Mini Case study: Alliance Formation, Both Globally and Locally,in the Global Automobile Industry The academic literature onalliances has some interesting recent findings, one of which is therationale that because firms are often located in the same country,and often in the same region of the country, it is easier for themto collaborate on major projects. As such, they compete globally,but may cooperate locally. Historically, firms have learned tocollaborate by establishing strategic alliances and fromingcooperative strategies when there is intensive competition. Thisinteresting paradox is due to several reasons. FIrst, when there isintense rivalry, it is difficult to maintain market power. As such,using a cooperative strategy can reduce market power through betternorms of competition; this pertains to the idea of "mutualforbearance:. Another rationale that has emerged is based on theresource-based view of the firm. To compete, firms often needresources that they dont have but may be found in other firms in oroutside of the local firms home industry. As such, thesecompletementary resources are another rationale for why large firmsform joint ventures and strateic alliances whithin the sameindustry or in vertically related industries. Beacuse firms are colocated and have similar needs, its easir for them to jointly worktogether, for example, to produce engines and transmiisions as partof the powertrain. This is evident in the European alliance betweenPeugeot-Citroen and Open-Vauxhall. It is also the reason for arecent US alliance between For and General Motors in developingupgraded nine and ten speed transmiisons. Furthermore, Ford and GMare looking to develop, together, eleven and twelve speed automatictransmissions to improve fuel efficiency and help the firms meetnew federal guidelines regarding such efficiency. In regard toresouce complementarity, a very successful alliance was fromed in1999 by French based Renault and Japan based Nissan. Each of thesefirms lacked the neccessary size to develop economies of scale andeconomies of scope that were critical to succeed in the 1990s andbeyond in the global automobile industyr. When the alliance wasformed, each firm took an ownership stake in the other. THe largerof the two companies Renault holds a 43.3 percent stake in Nissan,while Nissan has a 15 percent stake in Renault. It is interestingto note that Carlos Ghosn serves as the CEO of both companies. Overtime, this corpoorate level synergistic allaince has developedthree values to guide the relationship between the two firms: 1.trust )work fairly, impartially, and profesionall) 2. respect(honor commitments, liabilites, and responsibilites) 3.transparency (be open, frank, and clear) Largely due to theseestablished principes, the Renalut Nissan alliance is a recognizedsuccess. One could argue that the main reason for the success ofthis alliance is the complementary assets that the firms bring tothe alliance; Nissan is strong in Asia, while Renault is strong inEurope. Together they have eben able to establish other productionlocations, such as those in Latin America, whihc they may not haveobtained independently. Some firms enter alliances because they aresqueezed in the middle; that is they have moderate volumes, mostlyfor the mass market, but need to collaborate to testablish viableencomies of scale. For exmaple, fiat- chrysler needs to boost itsannual sales from 4.3 billion to something like $6 billion, andlikewise needs to strengthen its presence in the booming Asianmarket to have enough global market power. As such, it is enteringjoint ventures with two undersized Japanese carmakers, Mazda andSuzuki. HOwever, the past history of Mazda and Suzuki with alliancemay be a reason for thier not being overly enthusiastic about theprospects of the current alliances. Fiat broke up with GM, Chryslerwith aimler, and Mazda with Ford. This is also the situation inEurope locally for Peugeot Citron of France, which is strugglingfor survival along with the GM European subsidiary, Open-Vauxhall,More specifically, Peugeot Citroen and Opel Vauhall have struck atentative agreement to share platforms and engines to get thecapital necessary for investment in future models. As such, in allthese examples, the firms need additional market share,but alsoenough capital to make the investment necessary to realize moremarket power to compete. In summary, there are a number ofrationales why competitiors no tonly compete but also cooperate inestablishing strategic alliances and joint ventures in order tomeet strategic needs for increased market power, take advatnges ofcomplemnetary assets and cooperate with close neighbor, often inthe same region of a country. 1. How can the resource-based view ofthe firm help us understand why firms develop and use cooperativestrategies such as strategic allainces and joint ventures? 2. Whatis the relationship between the core competencies a firm possesses,the core competencies the firm feels it needs, and decisions toform cooperative strategies? 3. What does it mean to say that thepartners of an alliance have complementary assets? Whatcomplemenarty assets do Renault and Nissan share? 4. What are therisks associated with the corporate level strategic alliancebetween Renault and Nissan? What have these firms done to mitigatethese risks? 5. Is it possible that some of the firms mentioned inthis Mini case (eg Renault, Nissan, Mazda, Peugot Citroen, OpelVauxhall) might form a network cooperative strategy? If so, whatconditions mihgt influence a decision by these firms to form thisparticular type of strategy?