Collaborating with Competitors
Currently its tough time for the auto industry, with markets shifting to east where demand is for small/ fuel efficient cars, and the ever increasing crude prices are forcing companies to invest heavily on hybrids / alternative fuel technology.
Companies are faced with the challenge to optimize cost to remain profitable and same time invest heavily in research and development. Auto majors have been sourcing globally or setting up plants in lower cost countries to reduce cost structures, but this alone would not be sufficient, they would have to look at 'scale' more seriously to bring down the cost structures.Companies have been using modular design techniques and standardizing components across models within their portfolio to achieve scales, what companies need to additionally look for is - how can they collaborate with competitors to standardize components and achieve scales ?.
Companies have come together and set up joint R&D teams to develop engine platforms that can be shared and have seen success. GM, Daimler and BMW have come together to develop hybrids and there are similar examples like Smart collaborating with Mitsubishi for engine development and more... What companies need to explore is options beyond the power train and look at all components - this needs a change in mindset and discussion between Daimler and BMW shows that mindset is changing.Companies need to analyze and make an assessment as to which components contribute to creating a differentiation (both Brand and Performance) - the rest can be standardized across their portfolio and even competitor’s portfolio, thus bringing down the cost structure.
Collaboration is the way to go and collaborating with competitors could be a WIN-WIN for all. This can be seen in other industries too for e.g. JVC and Kenwood.
Comments
I agree with the fact that companies will need to collaborate with competition. But this is nothing new and has been happening in many sectors for sometime eg: code sharing among airlines or ATM network sharing or using excess capacity for white label manufacturing. What this does apart from reducing the costs, is that it tends to expand the market and as a result the entire industry grows.
In my mind what will make the difference is not the product or the cost of the product - but the proposition to the customer.
Posted by: mishmash | May 22, 2008 11:33 AM
Yes, I agree with you that competitors have been collaborating for years, but the extent of collaboration varies from industry to industry or geo. The question to ask is - are companies collaborating because they are forced to or is it proactive. Let's take the ATM example - Banks are forced to collaborate because of regulations or pressure from consumers, if banks had planned this better they could have planned ATM placement and achieved greater reach with the same investment and also shared the cost.
I recently read about one of the large corporates in India contemplating entering ATM business as they can consolidate and offer shared services, this goes to prove that collaboration could have been better.
You have made a valid point that 'proposition to customer' is what makes the difference, and I strongly believe that this can be enhanced by competitors collaborating.
Posted by: Naveen | May 27, 2008 11:35 AM
Naveen,
You do have a point when you mention that competitors can collaborate on standardized items and show value through their own niche offerings. The Nummi plant in the US is one such plant where Toyota and GM came together. But I am not sure if they gained from that synergy. Automotive firms are Red ocean firms and operate within restricted boundaries. In the era of cut throat competition, it is becoming tough for them to show value to customer. The big 3 in the US are losing out due to structural and other global factors like soaring gas prices and will lose out further as their high margin vehicles are fuel guzzlers. Firms are using electronics as a key platform to show value to customers and that is part of the clock speed evolution. With engine, body and electronics as key modules in the vehicle, it becomes easier for firms to tweak their electronics to show differentiation.
Posted by: Venkataraghavan | June 17, 2008 06:25 AM