Introduction
In this paper, the author analyzes the case on the troubled alliance between Volkswagen and Suzuki, two of the biggest and most popular auto-makers in the respective regions that they cater. Suzuki is famous for their small, petite, and fuel efficient cars in Asia. Volkswagen, on the other hand, is famous for their powerful, elegant, and fuel efficient cars in Europe and the Americas. Because of the theory that was posed earlier suggesting that in the current industry environment, most automobile manufacturers are on a constant lookout for more ways to expand—the fastest way possible. From the start, Volkswagen and Suzuki wanted to access each other’s jewels. However, the situation now concerning the success of their newly formed partnership suggests that they were unable to foresee the impact of the huge differences between western and Japanese manufacturing cultures. The author of this paper argues that based on the case that was presented; it did not matter much whether the participating companies were the biggest and best in their respective regions or not but rather their respective ability to cooperate with another uniquely-cultured company.
Rationale for the Partnership between Volkswagen and Suzuki
Between the two, it is Volkswagen that has the bigger share of the worldwide market for automobiles. It holds various entry-level, midrange, and premium level automobile brands, making it the biggest automobile manufacturing group in the planet, being closely followed by the Asian automobile giant Toyota Corporation. Some of the automobile manufacturing companies and or brands that the group holds include Audi, Lamborghini, Bentley, Bugatti, Ducati, Scania, SEAT, Skoda, Volkswagen (including the commercial vehicle and passenger vehicle segments), among others.
Suzuki, in this case, was clearly the underdog. The Japanese manufacturer was more reliant on its smaller-displacement but more fuel efficient cars that catered well to the needs of majority of the customers in emerging markets. One of the hottest markets in the auto-making industry at the time of the partnership’s conception was India. India has been one of Suzuki Corporation’s biggest and most successful automobile market ventures and this is largely thanks to its acquisition of the formerly Indian government-owned Maruti Udyog Limited.
Maruti was an Indian car maker that was established in 1981. Some seventy five percent of its shares were owned by the Indian government. Because of this, the company’s products were quickly patronized by the Indian people to the point that Maruti was able to get a hold of some fifty percent of the entire market for automobile in India. Within the first decade of the 21st century, the Indian government sold its complete share of Maruti Udyog Ltd in an effort to privatize the industry.
The share was sold to various Indian financial institutions. Suzuki Corporation took advantage of the opportunity. It later on emerged as the biggest shareholder of Maruti Udyog Ltd, granting it control of its assets and operations. A new joint venture, which was the product of the two companies’ efforts to secure a bigger market share in the Indian and other regional and international automobile industry, was born. The said joint venture was named Maruti Suzuki India Limited.
It is worth noting that India is the second most populous country in the planet next to China. Unfortunately, per capita income and other economic indicators suggest that majority of the Indian customers were not yet ready to acquire the gas-guzzling and more expensive cars that the bigger European and American automobile companies such as the brands under the Volkswagen group were offering. Nonetheless, there was strength in numbers.
The huge size of the Indian car market meant that automakers could still make huge profit swings despite the thin profit margins each product unit offers. This meant that despite their products being cheaply priced—in order to accommodate the price sensitivity of Indian car buyers, car makers could still make money in the country by securing at least a decent share of the market. Suzuki’s products, mainly characterized by a small and light frame, body, and chassis design, high levels of fuel efficiency, and better drivability suited to the country’s tight driving conditions, were able to target the needs and expectations of Indian car buyers.
These were the qualities that most European and American car makers lacked. Most of the cars in their lineup were too big, expensive, and fuel inefficient relative to the typical Indian car buyer’s standards—so much so that setting foot in the highly competitive but conquerable Indian automobile market with such products would be considered financial suicide.
This was the realization that key people from the Volkswagen Group came up with. They did not want to miss out on the huge growth potential of the Indian automobile market. They saw great promise in it because they, together with other international car manufacturers like Ford and General Motors, likened its growth potential to China, which is where most of the action in the industry is happening, thanks to the sheer size of its market. In a bid to quickly and more efficiently achieve their goals for the Indian market, the alliance between VW and Suzuki was born. The idea was to liken it to the partnership between Renault and Nissan. Nissan is a Japanese manufacturer like Suzuki. Renault, on the other hand, was based in France. The success of the partnership between the two despite their cultural differences, among other unique qualities that could have served as a hindrance to the said partnership’s success, was largely based on clarity and the almost perfect development of mutual trust between each other.
In exchange of the potential benefits of the said partnership to Volkswagen, Suzuki wanted VW to share its automobile manufacturing technologies to them, particularly in their larger vehicle segments. Suzuki was also interested to learn more about VW’s hybrid and diesel technologies, which were the highlights of VW’s products during the alliance’s inception at the very least.
On paper, the partnership almost proved to be perfect, with both company being perfectly capable of addressing the biggest gaps in the other party’s manufacturing approach . The overall size of the individual parties involved did not matter much because they were both set to equally get what they want from the deal.
Reasons for the Break-up of the Volkswagen and Suzuki Partnership
Murphy’s Law suggests that anything that can go wrong will definitely go wrong. It turns out that this law can be perfectly applied to the joint venture between VW and Suzuki. Evidently, the alliance was a complete failure. From a broad perspective, the main reason for the breakup of VW and Suzuki’s partnership was the inability of both parties to keep their word and fulfill what they promised.
Just to be clear and specific, Volkswagen promised Suzuki that it would share to Suzuki certain aspects of its car manufacturing technology, especially those that are related to hybrid, diesel, bigger displacement and bigger frame cars in the upper end of car segments—qualities which Suzuki Corporation’s cars clearly lacked. In theory, it is the lack of the company’s access to such technologies that hinders them from waging an at least decent campaign in the American and European automobile markets.
Suzuki, on the other hand, promised that it would provide VW a safe level of access to its small car and small engine displacement technologies, qualities which proved to be highly effective in attracting Indian car buyers. Needless to say, both companies wanted to get something out of the deal and it turns out that what each of the parties involved expected to get were the best-selling qualities or the main edge of their partners—qualities or rather technologies that enable them to thrive and survive in their respective markets.
The same principle can be true when applied to the idea of Suzuki sharing its small car and small engine displacement manufacturing technologies to Volkswagen. Although it was not directly stated in their press releases and other statements, this rational theory-based assumption on why the alliance between the two carmakers collapsed was definitely one of the main culprits. This also meant that Suzuki and Volkswagen were both unwilling to expose their skin in the deal—meaning, they were not willing to take the risk of empowering a future competitor in the market just to make sure a newly established joint venture becomes successful.
The Role that Culture Plays in Trans-border and Trans-continental Alliances
Apart from the rational theory-based assumption that was explained in an earlier section of this paper, there are evidences that suggest that cultural differences between the two carmakers also played a key role in the alliance’s collapse. According to a statement quipped by an analyst who reviewed VW and Suzuki’s case named Christian Aust (2011), “clearly there are cultural differences between European or U.S.-based carmakers and Japanese manufacturers and, with the exception of Renault and Nissan, alliances between Western and Japanese carmakers have often ended without tangible results”.
The partnership agreement required that both parties treat each other as equals . However, some reports suggest that Volkswagen wanted to get a better share of the deal being the more dominant and more well-positioned player than Suzuki (from an international perspective that is). Suzuki, on the other hand, was willing to treat VW as an equal, which only made sense because doing so would still be advantageous to them because Suzuki was the underdog.
It was VW who wanted to get more than what they were promised to get from the deal. This is something that is not uncommonly observed among European business managers. They tend to see themselves as superior to other cultures. To their counterparts from other culture such as the Japanese and Americans, for example, this can be an irreconcilable form of hindrance to any successful business dealing. This is called Euro centrism and it is often described as the tendency for European businessmen to think that they are superior (culturally at least) and should therefore be treated as such even if it means harming the possibility of creating and establishing meaningful social and business relationships with other people or companies as depicted in this case .
Cultural Differences as the Reason of the Breakup
There are direct evidences suggesting that cultural differences were indeed among the reasons that led to the breakup of the partnership between Volkswagen and Suzuki. According to a statement released by Volkswagen’s then Chief Executive Officer Martin Winterkorn about the partnership with Suzuki as published in the magazine Automotive World, “working with a Japanese partner is not easy; in the west sometimes, we make decisions more quickly; in the Japanese culture, sometimes things are a little different; however, we are making progress, we are in the phase with our colleagues from Suzuki where we are building mutual trust” . Therefore, it would be safe to suggest that cultural differences were indeed a major contributor to the partnership’s collapse.
In another report authored by Bryant and Reed (2011) highlighting the slippery patch between VW and Suzuki caused by their cultural indifferences, it was shown how VW referred to Suzuki as an associate in its financial report—“defined as a company over which VW is directly or indirectly able to significantly influence financial and operating policy decisions” . This enraged Suzuki’s executives because the agreement was to treat each other as equals and business partners; they were clearly not expecting to be treated as an associated in the architecture setting.
Alternative Solutions
The best alternative solution for both companies would have been the release of a new document—which would most likely be a result of an emergency meeting intended to salvage the partnership deal, that re-clarifies the boundaries, scopes, limitations, and expectations of both parties in the said agreement. In a trans-border partnership involving two cultures, making adjustments is crucial .
With this proposed alternative solution, all confusing areas would be settled and most, if not all, indifferences would be recognized and most likely addressed. Unfortunately, this did not happen as both companies decided to eventually scrap the deal.
Another alternative solution would have involved Suzuki’s termination of its deal with VW competitor Fiat. During the talks, VW expressed its interests that it wanted to see Suzuki end its partnership with Fiat because that would create a major conflict of interest for them—Fiat is a major competitor of VW in the European automobile market. Suzuki did not fulfill this request and this added to the factors that strained its relationship with VW.
Challenges in Store for Both Companies
The auto making industry is one of the most financially lucrative businesses. Millions of cars are being sold worldwide per year and other sales-related numbers only keep on getting bigger. This means that the demand side is keeping up with whatever the supply side has to offer.
In an industry where each product unit can cost by more or less twenty thousand dollars, companies are always on the lookout for bigger and faster sales. This suggests that companies would tend to be in a constant mode of production capacity expansion until such time that their production capacities already match the unsatisfied levels of demand or when the market for automobiles worldwide becomes saturated enough that it would already be risky and unprofitable for automobile manufacturers to expand—leading to a generalized downsizing for such companies. Even with this, culture remains an important factor in ensuring that future trans-border business dealings become successful .
Considering these data and information, the main challenge in shore for both companies would be how they are going to be able to promote healthy business relationships with other car manufacturers if their history shows that they are unwilling or at least unsuccessful when it comes to making cultural reconciliations and other adjustments needed to successfully build mutual trust and respect with their peers.
References
Aust, C. (2012). After the Breakup: The Troubled Alliance Between Volkswagen and Suzuki. IBS Center for Management Research, 01.
Barkema, H., & Vermeulen, F. (1997). What differences in the cultural backgrounds of partners are detrimental for international joint ventures. Journal of International Business Studies, 845-864.
Bryant, C., & Reed, J. (2011). VW tie-up with Suzuki hits Slippery Patch. Financial Times.
Fuhrmans, V. (2011). VW - Suzuki Partnership Nears Collapse. The Wall Street Journal.
Scholtens, B., & Dam, L. (2007). Cultural Values and International Differences in Business Ethics. Journal of Business Ethics, 273-284.
Shohat, E., & Stam, R. (2014). Unthinking Eurocentrism: Multiculturalism and the Media. Routledge.
Singh, K., & Havely, J. (2015). The VW-Suzuki Breakup: Beware the Perfect Partner. Think Business .
Winterkorn, M. (2011). Volkswagen and Suzuki: Irreconcilable Differences. Automotive World.
