Contemporary Issues in Marketing

Individual report- Topic 3

Prepared for:

Prof. Teck Yong Eng

Prepared by:

Tayfun Bayraktar

WORD COUNT:3950

BUSINESS SCHOOL

BOURNEMOUTH UNIVERSITY

0

Table of ContentsINTRODUCTION......................................................................................................................................2

RECENT DEVELOPMENTS IN CAR MANUFACTURING.............................................................................3

STRUCTURE OF ORGANIZATION AND CULTURE.....................................................................................4

An Approach Knowledge Transfer in Car Manufacturing...................................................................4

TYPE OF COOPERATION IN CAR MANUFACTURING................................................................................8

Driving Forces Behind the Strategic Alliance......................................................................................8

STRATEGİC DEVELOPMET FOR SUCCESSFUL ALLIANCES........................................................................9

Management Developments and Roles in Alliance............................................................................9

Trust and Relationship Development in Alliance..........................................................................11

CONCLUSION........................................................................................................................................13

REFERENCES.........................................................................................................................................14

1

INTRODUCTION

The last couple decade has been an era of global evolution. Increasing tough global

competition caused the increase of the number of strategic alliance between rival firms in the

same industry. Alliances are the short way to access the new markets, to gain skills,

technology and to share cost and resources (Bleeke, J., and Ernst, D.1993).

However, as we mentioned with case studies all the alliances did not end successfully. There

are many issues to firms must deal with. That means achieving successful alliance not only

depends on the technological support also there are many non-technological factor which

effects alliance success.

The aim’s of this report is firstly indicate the recent development in car industry and

regarding to this innovation shows how cultural differences can impact the alliances and

knowledge transfer through the alliances. Secondly, you will find the reason why car

manufacturers tended to collaborate with each other while they are rivals. Beside cultural

differences I mentioned managerial skills effects on cooperation. Finally, it will suggest the

overlooked relationship developments and its affects.

2

RECENT DEVELOPMENTS IN CAR MANUFACTURING

Automotive industry has become more effective after the 21st century’s rapid technological

developments such as new design, new manufacturing systems and process. Especially

innovative Japanese car makers prompt the market and one of the way might be international

technological alliances in order to gave advantage in new competitive industry (Gil, M.J.A

and De la Fe, P.G1999).Mainly car manufacturing placed and has been run by three region

Far East Japan, North America and Europe (McIvor, R.T, Humphreys, P.K., McAleer, W.E

1998).Over last decade reconstructing and changes have characterized the car industry. Main

factor behind this changes are increasing customer demands, over-capacity, fast technological

improvement, harder regulations. As a result of this, to stay competitive in the sector, car

manufacturers should sustain their improvement and performance regarding production and

development (Corswant, F., Fredriksson, P. (2002).

To have benefit from economy of scale car manufacturer should increase their volume of

production. From point of this idea, recently, many car manufacturers have cooperated or

acquired with other car manufacturers (Graham, M. 2004). The alliance between Daimler and

Chrysler, Ford’s acquisitions Volvo and Jaguar, GM acquisition of Saab are just a few

examples (Corswant, F., Fredriksson, P. 2002).

Beside this, vertical involvement of the process has changed during the last decade.

Researchers have indicated there is increasing number of outsourcing involvement in car

production (Merger, G. 1995). Due to outsourcing, suppliers can specialize on certain

activities. Thereby, manufacturers may reduce the capital base and help increase the gain on

invested capital (Quinn, J.B and Hilmer,F.G., 1994). On the other hand, it means some of the

3

activities which are important for the firm are run outside of the firm’s border (Richardson et

al. 1972). Hence, cooperation between manufacturers and supplier needs to be coordinate

efficiently. However, many companies try to reduce their number of suppliers due to high

expenses of coordination activities for efficient cooperation (Cousins et al. 1999).

Main actors of car manufacturing, make co operations, alliances with each other therefore

satisfy customer demand and catch up the fast technological changes although they are rivals.

STRUCTURE OF ORGANIZATION AND CULTURE

An Approach Knowledge Transfer in Car Manufacturing

There are many ideas for describe the organization structure; some of researchers believe

three factor such as size, environment and technology enough to describe organization

structure (Krokosz-Krynk, Z. 1998). According to Katz and Kahn 1978, "structure is to be

found in an interrelated set of events which return to complete and renew a cycle of

activities."

Jackson and Morgan, 1982 explained organization structure; share of works and

administrative mechanism which compose relation with work activities and enable the

organization the organization to conduct, coordinate, and control its work activities.

Some of the problems which firms encountered mostly do not have technical content in

nature; they are generally soft problem such as organization culture or incompatibility

between organization structure and innovation which is to be implemented (Edwin

Cheng,T.C. , Lai, K., Koufteros, X. And McDermott,C. 2007).

One of the important issue in alliance is transfer of knowledge and according to researchers

main points are firstly: firm`s learning potential through the alliance and secondly capability

of firm achieving successful knowledge transfer (Almeida, P., Grant, R. and Phene, A. 2002).

4

Technological dynamism has pushed the companies to maintain various ranges of

technological knowledge and skills (Tushman and Anderson, 1986).

In addition to that just a few companies may achieve to develop this wide range of knowledge

internally (Lane, Lyles, and Salk, 1998; D'Aveni, 1994). From this point companies should

have transfer knowledge from outside source and that is possible with cooperation with

another company. Firm’s national culture and organizational culture has vital role in

knowledge transfer through the alliance. Car industry has found that to be able to stay

competitive in the market, firms should have both international and multi-cultural vision to

benefit from new opportunities. As a consequence firms should have more flexibility and

modify their local style, culture, perspective of management, and engineering ability into

more global vision.

In his studies Hofstede identified national culture in four different dimension; firstly

individualism and collectivism which shows people’s behaviours in a group. Secondly

people‘s sight of distribution about the inequality and equality. The third is uncertainty

avoidance which classified the people according to their capability to deal with ambiguity and

unpredictability. The fourth is masculinity and femininity that shows to society is degree of

behaviour aggressive or non-aggressive.

In their research Acosta, Sanchez, Rodriguez and Leon (2003) mentioned about French-

Mexican cooperation. According to this alliance French car manufacturer Renault established

a plant for automotive parts in Mexico. This was the first plant of consortium which Renault

built in 19 different countries. Most of the workers were Mexican and R&D, engineering

design was running in France. During the injection test some part did not correspond to the

design and French Technician was sent to Mexico to solve the problem. However, he did not

take any employees opinions, decided individually and increased the pressure of the injection.

5

This decision caused another problem, as a result production delayed and another expenses

occurred. Second personnel arrived to plant and this time he made an extensive analysis, he

considered Mexican technician and workers opinion. As consequence, there was an obvious

explanation Mexican town was 2100 m above the sea level and an average annual temperature

was 23 degrees. They took into account this and sort the problem out. If we analysis Mexican

and French culture, French people are more individualist and did not accept any idea of

Mexican Technician’s because they were worried about the losing control. Contrary, Mexican

people like to share their experience with each other’s and they are the people who like to

have personal relation. We can see completely different national culture between these two

countries. In global manufacturing, as second French technician did, to listen all the team

members, working collectively is crucial to successes of cooperation.

In addition to national culture, organisational culture has vital role in flow of knowledge

between the firms also it is often cause problem of knowledge transfer across the alliance

partners (Almeida, P., Grant, R. and Phene, A. 2002).

Claver, Llopis, Garcia and Molina (1998) argued that for the companies having a large

Research and Development department that is not just the way for technological innovation

also including that staff being trained and being aware that competitive advantage lies under

technological innovation which means firm needs corporate culture ( intangible resource) as

well.

Corporation between General Motor and Toyota is shows national and organizational cultures

affects on knowledge transfer and innovation (Inkpen, C.A., Beamish, P.W. 1997). Toyota’s

ability of utilize from alliance which is related with their national and organizational culture

was better than General Motor’s. Dissonancy between partners’ corporate culture was the one

of the important reason why alliance failed. (Almeida, P., Grant, R. and Phene, A. 2002).

6

General Motor’s development of its manufacturing ability was so slow due to Toyota’s

knowledge was deeply embedded Toyota’s history and culture (Grant, R.M. 1996).

From this alliance Toyota only needed to learn how to transfer current management process to

North America. Using this alliance as a step, Toyota built wholly-owned plants in America.

On the other hand, General Motor utilized from this joint venture’s learning, build two new

assembly operations in Germany and Argentina. Furthermore, from Argentina plant over 60

managers, supervisor and team leaders visited NUMNI (GM and Toyota JVs). The point of

the visit was learning lead production techniques based on Toyota’s knowledge ( Inkpen, C.A

2000).

In 1998 Daimler-Chrysler merger was announced and it produced shock effect in media.

Firms had different organizational culture which based on national culture. Keller 1998 states

‘when it comes to the culture o these two companies, they are like oil and water’. For instance

in Germany workers have several beer brakes a day. On the other side in Chrysler due to

alcohol related accidents it is legally ban.

German sides had big report and long discussion however partner had last one hour and with a

few paper. Alliance researchers said more than %70 of cross border alliances are failed

because of the cultural differences and ‘we are not trying to bring two worlds together and

create a new one. The ideal merged company will still have noticeable differences, like a

choir that needs different voices to achieve the perfect sound (Sergei, G. 2000)’.

Although this statement Daimler Chrysler alliance called unsuccessful both from an investor

view and a strategy view with the main reason of cultural differences (Jeff, B. and Bates, D.L.

2007).

7

From the entire example we can see that innovation means not just technological

developments or has electronic components that might be strategic enters to new market,

managerial improvement, knowledge innovations or methods to motivate employees...etc. In

this point as most of the researchers indicate when the companies use alliances for those

innovative issues, companies’ national and organizational cultures are the main problem

which affects the cooperation’s affectivity. Thereby, when the manufacturer shows flexibility

and capability for adaptation to alliance’s new working environment the chance of the

achieving successful partnership will be more possible.

TYPE OF COOPERATION IN CAR MANUFACTURING

Driving Forces Behind the Strategic Alliance

There are many factors behind the alliances and cooperation, Kogut, B. (1988); firms go into

strategic alliance due to needs of resources, money, skill and manpower. In their studies

Treece, J., Miller, K., Melcher, R. (1992), mentioned about technological evolution and its

affect to the cost which drives to manufacturers to alliance. Most of the advanced parts are

becoming standards such as electronic fuel injection, engine diagnosis device, better

aerodynamics design... that is means the cost of developing new car may reach $2 billion and

it is too high for most of the car manufacturer. As a result manufacturers need partner to share

the cost, gain access to enter new market and new technologies.

Another reason is the demand of customer; there are many types, styles of car. Manufacturers

must produce and market hundreds of different models in order to satisfy customer demand.

Hence, to provide essential resources companies need to cooperate with another manufacturer.

(Chan, P.S. and Wong, A., 1994).

8

All this reasons canalize the companies to share their knowledge, capital, manpower with

other firms. There are many different type of alliance such as franchising, licensing, wholly-

owned subsidiaries...etc. However, joint venture has some critical advantages if we compare

with the others. According to Boersma, M., Buckley, P., and Ghauri, P., (2003), when the

firms enter new market, they have limited market information in order to reduce the risk joint

venture is one of the effective way of cooperation.

If we take an example Toyota’s enters of Turkey, in 1994 Toyota made joint venture with

Turkish company Sabanci Group, the Turkish partner reorganized manufacturing and sales

operation. Toyota built annual capacity of 100.000 units and major production centre. This

challenge in Turkey is put in place an organization that is internationally competitive. Also,

that includes structuring a solid sales and network, besides continuing to improving

manufacturing operations. In addition to that Toyota utilized from Turkey’s geographical

location and export cars to Europe as well. With this new role, Toyota is not only producer

also exporter (Saee, J. 2007).

As we can see Toyota reduced the new market risk and uncertainty, also this joint venture

increased Toyota’s European market influence.

STRATEGİC DEVELOPMET FOR SUCCESSFUL ALLIANCES

Management Developments and Roles in Alliance

One of the key points is in alliance knowing how to organize it. The management of alliance

should take account into cultural heterogeneity of the organization (Child, J., 1940).

General Motor and South Korean Daewoo group decided to establish a 50-50 joint venture in

1986. The plan was building automobile in Korea and sell in US market. However, sales

9

result was disappointing and alliance failed. There was obvious explanation; weakness

organizational capability (Frame, P. and Gadacz O. (1991).

GM’s aim was using Korean low labour cost in order to compete with inexpensive Japanese

car. On the other side Korean partner was expecting to become a major car maker through an

export. General Motor knowledge of design and process technology was used basically to

produce entire body of the car.GM was training to personnel about auto manufacturing.

There was a missing part the transfer of the art of production management. Although it was

50-50 joint venture operation was ran by Daewoo Group. The alliance struggled with quality

and labour problems, export market rights. GM accused Daewoo has mismanaged labour

relations.

As consequences, insufficient production management capabilities and weak labour

management of the Daewoo Group was the obvious alliance mistakes. Moreover, the transfer

of the technology was not mixed with organization culture (Chan, P.S. and Wong, A., 1994).

In 1970s and 1980s as a result of oil crises, US’ big and luxury cars lost their market share

next to Japanese cars. As a result Japanese car manufacturers gained important share in the

market. Ford’s sales showed dropped and they had to close 9 plants between 1981 and 1982

(Shook, R.L. 1990).

Ford started to send managers to Japan in order to observe Japanese car manufacturer’s work

environment and managers in manufacturing plant of Mazda, Toyota and Nissan. Finally,

they discovered that superiority of Japanese car manufacturers was not succeeding by high

technology. People were making the main differences. Ford created a people oriented culture

under a company commitment with every level of the organization involvement. They notice

that without employee involvement, just making alliances with Japanese car manufacturers

would not improve their quality and productivity (Chan, P.S. and Wong, A., 1994).

10

There is the lesson for us shift in a culture has vital point in order to understand the benefits of

the strategic alliance.

Trust and Relationship Development in Alliance

Cooperation between firms generates mutual dependence between organization and its

essential part is trust in order to succeed. When the trust build, both side of the alliance do

not fear their action. Because, they have the common goal to be achieved (McAlister, D. J.

1995). Creating trust among the alliance members is vital to overcoming suspicion about

possible partner opportunism. Thus, trust can encourage the partners to take risk and affect the

relationship positively (Young-Ybarra, C., & Wiersema, M. 1999)

Avoiding competition and ensuring cooperation between partners one of the major alliance

challenges.

Another important but mostly missed out component of successful strategic alliance is social

capital. Social capital provides insight company’s relationships with other organization that

have important resource (Ireland, R.D., Hitt, M.A. and Vaidyanath, D. 2002).

Tsai, W., & Ghoshal, S. (1998) argued that social capital may positively affects the resource

exchange between firms. Hence, social capital is a kind of resources which may help to enter

some firm’s resource base networks. For instance, social capital may cause exposure of

resource which might be use for development of new technology. Social capital in alliance

increased the chance of discovering technological breakthroughs (Ahuja, G. 2000).

From this point we may claim that social capital can increase the alliance success due to

firm’s trust each other and to be ready to share resources.

Researches shows that Chinese companies looking for a partner that have social capital due to

those utilized from their experience and it indicates them, they were more affective with

11

trustful partner. For most of the Chinese company firm’s previous strategic alliance

experience is evidence for firm’s trustworthiness (Hitt, M. A., Ahlstrom, D., Dacin, M. T.,

and Levitas, E. 2001).

There is a good successful Chinese and German alliance example between Shanghai

Automotive and Volkswagen. Besides, Shanghai and vw alliances is good example for the all

part of this studies with different cultures meets, successful joint venture , from vw sides

innovation of new market entering and to show how trust and social capital is important for

the successful alliance.

In 1984, agreement between Shanghai Automotive and Volkswagen signed which was 50-50

joint venture. This alliance was the first passenger-car manufacturing agreement in mainland

China for foreign car makers. One side it was good move for vw to enter huge country which

is developing every year. On the other side Chinese official told the Xin Hua News Agency

that the vw deal represents a ‘40 year leap forward ‘for China. Volkswagen managed the

show excellent cultural awareness it’s in dealing with Chinese government. Also German

government support the alliance. When they built the first car they named it ‘shanghai

Santana’ and they used most popular Chinese colour white, red and grey. Two doors car was

not convenient for Chinese people that way they produced four doors car only. Beside, firm

was sponsor for many inventing in China ( Cateora, P.R. and Ghauri, P.N. 1999).

In this alliance equity was shared equally by both side of the firm. Alliances’ executive

committee with four members each company and they hold the power of the organization by

voting any proposed motion. Therefore compromising based on mutual trust and achieving

the overall aims of the firm (Buckley, P.J., Clegg, J., and Tan, H. 2006).

12

CONCLUSION

From information presented in this report it can be argued that in today’s car manufacturing

needs more flexibility and requires capability in order to match their own resources with

partners. While people’s dependency of technology is increasing every day, in addition to that

while yesterday’s luxury becoming standard, strategic alliance is indispensable truth of the car

manufacturing.

From my point of view, in this situations to insist on strict organizational and national culture

are unacceptable firm behaviours. Several important lessons can be learned from the case

studies. Firstly the alliance between Renault and Mexican partners shows us how important to

understand other side of the cooperation’s culture. Before entering the alliance both members

of the organization employees should be acknowledge about partner’s general cultural

features. Otherwise, it may cause bigger unwanted problems. It can be claimed cooperation is

not just only tangible process; there might be unexpected intangible problems as well which

needs to be considered by professional team.

Alliance management skills are important to achieve good relationship. Trust is the core of the

partner’s relation. Top management’s leadership and commitment required to stimulate the

whole company such organization learning.

13

REFERENCES

1. Acosta, C., Sanchez, R., Rodriguez, A., and Leon, J. 2003. The influence of culture in automotive manufacturing —a Mexican-French comparison.

2. Ahuja, G. 2000. The duality of collaboration: Inducements and opportunities in the formation of interfirm linkages. Strategic Management Journal, 21: 317–343.

3. Almeida, P., Grant, R. and Phene, A. 2002. "Knowledge Acquisition through Alliances: Opportunities and Challenges." The Blackwell Handbook of Cross‐Cultural Management. Blackwell Publishing.

4. Bleeke, J., and Ernst, D.1993.Collaborating to compete: using strategic alliances and acquisitions in the market place. John Wiley and Sons, New York, Chap. 2 pp.17

5. Boersma, M., Buckley, P., and Ghauri, P., (2003),Trust in international joint venture relationships, Journal of business research.vol.56(16)

6. Buckley, P.J., Clegg, J., and Tan, H. 2006 Cultural awareness in knowledge transfer to China—The role of guanxi and mianzi. Journal of World Business 275–288

7. Chan, P.S and Wong, A., 1994.Global Strategic Alliances and Organizational Learning.vol.14(4), pp:31-36

8. Chan, P.S. and Wong, A., 1994 Global Strategic Alliances and Organizational Learning. Leadership & Organization Development Journal.vol.14 (4). Pp. 31-36

9. Child, J., 1940 Strategies of cooperation : managing alliances, networks, and joint ventures . - Oxford : Oxford University Press. Pp.169

10. Corswant, F., Fredriksson, P., (2002). Sourcing trends in the car industry: A survey of car manufacturers’ and suppliers’ strategies and relations. International Journal of Operations & Production Management, 22(7), 741-758.

11. Edwin Cheng,T.C. , Lai, K., Koufteros, X. And McDermott,C. 2007. Special section on organizational structure, culture and operations management: an empirical missing link. International Journal of Production Economics. Vol. 106.(2) pp. 321-322

12. Frame, P. and Gadacz O. (1991), “GM Concerns in Korea Won’tDerail Lemans,” Automotive News, p. 4.

13. Ghauri, P.N., Cateora, P.R. (2006), International Marketing, 2nd ed., McGraw-Hill Publishing, London,

14. Gil, M.J.A and De la Fe, P.G. 1999 Strategic Alliances, Organizational Learning and New Product Development: The Cases of Rover Seat. R&D Management, 29(4): 301-404

15. Graham, M., (2004). Europe’s automotive sector at the crossroads. Foresight, 6(5), 302-312.

16. Grant, R.M. 1996. environments: organizational capability as knowledge integration’. Organization Science, 7, 375–88.

14

17. Hitt, M. A., Ahlstrom, D., Dacin, M. T.,&Levitas, E. 2001. The economic and institutional context of international strategic alliance partner selection: China vs. Russia.Academy of Management meetings

18. Inkpen, C.A 2000. Learning Through Joint Ventures: A Framework Of Knowledge Acquisition . Journal of Management Studies, vol.37(7), pp. 1019-1044(26)

19. Inkpen, C.A., Beamish, P.W. 1997. Knowledge, Bargaining Power, and the Instability of International Joint Ventures. The Academy of Management Review, Vol. 22, No. 1,pp.177-202

20. Ireland, R.D., Hitt, M.A. and Vaidyanath, D. 2002. Alliance Management as a Source of Competitive Advantage. Journal of Management; 28; 413

21. Jackson J.H. and Morgan C.P., Organization Theory, Second Ed., Prentice-Hall, pp. 81

22. Katz D. and Kahn R.L., The Social Psychology of Organizing. Second Ed., New York: Wiley, 1978 pp. 21

23. Lane, Lyles, and Salk, 1998; D'Aveni, 1994 The Blackwell Handbook of Cross-Cultural Management.

24. M. L. Tushman and P. Anderson,1986 "Technological discontinuties and organizational environments", Administrative Science Quarterly,vol.36., pp. 439-65

25. McAlister, D. J. 1995 Affect- and cognition-based trust as foundations for interpersonal cooperation in organizations. Academy of Management Journal, 38: 24–59.

26. McIvor, R.T, Humphreys, P.K., McAleer, W.E., (1998). European car makers and their suppliers: changes at the interface. European business review, 98(2), 87-99.

27. Merger, G., 1995.Modular supply in 1990s-keys to success.Europe’s Automotive Component s Business,2nd quarter,pp.112-135

28. Quinn, J.B. and Hilmer, F.G. 1994. Strategic outsourcing, Sloan Management Review, Vol. 35 No. 4, Summer, pp. 43-55.

29. Saee, J. 2007Contemporary Corporate Strategy: Global PerspectivesTaylor & Francis Ltd London. pp. 202

30. Sergei, G. 2000. A Study of the DailmlerChrysler Merger Portrayal in U.S. and European Media. Project in Communication Studies http://www.lordofthewebs.com/communication/dailmlerChrysler.pdf

31. The Jeff, B. and Bates, D.L. 2007 Effect of Organizational Cultures on Mergers andAcquisitions: Case of DaimlerChrysler. International Journal of Management Vol. 24(2).pp.303

32. Young-Ybarra, C., & Wiersema, M. 1999. Strategic flexibility in information technology alliances: The influence of transaction cost economics and social exchange theory. Organization Science, 10: 439–459.

15