Mini Case study: 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 froming 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. To compete, firms often need resources that they dont have but may be found in other firms in or outside of the local firms home industry. As such, these completementary resources are another rationale for why large firms form joint ventures and strateic alliances whithin the same industry or in vertically related industries. Beacuse firms are co located and have similar needs, its easir for them to jointly work together, for example, to produce engines and transmiisions as part of the powertrain. This is evident in the European alliance between Peugeot-Citroen and Open-Vauxhall. It is also the reason for a recent US alliance between For and General Motors in developing upgraded nine and ten speed transmiisons. 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 resouce complementarity, a very successful alliance was fromed in 1999 by French based Renault and Japan based Nissan. Each of these firms lacked the neccessary size to develop economies of scale and economies of scope that were critical to succeed in the 1990s and beyond in the global automobile industyr. 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 corpoorate level synergistic allaince has developed three values to guide the relationship between the two firms: 1. trust )work fairly, impartially, and profesionall) 2. respect (honor commitments, liabilites, and responsibilites) 3. transparency (be open, frank, and clear) Largely due to these established principes, the Renalut 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 eben able to establish other production locations, such as those in Latin America, whihc 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 testablish viable encomies of scale. For exmaple, 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 alliance may be a reason for thier not being overly enthusiastic about the prospects of the current alliances. Fiat broke up with GM, Chrysler with aimler, and Mazda with Ford. This is also the situation in Europe locally for Peugeot Citron of France, which is struggling for survival along with the GM European subsidiary, Open-Vauxhall, More specifically, Peugeot Citroen and Opel Vauhall 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 competitiors no tonly compete but also cooperate in establishing strategic alliances and joint ventures in order to meet strategic needs for increased market power, take advatnges of complemnetary assets and cooperate with close neighbor, often in the same region of a country.

1. How can the resource-based view of the firm help us understand why firms develop and use cooperative strategies such as strategic allainces and joint ventures?

2. What is the relationship between the core competencies a firm possesses, the core competencies the firm feels it needs, and decisions to form cooperative strategies?

3. What does it mean to say that the partners of an alliance have complementary assets? What complemenarty assets do Renault and Nissan share?

4. What are the risks associated with the corporate level strategic alliance between Renault and Nissan? What have these firms done to mitigate these risks?

5. Is it possible that some of the firms mentioned in this Mini case (eg Renault, Nissan, Mazda, Peugot Citroen, Opel Vauxhall) might form a network cooperative strategy? If so, what conditions mihgt influence a decision by these firms to form this particular type of strategy?