Managing Global Alliances
In Automobile Industry
Introduction
Globalization has been the current characteristics among business organizations. Geographic boundaries as well as time have been successfully overcome through innovations and advancements in technology as a result of globalization. Profit-seeking organizations across the world are continuously expanding operations in order to extend the reach of marketing and promotion agenda all in the effort to increase the share in consumer base. Business operations at present are capable of delivering the needs and demands of the consumers and clients both in the local and international markets through incessant business reengineering processes. Aggressive market competition across the world is evident among the existing industries in terms of the information management, physical resources allocation, human capital reserves, financial strategies, procurement and logistics concerns, supply chains, sales and marketing objectives, performance goals, social and corporate responsibilities, and levels of customer satisfaction.
The emergence of a global community has been the result of internationalization trends and initiatives among varying political beliefs, cultural orientations, economic characteristics, and environmental consciousness. According to Teeple (2000) profit accumulation among business organizations has undergone a shift from the national level to the supranational global setting where information and capital resources flow more ceaseless and relentless. As people become more and more conveniently connected, produced goods and services are likewise becoming more and more available in every possible market place in different localities marked with more frequent international travels and the commonness of virtual communication (Teeple, 2000). In order to adapt to these global trends, most businesses, specifically the car or automobile industries have attempted to expand their market niche in the global world through strategic alliance. Primarily, the main goal of this paper is to compare and contrast two strategic alliances that happen in the global market. The discussion will also provide the logic and purpose of the alliance, its stability and durability and the role of cultural differences in management as well as performance.
Strategic Alliances
Accordingly, strategic alliances pave the way for truly global footprints. Strategic alliance means the combinations or integration of two companies. Companies consider strategic alliances and partnerships in many reasons: over-capacity, competition for worldwide market share, need for economies of scale and sharing the increasing costs of new technology. Also, managing the market entry and growth in emerging markets bring companies to the task of weathering those world markets that present lower growth potential and profitability as well as intense price competition (KPMG International 2006). In addition, strategic alliances makes use of three factors: business decisions in purchasing must complement the strategy in other functional areas, follow the same aims and be mutually supportive; the steps taken must also be comprehensive enough to generate a substantial impact such as improving the cost situation over the long term; and the actions taken must be stringently applied and constantly monitored to ensure success. In this case, two strategic alliances will be considered. This includes the strategic alliance of Toyota of Japan and the First Automotive Works in China and the alliances of American Daimler and German Chrysler.
The strategic alliance of the leading Japanese and Chinese automobile industry is considered as the big project in 2002. Since the main goal of Toyota was to gain competitive position in 15% of the global share by 2010, the management of the company noted that China was the only blank area. Because of this strategic alliance with FAW, Toyota has been able to establish footing for the global strategy. This comprehensive alliance had been settled in 2002 and on April 2003, two companies have agreed on different aspects. The strategic alliances between these two automobile industries have come true from the convergence of the industries’ future interest.
On the other hand, the merger of the Daimler Benz and Chrysler which established gave the industry a large global presence. This presence can be considered s a quality one, since it enables DaimlerChrysler to become one of the most respected auto industries worldwide as noted by the Financial Times survey of world corporate leaders. In addition, this competitive position is further enhanced DaimlerChrysler’s strategic partnership with Japanese automobile industry Mitsubishi. Such strategic alliance or partnership gives DaimlerChrysler a good presence in the Asian regions. Such partnerships permits greater product visibility for DaimlerChrysler in one of the largest car markets, and will also enable both companies to share in terms of technology
Analysis of the Strategic Alliance
The strategic alliance of Toyota with FAW and Chrysler and Daimler Benz (with Mitsubishi), can be considered to have many similarities and differences. For instance, each of the automobile industry considered strategic alliances because they want to have a competitive position in the global market. Their purpose is to provide quality products and services with people all over the world and be known as the most competitive brands in the automobile market in various parts of the globe. Urban and Vendimini (1992) stated that alliances involve co-operative agreements between enterprises in which the parties co-operate on an equal footing, such collaboration requires a pooling of human, technological, productive, informational, or financial resources leading to a mutual commitment. Global expansion and strategic alliances across borders has helped pressure some firms to link with others, it has also meant many new players looking for ways to follow their customers around the world and provide globally-available services to their multinational customers. According to Yoshino and Rangan (1995) a strategic alliance through mergers is able to provide a trading partnership that enhances the effectiveness of the competitive strategies of the participating firms by providing a mutually beneficial trade in technology, skills, and/ or products. Through this, it can be said that Toyota, FAW, Chrysler and Daimler Benz has been able to meet the purpose of expansion in the global market.
The second aspect to be considered is in terms of the alliances approach used by the automobile industries. It can be said that Toyota and FAW alliance approach is through the context of joint or collaborative venture. The joint venture of FAW and Toyota has greatly invited the Japanese auto industries to TEDA for investment. Joint venture is the term used when a business company merged to other company for the purpose of entering the international market, in this case, the market entry of Toyota to Chinese market. Here, the collaborative arrangements of Toyota with an existing market participants of FAW also means that the entrant can transfer resources into the industry without necessary disturbing that industry’s current competitive structure too much (Ingham & Thompson, 1993). This venture is a mutual understanding between the Toyota and FAW collaboratively work with each other for the expansion of the business portfolio of each company.
In line with the American Chrysler and Germany’s Daimler Benz, it can be said that the two companies have agreed for having a merger but this arrangement has turned out to be more of an acquisition of the Daimler Benz to the Chrysler which created the DaimlerChrysler. Accordingly, a merger will likely to occur when the mergence (two industries) combine and integrate their business practices which must result in gaining a new section of expertise among the firms. With this, the expected outcome should be wider range of products/services portfolio and talents/skills for the customers of the merged industries. Acquisition has a similarity and difference from merger transactions. They are both a business process that involves two organizations. They both result in a single organization after the transaction is completed. However, in acquisition, one of the involved parties buys out the other firm, and absorbs it. The purchased company will no longer be recognized as an independent or individual company. The absorbed company will be a part of the buying firm, a subsidiary of the latter.
The sudden acquisition of Daimler Benz to Chrysler has occurred because many of the leaders of Chrysler have chosen to leave or retire. In addition, much of the operations of the DaimlerChrysler have been moved to Germany. In this regard, it can be said that strategic alliance of Toyota and FAW is way different in the strategic alliance of Chrysler and Daimler Benz.
In line with stability and durability, it can be said that that the strategic alliance or collaborative venture of Toyota and Faw has been stable and durable as it benefits both automobile industries. The stability and durability of this collaborative venture is said to be influenced by the transfer of the unique brand of Toyota and their approach which is the Toyota Production System (Lee, 2003). The essential players for the transfer of the Toyota production system have been FAW and its affiliate TAIC.
In line with the merger or acquisition of DaimlerChrysler, it can be said that their strategic alliance is also stable and durable. Though the starts of this alliance have post many challenges for the automobile industry, it can be said that through the strength of the management, this venture has become more stable and durable. It can be said that this merger has been an instrument for the achievement of many pillars of the company which sells products in more than 200 nations and manufacturing plants in 17 countries. Since Daimler Benz is considered as one of the larger car manufacturers in Europe and Chrysler in America, this allows the company to gain large presence in two of the largest automobile market in the global market.
Cultural Differences
One of the most important aspects to consider when in a strategic alliance is the cultural aspects. In this regard, it can be said that since Toyota, Faw, Daimler and Chrysler was based in different nations (Japan, China, Germany and America), these automobile industries have some cultural differences. Though the company do not always hire new employees, the standards of the organization including its beliefs, practices and objectives, can powerfully influence the management and its employees. Literatures have indicated that strong cultures enable the generation and maintenance of an organization’s competitive advantage. The Japanese companies are among those that recognize the importance of culture within an organization. Various Japanese companies in the automobile industry have applied this well-known element of organizational management.
For instance, it is a common practice for a Japanese management to deal with its employees as human beings rather than workers. The Japanese companies place a high value to their employees and consider them as important assets. Building a working environment that is based on community influence is one way on how the Japanese support this practice. In the automobile industry, Toyota is among those who had applied this culture into the company. According to Aaron (1996), in the Toyota plant with six thousand employees, of which the majority are Americans, a day care center for the mothers working for the company is made available, which in turn helps in creating a sense of togetherness. Moreover, this gives the employees a feeling of significance as the company exerts effort to support the workers’ families.
One of the known practices within the Japanese organizational culture is its high regard for work-ethic endorsement. This practice involves the careful screening of employees with the necessary skills and high potentials for improvement. Through this culture, the Japanese companies are able to create an effective workforce that is determined to succeed and is highly committed to work, family and to the company.
China, among other nations possesses distinctive and unique organisational culture. One of the factors that are embedded within the Chinese culture is the language. In the Chinese environment, if one would want to be a good team player, individual needs to familiarize himself with the country’s language. This is not only for the purpose of making communication easier when working with a team, but this is also an important sign of respect for the Chinese community (Overby, 2000).
The political and legal issues in Chinese culture must also be considered. by Toyota when they consider joint venture with FAW in the Chinese market. The Chinese government for example, signifies great power for leaders, though most leaders are practicing the guanxi approach. Moreover, policies and regulations applied in the Chinese business industry are subject to changes; hence, a good team player must be prepared to adjust. Considering that the country’s economic regulations and bureaucratic framework are still developing, changes are then inevitable (Humberg, 2003). Aside from these, the factor of cultural diversity must also be considered as an important driving force for a good team player. It can be noted that Chinese culture are known to be diverse, this diversity has a significant role in making or creating an effective or ineffective team player. Being able to manage this diversity well, enables an individual to interact well with other team members. It can be said that the ability of the Toyota management to consider the cultural aspects of FAW as a Chinese industry has helped the joint or collaborative venture of Toyota and FAW be successful.
On the other hand, it the case of the alliance of Daimler and Chrysler, it can be said that because of the cultural differences, the alliance has not been successful. Because of their differences, both companies have lacked commitment with the alliance. With this, many on the German staff from Daimler saw this merger as a temporary aspect; hence, they did not even bother of enhancing their relationship with their American counterpart.
The consequences of culture become particularly apparent in cross national operations, mergers, and acquisitions, where not only different organizational cultures but also organizational cultures rooted in different national cultures meet like in the case of Daimler and Chrysler. The inability of the employees to understand the culture of each other has lead to disruptive tensions which affects the alliance of both companies.
These have been described in terms of the concepts of “acculturative stress” or “culture clash”. The conflicts mostly result from the introduction of new management methods that are incongruent with the values underlying existing practices, which happens in Daimler and Chrysler.
Recommendation
Within the context of the automobile manufacturing industry, globalization trends resulted to excessive competition between and among business organizations that cater to the needs and demands on car and automobile products and services. The multi-level and large-scale operations among automobile manufacturing industries led to the formation of new business strategies that concern the entirety of the traditional business processes. The search for continuous and sustainable developments, increased customer satisfaction, and faster return on investments as well as the issues and considerations regarding shorter product life cycle, innovation, unpredictable economic trends, and more sophisticated customer specifications necessitated the call for extensive reformulation of business goals and performance objectives in order to endure the demands of the existing market economies along with aims to gain competitive advantage over industry competitors. With this, more and more automobile industries try to stay in the competitive environment through the consideration of strategic alliances.
Strategic alliance has been recognised to be one of the strategic ways in business operation growth and expansion in the global market. In line with the strategy of automobile industries, it can be said that the used of strategic alliance through collaborative venture or merger and acquisition have been able to provide the company a more comprehensive, efficient and effective ways to have a sustainable company growth. International strategic alliance allows the company to grow both internally and externally because through this alliances or partnerships the family of the company has increased, not only in its local operation but also in global environment.
Further, through the effective used of strategic alliance, Toyota and Faw and DaimlerChrysler are able to gain competitive advantage among its rival companies. Competitive advantage only arises from establishing differentiation. Although these alliances have been successful, there are some important aspects which the management of automobile industry can be considered when going into a strategic alliance.
It can be said that creating a successful alliance between two companies used to be concentrating on logistical planning and operational integration. Today, dynamic and future-oriented process by corporate leaders seems more essential and automobile industries must be able to do a lot of work on future planning by setting new growth strategy including investing easily in the automobile market.
Unlike local and national organizations, global alliances are tasked with bigger responsibilities which made them highly accountable to every decision and policy they make. The vast influence and significant impact of the decisions and laws that result from intensive deliberations of member representatives of the World Bank and the World Trade Organization are normally faced with cultural challenges that threaten the stability and durability of the alliance which subsequently may lead to difficult realization of the goals of the organization. The conflicts which arise from differing cultural interpretation should be in the realm of constant evaluation and adjustment. Resolving immediately the differences that hinder the effective and efficient function of global alliances should be critically reviewed in order to promote development and growth of every member.
Unlike local and national organizations, global alliances are tasked with bigger responsibilities which made them highly accountable to every decision and business operations they make. The vast influence and significant impact of the decisions and regulations that result from intensive deliberations of member representatives the automobile industries are normally faced with cultural challenges that threaten the stability and durability of the alliance which subsequently may lead to difficult realization of the goals of the organization. The conflicts which arise from differing cultural interpretation should be in the realm of constant evaluation and adjustment. Resolving immediately the differences that hinder the effective and efficient function of global alliances should be critically reviewed in order to promote development and growth of every member
Conclusion
The context of strategic alliance as one of organisational strategies may be assessed in different underlying factors; these include the purpose of the strategic alliance, the logic and the strategy used for the alliance and cultural differences. The predictability of strategic alliance in setting the increasing automobile competition addresses the situation and considerations that industries must focus onto before considering strategic alliance. In the case of automobile industry like Toyota, FAW, Daimler and Chrysler, the company can uses strategic alliances to stay in the competitive market and perform better within the marketplace, by providing innovative and new products in terms with automobiles and car manufacturing through the ideas that the management gain because of strategic alliance with other companies. It shows that without such strategy, the company may not be able to expand its business portfolio and reach more and more customers from local to global market. It can be concluded that strategic alliance, along with the concept of strategic management and other efficient marketing approach, can make a company to succeed in achieving its goal of providing quality products with their target market. However, decisions should be made strategic also. This means, that the company should have the ability to decide which among the companies can be helpful to the company itself.
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