of the Japanese cars in the 1980s had already gained their momentum and were ready to enter the market. Due to the high engineering knowledge and expertise of Japanese about cars and other automobiles, American manufacturers saw the need of acquiring their advantage and bringing their competencies to the American market. Douma (1997) discussed the condition of these alliances. With the acquisition, Ford was able to bring the engineering knowledge of Japanese into its American manufacturing plants, while Mazda was provided with the necessary knowledge regarding the American market. In a sense, the alliance was symmetrical, though in terms of scale and size of input into the alliance, it could be said that Ford had more to share than to get. With Ford’s experience of the American market and its standing was the oldest car manufacturer, Ford brought in a different perspective and angle into the merger.

The acquisition increased the strategic focus of the companies in a global basis. In this regard, the two companies increased their own competitiveness in terms in improving efficiency and taking advantage of economies of scale through effective utilization of available resources for the benefit of increasing profitability (PR Newswire Association LLC, 2014). In terms of operation, both companies were greatly changed by the acquisition. Mazda now had the opportunity of bringing its operation to the American market, which was considered as the biggest automobile market. Through the American plant of Ford, Mazda could now produce more cars. In calculating economies of scale, the increased volume of production also decreases the production price per unit of the car. This meant that Mazda could now sell its cars for a lower price with the advantage of the fixed production cost.

In the same manner, with the expertise of Ford in producing cars, Mazda could now put its engineering competencies into practice. While the company had been producing cars in Japan, these cars were not able to enter the global market because of their funny look. Efficiency of Ford could now provide a way for Mazda to produce cars that were highly appreciable by the market. With this advantage, the operation of Mazda became more efficient and their cars were better in terms of design and features.

With the acquisition of stakes in Mazda, Ford poured in financial capital to the company. (Plants and other resources were valuated also to reflect financial investments made by Ford on Mazda). Japan Times (2003) noted that Ford invested large volume of financial capital on Mazda. With this, Mazda could now get its muscles moving toward the global market. While the already established production plants and distribution channels of Ford were already for the advantage of Mazda, the financial backing and support of Ford also allowed Mazda to enter new markets that were unknown to the company prior to the acquisition.

The acquisition of Mazda was also an advantage to Ford. Prior to the acquisition, Ford was already a market name with its large vehicles which were commonly for industrial purposes. While other manufacturers in America were already moving to sporty cars, Ford was still focusing on off-road vehicles, its farming equipment, and such other industrial vehicles. With the acquisition, Ford was able to roll out a new division that established Ford as a car manufacturer of sporty luxury cars. Even after the acquisition (just recently), Ford’s knowledge of smaller cars acquired from Mazda still comes in handy in meeting the demand of the market.

To note, Mazda and Ford were still separate companies but they shared some competencies and capabilities (PR Newswire Association LLC, 2014). This meant that Mazda and Ford were legally response to their own governments. For a difference, Ford owned stakes in Mazda providing a financial cash cow for the company. This also meant that the financial profitability of Ford increased and the taxation also increased. Independent financial statements allowed the company to move on their own while taking advantage of their own capabilities and competencies.

Market Reaction

Former chairman of Ford Motor Company said that "the Mazda/Ford partnership is achieving success because both partners are fully aware of the importance of being competitive partners (PR Newswire Association LLC, 2014)." With the establishment of acquisition and mergers as the best strategies in the 1980s to take part of the booming Japanese automobile industry and the increased merger between companies such as mentioned earlier, the acquisition of Mazda by Ford was a new that was received positively by market experts and market speculators. Ford and Mazda were already positioned strategically in the market for them to face the challenges of the global market boom.

From the Japanese perspective, the acquisition was a welcome news. With the growth of the Japanese economy, merger between Mazda and Ford connected the two economies and strengthened their ties. In the same manner, it also opened a strategic position in the economic boom of Japan (Bloomberg Businessweek, 1997). Japanese business investors were more secured that their stakes were in the right direction. This was also a testament’s to the future of Mazda. Even in terms of national mode, the acquisition provided a better chance for Japanese to increase their global presence.

On the other hand, from the Ford perspective, the acquisition was also a welcome news because it provided the traction for growth. Japan Times (2003) noted that Ford made use of Mazda’s acquisition to energize its worldwide operations. With the already expanding Japanese cars, more markets were also appreciable of smaller and cheaper cars. This change of attitude toward automobiles greatly changed the standing of American car manufacturers. With the acquisition, Ford got the opportunity to spur the growth of its global operation and avoid stagnation. By exploring options of new market segments, Ford was able to find opportunities for financial profitability.

In the same manner, in terms of market investments, news of acquisition was welcomed by investors as a good strategy. It made them secure and more trustworthy. The Mazda acquisition was able to increase the value of the Ford portfolio, thus making investors more aggressive. While the company shelled out large or a volume of money into the acquisition, the acquisition also provided them capitalization with the increased value of stakes. It is very important to note that with the acquisition, Ford was able to retain its position of being the global leader of the industry. This is necessary to secure the company’s stakeholders about the future of the company.

Conclusion

With the already growing automobile industry of the Japanese, acquisition moves or strategies of American car manufacturers are just common reactions. This environment demanded that Ford tie up with a Japanese manufacturer for its benefit and for the benefit of the company. There are several advantages that the acquisition brough to both companies. Mazda was able to use the capabilities and expertise of Ford of the American market and the global network of infrastructure provided Mazda opportunities of entering new markets that would be plausible to increase the profitability of the company. Both companies were able to make use its other’s capabilities and competencies to increase their market potential.

Acquisition is a strategy taken by companies to share competencies and experiental knowledge. It is a design that increases their traction in the market and their performance in terms of scale. For companies operating in manufacturing industries, economies of scale must be utilized to its full advantage to increase the way the business engage the market by providing better products at lower prices.