International Trade 1

International Trade

Name

Institutional Affiliation
 International Trade 2

1 Introduction

The Ford Motor Company is the second-largest multi national automaker worldwide.

Its headquarters are in Dearborn, Michigan and it sells commercial vehicles under the brand

name Ford. The company has a foothold in developing countries and most notably in the

People's Republic of China where it operates Changan Ford as a joint venture with Changan

Automobile. Lately, a change in plans has seen an announcement of preparations to produce the

new-generation Focus model from Mexico to the Changan facility in China (Banham and

Newman, 2002). The company would save $ 1 billion USD. Such a bold move was responsible

for fuelling speculations that the corporation might be setting its sights on ultimately entering the

Chinese market wholly. In this essay, I will provide an in depth evaluation of the pros and cons

of the Ford Motor Company conducting international trade in China while considering its legal,

political and economic repercussions.

1. Background of the Ford Motor Company

and China

The Ford Motor company is a product of Henry Ford whose launch took place in 1903. Its

signature car model was the Model T version that became popular all over the Americas around

Europe. Its success in the automobile industry saw it acquire the Lincoln Motor Company in 1922

after the luxury car line became a victim of bankruptcy. Additionally, the company was able to

incorporate new market strategies such as producing cars in different colors, modernizing the cars with

safety glass and using hydraulic brakes (Project Management: Ford Motor Co. Case Study, 2004). The

company was then able to enjoy great success in the automotive industry spreading to France, Britain,

Denmark, Germany, Japan, and China among others. The People's Republic of China is a country in

East Asia famous for being the most populous country in the world (Garnaut and Song, n.d). It has a
 International Trade 3

population of 1.381 billion people with the Communist Party of China exercising its jurisdiction over

five autonomous regions, for municipalities (Chongqing, Tianjin, Shanghai and Beijing), individual

administrative areas of Macau and Hong Kong together with 22 provinces (Gallagher, 2006). I chose

the Ford Motor Company because of its Changan Ford Mazda venture in China and had been making

major acquisitions within China. In 2013, it went on to open the Chongqing plant at the cost of $500

million USD, a transmission facility at $350 million and taking over Harbin Hafei Automobile for 1.1

billion USD in 2015.

3. Effects of China being a developing country on

its attractiveness to Ford

3.1 Legal advantages and disadvantages of China being a

developing country for Ford

A legal advantage of trading in China for the Ford Motor Company is that China has what

many consider as weak industrial laws and policies. What this means is that there is lesser regulation

on the purchase of the manufacturing raw materials and the employment of wage laborers (Enright,

2016). A legal disadvantage, however, is that the company might incur a tax liability as per Chinese

Law. The income that the company will make in China will also be subject to a business tax while also

being eligible for a foreign tax credit.

3.2 Political advantages and disadvantages of China being

a developing country for the operations of Ford

The Communist Party of China exercises durable power over the country to see it grow as per

the dream of Chairman Mao Tse-Tung. It is for this reason that the state undertook economic reforms

that came in the form of five-year economic plans. These tactics promise to direct investments to the

existent industries to stimulate the economy. Similarly, the government encourages investments that
 International Trade 4

support the transfer of technology, as is the case with Ford. A political disadvantage of entering the

Chinese market is the constant tension that exists between the west and communist China. Capitalism

is the ideology that most countries in the west follow, with China actively opposing any external

forces trying to enforce their dogma in their country (Wilkins and Hill, 2011). Monitoring of Changan

Ford in China is one of the political disadvantages of operating in China as any suspicion of

conducting any capitalistic activities may be dealt with harshly.

3.3 Economic pros and cons of China being a developing

country for the operations of Ford

An economic benefit of Ford operating in China is the lower production cost. It is true

that the company might encounter shipping duties and the additional cost of manufacturing, but

generally, the cost of production. It is for this reason that the Ford Motor Company went ahead

to shift its production of its new-generation Focus model Mexico to China, a move that was to

save 1 billion USD for the company (Ford, 2015). A lower production cost will always result in

better sales for a company. On the flipside, the shipping time and expense will be higher for a

company in China in comparison with one in the United States (Brean, 2013). The final cost of

the right, once it arrives at the consumer plus government duty, will always be higher for a

product whose manufacturing was in China.

4. Effects of being a member of the World Trade

Organization (WTO) on attractiveness of China

4.1 Legal advantages and disadvantages to Ford on

China's membership in the World Trade Organization

(WTO)
 International Trade 5

A legal use of the Ford Manufacturing company operating in a country that is a member of the

World Trade Organization (WTO) is that there are clear conflict resolution laws whenever there are

disputes. Countries often disagree on one or two matters, but during some occasions, this may result in

a diplomatic spat between the countries (Ching and Ching, 2003). Caught in between the crossfire, are

the multinational companies operating in foreign countries. In this case, Ford can be sure of a speedy

resolution between the United States and China whenever there is a conflict using international law

spelled out in the world trade agreement. A legal disadvantage of having China as a member of the

World Trade Organization is that the dispute panel makes the decisions concerning which laws

primarily act as barriers to free trade and can arbitrarily remove them. If one of the members has a bias

against a particular country, the process may result in an unfair ruling.

4.2 Political advantages and disadvantages to Ford on China's

membership in the World Trade Organization (WTO)

There are clear political advantages in China being a member of the World Trade

Organization (WTO) as the government has had to restructure the state management paradigm of

the country's economy. There is also a clear separation between the government and enterprises

to avoid any distortion of what China stands for. Operating in China will have positive effects on

the company's operation as the state will deal with high-level corruption directly and

professionally (Feng, 2006). Conversely, the company will be between a rock and a hard place in

having to work in the Chinese environment. There are cases where the World Trade

Organization (WTO) refuses to apply free trade agreements when it is apparent that countries

that use these rights are usually at a disadvantage when other countries disregard the

international business conventions.

 International Trade 6

4.3 Economic pros and cons to Ford on China's membership in

the World Trade Organization (WTO)

As a member of the World Trade Organization, China has become stable economically and

able to easily access foreign markets. In this case, Ford will be able to have a smoother time

conducting business in China owing to the reduction in economic disruptions in the trade that

originates from unpredictable policy shifts. By Ford operating in China, it will be exposing itself to a

very volatile environment where the World Trade Organization (WTO) is constantly trying to

privatize the services in member countries (Sachs, 2007). Holding such a notion will mean that the

organization will constantly be in a state of struggle and agencies such as Ford always under suspicion

o working for the

5. Effects of being a member of the Regional Economic

Bloc on the attractiveness of China

5.1 Legal advantages and disadvantages of the regional

and economic bloc for Ford

As a member of the Association of Southeast Asian Nations' (ASEAN), China consistently

gets valuable legal information about the laws and regulations that would allow the companies operate

with its borders to make the best economic decisions. With this information, foreign companies such

as Ford can boost their investments in the region (Onishi and Guan, n.d.). Understanding the actual

meaning and application of the law enables Ford, as a foreign investor, to make moves with full

knowledge of the possible outcomes. A legal disadvantage of Ford operating in the country and China

being a member of Association of Southeast Asian Nations' (ASEAN) is that the organization's laws

may apply differently in the case of international companies. There may be additional bottle-necks for
 International Trade 7

them especially when they encounter legislation that was made specifically to benefit the local

industries.

5.2. Political disadvantages and advantages of the regional

economic bloc for Ford

An advantage of China is a member of Association of Southeast Asian Nations' (ASEAN) is

that it maintains political stability to allow the economies to thrive with minimal disturbance. For

instance, the establishment of the ASEAN Political-Security Community (APSC) was meant to

promote cooperation in security and politics. Its task is to ensure that all countries in the region live in

peace and harmony, an environment that would favor an ambitious company such as Changan

Ford (The Rise of the Global Company, 2016). The members agree to rely upon a peaceful process to

settle any inter-regional differences that may result from their interaction. A political disadvantage

might emerge when the bloc decides to slap China with sanctions over political stands that many

views as unacceptable (Tan, n.d.). As a result, all the branches of Ford will suffer directly, especially

when a trade embargo on essential goods becomes the way to go for the trade block. As a result, the

company soon finds it difficult to export or import any of its product and raw material to the country.

5.3 Economic advantages and disadvantages of the

regional economic bloc for Ford

As a member of the Association of Southeast Asian Nations' (ASEAN) is that there will be the

free flow of labor from other countries to China. Human labor will be able to flow smoothly from one

Asian country to another (Pelkmans, n.d.). Ford will benefit from this relatively cheap and work that

will allow the company to spend less money in the production phase. A disadvantage of China being a

member of this economic block and for Ford is that cheap products might inevitably fill the market

(Li-Hua, n.d.). As a result, the firm might have to lower the price of its complete products and at the
 International Trade 8

same time being the subject of buying low-quality raw materials after their infiltration of the local

economy.

6. Conclusion

The Ford Motor Company is making headway all over the globe in its quest to ensure that

everyone is well aware of their brand. Expanding into China would mean that the company has

completely gone into the International trade in making a new break. However, it is vital for the

company to acknowledge the legal, political and economic repercussions that their engagement

in foreign commerce would have on it.

 International Trade 9

Bibliography

Banham, R. and Newman, P. (2002). The Ford century. New York: Workman.

Brean, D. (2013). Taxation in Modern China. Hoboken: Taylor and Francis.

Ching, C. and Chang, H. (2003). Handbook on China's WTO accession and its impacts. Singapore: World

Scientific Pub. Co.

Enright, M. (2016). Developing China: The Remarkable Impact of Foreign Direct Investment. Taylor and

Francis.

Feng, H. (2006). The politics of China's accession to the World Trade Organization. London: Routledge.

Ford, C. (2015). China looks at the West. Lexington, Kentucky: University Press of Kentucky.

Gallagher, K. (2006). China shifts gears. Cambridge, Mass. [u.a.]: MIT Press.

Garnaut, R. and Song, L. (n.d.). China 2002.

Li-Hua, R. (n.d.). Competitiveness of Chinese firms.

Onishi, T. and Guan, B. (n.d.). The Shape of the East Asian Economy to Come.

Pelkmans, J. (n.d.). The ASEAN Economic Community.

Project Management: Ford Motor Co. Case Study. (2004). [Place of publication not identified]: American

Productivity & Quality Center (APQC).

Sachs, J. (2007). Economic Development And The Division Of Labor. Oxford: John Wiley & Sons.

Tan, A. (n.d.). Handbook of US-China relations.

The Rise of the Global Company. (2016). .

Tian, X. (2016). Managing international business in china. [Place of publication not identified]: Cambridge

Univ Press.

Wilkins, M. and Hill, F. (2011). American business abroad. Cambridge: Cambridge

Zhang, L. (2015). Inside China's automobile factories. New York: Cambridge University Press.
International Trade 10