Question

Find an example from over the past 50 years of a successful strategic alliance and an example of failed one. On the discussion board put down, for each – the successful and the failed one:

1. Failed Strategic Alliance/Joint Venture name.
2. What led to the failure (use book’s terminology)?
3. Successful Strategic Alliance/Joint Venture name.
4. What led to the success (use book’s terminology)?

Answer 1

A Joint Venture can be a good strategic alliance option for two or more corporate entities where they can utilize strengths of each other collectively to overcome the individual weaknesses and hence it allows them to build a great product. The examples of both the most successful and most unsuccessful JVs can be found in the Indian automobile industry.

Maruti Suzuki - The most successful JV in Indian automobile industry

1. The example of the most successful JV is Maruti Suzuki which is a joint venture between Maruti Udyog Ltd and Suzuki Motor Company where the latter owns the management control with a share of 56.2%. Let us discuss in the detail some background of the JV and what lead to its success.

Maruti technical services Pvt Ltd was the automobile company which was found in 1970 and Govt of India advised the management of the company to look out for the foreign partner to have a JV with. The partner who can bring technical competency and business knowledge of the arena in the business. Out of Toyota, Nissan, and Suzuki Motors, Suzuki Motors was selected and in 1983 a JV Maruti Suzuki was formed where the Suzuki Motors owned 26% of the equity. In the late 90s, the Govt of India sold most of the shares to the Suzuki Motors through disinvestment and elevate the share of the former to 54%. This brought better corporate governance in the company. The company grew at a rapid pace.

The image attached above shows the growth of the company's revenue over the decade (nearly).

The reasons for the success of Maruti Suzuki

The main reason behind the success of Maruti Suzuki was that it got a headstart first of all. In the 1970s when Maruti was set up and till 1983 when the JV was formed the market demand for automobiles was in surplus and since Maruti Suzuki was the sole automobile manufacturer in its range, the company acquired nearly 49% share in 90s. Later from 1997-2002, when the Govt of India sold all of its shares either to the Suzuki Motors or in Open market through the stock exchange, the control was with Suzuki Motors which brought a transparent and more efficient working culture of Japan to India. Employees were trained onsite at Japan and those trained employees conducted further training here in India which gave a much skilled workforce to the company.

The most important aspect of the automobiles industry that is, Distribution, was resolved during the early days itself. The dealers were local celebrities whose trust was gained by the company with the fact that it was state lead organization.

Summing it up, we can say that, customer-centric and employee-centric approach with a combination of cutting edge technology and research gave Maruti Suzuki the formula of success.

2. Mahindra - Renault JV - The most Unsuccessful JV in Indian automobile Industry

Mahindra & Mahindra is an automobile manufacturer of Indian origin. In 2005, Mahindra had a Joint Venture formed with Renault to work on their most ambitious project for the Indian middle class segment, Logan. Logan strived to the budget friendly car with best in the class features and more leg space for the rear seating passenger. The major challenge which Renault and Mahindra had to solve for this project was coming up with the design of the car and they successfully came up with a great design and feature filled car concept. The plant which is situated at Nashik had a capacity of building 50,000 units per year. This was an ambitious project for Renault as well as they wanted to increase the sales of their cars globally by 800,000 cars and Logan looked like a mechanism to achieve those numbers.

Reasons for failure of JV  

Though the project was ambitious for both of the manufacturers and the effort to achieve the vision looked promising yet the project failed miserably. The management was sure that they will be able to sell up 30,000 units per year but the actual numbers looked a lot different as they were not able to sell any more than 500 per month and company faced losses of Rs 490 crore against the top line of 740 crores. By and large, the reasons for the failures can be summed up In two simple factors - Localization and Bad marketing strategy.

The company wanted to establish the car as an economical vehicle but failed to do so. It faced fierce competition from Maruti Suzuki and Tata Motors who had already successfully established themselves in the same trade. The main reason for not being able to establish itself as an economical vehicle is simply that the engines of the car were imported from France and it added up an additional cost to the car which could have been avoided. Secondly, the profit margin was another issue that leads to the failure of the establishment of economical vehicle conception in the market.