#44 Transnational Takeover Alert: Volkswagen – Suzuki
Volkswagen just announced that it will acquire a 20 % stake in Suzuki of Japan. The move is expected mainly driven by VW’s intent to increase its presence in the Asian market for small trucks.
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Ragnar Jon Dennisson
April 23, 2010 @ 5:50 pm
The Volkswagen acquiring of 20% stakes in Suzuki has created the largest car alliance in the world by volume (Financial Times, 2009). An alliance can be used as an entry strategy for companies to new markets and it is a strategy that I consider is much related to Joint-Venture strategy, because it involves cooperation between two companies. There are empirical studies that show that cooperation’s can lower risk involved in going to foreign markets (Pan & Tse, 1996). It can also provide improved efficiency, access to know-how, barriers for others to enter (restriction in competition) and more.
In the case of Volkswagen and Suzuki, both will benefit from the alliance, mostly in terms of synergies. On one hand, Volkswagen will get access to India, one of the most promising auto markets in the world, where Suzuki already has a great market share through a subsidiary, and Volkswagen will also get access to expertise in building small cars. On the other hand Suzuki will get access to funds and environmental-friendly technology like hybrid-engines, where they have been lagging behind (Financial Times, 2009).
But why does Volkswagen seek alliance with Suzuki through acquiring of shares as an entry strategy? It is an official goal, a part of their strategy, to become the world’s leading automaker by 2018 (Volkswagen, 2010). To be able to purse this goal, it must be essential to enter the two most growing markets in the world, they are already big in China but see Suzuki as an easy entry strategy to the Indian market. Timing can also be a big issue, the first mover advantage, to gain greater share of the market (Mitchell, 1991). Penetrating the Indian market quickly might therefore be a logical explanation for Volkswagen.
According to Adam J. Kock, the process of market selection and market entry strategy should be the same process, and presumably that is what Volkswagen did (2001). Suzuki already fulfilled the first steps of systematic international market entry, i.e. it was both ready as a company and it had the right product, hence Volkswagen might have considered that it would be less expensive and easier to buy their way into the Indian market.
But there are some concerns for Volkswagen. First of all, there are signs that it could have been unsystematic international market entry, if the market was selected first, then the entry mode and then they are going to adapt the production to India (or vice-versa). Also, in that same context, Volkswagen will have to be sure that it will be able to adapt Suzuki’s value chain or otherwise it will not be able to exploit the synergies. We don’t have to look far to find an example of unsuccessful value-chain adoption, it is not too long ago that Daimler AG sold its stakes in Chrysler after years of loss and unsuccessful attempts of Chrysler integration to exploit the synergies.
There can also be other reasons for Volkswagen wanting to get into the Indian market, beside the fact that is a fast growing and large market. There are signs that there is an industrial cluster for car manufacturers emerging there, India is already in 9th place over world largest car production countries and we can also see Indian companies growing fast, like Tata which is in 19th place of world largest car manufacturers (OICA). Therefore Volkswagen might see it essential to be a big player in India if they want to be serious about their goals.
Undersigned is a master student in international business.
Ragnar Jon Dennisson
April 23, 2010 @ 5:57 pm
Financial Times. (2009, December 9). Volkswagen / Suzuki. Retrieved April 22, 2010, from FT.com Europe: http://www.ft.com/cms/s/3/eba504b4-e4a5-11de-96a2-00144feab49a.html
Koch, A. J. (2001). Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning , 19 (1), 65-75.
Mitchell, W. (1991). Dual Clocks: Entry Order Influences on Incumbent and Newcomer Market Share and Survival When Specialized Assets Retain Their Value. Strategic Management Journal , 12 (2), 85-100.
OICA. (n.d.). OICA. Retrieved April 22, 2010, from Production Statistics: http://oica.net/category/production-statistics/
Pan, Y., & Tse, D. K. (1996). Cooperative Strategies between Foreign Firms in an Overseas Country. Journal of International Business Studies , 27 (5), 929-946.
Volkswagen. (2010). Annual Report 2009.