An overview and analysis of strategic alliances on the example of the car manufacturer Renault

Table of contents Page

Introduction

Strategic Alliances
Definition

Sources for the formation of Strategic Alliances
Theoretical approach - the Game theory
Transaction Cost Economics
Strategic Positioning
Organisational Learning
Resource Based View

Partner Selection

The alliance between Renault and Volvo in 1993
Why the alliance failed

The alliance of Renault and Nissan
Renault Nissan: an alliance success

Conclusion

Appendix

References

Introduction

Within the last decade trends like globalization, internationalization and advanced information technology had tremendous effects on the world of business. These trends have led to an increased competition in almost every industry as more and more companies enter the same market. As a consequence of this development companies are forced to cooperate in order to remain competitive and to ensure their survival. These strategic partnerships have been linked with creating competitive advantage by sharing knowledge and resources. (Auster, 1987)

illustration not visible in this excerpt

Source: Narula and Hagedoorn, 1998

Especially in the car industry competition has become fiercer, which has led to an increased number of strategic partnerships. According to a study conducted by the finance consultant company PriceWaterhouseCoopers in 2002 transactions due to strategic partnerships within this industry reached the highest amount in history with a volume of 35 billion US$ (PwC, 2002).

There are many different types of partnerships like joint ventures, consortia, licensing, networks and strategic alliances. For a detailed analysis this work concentrates on strategic alliances. To give an insight on the topic this work analyses the alliences between the car manufacturers Nissan and Renault and Renault and Volvo. These partnerships are examples of alliance’s success and failure. On the basis of these examples this work illustrates the sources of alliance formation and how alliances are able to create competive advantage but also the reasons why so many alliances fail. Before the case studies of the above mentioned companies will be discussed this work explains the sources of alliance formation on a theoretical basis.

Strategic Alliances

Definition

“A strategic alliance is a cooperative arrangement between two or more organisations designed to achieve a shared strategic goal. There are two types of alliances: Equity based and non equity based. Equity-based alliances include minority stock investments, joint ventures, and the extreme end, majority investments. Non-equity based alliances tend to be governed primarily by a contractual arrangement that specifies the responsibilities of each party, the mode of operation of the alliance, and the considerations involved in expansion or termination.” (Singh and Gulati, 1998)

In strategic alliances the companies involved do not loose their independency and strategic autonomy in any way although the alliance may have effects on their strategic direction. (Dussage & Garrette 1999)

illustration not visible in this excerpt

Source: Yoshino & Rangan (1995)

Strategic Alliances can also be divided into alliances between competitors and between non-competing firms. There can be identified three different types under each category. Alliances between competing firms can be divided in shared supply alliances, quasi-concentration alliances and complementary alliances. In general alliances between competing firms present an interesting paradox because these firms are supposed to compete with each other for resources and customers rather than joining forces. Achieving the goals of such an alliance requires close collaboration and cooperation among the parties. ( Dussage and Garrette, 1999)

Sources for the formation of Strategic Alliances

Strategic alliances between companies and their suppliers and buyers, distributors, clients and even competitors have become essential for a companies´ success. An alliance can provide organisations with flexible and quick access to technology, markets and other resources but also with the adaptability to hedge risks and to handle change (Hoffmann, 2005). A partnership can be a way for entering or building new businesses but also a possibility for partners located in different countries or regions to enter a new market (Bamford, Casseres, Robinson 2003). In today’s business world it is not just individual companies that compete but whole value chains. Alliances have become an essential way to reduce costs and to gain scale via joint manufacturing and joint sale but also for accessing skills and inter-partner learning (Douma, 2000). There are numerous ways of how alliances can create value which can be summarised in five broad categories: Access to new markets; Access to skills, learning and technology; Gain scale; Build new businesses; Networking and Improve the supply and the value chain.

The following chapter describes the sources for the formation of strategic alliances beginning with the Game theory as a theoretical background followed by more practical approaches like Transaction Cost Economics, Organisational Learning, Strategic Positioning and the Resource based View.

Theoretical approach - the Game theory

According to the Game Theory companies in an oligopoly market act like in a strategic game, which can be discribed in the example of the ‘prisoner’s dilemma’. In the prisoner dilemma two prisoners have to face the decision whether to confess or not. There are not allowed to communicate so both do not know what the other one is going to do. Each of them gets informed about the consequences and about the time they have to spend in prison if both, none or only one of them does confess . ( Moschandreas, 1994)

To translate the prisoner’s dilemma into a business situation we assume that there are two companies, identified as company A and company B, offering a similar product of similar quality. The price which each company defines for its product will also have impacts on the profits and sales of the competitor.

Both companies are able to choose between a low price of 100£ and a high one of 150£. The interdependency of the decisions of both companies is shown in the following pay-off-matrix

illustration not visible in this excerpt

Source: Kay 1993

If both companies choose 150£ the profit for each of them would be 3,000£, but just 2,600£ if both decide to sell for 100£. In the case that just one of them chooses 100£, its profit would be 4,300£ and the competitors one just 1,400£. The dilemma of A and B is that although both know, that they could obtain the highest profit if both would sell for 150£, both decide to go for the lower price to avoid any risk as they do not trust each other. (Kay, 1993)

The Game Theory can be seen as a theoretical basis for strategic alliances as in the case of company A and B the solution could be going into a strategic partnership. Experiments have proved that repeating ‘the game’ can lead to cooperation as by good experience companies might decide not just to work together on a short-term basis. (Kay, 1993)

[...]