The paper "Volkswagen and Suzuki Partnership and Break-Up" is an outstanding example of a management case study. The increase in competition has prompted companies to target new potential markets. Various risks which are associated with direct entry into global markets such as high start-up costs, political risks and general economic risks (Jones & Coviello 200, p. 284). For that reason, companies seek to form an alliance with the others to reduce these disadvantages and also to benefit from each others’ capabilities. For instance, in 2009 Volkswagen AG of Germany entered into a relationship with Suzuki Corporation to access market in each other’ s domestic market.
Volkswagen bought a stake at Suzuki worth 19.9% with an agreement to share distribution network and technologies between themselves (Icmrindia 2012, p. 1). From this information, it is noticeable that Volkswagen and Suzuki Corporation pursued a strategic alliance in their approach to benefit from their capabilities and access Japanese and German motor market. Drago (1997, p. 53) defines a strategic alliance as an agreement that could be short term or long term where between two or more companies come together to pursue certain objectives like sharing resources for their own benefits.
Such resources could be technology, copyright and trademarks among others. Kale & Singh (2009) pined that strategic alliances have become more popular among companies targeting different global markets. In most cases, strategic alliance encompasses three features which are also noted in this case study. The features which are common in strategic alliances are that it is crafted between firms from developed nations, technology sharing and developing new products remain key agendas. In this Volkswagen-Suzuki Corporation alliance, technology sharing was one of their goals (Icmrindia 2013).
This is because technological innovations represent some progress and it is difficult for a company to be in possession of abilities to do its own research and development efficiently. According to Besanko et al (2013, p. 148), frequent research is spurred by the fact that some products have a short-term life cycle and the likelihood of a firm to remain innovative relies on the effectiveness of its technology. Hence, sharing technology gives the edge and reduces the need to buy new technological machines. This was the key perspective when Volkswagen and Suzuki Corporation were getting into the agreement.
For instance, Icmrindia (2013) posited that when Volkswagen agreed to acquire a stake at the Suzuki Company in 2009, they signed a contract to enjoy each other’ s technology infrastructure including network. While Volkswagen Company consented that it would allow Suzuki into its hybrid and electric technology as well as facilitation of access to the German market, Suzuki consented to enable Volkswagen to easily access the Indian markets. Nevertheless, such alliances have the tendency of exhibiting a mix of potential and peril.
While strategic alliances make companies take advantage of opportunities, executives ought to be alert to the risk of unfavorable circumstances (Koc & Ceylan 2007, p. 109). For instance, the alliance executives may require resolving disgruntling alliance issues; enhance poor terms of operation and handle the negative outcomes of exit hurdles. It is these issues that Volkswagen and Suzuki did not handle with latter leading to break-up. In 2011, Suzuki claimed that Volkswagen had violated the contract by not allowing it access to its hybrid technology which it had promised. Icmrindia (2013, p. 3) asserted that Volkswagen also blamed its counterpart Suzuki Company of violating the agreement by purchasing Fiat Company’ s diesel engine.
Cultural diversities between the home countries of these two companies hampered this strategic alliance. Suzuki accused Volkswagen of high-handedness in implementation of the agreement.