Chrysler-Fiat Strategic Alliance free essay sample

Globalization is introducing a wide range of advantages and disadvantages that make some national businesses turn into powerful MNEs and some others vulnerable in front of this highly competitive global economy. The changes due to globalization are more and more affecting businesses worldwide, one of which is the increase of economies’ inter-dependence, where trade is as easy as if we were dealing on a one-country scale which makes one store in the U. S include as a direct or indirect competitor another one in a totally different region across the globe. As the world changes it is bringing about much greater business, economical and social impacts than ever before. One reactive strategy of globalization is the strategic alliance which is basically an agreement between two companies that share their resources, leading to mutual benefits implying higher revenues. In such a coalition companies have more advantages and develop more effective processes, have access to wider resources, expand into new markets, get access to new technologies and know-how, develop advantages over competitors, as well as other possibilities. For instance, in this brief study, we will be tackling the 2009 Chrysler-Fiat strategic alliance; where the micro and macro environments of both firms will be held and analyzed and how this coalition was and will be of benefit for both companies, especially for Chrysler that was going through Chapter 11 and corporate restructuring in the US. Our primary objective in this study is to analyze and discuss Chrysler’s 2009 strategic alliance with Fiat, its current and future possible scenarios for this alliance. This tie-up is mainly based on technology sharing, global integration, quality control, and reorganization of brand portfolios. I. The Micro Environment 1. The Companies a. Chrysler: Founded on June 6th, 1925 by Walter P. Chrysler, it originated from the Maxwell Motor Company, which Walter P. Chrysler had joined in the early 1920s. The aim of the founders was to design a revolutionary new car that was affordable luxurious and innovative. In fact, a decade later, Chrysler Corporation earned the leadership in innovation and the label of Detroits engineering company. Chrysler was recognized as one of the top car manufacturer. During World War II, Chrysler was dealing with the government by building armaments, tanks and military vehicles for the US army. Chrysler was booming and very successful in its early years, in the 60s it expanded into the European market. In the late 80s Chrysler acquires the 4th largest auto manufacturer in North America, American Motor Corporation and took over its Jeep brand but was on the verge of bankruptcy and got rescued by the government. A decade later, Chrysler merges with Daimler-Benz, a German auto manufacturer, and calls it Daimler-Chrysler AG. As of 2001, the road gets tough on these companies due to high competition, changing market and quality issues which lead them to taking defensive strategies into consideration, retrenching and laying-off workers. Year 2006, the Chrysler group reports net loss, leaving the company in a bad condition, a restructuring plan and more lay-offs. After de-merging with Daimler in 2007, Chrysler did not do well because of the 2008-2009 global financial crisis, recession, high oil prices and filing for bankruptcy. Chrysler had many problems like financial constraints and high competition in North America. The company’s only choice was to look for a partner; it was acquired by Cerberus capital management for $7. 4 billion, which in its turn explored the possibility of selling it back again, possible buyers were GM, Fiat, Nissan, etc†¦ In 2009 Chrysler and Fiat announce their global strategic alliance, where Fiat agreed on taking a 20% stake in Chrysler owned by Fiat. In the next five years, it is predicted that the tie-up may increase Fiat’s ownership of Chrysler to 35%. Fiat: Fabbrica Italiana Automobili Torino was founded in 1899 by Giovanni Agnelli. Fiat’s evolutionary growth and survival had encountered many ups and downs throughout its years; some of the problems were due to quality standards and technology and were attributed to severe and inflexible Italian labor laws and cost issues. By 1910 had become the largest auto firm in Italy and continued with this success, in fact during the World War 2, Fiat was the manufacturer of the government’s military vehicles, tanks, supplies, etc†¦ during the 60s and 70s Fiat acquired Lancia and %0% of Ferrari, yet encountered considerable labor strikes and disruptions which resulted in a loss of 15milion worker hours. Later in the 80s, this grave scene impacted Fiat severely, leading it to reduce its labor force by cutting 100. 000 jobs. In 1986, Fiat situation got better; it acquired Alfa Romeo and became the largest automaker in Europe. In 2000, General Motors (GM) acquired 20% of the company for $2. 4billion which lasted for 5 years and was dissolved when GM paid Fiat $2billion in cash to get out of this partnership. In 2002, the roads got rough on Fiat that witnessed financial crisis and asked the Italian government for the lay of thousands workers. In 2004, Fiat recruited a well known turnaround executive Sergio Marchionne to become a CEO, who is an accountant by profession. In 2007, Fiat launched its symbolic Cinquecento 500 model after 32 years. In February 2009, Chrysler and Fiat agreed upon a new ownership structure after announcing their global strategic alliance, which gives Fiat a 20% of Chrysler’s equity, technology sharing and new market entries (Europe and North America). In 2009 as well, the CEO of Fiat showed interest in acquiring other brands like GM’s Opel and Vauxhall. . As stated earlier in this study, a strategic alliance is based on linking two companies’ operations by combining their resources and know-how. Strategic alliances’ aim is seeking economies of scale and raising productivity which was Chrysler’s most obvious decision; creating a strategic alliance with Fiat, where Fiat agreed on taking a 20% stake in Chrysler; this tie-up is based on the exchange of technology, gl obal integration, quality control and reorganization of both brands’ portfolios. It is forecasted that in the following five years, the tie-up may increase Fiat’s stake in Chrysler fro, 20% to 35%. The Chrysler-Fiat strategic alliance had two main goals: * Help Chrysler survive and restructure its operations, by providing technology and expertise * Facilitate Fiat entry into the North American market (where it existed back in the 80s) So for Chrysler, this is its only way out, for survival. For Fiat, the tie-up with Chrysler is its opportunity to penetrate North America’s market where it has limited sales and visibility. In this partnership, one limit would surely be assimilating two different corporate cultures. 2. Internal Assessments In this subsection we will be analyzing and evaluating Chrysler and Fiat’s strengths and weaknesses before and after their 2009 strategic alliance. As for Chrysler’s strengths, it is the following: * Started in North America * Sells mini vehicles (sub-compact) and utility trucks * Distribution and sales network in the U. S. and Canada * Ownership of Jeep and Dodge brands Weaknesses: * 2007 de-merger with Daimler (brought immense losses) * Chrysler has quality problems and limited models in its ‘mini’ cars range * The company’s alliances did not give it any value-added. On the other hand, Fiat’s internal assessment is the following, Strengths: * Recovery from crisis after leadership of Sergio Marchionne * Improvement of business practices under new leadership and management * Profitability and visibility of brand * Improved quality standards Introduction of small car models * Fiat has various brands associated with it like Ferrari, Masserati, Alpha Romeo Weaknesses: * Fiat’s major weakness is its marketing and advertising means which are clearly not as effective as its competitors in Europe * The company has a limited product portfolio in global markets * Dependence on TATA for service and repairs * Worlds ninth largest carmaker and the largest in Italy * Joint venture with Indias TATA Motors and Chinas Chery motors. Now after the alliance, many advantages will add up to the internal assessment of both companies, it is expected that both would do better in the market place, surely if no crisis similar to the 2008-2009 crisis takes place or any other disruptions within the companies occurring. The obvious strengths of the alliance is their joint product portfolios which will grow bigger, surely the sharing of technology platforms in their assembly operations, gathering forces for RD and wider networks in Europe. II. The Macro environment . Benchmarking Benchmarking is the process of comparing ones business processes and performance to industry’s best competitors. The criteria measured usually are quality, time and cost; it is mainly comparing one’s strengths and weaknesses to others in the same industry. In this way, they learn how well the benchmarks perform and will evaluate their one performance in that typical industry compared to others, more importantly, explaining why one comp any is more successful from another in the same field of expertise. Chrysler and Fiat can be compared and evaluated with other ‘bests’ in the auto manufacturing industry and are the following: GM: Starting with sales, we can notice a huge gap between GM and Chrysler-Fiat: in 2008, GM’s sales were at $182. 14 billion v/s Chrysler’s $59. 6 billion and Fiat’s $83. 6 billion. GM’s main strengths are: * Good brand portfolio with well established dealer networks in North America * Largest automaker in the US GM’s major weaknesses are: * Weakened market share * Cost and expensive labor contracts As of 2009, GM is in the process of restructuring and may be divesting on some of its like Pontiac, Saab, Hummers etc It is thus surely is known that Chrysler and Fiat are way smaller when compared with GM yet after the alliance, both companies might stand a chance in front of the big players, combining their resources and technology together and competing with GM and others. Ford: Chrysler and Fiat will surely struggle when competing with Ford in sub-compact cars segments, not forget that Ford is the third in the World’s largest automaker. The advantage of Ford over Chrysler-Fiat is: * Ford is a well distinguished and recognized auto company in global markets and is in the process of reorganizing its operations, in addressing new brands and other recovery issues. * In North America, Ford is reintegrating and will recover after losing its market share to Toyota, in its trucks and sub-compacts * Chrysler and Fiat will have a tough time competing with Ford in small cars segments. Volkswagen: As for the German company, its sales were of $149. 5 billion in 2008. Volkswagen won’t be a threat in the North American market as it has been a tougher player in Europe, having the largest market share in that market. Its limitations in the North American market are as follows: * Brand visibility, especially in the sub-compact segment * Weak dealer network * Limited brand portfolio * Very weak marketing plans/campaigns outside Europe * Does not attract the mass market outside Europe Even though it has very limited sales in the U. S. Volkswagen has been restructuring its operations in North America, not to forget that this company is an excellent player in the sub-compact segments (in Europe, Asia). Toyota: As of 2008, Toyota’s sales were $230. 20 billion, making the company the largest US seller of vehicles, not to forget that it surpassed GM’s sales in 2009. Toyota has been very competitive throughout the last years and this competitiveness is persistent which leaves Chrysler-Fiat facing a big player due to: * Toyota is regarded as one of the best auto companies in manufacturing and quality. The Toyota Production System (TPS) is the industry benchmark although it had problems in 2007-2008 because of expansion and worldwide operations. * Regarding sales, quality and consumer satisfaction, Toyota continues to be an undisputed leader. * In North America, the company’s Camry and Lexus models are major winners in quality and consumer satisfaction. Yet this successful company stands in fr ont of many limits and pitfalls, like their stiff and firm corporate culture which is considered, more or less, myopic. In addition to that, not all of their products seems appealing and may need some restructuring and their limited market share in Europe, which is the contrary to Fiat but will stand as a competitor to Chrysler-Fiat in the North American market. Chrysler and Fiat can be good in trucks and small cars but can’t compete with Toyota in the sub-compact market, as Toyota is a leader in that segment, noting as well that in quality Toyota is not to be compared with Chrysler and Fiat. Daimler: In 2008, the company’s sales were $177. 6, yet after de-merging with Chrysler in 2007 the company was restoring its product portfolio but is very advantageous in many fields: * The company is highly focused on RD and product portfolio * Strong brand visibility * Expansion Daimler is an established manufacturer in luxury brands but Chrysler is not to compete with it in this field, yet Fiat is integrated in the luxurious cars industry with its Maserati and Alfa Romeo, which will make it a goo d candidate for this competition. 2. Brand Portfolios Chrysler’s portfolio: * Jeep * Chrysler 200 * Chrysler 300 * Chrysler Town country * Sebring Crossfire * Pacifica * Dodge Fiat’s portfolio: * Qubo * New Croma 500 * Grande Punto * Bravo * Idea * Pallo * Multipla * Pallo Weekend * Panda * Nuovo Doblo * Panda 4X4. * Alfa Romeo * Maserati * Ferrari In the short-run, which is 1-2 years ahead, the Chrysler-Fiat strategic alliance may not be capable to penetrate the U. S. market with its Fiat brands yet, it is expected that in the long-run (5 to 6 years), this coalition might establish itself and be visible in North America and Europe, where the company will surely take advantage of synergies, new RD, product development, tougher marketing campaigns. And this can be seen in their 2010-2014 business plan in Fiat’s official website, where they have announced the launching of new products and the development of existing ones like the Panda, Punto, Alfa Romeo, Ferrari and much more; â€Å"the global alliance with Chrysler will enable the Group, by 2014, to achieve the critical mass threshold of 6 million vehicles per year through full integration of product portfolios, new models and production allocation† (Fiat’s Website) III. Conclusion In 2008-2009, and after de-merging with Daimler, Chrysler found itself in dire straits, where it struggled and suffered from the global financial crisis that weakened the demand in the auto industry, it needed a partner who could give it access to new technologies, RD and markets as well as get it out of its financial problems. The only option for Chrysler’s survival was to seek partnership, which back than Fiat was the perfect fit. The Chrysler-Fiat alliance seemed like a good idea and a good opportunity for both companies to expand; both companies have marketable and appealing brands, from luxurious to sub-compact and trucks, in Chrysler’s case for instance, the sharing of the Jeep and Dodge brands with Fiat would be of value added to the coalition, as for Fiat there are some other interesting brands like the Maserati, Punto, Alfa Romeo etc†¦ Therefore, Chrysler and Fiat was beneficial because of their compatibility, product portfolios and similar targeted markets. In the last decade, strategic alliances have become very wide in the business world, as stated in the beginning of this brief study, and especially in the auto industry. Coalitions bring economies of scale, synergies, opportunities within RD, technology sharing, wider dealer networks, and joint marketing campaigns; which we can be applied to the Chrysler-Fiat case.