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International Business Chapter 7 Essay

635 words - 3 pages

General Motors and Daewoo: Married, Divorced, and Married Again

1. Are the conditions in the automobile industry facilitating or constraining an alliance strategy?

In my opinion, I think this question must be approach from the industry- based view, which would be the five forces. The automobile industry is very advanced industry which have very high entry barrier for the late movers because of special characteristics of automobile industry. First, automobile industry is connected with many other relative industries. In addition, it is a labor intensive industry which needs a lot of fixed cost and the capital for further investment. These characteristics also evoke many alliances between the relative firms in order to reduce the costs. Second, rivalry among existing firms has become very fierce in this industry since the economy started to decline. One of the wise ways to get through this crisis would be the ...view middle of the document...

When the problems such as labor strikes and the poor quality of LeMans occurred, their efforts to overcome these problems were poor and uncooperative to each other. Daewoo argued that the poor sales were not primarily due to quality problems, but due to GM’s poor marketing efforts that had not treated the LeMans as one of GM’s own models. Further, Daewoo was deeply frustrated by GM’s determination to block its efforts to export cars to Eastern Europe, which Daewoo saw as its ideal market. GM’s reasoning was that Eastern Europe was Opel’s territory. So Daewoo secretly developed independent car models, while GM initially was unaware of these activities. This incident brought huge tragedy to this “ideal couple”. Eventually, they divorced in 1992, with Daewoo buying out GM’s equity for $170 million.

3. In the second JV, have the partners improved their relational capabilities?

They sure did improve their relational capabilities after first divorce. In fact, the second marriage is more likely as a unilateral control of GM. Instead GM chooses to have another conversation, GM decided to take the lead of the second joint venture, by purchasing 67% of the stake. This second alliance make GM able to exports the cars that made in South Korea and Vietnam to over 140 countries. One of the most decisive moves is to phase out the Daewoo brand tarnished by quality problems and financial turbulence. Furthermore, GM was able make decision 100% for their profit. For instance, except South Korea and Vietnam, GM has labeled a vast majority of cars built by GM Daewoo as Chevrolet, a brand that GM usually pitches as more American than the Stars and Stripes. This decision could be very uncomfortable in the perspective of Daewoo Company, however, it makes more profit for GM, and that is why the decision was made.

4. How does this case inform the debate on alliances versus acquisitions?

The case of General Motors and Daewoo is very good instance to explain or describe the advantages and disadvantages of each alliances and acquisitions. This case is an example that shows when acquisition works the better than alliances. How high resource interdependence can create better value.

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