Partnership Venture between General Motor and Its Subsidiary Holden - Example

GM and Holden Name Class Unit Introduction GM and its subsidiary Holden require a venture that will propel the firm to gain rapid revenue growth. There is need for having an accurate and current analysis of Holden. For multinationals, knowing the health of their subsidiary helps a lot in planning. Holden is a functional subsidiary which is fully owned by GM (Holden, 2016). GM normally controls the activities and policies carried out by the subsidiary. As a consultant, I will suggest new venture that is based on analysis of Holden which will lead to rapid revenue growth. This report is written for the shareholders of GM. The report suggests that driverless car partnership venture between Holden and GM that will lead to rapid revenue growth. After a thorough analysis, it is clear that coming up with driverless car will boost GM revenues leading to a rapid growth. Background of GM General Motors (GM) is engaged in the production of vehicles. This is through designing, manufacturing and selling cars, trucks and other automobiles. The company has over the years managed to build a strong brand portfolio. The company well-known brands include Hummer, Saturn, Chevrolet and Pontiac among other brands. The strong brand portfolio by GM has given the company a competitive advantage. The company also engages in large scale production which gives them a low overhead costs. Over the years, GM has been able to build a strong research and development team. This has been helping the firm to remain innovative amidst the increasing competition. At the moment, GM is one of the largest automakers globally and has manufacturing facilities in over 34 countries (Alden et al., 2006). The company sells their vehicles to 140 countries. GM uses Holden as their subsidiary in Australia (Holden, 2016). Recommended new venture Venturing into a driverless vehicle through partnership with Holden Driverless vehicle is a new technology which is under focus by a lot of automotive firms. Based on the IEEE predictions, it is estimated that up to 75% of vehicles will be driverless by 2040 (Milanés, Onieva, Pérez, Godoy and Villagrá, 2011). This shows that if GM and Holden can partner in the venture, they will be able to access the large market of autonomous vehicles and hence rapid growth. This is a market that has hefty profits in future that can help GM in future rapid growth. At the moment, there have been several road tests on autonomous vehicles. Companies such as Google who have been working on autonomous vehicles project have proved that the venture is viable (Nikowitz, 2015). To establish this venture, GM and Holden will work in partnership to develop the autonomous car. This will involve use of software companies such as part of the business model. This will be made possible through use of artificial intelligence and deep learning (Benenson, Petti, Fraichard and Parent, 2008). If GM and Holden partnership can be able to overcome the technical difficulties, it will be possible to make autonomous vehicles entre the market earlier than 2020 (Milanés, Onieva, Pérez, Godoy and Villagrá, 2011). This will make it possible to have a larger market share for GM hence a rapid growth. Marketing Target market The target market for the autonomous vehicle is the car sharing cooperatives, public fleets and individual owners without much consideration on social class (Nikowitz, 2015). This is a market that has previously used the individual, family or public fleet. The focus on this market is aimed at changing the current ownership model where there is more than one car in a family or household. It aims at reducing the idle time when the car is not being used where it can be carpooled by others. Thus the market is families, public transport and ridesharing companies (Pérez et al., 2011). The market is segmented based on components and geography at the moment. This is through focusing on availability of technology to manufacture the components such as radar sensor, ultrasound sensors and central computing system among others (Benenson, Petti, Fraichard and Parent, 2008). The geographical segments are Europe, Asia, North America, Australia and Middle East. Market positioning Self-Driving Car (SDV) will be positioned as an affordable automobile which will replace use of personal care and need for multiple cars in households. This is through pricing SDV at a penetration price which will make it an alternative to the conventional car (Zohdy and Rakha, 2012). The car will be positioned as a cost effective mode of transport which is an alternative to the conventional model of car ownership. This is through allowing other forms of ownership such as sharing fleets, private rentals, public fleets hence reducing the individual and family car ownership (Milanés, Onieva, Pérez, Godoy and Villagrá, 2011). SDV also has lower operating costs than the conventional vehicles. This is due to fact that costs of repair and accidents will go down due to mode of operation and efficiency. The car will also have a lower insurance costs and also fuel saving (Benenson, Petti, Fraichard and Parent, 2008). This makes it possible to position SDV as a cost effective, safe and efficient car. Market share Through partnership between GM and Holden, it will be possible to acquire a large market share. The interest in driverless car is global which makes it possible to have a large market for the vehicle. Both GM and Holden have a large market reach at the moment. Due to low fuel consumption which the driverless vehicle can reduce by 10% and the reduced insurance costs by 30%, it is possible for the driverless vehicles to take the market share exponentially (Pérez et al., 2011). Research shows that by 2040, it will be possible for the driverless vehicles to take about 50% of all vehicle sales (Zhang et al., 2008). It is also estimated that driverless vehicles will make up to 30% of all vehicles and comprise about 40% of all travels. In 2050, it is estimated that most of the vehicles will be autonomous (Nikowitz, 2015). Competitive advantage Partnership between GM and Holden gives them a competitive advantage. This is due to fact that both have invested heavily on research and development. The firm has a strong brand portfolio which has given it a competitive advantage. Through use of R&D, it will be possible to develop the driverless car at a faster pace than most of the competitors (Benenson and Petti, 2007). This is especially through thee combination of the resources between GM and Holden. The firm has been on the forefront in automobile technology. The partnership between GM and Holden in the venture also gives them an upper hand in design. Holden is well known in the design of small cars. Most of the SDVs require a smaller body frame which is an area of expertise for Holden (Nikowitz, 2015). GM has been able to come up with fuel efficient and vehicles utilising renewable energy. GM and Holden have adequate resources which makes it possible for them to venture into driverless car. This will give them a competitive advantage in the industry. Pricing strategy The pricing strategy used in this case is based on market penetration. This is use of penetration pricing by charging a cost lower than the competitors (Spann, Fischer and Tellis, 2014). The aim will be entering the new market for driverless vehicles and attaining a market share. After gaining the market share, the price will be increased to cover technology and manufacturing costs. Penetration costs will be based on the costs of technology and production with a moderate profit. The technology used by the driverless cars is very expensive hence has to be covered during market penetration (Litman, 2014). It is expected that the costs of technology will go down which will make it possible to sell the autonomous vehicles at penetration pricing without affecting the firm revenues negatively. After gaining the market share, an increase in price will lead to rapid increase in revenue. It is important to note that pricing of new products is difficult and can affect the financial success of a company. The penetration pricing will exploit the economies of scale and experience to gain higher revenue (Spann, Fischer and Tellis, 2014). This is a strategy that will allow GM to make rapid growth in the market. Operations: Impact of the new venture on Holden/GM’s current operations GM/Holden operations will be highly affected by the venture into the driverless car. This is due to fact that driverless cars will be an addition to the firms’ products. GM/Holden partnership will be required to enhance their research and development operations, change marketing techniques and come up with new production methods. The area of operations which is highly affected is the production department. This is due to fact that driverless vehicles have a different mode of production due to technology and design (Benenson and Petti, 2007). Another area of operation is safety. The need for safety improvement is one of the most urgent for driverless cars. With the driverless cars having no steering, there will be freeing up of space. This calls for new design considerations which may lead to change in design team. Materials such as aluminium cages and steel may change in design due to changing nature of accidents. The design may also change and become narrow. GM/Holden will be required to hire new professionals and come up with innovative teams (Nikowitz, 2015). There will be need to procure new materials, patent new technologies and change the mode of production (Zhang et al., 2008). All these will lead to changes in GM/Holden partnership in autonomous vehicle. Management The key people in this venture are managing directors in both GM and Holden, Heads of Operations, Heads in design departments, Heads of IT, manufacturing manager, R&D Heads, workers in the production department, marketing team and technology firms (Berger and Rumpe, 2014). This group should work with the collaboration of the consultants and company directors. The team will require guidance from the consultants in decision making and carrying out critical operations that have an impact on the firms. The heads of design will have to work with the research and development team to come up with the best product design. All the key people involved have to work together for the product to be successful in the market. The marketing team will play a major role in creating product awareness in the market. Financials Activity Cost (millions) Source of funding Overhead $300 Corporate Technology , R&D $1000 Firm revenue/Government funding Tooling $600 Company revenue Machine $800 Company revenue Energy $100 Company revenue Labour &600 Company revenue Material $200 Company revenue Others $100 Company revenue Critical risks Technology risk- the technology used in SDV is very costly at the moment (Litman, 2014). The technology will cost the development of the final product lot revenue. The technology may also eliminate some of the jobs which may lead to chaos. This is due to fact that driverless cars will eliminate taxi drivers, valet cars, traffic officers, buses, meter attendants and the parking assistants (Berger and Rumpe, 2014). Legal and policy risks- SDV will have a great impact on the policy and legal arena. The current laws and policies on traffic will be required to change to accommodate SDVs. This is a complex issue since the current policies and legal system is not designed for SDVs (Zhang et al., 2008). Data and privacy risk- SDVs are highly likely to utilise a lot of personal data. This includes the user habits, residence, and workplace (Litman, 2014). This also includes use of GPS and other information such as road users and traffic. The protection of this data is very vital and is an issue that is being debated. It is expected that privacy protection will be enhanced in driverless vehicles. This is an issue that cannot be ignored (Zhang et al., 2008). High costs of production- the production of SDV is a highly costly procedure. This is due to the costs incurred in R&D, technology and the production team. R&D and technology are the main cause of high costs (Pérez et al., 2011). This is a risk that can lead to high prices hence reducing sales. Risk of intellectual theft- being a new technology, SDV faces a challenge of intellectual theft. GM/Holden must patent their technology to ensure that it is safe. This is a major problem that faces new technology ventures (Pérez et al., 2011). Harvest strategy The exit goal from the venture is based on a clear. GM/Holden will utilise initial public offering of the shares in the SDVs. This is through use of public offering to gain highest value for the shares. This will also raise awareness on Holden SDV segment. Milestone schedule Activity 2016 June-Dec 2017 Jan-May 2017 June-Dec 2018 Jan-May 2018 June-Dc GM& Holden partners Meetings to discuss venture and Key stakeholders workshop Development of the code of practice to be used in the project Product development Demonstration and Trials Establishing code to be used Showcasing the SDV Testing on roads Introduction to driverless vehicles Summary To sum up, this report suggests that GM and Holden should venture into driverless cars through a partnership. This will allow GM to consolidate their strengths with their subsidiary Holden to come up with the driverless car. The venture has the capability to give GM a chance to attain rapid revenue growth. The market targeted is car rentals, public transport system, communal cars and families. This is a vehicle that can reduce the current car ownership model and also reduce the cost of operation. The new venture will have an impact on GM/Holden operations in a great way. The people involved in the venture are expected to work together as a team to come up with the product. This includes the heads of designs department, R&D department and management. This report has been able to show the finance required for the venture, its sources and critical risks. The harvest strategy for the venture is selling of shares through the public offer. If implemented well, the venture will make it possible for GM/Holden partnership to create rapid revenue growth. Bibliography Alden, J.M., Burns, L.D., Costy, T., Hutton, R.D., Jackson, C.A., Kim, D.S., Kohls, K.A., Owen, J.H., Turnquist, M.A. and Veen, D.J.V., 2006. General Motors increases its production throughput. Interfaces, 36(1), pp.6-25. Benenson, R. and Petti, S., 2007. Th. Fraichard, and M. Parent. Toward urban driverless vehicles. to appear in Int. Journal of Vehicle Autonomous Systems. Benenson, R., Petti, S., Fraichard, T. and Parent, M., 2008. Towards urban driverless vehicles. International Journal of Vehicle Autonomous Systems, 6(1-2), pp.4-23. Berger, C. and Rumpe, B., 2014. Autonomous Driving-5 Years after the Urban Challenge: The Anticipatory Vehicle as a Cyber-Physical System. arXiv preprint arXiv:1409.0413. Holden, 2016. Home. Retrieved 18th May 2016 from, http://www.holden.com.au/ Litman, T., 2014. Autonomous Vehicle Implementation Predictions. Victoria Transport Policy Institute, 28. Milanés, V., Onieva, E., Pérez, J., Godoy, J. and Villagrá, J., 2011, October. An approach to driverless vehicles in highways. In Intelligent Transportation Systems (ITSC), 2011 14th International IEEE Conference on (pp. 668-673). IEEE. Nikowitz, M., 2015. Fully Autonomous Vehicles: Visions of the future or still reality?. epubli. Pérez, J., Villagrá, J., Onieva, E., Milanés, V., de Pedro, T. and Vlacic, L., 2011. Driving by driverless vehicles in urban environment. In Computer Aided Systems Theory– EUROCAST 2011 (pp. 404-411). Springer Berlin Heidelberg. Spann, M., Fischer, M. and Tellis, G.J., 2014. Skimming or penetration? strategic dynamic pricing for new products. Marketing Science, 34(2), pp.235-249. Zhang, T., Liu, X., Mei, T., Tang, G., Li, B. and Wang, X., 2008, September. A novel platform for simulation and evaluation of intelligent behavior of driverless vehicle. In Vehicular Electronics and Safety, 2008. ICVES 2008. IEEE International Conference on (pp. 237- 240). IEEE. Zohdy, I. and Rakha, H., 2012. Optimizing driverless vehicles at intersections. In 19th ITS World Congress. Appendix Macro environment PESTEL analysis Political Holden Australia operates in a liberal democracy which is based on a constitutional monarchy. Australia is a stable country with no political violence. This gives Holden a good political environment to operate in. The political environment in Australia is good for business operations. Economic Australia economy is growing at an impressive rate. The country has fully recovered from the 2008 economic recession. Due to stable economy, consumers have high disposable incomes. Holden is a major consumer of metals, textiles, computer chips and rubber among others. The country has low inflation. Customers have been purchasing Holden products due to quality, innovation and preference irrespective of costs. Social Holden has been able to survive in Australia due to its association with reliability and endurance. The distinct values associated with Holden by society. The social status of Australians has been raising leading to high expenditure on costly and innovative vehicles. Australia is a multicultural community. Technological At Holden, technology is a dominating factor in production. This is due to the rapidly changing market and consumer demands. Holden uses technology to reach out to new customers in an effective and efficient means. The company has made several technological breakthroughs using the R&D department. The company spends a lot in R&D. Environmental Holden complies with local and international environmental laws and regulations. This is through efforts to make vehicles with low carbon emissions and encouraging recycling. The firm has been involved in several activities to cater for environment. Legal Changes in laws affect Holden operations in Australia. The company complies with legal requirements in Australia and also global standards in its manufacturing. Porter analysis Bargaining powers of the buyers Automakers have diverse products and car models. There is a high to moderate switching costs between car manufacturing firms and brands. Consumers have low bargaining powers. Bargaining powers of suppliers The suppliers in the industry are many and their power ranges from medium to high. The power is based on the size of the suppler, their brand name, market needs and product being supplied. Suppliers who have a strong brand image have high bargaining powers. Availability of substitutes The substitute for Holden products includes use of airlines, ships, cycling and trains. Cars are purchased due to convenience or symbol of status. There are instances where vehicles cannot be substituted due to convenience. The availability of substitutes is medium. Threat of new entrants The threat of new entrants is low. This is due to the fact that the industry has a lot of barriers to entry and also faces scarcity of land. The industry is capital intensive and requires a lot of investments and is highly restricted. Competitors’ rivalry The rivalry among the competitors is high. The competitors in the industry are well placed in the market and have adequate resources. Competition is based on innovation and costs. Competitor analysis Immediate competitors Current competitors in Australia are Ford, Iveco, Mack Trucks, Paccar Inc. and Toyota. Secondary competitors Railway companies Airlines Ships companies Indirect competitors Technology firms Mail services Telephones and cell phones SWOT analysis Strengths Evidence Weakness Evidence Strong brand name Global presence Innovation The company has produced stable automobiles. The brand is not limited to Australia but is available globally. The brand is available globally in countries such as Australia, Vietnam, China, and Sweden among others (Alden et al., 2006). In collaboration with GM, Holden has been able to come up with innovative products through R&D. Reducing dealer network. Reducing sales volume. The number of dealers is diminishing globally. The company has been facing a reduction in sale volumes and working capital affecting R&D. Opportunities Evidence Threats Evidence Growth potential in new markets Rising demand for hybrid vehicles and plug in vehicles. R&D to produce autonomous vehicles. There are growth prospects for GM and Holden vehicles in new markets such as China and India. The company has been producing hybrid vehicles with the demand increasing. The international demand for electronic vehicles is on rise. GM has been working on the project for autonomous vehicles. Recession Weakness in automobile industry Intense competition Dire consequences of global economic slowdown as evidenced in 2008 and continued to 2010. This leads to low demand for vehicles especially those consuming more fuels. This comprises GM and Holden main products. There have been occurrences of reduced demand for commercial vehicles. For example in 2008, Japanese car market declined with more than 4%. GM and Holden face stiff competition in the industry from Volvo, Ford, Nissan, Toyota, Honda and Renault among others. In Australia, the major competitors for Holden are; Ford, Iveco, Mack Trucks, Paccar Inc. and Toyota. Read More