Background

Classical economic theory envisions a system where firms fiercely compete with each other for resources, marketshare and profits, and while doing so, guard their knowledge and processes closely from the prying eyes of their business rivals. However, with the advent of e-business, that scenario is surely and swiftly changing. Giant manufacturing companies around the world are continuing to compete with each other head to head, but at the same time they are partnering each other and working side by side to create new products, share ideas, and technologies, while sharing the costs.

Innovation Based Economy

This paradigm shift in the rules of the game, is because of the sharp emphasis on innovation for sheer survival. In this increasingly globalized world, manufacturers are compelled to seek partnerships among their competitors, so as to cut costs which would have been inconceivable even a decade ago. "Competitiors can share costs on projects that they individually could not afford and they can do this without hurting their competitive advantage", says Mike Arnold, President of Timken Corp.'s Industrial Group, which is collaborating with its rivals, such as bearing manufacturer SKF, to share logistics and e-business activities. Thus while on the one hand these firms are bitter business rivals in the market place, and would cheerfully steal each others customers or come up with a better technology or improved design, they have no hesitation in striking partnerships , where going it alone may not be the best approach.

Partnerships in The Automobile Industry

Nowhere are these collaborations more in evidence than in the automobile industry, which is being spurred by the need to cut costs. "New hybrid systems are especially costly to bring to market and require high development costs" says Eric Ridenour, Executive Vice President for product development at Chrysler, the automobile manufacturer. He says that the company's goal is to find efficiencies in such areas as engineering, working with suppliers to develop and purchase components and in purchasing manufacturing equipment.

Much the same views are echoed by James Champy, business transformation expert, best selling author and Chairman of consulting practice at Perot Systems. "With the tremendous cost pressures they face, companies simply can't afford to design and build all the components on their own. When you are designing a new engine, the only way to get efficiencies is to collaborate with your competitor", he says.

Factors Influencing Collaboration

Besides cost sharing, sometimes the sheer complexity of the product requires the participation of more than one manufacturer, as is often the case in the defence and aerospace industry. For instance, Northrop Grumann is collaborating with BAE North America to develop an integrated microwave assembly for a joint strike fighter.

The challenge of getting a new product to market quickly is another factor influencing collaboration. Both General Motors and Daimler-Chrysler were eyeing separately the fledgling but fast growing market for hybrid gas-electric automobiles. Both companies faced stiff competition from the market leaders Toyota and Honda and were anxious to bring a comprehensive hybrid technology to market well in time. What could be more natural than for them to collaborate through sharing of developmental costs and pooling of brain power.

Commonality of goals is not essential for a successful collaboration. A case in point is the twenty-year long collaboration between Toyota and General Motors in California USA. While GM wanted to learn the secrets of Japanese lean manufacturing methods, Toyota wanted a manufacturing beachhead to build cars in the US. Thus despite such a wide dissimilarity of goals, the collaboration has succeeded resoundingly and Toyota now operates 13 plants in North America with an annual production of 1.5 million vehicles.

While competitors may not always hope to get the same benefits from an alliance, some of the other factors favouring such collaborations are access to each others technological and design resources, and leveraging the engineering talents available in both the organizations. Similarly, joint component or assembly development projects often provide economies of scale when ordering parts from suppliers. Such collaborations create their own synergies for the mutual benefit of the collaborating organisations.

As globalization picks up around the world, the advantages of such alliances will be seen to far exceed the disadvantages if any, and they will become an increasingly common feature of the manufacturing scene.