Certain firms use strategic competitiveness in management to help them realize their organizational goals amidst competitions. Firms can attain these goals if they implement strategies that give them a strategic advantage over other firms and at the same time, allow them to amass wealth if implemented. Therefore, any strategic alliance must aim at creating value. The two companies should realize the advantages of a strategic alliance through a merger, global competitiveness and cost-saving approach.
In most cases, firms that implement strategic alliances for competition purposes believe that other forms will not be able to copy their model. Most strategic, competitive models are expensive to adopt. For example, the strategic alliance between General Motors (GM) and Peugeot is running into one billion Euros ($ 1.3 billion) (AFP, 2012). Companies with such financial advantages usually have a competitive advantage. This allows companies have a competitive edge among their peers. At the same time, companies gain success over some time. Therefore, the strategic alliance between GM and Peugeot should enable them to conduct business effectively and efficiently than the competition.
A merger is an important form of putting resources where firms need them and removing them from underperforming areas. Companies may decide to merge to save their operation. One reason for merging is to gain operating synergy. GM and Peugeot merger will give the two companies operating synergy. The firms will achieve synergy in terms of economies of scale. Advantages inefficiency usually come from enhanced managerial practices and other factors influencing production (Lorange and Roos, 1993). For example, GM and Peugeot will spread fixed costs and increase production levels to realize economies of scale. In this context, the two companies will define scale in terms of fixed costs using depreciation of equipment, normal maintenance spending, taxes, and lease payments, among others. These costs have fixed terms and no one can change them in the short run.
On the other hand, the two companies also have variable costs, which will change with the output levels. Thus, for any amount of fixed expenses, the value of fixed expenses in a unit of output and revenue decreases as output and sale increase. For example, about cost-saving, the two companies’ management teams believe that the alliance will bring tremendous opportunities by relying on the alliance synergy and at the same time, positioning GM for long-term profitability in European markets because the partnership has the growth potential.
This is a strategic realignment between GM and Peugeot to enhance their global competitiveness. The strategic realignment theory posits that companies use mergers in making sudden changes in their external operating environment. In this context, the focus is mainly on changes due to competition in a global business environment. Tough times have forced these two companies to merge to share vehicles platforms. In addition, GM and Peugeot aim at establishing a global purchasing joint venture to get goods and services from external suppliers.
At the same time, these companies are aiming at establishing a long-term and wide global business strategy through the alliance (Rigsbee, 2002). This will enable GM and Peugeot to leverage their combined forces and strengths in the global markets, particularly in Europe where competition is stiff. In addition, the strategic alliance will ensure that these two companies derive maximum profits from their European markets.
GM and Peugeot will also have cost-saving advantages due to the new financial synergy in them. This will result from the cost of capital GM will invest in acquiring stakes at Peugeot. Cost-saving through a joint purchasing venture of vehicle components, sourcing commodities goods and services, and vehicle modules will result in expenses reductions. In-vehicle manufacturing, GM and Peugeot can use both their plants in Europe or America in manufacturing their vehicles for the global markets. There is also sharing of the two companies resources, which provides a synergistic relationship between GM and Peugeot. This will also allow these two companies to concentrate on areas where they perform best. Cost-saving and global mergers have become the global trends in most related manufacturing companies (Lorange and Roos, 1993).
The strategic alliance between GM and Peugeot will give the two companies flexibility in distributing their vehicles across the global markets. This will enhance economical and efficient access and at the same time, gives substantial revenue growth because of partnership and collaboration processes. Strategic alliances between vehicle manufacturing companies are becoming trends of modern days as economic difficulties pose challenges in the global markets. For instance, it will be now possible to visit Pequot showrooms and find vehicles from GM. At the same time, the companies may also engage in joint branding to save costs and emphasize their global presence in the world markets. The strategic alliance is growing in the vehicle manufacturing industry among giant companies such as Toyota, Fiat, BMW, and Mitsubishi, among others.
Through the strategic alliance, both GM and Peugeot will save an estimated two billion dollars annually for the next five years. These two companies shall share cost savings evenly between themselves (AFP, 2012).
For companies to increase their revenues, they should be able to master and use the strength in strategic alliances by enhancing their competitive advantages. This method will enable Peugeot and GM to earn more than average in their investments and at the same time, save considerably from joint operations.
Strategic alliances are crucial for most management teams in organizations because of their companies’ financial performances. Management must be able to understand the implications of a strategic alliance and how it affects the firm’s operations. Both GM and Peugeot management teams seem to understand the inherent advantages each company will derive from this merger. The company management team should be able to understand the concepts of a strategic alliance to stay active in the merger. However, management teams that fail to understand such concepts risk losing their strength to the other party in the alliance. Therefore, it is advisable that before any merger, companies must understand the benefits and drawbacks of the alliance.
This will also give GM and Pequot opportunities to plan their strategic management approaches if they both understand the concepts of strategic alliance. This will enable them to meet their target in competitive markets like Europe and meet the needs of ever-changing global markets. Therefore, GM and Pequot have advantages of a strategic alliance to allow them to design their competitive structures, acquire resources, increase financial capabilities and improve their competencies.
However, experts warn that most automobile companies’ alliances have failed in the past decades due to emerging of different companies’ cultures. The automobile sector is the sector with the highest number of failed mergers. Therefore, GM and Peugeot must learn from the previous failures in the industry and avoid similar outcomes, and not wonder late whether the merger was the best option.
- AFP. (2012). GM to take 7% of French Peugeot in strategic alliance.
- Lorange, P. and Roos, J. (1993). Strategic Alliances: Formation, Implementation, and Evolution. New York: John Wiley.
- Rigsbee, E. R. (2002). Developing Strategic Alliances. Ontario: Crisp Learning.