Strategic Alliances in the Automobile Industry - Coursework Example

International strategy Contents Contents 2 Introduction 3 Discussion 3 Strategic Alliances in the Automobile Industry 3 Reasons for Strategic Alliances Formation 5 Types of Strategic Alliances 6 Advantages of Strategic Alliances 8 Disadvantages of Strategic Alliances 8 How companies change the negative denotations into positive denotations 9 Conclusion 10 References 11 Introduction Strategic alliances have become dominant activities among the different multinational as well as small organizations across the globe. Strategic alliances are the business activities in which two or more independent businesses co-operate with each other with the aim of attaining different strategic objectives of the businesses. The recent trends in the strategic alliances formed between the different companies are demonstrating new characteristics like the increasing importance of the participating businesses to use their resources for the enhancement of competitiveness and the generation of growth through innovation. The depth and the degree of involvement of the partner businesses have also increased. Additionally, the different firms are opening up to the prospect of strategic alliance with the advent of globalization. The different industries have unidentified the need of strategic alliances to cope with the increasing competition in the global scenario. The automobile industry has also seen a number of strategic alliances and partnerships among the different big and small companies in the last few decades. The strategic alliances in the automobile industry are driven by the partnership benefits and demonstrate many differences as compared to the conventional strategic alliances in other industries. Discussion Strategic Alliances in the Automobile Industry Strategic alliances are trading partnerships in which the business processes of two companies are combined to improve the competitiveness of the firms and create mutual benefits for both the businesses. The exchange of resources, skills, technologies and products between two or more businesses involved in the strategic alliances create a number of advantages for the partners in the business alliance. The automobile industry has numerous examples of strategic alliances belonging to different functionalities, forms and frameworks. The automobile industry started in the early 1800s in Europe (Winter, 2003, pp.991-995). After the advent of this industry, it soon became popular and spread across the globe. The production processes involved in the industry changed over time and led to the creation of the need for the different players in the industry to cooperate with each other with respect to their resources and capabilities. The automobile industry has been dominated by different alliances and partnerships from its early years. But the current strategic alliances seem to differ from the traditional partnerships and alliances like joint ventures, mergers and acquisitions. The alliances are formed between different automobile manufacturers as well as between the manufacturers, suppliers and distributors. In the new strategic alliances, the company remains more independent form the control of the other partner in the alliance. The strategic alliances involve focusing on the strategic goals specific to each company as well as the common objectives of the partnering companies. The benefits and the risks are shared between the businesses involved in the strategic alliance. The performance control levels are also shared by the partners in the alliance. The businesses involved in the strategic partnerships often combine their resources and competencies to achieve individual as well as combined objectives. The trade of contribution is a vital strategic aspect in the strategic alliances. This factor is mutual among the businesses that are part of the strategic alliance (Charles and Hill, 2005, p.56). A few decades ago, the sharing of core competencies was unimaginable in the automobile industry. But in the present day scenario, more and more companies are entering into strong strategic alliances to keep up their competitiveness within the industry. The strategic alliances in the automobile industry involve national and international alliances as well as alliances with rival businesses and ancillary businesses. Thus, the strategic alliances in the automobile industry involve multiple linkages and a network system to improve the efficiency and competency of the different companies operating in this industry (Teece, Pisano and Shuen, 1997, pp.503-533). Reasons for Strategic Alliances Formation The domestic and international strategic alliances in the automobile industry are driven by many factors. The global automobile industry is characterized by strong competition, need for innovation and increased production capacity. The automobile industry across the globe has an excess production capacity of more than 20 million automobiles. Therefore, each of the automobile manufacturing companies has come under much pressure to use their production systems and assemble lines to their maximum capacity. On of the major aims of the strategic alliances is to achieve economies of scale in the production processes of the automobile manufacturers. The strategic alliance can facilitate economies of scale by implementing joint production systems in which the automobiles of different manufacturers are produced at a common production site. This helps in the optimal utilization of the resources and the combined capabilities of the different automobile manufacturing companies. Thus, strategic alliances become extremely advantageous when one of the partners have a production setup in a locality where the other partners do not have established manufacturing facilities. This process of strategic alliance was followed in the strategic partnership between Renault and Nissan in which a car model of Renault Mazda is produced as a factory of Nissan in Mexico (Lazzarini, 2007, pp.345-357) This is because Nissan has excess capacity in its production facility in Mexico. Also, the factory in Japan where Mazda is produced has excess capacity which the company plans to utilize in manufacturing Ford models through an effective strategic alliance between Mazda Motor Corporation and Ford Motors (Barney, 1991, pp.99-110). The strategic alliances are also encouraged by the need to reduce the risks and combine the resources and capabilities for manufacturing the next generation electric environment friendly cars. One important strategic alliance in the global automobile sector is the California Fuel Cell Partnership formed in 1999 in which different automobile manufacturers like Ford Motors, Honda, Daimler-Chrysler and Volkswagen took part. Also other companies in the automobile industry like the fuel suppliers like Shell, Texaco and ARCO, the fuel cell companies like Ballard Power System and the California Air resources Board and Energy Commission operated by the government of California (Tallman and Fladmor-Lindquist, 2002, pp.116-135). This alliance was followed by the strategic research and development alliance between Ford Motors and Daimler-Chrysler for the development of a Fuel Cell Electric Automotive in 1998. The California Fuel Cell Alliance has established a new trend of cross border alliances sponsored by the government and the private enterprises. The alliances in the automobile industry are driven by different endogenous and exogenous factors like the political, social, economic, ethical, technological and legal factors (Olin, Greis and Kasarda, 1999, pp.335-347). Types of Strategic Alliances The automobile industry is characterized by different types of strategic alliances and partnerships. The alliances in the automobile industry can be broadly categorised into vertical alliances and horizontal alliances. The vertical alliances are formed when the automobile manufacturers enter into alliances with the suppliers of goods and services in the different business processes involved in the vertical chain of the business. The vertical alliances are based on the various decision making processes involved in make versus buy decisions. The make decision involved the automobile manufacturers to manufacture the automobiles within the company. This is a major factor involving then creation of competitive advantage. The buying decision involves the outsourcing and purchase of the manufacture of the automobiles by the companies (Lavie, Kang and Rosenkopf, 2011, pp.1517-1538). These decisions are done optimally on the basis of the objectives to reduce the costs related to the production and sourcing of the different peripheral and core parts. The alliances between the manufacturers and the suppliers have become critically important for the effective functioning of the automobile industry. This is because the suppliers have started playing a major role in the automobile industry because 70% of the parts are produced by the suppliers and 30% of the parts in the automobile industry are manufactured by the automobile manufacturing companies. The alliances with the suppliers are also critical because of the impact the suppliers have on the expenses of the business and because of their role as co-developers in new products and technologies. The horizontal alliances in the automobile industry are done between the automobile manufacturing companies. Two or more automakers enter into strategic alliances with the objective of achieving increased profitability, sustainability and competitiveness through the mutual sharing of resources and core competencies (Wang and Horsburgh, 2007, pp.51-81). The level of the alliance is decoded on the basis of the estimated goals and objectives of both the businesses. One of the major benefits of horizontal alliances is the achievement of economies of scale, combination of the resources and transfer of technical and innovative knowhow. The conventional example of the horizontal alliance in the automobile industry can be the partnership between Peugeot and Citroen in an alliance called the PSA (Kale, Singh and Perlmutter, 2000, pp.207-237). Also, the alliance between Daimler and Chrysler is another example of horizontal alliance in the automobile industry. Advantages of Strategic Alliances In today’s competitive environment, strategic alliances have become an important tool to cope with pressures and challenges that are imposed by the ever changing competitive environment. In today’s automobile industry, there are many linkages which are different from conventional partnerships. Automakers are likely to remain independent in horizontal arrangements. There is an increasing tendency in vertical arrangements to involve more and more suppliers in the technology development process rather than concentrating on just sell-and-buy relationships. Under such a scenario, every supply chain company has been affected. An efficient supply chain is very much important for business prosperity. Information technology also plays an important role here by leading us to the way to achieve corporate strategy. Strategic alliance refers to the linkages of business processes of two or more corporate houses which can potentially improve the competitive strategies of both the companies. It is a very useful tool for organizations by which a company can exchange skills, products, resources, and technologies. It can help companies to enhance their competitive position in the market. A strategic alliance can also reduce an organization’s cost of production by means such as economies of scale. A company is also able to learn crucial skills and efficiently utilize their core capabilities through strategic alliance. But the need to enter into a strategic alliance with another company depends on the goals, purposes and needs of an organization. Moreover if two large corporate houses enter into a strategic alliance, they will enjoy bargaining power over their creditors which in turn provide them with the benefit of economies of scale leading to low cost of production. Disadvantages of Strategic Alliances There are also many demerits of strategic alliances such as an organization runs a risk of losing control over proprietary information when it enters into a strategic alliance with another company. There are also difficulties in coordination as the cooperation settings are informal. An organization may have to incur high costs in dispute resolution. There are also agency costs in strategic alliances which a company has to consider before entering into a strategic alliance with another company. There are also influence costs in strategic alliances due to a lack of formal administration and hierarchy. There are many other risks such as the other partner in the strategic alliance process may not live up to its expectations and promises. Moreover the proposed alliance may result into future takeover or merger. The organization also runs the risk of losing its own autonomy or identity. There may be also other control issues and issues relating to distrust of ownership. The employees of the organization which is entering into a strategic alliance may fear losing their job after the alliance. There may be also issues such as fear of staff turnover, undisclosed agendas, legal liability, resistance to change, and reduction in the sense of closeness between employees. This things, positive as well as negative, must be considered by an organization before entering into a strategic alliance. How companies change the negative denotations into positive denotations The companies entering into the strategic alliances should ensure that the control issues and the human resource factors are effectively considered while implementing the strategic alliance in the business process (Kale, Singh, and Perlmutter, 2000, pp.217-237). The streamlining of the goals of the two companies entering into the alliance is critical so as to avoid any conflicts in the interests of the management of the two companies (Vyas, Shelburn and Rogers, 1995, pp.47-60). Also, implementing the information technology processes and maintaining effective supply chain management processes should be ensured so that the negative perspectives of the strategic alliances can be met with the positive aspects. The business processes and the people of both the companies should be aligned and motivated to successfully implement the strategic alliance activities in both the businesses. The coordination of the business processes and the activities of both the organizations should be ensured to successfully implement the strategic alliance activities in both the businesses. The companies should focus on economies of scale in both the horizontal and the vertical alliances so as to ensure that the costs are effectively controlled and monitored by proper administration (Burgers, Hill and Chan, 1993, pp.419-432). Conclusion The different types of strategic alliances in the automobile industry are used by the automobile manufacturers as effective corporate strategies to increase their competitiveness and enhance their capabilities and resources. The various benefits of the strategic alliances have improved the landscape of the automobile industry across the globe by making the industry more innovative and competent through the combined use of the resources and core competencies of various players in the automobile industry. References Barney, J. 1991. 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