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General Motors, an American-based automotive manufacturer with a large global presence, has long held a large share of the worldwide automotive market. Despite its market position and reputation for quality, the company has recently begun to struggle with new competitors in the Asian Pacific region, which has pushed their needs to develop new manufacturing technologies, as well as to better control costs and quality in its American manufacturing facilities.
Beginning in the 1970s, several nations of the Asian Pacific region, most notably Japan and South Korea, emerged as economic powerhouses. As their manufacturing bases matured, they entered the automotive industry and began to present new challenges as well as new opportunities for General Motors. GM would need to find a successful formula for doing business in this region, as well as develop and adopt innovations that would help it improve its manufacturing operations elsewhere.
In this Case Study, we will examine the facts, the problems, identify the core problems in how General Motors has managed its business alliances in with Asian partner companies, and offer our recommendations how General Motors can best master the challenges of doing business in the East and fully benefit from its joint ventures.
I. THE FACTS
Toyota and NUMMI: In Japan, Toyota was the heavyweight of the automotive industry, controlling over fifty percent of the entire Japanese auto market, and eight percent of the total world market, making it the world’s third largest automotive manufacturer, behind only Ford and General Motors. Toyota presided over a tight confederation of companies, known as a keiretsu where a major manufacturer, such as Toyota, presides over a “pyramid” with the primary manufacturer on top, and several tiers of suppliers below. Unlike General Motors, who held seventy percent vertical integration with its global network of partnerships, alliances, and joint ventures, Toyota only had thirty percent vertical integration in its affiliations, but still managed to have many long-lasting and stable partnerships with its suppliers.
Keiretsus were vast and closely-allied corporate partnerships which evolved from the pre-World War II zaibatsus, giant industrial conglomerates that dominated the nation’s pre-war economy and politics, but were broken up during by the post-war United States-run Occupation authority. These networks were bound by complex and long-lasting arrangements, often minority equity ownership by the company at the top of the keiretsu.
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Toyota’s keiretsu is dominated by the company’s well-refined production and supply system, operated almost entirely within Toyota City, a large and well-integrated complex of assembly and supplier plants in Japan. The “kanban” or “just-in-time system” is a tightly controlled distribution system which routes parts directly from suppliers to the assembly plants, as needed, reducing inventory and delivery times, as well as the storage space needed to hold excess inventory. This fast-moving supply system was famous for keeping costs and needed inventory levels low, while helping identify and eliminate distribution bottlenecks and increasing accountability among suppliers.
Toyota, in spite of its domestic dominance, had taken a conservative approach to new ideas, including overseas expansion. Typically, the manufacturer was content to allow other Japanese competitors to make the first moves with new products, as well as expanding overseas. However, in 1983, Toyota entered the U.S. market with a manufacturing partnership with General Motors. Funded with $100 million each from General Motors and Toyota, they set the joint venture up in a GM plant in Fremont, California that had been shuttered in the 1970s, New American Manufacturing Incorporated (NUMMI) would produce cars for both companies for sale in the United States.
The NUMMI operation, which barely received FTC approval in a 3-2 vote, would be governed by its own board of directors, appointed in equal numbers by GM and Toyota. Toyota would name the ventures president, CEO, and other top officers, while GM was allowed to appoint no more than sixteen executives to the plant at any given time. UAW members would staff the plant’s production facilities. In exchange for FTC approval, the joint venture would only be allowed to run until 1996.
General Motors had two primary reasons for entering the NUMMI venture: to gain access to a small car to help expand its marketing mix, and to learn about the famous Toyota Production System, with the goal of being able to incorporate both into their operations. Toyota had its own motive: to get around the voluntary export restraints agreed to by the Japanese government by manufacturing inside the United States. Some also speculated this venture was to enable the company, which was the last Japanese automaker to set up operation in the United States, to familiarize itself with manufacturing and doing business in the United States towards the goal of establishing a much-larger long-term presence there.
Plans called for the plant to manufacture approximately 200,000 vehicles a year, for which Toyota would supply the major components, NUMMI would provide stamping and assembly operations, and other parts and components would be supplied by United States-based suppliers. Production would start with a compact car that has been manufactured and sold by Toyota in Japan as the Sprinter, but branded in the United States as the Chevrolet Nova.
While the NUMMI plant would be operated with American labor, it would be operated with Japanese management and by Japanese management principles. Many of the first employees at the plant had visited Toyota City for extensive training in the Toyota system, incentives would be provided to encourage workers to train to handle multiple jobs, and much of the day-to-day decision-making was to be delegated to small employee-led teams. The Just-in-Time supply chain system used in Toyota City would be implemented at this facility along with Toyota’s stringent quality-control standards for its suppliers.
The results of the implementation of these management practices at the NUMMI facility were mixed. GM’s quality audits gave the plant very high ratings, and while some suppliers complained about the high quality standards, others promoted themselves as “good enough to supply Toyota”. While absenteeism had dropped to about two percent, as opposed to twenty-two percent when the plant had been a GM plant, there was friction with the UAW leadership at the plant. The fast pace of operations entailed producing sixty cars an hour with only one-third the workforce used in comparable GM plants, and disgruntled workers had organized an effort to oust the union leadership in their 1988 elections.
Toyota was impressed with the plant’s operations and decided to begin manufacturing its Corolla FX-16s at the plant to be sold through its own United States dealers in 1987. In 1989, this was followed with an announcement that the company would proceed with plans to open a $300 million plant in Canada and an $800 million plant in Kentucky to manufacture 200,000 Camrys annually.
General Motors’ experience was mixed. Sales of the Nova had not gone well, and production of the car at the NUMMI plant had been cut from 600 to 400 cars daily. Toyota would only allow it to manufacture a four-door model, so as not to conflict with its two-door Corolla. However, it was working to implement the lessons learned from the plant, with a Technical Liaison Office at the plant documenting what was being learned at the NUMMI plant for implementation at other GM plants. The team approach learned from the NUMMI plants was implemented at GMs plants in New Jersey and Delaware, where its new Berretas and Corsicas were being made.
Isuzu: In 1971, General Motors acquired a 34.2% interest in Isuzu for $56 million, under an agreement that kept that level of ownership for five years, seated four GM executives on the Isuzu board, but keeping the posts of president and chairman of the board under Isuzu’s control. This agreement came at a critical time for Isuzu. The company’s attempted partnership with Nissan the year before fell through, and the company was rumored to be nearing bankruptcy. Their deal with GM allowed Isuzu to build a parts factory, and a second partnership between Isuzu Finance Company and GM’s finance division, GMAC, doubled its capital to six trillion yen, when GMAC bought fifty-one percent of Isuzu Finance Company’s stock.
As part of the partnership, Isuzu produced two vehicles for GM to sell in the United States, greatly boosting the company’s overall production volume. In 1972, Isuzu’s one-ton truck was marketed as the Chevy Luv, selling 100,000 that year and nearly doubling Isuzu’s export volume. In 1984, GM began selling the Spectrum, which it had invested $200 million to develop. While voluntary trade restrictions temporarily limited exports to the U.S., 120,000 were shipped two years later with ninety percent being sold by Chevrolet and the rest through Isuzu’s own dealers. In 1986, the GM Spectrums comprised nearly forty percent of Isuzu’s total car and truck production.
Other manufacturing and marketing partnerships with Isuzu would create Mesin Isuzu in Indonesia, GM Egypt SAE, Convesco Vehicle Sales in Germany, an exclusive ten-year agreement for Isuzu to supply engines to Lotus, as in exchange for technology from Lotus, a wholly-owned GM subsidiary, as well as a five year contract with GM-owned EDS to upgrade telecommunications, data processing, and software systems in Isuzu plants.
Daewoo: Daewoo, a South Korean manufacturing conglomerate with some similarities to the Japanese keiritsus, controlled a business empire which included trade, construction, shipbuilding, industrial machinery, electronics, motor vehicles, textiles, aerospace, personal computers, and financial services. However, the company was not performing well with only $50 million of profits on sales of $8.6 billion in 1985.
General Motors’ relationship with Daewoo dated back to 1972 when it purchased a fifty percent share in Shinjin Industrial, a small Korean auto manufacturer, creating a joint venture known as GM-Korea. In 1978, Shinjin’s share of stock was purchased by Daewoo, and the company was renamed the Daewoo Motor Company. Working with GM, Daewoo became the second largest Korean motor vehicle firm behind Hyundai, and held seventy percent of Korea’s large truck and bus market in 1980.
Following the 1979 oil crisis, the Korean economy faltered and the South Korean government ordered Hyundai and Daewoo to merge their automotive manufacturing operations. While GM’s refusal to surrender management stopped the merger, in 1982, it gave Daewoo management control over the money-losing joint venture. Daewoo’s management moved quickly to reverse the venture’s sagging fortunes, earning record profits in 1983.
In 1984, the joint venture began to manufacture a new small passenger car, based largely on the Kadett, which was manufactured by Opel, GM’s German subsidiary, in a new manufacturing facility that employed Opel’s state-of-the-art manufacturing technology. This car was intended for sale in Korea and abroad. GM bought half of the production of the car to market in the United States as the Pontiac LeMans. Kim Woo-Chone, the chairman of Daewoo, explained the LeMans joint venture as a way to develop a car quickly while using the knowledge and name recognition of GM to build and market a successful car.
To overcome quality problems with its suppliers, several Daewoo Group subsidiaries entered into joint ventures with GM divisions during the mid-1980s. In each situation these ventures relied greatly on General Motors for capital and technology. Satisfied with the success of these supplier ventures, Daewoo’s chairman intended the export value of parts from the ventures to match the value of cars.
In 1986, Daewoo cars and automotive parts accounted for ten percent of all South Korean exports and their domestic sales of the LeMans had cut Hyundai’s market share from eighty to sixty percent. The following year, the Daewoo Group began working on plans to open a 300,000 unit a year plant that would be entirely separate from its joint venture with GM.
Suzuki: General Motors’ relationship with Suzuki began in 1981 when the company bought a 5.3% interest in Suzuki for $35 million. At this time, Suzuki was a small player in the Japanese automobile market with about five percent of the total market. They were looking for a company that did not directly compete with them to help them build an international presence. GM was attracted to Suzuki’s background as the best mini-car producer in Japan. That year, as plans were being made to begin exporting a mini-car to the United States for resale by General Motors, voluntary auto export restrictions limited Suzuki to 17,000, far less than Suzuki’s ambitious 1983 target of 100,000.
In spite of these restrictions, the partnership forged ahead, producing the Cultus, a one-liter engine model in 1983. The Cultus served as a prototype for General Motors’ Chevrolet division, which introduced it to American car buyers as the Sprint the following year. While the Cultus received lukewarm welcome in Japan, sixty thousand Sprints were sold in the United States in 1984.
The Cultus was such a strong seller for the company that the increasing volume exports allowed it to increase production more than forty percent, in spite of declining market share in Japan. In 1985, Isuzu joined with Suzuki to produce and market a station wagon version of the Cultus, with plans to develop other models and develop joint manufacturing projects.
To meet growing demand in the North American market, Suzuki and GM announced plans in 1986 to build a plant in Ontario, Canada to manufacture the Sprint for GM and the Samurai sports utility vehicle for Suzuki, with start-up scheduled for 1989. Suzuki would manage the plant and sell its Samurais exclusively in Canada, while GM announced plants to increase the domestic content of the Sprints to allow them to be sold in the United States as well as use Suzuki to distribute four thousand Sprints to Japan annually.
Nissan: When General Motors got involved with Nissan, an industrial group similar to Toyota, Nissan’s position as the world’s fourth-largest automaker was in trouble. Its market share in Japan was in decline, falling from thirty percent of the Japanese automobile market in 1975 to twenty percent in 1985, and profits plummeted from 96 billion yen in 1983 to 65 billion in 1986. To help overcome growing competition in its home market, the company was looking to expand its foreign presence, with a goal of selling at least twenty-five percent of its cars overseas by the early 1990s.
Both GM and Nissan were having trouble in Australia. GM’s Holden’s subsidiary had lost A$50 million in 1984, and A$100 million the following year, with its market share in Australia falling five points to eighteen percent during the 1980s, while Nissan fell two points to nine percent, its smallest market share ever. For Nissan, the news was even worse, as the Australian government planned to consolidate the five carmakers in Australia to three, possibly shutting them out of the country.
The partnership began in 1984, with Holden’s supplying panels to Nissan for the production of its Pulsar, which were then sold back to Holden’s under the Astra name. The following year, Nissan and Holden’s jointly developed an engine for Holden’s new VL Commodore, which also included a Nissan transmission.
During this time, Nissan also entered a partnership with Daewoo, which had several ongoing partnerships with GM, to produce Nissan’s Vannette, which would first be sold in South Korea, but eventually would be sold in the United States through GM’s sales network. Plans were also underway to jointly develop a passenger car.
Fanuc Joint Venture (GM-Fanuc): General Motors was the largest buyer of robotics systems in the United States, buying a full third of robots sold in the country for use in its state-of-the-art manufacturing facilities. The automaker was working with its EDS and Saturn subsidiaries, as well as Hughes Aircraft, towards the goal of a large-scale modernization of its plants. However, GM was dissatisfied with some its present robotics vendors. It had also developed some of its own robotics products and technology using its own personnel, and wanted to find a way to better employ them to keep from losing them to other robotics companies. The creation of a joint venture with Fanuc, the Japanese robotics manufacturer, to create the GM Fanuc Robotics Corporation (GMF) seemed to provide solutions to all of these challenges faced by GM.
GM’s search had followed an extensive effort to identify a robotics manufacturer that met its requirements. The automotive manufacturer was very impressed with Fanuc’s level of drive, aggressiveness, entrepreneurial management, and its enthusiasm to ally itself with GM. In a deal that was unusually fast for GM the two companies agreed to form GMF within three months of their first contact.
The rapid pace was no surprise for Fanuc, which was the creation of Dr. Sieuemon Inaba, the company’s founder. The company was founded as an arm of Fujitsu in 1955 under Inaba’s leadership, and spun it off in 1972, with Fujitsu holding ownership of about forty percent of its shares. In the company, fourteen-hour workdays were commonplace for management and research staff, many of whom lived in company housing and went home on weekends to visit with their families. In 1981, it opened a plant using one-fifth the workforce of that used by comparable firms and planned to quadruple that level output while only doubling the size of the workforce by 1986.
Fanuc had long dominated the market for NC (numerical control) devices, essential to running machine tools, with a seventy-five percent share of the Japanese market and fifty percent of the global market for the devices. These devices and systems comprised ninety percent of the company’s total sales, while robotics only counted for three percent. Fanuc sought the partnership with GM to help give them an opportunity to establish a similarly strong presence there. Inaba intended for robotics to comprise at least fifteen percent of Fanuc’s business within three years.
GMF was intended to operate independently of the two parent companies. Its president and CEO, Eric Mittlestadat, a career GM manager, worked with a four-member board of directors that was appointed equally by both companies. Both companies stayed out of GMF’s daily operations, believing the company should be allowed to succeed or fail on its own merits.
The company’s relationships with its parents fell into two categories, with the first being supplier-vendor relations. With the exception of a robotic painting system that was built in Michigan, Fanuc built all robots sold by the company. Eighty-five percent of sales and seventy percent of units sold by GMF were to General Motors with most of the rest going to other automotive companies. However, much of the cost in robotics systems was in the software and consulting while most of the profit was in the hardware, most of which came from Fanuc. As the implementation of robotic systems required extensive planning and development, its relationships with its clients were very complex.
The second category of relationships was product development. Four times a year, GMF executives met with senior executives from both GM and Fanuc to coordinate product development efforts. These development efforts cost far more than was being spent by their nearest competitors and involved complex teams that involved engineers from GM and Fanuc, in addition to GMF staff, out of efforts to protect proprietary robotics technology from both companies.
In 1986, slumping demand for robotics products hit GMF hard, forcing it to cut its workforce by almost one-third. This was largely due to General Motors canceling $80 million in order for GMF systems. The same year, Fanuc entered a new partnership with General Electric called GE-Fanuc Automation, which would focus on creating automated production systems for manufacturing.
Japanese parts and components makers: In the 1970s, as it built alliances with Japanese auto manufacturers, General Motors had made little effort to develop a supplier base for parts and components. However, the company began to realize that it would face aggressive competition from Japanese manufacturers in terms of price, quality, and reliability of components supplied. Most efforts to develop GM’s supplier bases in Japan were made through Delco Electronics, a GM subsidiary, and grew quickly, with GM buying and estimated $100 million worth of parts and components in 1980, then to $350 million in 1986.
These partnerships included Atsugi Motor Parts, Kyoritsu, Nihon Radiator, and Tachikawa Spring, all partially owned by the Nissan group, Akebono Brakes, owned in part by Bendix, an international brake parts supplier, as well as Isuzu, Nissan, and Toyota, as well as NHK Spring, an independent Japanese manufacturer of suspension components. To manage the many partnerships it was developing with parts and components suppliers, General Motors set up two organizations: the Overseas Components Activities (OCA), established as a bridge between GM divisions and Japanese suppliers, and the Japan GM Cooperative Association, to develop closer relationships between the executives of GM and its Japanese suppliers. However, many of these relationships would require extensive development, as most members of these associations sold less than ten percent of their output to GM.
II. THE PROBLEMS
General Motors faced numerous problems with its Asian alliances. Covering a broad range of topics, including managerial control, return on investments, and control of General Motors technology. These problems affected, in numerous ways, most of the company’s efforts to form alliances with Asian companies.
Toyota and NUMMI: General Motors and Toyota sought the NUMMI joint venture for their own motives, and the joint venture was timed to terminate after the two companies had sufficient time to learn the needed lessons and implement them. While GM had provided half the cash and the use of its production facility, it had little control over operations.
Toyota was one of GM’s biggest competitors, but had not taken the bold move of entering GM’s home market until after NUMMI had given it the opportunity to familiarize itself with doing business in the United States. Also there is the risk that the difficult relations between UAW members and their leadership with NUMMI management would backlash into their relations with General Motors in its wholly owned production facilities.
Isuzu: While Isuzu was nearing the edge of bankruptcy, General Motors came to their rescue, purchasing thirty-four percent of the stock in the manufacturer, and fifty-one percent of the stock in their finance company. This money was used to shore up Isuzu, which relied on deals with General Motors to generate much of its business through export and marketing arrangements.
Isuzu developed the Spectrum with the help of a $200 million investment by General Motors. This car, like the LUV truck in the 1970’s, would comprise a large share of Isuzu’s total production and was largely an export item, which required GM to help to get around export restrictions. With GM’s money and marketing ability, Isuzu was able to generate a large portion of its business through guaranteed bulk sales to General Motors. Both the Spectrum and the partnership with Lotus allowed the company to receive considerable financial and technical support for Isuzu, which was free to use it in developing their own products.
Daewoo: The Daewoo Group of South Korea was struggling with financial difficulties, to which GM’s reputation, capital and technology provided, by their own admission, provided quick solutions to their business needs by increasing the profitability of their automotive manufacturing and components divisions. General Motors provided the resources needed to help the Daewoo Group start several joint ventures and provided advanced technology to help these joint ventures build cars both for export to the United States, as well as for domestic sale by Daewoo.
General Motors gave up management control of ventures into which it had placed capital and technology, allowing Daewoo free reign with those resources. Its support allowed Daewoo to become a major player in the South Korean automotive market, and its marketing support allowed Daewoo to build a major export business. In return, GM received a car, which it had already developed through its Opel subsidiary and could easily have manufactured on its own.
Suzuki: GM bought an interest in Suzuki to help them develop a small economy car, while Suzuki was looking for an international partner who did not compete with them. The centerpiece of this arrangement was the Cultus, which had failed to attract consumer interest in Japan, and was of no further value to Suzuki. When their Canadian joint manufacturing facility opened, GM put up half the money to finance the venture. This allowed Suzuki an opportunity to escape the unsuccessful Japanese market, while giving it full management control of the plant. Furthermore, while the partnership had allowed Suzuki an opportunity to greatly expand its manufacturing and marketing operations outside of Japan, General Motors was only able to export a paltry four thousand vehicles into Japan.
While Suzuki products did not compete with General Motors, the assistance it provided through its partnership with Izuzu allowed it distribute and market other vehicles that could compete more directly with GM. Future plans to enter joint ventures with Isuzu would increase the likelihood that vehicles from their partnership would compete with General Motors.
Nissan: Nissan’s partnership with GM began out of necessity to keep a presence in the tightening Australian market. GM, through its Australian Holden’s division, worked with Nissan to develop a new engine using GM technology. After that, Nissan began a partnership with Daewoo, who had direct partnerships with GM to produce vehicles for the United States market, relying on General Motor’s distribution networks. In both cases, Nissan relied on General Motors to help provide them new markets for their products, overcoming problems they were unable or unwilling to solve on their own.
Fanuc Joint Venture (GM-Fanuc): GMF had become a systems integrator, taking on the high-cost and low-return work of installing and supporting robotics systems while providing new sales opportunities for Fanuc’s hardware, where the bulk of profits were made. This situation was made even worse when GE-Fanuc began reselling GMF systems after Fanuc reaped the large profits from selling GMF the hardware, and GMF undertook the low-profit work of systems integration. Also there was a low level of trust in GM’s partner, which handicapped product development efforts as greater efforts were expended to ensure the protection of proprietary technologies.
Japanese parts and components makers: Loyalty with these suppliers was often an issue with great potentials for conflict with partial ownerships by Japanese automakers who competed with General Motors, while having access to General Motors in order to provide the needs parts and components. Information such as production schedules could help competitors gain more insight to ongoing activities inside GM. With conflicting loyalties, security of GM-proprietary technology, as well providing manufacturing skills and technologies to aid in improving returns on the investments of competing companies, would be issues of concern for the automotive manufacturer. Also, as most suppliers received a small fraction of business from General Motors there was no assurance they would not give preference to those manufacturers who gave them the most business.
III. COMMON THREADS: CORE PROBLEM DEFINITION
General Motors’ Asian business alliances were intended to help the company to benefit from production and technological competencies found in the region, as well as to help the company to develop products for sale in its home market in the United States. However, these alliances have often yielded far greater benefits to their partners than to GM. While it has often helped provide needed financing to help keep its partners in business, and in some cases, helped them become more competitive, General Motors has failed to improve its internal product development program, demand a proper return on its investments and partnerships, loyalty from its partners, and the proper level of control over proprietary technologies crucial to maintaining its overall business position. At the core of these problems is failure by General Motors to maintain control over its partnerships, develop long-term relationships with a high level of trust, as well as to act to defend its own interests in a strategic manner.
IV. PROBLEM ANALYSIS
Charles Hill, in his textbook “International Business: Competing in the Global Marketplace”, identifies three key characteristics for a company to look for in selecting a business partner:
A good partner helps the first achieve its strategic goals,
A good partner shares the firm’s vision, and
A good partner is unlikely to try to exploit the alliance for its own agenda (Hill).
Upon a close examination of the facts and problems with GM’s Asian alliances, it becomes obvious that the company did not find partners who did not meet these criteria. Many partners benefited significantly from doing business with General Motors, while GM often received little benefit from the relationships. Often, partnerships were selected to achieve short-term goals, and in some cases, partners had business relationships with other automotive manufacturers. In some situations, such as Daewoo, where the company sought the GM name, and Toyota, which was a short-term partnership, there were clearly reasons to question if the relationships were based upon shared values or common goals. In order to advance its business interests, General Motors must commit itself to establishing partnerships with those who share its values and have the interest, ability, and commitment to developing lasting, productive, and mutually beneficial relationships.
Hill also stresses the importance of knowledge in establishing productive business alliances. He encourages firms to investigate potential partners and collect information from three sources:
Collect as much pertinent publicly available data about a potential partner,
Collect data from informed third parties, including those who have done business with them in the past, bankers, and past employees,
Get to know the potential partner well before committing to an alliance, including making sure that senior management will interact well on a personal level (Hill).
While General Motors’ status as a relative newcomer to the Asian region hurt their ability to acquire the most knowledge possible about potential partners, the long-term costs of failed relationships are much higher. General Motors Asian business partners have often benefited from GM investments of effort, financing, and knowledge, and used this to compete with the company, either directly or indirectly. The Fanuc partnership, which was undertaken in less than three months, is one example of a partnership which was undertaken too quickly.
Clearly, many of General Motors core problems with its Asian relationships stem from a lack of understanding of its potential partners, as well as a failure to lay the groundwork for healthy and symbiotic relationships that benefit both sides of a partnership.
V. GOALS AND OBJECTIVES
Resolving these problems will not be easy for General Motors, but they are essential to its survival. Some of these changes will require relatively simply policy changes, while others call for changing deep-rooted philosophies and corporate values. This is complicated by the fact that General Motors is one of the largest corporate organizations in the world, with vast and complex relationships with hundreds of companies across the world. Even simple changes will take much time and diplomacy to implement. Our goals for General Motors are:
Develop stronger relationships with suppliers and partners: Toyota’s organization achieves long-lasting and loyal relationships with its partners and suppliers, giving it the high-level of control needed to implement the much-valued Toyota Production System. By contrast, many of General Motors’ relationships are short-term and involve companies with other potentially conflicting business relationships. General Motors should work towards the long-term goal of building a stable, loyal base of suppliers and partners who will work to its advantage without conflicts. This will insure stability of supply, as well as increased productivity and greater security for knowledge, technologies, and production know-how that has been developed at a great cost to General Motors.
Expect more control from its investments: NUMMI and Daewoo stand out as the most obvious cases where General Motors has had little managerial control over ventures where it holds large investments. However, we have outlined other situations where General Motors has conceded the level management control needed to protect their investments, or essentially underwritten potential competitors. General Motors needs to be more selective in establishing partnerships that require large investments, and expect a higher level of control when establishing partnerships. It should expect to receive an appropriate level of managerial and executive control in return for its investments of time and resources, disengage from those which are not, and drive harder bargains in future arrangements.
Protect knowledge and technologies: In many cases, General Motors has made information available regarding its knowledge base and proprietary technologies available via partnerships where loyalty seemed to be lacking, and potentially conflicting. For example, during the GMF venture, protecting its technologies required cumbersome supervision of Fanuc staff in product development efforts. General Motors should take a multi-faceted approach to protect its knowledge resources by avoiding high-risk partnerships, implementing stricter controls over technologies and knowledge, and developing stronger, closer relationships where those who have access to this information have strong incentives to protect it from falling into the hands of competitors.
Put its business interests first: The NUMMI venture stands out as an example where General Motors short-term gain came at the price of helping a major competitor become even more of a threat over the long-term. The GMF/Fanuc venture was agreed upon in less than three months after the first discussions. General Motors should take a more deliberate and cautious approach in cultivating business alliances to insure that those it works with will not ultimately act in manners that are not in the best interests of GM’s own business interests.
Improve product development: Much of GM’s many partnerships with Asian automotive manufacturers were undertaken with the goal of developing a small economy car for the American market. These efforts not only helped its competitors in many cases, but also created such a conflicting mix that it helped doom the Chevrolet Nova. General Motors, as a major automotive manufacturer, should be able to develop products without having to share resources, control, or technologies to competitors. The company must insure that it can provide needed product development solutions from within its own organization.
Alternative One-“Withdrawal/Centralization”: Toyota’s empire was based upon a high-degree of geographical and power centralization, best represented by the massive Toyota City complex and its keiretsu style of organization. This gave them a high level of control over their organization, as well as those suppliers and partners did business with. Several of General Motors’ core problems arose from loose relationships with its suppliers and partners, which could be resolved through limiting business dealings with organizations who were either not willing to fall under their authority or be located near their home facilities for close supervision.
Advantages: By bringing its suppliers and business partners into a tighter control structure, and by attempting to recreate Toyota’s “Toyota City” manufacturing complex, General Motors could force more discipline and develop closer and more loyal relationships. This could help to develop more loyalty through greater dependence, and closer monitoring of suppliers to insure both loyalty and security of General Motors’ technology and knowledge. Whenever possible, geographical proximity would also help GM emulate Toyota’s prized distribution system.
Disadvantages: Toyota discovered that its close organizational structure limited its ability to innovate, as well as first mover advantages. General Motors could find itself outmaneuvered in a similar manner. Also, it would be limited in its ability to form advantageous partnerships and pursue new business opportunities outside of its scope of control. This would also risk creating a more adversarial relationship with domestic automotive manufacturers who would be intimidated by a more visible presence from General Motors and who would be facing tougher competition for suppliers as GM built a more centralized and therefore larger domestic supplier base.
Alternative Two-“Decentralization/Globalization”: In 1966, General Motors defined its belief in a policy of “coordinated policy control of all of its operations through the world” as essential to the success of its international operations. Its global manufacturing and marketing empire was built by aggressively pursuing new opportunities, not by limiting its reach or its vision. This has been the motive behind its many Asian partnerships. By continuing this approach, General Motors would continue in its present direction, expanding its web of manufacturing and supplier partnerships, and learning from its mistakes in the hopes that it would find solutions to the problems it faces with these alliances.
Advantages: General Motors would continue to have the benefits of doing business on a global scale, to help “even out” their revenue flow and work around fluctuations in currency values. It would have the best position to pursue the best mover advantages in new markets and the widest range of options possible for new suppliers and business partners, to get the best possible cost and quality. It would also be remaining true to its vision as a truly international company.
Disadvantages: GM would still be in the difficult position of having to manage a wide range of partnerships and alliances on a global scale. It would continue to have to make trade-offs with control and trust, such as those that had led to the company’s problems with its Asian alliances. The difficulties of distance would also continue to make it difficult to manage distribution networks with its suppliers. The risk of providing financial and marketing support to manufacturers who would compete with GM in the long run would be greater. In the end, the company would have to decide how much of a risk it could continue to afford in terms of lost investments and the continuing loss of knowledge and technology to competitors.
Alternative Three-“Ownership and Effective Equity”: General Motors could seek to get out of partnerships where it did not have the financial leverage to control its alliances and partnerships. In many of its partnerships, whether it held a majority or minority share, the company often had little to no managerial control which has left it in a poor position to dictate the terms of business, as well as control over its resources, knowledge and technology base. In some cases, General Motors’ investments simply helped competitors get a firmer footing from which to compete with GM at a later date.
Advantages: General Motors would gain greater leverage over those it did business with. This would allow it to dictate the terms of partnerships, have a stronger voice over its investments, and force suppliers to prioritize its needs. It would make it harder for companies to get both the funding and latitude of operation essential to turn GM’s investments against it at a later date.
Disadvantages: The costs of such a move would be great and may force General Motors to limit its options for suppliers unless it could raise large amounts of cash to finance such a move. In some cases, control may not be necessary or desirable to achieve the needed results. General Motors would essentially have to commit itself to establishing ownership and/or control over a supplier or partner before it could accurately assess the real value of the company. This would also leave the company at the mercy of those who would be needed to provide equity for such an initiative.
Addressing the problems faced by General Motors will entail a flexible approach. While all three of the aforementioned alternatives have some appeal, they all come with risks and disadvantages. The correct approach is to accept that the global marketplace has gone through tremendous changes, be prepared to rise to the occasion, and implement parts of each of the three alternatives.
In the short-term, General Motors should make a full assessment of its current partnerships, alliances, and supplier relationships. This will help the company determine the pros and cons of each, towards the goal of planning to better manage its relationships. The company and its partners should work together to insure the maximum return from each partnership, and General Motors should work towards the termination of those relationships not in the best interests of the company.
As Toyota has done successfully in its own overall organization, General Motors will also need to gain more control over those relationships to ensure its interests are protected. This will require General Motors insist on more managerial control over its joint ventures, and make stronger efforts to enforce controls over proprietary technologies and manufacturing know-how. It will also need to work to reduce the number of situations with conflicting ownerships by competing automotive technologies.
The company should expect more loyalty from its suppliers and work to develop stronger, longer-lasting relationships from its business partners. However, as General Motors is relatively new to the region, it would expect these relationships will not happen overnight and have the patience required to develop them. These relationships should be based upon mutual benefit, with an eye to the long-term, and not simply used to accomplish quick fixes to problems faced by General Motors and/or its business partners.
General Motors and its partners will have to take the time and effort necessary to build relationships where trust and strong common purposes exist between GM and its partners. In some cases, GM will have to accept that these partnership efforts will fail, and consider each bad experience as bringing the company one step closer to the partner it is seeking for a particular purpose.
Of the aforementioned recommendations, the effort of crossing cultural divides and building close, deep-rooted alliances between General Motors and its business partners will take the longest time and the greatest effort to accomplish. However reaching this objective will be of the greatest benefit to all involved, and will be well worth the investment made, if General Motors is to have a solid, long-term business presence in the Asian region.
Becoming a global leader in any industry requires vision, a willingness to take bold gambles, and the courage to learn from failures. General Motors’ missteps with its early attempts with Asian business alliances should be viewed as valuable learning experiences for the company as it accustoms itself to the business environment of the region. We believe that if the leadership of General Motors is willing to learn from its mistakes, while retaining the enthusiasm that led it into this region, it will be well-positioned to reap new opportunities and open new markets in the Asian region which will allow it to build and defend its position as a global leader in the automotive industry.