International Alliances and Innovation Performance Essay Example

global (Camuffo ; Volpato, 2002).

The globalization of the automotive industry came about because national boundaries were too restrictive for the growth and competitiveness of major manufacturers like General Motors, Ford, Toyota, Honda, Volkswagen, and DaimlerChrysler. The acceleration of globalization was driven by the construction of important overseas facilities and the formation of alliances between multinational automakers (Hiraoaka, 2001). GM, Ford, and some Japanese firms expanding into global business led to structural changes in the global automotive industry, strengthening advantages in sourcing, R;D, manufacturing, and marketing. European and US producers sought partnerships with Japanese carmakers due to their competitive advantage in producing diverse products at low cost. This advantage was achieved through investments in flexible manufacturing systems, computer-aided design and manufacturing, and robotics. These technologies allowed Japanese firms to customize product features and production quantities with minimal cost penalties (Chan ; Wong, 1994).

The Japanese social structure encouraged a team approach to market analysis, product design, and manufacturing engineering. This approach brought together suppliers and assemblers, allowing for the rapid development of new products (Womack, 1988). Japanese manufacturers also form strategic alliances to minimize risks when expanding overseas and to gain direct experience in foreign luxury car design and specialized knowledge. There are three main trends in the automotive industry that support the use of strategic alliances. Firstly, advancements in technology drive improvements in performance, safety, and emission standards.

Research on alternative fuels and electric engines is driving changes in the industry. With high manufacturing costs, there is a need to find a partner to share the burden and gain access to new markets and technologies. Additionally, the industry is experiencing varied demand for different types and styles

of automobiles due to increased disposable income, societal specialization, urbanization, and complex infrastructure (Chan ; Wong, 1994). To meet consumer demand for a wide range of models, manufacturers require a larger market-base to cover the costs of development and production caused by this increasing complexity (Treece et al, 1992). Furthermore, government involvement in car-producing countries has supported domestic industries and in some cases, led to public ownership.

The concerns regarding overall economic significance, speciality development, and employment led to the emergence of this issue.

Culture's Impact on Innovation and Knowledge Transfer

When considering international alliances, it is crucial to acknowledge the role of both national and organizational culture in the alliance. Cultural differences between alliance partners are often seen as a significant factor that can impact the success or performance of the alliance (Cartwright & Cooper, 1993). Among various definitions of culture, one that is widely accepted describes it as the "patterns of belief and values that are reflected in practices, behaviors, and various artifacts shared by members of an organization or a nation" (Hofstede, 1980). Hofstede discovered that organizations from different nations have different core values, while organizations from the same nation vary in their organizational practices. Weber also suggested that although national and organizational cultures have been considered separate constructs, it is widely acknowledged that organizational culture is nested within national culture.

Further discussions indicate that the performance of work units tends to improve when their management practices align with the national culture (Newman & Nollen, 1996). In relation to partnerships, scholars generally argue that alliances between partners with similar cultures are more likely to succeed than those with different cultures. Cartwright and Cooper explain this by

referring to culture as the "social glue" that binds individuals and creates cohesiveness within organizations. They state that in alliances, decisions on partner selection are primarily based on financial and strategic factors, but many alliances fail to meet expectations because of incompatible cultures. The level of cultural compatibility directly affects the success of the alliance. As a result, national and organizational cultural characteristics significantly influence the transfer of knowledge within and between organizations, often resulting in a "cultural shock" when these cultures collide, which can negatively impact the work climate in international alliances.

In the automotive industry, specifically in the case of General Motors (GM) and Toyota, a joint venture known as New United Motor Manufacturing (NUMMI) was established in 1983. The objective of this venture was to produce a version of Toyota's sub-compact Corolla model in a previously closed GM plant located in Fremont, California. Toyota, as the operating manager of NUMMI, initially used Japanese supplies for automotive components. Eventually, they taught US suppliers how to meet their quality standards (Womack, 1988). Despite having sufficient marketing and distribution activities in the US, Toyota did not rely on its partner's market access to enter the US market.

Despite facing criticism from the US for the increase in Japanese imports, Toyota and GM formed an alliance with the intention of gaining insights into the US labor environment. Toyota wanted to apply their management techniques to a unionized workforce in the US, and GM allowed them the freedom to introduce their programs and working methods. The NUMMI project led to significant improvements in efficiency and labor productivity, comparable to Toyota's operations in Japan. However, certain techniques such as

supplier relations, continuous improvement, multi-skilled workers, and inventory reduction could not be transferred to GM. Instead, GM had to implement these techniques within its own workforce, which resulted in a complete restructuring of the corporate culture. Interviews with GM managers conducted by Womack in 1988 revealed that there was only a limited understanding of NUMMI's procedures among the managers, and many were defensive about the effectiveness of these techniques in their own plant.

The knowledge transfer process is often described as slow and painful in terms of learning. This is because Toyota's knowledge system was deeply ingrained in the company's history and culture, making it difficult for GM to change its attitudes and behaviors. The organizational culture "distance" negatively impacted the knowledge transfer process. Canestrino (2004) suggests that the feeling of belonging to a group significantly influences a firm's willingness to engage in international alliances, specifically individualism versus collectivism (Hofstede, 1980). This dimension indicates the extent to which culture encourages personal initiative and achievement, emphasizes the importance of private life and personal separation, and contrasts it with a sense of community or collective characterized by a social framework (Canestrino, 2004 p. 189).

In terms of international alliances, individualistic cultures are commonly associated with less cooperative behavior, while collectivism is linked to a positive inclination towards cooperation among firms. From a learning perspective, individualism and collectivism appear to have a significant impact on knowledge transfer in international inter-firm cooperation. This is because they influence the stability of the alliance itself and the partners' attitudes towards cooperation. For instance, in the alliance between Ford and Mazda4, Ford aimed to bring about a fundamental change in its organizational purpose and

corporate culture. This decision was prompted by Ford experiencing a decline in business due to competition from Japanese products during the oil crisis in the 1970s and 1980s, which led to a significant drop in demand for large luxury cars. Consequently, Ford started sending managers to Japan to observe workers and managers at Mazda's automobile plants.

The Japanese leveraged their people rather than relying solely on automation and advanced technology, leading Ford to realize this advantage. As a result, Ford introduced employee involvement, which supervisors initially resisted due to concerns about losing their power. It required significant effort and training to help supervisors and managers understand the potential benefits of the program and develop the skills to engage with workers effectively. This example demonstrates how a company's individualistic culture can manifest as opportunistic behavior, as seen with Ford's supervisors associating employee involvement with power loss. Such behavior can negatively impact the knowledge transfer process within an alliance.

On the flip side, collectivism promotes employee empowerment and fosters long-term relationships based on trust. This creates a conducive environment for knowledge transfer and innovation, which is beneficial for groups.

Organizational Structure in International Alliances

Companies that invest proactively in establishing a formal structure and systems to manage their alliance activity are better positioned for greater alliance success and value creation. The alliance management structure entails a team explicitly responsible for coordinating and managing alliance activity within the company. Often, managers in the business development or corporate development function are assigned alliance responsibility due to motives of entering new businesses, geographies, and product segments. However, in some alliances, the partnering firms set up completely separate 'alliance management teams.'

Companies that have a formal

alliance management team use different methods to organize and position the team within their organization (Kale et al, 2001). One approach is to establish separate alliance teams, each led by an alliance manager who works alongside a technology or marketing manager to coordinate the company's various alliances with strategic partners. These alliance teams are then accountable to a corporate-level alliance function. They are responsible for implementing and supporting several crucial activities that drive alliance success and value creation. Firstly, these teams facilitate the learning and utilization of alliance knowledge and best practices derived from previous alliance experiences. Secondly, they add value by generating support for alliances among important external stakeholders, coordinating the allocation of internal organizational resources for alliances, and evaluating and monitoring the performance of all alliances (Kale et al, 2001).

The GM-Fiat alliance has tasked Fiat-GM Powertrain B.V. with all design and manufacturing activities related to powertrains. The company, jointly owned by GM and Fiat Auto, is led by a Chairman from Fiat and a CEO from GM. It operates various plants and R&D centers in Europe. As powertrains greatly impact an automobile brand's identity and commercial value, this joint venture faces the challenging task of finding compact solutions for engine and transmission convergence. Alongside other joint ventures involving Fiat-GM, the management aims to develop innovative solutions tailored to both partners' needs while positioning itself as a supplier to other automakers. Achieving this requires leveraging the team's past competencies, with Fiat Auto specializing in diesel engines and GM excelling in gearboxes (Camuffo & Volpato, 2001).

The management utilizes past experiences in this specific technology to expedite the convergence process. This results in a significant innovation

process for partners who aim to achieve continuous improvement in the competitiveness of engines and transmissions. The benefits from the joint-venture are then transferred to the mother companies of the alliance. Alternatively, alliances may be organized geographically, with a separate alliance team coordinating and supporting activities across multiple locations. This is evident in the joint venture between Fiat and GM for purchasing, where the two partners streamline their purchasing activities through the establishment of GM-Fiat Worldwide Purchasing B.V.

The company operates globally, aiming to supply manufacturing and assembly plants directly managed by Fiat and GM. The alliance is based in Germany and has two regional organizations. One organization focuses on the Latin American market, with leadership from GM, while the other is responsible for Europe and managed by a Fiat manager. Additionally, the company has common staff units for both branches, including cost accounting and management, IT, HR, Legal, etc.

Furthermore, the management teams communicated the complex initiative to various stakeholder groups in order to gain support. This was particularly important in their communication with suppliers, where they aimed to showcase the strategic opportunity of increasing sales while lowering marketing costs that the alliance presented for them (Camuffo ; Volpato, 2001).

Types of Alliances

There is a wide range of cooperative agreements that reflect different levels of inter-organizational interdependency and internalization. Within the realm of collaborative experience, Narula ; Hagedoorn (1999) identifies two main groupings of agreements that represent different types of internalization: equity-based and non-equity agreements. Equity agreements (such as joint ventures and minority equity alliances) are more complex to administer and control, and take longer to establish and dissolve. On the other hand, non-equity agreements are easier

to establish and dissolve, usually taking the form of R;D agreements. It is safe to say that equity-based agreements signify a higher level of internalization and inter-organizational interdependence compared to non-equity agreements.

Given the impact of globalization and rapidly evolving industries resulting in shorter product lifecycles, there has been an increase in contractual non-equity alliances over the past two decades. These alliances offer greater strategic flexibility, allowing firms to quickly respond to rapidly changing technologies. In the past, firms in international alliances have preferred equity agreements due to the risks associated with innovative activities and the possibility of one partner benefiting more than the other and terminating the agreement prematurely, especially in cross-border alliances. However, the development of supra-national institutions like WIP and WTO has made it easier to enforce contracts across borders for non-equity R;D agreements.

Choosing the type of agreement depends on the objective and industry of the alliance. Non-equity agreements are more efficient for research intensive activity as they promote negotiation and intensive cooperation. On the other hand, equity agreements may be more appropriate when firms want to learn and transfer tacit knowledge back to the parent firm (Narula ; Hagedoorn, 1999). An example of an equity-based agreement is the Ford-Mazda alliance, where Ford joined to change its corporate culture and improve productivity. After seeing the success of Japanese products in the US market, Ford aimed to implement the strategies used by Japanese managers.

Ford needed to establish lasting partnerships with Mazda in order to effectively share organizational knowledge. Simply copying Japanese manufacturing processes without understanding how to implement them would not have resulted in increased productivity. This was proven by Ford's factory in Mexico,

which used Mazda's Hofu factory as a guide. The Mexican plant became one of Ford's best facilities, showcasing quality and serving as a blueprint for renovations. Additionally, the Mexican plant adopted Mazda's practice of building a stamping plant nearby to prevent damage during transportation, which was a common problem in Ford's previous centralized system.

The Mercury Tracer manufactured in the Mexican plant was considered Ford's highest quality car (Chan ; Wong, 1994). In contrast, the recent partnership between BMW, DaimlerChrysler, and GM exemplifies non-equity agreements. The three automakers signed agreements with the goal of creating a two mode hybrid drive system that reduces fuel consumption without sacrificing vehicle performance. Although the system design remained consistent, the technologies were customized for each vehicle model, preserving each brand's unique identity.

The partners were limited in terms of internalization and interdependence. The alliance aimed to create a shared technology platform for hybrid drives, which would enable the partners to integrate the best technologies in the market and enhance their innovative potential. The non-equity agreement allowed all participating companies to pool their development expertise and respond swiftly to technological advancements in the sector.