Various Forms of the International Collaboration - Coursework Example

Chapter V] INTERNATIONAL COLLOBORATIONS 5 Overview of International Join Ventures (IJV) A joint venture involves the setting up of a firm that is jointly owned by two or more companies which are otherwise independent ( Hill, 2003). While shared management ventures may have to be established, IJVs tend to be more successful if established with one party being dominant. This is because it reduce the conficts of power and divergent strategic objectives. For example, if one of the parties is contributing only the assets and attributes , the market or the source of raw material, then this partner may allow the other partner with managerial and technological expertise to dominate the operational managemnet aspects of the company (Killing, 1982 ). Fuji- Xerox joint venture is an example of an equal equity arrangement which allowed Japanese partners to dominate the operations managemnet while Xerox licenced its technology to the joint venture. However, some firms seek majority shares and thus establish IJVs with greater controling opportunities (McQuade & Casseres, 1996). 5.2 Various forms of the international collaboration 5.3 Reasons for choosing an IJV option The joint venture approach is chosen for a simple reason when the host country forign direct investment policy to have IJVs as the only means of FDI. Anather reasons for choosing an IJV strategy can be due the need for spreading costs and risks, intentions of improving access to financial resources, achieving economies of scale and advantages of size; gaining access to new technologies and markets and benefiting from access to innovative organisational systems . For example, McDonalds is an example of a company which has successfully achived its strategic objectives of transfering skills and core competencies through Joint Venture in the form of its franchisee activities. (Miller et. al. 1996) 5.4 Advantages & Disadvantages of an IJV Advantages While IJVs offer a number of benefits, one key benefit is the local partners contribution in terms of knowledge of the domestic market; its established network of connections with the suppliers, channels of distribution and the government bureaucracies; understanding of rules, regulations governing business practices; its familiarity with the labor markets and most importantly the cultural knowledge. Foreign partners contribution of technology and process, benefits of learning, research and development facilities, and opportunities for exporting to foreign markets. Secondly, when ventures are high risk and capital intensive in nature, the firms may benefit from sharing this with another party. The other advantage of an IJV is that it reduces the dangers of political interferences such as nationalisation in unstable markets (Killing, 1982). Disadvantages Joint Ventures are also associated with major disadvantages, which include possible risk of giving away the technology to the partnering firm. Another major disadvantage of an IJV the less share secondary partner is less level of control is lost in the IJV. The biggest disadvantage of an IJV may in the operational problems, which produce up with the divergent objectives, which leads to conflicts and challenging for controlling power (Hill, 2003). Successful IJVs operate with own independent power where the IJV management makes own decisions in response to local requirements. Tony Kobayashi, the CEO of Fuji-Xerox cites the arms-length relationship both Fuji and Xerox maintained with its IJV – Fuji-Xerox Company as a good example. As IJVs grown-up and international partners gain a greater level of familiarity and knowledge of the local conditions and when local partners acquire the technology know-how, the balance of power shifts and power conflicts surface. Some such conflicts lead to dissolving of IJVs where local partners decide to product their own brands with same technology, and buy using the established marketing channels and expertise. (McQuade & Casseres, 1996) 5.5 International Joint Venture & Collaboration in R&D in hybrid Vehicles With the high costs involved in R & D activities in technology fields such as hybrid automobile development, manufacturers are forming strategic alliances and establishing joint ventures to accelerate the development process while keeping costs under control. When the investments involved are high and the products under consideration are risky, it is favourable for companies to pool their resources and core competencies to form a shared supply alliance focusing on R&D activities (Dussauge & Garrette 1996). In the case of the hybrid automobile industry, Toyota was the first to identify the commercial potential and viability of the hybrid concept. The company offered the Toyota Prius model, the first commercial hybrid to the market in 1997 under its Hybrid Synergy Drive program. At that time most automakers were skeptical of the commercial viability of the product and doubted of consumer interest in such a concept especially due to the high price tag attached Toyota Motor Corp. patented much of its new hybrid engine technology and pursued the concept by marketing the product in both the Japanese and US markets(Schneider 2004).. While the product has its fuel efficiency benefits, the significant impact the hybrid vehicles made on environmental pollution by reducing tailpipe emission levels up to 80% may have contributed significantly to the rapid rise in popularity of the hybrid automobiles. Realising the need for adopting the hybrid concept in to their own brands, automakers as Ford, Renault and Nissan were quick to seek strategic alliances with the pioneer of the concept, Toyota. General Motors, Daimeler Chrysler and many others across the world have also formed strategic collaborations and joint ventures to accelerate the process of developing their own versions of the hybrid concept. Some of the International Joint Ventures and R&D Collaborations in hybrid vehicle industry are discussed below. Toyota Motor Corporation and Strategic R&D Partners With its first mover advantage, Toyota Motor Corporation has been the most sought after Stratehic alliance partner for R&D activities in Hybrid technolgy. The first automaker to seek such an alliance was the Ford Motors, which realised the potential of the hybrid concept and embarked on developing their own version, tapping on to Toyota’s technology through licencing agreements. “ Ford entered into a licensing agreement in March 2004 allowing Ford to use 20 patents from Toyota related to hybrid technology, although Fords engine was independently designed and built” (Hybrid Vehicles 2006). The fruits of the Toyota – Honda colloboration which includes, Honda Civic and Honda Accord in hybrid versions as well as the Honda Insight, which won the International Engine of the Year 2000are now in the market (Hybrid Vehicles 2006). Ford was the first to introduce the hybrid concept in SUV form with the launch of the Ford Escape Hybrid in 2004. A host of new models are lined up to be lunched including the Mazda Tribute Hybrid, Ford Fusion and Mercury Milan in hybrid version (Ford Develops Worlds First Ethanol-Fueled Hybrid 2006). Nissan Motor Company was one of the latecomers to adopt the hybrid technology and still seems skeptical of the potential of the new concept. The head of Nissan Motor Co. was quoted sating that hybrid vehicles holds low potential due to its high cost of production. As per Nissan Chief Executive Carlos Ghosn, “ Hybrids make a nice story, but theyre not a good business story yet because the value is lower than their costs." (Hybrids Makes No Sense 2004). Yet, despite such skepticism, Nissan too has entered in to technology sharing collaborations with Toyota, and plans in launching the Hybrid Altima by year 2007. Toyota is also collaborating with Subaru in developing hybrid vehicles using Toyota’s current hybrid system. “Toyota acquired an 8.7% stake in Fuji Heavy Industries for $315 million and became Fuji Heavys top shareholder last October, when GM announced it was ending its alliance with Fuji Heavy and selling its entire 20% stake in the company” (Masaki 2006). Toyota will use part of the capacities at the Fuji Heavy Industries plant to increase it’s hybrid production. BMW Daimler Chrysler & General Motors Collaborations BMW, Daimler Chrysler and General Motors have formed a R&D collaboration to develop their own hybrid system based on two-mode full hybrid technology. The two companies have relaised the costly mistake of not having entered the hybrid automobile industry at an earlier stage and have pooled their knowledge and resources in a R&D collaboration an effort to avoid need for licensing arrangements from Japanese counterparts (Schneider 2004). The two companies have been pursuing their own R&D activities on hybrid technology for a rage of vehicles in their portfolio. The collaboration is expected to make the two companies work together, drawing on “their combined technical expertise to achieve higher fuel savings and cost efficiencies and deliver a two-mode full hybrid system to market quickly”(GM-DaimlerChryslers Two-Mode Full Hybrid System 2005). In addition to its BMW, Daimler Chrysler collaboration, General Motors is already marketing a version of their new hybrid system in large transit buses in partnership with its Allison Transmission unit (Snieder 2004). R&D Collaborations Elsewhere In The World Strategic collaborations in R&D activities to further the hybrid systems for vehicles is not restricted to the major markets in Japan, Europe and USA. Automakers in China, India, Korea and Australia are also aggressively working on developing their own versions of the hybrid vehicles. Shanghai Automotives in China is working on developing an own hybrid car in collaboration with Volkswagen and expect to see the results of this collaboration by year 2008. (“Hydrogen Vehicles And Hybrid Cars In China” 2006). In addition to its collaboration with Volkswagen, the Shanghai Automotives has also announced that it will be working on hybrid technology with General Motors Corp (“Hydrogen Vehicles And Hybrid Cars In China” 2006). More such collaborations are expected with other Chinese auto manufacturers such as Dongfeng Motor Corporation, the China FAW Group Corporation and the Chery Auto Company who are keen to develop their own hybrid versions. GM Daewoo in Korea is also working on launching its own hybrids with its close alliances with General Motors _ USA ( Price Tag Drags Korea’s Hybrid Cars 2005). Hyundai with its collaborator Kia Motors Corp. are also planning to expedite its plans to sell small-size hybrid cars to the United States (Hyundai Motor Eyes Hybrid .. 2006) 5.6 Challenges & Conflicts in Managing Collaborations In Hybrid Vehicle Industry Despite the increasing trend towards strategic alliances in the automotive industry with almost all automakers having shareholder interests and strategic collaborations with few or many industry partners, the challenges and conflicts arising in collaborations and joint ventures have lead to termination of such relationships. Up to 75% of such failures in any collaborations and strategic alliances are usually resultant of technological, cultural, political and human factors (Bitrana et al 2002). When it comes to Research & Development of technologies such as hybrid vehicles, the challenges for a collaboration is high in terms of how quickly the desired results are achieved and how cost effective has the whole process been. Another issue is in R&D collaborations arise when the new technological breakthroughs may render some of the work being carried out by other automakers useless . For example, with automakers such as Toyota now focusing on hydrogen fuel cell technologies, and full electric cars in terms of their R&D work, the potential obselence risk for the collaborators who are now investing in the hybrid industry is high. 5.6.1 Managing Cultural Aspects As in the case of all international business dealings, cultural fit is a crucial aspect, which pose challenges for the success of collaborations and strategic alliances. Thus, it is important to form good relationships, which are based on trust and friendships to ensure successful collaborations between competitor firms. Companies entering in to collaborations should place importance in selecting compatible partners of size and scale that matches. Mazda and Ford collaborations provides a good example of “managing relational capital where their framework of meetings facilitate not only discussing matters pertaining to the alliance but also have time for getting to know each other and forming friendships” (Hill 2003). Challenge in creating a cohesive an integrated R&D team when the pressure for results is high with the investments and market at stake, lies in effective management of cultural differences with sensitivity and respect for each other. (Killing, 1982). 5.6.2 Issues of Learning and Technology Transfers While some of the international collaborations have been mutually beneficial and successful in the long run, many may have left one party at a disadvantage. This can result from situations where the technological know-how and core competencies are transferred from one party to the other leaving an imbalance in the resulting gains. As per Robert Reich and Eric Mankin, “many of the strategic alliances between US firms and Japanese counterparts were part of an implicit Japanese strategy to nullify the competitive advantage of US firms in the global market through acquiring of their core competencies in project engineering and production process skills (Reich & Mankin 1986). In the successful collaboration of Renault and Nissan, the Key Alliance Manager – Mr. Ghosn the CEO of Renault & Nissan was quoted saying “ We will not be developing synergies where one company benefits and the other company does not”. This reflect how important it is in the long run for alliances to have mutually beneficial learning effects so that that the relationship continues even after achieving short term projects set out in R&D activities. 5.6.3 Challenges in Managing Competitive Relationships Another issue with collaborations lies in the difficulties in managing competitive relationship in the long run, once the strategic collaboration agreements are at an end. It is possible that during certain collaborations, rival companies to get to gather in working on R&D or other areas, giving an insight in to each other’s style of work, company culture, senior management’s style and work ethics as well as caliber which can be used detrimentally in future times to achieve a competitive edge. An example of this problem can be illustrated in the case of GM and Toyota’s collaboration in 1985 to build the Chevrolet Nova through a joint venture formed as New United Motor Manufacturing Inc. (NUMMI) – located in California. While US managers considered the venture as a cost sharing or risk sharing means, the Japanese managers were quick to learn on how the rivals do business (Hill 2003). As per the Japanese managers of this collaboration “ We learned about US supply and transportation and we got the confidence to manage US workers”. It is such learning from these collaborations, which Toyota applied in to setting up its own plant in Kentucky- USA in 1988 (Wysocki 1990). Today Toyota is set to open its 7th North American plant while General Motors is planning for 9 plant closures with over 30,000 job cuts in a bid to manage its ailing financial status in the face of competition from Japanese cars (Masaki 2006). 5.6.4 Managing Synergy It is also an important issue to ensue synergy in the collaboration. The companies involved in alliances should be able to bring in resources, which are complementary. For example the GM – Daimler Chrysler collaboration was effective in this sense as Daimler Chrysler contributed to the hybrid project financially as cash strapped GM is unable to do so. At the same time, GM was able to bring in its already developed technological know-how of hybrids, which has been already applied in, to Opal Astra to start off the collaboration work (McLean). 5.6.5 Strategy compatibility In order to manage collaborations successfully, the partners’ overall strategies should have compatibility. If partners compete in common markets with common product offers with only brand differentiation, then it is difficult for both parties to achieve win-win situations. AN good example is the competing strategies of GM and Toyota in the American market. With Toyota’s share of market increasing at the expense of GM, the two companies are unlikely to be successful collaboration partners in future. Evidence of this can be seen in the recent announcement by GM that they would be ending research collaboration with Toyota on hydrogen fuel-cell technology (Masaki 2006). 5.6.6 Effects on Brand Equity When companies collaborate and develop products or technologies jointly, the brand image can erode and accountability for the result can be claimed by only one party. For example, though Ford claims to have developed its own hybrid technology, its licensing agreements with Toyota’s hybrid system patents place this claim at a weaker position. Another aspect of such collaborations is that Toyota’s hybrid technology has reached its 3rd generation status while the its collaboration partners are being assisted with achieving 1st generation technology which was applied in to the initial Toyota Prius in 1997. Thus such R&D collaborations may place some of the weaker partners brands at a disadvantage as the technology they will be developing and applying on their new hybrids will be comparably outdated with Toyota’s new hybrid technology, which they are retaining as their own competitive advantage. 5.6.7 Licensing and Contractor Issues While all other issues and challenges discussed pertains to the successful management of the collaboration, issue of licensing the successful developments of R&D collaborations is another key challenge. For example, while Toyota which pioneered the hybrid technology for the automobile industry is able to patent many of the elements of the technology and earn licensing fees from users of its patented know how such as Honda, its strategic collaboration partners will not have such an advantage from their R&D work Also to note is the challenges and conflicts which may arise in agreeing on how to share intellectual property rights of joint research. GM-Toyota R&D collaborations on Fuel Cell technology had suffered progress due to this issue. “Progress in defining a joint venture between Toyota and GM to develop fuel cell cars has stalled over the terms of sharing intellectual property rights and results of the joint research” (GM–Toyota Fuel-Cell Talks Stall 2005). This is a good example of how contractual issues and licensing arrangements can be a hurdle for progress in managing collaborations in R&D of technologies such as hybrid vehicles. Bottom of Form 5.7 Intellectual Property & Contractual Issues Successful R&D activities results in Intellectual Property (IP) related to innovations and inventions, which are patented to provide “companies with operating freedom and enhance corporate competitiveness (Okamoto 2006). Intellectual Property can be used as a yardstick to measure the level of R&D activities being pioneered by a company and also as a means of generating income in the process of sharing and disseminating the technology through licensing arrangements. Intellectual Property plays a crucial role in developing industries with a level of standardisation, which facilitates cost effective supply chain development as well as development of standardised safety and control systems. This is achieved when one player in the industry pioneers the technology and patent the resulting IP that is then followed and adopted by the rest of the industry through IP sharing arrangements. In line with the new developments in technology, international system designed to facilitate search and retrieval of patent information in all fields of technology has added in a new subclass (B60W) for methods or systems for conjoint control of vehicle sub-units of different function and for control of hybrid vehicles. (World Intellectual Property Organisation 2005). In the case of Hybrid Vehicle technology, the patent rights dates back to 1905 when an “American engineer named H. Piper filed a patent for a petrol-electric hybrid vehicle” (Hybrid Car history 2005). Considering the Intellectual Property related to modern day hybrids, Toyota Motors which began its R&D activities on hybrids in 1969 resulting in the commercialisation of Prius in 1997. In the process of developing the Prius, many patents have been registered along the way giving Toyota a technological edge over other automakers (Okamoto 2006). There has been number of Patent Infringement cases filed against Toyota during the past couple of years, and one notable case is the allegations made by British Company, Antonove claiming that the drive- lines of the second-generation Toyota Prius and the Lexus RX400h infringe its patents. “Antonov filed an action against Toyota a year ago in Germany, where legal costs are capped, The German case is due to be heard in August. If the judge rules in Antonov’s favour, Toyota could face a bill of £100m (E145m, $178m) or more in royalties to the automotive technology developer and Antonov could force Toyota to stop production of Prius and Lexus hybrids” (Mills 2006). Solomon Technologies Inc. a US based firm has also files a complaint of Toyota violating its patent rights in marketing the hybrid vehicles. “ The US International Trade Commission has voted to institute an investigation in to whether or not Toyota’s hybrid drivetrain infringes on patents awarded to Solomon Technologies 15 years ago” (ITC to Investigate …2006). Should Solomon Technologies succeed in its ITC action, Toyota can be prohibited from importing hybrids in to USA. In other developments related to Intellectual property in hybrid vehicle technology, companies involved in battery and other component manufacturing which plays a crucial role in aiding the viability of new innovation in hybrid technology is also looking in to developing Intellectual Property. A consortium named Advanced Hybrid Vehicle Development Consortium has been formed by Raser Technologies, Inc. a technology licensing company that develops and licenses advanced electric motor, electric motor drive and related technologies, along with, Maxwell Technologies and Electrovaya, Inc. a world leader in the field of portable power solutions. The consortiums objective is to participate in a cooperative research and development activities related to parts and components of hybrid vehicle technology, which will aid the technology development in a more rapid phase. Rasers CEO, Brent M. Cook stated, “In order to achieve the objectives automakers are striving for with hybrid vehicles, the electric motor has to play a dominant role in reducing emissions and improving fuel economy beyond what we now have. By working together, we can help reduce the R&D gap between advanced component suppliers and the OEMs to accelerate vital new technologies to market by demonstrating their readiness in the next generation hybrid vehicles” (Raser Technologies Inc. 2005). However, the issues which may surface in such scenarios is when such consortiums develop IP and license them ahead of auto manufacturers, the cost of licensing fees in sharing such knowledge may burden the cost structures of the products. Bottom of Form References (Bitrana et al 2002). taken from your pdf attachments) Dussauge & Garrette 1996. ( taken from your pdf attachments) “Ford Develops Worlds First Ethanol-Fueled Hybrid Marrying Two Gasoline-Saving Technologies”. 2006. Extrication.Com.< http://www.extrication.com/ERG.htm > accessed on 16/05/2006. “GM-DaimlerChryslers Two-Mode Full Hybrid System - Versatile for any Market” 2005. Auto Channel.Com http://www.theautochannel.com/news/2005/01/09/000066.html assessed on 20/05/2006. “GM–Toyota Fuel-Cell Talks Stall.” 2005. Green Car Congress.com. accessed on 22/05/2006 “Hybrid Car History.” 2005. Hybrid Cars.com. http://www.hybridcars.com/history.html accessed on 20/05/2006. "Hybrid vehicle." Wikipedia, The Free Encyclopedia. Apr 2006.. . Assesed on 20/05/2006. “Hybrid Cars Makes No Sense.” 2006. All About Hybrid Cars. Com. assessed on 20/05/2006 Hill C.W.L.(2003), “International Business”. 4th ed. New York: McGraw-Hill “Hyundai Motor Eyes Hybrid Cars in 2006” 2006.Reuters News Services. accessed on 20/05/2006. “Hydrogen Vehicles And Hybrid Cars In China” DWS Review .Com 2006. Read More