Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
March 1, 2013- 9:30 am ET
DETROIT, Mich. – Developing effective alliances to insure that you don’t end up doing the wrong thing really well has become the new strategic standard in the global automotive industry. More than ever it is essential to pick the right partners, and choose the right path as you plan for growth amid continued economic uncertainty.
This is a much different industry requirement than fifteen or even ten years ago. Before 2000, OEMs and their suppliers kept operational distance between each other. That was the norm. Working together to co-develop new technology was clearly the exception at that time. Today however, for example, we see Ford Motor and Toyota jointly developing hybrid technologies to improve fuel economy in trucks and commercial vehicles. Or Nissan and Daimler joining Ford in a three-way agreement to build an affordable hydrogen fuel cell vehicle expected to be in commercial use as soon as 2017.
These kinds of partnerships are becoming more commonplace due largely to the fact that no single OEM wants to bear the costs of engineering and R&D alone when it comes to creating these leading-edge technologies. So how are these complex initiatives launched? According to Harvard Business Review author and Duke University professor Will Mitchell, there are three basic pathways to grow a business…build, borrow or buy and this current OEM development strategy fits closest to the borrow path.
Companies build when they have significant time, resources and existing experience. It enables leadership to retain control and sometimes lower their business risk. Companies buy or merge/acquire when they don’t already own scarce resources or technology, or have the need to obtain people and processes to complement growth. Companies borrow in the form of creating strategic alliances like the Ford-Toyota or Nissan-Daimler-Ford partnerships to advance R&D and technologies faster and usually with less risk. The geographic benefit
is more obvious with direct OEM coverage in all major regions – North America (Ford), Europe (Daimler), and Asia (Nissan).
This borrow strategy fits the current push in the automotive industry to move alternative powertrain concepts like hydrogen fuel cell through applied design into commercial acceptance more smoothly, more rapidly, and cheaper. Mitchell says, “There is inevitably going to be a lot of give-and-take. There may be a lot of uncertainty about the nature of the technology, the product, the market, the regulatory environment. This pathway fits situations where a company can trust its partners.”
But what is unusual here is that nobody could claim ten years ago that any of the automotive OEMs could easily become “trusted” partners together. Even in cases where we’ve seen entire mergers, such as General Motors-Saab or Daimler-Chrysler, clear evidence of trust much less market success is difficult to prove. It’s complicated, whether in the form of simple contracts, complex alliances, or full-scale combinations. And the scorecard? The automotive industry has seen frequent and costly failures, and only occasionally a provable win.
Trust has been force fed into the auto space over the past decade in part due to globalization, in part due to the cost of vigorous demand for new in-vehicle technologies, and in part due to shared worldwide supply chains. Once dreaded competitors have become “brothers in arms” in the name of advancing complex engineering requirements, and sharing program costs to protect profits.
But while it may appear that the primary objective here is simply to control costs, the “borrow to grow” technique has a greater purpose: This trend sends a compelling message to the world…we are willing to change ourselves to re-invent our future. Automakers aren’t inclined to go it alone, but they do seek to create a path of leading-edge innovation which will profoundly change the look of the industry in the coming years.
Read more:
