Case Alliance Formation, Both Globally and Locally, in the Global Automobile Industry The academic..

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Alliance Formation, Both Globally and
Locally, in the Global Automobile Industry

The academic literature on alliances has
some interesting recent findings, one of which is the rationale that because
firms are often located in the same country, and often in the same region of
the country, it is easier for them to collaborate on major projects. As such,
they compete globally, but may cooperate locally. Historically, firms have
learned to collaborate by establishing strategic alliances and forming
cooperative strategies when there is intensive competition. This interesting
paradox is due to several reasons. First, when there is intense rivalry, it is
difficult to maintain market power. As such, using a cooperative strategy can
reduce market power through better norms of competition; this pertains to the
idea of “mutual forbearance”. Another rationale that has emerged is based on
the resource-based view of the firm (see Chapter 3). To compete, firms often
need resources that they don’t have but may be found in other firms in or
outside of the focal firm’s home industry. As such, these “complementary
resources” are another rationale for why large firms form joint ventures and
strategic alliances within the same industry or in vertically related
industries. Because firms are co-located and have similar needs, it’s easier for
them to jointly work together, for example, to produce engines and
transmissions as part of the powertrain. This is evident in the European
alliance between Peugeot-Citroën and Opel-Vauxhall (owned by General Motors).
It is also the reason for a recent U.S. alliance between Ford and General
Motors in developing upgraded nine- and ten-speed transmissions. Furthermore,
Ford and GM are looking to develop, together, eleven- and twelve-speed
automatic transmissions to improve fuel efficiency and help the firms meet new
federal guidelines regarding such efficiency. In regard to resource
complementarity, a very successful alliance was formed in 1999 by French-based
Renault and Japan-based Nissan. Each of these firms lacked the necessary size
to develop economies of scale and economies of scope that were critical to
succeed in the 1990s and beyond in the global automobile industry. When the
alliance was formed, each firm took an ownership stake in the other. The larger
of the two companies, Renault, holds a 43.3 percent stake in Nissan, while
Nissan has a 15 percent stake in Renault. It is interesting to note that Carlos
Ghosn serves as the CEO of both companies. Over time, this corporate-level
synergistic alliance has developed three values to guide the relationship
between the two firms:

1. Trust (work fairly, impartially, and
professionally)

2. Respect (honor commitments, liabilities,
and responsibilities)

3. Transparency (be open, frank, and clear)

Largely due to these established
principles, the Renault Nissan alliance is a recognized success. One could
argue that the main reason for the success of this alliance is the
complementary assets that the firms bring to the alliance; Nissan is strong in
Asia, while Renault is strong in Europe. Together they have been able to
establish other production locations, such as those in Latin America, which
they may not have obtained independently. Some firms enter alliances because
they are “squeezed in the middle;” that is, they have moderate volumes, mostly
for the mass market, but need to collaborate to establish viable economies of
scale. For example, FiatChrysler needs to boost its annual sales from $4.3
billion to something like $6 billion, and likewise needs to strengthen its
presence in the booming Asian market to have enough global market power. As
such, it is entering joint ventures with two undersized Japanese carmakers,
Mazda and Suzuki. However, the past history of Mazda and Suzuki with alliances
may be a reason for their not being overly enthusiastic about the prospects of
the current alliances. Fiat broke up with GM, Chrysler with Daimler, and Mazda
with Ford. This is also the situation in Europe locally for PeugeotCitroën of
France, which is struggling for survival along with the GM European subsidiary,
Opel-Vauxhall. More specifically, Peugeot-Citroën and Opel-Vauxhall have struck
a tentative agreement to share platforms and engines to get the capital
necessary for investment in future models. As such, in all these examples, the
firms need additional market share, but also enough capital to make the
investment necessary to realize more market power to compete. In summary, there
are a number of rationales why competitors not only compete but also cooperate
in establishing strategic alliances and joint ventures in order to meet
strategic needs for increased market power, take advantage of complementary
assets, and cooperate with close neighbors, often in the same region of a
country.

 

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