UNIVERSITI TEKNOLOGI MARA

ECONOMIC ANALYSIS(ECO 740)

SUMMARY ON GROUP PRESENTATION

“Strategic Alliance: National auto industry should seek a form of strategic alliances with foreign automotive companies to be

competitive”

Prepared By:

EILEENA BINTI AHMADUL BADUWI(2011603646)

EXECUTIVE MASTER IN BUSINESS ADMINISTRATION (EMBA)FACULTY OF BUSINESS MANAGEMENT

Prepared For:

ASSOCIATE PROFESOR DR AZIZ B SULAIMAN

Date of Submission:12 MEI 2012

PRESENTATION TITLE: Strategic Alliance: National auto industry should seek a form of strategic alliances with foreign automotive companies to be competitive.

The group has presented a case study related to the strategic alliances on national auto

industry. The aim of the strategic alliance is to ensure competitiveness advantages among

few related companies who have the interest in the auto industry. According to the group

Strategic Alliance is a relationship between two or more parties to pursue a set of agreed

objectives or goals to meet a business need while remaining independent organizations. There

are two (2) main forms of strategic alliances, which is non-contractual partnership and equity

arrangement. Non-contractual partnership are joint collaboration between two (2) parties for

research & development, manufacturing and marketing which mutually complimentary

access assets or skills and lastly standard setting or R&D firm consortia. Equity arrangement

is strategic alliance in the form of minority equity investment, equity swaps or joint ventures.

Strategic alliance is important for companies to remain competitive, operating at more

efficiency standard and easy to venture into new market. In the 2nd part of the presentation,

they explore Proton’s current collaboration with few automotives companies such as Nissan,

LOTUS and Mitsubishi. For example, Proton Holdings Berhad in 2011 signed a MOU with

Nissan Motor Co. Ltd. to studies on specific areas of cooperation between the Parties

including the potential use of Nissan's platform and power train. Other example of

automotive companies’ collaboration was between GM and TOYOTA, Ford and Mazda etc.

For the case of Nissan-Renault, the specific collaboration’s objectives are to improve quality,

reduce costs, reduce debt and internationalize, while the common objectives are for economy

of scale and technological know-how. After the collaboration process, there’s an increase in

sales of 5.9% (2004/2005) for Nissan-Renault.

ISSUE DISCUSSED:

Some of the issues that were raised during the Q and A session are:

1. Why strategic alliances are not so successful among companies in Malaysia?

Some of the problem faced by companies are allies are reluctant to share ideas and

support. This might be due to strangers being grouped together and told to form an

alliance. This sometimes happens in organizations where two or more teams are brought

together with no mutual connection; lots of great ideas, but no one actually creating an

action plan or moving the alliance forward; lots of great ideas, but either no time,

expertise or money to execute the alliance; two parties didn’t come out with the proper

agreement during the negotiations part and company’s policy and values which prevent

companies to collaborate.

2. Not all strategic alliance successful in producing Proton JUARA and Proton TIARA.

Proton, as is well known, has several times made a mistake in issuing their new

models. First of all, when they issued a Proton Tiara model to compete with the Perodua

Kancil, the model is much less for a model that gives good value for the buyer. After the

failure of the market model Tiara, Proton once again produces Proton Juara. The

introduction in the market model has been seen as a continuation of

the Proton mistake before. Proton JUARA have failed in the market as early as the day it

was launched. Why is it happened?

According to the group; Proton JUARA and TIARA lack of R&D. During the time

Proton produce Proton TIARA which its origin of Citroen brand, without R&D and also

prior review whether the model is worth to sell in Malaysian markets and the engine used

were those being rejected by the European markets (Citroen). While failure of Proton

JUARA as agreed by many is that the design and appearance is very strange and does not

meet the need of the buyers, which let alone to compete with other models which are

more stylish.

3. What are the best strategies to choose a strategic alliance partnership?

a. Firstly, look and explore which market we want to penetrate.

b. What kind of technologies is needed by our company?

c. Establish a set of criteria’s to evaluate potential partners.

d. The estimation cost involves in the alliance.

e. The common management values.

4. What are the best conditions to put two institutions for strategic alliance partnership?

Techniques to build a strong alliance with your suppliers:

a. Look for partners who wanted to partner with you

b. Spend your time building those relationships with your suppliers that will help

you to serve your market and improve your bottom line

c. Ask your supplier “What can I do for you?” --- We can help to come up with

strategies for the end- users to buy better from the manufacturers in a way that

served the manufacturers

5. Which industries most suitable for a strategic partnership?

Strategic partnership can apply both to manufacturers and also service providers. The

basic understanding for any companies to do collaboration is to complement each other,

enhance market and increase total revenues.

6. What is the significance for the collaboration between Air Asia and MAS?

The earlier collaboration is a positive move to eliminate competitive pricing, allow

economies of scale, higher bargaining power and synergies.

MY POINT OF VIEW:

Strategic alliances are one of the stepping stone for companies to increase their

competitiveness and at the same time increase global networking. According to Wheelan and

Hungar (2000), a strategic alliance is an agreement between firms to do business together in

ways that go beyond normal company-to-company dealings, but fall short of a merger or a

full partnership. These alliances range from informal ‘handshake’ agreements to formal

agreements with lengthy contract in which the parties may also exchange equity, or

contribute capital to form a joint venture corporation. Usually seen as a win-win partnership,

strategic alliances is seen provide benefits in term of enhancing knowledge, expertise,

technology enhancement, while companies will have greater benefits from lower production

costs and greater market access. As an effort to increase the level of competitiveness, the

emphasis is also given to improve quality and standard of products and services. It is

supported by Brucellaria (1997) stated the potential of strategic alliances is enormous. If

implemented correctly, some authors claim it can dramatically improve and organization’s

operations and competitiveness. At the same time by working together companies join

forces technology, knowledge, expertise, finance, logistics, etc. Companies are forming

alliances to obtain technology, to gain access to specific markets, to reduce financial risk, to

reduce political risk and to achieve or ensure competitive advantage (Wheelen and Hungar,

2000). According to an article by Infosky, some of the potential benefits that companies

could achieve are such as: gaining capabilities, easier access to target market, sharing the

financial risks, winning the political obstacle and lastly achieving synergies and competitive

advantage.

For issue related to automotive strategic partnership, Proton's history of strategic partnership

with international automotives companies has started since its establishment. Proton has

been carrying out collaboration with Mitsubishi, Renault, Citroen AX and MV Agusta. Since

it ended their collaboration with Mitsubishi, Proton has been seeking strategic partners from

various companies. I feel that failure by Proton to find a foreign partner is a sign that it is no

longer a competitive and economically declining market share that causes Proton to lose

money when other finds profits.  At a press conference on January 26, 2012, Tun Dr.

Mahathir Mohamed said the decline in share prices of Proton Holdings Bhd to its lowest

level to a level below while at RM5.00 showed erosion of investor confidence in the

future uncertainty of the national car manufacturers to establish a strategic partnership with

foreign car makers. Uncertainty hit on the ability of Proton to establish ties with foreign car

manufacturers. Strategic partnership between Proton and DRB-HICOM Proton hopes to find

ways to allow for sharing of technology from motorsport companies as large as

Volkswagen, Honda and Suzuki who is a partner of DRB-HICOM. Based on my opinion

there are many factors for unsuccessful strategic alliance between Proton and its allies. Some

of it maybe there is a political interference on the management of Proton Holdings, lack of

sales due to unattractiveness design on the car, mismanagement and financial misjudgment

by Proton Holdings such as on the issue of Proton Holdings had bought MV Agusta in 2006

for RM368 million which it had then sold for only one euro (RM5) to an unknown company

in Italy - Gevi SpA, Proton at a loss of RM500 million (Press Statement by Lim Guan Eng in

Penang on Thursday, 7th August 2008).

So many benefits can be obtained if companies decided to undergo a strategic partnership but

not all companies’ successful undergo a strategic partnership. According to Kalmbach and

Roussel (1999) 60% of strategic alliances fail. It is due to (a) clash of cultures and

‘incompatible personal chemistry’, (b) lack of trust, (c) lack of clear goals and objectives, (d)

lack of coordination between management teams, (e) differences in operating procedures and

attitudes among partners, (f) relational risks, and (g) performance risks (Elmuti and

Kathawala, 2001). So in order to ensure the successful of strategic alliances, companies must

consider those success factors, as reported in a survey by Technology Associates and

Alliances (1999) who asked 455 CEO’s to rank the importance of certain success factors for

strategic alliances are: (a) senior management commitement, (b) similarity of management

philosophies, (c) effective and strong management team, (d) frequent performance feedback,

(e) clearly defined, shared goals and objectives, (f) thorough planning, (g) clearly understood

roles, (g) international vision, (h) partner selection, and (i) communication between

partners:maintaining relationship.

As a conclusion, strategic alliance is beneficial and it can exist in many forms. As mentioned

above, cooperation in the sharing of production facilities, combining of knowledge, skills and

technology, marketing of each other’s products using existing distribution networks and co-

funding of projects are the collective forms of strategic alliances.

REFERENCES

Brucellaria, M. (1997). Strategic Alliances Spell Success. Management Accounting, Vol. 77, No. 7, August.

Elmuti, D. and Kathawala, Y. (2001). An Overview of Strategic Alliances. Management Decision. 39/3. MCB University Press.

INFOSKY- Business Multi Infohttp://infosky.wordpress.com/2007/03/06/five-potential-benefits-of-strategic-alliance/

Kalmbach, C. Jr. and Roussel, R. (1999). Dispelling the myths of alliances.http://www.2c.com.html, 16 November.

Malaysian Automotive Institutehttp://www.mai.org.my/ver1/index.php?option=com_content&view=article&id=1563:pasaran-dunia-kini-lebuh-raya-proton&catid=3:newsflash

Technology Associates and Alliances (1999). http://www.vecltd.org/techas/formation.html. 5 June.

http://dapmalaysia.org/english/2008/aug08/lge/lge891.htm

Wheelan, T.L. and Hungar, D.J. (2000). Strategic Management and Business Policy, 7 th ed. Addison-Wesley Publishing Co., New York, NY.