A Study on strategic alliances Due to the Cultural Difference

Introduction

With the overwhelming trend of globalization， technological advancement and the time pressure for market entry， more and more companies started to look out of its boundaries and seek cooperation with other companies so as to enhance their competitiveness around the globe （Lasserre， 2002）. Thus， international strategic alliances have been gaining great popularity. A strategic alliance can be defined as ‘a(chǎn) governance structure that involves an incomplete contract between separate firms， and in which each partner has limited control over the alliance’ （Lasserre， 2002）. The purpose of forming a strategic alliance is either to build up a global market presence or to strengthen the competitive advantages of the firm. Strategic alliances can be divided into two distinctive categories： alliances between competing-firms and alliances between non-competing firms （Dussage and Garrette， 1999）.

Company Overview

A strategic alliance between non-competing firms： FAW-VW Joint Venture.

Volkswagen Group China is the subsidiaries of the German carmaker Volkswagen. The company is one of the earliest automakers that entered the Chinese market. It entered in the late 1970s when China just opened its market with its political and economic reform and opening up. Volkswagen started its first joint venture in China with Shanghai Automotive Industry Corporation in 1984； and later in 1991， he establish another joint venture with the state-owned company First Automobile Works in 1991. FAW was founded in 1953 and during its first 30 years its major products were medium sized and army trucks. It was until its alliance with VW that it just started to produce other types of vehicles. With the share investments of 60% from FAW and 40% from VW， the joint venture has total assets of RMB27.6 billion. Up till now， the joint venture has been devoting continuous efforts to develop new models. And its major serious include Jetta， Golf， Bora Classic， New Bora， Magotan， Sagitar and Audi Series （ref）.

A strategic alliance between competing firms： Ford and Mazda.

The very first tie between Ford and Mazda started in 1969 when a joint venture was formed by Ford， Mazda and Nissan to produce automatic transmission in Japan （Heller， and Orihashi， 2003）. In 1979， Ford Motor Company bought a 25% equity stake from Mazda and therefore became its largest stakeholder. And later in 1996， Mazda was seriously in debt due to its characterless cars and advertising， that was when Ford increased its share in Mazda to 33.4% and took the management control （ Mazda chief enjoy his job）. Ford was then given the power to appoint Mazda’s president （Heller， and Orihashi， 2003）. The group， on a global basis， mainly operates in three key regions： Europe， North America and Japan. （Company CV）. During their long-term cooperation， mutual learning has occurred across the alliance. Generally speaking， Ford learnt productive capabilities from Mazda while Mazda benefited from Ford’s managerial capabilities （Heller， and Orihashi， 2003）

Compare and contrast the experience of the two in terms of management.

For FAW-VW， in their early year from 1991 to the early 2000， the operating strategy was quite bureaucratic and inefficient in that they saw no reason to improve since government was their only customer and they already owned the majority of the market share and gained huge profit with little competition in the industry. However， the advantage of being the first-mover didn’t last long with more and more foreign carmakers entering China in the 1990s as well as the emergence of a number of local carmakers. In 2005， the VW China reported an operational loss of $144 million （Volkswagen China Investment Co.， 2009）. Some people even wrote VW off in the country. The major problems of the joint venture came from the slow respond to the fast development of Chinese automobile industry and as well as the management of the two joint ventures. Car models developed by the FAW-VW and Shanghai VW often targeted at the same groups of consumers and there was too much competition between the two ventures. While VW was losing， its competitors were rising. In the first six months of 2005， GM saw a sales growth of 18.9%； Japan’s Honda， 41.4%； and the Sino-French venture Dongfeng PSA Peugeot Citroen Automobile， 54.9% （ibid）. Faced with the possibility of crowding out of China， VW China began to adjust its strategies from 2006 in respond to the trend of Chinese market in which the customers are interested in more choices and better prices， quality and services （McNamara M.， 2005）. It planed to develop 12 models by 2009， cut costs in its two joint ventures and improve services. In addition， it launched “Olympic Plan” to increase its production differentiation and enhance cooperation between the two joint ventures （ibid）. And its efforts paid off eventually. At the end of 2006， the company started to recover and reported operating profits of $144.3 million （VW China Investment Co.， 2009）.

For Ford-Mazda alliance， their relationship has lasted about 30 years. Since late 1990s， Ford began to have a dominant position in the management of Mazda after owning 33.4% stake of the company. It appointed the former Ford manager Henry Wallace as Mazda's CEO， the first foreigner as the president of a Japanese carmaker （Ford turned Mazda tide）. And this was often seen as a deeper integration of Mazda into Ford （meaty mission）. Wallace created a new strategic direction for Mazda. He changed the Mazda logo； he made a new product plan to enhance Mazda’s collaboration with Ford； he also started taking control of the overseas distributors， rationalized dealerships and manufacturing facilities， trying to promote efficiencies and reduce costs in Mazda’s operation. His effort turned Mazda into profitability and laid foundation for its future success. During their almost 30 years’ collaboration， there were not any big conflicts between the two partners though there were differences in their culture and management style. Back in the late 1990s when Wallace

was in charge， he did introduce some western management practices to Mazda’s operation. He reinforced its financial control and adjusted the marketing strategy. All those measures have helped Mazda recover from loss and started to gain profit since then （Ford and Mazda： a unique alliance）. They both regard each other as competitors， not mention to learn from each other （Ford and Mazda： a unique alliance）. Ford of Europe’s Escort never used Mazda’s small-car expertise.

Conclusion

The recent and rapid growth in the number of strategic alliances can be explained by the various changes in the international business environment， especially because of the advancement of technology and the globalization of the world trade （Dussauge and Garrette， 1999）. The two examples above illustrated the differences between competing-firms and non-competing alliances in terms of their purpose， management， performance and stability.

References

Bradford W. and James B. T. （2003）. Ford Gives Mazda a Meat Mission， Vol. 78， Issue 6070. Article from Business Source Premier last accessed 13 May 2009 at： s http：//web.ebscohost.com/ehost/ detail？

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Company CV. （2003）. （online）. Business Source Premier.