Case:
Alliance Formation, Both Globally and Locally, in the Global Automotive 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 alli-
ances 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 coop-
erative 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 “comple-
mentary 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 transmis-
sions to improve fuel efficiency and help the firms meet
new federal guidelines regarding such efficiency.
In regard to resource complementarity, a very suc-
cessful 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 own-
ership stake in the other. The larger of the two compa-
nies, 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 relation-
ship between the two firms:
-
trust (work fairly, impartially, and professionally)
-
respect (honor commitments, liabilities, and respon-
sibilities)
-
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 alli-
ance; 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, Fiat-
Chrysler 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 Peugeot-
Citroën 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.
Question:
What is the relationship between the core competencies a firm possesses, the core competencies the firm feels it needs, and the decisions to form cooperative strategies? Please be sure to cite and reference the text and any other sources that you use.
