Thursday, 28 April 2016

Strategic partnerships offer expansion opportunities


It is easy to foresee based on current trends, that the design and production of future automobiles will generate a paradigm shift in mobility frameworks across the globe.
The conventional modes of mobility may soon be replaced by autonomous vehicles, running on alternative power trains such as electric drivetrains and full cell engines.
The rapid evolution of mobility will require a change in the business models and practices of car manufacturers, in adapting to continuously changing customer demands
The price positioning must be extremely competitive despite increased complexity of automotive components and its respective production processes.
Looking back to the turn of the 20th century, the introduction of compact and fuel efficient models, catering to demands for less fuel dependence, caused a massive disruption to the automotive market.
This forced many car makers to develop strategic partnerships and mergers, as burdens of technology development became difficult to shoulder by only one company.
As a result, numerous success stories of partnerships are evident today, such as the General Motors group, the Hyundai-Kia merger, as well the Renault-Nissan alliance.
If history repeats itself, the consolidation and sharing of technological capabilities among car makers will become even more important as the demand changes mentioned above will cause further disruption to the global automotive market.
Strategic partnerships open up many advantages, in particular the areas of technology development, marketing and operations.
Technology development becomes an immediate benefit. Parties to the partnership open up the possibility of platform sharing, component commonization and process standardization, resulting in lower production costs and increased production volumes for vendors.
The Hyundai-Kia platform sharing program has become a great case study for such benefits, seen through its J and Y platforms that have led to global models such as the Cerato/Elantra and Sorento/Santa Fe.
At the same time, future research and development can be shared among partners. Each partner reduces development costs through a common resource pool of each others’ strengths.
Renault and Nissan formed such an alliance in 1999, committing a total 4 billion Euros into its electric vehicle and battery development programme.
Today, this alliance has become the world’s leading plug-in electric vehicle manufacturer, with the Nissan Leaf emerging as the its top selling vehicle.
Common marketing platforms are also created through partnerships. It is noteworthy that export programs are subject to risks in setting up sales and aftersales networks.
Strategic partnerships therefore allow for the common utilization of dealerships and service centres, making the entire customer experience more efficient, while reducing the risks mentioned above.
Partnerships also allow for the utilization of common production facilities.
The sharing of these production facilities not only removes the need for OEMs to set up new plants, but also allows the shared development of new production technology, as partners integrate their knowledge and experience into a common manufacturing flow.
This shared utilisation becomes more pertinent for Just-in-time (JIT) component suppliers, as they are required to be in close proximity of their principles in order to reduce logistic costs.
For example, the 1,618.7ha Proton City in Tanjung Malim does not host only Proton’s high-tech manufacturing plant, but is also the home of numerous vendors situated minutes from Proton.
Coupled with its direct route to Port Klang, Proton City is an ideal place for a global partner to commence its operations in Malaysia.
However, careful due diligence should be carried out when venturing into partnerships.
It is important that a partnership balances the needs of all parties involved, through the sharing of the same business goals, mindsets, cultures as well as market positioning.
Both parties need to assess the strengths and limitations of their partners, and identify each others’ levels and capabilities to ensure a fruitful and sustainable business model in the long term.
The writer is chief executive officer of Malaysia Automotive Institute

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