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Alliance Formation Both Globally And Locally In The Global Automobile Industry Case Solution

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Companies often lack resources that are necessary to gain a competitive edge, and often, they find the required resources in other companies within the same industry and region or outside the region by adopting a strategic alliance option. In connection with this, the resource-based view (RBV) of the firm can be considered as a rationale behind alliance formulation and joint-ventures. According to RBV, firms can attain sustainable competitive advantage by developing a pool of valuable, inimitable, and rare resources that could be used by organizations to meet business objectives. RBV further suggests that a firm's success does not depend on the external environment, but it depends upon management's ability to expand the pool of resources (financial, physical, technical, and human resources).

Following questions are answered in this case study solution

  1. How can the resource-based view of the firm help us understand why firms develop and use cooperative strategies such as strategic alliances and joint ventures?

  2. What is the relationship between the core competencies a firm possesses, the core competencies the firm feels it needs, and decisions to form cooperative strategies? 

  3. What does it mean to say that the partners of an alliance have “complementary assets?” What complementary assets do Renault and Nissan share? 

  4. What are the risks associated with the corporate level strategic alliance between Renault and Nissan? What have these firms done to mitigate these risks? 

  5. Is it possible that some of the firms mentioned in this Mini-Case (e.g., Renault, Nissan, Mazda, Peugot-Citroen, Opel—Vauxhall) might form a network cooperative strategy? If so, what conditions might influence a decision by these firms to form this particular type of strategy?

Case Analysis for Alliance Formation Both Globally And Locally In The Global Automobile Industry Case Solution

This pool expansion becomes much easier by opting for the strategic alliance because by finding the right strategic partner, organizations can combine their valuable resources and match organizational capabilities and competencies to create a synergic effect. The value of resource-based theory in the context of the strategic alliance could be better understood in light of literature. A previous scholarly research conducted by De Stefano, Montes-Sancho & Busch (2016) adopted RBV to understand the value of a strategic alliance between Ford and Volkswagen. An in-depth analysis reveals that the success of this strategic alliance is largely dependent on their ability to match the resources and capabilities. Another research by Dyer, Kale & Singh (2001) found innovation and knowledge management as valuable resources that drive the management's decision to consider a strategic alliance for achieving their business objectives. The theory stresses importance over the creation of valuable complementary resources so that economies of scale objective could be achieved. This argument takes support from a scholarly study conducted by Dussauge, Garrette & Mitchell (2004), who argued that strategic alliances enhance the management capability to achieve economies of scale, which ultimately maximizes their profitability.

2. What is the relationship between the core competencies a firm possesses, the core competencies the firm feels it needs, and decisions to form cooperative strategies? 

Companies usually perform internal situational analysis to identify their existing internal strengths, capabilities, and resources. After doing so, they conduct external environmental scanning to find key areas where they lack the necessary financial capital, human capital, and core business-related competencies. The gap between existing and required competencies and capabilities motivates them to find a strategic partner for alliance. By developing cooperative strategy, they create alliances with other companies, who are ready to combine resources to fulfill each other’s needs. This results in the formulation of joint-ventures, strategic partnerships, complementary strategic alliances, synergistic strategic alliances, diversified strategic alliances, and franchises. Their decisions regarding the formulation of cooperative strategy ultimately help them in translating their weaknesses into strengths (Nielsen, 2002). Fiat-Chrysler’s planning of joint venture with Mazda and Suzuki in the automobile industry further confirms the relationship between core competencies a firm possesses and/or needs and decisions of cooperative strategy formulation. Fiat-Chrysler has moderate-level production volume, which is insufficient to cater needs of the mass market population. Therefore, Fiat-Chrysler is in need of developing viable economies of scale, and this can be done by boosting sales volume, enhancing overall global presence, and strengthening its position in Asia. The decisions regarding cooperative strategy formulation can play a vital role in achieving economies of scale advantage that is why Fiat-Chrysler is considering joint-ventures with Mazda and Suzuki. 

3. What does it mean to say that the partners of an alliance have “complementary assets?” What complementary assets do Renault and Nissan share? 

The exploitation of complementary assets plays a critical role in the success of the strategic partnership, where both partners formulate an alliance or joint venture by combining their resources to overcome their weaknesses, strengthen assets base, maximize production capacities and gain commercial returns. By fully exploiting their complementary resources, they are likely to be able to take advantage of developing economies of scope and achieving economies of scale or competitive advantage (Åstebro & Serrano, 2015). The motivation behind alliance formulation is that firms are more likely to succeed when they make the best use of their assets by developing a cooperative strategy and are less likely to succeed when they make efforts in isolation. The case of Nissan and Renault provides a good example of it. Both companies have brought complementary assets in their strategic alliance, which have become a reason for their success in the global automobile industry. The dominant position of Nissan is seen as stronger in Asia, while Renault’s share is observed as greater in Europe. By exploiting complementary assets, both of them have been able to open production sites in other areas like Latin America, which they might not have been able to establish sites individually. They have been able to achieve their common objectives, which include- cost reduction, technological know-how, commercialization, the economy of scale, high-quality production, and operating-profit maximization by strengthening their complementary expertise in sales and technology (Rothaermel, 2016).

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