International Strategy Pursued by Volkswagen and Suzuki in Their Partnership - Case Study Example

International strategy pursued by Volkswagen and Suzuki in their partnership Name Professor Institution Course Date International strategy pursued by Volkswagen and Suzuki With the changing business environment, businesses across the world are forced to target international markets to expand their operations and maximize profits (Besanko, Dranove, Shanley & Schaefer 2013, p.148). Getting into a new market is not easy and businesses and corporations use different strategies to make their entry. Some of these strategies include Exporting and importing, licensing, franchising, Joint Venturing and direct investment and Strategic alliances (Burdon, Chelliah &Bhalla 2009, p. 43). Every strategy has its benefits and shortcomings. The competition and globalization shaping up in the auto industry, both Volkswagen and Suzuki were forced to look for new markets. Volkswagen which is a German automobile maker was looking to looking into Japan to give them a new test of cars, while Suzuki which is a Japanese car maker was looking German market to also offer new brands of cars. Since each was going into the opposite direction they entered into a strategic alliance as their international strategy. According to Kale & Singh (2009) a strategic alliance is a word employed to explain a range of joint agreements between different companies, to benefit from formal, joint ventures, shared research, and minority equity contribution. The contemporary type of strategic alliances is turning out to be more and more popular and has three distinctive attributes which was also evident in Volkswagen-Suzuki partnership. Kale & Singh (2009) state that this cooperation normally takes place between companies in most developed countries countries and their emphasis is frequently to make new products as opposed to dealing with the current ones. Just like any other technology swap normally remains one of the major objectives for numerous strategic alliances (Burdon, Chelliah, &Bhalla 2009, p.47). This is because technological innovations represent some progress and it is hard for a single company to be in possession of abilities to do its own Research and Development effectively. Such is encouraged by a short-term life cycle of a product and the necessity for numerous firms to remain viable throughout the innovation process (Besanko, Dranove, Shanley & Schaefer 2013). This situation also happened between Volkswagen and Suzuki. In 2009, Volkswagen bought a stake at Suzuki; the agreement also held that both would share their distribution network and technologies with one another (Icmrindia 2013). Icmrindia (2013) claims that whereas Volkswagen agreed to offer its electric and hybrid technologies together with access to international markets to its counterpart Suzuki, Suzuki contracted to offer Volkswagen access to Indian presence and small-displacement motors. Just like many situations of shortcomings in strategic alliances, the two auto making firms did not reach an agreement on all of the proposed objectives. Suzuki gave a notice of violation of contract to Volkswagen in 2011 claiming that Volkswagen was not allowed access to its hybrid technology that they had promised. Equally, Volkswagen pointed the finger at Suzuki of breaching the contract by acquiring diesel engine from Fiat Company (Icmrindia 2013). This strategic alliance was further stimulated by the cultural diversities and botched joint business plans. Advantages of strategic alliance In a simple perspective, strategic alliance simply reflects the need of businesses to attain their independent business goals cooperatively (Burdon, Chelliah & Bhalla 2009, p.45). However, the issues of modern globalized and complex market compel companies to make such arrangements so as to gain competitive edges amongst the stiff rivals in the market. Burdon, Chelliah & Bhalla (2009, p.44) asserts that firms which get into strategic alliance generally anticipate benefiting in many ways. Some of the prospective benefits which Volkswagen and Suzuki could have achieved if the deal went through were increase capabilities, access to various target markets, sharing the economic risks and getting competitive edge (Kale & Singh 2009). Suzuki wanted to enquire and gain from resources such technology and know-how while targeting the German market. With electric and hybrid technologies available, Volkswagen offered to share these capabilities with Suzuki agreeing to offer access to Indian presence and small-displacement motors (Icmrindia 2013). Therefore, strategic alliances act as the opportunity for a firm to realize its goals in this regard so that it could also then utilize the newly obtained capabilities for its individual purposes. Launching a product into the new market is usually a very costly and complicated task. It might expose a firm to several hurdles such as established competition, extra operating complexities and unfriendly government regulations. Besanko, Dranove, Shanley & Schaefer (2013, p.148) argue that deciding on the strategic alliance as an entry mode helps overcome some of the problems and assist cut the cost of entry. Based on this perspective Suzuki agreed with Volkswagen to facilitate its entry into India market (Icmrindia 2013). Disadvantages of strategic alliance As much as strategic alliance may be good as an entry method, it also has its weaknesses mistrust tops the list of disadvantages of entering into a strategic. Kale & Singh (2009) maintain that all strategic alliances are meant for competitive advantages, and the companies entering the arrangement are also competitors. This aspect of the situation makes it difficult for both the companies to declare their financial position and other information (Besanko, Dranove, Shanley & Schaefer 2013, p.148). This is one of the reasons which led to breakdown of the partnership between Suzuki and Volkswagen. Coordination normally proves difficult as far as strategic alliances are concerned due to informal settings of cooperation due to the dearth of a formal administration and hierarchy in the strategic alliance. Most countries get into partnership for personal gains but do not want to reciprocate (Kale & Singh 2009). Besanko, Dranove, Shanley & Schaefer (2013, p.148) say that they usually buy stake in another company pretending to be interested in mutual benefit but in the real sense it’s for personal benefits. Unfortunately, this was the situation in the Suzuki and Volkswagen agreement. How cultural mismatch led to failure Volkswagen and Suzuki to work together Cultural differences are also one of the reasons which are believed to have collapsed the Suzuki and Volkswagen agreement. The “Culture is a strong facet in influencing how individuals think, behave and communicate (Hofstede, Gert & Minkov 2010)”. McSweeney (2002, p.93) contends that the values of a certain culture shape the people’s practices in the culture. Similarly, it can be considered that ethics and norms of a group influence the manner in which members behave. So as to understand how culture influences behavior in an organization, Geert Hofstede tried to define a model for the assessment of the features of a particular culture (McSweeney 2002, p.95). Hofstede mentioned five dimensions which determine a culture of a particular society or group (Hofstede, Gert & Minkov 2010). These dimensions differed on the basis the distinctiveness of a society or a group of people. The components of cultural dimensions defined by Hofstede that affected how these two companies work include Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Long-Term Orientation and Uncertainty Avoidance (Hofstede, Gert & Minkov 2010). This paper will only discuss Power Distance, Individualism/Collectivism dimension of cultures attributed by Hofstede to analyze the relationship between Volkswagen and Suzuki. The two companies have their headquarters in Germany and Japan respectively, and are nations situated in two different continents. The German and Japanese culture can be compared with the use Hofstede’s Cultural Dimensions, and this may be employed to evaluate to know how best these two countries can conduct business. According to Hofstede’s model, Japan have a higher power distant compared to Germany. In the Model Japan has a rating of 54 which is slightly a hierarchical society (Hofstede, Gert & Minkov 2010). The Japanese are normally conscious of the hierarchical rank in any setting, and foreign business thinks that this slows down the decision making process. On the other hand Germany has a score of 35, meaning a low power distant where the organization is decentralized (Hofstede, Gert & Minkov 2010). This could have led to the collapse of the partnership between Volkswagen and Suzuki. Hofstede, Gert & Minkov (2010) contend that what is common between the two countries is that both believe in power attained by merit. Another dimension of culture mentioned by Hofstede which could have led to a breakdown of the contract is the individualism versus collectivism. While German in which host Volkswagen is highly individualized, Japan the home of Suzuki is highly experienced collectivism (Hofstede, Gert & Minkov 2010). German society is believed in what benefits oneself as opposed to everybody. This is the reason Volkswagen was reluctant to honor a contract of providing technology know-how to Suzuki. On the contrary, Japan believes in collectivism and people are committed to their inner groups. It is this commitment that they felt aggrieved when Volkswagen first declined to honor their pledge. In a society where people believe in collectivism, the people tend to fear loosing on anything (Hofstede, Gert JH & Minkov 2010). Japan of being such society, took Volkswagen to a court of arbitration demanding that Volkswagen returns its 19.9% share. Criticisms Hofstede, Gert & Minkov (2010) argues that there are three factors which determine the behavior of employees in an organization which consist of national culture, organizational culture and occupational culture. Although the Hofstede's model and the concept is accepted as the most inclusive perspective of national culture's values by people researching on business culture, its legitimacy and drawbacks have been widely criticized (McSweeney 2002, p.89). Yes the culture of the whole nation can affect the business decision making as argued in Volkswagen-Suzuki case. However, Hofstede picked just one company’s (IBM) employees the sample to assess the nation’s cultural measurement (McSweeney 2002, p.97). This raises concerns about the survey and how far every IBM division can be used to measure culture as a representation of the entire country. Putting this claims into Volkswagen-Suzuki situation eliminates the claim that cultural mismatch led to a breach of the contract. Hofstede, Gert & Minkov (2010) challenged that the using of a single global company gets rid of the impacts of management practices and corporate policy from different firms influencing the behavior differently, leaving just the national culture to clarify cultural differences. McSweeney (2002, p.104) posits that, national, occupational and organizational cultures are not dependent-relative issues. Thus, in relation to criticisms which demonstrate that, still after doing away management practices and corporate policy, there are still different culture levels in a nation. As such, Hofstede’s hypothesis of the cultural diversity of the nation by surveying just IBM Company’s staffs is not justifiable. According to McSweeney (2002, p. 107), Hofstede’s research also considers the local population to be homogenous whole. Hofstede’s model presents comparisons between diverse national cultures to realize 5 dimensions that are found on information from fifty and three regions. However, this model pays no attention to the fact that the nation is comprised of different ethnic groups holding diverse cultures (McSweeney 2002, p.111). It is true to claim that one country has one or uniform culture. In a nutshell, cultures in a certain region of Japan are not uniform to the entire nation, and so is Germany. In a global business situation, Hofstede argues that countries are differing on the aspect low or high power distant. McSweeney (2002, p.106) claims that currently people from different countries interact and influence each other’s culture, therefore the claim is debatable. References Besanko, D, Dranove, D, Shanley, M & Schaefer, S 2013, Economics of Strategy. 6th edn, Hoboken, NJ: Wiley, p. 148. Burdon, S., Chelliah, J & Bhalla A 2009, Structuring enduring strategic alliances: the case of Shell Australia and Transfield Services, Journal of Business Strategy, 30(4), p. 42-51 Hofstede, G, Gert JH & Minkov, M 2010, Cultures and Organizations: Software of the Mind, 3rd ed. New York, McGraw-Hill. Icmrindia 2013, After the Breakup: The Troubled Alliance between Volkswagen and Suzuki, Retrieved 22nd Jan. 2013 from http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR412.htm Kale, P & Singh, H 2009, Managing Strategic Alliances: What Do We Know Now, and Where Do We Go From Here? Perspectives, Academy of Management. McSweeney, B 2002, Hofstede’s model of national cultural differences and their consequences: A triumph of faith – a failure of analysis, London, Sage Publications, pp. 89-119. Read More