Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
October 21, 2013 – 1:30 pm ET
GRAND RAPIDS, Mich. – If you take a close look at some major global industries you’ll see what you’d expect to find…companies that fight hard to win in the marketplace. Not surprisingly, many of these are fierce competitors and in some cases they don’t like each other very much.
Here in the corporate home of office furniture, we’ve observed well-documented market clashes between our own Big Three – Steelcase, Herman Miller, and Haworth – that have begun in West Michigan and then circled the globe. And of course every day we see trench warfare between Apple and Samsung, Google and Microsoft, Target and Wal-Mart, and others, as battles rage to win new customers and grow profits. It’s business as usual.
Alright, but why all of a sudden the past several years are global automakers willing to set aside decades of tough sparring, heated market share turf wars, all in the name of advancing technology? Here are some thoughts about playing in the sandbox together…
The car business has become a global chess game in terms of investment. The sheer complexity of the automotive industry is staggering. Want to build quality cars that consumers are excited to buy? Well, first your vehicle “lineup” must meet the daunting U.S. average fleet fuel economy standard of 52.5 mpg by 2025. From there you can make strategic decisions about powertrain variants (hybrid, EV, fuel cell, biodiesel, etc.) to help enable you to reach that EPA goal. But wait, many of those vehicle options aren’t fully developed yet, or in some cases have new technologies such as lithium-ion batteries that haven’t been fully tested (Google fire, Tesla).
Oh, and your key suppliers must have the capability to build unique components and systems critical to vehicle assembly, and your dealers need to have a clear picture of how to sell them even when demand is but a speck of hope. And then what about things like “range anxiety” or lack of infrastructure, unproven warranties, balancing global requirements in increasingly remote worldwide markets, and well…you get the picture.
Not for the faint of heart is it? All of this requires significant investment and might explain why no one automaker is in a position to assume global risk on its own. It also explains why even strange bedfellows can have a common purpose and a reason to co-exist.
Determining intellectual property rights is a messy process and cause for industry skirmishing. As more technology is commercialized globally in the auto space and elsewhere, assigning primary rights to trade secrets, patents and trademarks becomes more challenging. Different countries have different interpretations of adherence, circumvention, and enforcement of intellectual property laws and the effects of patent infringement. As more R&D resources are located in remote regions, we see disputes more frequently and with greater litigious hostility.
At the same time, perhaps the technology path taken by the auto industry has brought the topic out in the open for easier discussion. OEM fuel cell partnerships such as the one between General Motors and Honda, or Daimler-Ford-Nissan, are unprecedented and offer new research approaches. As teams develop new ideas in close quarters, and as they begin to forge working relationships at the engineering bench, the thoughts of technical fighting and legal bickering are lessened in the name of creating breakthrough thinking.
Free and generous attitudes haven’t always prevailed in these alliances. In some cases secrecy may trump unfettered access, but certainly the work taken on by these OEMs in the spirit of co-operation and mutual interests has had a positive impact in reducing the ever-increasing complexity of the development issues they face.
Perhaps Washington could learn a thing or two from this operating model. In multiple party negotiations, there are personalities that just cannot mesh, barriers that hamper the ability to reach agreement or discovery. At times it is impossible to reach the ultimate goal, or time simply runs out. The alliance between Ford and Toyota, unlikely from an outsider’s vantage point, was recently scrapped. They claimed their partnership to jointly develop a hybrid, gasoline-electric powertrain system for light-duty trucks after two years had produced all it could for both parties.
In the wars to build and hold markets, issues of principle, fighting and losing may seem to be a better outcome than compromise. But is inflicting pain preferable to gaining new perspectives of leading-edge technologies? In the end, if there is revenue to gain, and if indeed the pie is increasing rather than shrinking, why not collaborate? This is a lesson that business has learned and has applied correctly in the auto space.
So perhaps the government needs to pay attention to the merits of new models of moderate thinking. “Picturing yourself on the side of goodness in a battle between right and wrong is self-satisfying, but it can blind you to practical solutions that wouldn’t require anybody to violate their values,” said Michael Wheeler, Professor at Harvard Business School. Wise words. Helping the other side see the middle ground or a new point of view is worthy when making progress is otherwise thwarted. Now if only Washington could be made to cooperate instead of clash.
Phil Biggs is Partner, Automotive Markets, for the Bethesda, MD-based management consulting firm The Highland Group.
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