Importance of Collaboration in the Automotive Industry - Coursework Example

Literature Review: Collaboration Definition Collaboration is a broad and multi-dimensional concept that lacks a specific or standardised definition. Nevertheless, in simple terms collaboration can be considered as a process through which two or more individuals or entities work together in order to achieve common goals (Marinez-Moyano 2006). On the other hand, Spence (2006) argues that collaboration extends beyond working together to achieve common goals. Instead, it involves a deep and collective endeavor that is creative in nature and encompasses aspects such as knowledge sharing, developing consensus and learning. Wagner and Leydesdorff (2005) further argue that collaboration entails working together in order to amass greater resources and advantage in the face of increasing competition in the market. Similar to the sentiments of Wagner and Leydesdorff (2005), Schuman (2006) conceives collaboration as a process that entities engage in order to gain advantage. She particularly notes that, collaboration enables individuals or entities to address problems, increase value and realise desired outcomes that they would have otherwise not have realised if they were working single-handedly (Schuman 2006). Importance of Collaboration in the Automative Industry The automotive industry is a major driver of the global economy. This industry acts as a major source of revenue, employment opportunities, innovation and facilitates the growth of other industries by enhancing mobility (Wells 2010). Currently, it is estimated that the global automative industry is approximately worth $800 billion. Following the 2008 and 2009 global financial crisis, sales in the automative industry declined substantially. However, in 2012 the growth of industry grew by 5.6% and was estimated to be worth of $1,587.4 billion (MarketLine 2013). Although the automative industry has revived since then, the rate of growth has been somewhat slow especially in developed countries such as the United States, Australia, United Kingdom and other European countries. Many experts have forecasted that the future of the automative industry lies in emerging markets such as China and India. According to the Global Automative Report 2013, China is currently the World’s largest market for automative products. It annual sales of cars are expected to increase from $19 million in 2012 to $31 million by 2020 (CCF 2013; Diehlamann & Hacker 2013). Thus in order to enhance their profitability, increase their competitive advantage and sustain their growth strategy automative companies have to tap into these markets. Diehlamann & Hacker (2013) argue that in order for automative companies to effectively tap into or capitalize on the booming market in emerging economies such as China collaboration is important. Besides the market forecasts of the global automative industry, there are a wide range of challenges that automative companies are facing that warrant the need for collaboration. According to a report by Deloitte and the Stanford Global Supply Chain Forum, the automative industry is facing a wide range of issues that are likely to inhibit the sustainable growth of the industry if not addressed. Some of these issues include overcapacity, slow market growth, high costs of production and operations among many other challenges. As a result, many companies have come up with numerous initiatives in a bid to enhance their profitability and improve shareholder value. Many companies have directed their efforts towards product and service innovation, customer relationship management and lean manufacturing in a bid to address these issues. Nevertheless, many automative challenges are still faced with the challenge of enhancing value. Following extensive research, the findings of the report suggest that through collaboration companies in the automative industry can be able to enhance their value (Deloitte & SGSCF 2003). Sachsenmeier & Schottenloher (2003) particularly accentuate that the future of the automobile industry lies in collaboration. They note that collaboration is important in securing the competitive edge of automative companies amidst increased competition and constant changes in the market. According to Ryland (2000) collaborations in the form of joint ventures enable firms to develop new technology, services and productive capacity. Moreover, since increased globalisation has made it a prerequisite for companies to produce and sell automobile in the global market, collaboration enables firms to explore new foreign market (Heneric et al 2006). It can be difficult for firms develop retail structures and assembly plants in different foreign markets single-handedly. Thus collaboration eases this process (Ryland 2000; Sachsenmeier & Schottenloher 2003). Mohapatra (2009) observes that collaboration within the automative industries enables knowledge sharing and adoption of best practices. He argues that through collaboration businesses can learn from one another about best practices, use of technology and efficient business processes. On the other hand, Dodgson & Rothwell (1994) note that studies in innovation have showed that collaboration plays a crucial role in the innovation process. Similarly, in his study Freeman (1991) found that innovation activities of firms are often enhanced through collaboration. In their article, Blake, Cucuzza & Rishi (2003) explore a wide range of benefits associated with collaboration. Foremost, they argue that collaboration is important in creating sustainable operation models and long-term share-holder value. As previously observed by Ryland (2000) and Schuman (2006) collaboration enables firms to expand and operate in different foreign markets efficiently. It enables firms to break down the barriers associated with expansion, growth and achieving profitability. As a result of collaboration, firms are more easily bound to gain competitive advantage and realise success in numerous foreign markets. Blake et al (2003) further argue that collaborations play a significant role in accelerating the innovation of products and services. In essence, when two or more companies come together in a bid to achieve a common beneficial goal, they are more likely amass the required resources more easily, share knowledge or undertake research and development ventures in a more efficient and effective manner than if they were working single-handedly. Collaboration often helps to cut down costs associated with rapid, innovation and development of new technologies or products thus allowing companies to channel their resources in a way that accelerates the innovation of products and services (Blake et al 2003). Similar to the sentiments of Blake et al (2003), Sutton (2006) notes that through collaboration, businesses are able to handle larger and complex projects thereby increasing productivity. Collaboration Best Practices It is worth noting that, not all collaborations are successful or beneficial to the entities involved. The success of any type of collaboration be it an alliance, partnership or joint venture is highly dependent on how well it is integrated and implemented.Nevin (2014) argues that if a collaboration between two or more companies in not well planned and implemented it might become counterproductive and bring losses to the companies involved. In order to ensure that business collaborations enhance firm performance and provide value to all the entities involved, there are several recommended best practice guidelines or standards that firms are expected to adhere (Nevin 2014). A best practice model developed by BS 11000 provides a number of best practice guidelines that companies can employ in order to ensure that their collaborations bring about good performance outcomes. This model incorporates an eight stage approach involving stages such as; awareness, knowledge, internal assessment, partner selection, working together, value creation, maintaining partnership and exit strategy. The first stage “awareness”, entails establishing a clearly defined rationale for collaborative relationship that is consistent with a company’s business strategy. The second stage “knowledge management”, focuses on developing a platform of knowledge for building relationships. The third stage “Internal Assessment” entails the appraisal of a company’s capabilities identifying strengths and weaknesses in order to ensure that a company effectively utilises it capabilities to the advantage of all partners (BS 11 000 2013; Oakland 2014). The fourth stage of the BS 11000 collaborative model focuses on partner selection. This phase involves identifying and selecting suitable partners with similar goals who can work together to realise mutual benefits. The fifth stage involves working together. In the course of this stage, a formal foundation for working together is developed. Contractual agreements or frameworks are formulated. Moreover roles and responsibilities are differentiated (BS 11 000 2013; Oakland 2014). In the sixth stage, which generally entails value creation, focus is directed towards creating a working environment where stakeholders involved in the collaboration are encouraged to develop new ideas or alternative approaches of creating value. The seventh stage of the BS 11000 collaborative model focuses on the maintenance of partnerships. In the course of this stage, mutually agreed measures are executed so as to enhance the effectiveness of the partnership. Additionally, a dispute resolution procedures and guidelines are developed. The final stage involves mapping an exit strategy by defining the parameters of collaboration, ensuring the stakeholders involved fully understand their roles and responsibilities and the timeline of the partnership (BS 11 000 2013; Oakland 2014). Collaboration in Automotive Industries Over the years, a considerable number of studies have examined what collaboration entails in different undertakings and business contexts(Forrest 1990; Keroack 2005; Persson Glänzel & Danell 2004; Schuman 2006).Nevertheless, very few studies have looked into collaborative in the automotive industries (Diehlamann & Hacker 2013; Sachsenmeier& Schottenloher 2003). Generally the automotive industry comprises of a wide range of individuals, companies or organisations engaged in the design, manufacturing, supply, distribution, marketing and selling of different types of motor vehicles. It is one of the largest and most profitable business sectors globally. In order to effectively understand what collaboration in the automotive industry entails, it is perhaps crucial to examine the issues that prompt collaboration in this industry (Diehlamann & Hacker 2013). Nieuwenhuis& Wells (2003) suggest that although the automotive industry appears to be a lucrative industry it is faced with a wide range of sustainability challenges. They argue that the existing automobile operation systems are not sustainable in nature. Thus if players in this industry do not adopt new approaches and measures of operation, the industry is likely to experience a slowdown (Nieuwenhuis& Wells 2003). Similarly, Heneric, Licht & Sofka (2006) observe that although the automative industry has a lot of potential, it is faced with challenges such as adopting new technologies, reducing costs of operation, increased competition and slow innovation and market growth. In addition to this, the rapid rate of globalisation imposes a lot of challenges to businesses operating in the automotive industry. In this regard Heneric et al (2006) note that,globalisation has brought about more exports and increased competition. As a result, it has become a prerequisite for companies operating in the automobile industry to produce and sell automobile in different market segments around the world so as to maintain their competitive edge. Nonetheless, many companies are often unable to cope with the challenge of developing retail structures and assembly plants in different foreign markets (Heneric et al 2006). Sachsenmeier& Schottenloher (2003) concur with Heneric et al (2006) and argue that increased globalisation, regulations, increased competition and changes in the market are constantly placing new demands on automobile companies. Consequently, many companies have sought to collaborate with other companies in order to address problems, increase their profitability and maintain their competitive edge in the market (Sachsenmeier& Schottenloher 2003; Schuman 2006). Categories of Collaboration in the Automobile Industry Collaboration in the automobile industry occurs in different ways. In their book, “Automative Management”, Diehlamann & Hacker (2013) examine different types of collaboration in the automative industry. They note that collaboration in the automative industry may occurs in four main ways. Firstly, collaborations may occur in the form of joint ventures. According to Shepherd et al (2006), a joint venture is any collaborative undertaking involving two or more entities who have set aside resources in order to pursue a mutual goal. Ryland (2000) argues that a joint venture can be distinguished from other types of alliances or collaborations by the mere fact that it leads to the formation of a new entity separate from the parents. In joint ventures, the companies engaging in these type of collaboration retain their identity and autonomy. However, they share rights over the new entity that they have formed (Diehlamann & Hacker 2013). A good example of a joint venture occurred in 1980’s between Volkswagen and Shanghai Motor Group, one of the largest automotive producers in China. This collaboration led to a substantial increase in the production of automobile in the Chinese domestic market (Domansky 2006). Moreover, in 2012 Jaguar Land Rover (JLR) and a Chinese based automobile company known as Chery automobile entered into a joint venture that led to the production of Land Rover and Jaguar cars in China (BBC Business 2012). Secondly, collaborations may occur in the form of licensing. In this case, a firm may give another firm permission to operate a certain function or use a certain product to generate profit that is to be shared between the two parties. Generally there are two types of licensing. The first type entails licensing of a particular technology, a process or a product in order to capitalize on opportunities. The other type of entails trade licensing where one firm grants another company the right of license use. This type of collaboration often occurs between firms operating in different industries or markets. In a licensing agreement, the specific rights of use are clearly stipulated. Unlike other type of collaboration such as joint ventures there is no sharing of risks (Diehlamann & Hacker 2013; Domansky 2006). In 2011, Toyota and Ford into a licensing collaboration. Ford licensed Toyota hybrid technology. Similarly, Toyota licensed some of Ford’s patents (Stenquist 2011). Thirdly, collaboration may take place in the form of company alliances. Patel (2007) suggests that company alliances entail a collaboration between different businesses in a bid to realise a common goals. He further observes that, in many cases, alliances see different companies coming together to produce new technologies, products and undertake research. Similarly, Diehlamann & Hacker (2013) notes that this type of collaboration is often formed for the purpose of knowledge sharing in technology, research and development, marketing and procurement. For instance in 2009, Chrysler entered into a strategic alliance with Fiat, an Italian automaker. Through these collaboration the two companies hoped to share vehicle and technology in order to enhance their competitive advantage in the global market (Carty 2009). Another type of collaboration according to Diehlamann & Hacker (2013) are network alliances. This form of collaboration often involves companies from different international borders. In this case, two or more automotive firms cooperate in one market in order to gain competitive advantage while competing in another market against each other (Diehlamann & Hacker 2013). In 2010 Ford and Honda developed a network alliance to enhance their competitive edge in the global market. On the contrary, Nishimura (2010) considers collaborations in the automobile industry to be either horizontal or vertical alliances. She notes that horizontal alliances take place when automakers link together with other automakers with mutual collaboration in joint ventures. On the other hand, vertical alliances take place when automakers develop relationships with suppliers who provide goods and services in any business process along their value chain (Nishimura 2010). Figure 1: Collaboration Categories in the Automobile Industry Collaboration Type Example Reference 1. Joint Ventures Jaguar Land Rover and Chery Automobile Joint Venture in China BBC Business (2012) 2. Licensing Ford and Toyota cross-licensing of patents in 2011 Stenquist (2011) 3. Company Alliances Chrysler strategic alliance with Fiat, an Italian automaker in 2009 Carty (2009) 4 Network Alliances Ford and Honda network alliance in 2010 Cunnigham & Harney (2012) References BBC Business 2012, Jaguar Land Rover Agrees Joint Venture with Chery in China, viewed November 20 2014 BS 11 000, 2011, Collaborative Business Relationships, Guide to Implementing BS 11000-1, British Standards Institution. Blake, D., Cucuzza, T., & Rishi, S., 2003, “Now or never: the automotive collaboration imperative”, Strategy and Leadership vol 31, no.4, pp. 9-16. Carty, S.S. 2009, “Chrysler seals deal with Italian automaker Fiat”, ABC News, viewed November 21 2014 Cunnigham, J. & Harney, B., 2012, Strategy and Strategists, Oxford University Press, Oxford. Domansky, L.R., 2006, Automobile Industry: Current Issues, Nova Publishers, New York. Diehlamann, J. & Hacker, J., 2013, Automative Management, Oldenbourg Verlag, Categories of Collaboration in Industries, Munchen. Forrest, J. E., 1990, “Strategic Alliances and the Small Technology-Based Firm”, Journal of Small Business Management vol. 28, pp. 37-45. Freeman, C., 1991, “Networks of Innovators: A synthesis of research issues”, Research Policy vol 20, issue 5, pp. 499-514. Heneric, O., Licht, G. & Sofka, W., 2006, Europe’s Automative Industry on the Move: Competitiveness in a Changing World, Springer Science & Business Media, Mannheim. Keroack, M.A , 2005, ‘The Power of Collaboration’, American Journal of Medical Quality, vol 20, no.3, pp. 119-120. MarketLine 2013, Marketline Industry Profile: Global Automotive Manufacturing, MarketLine, London. Marinez-Moyano, I. J., 2006, “Exploring the Dynamics of Collaboration in Inter-organizational Settings, p. 83, In S. Schuman (Ed), Creating a Culture of Collaboration, Jossey-Bass, San Francisco. Mohapatra, S., 2009, Business Process Automation, PHI publishing, New Delhi. Nevin , M., 2014, The Strategic Alliance Handbook: A Practitioner Guide to Business-to-Business Collaborations, Gower Publishing, Boston. Nieuwenhuis, P. & Wells, P.E., 2003, The Automative Industry and the Environment: A Technical, Businesses and Social Future,Woodhead Publishing, Cambridge. Nishimura, C.D., 2010, Strategic Alliances in the Automotive Industry, University of Applied Sciences, Norhwestern Switzerland. Oakland, J.S. 2014, Total Quality Management: Text with Cases, Routledge, New York Persson, O., Glänzel, W., & Danell, R., 2004, Inflationary bibliometrics values: The role of scientific collaboration and the need for relative indicators in evaluative studies, Scientometrics, vol 60, no. 3, pp. 421–432. Ryland, B,H., 2000, Joint Ventures in Health Care: An Antitrust Analysis, American Bar Association, Chicago. Sachsenmeier, P. & Schottenloher, M., 2003, Challenges between Competition and Collaboration: The Future of the European Manufacturing Industry, Springer Science & Business Media, Munchen. Schuman, S., 2006, Creating a Culture of Collaboration, Jossey-Bass, San Francisco. Shephard, J.G. & American Bar Association 2006, Joint Ventures: Antitrust Analysis of Collaborations among Competitors, American Bar Association, Chicago. Spence, M. U., 2006,Graphic Design: Collaborative Processes-Understanding Self and Others: Collaborative Processes,Oregon State University, Corvallis. Stenquist, P., 2011, “Ford-Toyota Partnership: Hybrid Market Leaders Double Up”, New York Times August 23 2011. Wagner, C. S., & Leydesdorff, L., 2005, Network structure, self-organization, and the growth of international collaboration in science, Research Policy,vol 34, no. 10, pp. 1608–1618. Wells, P.E. 2010, The Automotive Industry in an Era of Eco-Austerity, Edward Elgar, New York. Read More